Unravelling The Real Estate Buying course of action 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 course of action you should expect to encounter together with a general explanation of mortgages obtainable to assist with the buy.
First things first though, you have to find your ideal character 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 complete course of action surrounding the buying and selling of real estate in Canada is a regulated course of action. This method the time of action should follow the basic format as described below and that you will be protected throughout by the rules governing the time of action and the actions of those involved in it.
Once you find your dream home in Canada you make a financial offer to buy 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 buy price is agreed upon between you and the vendor, at which point both parties sign the ‘Offer to buy’ – also known as ‘Agreement of buy & 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 buy your home it is basic to have this noted as one of the terms, because if you fail to obtain your mortgage and the contract falls by you will want your place back!
A firm preliminary contract is not unprotected to any terms or conditions, if it is broken by the purchaser they lose their place, if it is broken by the vendor they may be unprotected to a financial penalty.
Your place will be required when signing the Offer to buy, 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 buy 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 consequence s/he represents both the purchaser and the vendor…it consequently makes sense to use your own legal representative in Canada to make sure your best interests are served and protected throughout the time of action.
Fees you will likely incur on top of mortgage arrangement fees, legal and survey fees include provincial fees and land move 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 character etc.
Land move taxes are again determined by each province and they are calculated as a set percentage of the buy price.
If you are interested in securing a mortgage to fund your buy it is interesting to observe 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 “complete position” – a complete position 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 buy of character, the renovation of real estate or for house construction purposes.
Generally a 35% place is required and the purchaser is also responsible for all legal fees involved in the arrangement and buy course of action.
35% is just a guideline, some provinces require deposits of up to 50%, and in special circumstances a place lower than 35% may be permissible.
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 possible rental income the applicant may generate from the character he is hoping to buy 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 hypothesizedv 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 in addition.
– Outgoings in this context are any current mortgage or rent you pay, any personal loans or credit card payments you have and any child sustain payments you have to make.
If your mortgage application is successful it will of course be secured on the character you’re buying in Canada and not on any character you currently keep up in which ever country you are a resident.
The mortgage company carry out a valuation of the character you’re looking to buy to make sure it’s worth the buy price, and you’ll probably end up paying any fees they incur making this valuation. Finance arrangement fees can sometimes be charged in addition, 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 buy contract and course of action.
That’s it in a nutshell!
As stated though, the complete real estate buy course of action and application for a mortgage will depend on personal circumstances.