Jay’s note: We are continuing to see a large influx of Canadian residents interested in buying real estate in the Phoenix area. Financing options for non-US citizens are a little different, so I asked Shailesh Ghimire, the Arizona Mortgage Guru, to provide us with a little lenders insight on mortgage financing options for Canadians buying US real estate.
There are many reasons to buy real estate in the United States. If you’re Canadian, parity of the two currencies (USD and CD) could be one of them. While I’m not going to make a recommendation on the wisdom of purchasing real estate in Arizona, I would like to inform you of the different mortgage financing options available to you as a foreign national.
The terms of the loan are bit more favorable if you are seeking to purchase a second (vacation) home in the United States. The definition of a vacation home is that you intend it use it for recreational purposes during a portion of the year and you do not derive any monetary benefits from ownership. Meaning you do not rent the place to a tenant. You will be asked to sign a disclosure statement to this effect.
If you are purchasing a vacation home then you will need a minimum of 30% down. So, for a $200,000 purchase the requirement down payment is $60,000. Additionally, you will be required to demonstrate that you have between 3-6 months of liquid reserves. This is calculated by multiplying your monthly payment by 3-6. Not all lenders require this reserve but many do, so if you have it the better it is for you.
As part of the approval process you will be asked to show 2-3 months of bank statements demonstrating that the funds for down payment and reserves are available. The lender is very suspicious when there are large depositions in your account (beyond your regular income) so be prepared to explain any such depositions. Finally, the assets need to be in a Canadian bank and the mortgage lender will request verification directly from your bank.
You will need to show a copy of your Canadian passport and/or driver’s license. Some lenders may request only one of these two but be prepared to furnish both if requested.
If you intend to purchase an investment property in the United States then the terms are somewhat more stringent. You will be required to put more than 30% down (determined on a case by case basis) as well as demonstrated more reserves (possibly up to twelve months). All other aspects of the loan are the same.
If you feel like these are conditions which you can fulfill then the first step is to complete a mortgage application with a reputable lender. In this step you will be asked information about such things as your employment and income, available liquid assets etc. In subsequent steps you will be required to furnish a letter of employment, relevant bank statements and a copy of the passport (or driver’s license). Once all the information has been verified the lender can then make a credit decision.
Be aware that with CTX Mortgage you do not need a particular property in mind to go through this process. We can do what is called a “credit approval” for you up to a certain price range. Then as long as the property you end up purchasing is within that price range all we need is an approval on the property/appraisal. After that we are able to close the transaction.
Finally, as you are aware, US credit markets are in a state of flux. This means loan programs have been changing more often than in the past. While these loan features are currently available, there is no assurance that these terms and conditions will remain in the future. I recommend you use this article as a reference point in evaluating loan options with the lender you end up working with.
Technorati Tags: mortgage info for Canadians, US real estate, Canada
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Matthew Collinge 01.27.08 at 2:04 pm
Awesome! Thanks Jay & Shailesh. Iwill pass this along to my clients and readers. Standby for pingback.
Tim Hall 03.18.08 at 12:21 pm
Our family income is $200000 and we wish to obtain a new mortgage on a house we own in Phoenix. We are Canadian Citizens and we live and work in Edmonton, Alberta, Canada. Are you able to provide a mortgage in this situation?
Shailesh 03.18.08 at 2:05 pm
Tim,
We can do either a refinance or purchase loan for Canadian citizens. I’m not sure if you already have a mortgage which you are seeking to replace with a new one or are you seeking to purchase?
Thanks,
Shailesh
Terry Hoknes 06.14.08 at 1:22 am
Are there any rules about Canadians coming buying US property but paying cash for it (no banks or mortgages) and then using the property as rental/profit property ??
Arthur Boguslawski 06.16.08 at 3:22 pm
I am interested in the answer to Terry’s question as well. More specifically though if I were to use funds from a HELOC to purchase US property. My understanding is that you would not be able to expense your interest against your US tax claim. Is that correct?
Arthur
Shailesh Ghimire 06.16.08 at 3:51 pm
Terry - You can still do a purchase if there is no bank involved. Make sure you’re working with an experienced agent - and title company.
Only banks ask you to declare the purpose of your purchase. Since you’re purchasing with cash then you can do whatever you wish - rent it, use it as a vacation home etc.
Arthur - I am not a tax expert and this question is beyond me. I suggest contacting a tax expert. Sorry.
Jay - The Phoenix Real Estate Guy 06.16.08 at 5:07 pm
Canadian nationals need to be *careful* when renting out property they own in the US. If you “work” the property (repairs, even finding tenants) you apparently can run afoul of Canadian law. See this link for details (scroll about a third of the way down and look for the bold print):
http://www.centa.com/CEN-TAPED.....03987.html
Arthur Boguslawski 06.16.08 at 5:40 pm
Hi Jay - I was considering putting in an offer on a US property this week and I’ve been doing as much due diligence as possible. I actually came accross the blog you directed me to earlier this afternoon and it has totally turned me off from purchasing a property in the States. It sounds like more headache than it’s worth. But I know there must be thousands of Canadians that own vacation property in the US, so I don’t know what to think or do.
I also don’t know where to get tax advise without paying a consultant $500/ hour.
Arthur
Jay - The Phoenix Real Estate Guy 06.16.08 at 6:21 pm
Arthur - We work with Canadian buyers all the time, and all have greatly enjoyed their properties here. Some rent them out, some don’t. From what I understand, there really are no issues with renting out a property — as long as you use a property manager (and I don’t know why you wouldn’t anyway).
I certainly do not know Canadian tax law. I can’t keep up with US tax law, much less an additional country! I don’t know what CPAs (Certified Public Accountants) or their equivalent in Canada cost, but it’s nowhere CLOSE to $500/hour here.
There are a few “hoops” to jump through for a Canadian to buy property here in the States, but with the Loonie as strong as it is against the Dollar, we’re seeing a awful lot of people that think it’s worth it.
What part of the US are you looking at?
Shailesh Ghimire 06.16.08 at 7:59 pm
Just to add to Jay’s point earlier. CPA’s are not as expensive. In fact I know a very good CPA in Scottsdale, who also happens to be Canadian. I would be more than happy to connect you if you so desire.
Arthur Boguslawski 06.16.08 at 8:45 pm
That would be great, thanks.
Shailesh Ghimire 06.18.08 at 2:51 pm
Arthur,
Can you send me your e-mail. I’d rather not post the number and information of my CPA on a public forum.
Thanks,
Heather Tawes Nelson- Scottsdale AZ Real Estate 06.19.08 at 3:16 pm
Hi Jay - As you know, the Phoenix Valley is a popular place for many Canadians. I was just told about a great resource book for Canadians looking to purchase second homes in the U.S. It is called “The Canadian Snowbird in America: Professional Tax and Financial Insights into a Temporary U.S. Lifestyle” and it is by Terry Ritchie and Brian Wruk. It is currently on its way to me and I am looking forward to learning more about the nuances of these transactions. Thanks to you and Shailesh for an informative post.
- Heather
Dan 08.15.08 at 11:21 am
Shailesh,
I have many Canadians that are looking to purchase here in the valley also, but they are unable to find financing other than through Harris Bank and WaFed. Do you know of any other sources of lending than these?
Dan
Joe Pereira 09.05.08 at 4:32 pm
My brother is a US Citizen I am Canadian… we are looking at buying 2 homes in the Phoenix area he has to put 10% down I need to place 30% down… can he buy both and I buy from him on a private sale for 10% to place one in my name and finance the rest by my bank in Canada if not how can I legally or not so legally do this……
Aimee Ghimire 09.05.08 at 4:44 pm
Joe,
Financing for Canadians is practically not available at this point. However, you can be on title even if you don’t have the mortgage. So, lets talk about this and see what we can do. Feel free to contact me directly and we can discuss over the phone.
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