What documents are required to purchase real estate in Canada?
Buying real estate in Canada is one of the biggest financial decisions in many people's lives and requires careful preparation of numerous documents. The process involves a complex system of identity verification, financial checks, legal formalities, and compliance with federal and provincial laws. Understanding all the necessary documents helps avoid delays in the purchase process and ensures a smooth completion of the transaction.
Documents for a mortgage application
Proof of identity and residence
The first step in the home buying process is to verify your identity and place of residence. The Big Six banks require valid government-issued photo ID, including a passport, driver's license, or any other government-issued ID. Health cards are not usually accepted as valid photo ID.
To prove your Canadian residence, you will need documents such as utility bills, bank statements, or a lease agreement with your current address. It is important that all documents include your current address and are recent.
Proof of employment and income
Employment letter is a critically important document that most mortgage lenders in Canada require. This document must include your job title, employment status (full-time, part-time, contract, etc.), length of employment, and income. The letter must be on company letterhead, signed by a senior manager or human resources department, and be recent (no older than 30 days).
Pay stubs are required to confirm your current income and employer. In some circumstances, banks may ask for 2-3 pay stubs or your last pay stub from the previous year. Proof of recent electronic paychecks may also be required.
Tax forms include T1 General (tax return for previous years) and T4 (employment income statement). Notice of Assessment (NOA) for the last 1-2 years show the income reported to the Canada Revenue Agency and whether you owe any significant amount of personal income tax.
If you have commission income, you will need a T1 General. This document is a summary of your income, deductions, and taxes payable, and lenders will require a copy for the last two years. If you have worked for someone else outside of your main employer, you will need a T4A, which records any income not shown on the T4.
Documents for self-employed individuals
Self-employed individuals face additional documentation requirements. Proof of income for these applicants includes alternative forms of income verification, such as Notice of Assessment (NOA) from the Canada Revenue Agency for the last 2-3 years, profit and loss statements, bank statements, and tax returns.
Business documentation includes business registration documents, articles of incorporation (if applicable), and the most recent business licenses. Lenders carefully review the financial stability of the business and the personal financial stability of the applicant.
Real estate documents
Purchase agreement
The purchase agreement is the most important document in any real estate transaction. According to CMHC, an agreement or offer typically includes your legal name, the seller's name and legal street address of the home; the price you are offering to purchase the home; items other than the home that will be included in the price; the amount of the deposit; the date you want to take possession of the home; and any other conditions that accompany the offer.
Full listing from a real estate agent
RBC requires a full listing from Realtor.ca from the real estate agent who is describing the property you are purchasing. This document provides detailed information about the property's features, location, and other important details.
Home inspection
It is always recommended to have the home you are purchasing inspected by a knowledgeable and professional home inspector. If the home inspection report reveals any repairs that are needed, you and your real estate agent will need to discuss whether the condition of the home warrants withdrawing your offer to purchase.
Financial Documents
Proof of Down Payment
Lenders require confirmation of the source of your down payment. RBC requires statements from savings accounts or investments for the last 90 days, a copy of the sales agreement for your existing property, a gift letter, or a withdrawal from your RRSP under the Home Buyers' Plan.
Bank statements
Recent bank statements are required to assess your income and financial stability. Lenders use these documents to verify salary deposits and assess your spending habits.
Documents related to existing real estate
If you currently own a home, you will need documents related to your existing real estate, including a recent mortgage statement, your most recent property tax bill or statement, documents confirming heating costs and condominium fees, and a legal description of your property.
Legal documents and procedures
Title search and title insurance
Title search is a critical process conducted by your legal representative to verify the title to the property. These searches check for outstanding taxes, encumbrances, easements, and encumbrances. Title searches typically cost between $200 and $500, depending on the complexity.
Title insurance is not legally required for home buyers in Canada, but it is highly recommended. In Canada, title insurance costs between $200 and $500. The cost varies depending on the value of the home, the insurance company, and local regulations. Most mortgage lenders require lender's title insurance.
Real estate transfer documents
Form A of conveyance is signed by the current owner before a lawyer or notary and confirms that the current owners agree to transfer the property at the price agreed in the purchase agreement. A property transfer tax form (PTT) is also prepared, as PTT is payable in British Columbia on every real estate transfer.
Notary services
In Canada, notaries and lawyers play an important role in real estate transactions. Notaries certify signatures on legal documents and certify copies of original documents. For certain real estate transfer documents to be accepted by the Land Title Office, the transferor and transferee must sign the documents and have them notarized by their respective notary or real estate transfer lawyer.
FINTRAC identification requirements
Real estate agent responsibilities
FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) requires Canadian real estate professionals to complete a client identification form for each client with whom they conduct any financial transaction, regardless of the amount. This form includes your full legal name, address, occupation, and date of birth.
If you are a real estate agent or sales representative, you must verify the identity of your client when acting as an agent or mandatary in the purchase or sale of real estate. Your real estate professional will also ask you to provide original photo identification and will record the type of identification, its number, the issuing jurisdiction, and the expiration date.
Corporate Identification
Corporations buying or selling real estate must also be identified through corporate registries, persons authorized to sign, and details about all beneficial owners of the corporation. Even individuals who are not represented but are involved in the transaction must be identified.
Record retention requirements
Real estate brokerages are required to keep all personal information in their office in accordance with the Personal Information Protection and Electronic Documents Act (PIPEDA). FINTRAC requires brokerages to keep client information on file for five years.
Additional documents
Invalid check
An invalid check is required for accounts not held with RBC. This helps the lender set up automatic payments and other banking services.
Lawyer or notary information
The name, address, and phone number of your lawyer/notary are required. These professionals handle the legal aspects of the real estate transfer and ensure that all legal requirements are met.
Certificates and permits
Some types of real estate may require additional documents, such as a certificate of status for condominiums or a certificate of estopple. These documents provide important information about the financial health of the condominium or corporation.
Provincial variations
Ontario
In Ontario, the process involves several specific documents, including a buyer's representation agreement, a listing agreement, and a cooperation and representation confirmation. The seller's property information statement (SPIS) is an important document that provides details about the condition of the property.
British Columbia
In British Columbia, lawyers must ensure compliance with the Property Transfer Tax Act. The province has specific property transfer tax requirements that differ significantly from other provinces.
Closing Process
Statement of Adjustments
The Statement of Adjustments details all financial adjustments between the buyer and seller as of the closing date. This document includes prorated property taxes, utility payments, and other expenses.
Deed of Transfer
The Deed of Transfer is the final document that transfers ownership from the seller to the buyer. This document is registered with the appropriate land registry to officially record the change of ownership.
Trust Register Statement
The Trust Register Statement provides detailed information about all funds handled by the lawyer during the transaction. This document ensures transparency in the financial aspects of the transaction.
Special requirements for non-residents
Client identification
Canadian lawyers are required to verify the identity of their clients before they can act on their behalf or accept any funds for the purchase of real estate. Client identification is usually done in person when clients present identification such as a driver's license or passport.
Moratorium for non-residents
As of January 1, 2023, there is a moratorium on the purchase of residential real estate by non-Canadians in Canada. This moratorium significantly affects the ability of non-residents to purchase certain types of real estate in Canada.
Payment for real estate
If you are taking out a mortgage on a property, most Canadian banks will require a down payment of 35% or higher from non-residents. These funds must usually be in the bank for at least 30 days prior to closing. Banks will also require home insurance before the mortgage is finalized.
Buying real estate in Canada is a complex process that requires careful preparation of numerous documents and compliance with federal and provincial laws. From the initial mortgage application to the final closing of the deal, each stage requires specific documentation and professional assistance. Understanding all the necessary documents and procedures helps ensure a smooth and successful real estate purchase process and avoid delays and legal complications.