How Work Permits Affect Mortgage Approval in Canada
By Avaljit Sandhu, Dominion Lending Centres
When applying for a mortgage in Canada, your immigration status plays a significant role in how your application is evaluated. If you are on a work permit, it’s important to understand the factors that lenders consider and how your work permit status can impact your ability to secure financing. This guide breaks down everything you need to know about how work permits affect mortgage approval in Canada.
1. Understanding Your Work Permit Status
A work permit in Canada allows foreign nationals to legally work in the country for a specific employer and duration. There are different types of work permits, including:
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Open Work Permits: These permits allow you to work for any employer in Canada.
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Employer-Specific Work Permits: These permits are tied to a specific employer and a designated job.
Lenders will assess your work permit status to determine the length of time you’ve been working in Canada, the stability of your job, and whether your employment is likely to continue. If you’ve only recently arrived in Canada, some lenders may request additional documentation.
2. Impact on Mortgage Approval
2.1 Stability of Employment
One of the key factors lenders consider when approving a mortgage is employment stability. If you’re on a work permit, lenders will review the following:
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Length of Employment: Ideally, you should have been employed with your current employer for at least six months. Longer employment periods provide more assurance of stability.
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Type of Employment: Lenders will also look at the stability of your job sector. If you work in high-demand fields such as healthcare, technology, or skilled trades, you may have a better chance of approval.
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Income Consistency: Lenders will review your pay stubs and T4s to ensure your income is consistent and sufficient to support your mortgage payments.
2.2 Credit History and Down Payment
Lenders also look at your credit history and down payment. If you’ve been in Canada for less than a year, you may not have a long Canadian credit history. However, there are options to demonstrate your creditworthiness:
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Alternative Credit History: If your Canadian credit history is limited, lenders may allow you to provide alternative credit information, such as proof of car payments, utility bills, or consistent rent payments.
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Down Payment: Having a larger down payment (ideally 20% or more) can help offset the lack of an extensive credit history and improve your chances of mortgage approval.
3. Required Documentation for Work Permit Holders
When applying for a mortgage as a work permit holder, you’ll likely need to provide additional documentation. Common requirements include:
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Work Permit Status: Documentation confirming the validity and duration of your work permit.
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Employment Verification: A letter from your employer confirming the length of your employment, your job title, and your income.
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Bank Statements: Recent bank statements will be required to verify that you have enough funds for the down payment and closing costs.
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Alternative Credit History: If you’ve been in Canada for less than a year, you may need to provide evidence of alternative credit, such as utility bills or rental history.
4. Special Considerations for Newcomers to Canada
If you’re new to Canada and have been on a work permit for less than a year, it may be more challenging to meet the standard requirements. However, some lenders specialize in offering mortgage products for newcomers. These lenders may be more flexible with work permit holders and alternative documentation.
4.1 Co-Borrowers Can Help
If you’re applying with a co-borrower who is a Canadian citizen or permanent resident, it can strengthen your mortgage application. The co-borrower’s stable employment and established credit history can provide additional assurance to lenders.
5. Tips for Improving Your Chances of Mortgage Approval
Even if you’re on a work permit, there are several strategies you can use to improve your chances of mortgage approval:
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Establish a Canadian Credit History: Consider applying for a credit card or small loan to build a credit history in Canada.
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Save for a Larger Down Payment: The more you can contribute towards the down payment, the better your chances of approval, especially if your credit history is limited.
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Work with a Mortgage Broker: A mortgage broker can help you navigate the mortgage approval process, especially if you’re on a work permit. Brokers have access to a wide range of lenders and can find options tailored to your unique situation.
Frequently Asked Questions (FAQ)
1. Can I get a mortgage with a work permit in Canada?
Yes, you can get a mortgage with a work permit in Canada. However, lenders will assess factors like your length of employment, income stability, and credit history. Providing additional documentation, such as proof of consistent rent payments or utility bills, can help strengthen your application.
2. How long do I need to be employed in Canada to qualify for a mortgage?
Ideally, you should have at least six months of employment with your current employer. This shows that you have job stability, which is a key factor for lenders.
3. Do I need a large down payment if I’m on a work permit?
A larger down payment (e.g., 20% or more) can improve your chances of mortgage approval, especially if you have limited credit history in Canada. It reduces the lender’s risk and shows your financial responsibility.
4. What other documents do I need to provide?
In addition to the usual income and credit documentation, you may need to provide proof of your work permit status, employment verification letters, and recent bank statements to show that you have the necessary funds for your down payment.
5. Can I apply for a mortgage if I’ve been in Canada for less than a year?
Yes, you can still apply for a mortgage if you’ve been in Canada for less than a year. In such cases, lenders may allow alternative credit documentation, such as proof of rent payments or utility bills, to support your application.
Conclusion
Securing a mortgage while on a work permit in Canada is entirely possible, but understanding the process and preparing the necessary documentation is key. By maintaining stable employment, building your credit history, and saving for a larger down payment, you can improve your chances of mortgage approval. Working with a mortgage broker who understands the nuances of the process can also make the journey smoother.