Having a vacation property abroad sounds like a dream for many Canadians. It allows you freedom to travel without worrying about accommodations and feel more at home than you normally would on vacation. Furthermore, it’s a great way to diversify your assets, and allow you to earn rental income if you decide to rent it out when you’re not there.
However, many factors should be considered before investing in foreign real estate. You need to consider tax implications in Canada and the foreign country, as well as how to finance the new property.
Let’s get into more detail about applying for a mortgage to buy a home abroad.
Key Points
- Some Canadian banks offer cross-border mortgages to help finance a home purchase abroad.
- Almost all Canadian banks require you to be physically present to finalize a mortgage deal, except RBC, which allows you to complete the process online.
- A down payment of at least 20% is typically required to buy a primary home abroad, and even more for investment properties.
- The mortgage process tends to be more complicated and may take longer to complete when buying a home outside Canada, so be prepared to show more documentation and wait at least 45 to 60 days for closing.
Can You Apply For a Mortgage Outside Your Home Country?
Many banks, including RBC and BMO, have resources to help you acquire a cross-border mortgage for a property in the United States. A cross-border mortgage allows you to apply for a mortgage for an American property through the channel of a Canadian bank.
RBC U.S. HomePlus™ Advantage
The RBC U.S. HomePlus™ Advantage is a comprehensive program designed specifically for Canadians looking to purchase real estate in the U.S.
The process of buying a property in the U.S. is more complicated than the process here in Canada. There are complex legalities and loan criteria that Canadian borrowers may be subject to, which can be confusing to navigate without expert guidance and products tailored to your needs.
With RBC’s cross-border mortgage solutions, you’ll have access to professionals typically required in various stages of a real estate transaction, including:
- Real estate agents
- Lawyers
- Tax specialists
- Insurance agents
- Financing experts
All aspects of the real estate transaction are covered, ensuring a seamless process that won’t leave you wondering if anything has been missed.
RBC U.S. HomePlus™ Advantage features include the following:
Closing Costs Savings
RBC doesn’t charge bank or lender fees, which could save you as much as $4,500 USD1 in closing costs.
Cash Rewards At Closing
When you buy a home in the U.S., you can earn a cash reward of up to $9,5002 through the RBC U.S. HomePlus™ Rewards program. Simply enroll in the HomePlus™ Rewards program, connect with a cross-border mortgage advisor, find and buy your home using a participating real estate agent and get rewarded after closing.
Lower Foreign Exchange Costs By Financing
Rather than buying a U.S.-based home in an all-cash transaction, you can finance instead and preserve your Canadian equity and assets. Aside from a 20% down payment and some liquid cash for closing costs, you won’t have to convert nearly as much money to U.S. dollars when you finance. This will save you thousands of dollars that would otherwise be spent on expensive foreign exchange fees required upfront.
Early Repayment Without Penalty
If you come upon extra funds at any point, you may choose to put more money toward the mortgage on your U.S. home. With the RBC U.S. HomePlus™ Advantage program, you’re free to make lump sum payments at any time to pay down your principal faster, without being subject to pre-payment penalties.
Multiple Loan Term Options
Term lengths include 3-, 5-, 7-, and 10-year terms25, amortized over 30 years to stretch out your payments and keep them affordable.
Competitive Interest Rates
RBC’s U.S. mortgage interest rates currently start at 6.625%.
Sign Documents Online
You don’t have to be physically present in the U.S. to apply for and finalize your cross-border mortgage. Instead, everything can be done online, including signing and submitting all required documents.
Canadian Credit History Used
You don’t need to establish a U.S. credit history to apply for a mortgage to finance a U.S.-based property. Instead, RBC will use your Canadian credit history to assess your creditworthiness.
BMO’s Gateway Program
BMO’s Gateway Program provides cross-border mortgage options to simplify the process of buying U.S. real estate. A dedicated mortgage banker will guide you along the way and take the guesswork out of buying a U.S. home and taking out a mortgage to finance it.
Features of the BMO Gateway Program include:
- Loan amounts up to $2 million USD
- Conventional fixed- and adjustable-rate mortgages available
- Available to both employed and self-employed applicants
- Available to those who bank with BMO
- Various property types may be financed, including condos
- Multiple payment options are available, including:
- Auto Pay from your chequing account
- BMO Digital Banking
- By phone
- In-person at a BMO branch
- By mail
TD Bank
TD Bank offers lending solutions for Canadians looking to buy a home in the U.S. To apply for financing, you’ll need to speak to a representative in person at a TD branch in the U.S., or call the TD Cross-Border Banking Support Line at 1-877-700-2913.
If you already own a property in the U.S., TD Bank offers financing options based on your home equity, including a TD Bank Home Equity Loan or Line of Credit. You can use the funds accessed from your equity to renovate your home, consolidate debt, or finance expensive purchases. These financing programs can also help you avoid expensive foreign currency exchanges you need access to U.S. cash.
Within 3 days of applying, your mortgage loan officer will provide you with a loan estimate. You’ll need at least a 20% down payment and can choose a fixed- or adjustable-rate loan. For a second home, TD Bank will lend up to a combined loan-to-value (LTV) of 75%.
CIBC
CIBC Bank USA offers a Foreign National Residential Mortgage to Canadians looking to buy real estate in the U.S. Fixed- and adjustable-rate mortgages are available to buyers with a minimum down payment of 20%. They also use your Canadian credit history and don’t charge early prepayment penalty fees.
To apply, you’ll need to reach out to your CIBC relationship manager.
The Perks of Choosing a Cross-Border Mortgage
Applying for a mortgage in the USA can be an intimidating experience, as it’s different from a Canadian mortgage. But there are many perks, including:
- The ability to use your Canadian credit history
- Avoiding foreign national premiums
- Working with a bank that knows both country’s processes
- Longer amortization periods
Canadian Banks In Foreign Countries
You can also apply for a mortgage in the country in which you’re buying property. Keep in mind though that the process will likely differ from what you’re used to in Canada.
Many countries have different credit, income, and down payment requirements. Closing costs and overall property costs will also differ from those in Canada.
Let’s compare Canadian and U.S. mortgages:
| U.S. | Canada | |
| Mortgage Length | 20% down payment is typically required for Canadians | Up to 25-year amortization periods |
| Mortgage Terms | Mortgages do not need to be renegotiated during the loan term | Mortgages may be renegotiated at term expiry |
| Pre-Payment Options | Mortgages may be prepaid early at any time without penalty | Pre-payment options are detailed in the loan agreement. Early repayment may be subject to penalty fees |
| Down Payment Amount | 20% down payment typically required for Canadians | Minimum 5% down payment required (20% required to avoid CMHC insurance) |
| Documentation | U.S. regulations require more detailed documentation of debt, income, bank accounts, and investments from Canadian buyers. | Several documents required, though perhaps not as detailed as what’s needed to buy in the U.S. |
Other Ways You Can Finance A Mortgage Outside Your Home Country
If you aren’t able to secure a mortgage in a foreign country, there are a couple of other avenues you can take.
Purchase The House With Cash
If you are having trouble finding a mortgage, you could consider saving up to pay for a property in full. There are many countries, including Brazil, Italy, and Portugal, that have properties at dramatically lower prices than Canadian properties. Depending on the cost of the home, you may be able to save up enough money to buy a foreign home in cash. Oftentimes, the cost of a foreign home can be comparable to a down payment for a Canadian property.
Use Your Home’s Equity
A home equity line of credit (HELOC) or home equity loan can be great options for securing financing for your foreign home. This, of course, is only applicable to people who are already homeowners.
These types of financing programs allow you to borrow money, at a relatively low-interest rate, against the equity in your home. You can then use the funds to buy a home abroad without having to take out a mortgage to finance it.
Benefits Of Working With A Canadian Lender
While you may have the option to work with a U.S.-based lender, it may work in your favour to take out a mortgage with a Canadian institution that offers cross-border mortgages. Here are a couple of benefits to consider:
Potentially Lower Rates
U.S. banks may charge foreign nationals higher interest rates for mortgages compared to what they might charge American applicants. On the other hand, Canadian lenders with U.S. affiliations may be more willing to offer lower rates to Canadian borrowers, particularly those with healthy credit. This can translate into hefty savings in interest over the life of your loan.
Faster Process
Canadian banks with operations in the U.S. may be better able and willing to process your mortgage application compared to U.S. lenders with no Canadian affiliations. While it could still take upwards of 45 days to close on your mortgage, your Canadian lender will have access to your Canadian credit score to be used in the approval process.
U.S. banks, on the other hand, may have more stringent requirements and may require additional paperwork before being comfortable enough to approve your mortgage application. Plus, the U.S. mortgage industry is more heavily regulated than the industry in Canada.
Tips For Buying Foreign Property
Now that we’ve covered your financing options, let’s consider a few other tips before taking the plunge and buying foreign real estate.
Save A Large Down Payment
Generally, a 20% down payment is sufficient for a cross-border mortgage from a Canadian bank, but some countries may expect a much larger down payment, close to 30% or 40% in some cases. So be sure to save up for a big down payment when buying a home in another country.
Speak With An Expert
You want to gather a team of professionals to ensure all your bases are covered when buying a home abroad. Make sure to speak with those who have experience with these unique transactions.
Get Pre-Qualified
Before you start house hunting south of the border, consider qualifying yourself for a mortgage first. Getting pre-qualified or pre-approved is not a guarantee of mortgage approval, but it’s a step in the right direction. This will benefit you in several ways:
- Find out how much you can afford
- Show sellers that you’re a serious buyer
- Make your offer stand out from other offers in a competitive market
- Help expedite the mortgage process
Research The Country You Want To Invest In
Not only may the laws in another country be different when it comes to buying and owning real estate among locals, but there may be even more specific rules about foreign buyers. Be sure to get familiar with these laws and regulations before investing.
Get Informed About Currency Exchange Rates
Sometimes buying in a different country makes little financial sense when you consider the exchange rate. Do some number crunching to find out how much a home purchase will really cost you once you’ve calculated the conversion.
Don’t Forget About Laws And Taxes
Research the rules and laws of owning property in another country. Some notable factors to consider include the following:
- Taxes
- Types of foreign property you can buy
- Money transfer fees in different countries
Places Canadians Are Buying Property
A few countries have become popular for Canadians to invest in property, for various reasons.
The United States
The US, specifically Florida and Arizona, have become popular destinations for Canadians to invest in real estate. Florida has always been a common choice, especially for Canadians who simply want to escape the cold winters. The relatively low prices and winter sun make Florida an ideal destination.
Arizona has also been increasingly popular for its opportunity for investment, hot weather, and vibrant entertainment.
Do you often travel? Then you should consider getting travel insurance.
Brazil
Brazil has been popular for foreign investment because of its beautiful beaches and relatively cheap property prices. But before you make a purchase in this country, it’s important to research the neighbourhood you plan to buy in, as some areas of Brazil can be dangerous with high crime rates and gang activity. However, this is common in many countries, and shouldn’t be a deterrent for making a solid investment choice for real estate in Brazil.
Portugal
Portugal is an increasingly popular choice for Canadian foreign investment. With an appealing “golden visa,” Canadians can obtain EU citizenship once they purchase a property in Portugal. With warm weather, rich history and reasonable employment opportunities, Portugal is a great option for foreign investment.
Some hotspots in Portugal include Cascais, a beautiful coastal town outside Lisbon, the Algarve, known for its beautiful beaches, and Lisbon, the capital.
Plan on working abroad? Check out this guide on working in another country.
Italy
Italy hosts many beautiful towns that offer incredible Mediterranean fare, rich history, and unique architecture. While property costs in big cities like Milan and Rome can still be pricey, there are many smaller towns and villages with more reasonable prices.
Several villages throughout Italy are selling properties for only 1 euro. The caveat, however, is to provide a detailed plan about how you will restore, renovate and improve the property.
Final Thoughts
Investing in real estate abroad can be a rewarding, exciting experience with many perks. You can use the home as a vacation destination of your own, or use the property strictly for investment purposes. But be sure to research the real estate laws, tax rules and culture of a country before making any big decisions.
Frequently Asked Questions
How much are closing costs in the U.S.?
Can I get a mortgage with less than 20% in the U.S.?
Can Canadians get a mortgage from a U.S. bank?
1“Third party fees and fees related to other RBC Bank products or services may still apply. The $4,500 USD savings is for illustrative purposes only and includes examples of fees that other financial institutions typically charge foreign homebuyers in the U.S., including:
- Typical origination fee of 0.50% to 1% of the loan amount
- Typical application fee of $950 USD
- Typical processing fee of $950 USD
- Typical commitment fee of $500 USD
- Typical underwriting fee of $500 USD
- Typical foreign national premium of 1% to 2% of the loan amount
To qualify for this offer, a full and complete mortgage application must be submitted by October 31, 2024. Mortgages must fund within 120 days of the application date. Offer may be withdrawn or changed at any time without notice. Offer is only available to the following clients: new RBC Bank mortgage (first or second homes), investment properties, and refinance on a property that is owned free and clear. May not be combined with any other special offers.”
2RBC U.S. HomePlus™ Rewards is offered by RBC Bank with HomeStory Real Estate Services (HRES), a licensed real estate broker. HRES is not affiliated with RBC Bank and RBC Bank is not responsible for the program provided by HRES. To qualify for the RBC U.S. HomePlus™ Rewards, you must enroll in the program and use the assigned network real estate agent to complete the buy transaction. Your enrollment and reward eligibility is good for 18 months. If you do not purchase a home during that time, you must re-enroll to become eligible for the cash reward. For full details, please review the program terms and conditions.
