US MORTGAGE FOR CANADIANS
Cross-Border Mortgages Have Never Been Easier
Cross-Border Mortgages Have Never Been Easier
Although many countries place restrictions on the purchase of property by foreign nationals the United States is not one of them. Anybody can buy property in the US, regardless of their residency or citizenship and many Canadian residents are doing just that.
The National Association of REALTORS reports that in the 12-month period from April 2017 to March 2018, Canadians bought 27400 properties, spending more than ten billion US dollars in the process. 60% of the sales were in the sunshine states of Florida, Arizona and California.
Many Canadians are buying US real estate for their own use. Some work in the US and prefer not to rent. Others own businesses in the US and travel there frequently. There are also those who buy property in the US for investment purposes choosing to rent them out for extra income.
A growing number of Canadians are buying holiday homes in the warmer climes to escape the cold weather for part of the year. These so-called snowbirds were once mostly retired folk. Over the years the trend has started to encompass a large number of younger people too.
It is also not uncommon for retirees to look for valuable US properties to supplement their income with rentals earned on the properties they own in the US.
Canadians who earn taxable income in the US can get a mortgage because the eligibility for a US mortgage is not based on residency or citizenship but on income. That being said, it is more difficult to get a US mortgage for Canadians.
For example, non-permanent residents can only get government backed loans under stringent conditions. Many banks won’t lend to foreign nationals and even if they do, they are likely to charge higher interest rates.
To simplify the process, it is best for Canadians seeking a mortgage on US property to approach a Canadian lender who also operates in the US and has expertise in cross border mortgages. The advantages of dealing with such a bank include the following
The advantages of financing through RBC Bank
There are some very good reasons why you should finance your US property with an RBC cross border mortgage. RBC is Canada’s largest bank and one of the biggest in the world by market capitalisation. They also have a product designed specifically for Canadian’s wanting to finance property in the US.
This is an important feature of a cross border mortgage as it allows you to make payments when the exchange rate is favourable. Watching currency fluctuations is important as it affects the expenses you pay and the income you receive.
Buy your property anywhere in the US and RBC will finance it. The bank finances property in all fifty states across the country.
RBC uses your Canadian credit history and your prior relationship with RBC for mortgage approval so you get the best terms possible on your mortgage.
Choose the term of your mortgage for 3, 5, 7, or 10 years with a 30-year amortization period. This ensures that your repayments are as low as they can get, and if you want to pay your mortgage off sooner you can do so without incurring penalties.
Pay 20% down payment and closing costs rather than making a 100% lump sum payment. You can make lump sum payments when the Canadian dollar strengthens.
Canadians wanting to buy US real estate have three options
Up until recently 80% of property sales to Canadians were cash deals, but as the Canadian dollar has weakened against the US dollar, this is changing.
Whereby you borrow funds backed by the equity on property you already own. This is a good choice since the interest and repayments on HELOCs is often lower and you withdraw money as you need it. It’s flexible, relatively inexpensive and you can keep borrowing up to the negotiated limit as you make repayments.
With the property serving as collateral. Canadian banks won’t offer mortgage on a US property because they have no jurisdiction in the US so they can’t foreclose on the property in the case of non-payment. This means that you will either have to apply to a US bank or use a large mortgage provider such as RBC for your cross-border mortgage.
There was a time when it made sense to pay for your US property with cash but with the exchange rate at around $0.75 to the US dollar, your best bet is to buy the property using a US mortgage for Canadians.
It is always a good idea to start your house hunting with a pre-qualification letter. It is easy enough to do through online application or by phone. Pre-qualification ensures that you set about house hunting knowing exactly how much you can spend. Many US realtors won’t even start the house-hunt without the prequalification.
A prequalification may also give you the edge when it comes to negotiating the price. It may not be as alluring as cash but the seller will know that you have a good chance of getting the funds you require.
Pre-approval is good for 120 days.
starting from
6.45%Term | Rate |
---|---|
HELOC | 7.2% (Prime rate) |
Lender | Rate | Term |
---|---|---|
Lendwise |
4.79% | 5 year |
First National Financial |
4.89% | 4 year |
RMG Mortgages |
4.99% | 3 year |
Street Capital Bank |
5.89% | 2 year |
TD Bank |
6.19% | 1 year |
Term | Rate |
---|---|
5 year variable | 6.2% (Prime - 1%) |
3 year variable | 6.25% (Prime - 0.95%) |
Term | Rate |
---|---|
Line of Credit | Starting at 7.2% |
Equity Loans | Starting at 6.5% |
Private Mortgages | Starting at 7.99% |
Mortgages in the US are similar to those that you can get in Canada and it is easier to get one than you may have imagined.
You’ll be surprised at how long it takes though. In Canada you can usually get your mortgage within five to seven days.
Due to state and federal requirements, a mortgage in the US takes a bit longer to process, typically between 30 and 45 days.
Application requirements are the same. The documentation requirements for a US mortgage are as follows:
How much you can borrow on a cross border mortgage depends on the size of the down payment and the monthly repayments that you can afford. It also depends on how you plan to use the property. If you plan to live in it for part or all of the year, you can borrow up to 80% of the value of the property.
Down payment rules differ for investment properties and some institutions may require a down payment of as much as 40%.
...pick the one thats right for you.
A HELOC is a popular and useful way for home owners to access their home equity as and when they need it. It is flexible and easy to access and you only pay interest on the funds that you withdraw so it is relatively inexpensive.
HELOCs in the US operate somewhat differently to the way they do in Canada. The rules may differ slightly from financial institution to another, but the terms are typically as follows
There are other benefits in addition to these.
Your home equity is the difference between the market value of your property less the amount you owe. You home equity grows over time.
Every month part of your repayment goes to interest and part to reducing the initial capital outlay. The amount that comes off the balance is quite low in the early years but it increases over time. In addition, property tends to grow in value along with inflation and any improvements you may make.
For many people, a large portion of their wealth is tied up in home equity and it can offer them an important source of finance when they need it most. When you decide to refinance your property, you can release those equity funds and use them to improve your lifestyle.
In addition to the one-off costs of down-payment and the closing and origination costs, you will also incur ongoing costs of property ownership in the US. These include
It is also important to consider the exit costs, which may include taxes or estate duties.
More and more Canadians are investing in US properties. These properties run the gambit from second homes to rental homes and investments. When you buy a property in the US it is important that you factor in the US tax laws and exit requirements. As a Canadian, you will have to pay non-residents withholding tax of 30% on any rental earned on your US property.
If the income is earned by a business, you can reduce the income by any expenses that you incurred. Unlike Canada, interest on your mortgage repayments is tax deductible. To file a tax return, you’ll have to register as a US tax payer.
If the owner dies the property may attract estate duties if he or she has more than $60,000 in US assets. The assets will attract estate duties at a rate of 35% on the total value of the US assets. The same applies if the owner has more than $5 000 000 in global assets. All of these issues are relevant which is why you must seek advice from a cross border mortgage specialist before you apply for a mortgage for Canadians in the US.
At Turkin Mortgage our mortgage brokers in Toronto are here to help Canadian citizens to obtain a US mortgage. We will guide you through the process to ensure you get the best possible terms.
…by providing award winning customer service to each and every single client.
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