Last Updated on October 24, 2023 by Emma Scott
Have you thought about moving from the United States to Canada? Buying a house in Canada may seem like a stressful task for anyone, but it can be a great investment in your future while living abroad. We will answer your questions about getting a U.S. mortgage in Canada so you can determine what is best for your cross-border investment.
Buying a home as a non-resident from the U.S.
First, it’s important to determine your residency status by the standards of the Canadian government. Anyone who normally, customarily, and routinely lives in another country besides Canada is deemed a non-resident. Even if you choose to visit quite frequently, you are not granted residency as long as you stay in Canada for less than 183 days in the tax year. This is important information to keep in mind for buying a vacation property cross-border; you do not want to overstay and have to pay income tax in both countries.
While this is said, any person can buy property in Canada as long as you have the necessary funds. Many U.S. citizens choose to buy real estate in Canada, whether it is a vacation home in Muskoka or an investment property in Vancouver. You can buy a home without needing to be a Canadian citizen.
The only issue that comes to U.S. citizens buying property in Canada is that they are not allowed to use a U.S. bank for their mortgage. Because foreign banks are not allowed to register mortgages in Canada, so you will have to qualify for a mortgage in Canada.
What are the benefits to Canadian real estate?
The benefits of buying a Canadian property differ from person to person. While you may want to buy your dream vacation home, others may look for an investment property that they can earn money off of. What costs can you expect when buying a Canadian property?
Buying a second home can be a costly endeavour for many, especially if your Canadian dream home is located in an area where there are high living costs. U.S. citizens may have a more difficult time affording a home because of the higher property taxes and the requirement for a larger down payment from foreign buyers.
In fact, the GTA (Toronto and the surrounding areas) imposes an additional tax of 15% of the value of the property for some foreign buyers. This tax is called the NRST (non-resident speculation tax) and is designed to make it more difficult for non-residents to buy Canadian properties. While you may not be able to avoid this tax, any foreigners who pay the tax can later apply for a rebate if they live and work or study in the region – or become permanent citizens.
A mortgage loan also will be significantly smaller for U.S. buyers. Mortgage lenders will only provide 65% of the cost while a U.S. buyer needs to have a 35% down payment already accumulated. This could mean that many foreign buyers may choose to simply get a mortgage in the U.S. rather than Canada.
How can you get a Canadian mortgage?
This may seem like a daunting question for any person buying a home outside their place of residence. If you are only familiar with U.S. mortgages, we can help. We will provide a brief introduction and some advice for each step of the real estate purchase process.
Set up a Canadian bank account with RBC Bank
The first step to beginning the mortgage process is to create a Canadian account in your name. Some great banks to consider are RBC Bank and BMO, which specialize in cross-border mortgages for Canadians. While they cannot offer you U.S. mortgages, they may be more familiar with U.S. and Canadian laws that could impact your home purchase.
If you bank with a large U.S. bank that has international recognition, it may be possible that you can open a Canadian account with them. This would save you a visit to a bank in Canada.
Get your credit cards and score in order
If you are coming from the U.S. to buy a house, you may think that your line of credit score registered to your U.S. bank may be able to be transferred to Canada. This is false. When you move countries, your credit score does not follow you. Before you consider investing in real estate, take your time to get Canadian credit cards and build up your credit score. A is one of the many ways you can improve your chances of getting a better mortgage interest rate.
Qualifying for a mortgage
Be prepared to provide your credit history, income, and other financial documents when applying for a mortgage. A bank will want to access as much information as possible to ensure your trustworthiness, especially as a foreigner buying property. Expect to provide these documents to your bank or mortgage broker when qualifying for a mortgage:
- A reference letter from your U.S. bank
- Pay stubs with your income to the dollar amount
- Your credit history both in Canada and the U.S.
- Your bank’s mortgage application form
The information gleaned from your financial history will tell mortgage lenders about you and allow them to decide what rates you can qualify for. It is important to get your credit history in order because it could afford you some discounts on your mortgage rates.
Access great mortgage rates
Alan Forget, the vice-president of cross-border strategy at RBC Bank noted that “While mortgages may appear to be the same in the U.S. as in Canada, they aren’t.”
Canadian banks post competitive rates starting from the ceiling. If your credit trustworthiness is proven, your mortgage rate will fall and you will have less interest accumulating on your mortgage payments. The U.S. does this a different way, advertising low rates that will increase based on your credit history. This is good news for any U.S. buyer in Canada.
U.S. buyers are also eligible for the same mortgage rates that citizens receive as long as they meet their mortgage eligibility criteria. This is extremely beneficial because U.S. buyers can trust that their interest rates are not skewed to provide discounts to citizens.
Home insurance is mandatory
Unlike U.S. mortgages, home insurance is written into the mortgage purchase agreement with your Canadian lender. This differs greatly from the U.S. where your U.S. property is yours to care for. Lenders like RBC Bank have written into their purchase agreement that insurance must be bought as a way to protect both your and your lender’s investment in your property. This may seem like an extra dollar to spend, but these laws can protect your investment in the long run.
Get help from a real estate lawyer
A real estate lawyer’s services will be one of the greatest investments you can make while buying a house in Canada. They are knowledgeable with laws and will help U.S. citizens navigate down payment, mortgage requirements, and any other questions. You may think you can handle it on your own, but a U.S. mortgage is a lot different than one in the Great White North! A lawyer’s advice will be crucial to the success of your real estate journey.
Budget your money for closing costs
Once you have found a home that you would like to buy, you will begin the process of buying it. The first step is to make sure that you have your down payment in your Canadian bank. Lenders will want to see that your payment has been in the account for some time.
There are significantly fewer closing costs for a U.S. mortgage than one in Canada. You can expect the closing costs to include 35% of your purchase price, third-party fees, real estate transaction fees (i.e., land title and land transfer tax), insurance, and more.
The costs of a house abroad can add up quickly. Many choose to use their home equity to help pay for their new house across the border. Choosing to use home equity is a great option for any person who may not have a large amount of savings. The only thing to consider is how your equity loan will change with the exchange rate from U.S. currency to Canadian dollars. We strongly recommend that you seek the advice of a financial advisor to ensure that you have substantial funds.
Buy a Canadian home as a U.S. citizen
If you already have a U.S. property and want to buy a house in Canada, it is impossible to have a U.S. mortgage on your new home abroad. U.S. citizens will need to speak with a Canadian mortgage lender like RBC Bank to buy a house on Canadian soil.
Although there may be many steps to buying a house across the border, it could be a worthy investment in your future. If you ask a group of Canadians, most of us will say that our country is the best place to live in the world. We will leave that up to you to decide.
Emma Scott is a Content Writer with a passion for accessibility, the environment, and history. She currently works for Merged Media (a proud partner of CREW & REP) in Guelph, Ontario.
