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Process for buying a home in Canada

This article provides a breakdown of the steps involved within the process and how better to both navigate and anticipate what you will be facing once the opportunity presents itself again.

Written on 15 September 2022

The expat community in Canada is and has been thriving for a long time, and when you consider its strong employment market, low crime rates and its genuinely breath-taking screen-saver type landscapes, it is really no secret why.

Despite Canada holding its lowest interest rates in February 2022 since the beginning of the Covid-19 pandemic (and ultimately providing an encouraging long-awaited window for foreign buyers in the market for a Canadian property), a two-year ban on foreign real estate investors was announced on 8th April 2022 by its government in an attempt to ‘cool down’ its market after a significant climb in house prices in 2021 (more than 20%).

This ban does not apply to Students, Foreign workers, or permanent residents.

However, due to this ban already causing an effect in a small amount of time, if you are a foreign real estate investor, it is always advised to be as informed as possible for when the time comes for your Canadian property purchase.

Furthermore, if you have not purchased property in Canada before, you may be confused as to where to start. Below is a breakdown of the steps involved within the process and how better to both navigate and anticipate what you will be facing once the opportunity presents itself again.

Deciding what and where to buy in Canada

In the beginning stages, having a clear and realistic property goal can help you to evaluate all your potential options to ultimately better manage your expectations.

One way to decipher what yours is to consider the logistical ease of what it would mean to live in each location that you may consider. Elements such as your family, career, retirement goals and the surrounding recreation are crucial points to weigh in your decision making.

Varying costs of living throughout different locations is also important to consider, to help understand what will be maintainable and comfortable going forward. Things such as property taxes can vary hugely between rural and urban areas and identifying all hidden costs early in your buying process could save you vast amounts of worry down the line.

You should aim to achieve a good understanding of both the distinct locations and property types in Canada, and how each come with their own regulations and financial requirements.

Talking with a mortgage broker early in the process can help you to grasp exactly what will be feasible going forward, as well as what types of property are in your financial reach realistically.

Down payments and other fees with Canadian property

Canadian property purchases lower than $500,000 require you to put down a minimum of 5% of the home purchase price as a down payment. Homes higher in price between 500,000 and $1 million, 5% of the first $500,000 will be required, as well as 10% of the rest of the remaining value.

Down payments on houses with a purchase price of higher than $1 million will require a minimum down payment of 20%.

Although these are the ‘minimum’ guidelines, higher down payments will always result in benefits such as holding more equity in your home, lower monthly mortgage payments, less interest paid over the course of your mortgage and by default, lower mortgage insurance premiums.

A further 3-5% of the purchase price should also be budgeted for other fees and closing costs. These can include the following:

  • Land Transfer tax fees
  • Home inspections
  • Title insurance costs
  • Lawyer fees

Required documentation for buying a Canadian home

Preparing your documentation in advance, even if you have not found your new home, is always advised. This can massively speed up the process of the mortgage approval, and once you find the house of your Canadian dreams, speed will most likely be at the forefront of your mind!

Some of the necessary paperwork you should have prepared for your mortgage process should include:

  • Statements dating back at least 3 months of all savings and investment account holdings
  • An up-to-date inventory of all other current debts and assets (loans, cars, direct debits etc)
  • Records of other sources of income (investment returns, business profits etc)
  • Information on current employment (employer contact information or formal letter from employer, payslips etc)
  • Proof of withdrawal from your RRSP if you are planning to use the Home Buyer’s plan

Mortgage pre-approval in Canada

Obtaining pre-approval early in the process can allow you the opportunity to spot any potential issues with your planning.

Your pre-approval is essentially a comprehensive review of the mortgage applications entirety (including all documentation supporting your mortgage objective and credit report). It is then followed by a written statement confirming that you successfully meet all the financial requirements for a specified loan value, on a specific stated property.

This pre-approval contract is only temporary but comes with many benefits when achieved.

Your pre-approval will essentially be demonstrating that when the time comes, you are able to be approved for the necessary funds, eliminating any time wasting or unrealistic assumptions on your incomes potential reach.

A mortgage promise will also allow property sellers and realtors to take your applications or interest significantly more seriously.

Of course, the conditions attached to the pre-approval will still need to apply to your end property choice, whilst also meeting the conditions set by your chosen lender.

It is also crucial to remember that being pre-approved for your loan does not make it your ‘target goal,’ and acts simply as a maximum guide figure to allow you to know exactly what your limitations are during your property search.

If you do eventually decide on a property which ends up holding a lower value than you originally anticipated and your mortgage promise figure is higher than strictly necessary, this could provide you with some unexpected funds to cover expenses elsewhere in the process such us utilities or interest rates and fees.

Resident and immigration status

You are considered a non-resident in Canada when you only plan to remain for six months or less. Remaining within Canada longer than six months of the year will require filing an application to be an immigrant.

Due to the current ban on foreign buyers, as mentioned above you must qualify as either student, a foreign worker or be eligible for permanent residency.

Permanent residency involves meeting the requirements under one of the available programs to ensure your eligibility.