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Canada > Property

Canada

An American Expat Guide To Buying Property In Canada

Published Monday January 30, 2017 (15:39:14)

(c) JanTemmel on Pixabay

Canada is a modern and well-developed country that offers a diverse lifestyle. It is the second largest country in the world, and has always been a magnet for immigrants from different parts of the world.

It is easy for expats to buy property in Canada, especially for those who will be living in the country long-term. Canada has a favourable policy for foreign property ownership.

Affordability is also rarely an issue since Canadian housing prices tend to be lower than those in comparable destinations around the world. Non-residents have the same right of ownership as residents of Canada. Non-residents are those who stay in the country for six months or less. Non-residents can still buy property and have a bank account. Those who plan on staying in Canada for more than six months per year are required to apply for immigrant status.

The Canadian real estate market today is fortunately a buyer’s market, making it all the more easier for American and other expats to buy property. Prices have been falling across the country, even in the major cities such as Toronto and Vancouver. Canada is a large country with different real estate options, such as the East Coast, West Coast and Central Canada. The most expensive real estate is in cities like Toronto and Vancouver. Other Canadian cities such as Northern Ontario, Calgary and Montreal offer more affordable options.


Residency

In addition to welcoming home buyers from across the globe, Canada also places no restrictions on the type of real estate or the amount they wish to purchase. However, some banks restrict the number of properties they finance to five properties per individual. Immigration to Canada tends to be a complex process, and property ownership here is, unfortunately, not one of the criteria that are considered. It doesn’t affect your chances at immigration and will add to your overall net worth, but it also doesn’t affect the selection process. The Government of Canada Citizenship and Immigration website carries all the information you need to determine your eligibility of immigration to Canada.


Property search

When searching for a property, expats should take into consideration the different types of climate prevalent in Canada. They must also decide on where in Canada they would like to live and the type of home they would like to have. The options include detached homes, townhouse or condominiums. The internet is a great place to start searching for a property. If you already are in Canada, the local newspapers and community papers feature real estate sections where properties are advertised.

Homes in Eastern Canada are more affordable than the ones in the west. Among all the major urban areas, the lowest residential property prices can be found in Montreal. Since these prices are now steadily increasing, it makes sense to invest here. The region has a lot to offer and is blessed with a beautiful countryside and is well connected. Toronto is increasingly becoming a popular real estate destination. Vancouver in British Columbia is the country’s westernmost province and also one of the most beautiful, with its many mountains, rivers and beaches. Vancouver’s property prices are the most expensive in Canada. Property is expensive also in the Rocky Mountains, since much of it is located within national parks. For this reason, a large part of the property is off-limits to buyers. Canmore in Alberta is a good place to consider buying property. In fact, the population doubled since the town hosted the Winter Olympics in 1988. Calgary has a robust first-time buyer market. Many expats are investing in resort properties.

It is important to know the rules and regulations, as property purchase regulations can vary across Canada. For instance, in British Columbia, New Brunswick, Newfoundland, Nova Scotia, Ontario and Quebec, there are no restrictions on property ownership by non-residents, provided you spend less than six months of the year in Canada. But in Banff, only businesses and employees of the park can own property.


Financing

Non-residents can get a mortgage to buy a house in Canada. The general rule in Canadian banks and lenders is that non-residents should have a minimum 35 percent down payment. This means that 35 percent of the cost of the real estate must be paid in cash, and a maximum of 65 percent of the value is provided as a mortgage. But different banks follow their own rules and some banks may have stricter regulations. Those eligible for a mortgage as a non-resident buying property in Canada must furnish 35 percent of the down payment (this must not be from gift funds), a reference letter from their bank, an employment letter confirming income in Canadian or US dollars, three months of bank statements and a Canadian credit check. The same interest rates apply to residents and non-residents, as long as they fulfill the mortgage eligibility criteria.

Many countries have tax treaties with Canada. But if your home country doesn’t have a tax treaty in place, you will only qualify for a fixed-rate of interest. Those who do not fulfill the eligibility criteria may be able to obtain financing from some lenders who charge higher interest rates. If you have rental income, Canadian banks will only consider that which is from Canadian properties. Most Canadian banks will need your down payment to be in a Canadian bank for at least a month before the purchase is done. Banks are able to track the source of the down payment as far back as 90 days.

Upon making an offer on a Canadian property, you will need to give a deposit (approximately 5 percent of the purchase price) within a day. The deposit becomes part of the down payment at the time of possession of the property. A helpful tip here is to open a Canadian bank account and keep the deposit amount in it when you begin your property search. Once it is time to pay the deposit, you can issue a certified check or transfer the deposit through a wire transfer.

You will also be required to pay certain closing costs, which are the same for non-residents and Canadian residents. These include property appraisal and home inspection before closing; balance of purchase price, legal fees, land transfer tax, provincial tax and other payments during closing; and moving expenses, utility connection charges, redecorating and renovation costs, and immediate repair and maintenance after closing. There are first-time buyer programs and land tax rebates offered by the government, but these are only available to residents. If you don’t need a mortgage, you can purchase a property by transferring 100 percent of the funds in cash to your lawyer before closing on the purchase.


Home-buying process

Many non-resident expats have a friend or someone trustworthy in Canada to help them with the property search. This helps to begin the process earlier. But if you need a mortgage and require a Canadian bank account for it, you may be required to be present in person. There are some banks that allow you to get a mortgage without coming to Canada. The process of buying a house is uniform across the Canadian provinces. The entire process can take anywhere between 60 to 90 days. But if the property is vacant, it can be completed in a month. The process is as follows.

- Start the property search for which you can hire a local realtor. A realtor is a professional who sources properties, perform the duties on your behalf as a negotiator with the seller’s realtor, and advises in the transaction process. A realtor can help you locate the right property for you. The seller pays the fees of a realtor once the sale of the property is closed.

- Qualify for a mortgage from the bank. This enables you to know how much you can afford, which in turn helps you narrow down the list of properties.

- Get a local realtor to evaluate all the properties to find the one that suits you best. If it is possible, you can accompany the realtor for this step.

- Once the property has been selected, have the realtor draw up the contract of sale and purchase agreement. Once you sign the contract, it’s then required for the seller to sign it. The contract must include the land title search and a home inspection, since the conditions need to be approved before the funds transfer can take place.

- The realtor will also need to facilitate the conveyance of mortgage, transfer of funds and your registration on the property upon your signed removal of the subjects in the accepted and signed contract of sale and purchase.


Legal matters

Expats can buy properties in Canada even before they arrive. But most banks will expect you to be present when opening a bank account. You will need a Canadian bank account to be eligible for a Canadian mortgage. You don’t even have to sign any paperwork in person, as scanning and emailing back the signed documents is possible. If you are buying property in Ontario, then you can sign the legal paperwork on a tablet or smartphone, since electronic signatures are legal in Ontario since July 2015.


Taxes

As a property buyer, there are three kinds of taxes that you need to pay. Once you take possession of a property, you are required to pay Land transfer taxes, which are based on a sliding scale according to the property price. Property taxes need to be paid every year. The other taxes that are applicable include those that must be paid when the property is sold. Non-residents are required to pay a tax on any income or gains arising from the sale of a taxable property in Canada. This includes condos, vacation properties and residential homes. When a non-resident sells a property, the buyer is required to withhold and remit a part of the purchase price to the Canada Revenue Agency (CRA). This is usually 25 percent of the gross selling price. Non-residents are also required to file a Canadian tax return by April 30 following the year the property was sold. Upon filing the return, part of the withholding tax is refunded. Sellers can also claim expenses such as legal fees and commissions against the income from the sale.


Closing costs

These are the costs that must be paid when buying a property in Canada.

Before closing:
- Deposit
- Property appraisal
- Home inspection

On closing:
- Balance of the purchase price
- Legal fees
- Title insurance
- Mortgage broker commission
- Property survey
- Land transfer tax
- Property tax adjustment
- HST
- Warranty fees
- Provincial sales tax
- Adjustments for utilities


Closing day

This is when you get legal possession of your property, and the keys. A couple of weeks before closing, you will be required to meet with your lawyer and sign the final paperwork, which includes the mortgage contract and provide the balance of the down payment funds. Your lawyer will combine the down payment and the initial deposit, seek the mortgage amount from your lender and pay the seller in exchange for which you will get the keys and the land title to your property.


Selling your property

Generally upon selling a property, you will be taxed on income and gains in value of the property. The government withholds 25 percent of the gross selling price until the tax forms have been completed. This withholding tax can be reduced or eliminated by obtaining a certificate of compliance to prove that the taxes have ben paid. An accountant will be able to give you a full understanding of the taxes you may have to pay when selling your property.


Renting your property

If you decide to rent out your property, you will need to find the right tenant and arrange for the management of the property. This involves setting a price, marketing the property, showing it to potential tenants, screening tenants and negotiating a lease, as well as securing a deposit. In addition, there will also be ongoing property management such as maintaining and repairing the property and keeping up a relationship with your tenant.

Have you bought a property in Canada? Share your experiences in the comments!


Read more Canada property articles or view our latest Canada articles

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