Trish Bongard Godfrey

How to Finance a Property in Canada If You are a Non-Resident

22 April 2016
Trish Bongard Godfrey

Foreign ownership in Canada brings a unique set of intricacies and challenges. As always, travel can mean a little turbulence. It is important to find the right Canadian based financial advisor to help you navigate this turbulence with minimal bumps. If you’re a foreign borrower it’s possible to obtain a mortgage up to 65% of the value of a property. However in order to qualify you will have to show income tax returns so the lender can verify your ability to carry that mortgage.

Understanding The Basics

Once you’ve dealt with the income requirements, mortgages for non-residents aren’t that different from mortgages for residents and are no more rigorous than what borrowers in other countries are used to:

  • Conventional fixed or variable mortgages are offered
  • Purchase, refinance, switches all available
  • Owner occupied secondary/vacation properties, properties occupied by a child and rental properties are eligible
  • The borrowers will be interviewed via phone or email to gather personal information including assets, liabilities, and employment income.
  • Mortgage approval may take 24 – 48 hours after application and documentation have been submitted.
  • The usual documentation required includes: income verification, tax returns, credit bureau or banker’s reports, down payment confirmation, copy of two pieces of ID and real estate appraisal.
  • The borrower will need to open a Canadian bank account for debiting of mortgage payments.
  • The borrower will require a Canadian lawyer or notary public to prepare mortgage documents and registration at the Land Titles office.

Methods of Payment

It is recommended that the home purchaser open and use a Canadian bank account for the transfer of funds. The balance of the purchase price must be paid by certified cheque or bank draft in Canadian funds regardless. Exchange rates fluctuate frequently so it is important to be mindful of this before the completion date.

Who Administers Canadian Income Tax?

Non-residents who earn income in Canada from properties they own in Canada are subject to tax by the Canadian Revenue Agency (CRA).

How Much Income Tax?

Income tax or income from property is first collected at the source of payment. The CRA requires persons or businesses paying such income to non-residents to withhold and remit 25% of the gross income from property (before deductions). The rate of income tax can vary, but is a minimum of 20% for individuals.

There can be wrinkles in this process and financial institutions differ on things like withholding taxes, loan to value ratios, down payments – all the areas you will want a Canadian contact to help you with.

No income tax returns? This is a huge problem – especially for residents of Hong Kong, Mainland China and the Middle East who often don’t need to pay income tax. What to do? Contact a Canadian financial advisor with experience guiding foreign buyers through this process and helping them gain the funding they need to purchase a home here in Canada. Speak to me about it, and I may be able to offer a referral.