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Unravelling The Real Estate Buying Process in Canada
If you're a foreign national thinking about investing in the real estate market in Canada here's a run down of the typical buying process you should expect to encounter together with a general explanation of mortgages available to assist with the purchase.
First things first though, you have to find your ideal property of course!
But let's assume you've done that with the help of a good estate agent and you're ready to move forward with an offer.
It's important to know that from the outset the entire process surrounding the buying and selling of real estate in Canada is a regulated process. This means the process should follow the basic format as described below and that you will be protected throughout by the rules governing the process and the actions of those involved in it.
Once you find your dream home in Canada you make a financial offer to purchase to the vendor - probably via your agent - which your estate agent is legally bound to submit to the vendor whether or not it matches the asking price. Negotiations proceed until a purchase price is agreed upon between you and the vendor, at which point both parties sign the 'Offer to Purchase' - also known as 'Agreement of Purchase & Sale'.
This is a preliminary contract and it is either 'firm' or 'conditional'
A conditional preliminary contract usually contains terms relating to the successful securing of finance to buy, or to the satisfactory completion of building surveys etc., and it only becomes firm when all the conditions have been met.
If you are using a mortgage to purchase your home it is essential to have this noted as one of the terms, because if you fail to secure your mortgage and the contract falls through you will want your deposit back!
A firm preliminary contract is not subject to any terms or conditions, if it is broken by the purchaser they lose their deposit, if it is broken by the vendor they may be subject to a financial penalty.
Your deposit will be required when signing the Offer to Purchase, and the contract will contain your completion date.
When the completion date is reached and all conditions for the fulfilment of the contract have been met, the remainder of the purchase price together with all fees will be payable.
Monies are paid to the vendor via the solicitor or notaire handling the legalities of the sale. At this point both the purchaser and the vendor sign the 'definitive contract' which is called 'Acte de Vente' in Quebec.
If purchasing in Quebec this final part of the sale is managed by a notaire who in this case is a government official - s/he is responsible for the conveyancing and as a result s/he represents both the purchaser and the vendor...it therefore makes sense to employ your own legal representative in Canada to make sure your best interests are served and protected throughout the process.
Fees you will likely incur on top of mortgage arrangement fees, legal and survey fees include provincial fees and land transfer taxes. Provincial fees are around CAD 100 depending on the province in which you're purchasing, and they are charged for transferring the title of the property etc. Land transfer taxes are again determined by each province and they are calculated as a set percentage of the purchase price.
If you are interested in securing a mortgage to fund your purchase it is interesting to note than depending on your country of origin and circumstances, there are a number of major financial institutions in Canada willing to lend to non-resident buyers.
The following is only meant to serve as a general guide to Canadian mortgages - it may not apply in every case.
Most Canadian mortgages are what's known as "full status" - a full status loan is where complete checks are made on the borrower's credit history and income.
To apply for such a mortgage you will have to have proof of income and outgoings. Such finance can be raised for the purchase of property, the renovation of real estate or for house construction purposes.
Generally a 35% deposit is required and the purchaser is also responsible for all legal fees involved in the arrangement and purchase process. 35% is just a guideline, some provinces require deposits of up to 50%, and in special circumstances a deposit lower than 35% may be acceptable.
Most mortgages are repayment over a maximum of 25 years with pay back due for completion before the purchaser's 70th birthday. Most lenders make life cover a further lending requirement.
When it comes to eligibility for a loan and size of a loan you need to know the following: -
- Eligibility is based on the applicant's current ability to fulfil the financial terms of the loan, it is not based on any potential rental income the applicant may generate from the property he is hoping to purchase with the mortgage.
- Taking the applicant's gross income into account, 40% should cover all existing outgoings and commitments AND the monthly repayments for the proposed new mortgage.
- If you're self employed then your income will be taken as the average of your last three years' net income.
- If you have existing rental and/or investment income this may be taken into consideration as well.
- Outgoings in this context are any current mortgage or rent you pay, any personal loans or credit card payments you have and any child support payments you have to make.
If your mortgage application is successful it will of course be secured on the property you're buying in Canada and not on any property you currently hold in which ever country you are a resident.
The mortgage company carry out a valuation of the property you're looking to buy to make sure it's worth the purchase price, and you'll probably end up paying any fees they incur making this valuation. Finance arrangement fees can sometimes be charged as well, they are usually 1% of the loan amount.
The money you borrow will be paid to the vendor via the solicitor or notaire responsible for the completion of the purchase contract and process.
That's it in a nutshell!
As stated though, the entire real estate purchase process and application for a mortgage will depend on personal circumstances.
Rhiannon Williamson is an experienced publisher who has produced articles for leading travel and tourism guides and financial magazines. Her specialist knowledge about both travel and finance gives her site Shelter Offshore the unique ability to literally cover every single aspect of moving & living abroad - including the often less discussed offshore tax advantages that can be available when leaving our homeland. Check out her website to find out how you can escape from the rat race, relocate overseas, and profit from your move!
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