Frequently Asked Questions
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Closing Cost
There are generally no ‘closing costs’ in a refinance transaction, other than legal fees and disbursements.
Closings costs vary depending on the nature of the transaction. Newly constructed homes (i.e. builder purchases will include the cost of the Tarion warranty, the costs of tree planting, driveway paving, property tax adjustment, extension fees if any, NSF fees on deposit cheques if any, energization costs such as the installation of a hydro or water meter etc…). Not all builders charge the same closing costs. Resale homes do not have any of these costs. Closing costs are usually limited to an adjustment in respect of any prepaid property taxes, fuel oil tank (if any) and prepaid maintenance for the month of closing, in the case of condos. Again, your lawyers’ fees and disbursements may also be considered as closing costs.
The purchaser pays the closing costs, which are paid at the time of closing. These costs are added to the total that is otherwise due and payable. For example, if your closing costs are $4,450, then this sum will be added to the monies that are due to the seller, but will of course be disbursed by your lawyer to the appropriate parties on closing. Your lawyer’s fees and disbursements will be lumped in as well. The land transfer taxes will be paid by your lawyer to the Province and the other closing costs will likely be paid to the seller with your lawyer retaining the monies that are payable to him on account of fees and disbursements and HST.
Closing costs is an umbrella term for various legal fees and expenses that are payable on closing. These can mean anything from closing adjustments such as for prepaid property taxes and maintenance for resale properties, to builder adjustments such as paving, tree planting, Tarion fees, etc…to even Land Transfer Taxes and to even legal fees and disbursements. The term “closing costs” does not have a precise definition and will vary depending on whom you speak to.
The same as with residential, all closing costs are paid by the purchaser.
A CAP rate is a type of ‘rate of return’. In simple terms, cap rate is a calculation of annual net rents (excluding financing costs) divided by the price paid for the property. For example, rents received are 100,000, then you subtract expenses such as property taxes, management fees, insurance costs etc…but NOT the mortgage, say $60,000 leaving you with net rents of $40,000. If you paid $600,000 for this property then CAP rate is $40,000 / $600,000 = 6.67% . There are other forms of ‘rates of return’. Financing will drastically alter the rate of return. Cheap financing will greatly increase the rate of return whereas expensive financing (i.e. high interest rate loans) will result in a lesser return. Since each person’s ability to finance the property varies depending on individual circumstances, the playing field is evened by eliminating 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 in evaluating a property’s potential, market participants need only to refer to a CAP rate 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. The lower the CAP rate the greater the price must be because as previously explained, CAP rate is inversely proportional to price.
Whether paying cash or purchasing with a mortgage does not change the closing costs. The only cost that may change are that the disbursements with the lawyer may be a couple of hundred dollars smaller.
Again, excluding the Land Transfer Taxes, the builder’s closing costs vary from builder to builder. A good rule of thumb is to budget for 1.0% of the purchase price on account of closing costs (excluding Land Transfer Taxes). Given the nature of the high prices, it is likely that the closing costs (excluding Land Transfer Tax) would constitute less than 1%.
Refinance
Refinancing a property in Ontario is essentially a two step process. First, you must be approved for a loan by a willing lender such as a bank and second, you (and most of the time the lender) will retain the same lawyer to receive mortgage instructions from the lender. The lawyer will then prepare the mortgage according to the instructions received from the lender and invite you (the borrower) into his office to sign the new mortgage documents. The lawyer will then receive money from the lender and disburse that money as needed with the net left over to you, the borrower. At the same time, a new mortgage will be registered on your property and in a short while thereafter the old mortgage will be deleted from your property.
Many clients and agents ask this question to assist their foreign potential purchasers with purchasing a property. The simple answer is YES. Any legal entity (individual person, corporation, partnership or trust) whether foreign or domestic, may purchaser real estate in Ontario.
Foreign Buyers
Generally yes, unless of course there is some suspicion that this should not be done for legal reasons. Generally, there should be no reason why the seller would make such a request, unless perhaps the seller has closed all his bank accounts because he is emigrating to another country.
No
This is a complex question, but generally, if you wish to control the disposition of your property upon your death, then YES, you should have a Will prepared?
NO
Not in and of itself alone. Unlike some Caribbean countries that give out permanent residencies upon the purchase of a property, this is not the case in Canada.
Sure, the lawyer does not necessarily need to release the money to the foreigner and can apply those funds to another pending purchase.
NO. There may be accountant’s costs. There may be increased legal fees to deal with the monies that the lawyer has to hold back and ‘manage’ for a certain time, but as a general concept, there are no additional fees, taxes or expenses.
Yes. Not all foreigners (i.e. persons living in Canada who are not Canadian permanent residents or Citizens) are non-residents for income tax purposes.
Yes, a foreigner who is a non-resident can try to lie, but if the seller’s lawyer suspects that his client is a non-resident, he will not proceed with the transaction on any other basis and the seller will either have to comply with the process or change lawyers. The tax system in Canada is based on a voluntary disclosure system of honesty.
In theory, you can. Again, you must think of the two step process referred to above. If you are able to find a lender willing to lend you money even though you are underwater with your current mortgage, then your lawyer will proceed to complete this new loan transaction according to the instructions that he receives from the new lender.
NO. There are generally no restrictions.
Generally yes. This is a question that should be directed to your local mortgage agent/broker. However, generally a foreigner should be able to obtain a mortgage loan in Ontario given enough of a down payment. Generally, a 35% down payment is required. Furthermore, the foreigner may need to prove some sort of income in his local country that would enable him to support the mortgage loan, but will likely require a reference letter from his foreign financial institution. Credit bureau checks do not account for as much because there is likely no bureau file. Again, this matter should be directed to the mortgage agent/broker.
Yes. Given that mortgage payments, potentially maintenance payments, property taxes and utilities will need to be paid using a local bank account, the foreigner will need to open one. Also, rents will need to be deposited somewhere, obviously.
NO. It may be a surprise to you, but the bank will, with a good standing client who will vouch for the person, be able to open a bank account for the foreigner without the foreigner being present. For details on this matter, you should speak to your local banker.
NO. But proper identification from the foreign country is required. Passport and credit card from a financial institution, or a driver’s license in English.
NO. Other than the travel expenses, there are no additional costs to purchase.
NO. Again, refer to the answer in the previous question.
Generally, NO. A spouse only needs to sign consent on a mortgage that is being arranged on a matrimonial (family) residence. Given that the foreigner will not be residing in the property with his spouse, then the spouses’ signature is not required. This of course does not apply to situations where both spouses are purchasing the property and taking title. In this case, both will have to be present to sign the documentation.
NO. A foreigner can sell real estate in Ontario just like anyone else.
On closing, a seller must provide a special document to the purchaser that says whether the seller is a non-resident or not a non-resident. It is ultimately not the purchaser’s duty to determine whether the seller is or is not a non-resident, unless of course the purchaser has specific knowledge. If the seller advises his lawyer that he is a non-resident for tax purposes, then the procedure outlined above kicks in. If the foreigner signs a certificate stating that he is not a non-resident, then the procedure above does not kick in and the seller gets all his money on closing. The purchaser in this case is free of any liability, notwithstanding whether the foreigner was honest or not. It is the purchaser’s role to ensure that he either obtains a document from the seller stating that the seller is not a non-resident or otherwise ensures that the seller’s lawyer holds back the 25% of the purchase price.