Purchasing a property is a thrilling and exciting experience for buyers, whether they plan to build a home or establish a business. Owning a property has been shown to stabilize or even improve one’s financial status. However, before making this significant investment, it’s important to conduct thorough research and evaluate your financial standing, including your debts and assets.
In Canada, buyers are required to make a down payment of at least 5% of the property’s purchase price. For homes priced between $500,000 and $1,000,000, a down payment of 5% is required for the first $500,000, and 10% for the remainder. If the property is valued at $1 million or more, the minimum down payment is 20%.
Although the process of purchasing a property can be challenging, this article provides guidance on how to buy a property in Canada as a Canadian citizen or foreigner. Additionally, it offers insight into the costs of buying property and obtaining mortgage loans. So, let’s explore the details.
Purchasing property in Canada as a local involves four essential steps that you need to consider carefully.
Step 1: is to evaluate your budget and determine how much you can spend on a property. While owning a property can be an exciting experience, it is crucial to thoroughly analyze the expenses before making a decision. According to the Canada Mortgage and Housing Corporation (CMHC), your housing costs should not exceed 35% of your total monthly income, and your total debt should not exceed 42% of your total monthly income. It’s important to keep these figures in mind when considering the affordability of a property.
- Step 2: Save up for your home The next crucial step is to assess your savings and explore various saving programs. Keep in mind that you need a down payment to purchase a property, as well as funds to cover initial expenses. Most employers can automatically deposit your paycheck into your savings or checking account. To achieve your savings goals, the Canadian government’s official website suggests setting up an automatic transfer to a savings account each pay period.
In addition, you can apply for these saving programs:
- Tax-Free Savings Account (TFSA)
- Registered Retirement Savings Plan (RRSP)
- Home Buyers’ Plan (HBP)
- First-Time Home Buyer Incentive
Step 3: involves making a down payment for the purchase of your property. It is rare for people to buy a property without any previous savings, investments, or mortgages. Once you have made your down payment, you can start the mortgage process. A financial institution will lend you money, and you will need to obtain mortgage loan insurance to protect the lender in the event of nonpayment.
Step 4: Claim tax credits for your new property Before finalizing your big purchase, you should be aware of the tax credit options available to you as a property buyer in Canada. The Canadian government offers two types of tax credits: provincial and territorial, and it is up to you to choose which one to apply for.
Real estate in Canada is subject to taxation like any other asset, so it is important to consult a Canadian tax expert to fully understand the financial implications of buying a property in Canada. Canadian citizens and international buyers are subject to the same Land Transfer Tax (LTT), but first-time homebuyers who intend to use the property as their primary residence may qualify for a tax rebate.
Other taxes that you will be required to pay include property and income taxes.
Purchasing Property in Canada as a Non-Resident: A Guide
Canada is home to large communities of different cultures and attracts many foreigners for holidays, short-term employment, or academic pursuits. If you’re a non-resident looking to make Canada your second home, you’re emigrating but haven’t yet obtained full legal residency, or you’re an overseas buyer looking to make a wise investment, you might be interested in purchasing real estate in Canada.
Fortunately, as a foreigner, you can purchase property in Canada. However, you must follow the correct processes for buying a home, just like all buyers. This includes paying all required taxes, and non-residents are also required to pay a separate tax known as the Non-Resident Speculation Tax (NRST).
1. Mortgaging for Non-Residents and Foreigners in Canada
- Non-residents looking to purchase a property in Canada can obtain a mortgage, but there are certain requirements to meet. Canadian banks may ask for a larger down payment and more payments from non-residents or foreigners than they do from citizens, even though interest rates are similar. Typically, a minimum of 35% of the home’s value is required as a down payment, although this can vary among lenders. In addition to the down payment, non-residents will often need to provide supporting documents such as a bank reference letter, employment verification letter, at least three months’ bank statements, and a credit check.
2. Expenses involved in buying property in Canada
The cost of purchasing a property in Canada is influenced by factors such as location, size, and market trends. In addition to the purchase price, there are several other fees and taxes that buyers need to consider, including:
- Non-Resident Speculation Tax (if applicable)
- Property transfer tax at both provincial and municipal levels
- Special taxes on newly constructed properties
- Sales tax on mortgage insurance
- Any applicable interest fees.
In this blog post, we have discussed the process of purchasing property in Canada for both locals and foreigners. Investing in a property that can stabilize or improve your financial situation is a wise decision. When buying real estate in Canada, a minimum down payment of 5% of the property’s purchase price is required, and for homes worth $1 million or more, the minimum down payment is 20%. Employers usually deposit paychecks into the buyer’s bank account, and the Canadian government offers provincial and territorial tax credit options for homebuyers.
Like other assets, real estate in Canada is subject to taxes, and both Canadian citizens and foreign buyers must pay the same land transfer tax. As a foreigner, you can purchase a property in Canada by following the correct procedures, and you will also have to pay additional taxes such as the non-resident speculation tax, property transfer tax, and sales tax on mortgage insurance. If you’re interested in buying a property in Canada, it’s best to consult with a professional and get expert advice.