Financing Recreational or Revenue Property in Canada and Mortgage Guidelines for Non-Residents

Limited Access to Financial Markets- If you are a Non -resident of Canada or if you are residing in Canada without Canadian Citizenship, you will find that you have a more limited choice of lenders and face stricter lending guidelines than Canadian citizens when applying for mortgage financing.  The same difficulty applies to very new citizens who have not had a chance to establish a credit record in Canada.
Since the largest choice of lenders can be found through INVIS, non-residents and non-status or new status residents will find more options here than anywhere else.  Approval requirements vary greatly from lender to lender, and we will help you sort through the process of finding the best lender for you.

Financing offers arranged by builder/developers- If you were looking at new properties, often the sales people in the project would suggest a lender who will finance that specific property under certain terms.  This is by no means your only alternative, and we suggest that you give us a call to discuss your options.

Mortgage Guidelines -

• Down Payment – equity requirements vary from lender to lender, however first mortgages will normally be 60-65% of the value of the property, but occasionally some lenders will go as high as 75%.  As property purchase price increases beyond $400,000, down payment requirements can increase; depending on the lender, up to 50% equity required.  Please note that CMHC financing is not available to non-residents.  (For our American neighbours, I am happy to say, you may only need to put down 15-20% to qualify for a first mortgage – ‘OAC’.)
• Second mortgages – We can assist you with your down payment by arranging a second mortgage. Generally, you would need 10 to 20% equity (down payment) in this case. Second mortgages are generally obtained from private lenders who wish to invest their money in this type of asset. The mortgage is a firm and binding contract with the home owner and would be subject to the same regulations governed by the provincial ministry of finance as would first mortgage lenders.
• Credit – In Canada, it is possible to pull a credit bureau report from the United States. If you are non-resident to Canada or the United States we can pull an international credit bureau, however these bureaus do not always have reported information. If no credit history can be shown on the credit bureaus you will be required to obtain a letter from your bank detailing your credit worthiness and history. Sometimes a letter from your visa card issuer can also help.
• Income Requirements – Debt servicing income can come from two sources: one is the income coverage from potential rental of the property; the other is your personal income. Generally speaking, the more income confirmation that can be given the lender, the better terms and conditions you will be able to negotiate. The best income documentation includes: letter from appraiser detailing the market rent of the property, letter from existing tenants or lease agreements detailing rent being paid, letter from your employer detailing your monthly salary, W2′s or Tax Returns showing your three year history of income. It is possible to obtain financing with no income documentation at all, however it is highly recommended to provide as much as possible to increase your negotiating power.
• Title – freehold or strata titled units are preferred by lenders over leasehold units, or rental restricted units such as hotel type properties. It is possible to obtain financing on any type of property, however there are far fewer lenders for the latter two.

Receiving Title - Purchasers must decide on how they wish to receive title. The choices include taking title in your personal name or in the name of a company. In most cases, if title were received in the name of a company, the financing obtained would be subject to commercial underwriting guidelines and possible higher rates and stricter terms and conditions. If you are financing the bulk of your purchase it may be to your advantage to purchase the property in your personal name. Another advantage to this is the marginal tax rate in Canada applied to income and capital gains tax is lower personally than for non-resident companies and non-resident trusts.

Trusts - Generally a non-resident trust will not be able to hold title to a property in British Columbia directly, however may still hold title indirectly.

Costs - refer to our buyers guide for an outline of costs involved in a purchase transaction.

Legal Costs - You must retain legal representation in Canada. Generally speaking a lawyer in Canada can quote a flat fee, including the preparation and registration of the mortgage and transferring title to your name.

• PPT - Please note that the property purchase tax rebate is not available to non-residents, and therefore any property purchased would be subject to provincial tax applicable. In British Columbia, this tax is 1% of the first $200,000 and 2% of the balance of the purchase price.
• GST - Generally speaking GST is applicable to new or substantially new (renovated) homes, or raw land. GST may be deferred if the purpose of the purchase is for commercial use, including nightly accommodation rentals. The purchaser must register as a GST registrant in this case.
• Income and Disposition Taxes – On disposition (sale) of a property by a non-resident, capital gains tax will be payable in respect of the increase in value of the property during ownership. Currently, three quarters of this gain is taxable and marginal tax rates of individuals or corporations, as the case may be, will be applied to the taxable gain.
• Lender/Broker Fees - By law, your mortgage broker is required to advertise that fees by the broker or lender may apply in any transaction. If a fee is applicable to your transaction, a disclosure statement must be provided to you outlining the costs associated with the financing including appraisal fees, legal fees, and broker and lender fees. Generally speaking, we do not charge fees on first mortgages as we are paid commissions by the mortgage lender. Second mortgages require fees, usually both a broker and a lender fee and these fees vary depending on many factors.
• US/Canada Tax Treaty - For US residents, you should be aware that the US government has imposed a tax on Canadian banks for making mortgage financing available to you. (Apparently, you can file a claim with the IRS and get this back if you qualify.  That means you must declare.) Different banks have very different policies on this.  Some have decided to absorb this additional tax burden.  One major bank has imposed a 10% surcharge on their mortgage rates to US residents, while others will not give you any discount on their rates.  As you advocate, I can sort this out for you and get you the best deal available, for no other reason than the fact that I can access quite a number of lenders who will absorb the cost.

Please call us for a complete quote on your mortgage financing, you will find that our rates are absolutely the most competitive in the marketplace.

The above information is provided as a guideline and neither Leo Lee nor INVIS is responsible for the accuracy or completeness of this information. We highly recommend you seek professional advice from qualified lawyers, accountants, real estate agents, and mortgage brokers throughout every aspect of your transaction

If you would like to find out more about mortgages in Canada, you are welcomed to get a copy of my free eBook called: “The Top 10 Things You Must Know Before You Apply For A Mortgage Loan in Canada”.