If you are wondering, “Can Canadians buy a house in the USA?” The answer is YES; Canadians are free to purchase a home in the United States without limitations imposed by the U.S. authorities. Many Canadians possess properties in the United States for short getaways, as a retirement investment, or business and education.
Though, for somebody unfamiliar with the U.S. real estate sector’s system, the house purchasing process in the United States might be intimidating. Here’s a quick rundown of significant aspects that a Canadian should evaluate when conducting real estate investments in the United States.
Interesting fact: According to the National Association of Realtors (NAR), during the 12 months of April 2020- March 2021, Canada topped the list of foreign buyers buying properties in the USA, accounting for 8%.
Before moving ahead to purchase real estate on the south side of the border, it is important for Canadians looking to invest in US property to understand and consider some unique aspects that can impact their decision.
The process to own a property in the USA
- Decide the location where you want to buy the house in the USA
- Find a Real Estate Agent or broker experienced in international real estate transactions, preferably with a specialized designation and analyse how working with a Real Estate Agent works in the USA.
- Understand the cross border tax situation.
- Start your home search process with your Real Estate agent and keep browsing the internet too.
- Make an offer on the property you like and finalize your property in the USA.
- Conduct Home Inspection.
- Sign purchase contract with the seller.
- Complete theTitle Report.
- Obtain Home financing through a US Mortgage for foreign nationals.
- Take ownership of your new house in USA.
- Obtaining a mortgage loan to purchase property is possible, but the process can be tricky for a Non- US citizen.
- The choice of how one owns the property can be important. As an example, if a non-citizen dies owning real property in the United States, that asset is subject to an estate tax and the deceased owner is not entitled to the significant tax exemption available to citizens. On the other hand, if the property is owned by a corporation, it may avoid certain tax issues.
- Federal and state laws prohibit discrimination against a person in the sale of real estate on the basis of their race, religion and nation of origin.
To ensure they have considered all legal ramifications and bypass any unforeseen issues, buyers and sellers who are not United States citizens may wish to consult with an attorney or accountant before entering into a real estate transaction.
Tips for Canadians purchasing rental property in the US
- Research the rental demand in your intended purchase area. Understanding how much rental income your property can generate will allow you to make a more informed decision on which type of investment option is best for you.
- If you plan to use your investment property as a vacation home, make sure that you’re aware of the peak season and demand for rentals in peak months, so you can squeeze in your perfect vacation in the US.
- Hire a good property management service company that will take care of your investment while you are away.
- Work with a real estate agent experienced in foreign national transactions, such as a CIPS (Certified International Property Specialist) designated real estate agent
- Don’t forget about taxes and insurance – If you’re looking for a return on investment in your US property, make sure you understand the tax liability with capital gains (when you sell the investment property) as well as taxes owed in the US on your rental income. You are also responsible for paying the property tax on your US property.
How to get a mortgage to buy your US property?
Getting a mortgage is an increasingly popular way for Canadians to buy a property in the US. Although there was a time when the vast majority of purchases were made outright, the comparative strength of the greenback, coupled with younger buyers, makes it preferable for many to take a loan.
Depending on your situation you may be able to take a mortgage with a US-based bank. This could be a smart solution, but it helps to know that there are some key differences between US and Canadian typical mortgage products:
- US mortgages tend to take longer to arrange and need more paperwork
- US fees are usually higher, and a down payment of at least 20% is required
- Interest calculation works differently compared to Canada – you may find that interest is compounded monthly instead of semi-annually
- US mortgage products tend to run longer than their equivalents in Canada
HSBC in the US, for example, offers loans for international buyers – but they come with different terms compared to local residents. the documents required to open a mortgage in the US may also be pretty demanding, because of the different financial regulations south of the border. You can expect to need paperwork including:
- Copy of your passport
- International credit report
- Up to 2 years of employment history, and proof of recent pay checks
- 2 year history of residency
- Tax submissions for up to 2 years
- Proof of down payment made, plus contract of sale and realtor details
One alternative option is to get a mortgage in Canada for your US property. You might do this with a cross-border mortgage, offered by some major institutions like BMO or RBC. The advantage of taking this route is that you can use your local credit history here in Canada to get the best possible terms on a loan, and will be working with agents who are skilled in helping Canadians set up cross-border mortgage products.
Even with a Canadian cross-border mortgage product, the chances are that you’ll be making some payments, such as your initial deposit, as an international transfer from Canada to the US. To make sure you don’t spend more than you have to on these large value transfers, it’s important to check out the options for low-cost, reliable international payments. Although a simple option, your bank may not offer the best value, due to high fees and exchange rate mark-ups.
Buying property can be a daunting task no matter where you live, but as an international buyer in the US, it can be a little complicated but the above-mentioned process and tips can help you buy the property with fewer complications and more efficiency.