Can Temporary Residents Get a Mortgage in Canada? Explained

Can Temporary Residents Get a Mortgage in Canada?

Temporary residents in Canada on valid work permits can, in some cases, become eligible for mortgages to purchase property. However, securing financing as a temporary resident is significantly more challenging compared to permanent residents and citizens. Meeting the stringent requirements needs thorough planning and preparation.

Also See:

Mortgage Eligibility for New Immigrants in Canada: Residency Requirements and Financial Considerations

How Long Must You Reside in Canada to Qualify for a Mortgage?

Can Students Get Mortgages in Canada? Explained

Exploring New Rules for Buying a House in Canada: What You Need to Know

Can International Students Get Home Loans in Canada? Explained

Overview of Mortgages in Canada

Let’s first briefly understand how mortgages work in the Canadian real estate market:

• A mortgage is essentially a loan taken to finance the purchase of real estate, usually a residential property.
• The property itself serves as collateral on the loan. If the borrower defaults, the lender can seize and sell the property to recover the loan amount.
• Mortgages are offered by banks, credit unions, trust companies and private lenders. Interest rates and terms depend on market conditions.
• The most common type is a conventional mortgage insured by the Canada Mortgage and Housing Corporation (CMHC).

To qualify for a CMHC-backed mortgage, key criteria evaluated by lenders include:

• Gross annual income and debt ratios
• Credit score
• Downpayment amount
• Employment history and stability

Now let’s understand if and how temporary residents can become eligible.

Can Temporary Residents Get Mortgages in Canada?

Yes, temporary residents in Canada on a valid work permit can get approved for a mortgage in some cases. However, eligibility requirements are far more stringent compared to permanent residents and citizens.

The key criteria include:

1. Valid Work Permit

• Must have a valid work permit with 12+ months remaining.
• Demonstrable employment stability with the same employer is mandatory.
• Some lenders require proof of intent to apply for permanent residency.

2. Significant Down Payment

• Need minimum 35% down payment, compared to 5% for permanent residents.
• Down payment may go up to 50% or more depending on your profile.

3. Strong Income and Credit Profile

• Lenders will scrutinize your income, assets and credit history more thoroughly.
• Having a Canadian credit history is preferred, otherwise offshore credit records considered.

As you can see, the bar is set much higher compared to permanent residents. But meeting these stringent requirements can make approval possible.

Challenges in Getting Mortgage Approval

There are some key challenges temporary residents face in qualifying for a mortgage:

1. Higher Down Payment Expectations

While permanent residents need just 5-20% down payment on average, lenders typically want temporary residents to make at least 35-50% down. Reasons include:

• Lack of permanent ties to Canada
• Higher flight risk
• Shorter timeframe to build borrower profile locally

Coming up with a 35%+ down payment demand significantly more savings. But it provides the lender added protection.

2. Stricter Income and Credit Checks

Lenders will scrutinize income, assets and credit history much more thoroughly to gauge your ability and intent to repay the mortgage. This includes:

• Requesting letters of employment confirmation
• Pulled credit reports reviewed in detail
• Asking for offshore bank statements
• Details on savings accounts and deposits
• Tax returns and income documents analyzed

You must demonstrate financial discipline and repayment capacity. Limited or poor records make approval very unlikely.

3. Fewer Lending Options Available

Very few mainstream lenders in Canada provide mortgages to temporary residents. Most focus on permanent residents and citizens who offer lower risk. So your options are limited compared to other borrowers.

Alternative private lenders may provide financing but charge higher interest rates due to the increased risk. You’ll need to search more extensively for suitable providers.

Mortgage Programs for Temporary Foreign Workers

Though limited, some lenders do offer specialized mortgage programs tailored for temporary residents:

Scotiabank StartRight® Mortgage Program

Scotiabank offers the StartRight® Mortgage Program designed specifically for temporary foreign workers in Canada. Some key features include:

• Up to 4-year mortgage terms aligned with typical work permit validity
• Allows family members to be party to the mortgage
• Minimum 35% downpayment required

It provides a regulated option for foreign employees in Canada to finance home purchases without permanent resident status.

Alternative and Private Lenders

Besides mainstream banks, various private lenders and alternative financiers may also fund mortgages for temporary residents. These include:

• Mortgage investment corporations
• Private mortgage groups
• Credit unions
• Peer-to-peer lending marketplaces

However, their rates may be higher and terms less flexible compared to traditional lenders. Thorough due diligence is required.

Considerations for Temporary Residents

If exploring mortgages as a temporary resident, some key considerations include:

Weighing Need vs. Costs

• Consider whether home ownership is essential during your temporary stay, or if renting may be more practical and affordable.
• Mortgages require large down payments and closing costs, which may eliminate your savings quickly.
• Higher interest rates from private lenders further increase costs.

Accounting for Change in Status

• If your status changes to permanent residency later, your eligibility profile would improve. But no outcome can be guaranteed.
• Have a plan for selling the property or transferring the mortgage to other names if you must leave Canada.

Impact on Temporary Resident Status

• Taking on large financial obligations like a mortgage could impact your temporary resident status and renewals.
• Contact immigration experts to ensure it doesn’t jeopardize your work permit validity.

Changes to Immigration Regulations

• Ensure you remain compliant with laws like the Prohibition on Non-Canadian Buyers, which restrict foreign buyers.
• Consult immigration and real estate attorneys to avoid violations.

While possible in some cases, the decision to pursue a mortgage as a temporary resident should be made with careful consideration of these factors.

Working With Mortgage Professionals

If considering a mortgage as a temporary resident, seeking guidance from professionals is highly advisable:

• Mortgage brokers with expertise in temporary resident financing can present you with suitable options after reviewing your profile.
• Bank specialists can provide insights on their temporary resident programs, if available. Ask about criteria and documentation needed.
• Real estate attorneys can offer legal assistance with property laws and mortgage contracts to protect your interests.
• Immigration consultants should be engaged to ensure a mortgage does not impact your work permit or status.
• Financial planners can also analyze your overall financial picture to see if home ownership is viable.

The right specialist can help navigate the complex process and requirements to give you the best chance of securing approval as a temporary resident.

FAQs on Mortgages for Temporary Foreign Workers

Can all temporary residents get mortgages, or only certain categories like workers?

Most lenders only offer mortgages to temporary workers and students able to demonstrate stable employment and income. Other temporary resident categories may find it much more difficult.

How long does my work permit have to be valid for to qualify for a mortgage?

Typically permits with 12 months of more validity may qualify, as it shows ongoing employment. Some lenders require at least 24 months remaining. The longer the permit validity, the better.

If I start the mortgage as a temporary resident, can I switch to permanent resident terms later?

Yes, if you obtain permanent residency after starting a mortgage as a temporary resident, you can usually port the mortgage to a permanent resident version with easier terms.

Can I buy an investment property or vacation home on a mortgage as a temporary resident?

While not impossible, it would be extremely difficult as lenders view it as higher risk with less justification compared to a primary residence. Vacation properties generally require 20-50% down payments even for permanent residents.

What happens to my mortgage if my work permit is not renewed or I must leave Canada?

You would need to either sell the property or transfer the mortgage to someone else allowed to stay in Canada. Having an exit plan in place is crucial before undertaking a mortgage as a temporary resident. Consult legal counsel for advice.

Conclusion

Temporary workers in Canada can access mortgages in some cases, but face much more stringent eligibility requirements compared to permanent residents. Key criteria include having valid work permits, strong income and credit profile, and down payments usually over 35%. While challenging, it remains possible in certain situations by choosing alternative lenders and preparing a solid application. Competent legal and financial advice is highly recommended throughout the process. One should carefully assess the need and risks before pursuing home financing as a temporary resident.

References

1. StartRight® Mortgage Program for Temporary Foreign Workers. Scotiabank Canada. https://www.scotiabank.com/ca/en/personal/mortgages/mortgage-options/temporary-foreign-workers.html
2. Getting a Mortgage in Canada as a Temporary Resident. RateHub. https://www.ratehub.ca/mortgages/can-temporary-foreign-workers-get-a-mortgage-in-canada
3. Home Loans for Non-Residents and Foreigners Buying Canadian Real Estate. 5i Home Loan. https://5ihomeloan.ca/foreign-and-non-resident-home-financing/
4. Steps to Getting a Mortgage in Canada as a Foreign Worker. Steven Liang Group. https://www.stevenliang.com/resources/getting-a-mortgage-in-canada-as-a-foreign-worker
5. Buying Property as a Temporary Resident of Canada. Zoocasa. https://www.zoocasa.com/blog/buying-property-as-a-temporary-resident-of-canada/
6. Prohibition on Purchase of Residential Property by Non-Canadians Act. Government of Canada. https://www.placanadabuy.ca