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A guide to US mortgages for Canadian citizens

If you’re a Canadian looking to buy a property in the US, here are your options for getting a mortgage.

Canadians buy a lot of property in the US, especially in warm-weather states. Do you want to join the ranks of those purchasing a home south of the border? We’ve compiled a one-stop shop for information on getting a cross-border mortgage to buy a US property.

Can Canadian citizens get a US mortgage?

Well, it depends. A Canadian bank cannot lend you money to buy property in a foreign country. You don’t need to be a US citizen to get a mortgage from a US-based bank, but generally you do need to have taxable US income. But if you don’t have that, you are in luck, because most of Canada’s biggest banks have US-based operations that will lend you the money.

What options do Canadians have for buying property in the US?

The best option for you depends on your own personal financial situation. Of course, there are other factors you’ll have to consider that you normally wouldn’t when buying property in Canada. A good example is the Canadian dollar exchange rate with the US dollar.

Cash

If you are lucky enough to have saved up enough money to buy a US property without borrowing any money, then congratulations! The process will be more straightforward since you won’t need a lender.

Line of credit

You can also take advantage of a home equity line of credit against your home in Canada to come up with the funds required to buy US real estate.

Mortgages: Is it best to use a US lender with a Canadian affiliation?

There are advantages to getting a mortgage from a US lender with a Canadian affiliation. The biggest one is probably lower interest rates. Most US banks will charge non-citizens a higher interest rate on mortgages.

The other advantage is faster approval times. Banks in the US can take up to 45 days to approve a mortgage, which is much longer than banks in Canada. Canadian banks with US operations will have access to your Canadian credit history, and will generally require less paperwork and other red tape.

How are US mortgages different from Canadian mortgages?

Mortgages in the two countries are similar, but there are some differences. The US mortgage market tends to be more regulated, which may mean longer approval times and more paperwork.

Interest rates

Interest is accrued monthly in the US, whereas in Canada it is accrued semi-annually. US mortgages have longer terms of 20, 30 or even 50 years, but shorter-term mortgages with adjustable rates are also available.

Closing costs and expenses

In the US, closing costs typically range from 3% to 6% of the amount of your mortgage loan. These include some costs that might be unfamiliar to Canadians, including certain state taxes, title insurance, and something called an “origination fee” that lets you pay off your entire mortgage at any time without penalty.

You also need to consider the exchange rate and how much it will cost you to convert Canadian dollars to American ones. Specialized firms such as Knightsbridge can help you avoid some of the fees bigger banks charge to convert your money.

Then there are the usual costs associated with buying a home. These include real estate agent commissions, lawyer fees, home inspector fees, accounting fees and land transfer taxes. These will vary depending on where in the US you buy a property.

Down payment requirements

Canadians must have a minimum 20% down payment to buy real estate in the US.

What documents do you need to get a cross-border mortgage?

You might have to apply for an Individual Taxpayer Identification Number (ITIN) from the US Internal Revenue Service. This may require several original documents.

Other documents you may be required to provide include proof of down payment, a real estate contract, a copy of your passport, a credit report, employment verification and recent pay stubs. You may have to provide up to two years of tax returns and bank statements.

Other differences to be aware of as a Canadian buying property in the US

In addition to mortgage-related differences between Canada and the US, there are also some key differences when it comes to property ownership.

Homeowners associations

These are common in the US. They sometimes have the right to choose members and set rules for homeowners.

Probate laws

If you intend to pass on your property after you die, you should check whether probate laws apply that could result in your beneficiaries being saddled with a big tax bill. Your assets may also be frozen for a period of time before anyone can inherit the property.

Costs of owning a property in the US

Just like owning a home in Canada, you will be on the hook for expenses like utilities, homeowner association fees, property taxes, insurance and maintenance. In addition, some US communities charge additional fees for services like security. And of course, you have to travel to and from your US property.

How to qualify for a US mortgage as a Canadian

You can pre-qualify for a US mortgage on the phone or online in a process that usually takes a couple of days. This is not the same as actually qualifying for a mortgage loan, but it does provide a number you can start to budget with when looking at properties.

Having a pre-qualification letter may work to your advantage in situations where there are many potential bidders for a property.

How much can you borrow for a cross-border mortgage?

The down payment you’ll be required to have for a US property will depend on how you plan to use the property.

For a personal use property, you are generally able to borrow up to 80% of the value of the property. Banks in the US differ on how they define personal use property, but most would want it to be available for you to use for two or three months a year.

What if you want to rent out the property?

You may wish to rent out your US property for the time you aren’t spending there. Before you decide to go the rental route, you’ll want to confirm with your mortgage provider that they will finance investment properties and what their rules are about renting out your property.

You will have to spend some time looking into the local rules and regulations before you go ahead with a plan like this. Some homeowner associations may not permit rentals at all, while some jurisdictions in the US restrict the length of time a property can be rented out.

Bottom line

A second home in the US could be very convenient depending on your lifestyle and ability to travel. For example, you could leave things there so you don’t need to do a bunch of packing every time you visit. But there are important differences between buying a property in the US and buying one in Canada. Many of these involve owning the property itself, but there are also key differences you’ll need to familiarize yourself with about getting a mortgage. Luckily, several Canadian banks have operations in the US and can help you with the process.

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