There are a few key items to note regarding Non-Resident financing if you are considering purchasing real estate in Canada…
- If you are obtaining a mortgage, you will need a Canadian bank account. While you are visiting, take the time to have an account opened. Nowadays, most banks require you to show your ID in person with respect to account opening. Even if you put a nominal deposit at the start, it is worth the exercise for future use.
- Check the bank’s wire transfer policy to find out what they will need from you when you are ready to move money. Some institutions require you to be physically present in the branch to sign wire transfer forms. This is relevant because most lenders now require you to have your downpayment and closing costs in your Canadian account 2 weeks to 30 days prior to completion, depending on the lender.
- Keep copies of all wire transfer documentation. This will form part of your downpayment verification.
- Also while you are here, visit a real estate lawyer. Banks are getting increasingly demanding about “know your client” requirements and some make it a part of their mortgage instructions that the lawyer see the clients in person. If you are working with a realtor, ask them for a referral and book an appointment before you leave to back home.
- Depending on which lender you are approved through, you may have to come back to Canada to sign your closing documents in person.
- Available financing is usually 65% and often up to 80% for US Residents. If you are considering a property purchase that is over $1 million, the financing may be reduced to fit the banks’ sliding scale. This can be a grey area where exceptions are requested and granted depending on the strength of the applicant and the property.
- The available rates will be different if you are purchasing a Phase II or hotel-condo type of unit, and there will also be mortgage broker and/or lender fees charged.
- Get to know the difference between Canadian fixed rate and variable rate mortgages here.
The documentation needed to apply for a loan is usually:
- Completed online application, available here.
- Permission is required to obtain your credit report. Here is our Consent & Authorization Form.
- Income verification; any or all of tax returns, employment letters, and paystubs.
- Downpayment & asset confirmation via bank/asset statements.
- A more detailed information post on the required downpayment documents is available here.
- A banker’s reference letter may be needed if a credit report cannot be obtained.
- Other documents as required upon review of application.
Your closing costs will be comprised of the following:
- A detailed list of closing costs is available here.
- Home insurance. There are different policy rules for owner occupied versus rental or vacant homes. Click here for our blog post that explains home insurance in detail.
Depending on the location where you purchase, there is an additional Property Transfer Tax for Foreign Entities and Taxable Trustees:
- Tax is 20%.
- Squamish, Whistler, Pemberton, Lillooet, and the Sunshine Coast, are NOT included in the catchment areas.
- This tax applies to the Capital Regional District, Fraser Valley Regional District, Regional District of Central Okanagan, Nanaimo Regional District and Greater Vancouver. The areas for each region can be found here.
- Only on residential property; if property is farmland or commercial with a residential component, tax applies on the residential component.
- Tax is meant to target foreign and domestic homeowners who do not pay income tax in B.C.
- The tax applies in the Metro Vancouver Regional District (excluding Bowen Island and Electoral Area A, except the part of the electoral area that is the UBC and University Endowment Lands), the Capital Regional District (excluding the Gulf Islands and Juan de Fuca), Kelowna-West Kelowna, Nanaimo-Lantzville (excluding Protection Island), Abbotsford, Chilliwack, and Mission. Most islands are excluded.
- Starts in 2018 at $5.00 per $1,000.00 of assessed value, goes up to $20 in 2019.
- Click here for the BC Government information summary, and here for their infographic.
When you go to sell the property there will be a withholding tax pending receipt of Canada Revenue Agency (CRA) Clearance Certificates:
- You will have a tax security withholding amount calculated and held back from the sale proceeds until Canada Revenue Agency (CRA) issues Clearance Certificates. You will need the assistance of an accountant to work through this process.
- The amount of the holdback may be 25% of the sale price if the property is deemed to be residential use, or may be approximately 36% if the property is deemed to be business use, or short term rental. The actual amount is calculated using a percentage of the current assessed value of the land and improvements of the property and the sale price. In some instances it can be 50% of the gross sale price. These are not the actual tax liabilities, but security for the tax liability on gains in value.
- The process still needs to be followed even where a capital loss has been suffered.