Recently James, a non-resident from Singapore purchased a property in Toronto. We completed the deal from start to finish in 10 days, which was highly stressful for both the borrower, realtor and mortgage broker – yours truly.
Everyday, I was faced with lender delays, appraisal delays’ and many phone calls back and forth to verify details. It was not clear that we would be able to close and both James and the seller could not extend closing, which led to further stress. James was leaving back to Singapore on July 29th and the sellers were closing on another property on July 30th. Our closing was set for July 27th. Deadlines all around were tight. The only positive was that the realtor already had the status certificate reviewed by the lawyer, before the purchase agreement was signed, which saved us time in the process, enabling me to send that in with the paperwork to the lender.
I realized that it was the lack of explanation on my part that facilitated this occurrence and thought that this example would be a great learning tool for your purchases in Canada.
James and I had been communicating for over a year as he had his eye on a specific condo that he wanted to purchase, however it was rarely available as these are in a great location and most people who buy rarely sell. However, as luck would have it, his realtor was able to find him the exact property.
When we had started our discussion, I gave him the same advice as I do all my non-resident buyers. We spoke about the down-payment required, the timeline for purchase and financing conditions and the closing, however something on my part must have been missed, which led to the 10-day timeline and a lot of stress!
Furthermore, the government keeps changing the mortgage rules and qualification process, and as Mortgage brokers, we get to take these opportunities to learn and refine our methods and thus I am sharing that with you here. So with that in mind, let’s start from the beginning.
Downpayment and Financing:
As a non-resident, you only have three lender options available to you through the broker channel. All have different parameters and down-payment requirements.
TD Bank – requires 35% down but has more paperwork requirements. They will allow 2 properties only per borrower. You can qualify for 25-year amortization only and bank rates, which are currently in the high 2% range.
Scotiabank – requires 50% down but has less paperwork requirements. They will allow only 1 property per borrower. You can qualify for 25-year amortization only and bank rates, which are currently in the high 2% range.
Equitable Bank – a “B” lender, which requires only 25% down and has similar paperwork requirements to TD. The benefit of Equitable is that they will allow unlimited properties in your portfolio and will allow 4 properties under their non-resident program, however their rates are in the mid-high 4% range.
Private Lenders are also an option, however I caution you against this lender type as you cannot refinanced to a conventional lender like TD or Scotia afterwards as they will only refinance non-resident clients that are existing clients. Private lenders will ask for 25-35% down but they also offer rates that start at 7.99% and are interest only.
Purchase and Financing Conditions:
This is super important to understand.
When you put an offer in on a property and it is accepted, in most cases you have 5-days to get your financing in order. This means that the lender must qualify your paperwork and approve you and give you a commitment for financing. In this 5-days, I must also have ordered the appraisal to verify the value of the property you are purchasing. Once financing conditions are met (meaning the lender verifies your income and ability to qualify for the mortgage), we move to the closing stage. It was this misunderstanding that led to the 10-day period, we closed on James’s mortgage. A typical timeline at minimum is 15-21 days.
Let me clarify here – without having your paperwork in order prior to this stage, you will not qualify for financing. Non-resident buyers have a harder stringent underwriting as we are dealing with borrowers from many different countries, such as Dubai, Abu Dhabi, Singapore and Australia to name a few. Each country has different ways of proving income – it is my job to verify with you what is available for the lender to underwrite your deal.
For this reason, I like to gather all paperwork, before you even hit the road to find a property. Once we start talking, I will gather the relevant paperwork, do a soft-underwriting to ensure you can qualify for a mortgage and verify where your down-payment is coming from. Once we have this in place, I can give you an exact figure of what you can qualify for, which is helpful to the realtor you choose to work with as he or she is then able to show you properties in your price range. It is part of the service I offer as your mortgage broker but it also ensures that you can qualify under the new mortgage rules that have been changing since last October 2016.
While 5 days is the norm for financing conditions, I like to ask for 10 days where possible, as lenders take longer to underwrite non-resident deals, however if 5 days is all we have, it is pertinent that all paperwork be in hand prior to your purchase.
Furthermore, the other delay always happens with appraisals. Typically, in the summertime appraisals can take up to 1 week to get. Each lender has their specified appraisal list, so we are restricted to using only that lender’s appraisers. This ensures there is no fraud or collusion on property values in the market, which we have seen in the past unfortunately.
Once we are approved for financing, your realtor has waived conditions and I have satisfied all the lender’s conditions, we move to closing.
It is important for you to know that as a non-resident, you must be in Canada for closing. Lenders’ used to allow signing in your home country via third parties, however found that in many cases, these third parties did not understand the Canadian real estate rules and law, and were not doing a proper job. For the last 3-years it has been mandated that all non-resident buyers must be in Canada for signing.
When it comes to closing, you will need to also arrange for the following:
- Home Insurance with the lender as co-insured; please note that non-residents do not qualify for life insurance so this is in case you die or default on the mortgage, the beneficiary in all cases is the lender;
- Your down-payment funds must have been in a Canadian bank 90 days prior to closing (this would have been verified during the financing conditions stage)
- You will have to pay the remaining down-payment (minus the deposit you give when you sign the purchase agreement) + closing costs (1.5% of the purchase price outside of Toronto and 2.5% of the purchase price if buying inside Toronto);
- I will arrange the appraisal for you but it will be an out-of-pocket expense around $250-$400 depending on property type and location;
- In some cases it is strongly advised you get a home inspection. This will run you $400 on average but if you are purchasing a home, you want to ensure that it is structurally sound;
- Finally, you should arrange for property management. Your realtor may be able to help or I can also refer you to some great companies.
Knowing the rules and procedures around non-resident purchases, can save you both time and stress and allow you to qualify for a mortgage in Canada. The process will typically take 15-21 days at minimum but in the summer months this would be more like 21-28 days. Give yourself the time required. Also, important to note is that you don’t have to be here for the entire process – just the closing. Your deposit can be given to your lawyer in trust prior to the purchase process starting.
Hopefully this helps you understand the procedure more clearly but if you are left with any questions, don’t hesitate to reach out as I would be happy to provide further explanation.
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