(February 12, 2022)
Whether it’s due to employment, quality of life, or a multitude of other reasons, Canadians have demonstrated that they are comfortable in packing up and choosing another province to live in. In fact, in 2021 more than 200,000 Canadians switched provinces across Canada…and this is only the statistics released up until the first two quarters of the year, 2021 (Source: Statistics Canada).
Upon arriving to a new province, the more common pathway to homeownership is rent first (typically 1-2 years), then buy after.
But lately, the trend is to purchase immediately upon arrival. With real estate prices surging in Canada’s two most prominent intake provinces, Alberta and BC, newly arriving migrants are opting out of the 1-2 year honeymoon phase of renting and jumping right into home ownership.
Here’s what you need to know when it comes to qualifying for a mortgage when relocating to another province (or city):
Employment Status
Employment is the biggest mortgage qualification barrier when relocating. Here are some acceptable employment scenarios that would make one eligible for a mortgage approval immediately upon arrival to your new destination province/city:
- Scenario #1: you have maintained your employment with your current employer and can provide an employment letter that acknowledges your relocation and confirms your current role and income
- Scenario #2: you are self employed (and have been so for at least 2 years) and are able to explain and demonstrate how the transition to a new province/city is seamless to your business
- Scenario#3: you have recently gained new employment in your new destination province/city upon or prior to your arrival. Verification of at least one complete pay cycle will be required (in the form of a pay stub and employment letter)
Regardless of the employment scenarios I just mentioned, you must also be aware of Probationary periods and their overall impact on your mortgage approval. In some cases, lenders will overlook probationary periods for new employment, but definitely not for all cases. In most instances, exceptions are granted for probationary periods if you have maintained the same role from your previous employer.
Another thing that pops up when relocating to another province or city, is whether or not one can keep their existing property while purchasing another.
You can definitely do so, here are two common scenarios of keeping your existing property and purchasing another:
Scenario #1: Keep your existing property and rent it out
-additional application details will be required pertaining to the market rent valuation of your outgoing property (an appraisal will likely be required to determine the market rent which will be used as an additional income source in your mortgage application)
-once the market rent is determined, the offset factor is calculated and applied to your overall application. The end result is either a surplus or shortfall income scenario. This figure is then applied to your application and either helps or hinders the overall adjudication.
Scenario #2: Keep your existing property, refinance it to fund your down payment for your new property, and rent it out
-in addition to the rental surplus/shortfall income, the resulting mortgage payment increase from the refinance is also factored into your overall mortgage application for the new destination property. The end result is either a declining debt service ratio (deeming you ineligible for this strategy), or a passing debt service ratio that falls within the overall acceptable ratio of your entire application.
Other mortgage qualification tips & strategies to be aware of when relocating:
You will require cash on hand to present a competitive offer, then likely more cash to secure the down payment requirement for the mortgage. The following are acceptable sources of down payment:
- cash from own sources and document verification displaying 90 day history (i.e. savings, investments). For funds being sourced from crypto currencies, be aware that the 90 day history starts when the funds have been withdrawn from your Crypto investment account and deposited into a bank account (and I mean a non-crypto bank account…a bank account as we know one today). This is a critical distinction to be aware of.
- gifted cash from a parent (or direct family member) is an acceptable form of down payment
- If your down payment proceeds are coming from the sale of your outgoing property, a copy of the sales agreement and recent mortgage statement is required (for the purposes of verifying the net proceeds from the sale)
- If your down payment proceeds are coming from the refinance of your existing property, a copy of the mortgage statement is required to capture the balance and monthly payment obligation of the mortgage. If you are considering this approach, request a maximum amortization to achieve minimum payment obligations. This will minimize the impact on your overall qualifying debt service ratio and potentially allow for more purchasing power on your new property.
If moving to BC, be aware of the Property Transfer Tax when purchasing a property (no such thing in Alberta…yee haw!). In addition to your down payment for the mortgage, the Property Transfer Tax is due on the closing date of your purchase. Be aware…the Property Transfer Tax is quite substantial and CANNOT be included in your mortgage. It is an out-of-pocket expense.
OTHER RELATED ARTICLES:
Can I purchase another home with 5% down payment?
Are employment probationary periods deal killers?
Don’t forget about the Closing Costs!
Contact Marko, he’s a Mortgage Broker!
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