Canada has been repeatedly ranked as one of the best countries to live in throughout the world, while Ontario has been consistently ranked as one of the best provinces to live in within Canada. With the province’s natural beauty and the U.S. dollar traditionally being a stronger currency than the Canadian Dollar, it is not a rarity for a U.S. citizen to purchase property in Ontario.
Canada, and therefore Ontario, has a relatively lax policy when it comes to foreign property owners. Essentially, non-residents have no restrictions in terms of how much or what kind of property they can own in Canada, although Canadian banks may limit how many loans a person can have. A non-resident can be defined for tax purposes as the following:
- a) someone who normally, customarily, or routinely live in another country and are not considered a resident of Canada
- b) do not have significant residential ties in Canada (home/spouse/dependants)
- you live outside Canada throughout the tax year
- you stay in Canada for less than 183 days in the tax year
If you are defined as a non-resident in Canada but you want to buy property for personal use in Ontario, there are some important considerations to take into account. Provided below is some helpful information and advice for buying property in Ontario if you are an American.
Prepare Your Documentation and Finances
Getting your documents and finances in order before looking for a house is important as it can be a lengthy process that could cause delay in your home purchase. Due to the complexity of residency, tax laws and other regulations, we always recommend speaking to a professional that can guide you through the entire process and keep you informed about future tax implications for both the USA and Canada. Some important things to take into consideration when buying a home in Ontario are as follows:
- Canadian Bank Account – Foreign banks cannot register a mortgage in Canada which means you will need to open a Canadian bank account and get a local mortgage. Opening a bank account in Canada typically requires an in-person visit to set up the account. Additionally, you will need to transfer funds from your US account which can take up to several business days.
- Mortgage – Prequalifying for a mortgage is an important step that gives you an idea of what you can afford to buy and shows your real estate agent that you are serious about purchasing a home. Luckily, non-residents typically have access to the same interest rates as Canadians when it comes to their mortgage. There will be many requests for documentation during this stage so ensure you are prepared with all of the information they may ask for such as proof of income, bank statements, credit checks, reference letters, tax returns, etc.
- Down Payment – Typically, non-residents are required to have a larger down payment than Canadian residents. This amount is usually 35% of the home purchase price, however, this amount may range depending on the lender. It is normally mandatory for these funds to have been in a Canadian bank for a minimum of 30 days, and some lenders may require a fund history of up to 90 days.
In addition to providing documentation and proof of down payment in order to secure a mortgage pre-approval, there are additional fees that should be considered when purchasing and closing on a property in Ontario.
Fees To Consider
There are many different fees that are important to factor into your budget when it comes to buying and closing on a property. Listed below are some of the common costs that are associated with buying a home in Ontario:
- Home Inspection – A recommended contingency for all purchase offers to ensure the condition of a home, a typical cost of between $400-700 that is paid by the buyer to the home inspector/company.
- Legal Fees – These fees depend upon the purchase price of the home and the costs of your chosen lawyer, they will take care of such things as reviewing the purchase agreement, registering the deed, handling the transfer of funds, and more.
- Title Insurance – In most cases this is included in your legal fees, but if it is not, you can expect to pay between $200-$500 for title insurance.
- Non-Resident Speculation Tax (NRST) – As of April 2017, any non-residents purchasing property in the Greater Horseshoe Region is subject to the NRST tax which is calculated as 15% of the purchase price. (The Greater Horseshoe Region ranges from Niagara to the south, Waterloo to the west, Simcoe to the north and Peterborough to the east)
- Ontario Land Transfer Tax – This tax is dependent on the purchase price of the home ranging from 0.5%-2.5% and is mandatory for everyone when buying a home in Ontario
- Annual Property Taxes – An annual tax that is calculated based on the value of your home. You may be required to reimburse the sellers a portion of the property tax if they have paid for any amount past the closing date.
- Home Insurance – As a condition of your mortgage, before closing on your property, you will need to find home insurance. Consider using a company that has experience dealing and providing policies to non-residents.
Outlined above are most of the common fees associated with buying a property in Ontario. You should ensure to have enough funds to cover the fees listed above and additional funds for other fees that may be required such as property survey fees, harmonized sales tax (for new homes), Tarion warranty fees (for new homes) and other considerations. Your real estate agent and other professionals will be able to further advise you on closing costs.
Find an Experienced Real Estate Agent
After organizing your finances and ensuring that you are qualified to buy a home in Ontario, it is important to find a real estate professional that is experienced with helping non-resident buyers. Finding an agent that is well versed in the local real estate market of your desired city will ensure you get valuable insight about the community and real estate trends in the area.
Due to the likelihood of a foreign buyer shopping for real estate remotely, it is crucial to find a real estate agent you can trust will act in your best interest. The use of video, live and interactive online tours and other digital tools are an excellent way for a real estate agent to communicate and discuss buying options with non-resident buyers. You must also be sure that your real estate agent provides an option for electronic signatures on documents.
It is important to note that there are additional considerations to take into account if you intend to purchase a home in Ontario and use it as a rental/income property.
Are You an American Looking to Buy a Home in the Niagara Region? Contact Davids & DeLaat Today!
Are you an American or a non-resident looking to buy a house in the Niagara Region? Our experienced team of real estate professionals at Davids & DeLaat are here to guide you through the process of buying foreign property and help you find you the perfect home. Take a look at the houses for sale in Niagara Region today and contact us to get started!