What are closing costs?
Closing costs are a catch-all term for a variety of fees and expenses that must be paid at the time of closing. Closing adjustments, such as prepaid property taxes and maintenance for resale properties, builder adjustments, such as paving, tree planting, Tarion fees, etc. Land Transfer Taxes, and even legal fees and disbursements are all examples of these. The term “closing costs” lacks a precise definition and varies depending on who you speak with.
Who pays closing costs when buying a home?
Closing costs are paid by the buyer and are paid at the time of closing. These expenses are added to the total amount due and payable. If your closing costs are $4,450, for example, they will be added to the money owed to the seller, but will be disbursed to the appropriate parties by your lawyer at closing. Fees and disbursements for your lawyer will also be included. Your lawyer will pay the Province the land transfer taxes, and the rest of the closing costs will most likely be paid to the seller, with your lawyer keeping the funds due to him for fees, disbursements, and HST.
How much are closing costs on a new home in ontario?
The builder’s closing costs vary from builder to builder, excluding Land Transfer Taxes. Closing costs should be budgeted at 1.0 percent of the purchase price as a general rule of thumb (excluding Land Transfer Taxes). Given the high prices, closing costs (excluding Land Transfer Tax) are likely to be less than 1% of the total purchase price.
Who pays closing costs on commercial real estate?
All closing costs are paid by the buyer, just like in a residential transaction.
What is included in closing costs?
The cost of closing a transaction varies depending on the type of transaction. Newly built homes (i.e. builder purchases will include the cost of the Tarion warranty, tree planting, driveway paving, property tax adjustment, extension fees if applicable, NSF fees on deposit cheques if applicable, energization costs such as the installation of a hydro or water metre, and so on.). Closing costs vary depending on the builder. None of these expenses apply to resale homes. In the case of condominiums, closing costs are typically limited to a credit for any prepaid property taxes, fuel oil tank (if applicable), and prepaid maintenance for the month of closing. The fees and disbursements charged by your lawyers may also be included in your closing costs.
How much are typical closing costs for refinance?
Other than legal fees and disbursements, there are usually no ‘closing costs’ in a refinance transaction.
How to figure closing costs when paying cash?
Closing costs are the same whether you buy with cash or with a mortgage. The only cost that might change is the lawyer’s disbursements, which could be a few hundred dollars less.
What is a cap rate in commercial real estate?
A capitalization rate (CAP rate) is a type of ‘rate of return.’ In layman’s terms, cap rate is the ratio of annual net rents to the property’s purchase price. For example, if rents are $100,000, you deduct expenses like property taxes, management fees, insurance costs, and so on. But not the mortgage, which is $60,000, leaving you with net rents of $40,000. The CAP rate is $40,000 / $600,000 = 6.67 percent if you paid $600,000 for the property. Other types of ‘rates of return’ exist. Financing will have a significant impact on the rate of return. Expensive financing (i.e. high interest rate loans) will result in a lower rate of return, whereas cheap financing will result in a higher rate of return. The playing field is levelled by removing financing as a factor and comparing the value of the properties as if they were purchased for ‘cash’ (i.e. without financing). This allows for a better comparison of prices between different properties, and market participants only need to refer to a CAP rate when evaluating a property’s potential, with a higher CAP rate being more beneficial to the owner than a lower CAP rate, and thus a purchaser wishes to buy at a HIGHER CAP rate and a seller wishes to sell at a LOWER CAP rate. Because, as previously stated, CAP rate is inversely proportional to price, the lower the CAP rate, the higher the price must be.
How long does it take to refinance a mortgage in Ontario?
In Ontario, refinancing a property is a two-step procedure. First, a willing lender, such as a bank, must approve you for a loan, and second, you must retain the same lawyer to receive mortgage instructions from the lender. After that, the lawyer will prepare the mortgage according to the lender’s instructions and invite you (the borrower) to sign the new mortgage documents in his office. The lawyer will then receive funds from the lender and disburse them as needed, leaving you, the borrower, with the remaining funds. A new mortgage will be registered on your property at the same time, and the old mortgage will be removed from your property within a short period of time.
Can a foreigner purchase property in Ontario?
This is a question that many clients and agents ask to help their foreign potential buyers buy a home. YES, to put it simply. Real estate in Ontario can be purchased by any legal entity (individual, corporation, partnership, or trust), whether foreign or domestic.
What happens if the seller is a non-resident but the property is mortgaged beyond 75% not leaving sufficient proceeds of sale to be held back on closing for the 25%?
This is a serious issue. Putting aside the jokes, the seller will either have to bring money to the table or walk away from the sale. Other arrangements may be required. An explanation for this is not possible in this FAQ section. You’ll need to consult with your attorney. This type of situation is uncommon, however, because the foreigner most likely had to put down 35% at the time of purchase, and the property should have appreciated in value over time.
As a foreigner, do I qualify for the HST new housing rebate provided by the Canada Revenue Agency for the purchase of new construction?
There are two HST rebate programmes to choose from. The first programme is for buyers who plan to live in the property, while the second is for buyers who plan to rent it out. The foreigner will be able to apply for the HST rebate through the rental rebate programme because the property will most likely be purchased for rental purposes. This is the same as the amount provided under the HST rebate programme for owner-occupied homes. The difference is that the builder will not credit the HST rebate to the buyer at closing, and the buyer will be responsible for paying the builder this amount in addition to the purchase price.
As a foreigner owning real estate in Ontario, do I need a Will?
This is a complicated question, but in general, YES, you should have a Will prepared if you want to control the disposition of your property after you die.
How will a purchaser know if the seller is a foreigner (non-resident for tax purposes) or not?
A seller must provide a special document to the buyer at closing that states whether the seller is a non-resident or not. It is ultimately not the buyer’s responsibility to determine whether or not the seller is a non-resident, unless the buyer has specific knowledge. The procedure outlined above kicks in if the seller informs his lawyer that he is a non-resident for tax purposes. The procedure above does not apply if the foreigner signs a certificate stating that he is not a non-resident, and the seller receives all of his money at closing. In this case, the buyer is immune from liability, regardless of whether the foreigner was honest or not. It is the buyer’s responsibility to ensure that he obtains a document from the seller stating that the seller is not a non-resident or that the seller’s lawyer holds back the 25% of the purchase price.
Is purchasing a property in Ontario a ticket for foreigners to a permanent resident status in Canada?
That isn’t enough in and of itself. Unlike some Caribbean countries, Canada does not offer permanent residency in exchange for the purchase of a home.
Are there any other taxes, fees or costs other than the section 116 procedure?
NO. It’s possible that you’ll have to pay for an accountant. There may be higher legal fees to deal with funds that the lawyer must hold back and manage’ for a period of time, but there are no additional fees, taxes, or expenses in general.
Can a foreigner not lie about his status as a non-resident?
Yes, a non-resident foreigner can try to deceive the seller’s lawyer, but if the seller’s lawyer suspects that his client is a non-resident, the seller will be forced to comply with the process or change lawyers. In Canada, the tax system is based on the principle of voluntary disclosure.
Are there any restrictions on foreigners purchasing real estate in Ontario?
NO. There are no restrictions in most cases.
Does a foreigner need a local bank account in Ontario if purchasing real estate?
Yes. The foreigner will need to open a local bank account because mortgage payments, possibly maintenance payments, property taxes, and utilities will all be made with it. Rents will, of course, need to be deposited somewhere.
Does a foreigner need to have local Ontario / Canadian identification to complete a real estate transaction.
NO. However, a valid passport from a foreign country is required. A passport and a credit card from a financial institution, or an English-language driver’s licence.
Can a foreigner qualify for a first time buyer’s credit that is given by the Ontario (and the City of Toronto) to first time buyers.
NO. In most cases, this credit will not be applicable. Individuals who are buying a home for the first time and have never owned a property anywhere in the world are eligible for the credit if they plan to make this building their primary residence within 9 months of purchase. Foreigners are generally exempt from these circumstances, particularly the last one. In some cases, the foreigner may be eligible. For example, a foreigner who has applied for and received permanent residence status in Canada but has not yet moved to Canada but intends to do so.
Can documentation be signed over skype or some other fashion such as at an embassy or a foreign notary’s office?
This is a highly personal question that is answered on a case-by-case basis. Although it is possible to complete a transaction in this manner, only a thorough discussion with your Real Estate lawyer can determine if it is.
Can the seller’s lawyer disburse the money to the seller by wiring it overseas?
yes, unless there is reason to believe it should not be done for legal reasons. Unless the seller has closed all of his bank accounts because he is emigrating to another country, there should be no reason for the seller to make such a request.
Are property taxes any different for foreign real estate owners?
No, property taxes for foreign real estate owners are the same as for domestic real estate owners.
Are there any special financial privileges or benefits to foreign buyers?
No, foreign buyers are not entitled to any financial benefits or privileges.
Can the lawyer retain the proceeds of sale to purchase another property for the foreigner?
Sure, the lawyer doesn’t have to give the money to the foreigner and can put it toward another pending purchase.
Can a foreigner be not a non-resident for tax purposes?
Yes. For income tax purposes, not all foreigners (those who live in Canada but are not permanent residents or citizens) are non-residents.
Can you refinance when your mortgage is underwater?
You could, in theory. Remember the two-step procedure mentioned earlier. If you are able to find a lender willing to lend you money despite being underwater on your current mortgage, your lawyer will complete the new loan transaction according to the instructions provided by the new lender.
Can a foreigner get an Ontario bank loan (mortgage) to purchase real estate in Ontario?
Yes, most of the time. This is a question that you should ask your local mortgage broker or agent. However, if a foreigner has a sufficient down payment, he or she should be able to obtain a mortgage in Ontario. A down payment of about 35% is usually required. In addition, the foreigner may be required to show proof of income in his home country in order to qualify for a mortgage loan, but will almost certainly need a reference letter from his foreign financial institution. Because there is likely no bureau file, credit bureau checks don’t account for as much. The mortgage agent/broker should be contacted again.
Does a foreigner need to be physically present in Ontario to open a bank account?
NO. It may come as a surprise to you, but the bank will be able to open a bank account for a foreigner without the foreigner being present if the bank has a good standing client who can vouch for the person. Speak with your local banker for more information on this.
Are the costs, fees, disbursements and other expenses any different to a foreigner purchasing real estate in Ontario?
NO. There are no additional costs to purchase aside from travel expenses.
Are there special taxes, fees, levies etc. When a foreigner (non-resident for tax purposes) sells real estate?
YES. Foreigners selling real estate will have to go through a process that Canadian residents do not have to go through. A foreigner is not eligible for the Canadian income tax exemption on principal residence because the property is not his primary residence because he lives abroad. As a result, in order to ensure that the Canada Revenue Agency gets their cut, the tax liability is pinned on the buyer. As a result, the buyer must make certain that the seller pays his fair share of taxes. As a result, when a foreigner sells property, a special procedure is in place.
The steps are as follows: When the deal comes to a lawyer’s closing, the seller’s lawyer will retain 25% of the sale price from the seller (although the requirement is on the purchaser’s lawyer, but practice has developed such that the seller’s lawyer participates). For example, if the sale price is $1,000,000, the seller’s lawyer will retain $250,000 at closing and release only $750,000 to the seller, less any mortgages, commissions, and other fees. Following the closing, the seller will hire an accountant to submit a special application to the Canada Revenue Agency detailing the profits earned on this real estate. Profits are calculated by subtracting all expenses from the sale price, as well as the purchase price and all expenses associated with the purchase price, to arrive at a final number. The Canada Revenue Agency will then evaluate the application and issue a Section 116 certificate. Because the certificate is issued under section 116 of the Canadian Income Tax Act, it is referred to as a Section 116 certificate. The certificate will be sent to the accountant and will specify the amount of income tax that the seller must pay. This figure will most likely be around 25% of the profit.
For example, if your net profit was $200,000, you will owe the CRA $50,000. The certificate will also state that once the seller pays $50,000 to the CRA, the purchaser is no longer liable, because remember, it was the purchaser’s responsibility to ensure that the seller paid his fair share of the taxes. The seller’s lawyer will then deduct $50,000 from the $250,000 he was holding back and pay it to the CRA, releasing the remaining funds to the seller. After closing, the seller has 10 days to submit the application to the CRA; otherwise, there are severe penalties.
Are the land transfer taxes greater or less for foreigners?
NO. Refer to the previous question’s answer once more.
If a foreigner has a spouse but purchases on his name alone, does the spouse of the foreigner need to sign any documentation?
Generally, No. On a mortgage that is being arranged on a matrimonial residence, a spouse only needs to sign consent. The spouse’s signature is not required because the foreigner will not be residing in the property with his spouse. Of course, this does not apply in situations where both spouses are purchasing and taking title to the property. Both parties must be present to sign the paperwork in this case.
Are there any restrictions on a foreigner selling real estate in Ontario?
NO. Foreigners, like everyone else, can sell real estate in Ontario.