We’ve been getting a lot of calls lately from Americans looking to buy property in Canada. Some are investors looking to take advantage of the low Canadian dollar when buying with US dollars, while others are hoping to move to Canada to escape the current political climate (sorry about that….)
The process of buying real estate in Canada is quite different from buying a home in the US. Here’s what you need to know:
When buying property in Canada, you’ll generally work with the following people:
- A licensed REALTOR – in most cases, one REALTOR represents the Buyer and another represents the Seller
- A home inspector
- A real estate lawyer – unlike many states, both the Buyer and the Seller will need their own lawyers and the lawyers will be the ones making all the closing arrangements
- A lender – Unless it’s an all-cash purchase, you’ll need a bank to give you a mortgage. If you use a Canadian bank, most non-residents require a downpayment of 35% while residents can get a mortgage with a downpayment as low as 5% of the purchase price (though that increases to 20% for investment properties or those worth more than $1 million).
- An insurance broker – If you aren’t residing in the home yourself, insurance can be trickier and more expensive
The House Hunting Process
There are 3 primary ways that you can search for a home in Canada:
- Online: Unfortunately, we don’t have Zillow or Trulia in Canada, but we do have www.realtor.ca (not to be confused with www.realtor.com – the real estate industry in Canada actually owns realtor.ca). As an American, you’ll probably find the Canadian property search site a bit dated; properties that are coming soon to the market won’t be listed; and because of privacy legislation, there’s a lot less public information than you’re probably used to seeing.
- Automatic Search Results via Email: This is the most efficient way of searching for properties. A licensed REALTOR can set up a search for you specific to your wants/needs, and new listings that fall within those parameters will get emailed to you daily. If you’re looking in Toronto, an agent can set up on a nifty public version of the MLS so you can search for properties yourself.
- In Person: If you’re planning on visiting Canada, this is certainly the best way to search for properties (plus it’s a great opportunity to actually experience Canada!)
- Via Video: Many of our non-resident Buyers choose to get video or Skype tours of properties they are interested in.
Sold Prices & Data
Canadians take their privacy seriously, so you may be frustrated by the relative lack of data available to househunters. Unlike most of the US, sold price and tax history are not publicly available or searchable in Canada. We don’t have Zestimates. We can’t find out how many mortgage payments someone might thave missed. Your real estate agent can help educate you on recent sales, but you won’t be able to search for that information online.
Schools & Neighbourhoods
Canada has strong Human Rights legislation that prevents discrimination in housing, however, unlike in much of the U.S., REALTORS in Canada ARE able to give demographic data, neighbourhood information and comment on school quality. In all honesty, it puzzles us that this kind of information is restricted in the US….it wouldn’t even occur to a Canadian to associate the quality of a school or availability of services with discrimination. “Family-neighbourhood” means it’s a good neighbourhood for families (and has nothing to do with implying singles aren’t welcome). “Great school” doesn’t imply anything about the race, ethnicity or country of origin of the students who are enrolled there.
Conditions & Contingencies
Offers on Canadian properties often including financing and home inspection conditions, though those contingencies are often only for a few days. Once a Buyer has conducted a home inspection or received approval from a lender for a mortgage, the property sale is ‘firm’ – meaning you can’t back out of it for any reason.
We don’t have escrow companies in Canada; deposits are held by a real estate brokerage and the lawyer handles the transfer of funds.
Money and Taxes
As of writing, the Canadian dollar is significantly lower than the US dollar, meaning there’s a real opportunity for Americans to pick up Canadian real estate for a fraction of what Canadians are paying. Here’s a look at what’s been happening to our currencies over the last 5 years:
- July 2016 – $0.77 US buys 1 Canadian dollar
- July 2015 – $0.77 US bought 1 CDN dollar
- July 2014 – $0.93 US bought 1 CDN dollar
- July 2013 – $0.97 US bought 1 CDN dollar
- July 2012 – $1 US bought 1 CDN dollar
For more information about the currency opportunity, check out a blog I wrote last year: Toronto Real Estate Just Got Cheaper.
You can either pay for your Canadian property in cash, or get a mortgage through a Canadian bank. Canadian banks usually require a downpayment of 35% from a non-resident (which has to be in a Canadian bank for a certain period of time before it can be used to buy a property). Buyers also need a Canadian bank account (which they have to come to Canada to open), credit references and of course an income that can pay the mortgage. While much of the financing process is similar to what you do in the US, Canadian banks tend to be more conservative and risk-adverse. Click here to read about qualifying for a mortgage, Canadian interest rates and downpayments.
In Canada, like in the US, you must provide a deposit to the Seller within 24 hours of an offer of purchase being accepted. In Toronto, typical deposits on a property are around 5% of the purchase price and form part of the down payment when you close on the property. But unlike in many parts of the US, if you decide not to close on a property your deposit is at risk and the Seller may very well be able to keep it.
Taxes, Taxes, Taxes
You’ve probably heard that Canada is the land of taxes, and unfortunately, that’s not wrong! If you buy a property here, you’ll need to be prepared to pay:
Land Transfer Taxes when you take possession of the property – this is a one-time tax payable to the province. if you buy in Toronto, you’ll have to pay a second land transfer tax (sorry about that). Check out or land transfer tax calculator here.
Municipal Property Taxes every year – these vary by city, but an owner of a property in Toronto that is assessed at $1 million would pay around $6,800 in taxes in 2016.
Capital Gain Taxes when you sell – In most cases, non-residents are subject to tax on any income or gains resulting from the sale of a taxable Canadian property, including residential homes, condos, vacation properties or land. When a non-Canadian-resident sells a property, the Buyer of the property must withhold and remit a portion of the purchase price to the Canada Revenue Agency (CRA). Generally, this amount is 25% of the gross selling price.(Note that the actual tax owing may be different, this is just to make sure the government will get its money by stopping the money from leaving the country until they can determine what is actually owing.) You’ll want to make sure you get advice from an accountant before you buy a Canadian property – there are likely taxes owing to the US government as well.
The Canadian closing process is quite different than in America, but you’ll have a lawyer working on your behalf to make sure it all goes smoothly.
Unlike in many parts of the US, the Seller cannot pay the Buyer’s closing costs, so you need to be ready. Generally, closing costs here will include:
- Balance of the Purchase Price – the purchase price less your initial deposit. Usually, the bulk will come from your lender and become your mortgage.
- Legal Fees – amount varies depending on purchase price and lawyer (approximately $1,800 for a $500,000 purchase in Toronto)
- Title Insurance – sometimes included in your legal fees ($250-$400)
- Mortgage Broker Commission – if applicable, usually paid by the lender
- Property Survey – if required ($1,000-$2,000)
- Ontario Land Transfer Tax – varies depending on purchase price (see our Land Transfer Calculator)
- Toronto Land Transfer Tax (varies depending on purchase price (see our Land Transfer Calculator)
- Property Tax Adjustment – reimbursement to Seller of property taxes they paid beyond the closing date
- HST – generally only applicable on new construction condos and houses
- Tarion Warranty Fees – warranty on new construction condos and houses only, not resale, (click here to estimate Tarion Fees)
- Provincial Sales Tax – only applicable on chattels purchased from vendor (amount varies)
- Adjustments for Utilities/Condo Fees/etc. – reimbursement to Seller for prepaid utilities, etc. (amount varies
The Real Estate Market
Because the Canadian and US real estate markets have had such different experiences in the last 10 years (the Canadian recession of 2008 lasted about 6 months), we don’t have REO’s, short-sales or foreclosures in Canada. The current real estate market is most of Canada is extremely strong, and you’re more likely to experience a bidding war than find ‘a deal’. You’ll want to work with a local real estate agent who can help you balance the risks and opportunities of owning a property in their community.
Citizenship and Residency
While anybody can buy a property in Canada, ownership does not give you any residency or immigration rights. And no, just because you want to move to Canada doesn’t mean that you’ll be able to! Just like in the US, we have a strict process that must be followed if you want to immigrate to Canada and it’s not quite as easy as most assume. Here’s a link to a great article from Forbes about your immigration options.
Questions? Need Help?
We love to help non-residents buy property in Canada, though please note that we are unable to answer questions or assist with immigration or finding a job here. If you’re thinking of buying property here, don’t hesitate to get in touch!