CMHC Newcomers

What it is, and what it is not

It is insurance that protects the lender if the borrower defaults. It is not a grant, not a subsidy, and not free money. The borrower pays the premium, and in most cases it is added to the mortgage balance rather than paid up front.

What it buys a newcomer is access. Without mortgage loan insurance, a buyer with a small down payment cannot get a mortgage from a regular lender at all. With it, a lender can approve a buyer whose Canadian file is thin, because the insurer has already said the file can be assessed a different way.

There is no minimum period of residency. Arriving recently does not disqualify you on its own.

A thin credit file is not bad credit

A Canadian credit score is generated from a Canadian credit file. A credit bureau starts that file the first time a Canadian lender reports on you. If you arrived eight months ago, you may have no score at all, or a very short one. That is a thin file. It is a blank page.

Bad credit is a different thing entirely. It is a file with a record of missed payments, collections, or a consumer proposal in it. It is a page with damaging things written on it.

Lenders read those two situations differently, and so does the insurer. A blank page can be filled in with other evidence. A damaged page cannot be argued away. If someone tells you that having no Canadian credit means you have bad credit, they are wrong, and the alternative evidence rules below are the proof.

Your credit history from India, or anywhere else, does not transfer to a Canadian bureau automatically. It can still be used, but only as a document you supply, not as a score a lender looks up.

How a lender assesses you when there is no Canadian score

The insurer requires that at least one borrower or guarantor meets a minimum credit score. Where Canadian credit history is limited, it will consider other evidence instead.

That evidence generally takes one of three forms.

• An international credit report from a bureau in your country of origin.
• A letter of reference from the financial institution you banked with there.
• Other alternative methods of establishing creditworthiness, agreed with the lender.

What else a lender is looking at

Credit is only one of four things. The other three carry just as much weight, and for a newcomer they often carry more.

Income and its stability. A lender wants to see that the income will continue. Probation periods, contract work and commission income all get looked at harder than a permanent salaried role. Bring letters of employment, recent pay stubs, and tax slips for any Canadian years you have.

Down payment and where it came from. Every dollar has to be traced. This is a separate and frequently underestimated hurdle when the money is being sent from overseas.

Debt service ratios. The insurer sets maximum percentages of gross household income that can go to housing costs, and to all debt combined. Those two ratios, not the credit score, are usually what actually caps the purchase price.

Permanent resident versus non-permanent resident

The program covers both, but the rules are not identical and the difference is worth knowing before you set a budget.

Permanent residents have access to the full range of homeowner mortgage loan insurance products, and the minimum down payment starts at the standard insured minimum.

Non-permanent residents must be legally authorized to work in Canada, typically with a work permit. The minimum down payment is higher. The property must be a small residential building and at least one unit has to be lived in by the owner. Some flexibilities available to permanent residents, such as borrowing the down payment from a non-traditional source, are not available.

One more condition applies to non-permanent residents and it is not a mortgage rule at all: the purchase must not be prohibited under the federal foreign buyer ban. Insurance approval does not override that legislation, and a lender will not close around it.

• Permanent residents: full product range, standard insured minimum down payment.
• Non-permanent residents: work authorization required, higher minimum down payment, owner-occupied, small residential building.
• Non-permanent residents cannot use non-traditional down payment sources.
• The foreign buyer ban applies independently. Clearing it is a separate step.

What to start building the month you land

Everything below takes time and nothing below costs much. Started early, they turn a thin file into a real one before you are ready to buy.

The one thing you cannot rush is age of credit. A card opened today will be more useful in two years than a perfect payment record made in one month, which is exactly why the order of operations matters more than the effort.

• Get your Social Insurance Number and open a chequing account in your own name.
• Open a credit card. A secured card, where you leave a deposit that becomes your limit, is the standard route when nobody will give you an unsecured one yet.
• Put one recurring bill, such as a phone plan, in your own name and pay it by automatic payment.
• Pay every balance in full and on time. Payment history is the largest single component of a Canadian score.
• Keep your usage well below your limit. Running a card near its maximum hurts even when you pay it off.
• Do not apply to many lenders in a short window. Each application leaves a mark.
• Keep your first card open even after you get a better one. Closing it shortens your credit history.
• Pull your own credit report and check it. You are entitled to see it, and errors on a short file do disproportionate damage.

What trips newcomers up

These are the recurring ones, and every one of them is avoidable with a few months of notice.

• Assuming a good credit score from India will follow you here. It will not. It can be submitted as a document, but it is not looked up.
• Assuming a long record of paying rent and remittances counts. Unless it was reported to a Canadian bureau, it usually does not.
• Closing the first credit card once a better one arrives, and shortening the credit history in the process.
• Shopping five lenders directly instead of using one broker who pulls credit once.
• Leaving a work permit renewal until the last moment while a firm closing date is approaching.
• Budgeting from the maximum price a calculator shows, rather than from the debt service ratios a lender will actually apply.
• Treating the mortgage insurance premium as optional. Below the uninsured threshold it is not.

A note on advice

This page explains how the mechanism works. It is not mortgage advice, and no page can tell you what you qualify for.

Product terms, minimum down payments, ratio caps and premium rates are set by the insurer and the lender, and they change. Get your numbers from a licensed mortgage professional, in writing, against your own file.