Non-Resident Buyers: What you need to know before buying Real Estate in canada

The Canadian real estate market is open to buyers all around the world. From Brazil to Italy and China to London, everyone is welcome to participate in the booming real estate market here in Canada – there are no restrictions to the types of properties international buyers can invest in.

In late October 2020, Canada announced we would be welcoming 401,000 new permanent residents in 2021, 411,000 in 2022, and 421,000 in 2023 making it the perfect time to invest as a non-resident buyer in hotspots such as the Greater Toronto Area. A non-resident homebuyer is classified as someone who works and pays taxes somewhere other than in Canada.

 

How much money do non-resident and Non-Canadian Resident buyers need to purchase Canadian Real Estate?

For a down payment on a condo, townhome, house, or any other residential property lenders typically ask for a larger down payment from non-residents or non-Canadian residents.

 

U.S. Residents

The favourable exchange rate between the United States Dollar and Canadian Dollar makes investing in the Canadian real estate market quite appealing, especially in major cities such as Toronto or Vancouver where home prices are on the rise in recent years.

If you’re living in the United States, your deposit would have to be a minimum of 20% of the total purchase price

 

Everywhere Else in the World

When investing in the Toronto real estate market from anywhere other than Canada or U.S, your down payment must be at least 35% of the total purchase price

Also, 10 % of your down payment must come from your own resources, the remaining balance can be gifted from a family member or borrowed.

 

In Summary,

For non-Canadian residents, and non-residents investing in the real estate market of Canadian cities lenders typically require a maximum loan-to-value (LTV) ratio of 65% (or 80% for U.S citizens).

Your interest rate would be dependent on your credit history, your lender and the type of mortgage that you choose. In Canada the most common amortization period for a mortgage is 25 years.

Some other things to note, some lenders require you or a family member to live in the property (meaning no investors), also home insurance is required to be able to get a Canadian mortgage, so get a few quotes on the property you’re not surprised in the future.

 

What documents do non-residents and Non-Canadian Residents need to qualify for a mortgage in Canada?

The required documents for securing a mortgage in Canada for real estate are quite similar between Canadians and non-Canadian residents.

  • Photo ID verification for the borrower(s)
  • Proof of income (letter of employment, pay stubs and income tax returns).
  • Proof of down payment (bank statements for the last 90 days).
  • Reference letter from a bank outside Canada.
  • Report from an international credit bureau or bank statements for the last six months.
  • A Canadian bank account that mortgage payments can be withdrawn from.

Note: The majority of lenders will not allow applicants to include income from other rental properties as part of their income to qualify.

 

What kind of mortgage rates and terms do non-residents get?

For the most part, provided you meet the mortgage eligibility criteria, non-residents and non-Canadian residents can access the same mortgage products that are available to Canadian citizens.

There are however a few restrictions,

  • Some lenders may charge a rate premium for non-residents, it’s best to shop around before choosing one.
  • Non-residents cannot have amortization terms of more than 25 years.

Do Non-residents need to be in Canada at any point to secure financing for a home?

Usually a non-resident will need to be present in Canada at least once to complete the process of securing financing and finalizing the purchase of a property.

An international buyer will often need to visit Canada in person to open a Canadian bank account, but there are a few exceptions to this rule. Some of our clients have discovered that as HSBC Premier clients they’ve been able to open accounts in Canada from their home countries.

Also, if you have not signed power of attorney to anybody in Canada, your presence may be required for closing.

 

Tax considerations For Non-Resident Investors in Toronto Real Estate

Before dipping your toes into the Canadian real estate market it’s wise to seek advice from a Canadian Tax Professional, such as Ralevic & Ralevic, regarding all the implications. If you are purchasing a home within the “Greater Golden Horseshoe Region” of Ontario, you will be subject to non-resident speculation tax (see image).

The Greater Golden Horseshoe Region (GGH) is a list of geographical areas and cities that are included in the horseshoe-like shape that is formed on a map of southern Ontario. Cities such as Orillia, Hamilton and Toronto are included in the GGH region. A quick internet search of your chosen property location will be able to show you if it is included within this region.

 

People living outside the GGH may also be subjected to a non-resident investor tax, although the province of Quebec has yet to implement this tax.

The non-resident speculation tax was introduced by the Government of Ontario, and means you would be subject to a charge of between 15-20% tax on your purchase if you are not a permanent resident or citizen.

Some of the most common methods international buyers utilize to facilitate their investment in the Canadian real estate market include:
  1. Purchasing directly as an individual or international corporation (non-resident investor),
  2. Registering a Canadian corporation which will then purchase the property,
  3. Open a Canadian trust to act as the investor, or
  4. Invest as part of a group (partnership, or joint venture).
As an investor you will also need to be familiar with Canadian personal and/or corporate income tax, withholding tax, sales tax, speculation tax, and land transfer tax. We suggest connecting with Professional Canadian accountants who specialize in real estate taxes to ensure you’re well informed prior to making any big purchase.

 

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