Out-of-Country Buyers of GTA Real Estate
As a team of Realtors who knows a lot about schools in the GTA, it is not a surprise that we receive many inquiries from families currently living in foreign lands, are are looking to move to Toronto (and Mississauga, Oakville, Markham etc.) in the future. This gives us the opportunity to know a great deal about the process foreign buyers must follow to purchase property in this city and its suburbs.
If you are from outside of Canada, and would like to purchase real estate in the GTA (Greater Toronto Area), there is good news: You can do it! You do not need to be Canadian to purchase property in Canada. But you should be aware of a few things before proceeding…
Foreign buyers of Canadian property can fall into five categories:
- Non-resident investor
- Non-resident vacationer
- Non-resident with child student residing on property (w/ proof of status)
- Foreign workers with valid work permit (min. 10% down) – there are a few options where it can be done with 5% down (CHMC requires 10&, but Genworth can it with 5%)
- Planned permanent resident
Most of you reading this now should fall into Category #5, because you likely found us while researching potential schools for your children. And that’s great! I’m always willing to help out those who are looking out for their children.
Naturally, first of all, if you plan to be a permanent resident of Canada, especially if you are a foreign buyer, you should visit Citizenship and Immigration Canada at www.cic.gc.ca to fully understand your requirements and processes. And if you are planning to purchase property in Canada without any Canadian financing at all, then the government is all you really have to concern yourselves about.
However, most foreign buyers need some kind of financing. There are two kinds of lenders I want you to be aware of:
“A-lenders” are big-bank mortgages (and non-bank lenders that have similar requirements as the banks), and if you can put a down payment of 50% on a property, you have a great advantage if you are a non-resident as you will not have to provide income documentation. Because you can put so much money down, A-lenders will most likely naturally assume that you are very low-risk, and you should be able to receive the same low-interest mortgage that most working Canadian residents can receive.
- If “New to Canada”, there is no advantage to 50% down. If “New to Canada” (have PR within 5-years of purchase), and if you have 35% down, no income documents are required
- If a “Non-Resident”, then with 35% down, you must confirm income (even if overseas). With 50% down, no income documents required
Generally, though, there is a 35%-down rule that you can go by. If you are new to Canada, look at this:
- You will need 35% Down payment + additional funds
- Proof of income (documentation) is expected*
- There will be limited or no credit history available in Canada
- You will need a 60-90 day history of the funds being used for down payment (bank account statements/investment statements showing funds in account prior to transfer to Canada). Clients will need to show additional funds are available to cover mortgage payments while they are finding employment (minimum of 1 year)
- You must be able to also verify 1.5% (of the purchase price) is available for closing costs
- Transferred funds from another country must be in a Canadian account at least 30 days prior to closing
- You must have proof of permanent residence, or landed immigrant status or proof of application, or a valid work permit if you are a foreign worker
- You must make sure offer to purchase is conditional on financing (appraisals are required); this is a guideline and does not guarantee acceptance
- If married, both husband and wife need to be on title
*For different programs, there are different rules for this:
– if on Work Permit, you have options to buy with as little as 5% down. In this case, income is required. In general, if on work permit, even if you are putting down a larger down payment, income will be required.
– Permanent Resident – Putting 35% down? They don’t ask for much more. As a Permanent Resident, you can buy with as little as 5% down… however, if you are putting less than 35% down, the deal must debt-serviced (with Canadian income).
– Non-resident buyers – You have options for 35% or 50% down. With 50% down, no income documents are required. With 35% down, income documents are required & must be debt-serviced (using foreign income).
If you can only afford to put less than 35% down, you have two options:
1. If you have Canadian income and it debt services using Canadian income, you can use Banks and other A-lenders.
2. If you do not have sufficient income in Canada, there are still options available with B- and alternative lenders. However, these would be at higher rates and may be subject to additional lender and broker fees.
If you can only afford to put less than 20% down, then under Canadian law, you must take on Mortgage Insurance. (Insurance premium is added to the mortgage.) And to get Mortgage Insurance, you must satisfy the following parameters:
- You must have a minimum three months employment in Canada
- You must have a valid work permit, or have obtained Landed Immigrant status
- The down payment must be from the borrower’s own source (not gifted) – need a 90-day history of funds (5% must be from own resources. If they are putting more down (10% for instance), the additional 5% can be gifted.)
- All debts held outside of the country must be included in the total debt servicing ratio
- Rental income from out-of-country cannot be used
- The documents you must produce are:
- Valid work permit (or verification of Landed Immigrant status), or application for status with a work permit acknowledged by Immigration Canada;
- Income confirmation (letter of employment AND a recent pay-stub);
- Down payment confirmation (Money must be in a Canadian bank account – at least 5% of down payment to be in a Canadian bank account for a minimum of three months)
- Purchase & Sale Agreement
Additionally, if you can only produce a 10% down payment:
- You must produce a Letter of Reference from a recognized financial institution OR six months of bank statement from your primary account
- You must have at least APPLIED to be a Permanent Canadian Resident, with a valid work permit
- You really need to talk to a qualified Canadian mortgage broker
And, if you can only produce a 5% down payment:
- You must produce an International Credit Report demonstrating a strong credit profile, OR
- Two alternative sources of credit demonstrating timely payments (no arrears) for the past 12 months: – Rental payment history confirmed via letter from landlord and bank statements – One other alternative source (hydro/utilities, telephone, cable) to be confirmed via letter from service provider OR 12 months billing statements (If no rent payment, then THREE alternate sources)
- You must BE a Permanent Canadian Resident, or have a valid Work Permit
- You really, REALLY need to talk to a qualified Canadian mortgage broker
1. Proof of Permanent Residency must be issued within 5 years;
2. Proof of PR or work permit are required, unless, of course, you are applying for a non-resident purchase;
3. If you are married, both of you do not need to be on the title, but if one spouse on the title of the purchase, then spousal consent would be needed (signed with a Canadian lawyer).
4. A 5%-down purchase is available for both PR and Work Permit applications. You need a good mortgage broker to work this out for you, though. 5. MOST IMPORTANTLY – for properties over $500K, more than 5% is required. For example, if you are buying a $750K property, the minimum down payment is 5% of the first $500K ($25K) plus 10% of the balance ($25K), and thus the minimum down payment in this case is $50K.
There are many confusing terms associated with Canadian Mortgage Law for International Buyers that you should familiarize yourself with, like Payment Hypothecation (six months pre-paid, collected as an advance and put into trust, typically released after 12 months of satisfactory repayments) and Assignment of Rents (for Investors, a document registered on the title of the property allowing the lender to collect rent directly from the renter, should the current mortgage go into default). Of course, me and my stable of trusted professionals can always help you out with this!
You also may want to consider to combine financing from your originating country (possibly re-financing your current residence) with financing from a Canadian lender, if you’d like.
FOR ALL INTERNATIONAL BUYERS, naturally, you must pay Property Taxes, and initially, a Land Transfer Tax. Property taxes run close to 0.8% of the purchase price (about 1.5% in the actual city of Toronto), and you can find out the Land Transfer Tax using a local, online mortgage calculator. Also, before investing into Canadian real estate with the intent of becoming a Permanent Resident, it is advisable to thoroughly investigate what is available in the area, and should visit the city before buying.
Naturally, if you are just investing, a trusted knowledgeable real estate agent can help you with all matters regarding this remotely. Should you have any other questions regarding the information on this page, please do not hesitate to Contact the Team at SusiHomes!!