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Navigating the new terrain: How private mortgages can empower new-to-Canada borrowers

Canada has announced its plans to welcome nearly 1.5 million new immigrants between 2024 and 2026. Specifically, the federal government has set a target of welcoming 485,000 new permanent residents this year, and an additional 500,000 immigrants in both 2025 and 2026. With these targets, there will be an influx of new Canadians looking to find a house that they can call home over the next few years. On top of the emotional experience of settling in a new country, like being away from familiar faces and places and possibly learning new cultures or languages, individuals and families also face the added stress of finding suitable housing. 

To best serve these potential home buyers, it’s important to understand the unique challenges that they face and to be aware of the mortgage options available to them.  Newcomers often lack the same financial history as other borrowers, making it necessary to consider several nuances when sourcing financing for them. Building your knowledge of different lender types and financing solutions will help you serve this growing borrower demographic, enabling you to grow your business by establishing yourself as an expert in a niche market. 

Non-bank lenders can address the needs of  newcomers that banks and other traditional lenders can’t accommodate. Private mortgage lenders, in particular, provide flexible financing options requiring  less documentation and financial history, which could be valuable to  borrowers new to Canada. In this blog, we’ll discuss the key challenges and opportunities involved in assisting new-to-Canada clients as they navigate. mortgage options for their first home

Understanding the challenges

There are several barriers that newcomers to Canada could face when buying their first home. Firstly, some potential buyers may be considered non-Canadians under certain rules and could be affected by federal and provincial laws that make it harder and more expensive for foreign buyers to purchase real estate. For example, the federal foreign buyer ban, which was implemented in 2023, prevents individuals (and businesses) who are not Canadian citizens or permanent residents, from buying homes or vacant residential land in cities or towns with a population of at least 10,000 people. Although the ban is set to expire in 2025, the federal government has announced plans to extend the ban to January 2027. In British Columbia, certain foreign owners of residential property in specific municipalities are subject to an additional 2% tax under the province’s speculation and vacancy tax. The city of Toronto recently approved a 10% non-resident tax on residential properties, effective January 2025. 

Outside of these rules, it may also prove difficult for newcomers to Canada to finance the purchase of a home because they don’t have an established credit history. In addition, newcomers also have to walk the line between finding affordable housing and living in urban cities where employment opportunities are greater. Although the Greater Toronto and Greater Vancouver areas are likely to be the most sought-after locations, the prices of homes in these areas, already among the highest in the country, are likely to keep increasing, and the market is much more competitive. 

While banks are the most common lenders and generally offer the lowest available borrowing rates, they also have the strictest eligibility guidelines. Typically, banks require borrowers to have good credit, pass regulated stress tests, and demonstrate consistent income and manageable debt ratios. As a result, it’s much more challenging for newcomers with limited Canadian work experience and financial history to meet these requirements. Many banks have a “new to Canada” program; however, the guidelines are still stringent, especially when it comes to source of funds. If new Canadians home buyers plan on using money from their parents or family in their home country to help with the down payments, banks and traditional lenders may not approve the loan. In addition, banks generally have rules or timelines for how long a borrower can qualify for their “new to Canada” program. 

Finding the right path forward

Moving to a new country can be overwhelming, especially when it comes to buying a home.  It’s important to ensure your client fully understands the process and  what they can afford. Alongside explaining the homebuying process in detail, it’s crucial to address additional expenses such as closing fees, property taxes, and home maintenance costs. Encourage clients to work with you to secure a mortgage pre-approval, which provides a clear budget for their home search.  This approach helps alleviate stress and ensures a smoother home buying journey.

Many home buyers that don’t fit within the criteria  set by banks and traditional lenders are turning to private lenders as an alternative. Private lenders like CMI specialize in assisting borrowers that don’t qualify under traditional guidelines, offering significantly more flexibility in the approval process and the ability to provide customized solutions.t. For newcomers to Canada, this can mean accessing financing financing with less stringent documentation and credit history requirements, provided  they can demonstrate their ability to repay the loan. A private mortgage can also be designed with flexible repayment terms, such as interest-only or prepaid options, which can be beneficial to borrowers with income from foreign sources. 

Also, private lenders typically offer more flexibility around gifted down payments compared to traditional lenders. Although they still adhere to anti-money laundering regulations, private lenders are more willing to consider deals where down payment funds are provided by family or friends from another country. Private lenders like CMI look at every deal on its own merit, providing more flexibility to devise creative financing solutions that accommodate  newcomers to Canada.   

A private mortgage can be a beneficial tool for new Canadians looking to purchase a home, providing them with the opportunity to build their financial history, employment record, and credit score over time. While it’s essential to have a realistic exit strategy in place, this short-term solution can help these families in achieving their long-term goals in a new country. 

Reach  out to CMI today to learn more and see why we’re the preferred private lending partner of brokers across Canada. 

Stay tuned to the CMI Weekly Market Monitor for industry news and updates. Find it on the News page of our website, and while you’re there, subscribe to receive it directly via email each week.

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