Moving to Canada as an Overseas Filipino Worker (OFW) is an exciting and life-changing experience. Canada offers numerous opportunities for a better life, but it’s essential to manage your finances wisely from the outset. One of the most common pitfalls newcomers face is succumbing to the temptation of buying expensive items right away.
In this article, we’ll provide valuable tips and advice to help OFW newcomers make smart financial decisions, such as avoiding extravagant purchases and focusing on saving for a used car and a down payment for their own home.
Disclaimer: The information posted here is based on the personal experiences shared by the OFW in the video below. Please let this post serve as a guide only. If you have specific questions, you may ask the OFW by commenting on their video on their accounts.
Financial Roadmap for OFW Newcomers in Canada: Building a Secure Future
The information presented in this article comes from a YouTube video from Ferdz TV. In this video, the OFW vlogger interviewed a Filipino mortgage broker who has 23 years of work experience in Canada. If you want to watch the full video, then click on the link below:
Understanding the Role of Mortgage Brokers
Mortgage brokers are your trusted guides through the labyrinth of home buying. Their primary mission is to connect prospective buyers with the financial institutions that can make their homeownership dreams come true. Instead of simply settling for the first bank that comes to mind, mortgage brokers meticulously shop around, negotiating with different banks and lenders to secure the best possible loan terms for their clients.
Here are some facts about mortgage brokers in Canada:
- Mortgage brokers in Canada are licensed professionals who act as intermediaries between borrowers and lenders.
- They have a deep understanding of the Canadian mortgage market and can offer advice on various types of mortgage products.
- Unlike bank employees, mortgage brokers work independently and have access to a wide range of lenders, including banks, credit unions, and private lenders.
- Brokers help borrowers find the best mortgage rates and terms tailored to their financial situation and goals.
- They assist in completing mortgage applications and gathering the necessary documentation for loan approval.
- Mortgage brokers often work on a commission basis, which means they are paid by the lender when a loan is approved and funded.
- They can be especially helpful for individuals with unique financial circumstances, such as self-employed borrowers or those with non-traditional income sources.
- Brokers play a vital role in simplifying the mortgage application process and ensuring that borrowers meet the lender’s requirements.
- They help clients navigate the complexities of mortgage contracts, ensuring they understand the terms and conditions.
- Many Canadians choose to work with mortgage brokers to access expert advice, save time, and secure competitive mortgage deals.
The Art of Mortgage Application
Mortgage brokers don’t just facilitate the paperwork; they are architects of the mortgage application. They delve deep into your financial landscape, assessing critical factors such as your credit history, available down payment, and income. From this data, they construct a comprehensive application that will ultimately determine your eligibility for a mortgage.
Here’s how to apply for a mortgage in Canada:
- Assess Your Financial Situation:
- Review your credit score and credit report to ensure they are in good shape. Address any discrepancies or issues if necessary.
- Calculate your budget, including your down payment amount, monthly expenses, and desired mortgage amount.
- Choose Between a Mortgage Broker and a Lender:
- Decide whether you want to work with a mortgage broker who can provide access to multiple lenders or go directly to a specific lender.
- Get Pre-Approved for a Mortgage:
- Contact a lender or mortgage broker to begin the pre-approval process. They will assess your financial situation and provide a pre-approval letter indicating the maximum mortgage amount you qualify for.
- Pre-approval helps you understand your budget and demonstrates to sellers that you are a serious buyer.
- Find the Right Mortgage Product:
- Research and compare various mortgage products, including fixed-rate and variable-rate mortgages, to determine which one suits your needs and preferences.
- Consider the mortgage term (e.g., 5-year or 10-year) and amortization period (e.g., 25 years).
- Complete the Mortgage Application:
- Submit a formal mortgage application to your chosen lender or mortgage broker. Be prepared to provide detailed information about your income, employment, assets, and liabilities.
- Include all required documents, such as pay stubs, bank statements, and tax returns, to support your application.
- Undergo a Mortgage Approval Process:
- Your lender will review your application, credit history, and documentation. They may request additional information or clarification if needed.
- The lender will also assess the property you intend to purchase, including an appraisal to determine its value.
- Receive a Mortgage Offer:
- If your application is approved, the lender will provide you with a formal mortgage offer, including the terms, interest rate, and conditions of the loan.
- Review the offer carefully and seek legal advice if necessary to ensure you understand the terms.
- Secure Home Insurance:
- Obtain home insurance coverage to protect your property. Lenders typically require proof of insurance before finalizing the mortgage.
- Closing and Finalizing the Mortgage:
- Coordinate with your legal representative to complete the necessary legal and financial transactions required for the property purchase.
- Sign the mortgage agreement, and the lender will release the funds to complete the purchase.
- Make Timely Mortgage Payments:
- Once you have secured your mortgage, be sure to make regular, on-time payments to maintain a good credit history and avoid default.
The Filipino Perspective
For Filipinos aiming to own a house in Canada, the mortgage application process can seem daunting. Several key prerequisites must be met, with permanent residency being at the forefront. While it is technically possible for individuals or families without permanent residency to purchase property in British Columbia, it comes at a considerable cost – a whopping 20 percent foreign buyer’s tax. To illustrate, if a home costs $100,000, you’d need to pay an additional $20,000 in tax. Consequently, many Filipinos choose to wait until they secure permanent residency to avoid this hefty expense.
Words of Wisdom for Newcomers
To newcomers freshly arrived in Canada, the mortgage broker offers sage advice: renting is a perfectly reasonable part of the plan. Renting allows you to save and build financial stability. Temptations abound upon arrival, with the allure of buying a fancy car being one of them. While this may seem tempting, it’s important to remember that car loans come with substantial responsibilities, particularly when it comes to monthly payments. Importantly, car loans can affect your ability to qualify for a mortgage.
Financial Health Matters
Mortgage brokers calculate your eligibility based on your income and ability to meet mortgage payments, which include property tax and other expenses. Ideally, these payments should not exceed 39 percent of your income. If you’re burdened with a car loan or have a history of late payments on your credit card, this could adversely affect your mortgage approval chances.
The Importance of a Healthy Credit History
Credit history is another crucial factor considered by mortgage brokers. Timely payments on credit cards demonstrate responsible financial behavior, while late payments can significantly reduce your credit score. A poor credit history can negatively impact your ability to secure a mortgage.
- Credit history plays a significant role in the mortgage approval process in Canada. Lenders use it to assess your creditworthiness and determine the terms of your mortgage.
- Your credit score, typically ranging from 300 to 900, is a numerical representation of your credit history. A higher credit score indicates better creditworthiness and can lead to more favorable mortgage terms.
- Lenders review your credit report to assess your credit behavior. They look at factors such as your payment history, credit utilization, types of credit accounts, and the length of your credit history.
- Lenders in Canada typically have minimum credit score requirements for mortgage applicants. These requirements can vary, but a score of 650 or higher is often considered a good starting point for conventional mortgages.
- Your credit score directly influences the interest rate you receive on your mortgage. A higher score may result in a lower interest rate, potentially saving you thousands of dollars over the life of your loan.
- If you have a less-than-ideal credit history, it’s essential to work on improving it over time. Consistent, responsible financial behavior can help boost your credit score.
- Missed or late payments on credit accounts can negatively impact your mortgage eligibility. Lenders want assurance that you can manage your debt responsibly.
- Your credit history is closely linked to your debt-to-income (DTI) ratio, which is the proportion of your income dedicated to debt payments. A higher DTI ratio can be a red flag for lenders, even with a good credit score.
- If you have concerns about your credit history or are working to improve it, consider seeking advice from a credit counselor or financial advisor. They can provide guidance on managing debt and enhancing your creditworthiness.
- It’s advisable to regularly monitor your credit report for errors or discrepancies. Correcting inaccuracies can positively impact your credit score.
Understanding Down Payments
When it comes to down payments, it’s essential to know the rules. For homes priced under $500,000, a minimum down payment of 5 percent is required. However, for homes exceeding this price point, the calculation changes. For instance, if you’re buying a $600,000 home, you’d need to put down 5 percent on the first $500,000 (which is $25,000) and an additional 10 percent on the remaining $100,000 (which amounts to $6,000), resulting in a total down payment of $31,000.
Additional Costs
Beyond the down payment, there are other expenses to consider. Budgeting around $5,000 to $6,000 CAD is advisable to cover legal and administrative costs associated with purchasing a home.
- Home Inspection Fee: It’s wise to hire a professional home inspector to assess the condition of the property before purchase. This fee varies but is typically several hundred dollars.
- Legal Fees: You’ll need a real estate lawyer or notary to handle the legal aspects of the transaction, such as title searches and contract reviews. Legal fees can range from $1,000 to $2,500.
- Land Transfer Tax: This tax is payable in most provinces and territories in Canada, except Alberta and Saskatchewan. The amount varies by province and is based on the property’s purchase price.
- Property Tax Adjustment: Depending on when you buy your home, you may need to reimburse the seller for property taxes they’ve prepaid. Your lawyer will calculate this adjustment.
- Title Insurance: While not mandatory, title insurance provides protection against issues related to the property’s title, such as fraud or title defects. The cost is typically a few hundred dollars.
- Home Insurance: You’ll need to secure insurance coverage for your new home before the closing date. The cost varies based on factors like location and property type.
- Mortgage Insurance: If your down payment is less than 20% of the purchase price, you’ll likely need to purchase mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC) or a private insurer. The premium is based on your down payment amount and the purchase price.
- Appraisal Fee: Some lenders may require a professional appraisal of the property to assess its value. This fee can range from $300 to $500.
- Utility Hook-Up Fees: When moving into a new home, you may need to pay fees for connecting utilities such as water, gas, electricity, and internet services.
- Moving Costs: Don’t forget to budget for the cost of hiring a moving company or renting a moving truck. Costs can vary depending on the distance of your move and the amount of belongings you have.
- Home Renovations and Repairs: Consider any immediate repairs or renovations needed in your new home. These costs can vary significantly based on the property’s condition.
The Client’s Character Matters
Mortgage brokers evaluate not just your financial history but also your character and lifestyle. They scrutinize your saving habits, payment punctuality, employment stability, and fixed income sources. All these elements come into play when deciding whether you are a suitable candidate for a mortgage.
- Holistic Assessment: Mortgage brokers in Canada take a holistic approach when evaluating applicants. They don’t just focus on financial metrics; they also consider the client’s character and lifestyle.
- Saving Habits: One key aspect of your character that brokers assess is your saving habits. They want to see if you have a history of saving money regularly. This demonstrates financial responsibility and the ability to handle homeownership costs beyond the mortgage payment.
- Payment Punctuality: Brokers look at your track record of making payments on time. This includes not only your credit card bills but also other financial obligations like rent or previous mortgages. Consistently paying bills on time indicates reliability and good financial management skills.
- Employment Stability: Your employment history and stability matter. Brokers want to ensure that you have a steady source of income to make mortgage payments. A consistent work history and job stability can work in your favor when applying for a mortgage.
- Fixed Income Sources: Having reliable and fixed sources of income, such as a steady job or investments, can boost your credibility as a mortgage applicant. Lenders and brokers prefer clients with consistent income streams as they are more likely to meet their financial commitments.
- Risk Assessment: Mortgage brokers use your character assessment to gauge your risk as a borrower. They aim to determine whether you are likely to default on your mortgage payments or if you are a responsible and trustworthy borrower.
- Open Communication: It’s essential to maintain open and honest communication with your mortgage broker. If you have any unique circumstances or challenges that may affect your character assessment, it’s best to discuss them openly. Brokers can often find solutions that cater to your specific situation.
Saving Strategies for Newcomers in Canada
Arriving in Canada is an exciting adventure, but it’s essential to approach your finances wisely. Contrary to the temptation to keep up with long-time residents, it’s crucial to adopt a strategic approach to financial stability.
Start with Renting
When you first arrive, renting is a prudent choice. There’s no need to rush into homeownership just to keep pace with others who have been in Canada for years. Renting provides financial flexibility and is an integral part of the journey towards owning your own home.
A Lesson from the Past
Drawing from his own experience, our speaker, who arrived in Canada 23 years ago, emphasizes the importance of patience and saving. He rented and didn’t rush into buying a new car. Instead, he opted for a used vehicle, which he purchased with cash he had diligently saved. This frugal approach allowed him to manage even when he had to rely on public transportation, navigating life with an eight-month-old child in tow.
Resist the Temptation of Owning a Car
Many newcomers prioritize owning a car, even temporary foreign workers. However, this can be a risky move, as job circumstances can change, leading to difficulties in making car payments and potentially damaging your credit. It’s vital to remember that in Canada, the car you drive doesn’t define your financial status; it’s merely a means of transportation. Prioritize financial stability over the allure of flashy cars.
The Challenge of Bad Credit
Bad credit can be challenging to overcome. It appears in your credit history, and mortgage brokers need proof of timely loan payments over a span of one to two years. If you have a bad credit history, banks may be hesitant to grant you a mortgage for a house. To improve your chances, you must demonstrate responsible financial behavior, including paying off previous debts.
The Difference Between Car Loans and Home Loans
While it’s still possible to secure a car loan with bad credit through dealerships or private lenders, the same leniency doesn’t apply to home loans. Banks require a stronger financial profile to lend for home purchases. This includes a clean credit history, a stable job with guaranteed income, and a substantial savings account.
Bank’s Perspective
Imagine you are a bank and see that someone owes $5,000 in unpaid credit card debt, yet they want to borrow $400,000 for a house. Would you grant them a loan? Banks prioritize borrowers with a track record of responsible financial management.
Embracing a Modest Lifestyle in Canada
Upon arrival in Canada, it’s essential to resist the allure of luxury. Flashy clothes and top-of-the-line cars don’t define your worth in the eyes of Canadians. The truth is, everyone is too busy to judge others based on material possessions.
The Wisdom of Low-Profile Living
In the eyes of a seasoned mortgage broker, those who live low-profile lives and drive older cars are often the ones with substantial savings. While not a universal rule, many wealthy individuals maintain a discreet lifestyle. They understand that flaunting material wealth doesn’t equate to financial security.
The Myth of Forever Wealth
It’s important to remember that money in Canada, like anywhere else, can vanish quickly if not managed wisely. The mortgage broker shares stories of people who were affluent in their home countries but became financially strained in Canada due to lavish spending. The lesson is clear: money doesn’t last forever, and prudent financial choices are key to long-term financial stability.
Tips and Advice
- Spend within your means.
- Buy only what you need.
- Find a permanent job.
- Take care of your health.
- Ensure your kids attend school.
- Make sure there’s enough food to eat.
- Stay away from unnecessary expenses, such as attending parties.
- Avoid splurging on branded clothes.
- Consider Canadian products for their quality and value.
- Save money diligently.
- Upon arrival, focus on finding a stable job.
- Establish a budget and ensure you allocate some funds for savings.
- Decide what you are saving for and set specific goals.
- Consider purchasing a used car first to avoid taking on a loan.
- Resist the temptation to buy a new car immediately if you don’t have sufficient savings.
- Once you have acquired a used car, shift your savings focus to the down payment for a house.
- Embrace a simple living philosophy in Canada.
- Avoid trying to keep up with high-profile individuals.
- Remember that appearances can be deceiving; many high-profile people also have significant debts.
- Strive to live debt-free.
As you navigate the challenges and opportunities that come with starting a new life in Canada, remember that your financial choices today can shape your tomorrow. By adhering to these tips and advice, you can work towards achieving your homeownership dreams and building a secure future for yourself and your family.