Some Canadian lenders may consider foreign income when underwriting a mortgage, but there are strict guidelines and additional documentation requirements. Many will not. Whether a lender accepts foreign income and the limitations on accepting such depends on their specific policies, the applicant’s residency status, the stability of the income, and how well the income can be verified.
Who Can Use Foreign Income for a Mortgage in Canada?
Foreign income may be considered for:
- Canadian Citizen Non-residents purchasing Canadian property (typically require 35%+ down payment).
- Newcomers (PR) to Canada with an established work history abroad.
- Canadian citizens or permanent residents working abroad who wish to buy in Canada.
Lenders will typically not consider foreign income for temporary residents unless there is a clear path to permanent residency.
Residency and Non-Residency Status
a Canadian citizen can be classified as a non-resident for tax and mortgage purposes. Residency status is determined by the Canada Revenue Agency (CRA) based on an individual’s ties to Canada and where they primarily live.
1. Definition of a Non-Resident Canadian Citizen
A Canadian citizen is considered a non-resident if they:
- Live outside of Canada for more than 183 days in a year and do not maintain significant residential ties to Canada.
- Do not have primary residential ties, such as:
- A home in Canada (owned or rented).
- A spouse or dependents living in Canada.
- Have stronger residential ties to another country (e.g., permanent job, home, or tax residency in a foreign country).
The CRA assesses residency based on primary and secondary ties (bank accounts, health insurance, memberships, etc.).
2. How Non-Resident Status Affects a Canadian Citizen
a) Taxes
- Non-residents only pay Canadian taxes on Canadian-source income (e.g., rental income, investments, business operations in Canada).
- They are subject to non-resident withholding tax on passive income, such as dividends and rental income.
- Non-residents do not file a regular Canadian tax return unless they have Canadian-source income.
b) Mortgages
- Non-residents can still get a mortgage in Canada but typically require a 35%+ down payment.
- Foreign income may be subject to stricter verification and a lender-imposed “haircut” for qualification purposes.
- Some banks have non-resident mortgage programs, but they require strong financials and documentation.
c) Real Estate Transactions
- Non-residents can buy property in Canada, but if they later sell it, they are subject to non-resident capital gains withholding tax (25% of the gross sale price unless reduced by a clearance certificate).
- If they buy property in Ontario or BC, they may be subject to foreign buyer taxes, unless they are a citizen (permanent residents are also exempt).
3. Can a Canadian Citizen Become a Resident Again?
Yes, a non-resident Canadian citizen can re-establish tax residency by:
- Returning to live in Canada permanently.
- Re-establishing significant residential ties (home, spouse, dependents, etc.).
- Spending more than 183 days in Canada per year.
Upon returning, they must inform the CRA and financial institutions to update their status.
4. Common Scenarios of Canadian Citizens as Non-Residents
- Working Abroad (e.g., living in the U.S., UAE, or Europe for work).
- Retiring in Another Country (e.g., snowbirds in Florida for most of the year).
- International Business Owners who reside outside Canada.
- Students Studying Abroad (depends on ties maintained in Canada).
Final Thoughts
- A Canadian citizen can be a non-resident for tax and mortgage purposes.
- Lenders treat non-residents differently, requiring higher down payments and stricter documentation for mortgages.
- For tax purposes, non-residents only pay Canadian tax on Canadian-source income.
How Do Lenders Treat Foreign Income?
a) Adjusting the Income for Currency & Stability
- Foreign income is usually converted to CAD using a conservative exchange rate.
- Lenders may apply a haircut (reduction) of 20-50% to account for currency risk and income instability.
- The adjusted amount is used for Total Debt Service (TDS) and Gross Debt Service (GDS) calculations.
b) Type of Income Considered
- Salaried Income: Easier to verify; lenders prefer this.
- Self-Employed Income: Must be verified with business financials and tax filings; some lenders may not consider it.
- Commission/Bonus Income: Often not considered unless it’s stable and provable over two years.
What Documents Are Required?
Lenders typically require:
- Employment Letter (translated if necessary) on company letterhead confirming salary, position, and tenure.
- Pay Stubs (last 3 months).
- Tax Returns (last 2 years) from the country of origin.
- Bank Statements (last 6 months) showing salary deposits.
- Work Visa or Proof of Permanent Residency (if applicable).
Some lenders may also require:
- A credit report from the applicant’s home country.
- A letter from a foreign financial institution confirming financial standing.
Special Cases
- US Income – Treated more favorably due to economic stability; often no haircut.
- China, Russia, and Other High-Risk Jurisdictions – More scrutiny due to concerns about money laundering.
- Cash-Based Income – Generally not accepted unless supported by official documentation.
How Foreign Income Affects Mortgage Qualification
Since many lenders apply a haircut to foreign income, the borrowing power is reduced. For example:
- Gross income: $100,000 USD
- Conversion to CAD: $130,000
- 25% lender haircut: $97,500 CAD used for mortgage qualification
This means the applicant may qualify for less financing compared to an applicant with an equivalent Canadian income.
Down Payment Requirements for Foreign Income Borrowers
- Canadian Citizens or PRs Earning Foreign Income – As low as 5% if meeting all standard requirements.
- Non-Residents – Typically require 35%+ down payment.
- Alternative & Private Lenders – May accept lower documentation but require higher down payments (20-50%).
Conclusion
Foreign income can be used to qualify for a mortgage in Canada, but it depends on:
- Lender policy – Some banks do not accept it, others may apply a significant haircut.
- Income stability – Salaried income is preferred, self-employed and commission income is harder to use.
- Verification – The more documentation provided, the better the chances of acceptance.
- Country of origin – US and European incomes are more readily accepted than those from high-risk jurisdictions.
