At some point, everyone strives to buy a home. This is why it is vital to get approved for your first mortgage as a newcomer in Canada. Well, people come to Canada to have stability & comfort in their present-day lives as well as in the future. 

Buying a home is a significant part of that journey. However, there are numerous things that newcomers must understand before they can apply for their first mortgage in Canada. 

Below is how you can get approved for your first mortgage as a newcomer in Canada. We have mentioned the five most integral questions related to this. So, let us begin!

What Is A Mortgage? 

A mortgage is a loan agreement provided by the lender, used by the recipient to buy a home, piece of land, or some other form of real estate. Moreover, mortgages offer the lender the right to repossess the loan if the recipient fails to repay the borrowed money with interest. 

What Is A Mortgage Pre-Approval & How Does It Work?

A mortgage pre-approval, also known as the mortgage pre-authorization/ pre-qualification, is an assessment of the potential homebuyer’s borrowing capacity as well as the interest rate the lender will charge. Mortgage pre-approvals help Canadians understand their potential borrowing capacity & interest rate affordability. 

Note: Final approval for a pre-approved mortgage typically depends on the mortgage seeker obtaining a complete assessment of their financial situation by the lender, who must feel confident that they can afford & pay back their mortgage. 

During the process, a potential lender goes through their own steps as well as criteria to: 

  • Determine the maximum/ highest amount of mortgage a recipient could qualify for 
  • Estimate the individual’s mortgage payments
  • Secure an interest rate for a specific period, typically ranging from 60 to 130 days, depending upon the lender

Completing a mortgage pre-approval requires that the potential recipient offers the money lender with their personal information & specific documents for assessment. Mortgage pre-approvals also involve a credit check, which is used to establish a buyer’s trustworthiness for loan repayment. 

Note: Getting a mortgage pre-approval doesn’t guarantee your final approval for a mortgage.   

What Questions Should I Ask During The Pre-Approval Process? 

In order to get approved for your first mortgage as a newcomer in Canada, you need to ask certain questions during the pre-approval process.   

So, when obtaining a mortgage pre-approval, it is integral to ask as many questions as possible so that you can be free of any uncertainty, specifically before any documentation is signed. 

Moreover, it is your responsibility to ensure that you have clarity & confirmation about anything which is confusing. This will ensure that you, as well as a potential lender, establish a standard of clear communication. 

Below are some of the questions that you might want to ask a lender. 

  • How long is the pre-approved rate guaranteed? 
  • Will I automatically obtain the lowest rate if the interest rate decreases during the pre-approval period?  
  • Is it possible to extend/ expand the pre-approval if needed? 
  • How much down payment will I need? 
  • How much do I need to be prepared to pay in total closing costs for this transaction? 

A quick internet search can offer you a better idea of more questions you might wish to ask a potential lender during the pre-approval process. 

What Documents Do I Have To Provide When Applying For A Mortgage Pre-Approval? 

At the mortgage pre-approval stage, potential lenders will be required to review a loan seeker’s assets. 

Accordingly, the loan seeker will need to provide the following documentation to a lender: 

  • Identification 
  • Proof of employment 
  • Proof of ability to cover the down payment of the mortgage
  • Information regarding other assets you possess, like a car 
  • Details about your debt/ other financial obligations 

Note: Self-employed prospective homebuyers seeking a mortgage pre-approval must submit their Notice of Assessment from the Canada Revenue Agency over the past few years. 

Your debts/ financial obligations encompass monthly payments related to things like: 

  • Car loans
  • Credit card balances
  • Student loans
  • child/ spousal support
  • Lines of credit 

How Is The Amount Of Mortgage You Get Approved For Calculated?     

The calculation of an individual’s mortgage approval amount is partly based on the assessment of the loan seeker’s income, debt, & monthly housing costs. Through this assessment, lenders use two general ratios, i.e., Gross Debt Service ratio & Total Debt Service ratio, to calculate how much a loan seeker will be approved for. 

  • Gross Debt Service 

The Canada Mortgage & Housing Corporation mandates that one’s monthly housing costs cannot be more than 32% of their gross household income in a given month. Your GDS ratio is nothing but your monthly housing costs as a percentage of your gross monthly income. 

Note: For condominium mortgage seekers, monthly housing costs also include 50% of monthly condo fees. 

  • Total Debt Service 

The CMHC also mandates that one’s total monthly debt plus housing costs cannot exceed 40% of their gross monthly income. Your TDS is your total debt as a percentage of your gross household income. These two ratios significantly determine how much mortgage a loan seeker can qualify for. 

Six Key Mortgage-Related Terms For Canadian Newcomers 

In order to get approved for your first mortgage as a newcomer in Canada, here are the mortgage-related terms you need to know. 

  • Mortgage Loan Insurance 

Mortgage loan insurance is the money paid to a lender; either up-front or monthly, if added to one’s mortgage – to protect them in the case that a mortgage recipient is unable to make their monthly payments in accordance with the mortgage agreement. 

  • Premium 

Premium is the cost of mortgage loan insurance, calculated as a percentage of your mortgage based on the amount of your down payment. 

  • Down Payment 

It includes the amount of money a mortgage recipient puts towards the purchase of their home. This amount is further deducted from the house’s purchase price.   

  • Term 

Term is the length or number of years a mortgage contract will last. 

  • Amortization 

It includes how long it will take to pay off your mortgage in full. 

  • Closing Costs 

It includes the name given to the group of fees as well as the cost that a mortgage recipient will be required to pay once they secure a mortgage. 

Closing costs include things like: 

  • Legal fees
  • Insurance
  • Appraisal fees