Canada is a great place for those who want to live for the long term. In addition, the country has relatively few restrictions for expats than any other country.
Over the years, I've helped numerous American clients successfully purchase property in Canada, navigating the unique aspects of cross-border real estate transactions.
Curious about how you can seamlessly transition into the Canadian real estate market and what specific considerations you need to keep in mind?
Let's dive into the detailed process and explore the key steps to owning property in Canada as an American.
Quick Summary
- Owning property in Canada does not grant residency status. Americans wishing to live in Canada long-term must apply for the appropriate visa or residency status, such as a work permit, study permit, or permanent residency.
- Canada imposes relatively few restrictions on foreign property ownership. However, some provinces have specific rules, such as British Columbia's additional property transfer tax for foreign buyers.
- Property tax rates in Canada vary by province and municipality but generally range from 0.5% to 2.5% of the property value annually. For example, in Toronto, the property tax rate is around 0.72%, while in Vancouver, it is about 0.28%.
- From my experience, working with a knowledgeable real estate agent who understands cross-border transactions can significantly streamline the process for American buyers.
Parties Involved in the Home Buying Process
To get a Canadian property, you have to connect with the following professionals:
1. Licensed Real Estate Agent
Generally, there are two real estate agents in every real estate market, one on the seller's side and another on the buyer's.
2. Real Estate Lawyer
In Canada, both the buyers as well as sellers get their personal lawyers while buying property. Such lawyers are in charge of all settlement arrangements.
3. Home Inspector
You need to conduct a complete examination with the help of a home inspector of the residential property to identify any architectural or mechanical problems.
4. Lender
If not an all-cash transaction, you have to go to a Canadian bank to get a credit.
5. Insurance Broker
Getting insurance can be more difficult for a non-resident if they don't live on the property. Here a broker can help you.
Different Ways for Property Search
Non-residents have various options when it comes to their property search. The best of them are:
- Internet: This is the best option; research what area you are searching for.
- Automatic Search Suggestions through Email: This is the most effective method of property search. A qualified realtor can conduct a search for you based on your preferences and needs, and new properties that meet those criteria will be forwarded to you every day.
- In-Person: This is unquestionably the greatest way to look for properties.
- Via Video: Most non-residents request video tours of homes they are considering.
Key Things to Remember
- While owning real estate in Canada will not affect your prospects of moving to Canada, your property ownership will be counted as part of your total net worth, which is a benefit.
- Non-resident taxpayers who pay non-resident speculation tax, may be eligible for a refund if they reside, operate, or learn in the area or become permanent residents.
- Some banks may limit the number of properties that any individual can finance. Some lenders would only lend money to people who want to buy up to five homes.
The Ultimate Process to Buy an Investment Property in Canada
You have to complete certain steps being a nonresident buying property in Canada. Those are:
- Begin your property search with the help of a local agent. A realtor can assist you in finding the ideal property. Once the estate has been sold, the seller pays the realtor's charges.
- Be eligible for a bank loan. This allows you to determine how far you can pay, which helps you cut down your options.
- Once you choose your home, the realtor will prepare the contract and purchase papers.
- After you sign the deal, the seller is also obligated to sign it. Because the requirements must be accepted before the funds can be transferred, the contract must contain a land title inquiry and a home inspection.
Everything About Financing
You can obtain financing through a mortgage and being a non resident while getting a property in Canada [1].
Most non-residents will need to make a down payment of 35 percent if they go to a Canadian bank for their loan. This indicates that you must pay a percentage of the property prices in cash, with a limit of 65 percent of the cost being financed.
So, citizens can acquire a loan with a down payment of as little as 5 percent of the purchase price.
Such deposit climbs to 20 percent for investment properties plus to valued beyond 1 million dollars. However, each bank has its own set of restrictions, and some Canadian banks may have tighter regulations than others.
Besides the amount, foreign buyers have to take care of certain things to fulfill mortgage eligibility criteria. You must have the following things.
Mortgage Eligibility Criteria for Foreign Buyers
- A bank reference letter
- A Canadian credit check
- An employment letter verifying earnings in Canadian or U.S. dollars
- Bank statements of 3 months.
Both Canadian residents, as well as non residents, pay similar interest rates provided they meet such mortgage qualifying conditions [2].
Those who do not meet the qualifying requirements may be able to borrow money from creditors who demand higher interest rates.
Do you earn rental income? Then, you can show it in your Canadian bank account, but it must be from Canadian properties. Moreover, you have to finance 25 percent of your rental income.
The majority of the Canadian banks will want your initial deposit to be completed at least 30 days before the property purchase. Banks can go back 90 days to determine where the down payment came from.
A non-resident must make a payment within 24 hours of making an offer on a property in Canada. When you start your home search, you need to create a Canadian bank account and store the deposit sum. And, when it's time to reimburse the security, you can use a certified check or perhaps a wire transfer.
Closing Costs
You have to cover some closing charges while obtaining financing from a bank. Such costs are applicable for a non resident as well as a Canadian citizen.
Closing Costs Before Buying Property in Canada:
- Deposit: It is 5 percent of the purchase price.
- Property Appraisal: This is normally covered by the buyer's creditor if you are funding the transaction.
- Home inspection: It is payable to the home inspector.
Closing Costs on Owning Property in Canada:
- Balance of the purchase price: Every property buyer has to make a payment of the remaining purchase price. Usually, your bank provides this amount, which is added to your mortgage payments.
- Legal fees: This is based on the purchase price of your home and the attorney(s) you engage with.
- Provincial Sales Tax: It is a part of the legal fees.
- Ontario Land Transfer Tax: The original property price will determine this rate.
- Toronto Land Transfer Tax: The price of the property will determine the cost you pay.
- Title Insurance: It is also often a portion of the legal fees.
- Mortgage broker commission: If relevant, the lender is normally responsible for this.
- Lender Property Survey: This might cost anything from $1,200 to $2,200.
- Harmonized Sales Tax: This tax is normally only applied when purchasing new construction apartments or townhouses. It is rarely applied when purchasing an existing residence.
- Property Tax Adjustment: This compensates the seller(s) for all property taxes they could have spent after the closing date.
- Tarion Warranty Fees: This guarantee charge applies to new construction units and homes purchased directly from the developer.
- Adjustments for Condominium Fees/Utilities, etc.: You will be responsible for refunding the vendor for prepaid bills, condo fees, and other expenses.
The government offers first-time buyer schemes plus land tax discounts, although these are solely accessible to residents. If you don't need a loan, you can buy a house by paying your lawyer 100% in cash prior to the closure.
What Comprises the Legal Matters?
Non-residents can purchase real estate assets in Canada prior to their visit. However, most banks will require you to be onsite while creating a bank account. To qualify for a Canadian loan, you must have a bank account in the country.
You don't even have to register any documentation in person because you can snap and mail the notarized forms back. You can now legally use electronic signatures in Ontario. So, you can verify the legal documents on a smart device if you're buying property in the province.
Types of Taxes
When foreigners buy property in Canada, they have to pay taxes. Plus, you may have to pay higher taxes than the Canadian citizens. Here’s a table summarizing the various taxes applicable to foreign buyers in Canada:
| Tax Type | Applicable Region | Tax Rate | Description |
|---|---|---|---|
| Non-Resident Speculation Tax (NRST) | Ontario | 25% of the purchase price | Imposed on foreign nationals purchasing residential properties anywhere in Ontario. |
| Additional Property Transfer Tax | British Columbia | 20% of fair market value | Charged to foreign buyers in designated regions of British Columbia on their proportionate share of residential property. |
| Non-Resident Deed Transfer Tax | Nova Scotia | 5% of purchase price or assessed value (whichever is greater) | Applies to foreign buyers who do not reside in Nova Scotia, affecting both Canadian and foreign buyers. |
| General Land Transfer Tax | Ontario | Varies based on property price | Standard tax applied to all property transactions in Ontario, in addition to NRST for foreign buyers. |
Additional Notes:
- Exemptions and Rebates: Both Ontario and British Columbia offer potential rebates for foreign buyers who meet specific criteria, such as becoming permanent residents within a certain timeframe.
- Eligibility for Rebate: In Ontario, foreign nationals may qualify for a rebate if they occupy the property as their principal residence within 60 days after the conveyance is registered.
Residency & Citizenship
While anyone can buy a home in Canada, owning one does not provide you with permanent residency or immigration status. If you wish to move to Canada or be a permanent resident, you have to follow a precise procedure like in the United States.
Did you enjoy this article? See Precondo’s homepage for more information on properties for sale, rent and pre-construction properties.
References:
- https://globalbanks.com/non-resident-mortgage-canada/
- https://www.charltonadvantage.com/international-buyers-and-new-to-canada/
