On a recent trip to Cape Cod I was a total creep.
While out for an evening jog (dressed in a hoody, no less), I noticed a lovely New England seaside cottage. Since it was tourist-less shoulder season and I’m blissfully unaware of trespassing laws, I decided to take a walk around the vacant property. It planted a lingering thought in my head - What if we bought the property? I stood there, a hooded lurker at the edge of a stranger’s property, thinking about the potential.
Buying property stateside is intriguing, often affordable, and considerably warmer. That's why each year, as cold weather sets in, Canadian retirees go the way of the loon; according to Stats Canada, Canadian residents took 20 million overnight trips to the U.S. in 2010.
I know, I know - Cape Cod is not the south... but the charming property prompted me to look into the possibility further. What does buying a property in the U.S. entail?
The Cross-Border Contrasts
A good place to start is the variances between mortgage rules stateside and back home.
“There are few key differences due to the regulatory requirements, laws, and practices which govern the mortgage industry in the U.S.,” says Alain Forget, vice president of sales for RBC.
Timing is an increasingly important element. “The average is 45 days to apply and secure a mortgage in the U.S. compared to a few days in Canada,” says Forget. “The main reasons is the number of steps in the process, including application, income and asset documentation, credit report, appraisal, title, credit loan review and approval, closing documents.”
Getting a mortgage in the U.S. requires a fair bit more documentation than in Canada. RBC has broken it down here. Expect to divulge details from your passport, Canadian-held accounts, and all Canadian property tax statements in addition to the usual income verification paperwork.
Expect to Pay More For Your Mortgage
Forget also points out that costs in the U.S. can be higher – 3 to 4% overall – when you factor in third-party expenses and pro services like property appraisal and title insurance.“This varies per state, for example Florida averages 2.5 to 3%,” he adds.
There's also some key differences for the interest you'll pay on your mortgage. “U.S. mortgages are compounded monthly versus semi-annually in Canada,” says Forget. “They may also be tax deductible in the U.S. for U.S. citizens and permanent residents.”
Calling Long Distance
If you don’t mind a few long distance charges, Canadians are able to apply for a mortgage remotely via phone or email. This is usually done through a bank that has operations south of the border.
“They don’t need to have an account with RBC Bank USA to apply for a mortgage,” says Forget. “However we strongly recommend having a U.S. account to facilitate the funding of the loan and monthly payment as well as to facilitate the transfer of the down payment for the closing.”
You can also pre-qualify before you start the vacation house hunt to give you leverage in the event you get into a bidding war with other snowbirds. “The closing should be done in person in the U.S. usually at the office of the title company,” adds Forget. “This requires minimum traveling across the border.”
Getting a Competitive Rate
In addition to finding a bank with the capability to deliver the mortgage in the state and county where the property is, you’ll want a Canadian-friendly lender. “Most U.S. banks will not lend to foreign nationals like Canadians or if they do they might charge a foreign national premium which can be 1.5% to 2% over the standard mortgage rate,” he says.
Working with a Canadian bank with reach into the U.S. often means you don’t need an American social security number to qualify. The key to finding a competitive rate is looking to open mortgages or ones with various term options, Forget adds.
File under: Things You’re Apt to Forget
Like property ownership in Canada, you’re going to want to make sure you have an account set up to seamlessly transfer funds between Canada and the U.S. to cover those monthly utility bills and property taxes.
“It is also important to seek professional cross border advice to understand the legal, tax and estate issues which affect Canadians owning U.S. property since a number of those issues are different between the two countries,” adds Forget.
See, nothing too daunting right? Find a banking partner in Canada to help you navigate the legal and money stuff and the rest is all about the search.
Speaking of which, if you need be, I’ll be creeping around backyards in Cape Cod.