How to Buy a House with No Canadian Credit Score

 In today’s current economic and global climate, there are several topics and issues that people are concerned about when it comes to immigration. But what we have found is that there are many people who are planners, looking to hit the ground ahead of everyone else. They are taking the time to research and collect information before even coming to Canada.

One of the questions that comes up a lot is regarding buying a house once you arrive in Canada. How would this be done, as most people know, you need a credit score to buy a home. More specifically, you need a Canadian credit score to buy a home in Canada.

There are many challenges that new immigrants face when they arrive in Canada, including making decisions about where you will live. When settling in Canada, a home is one of the most important decisions you will make and will set the stage, not only for your success, but also your happiness on many different levels.

Some of the questions that you should be asking yourself (and your partner/spouse/family) are: 

• Where will you live in Canada?
• Will I live in an urban center or rural area? Will this area have transportation, or do I need to consider this?
• Do you need to be close to your work and what will my commute look like?
• Will you buy or rent? If I will buy, when should I buy and what should I know
• Do I need to be close to an airport or transportation to travel?
• What does the cell/internet connectivity look like (yes there are remote areas of Canada) &
• This last question can be difficult for a lot of people to decide on and how to go about.

I know that there are a lot of questions, but these are valid inquiries that you really need to consider and plan accordingly.

For now, we will put these aside and focus on the topic of buying a home and preparing for this with respect to having established credit in Canada.

So, what happens if you want to buy a home in Canada but can’t provide a Canadian credit score? We will address this concern and many other common questions, including your credit history from your home country, how to build Canadian credit, and how your credit score affects your dream of buying a home in Canada.

Your credit history from another country

As a rule, when immigrating to Canada, your overseas credit score does not come with you. To Canada and their credit bureaus, you, as a new resident simply have no credit. The Government of Canada recognizes two main credit bureaus that operate in Canada: Equifax and TransUnion. These companies collect, store, and share information about your credit score and history. Equifax and TransUnion operate in over 24 countries and this is important to note if you are looking to have your overseas credit history assessed.

If you are considering having your overseas credit history assessed by a Canadian credit bureau, you must be from a country where these credit bureaus operate and have two years of credit history to show. If you are seeking a mortgage for your Canadian home, most mortgage lenders will consider this credit history instead of your Canadian credit history. So, it is not impossible for newly arrived immigrants to purchase a home in Canada, it just takes a few extra steps!

If you’re from a country that is not listed with an acceptable credit score by Equifax or TransUnion, do not worry, there are other options you should consider. The following section will feature alternative sources of your payment history; mortgage default insurance; and 35% down payments.

Mortgage lenders may still consider your application if you can prove you make all payments on time. You will have to provide them with documents to prove so. Lenders will assess these documents, just like a typical credit score check, to see if you regularly pay your bills and will not be a risk to their company. So, what kind of documents do mortgage lenders look at? These documents are usually your rental payment history and other sources, such as bill statements for hydro, telephone, auto insurance, cable, etc. It is usually required that all bank statements and billing statements are for at least the past 12 months.

Next is mortgage default insurance. If you cannot provide a credit history from an accepted country or cannot provide any of the documents stated above, a lender could still offer you a mortgage for your new home. Although this can come with a risk to the lender, they can prevent this risk by requiring you to pay mortgage default insurance. This insurance will prevent the risk of default payments. Mortgage lenders will also typically ask for a higher down-payment depending on several factors. This down-payment can be 20% or higher.

Along with higher risk mortgages there are private lenders of what are called B Mortgage lenders. It is highly advised that you stay clear of these lenders as they will have a higher rate that is in place. They are expecting and trying to cover themselves from people who default on mortgages, as they are dealing with higher risk individuals. You should be fully aware that dealing with these organizations is high risk and their terms are very unforgiving.

Lastly, is a 35% down payment on your home. Although this is a large amount of money, if you are a newcomer to Canada and have the money, this could be your most successful option. If you decide on this path, you are also required to show the lender you can afford the monthly mortgage payments for at least one year. This proves to the mortgage provider that you have enough funds to pay your mortgage and you have enough money invested into the house that the bank sees their risk mitigated should you default.

Gaining Canadian Credit: Starting from Scratch

A good credit score and history are extremely important when you are looking to buy a house and apply for a mortgage. As discussed above, as a new immigrant to Canada, you may not have a credit history that is accepted by Canadian credit bureaus. If you want to buy a home and apply for a mortgage, it is important to begin building your new credit history as soon as possible and having a plan to do so.

Although starting with no credit / a new credit can be confusing, it can actually be a smarter move to start from scratch, instead of trying to fix a poor credit score. It can be scary to start all over, but, as you are moving to a new country, this is where you can start over! Although it is an important thing in everyone’s life, don’t be intimidated by credit. It is important to begin establishing your credit as soon as you get to Canada to avoid complications and getting a good start on buying your future home! Here are a few tips to start building your Canadian credit when you arrive:

Talk to your bank. Banks will know everything and anything about credits and mortgages. When you arrive in Canada, ensure you apply for a Canadian bank account as soon as you can. A bank account is the first step to having a credit card, building your credit, and then buying a home and applying for a mortgage. Aside from this, your bank can also help with a detailed plan and strategy about how you can build your credit quickly as a newcomer. Many banks have specialized plans to fit your settlement journey and there are very good options for newcomers to Canada. Banks look at new immigrants as a great future option for expanding their business, so they offer some pretty competitive and enticing packages. Whether you are opening your first Canadian bank account, applying for a credit card, or already at the mortgage phase, your bank can help you with your financing in Canada. Your bank will also let you know the details about Canadian credit bureaus and whether your overseas credit history is recognized.

Apply for a credit card. The most common way to build credit is by getting a credit card. Some banks offer unsecured credit cards at low-interest rates; however, many banks will not offer credit cards when you have no credit history. There are two ways to approach this issue as a newly arrived immigrant with no Canadian credit. First, you could apply for an unsecured credit card and accept the high-interest rate that is likely to be provided. Or you could apply for a secured credit card. Here is a brief understanding of an unsecured and secured credit card. An unsecured credit card does not require collateral, or an asset, to be provided to the bank to receive the card. On the other hand, secured credit cards do require collateral. To get a secured credit card, you must provide something to the bank that can be seized if you do not pay your credit card bills. A secured credit card may be the best solution when you do not have a Canadian credit history. Unsecured credit cards are typically granted based on credit history, financial strength, and earnings. It is highly advisable to speak with different institutions as some will offer you a basic credit card without requiring anything whereas others will give you credit based on the amount of money that you give them. I’m not sure about you but I have a very big problem with an institution that is asking me to pay interest on my own money.

Another tip is to buy a phone. Buying into a new phone contract is a smart way to build your credit. It is a simple way to prove you can pay bills on time and be trusted for future, larger payments. Small charges such as a monthly phone bill show you can consistently pay your bills and create a solid payment history. An important note is the recommendation to apply for a post-paid cellphone plan. Post-paid cellphone plans are the better way to build your credit, rather than a pre-paid plan.

Pay your bills on time. This is an obvious tip, but it is so important. Your credit score will continue to increase, and the credit bureau will continue having trust in you if you consistently pay your credit card bills. Aside from credit card bills, pay all bills on time. This includes monthly billing such as internet, insurance, rent, utilities, and more. Paying your bills on time is a small and obvious way to build your credit. It shows mortgage lenders that you have the ability and responsibility to pay bills and will be a great mortgage client!

Another rather obvious tip is to monitor your credit. All credit bureaus and banks give you, the customer, the ability to check your own credit score and monitor your credit. Monitoring your credit doesn’t do anything but help you. It will never negatively affect your credit score. It gives you the capability to learn about your credit and to address any issues if there are any. Monitoring your credit will help you in the long run while trying to build your credit to buy a home. Some specific tips about monitoring your credit are (1) make your payments on time; (2) increase your credit limit when you can; (3) spend often but spend less; and (4) leave your old debts apart from your new credit. These tips may be obvious but will be to your benefit when looking to increase your credit score immediately once you move to Canada.

How do I go about buying a home in Canada?

Again, many factors go into purchasing your first home when you arrive in Canada. It can be scary moving to a new country, let alone buying a home in a new country. The Royal Bank of Canada (RBC) has formulated a checklist for newcomers who are ready to learn about buying their first home in Canada. This section will go through RBC’s list while adding an immigration perspective to the checklist.

First, you should figure out what you can afford. Before you go house-hunting, you need to know what you and your family are comfortable with spending on a home. This should be something you have considered before your move to Canada. Planning your settlement funds is essential in any immigration journey, no matter the pathway or length of stay. Planning and budgeting your spending is a great way to ensure your move to Canada is seamless and stress-free.

Consider a down payment. A down payment on a home can be a better financial decision for you. This is when you put a large sum of money on your home with your own savings and then borrow and gradually repay the rest of the purchase from your bank.

Know your mortgage options. There are many mortgage considerations to know before applying for one. As noted above, you need a credit history to apply for a mortgage. This is where your bank can lay out all options for you regarding your mortgage and the purchase of your home to make the right financial decision for you.

Get a mortgage pre-approval from your bank. This is important to have before buying your home because your bank/mortgage lender is committing to lending you the money. Getting a pre-approved mortgage will benefit you by letting you know how much money you can afford to borrow and knowing your interest rate.

Begin house hunting! This is the most exciting part of the home-buying process. Once all the essentials about buying a home are dealt with, you can now search for your new home in Canada. Your home is an important part of your new life in Canada and creating the lifestyle you want to achieve on your new journey! You should already have a plan for your home before coming to Canada. Again, things such as location, closeness to schools, hospitals or amenities, international airports or transportation hubs, and being close to family, if applicable to you. These are important to know before coming to Canada because you are incorporating your wants and needs of your home into your immigration considerations.

Lastly one of our favourite resources is from the Canadian Mortgage and Housing Corporation (CMHC), which provides endless resources about buying a home as a newcomer in Canada. Check out their guide: Buying your first home in Canada – what newcomers need to know.

A Final Word

As this has covered an enormous amount of information, it can be summed up simply. Plan and think ahead. All things regarding immigrating to Canada require extensive planning and where you’re going to live is no exception.

Plan how you will boost your credit score, create a list of banks that you would like to go to, and make yourself a checklist like the one above. There are many things you can do before entering Canada regarding your future home to ensure you are not overwhelmed when you arrive. 

This blog post covers a number of the issues that should be considered around this topic. But this topic is covered in depth in the Resettlement & Settlement planning courses that we offer. If you have read any of our other materials, you will know that Planning, Implementing and Settling are the cornerstones of Second Passport.

Should you have any questions about buying a house as a newcomer or, are ready to dive into getting a Second Passport to Canada, feel free to reach out to us and we will surely get you started to understand the options that are available to you! 

Ready to get started? Here are three ways we can help: 
1. Join our Facebook Community to connect with an amazing group of Second Passporters... This is a space where the community can share information, updates, and connect as a group of people all the same goals!
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3. Ready to begin your journey? Join our 5-Day Immigration Blueprint Challenge. By the end of the 5 days, you will have an Immigration Blueprint™ outlining your pathway to Canada.