Applying For A Mortgage Outside Of Your Home Country

Having a vacation property abroad sounds like a dream for many Canadians. It allows you the freedom to travel without worrying about accommodations and to 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, there are many factors to consider before investing in foreign real estate. You need to consider tax implications both in Canada and the foreign country as well as how you’re going to finance the new property.

How Can You Finance a Foreign Mortgage

Securing a mortgage in Canada often requires you to save up for a 20% down payment. In some cases, Canadians can even acquire a mortgage with as little as a 5% down payment. This is not a reality for foreign investments, as many foreign mortgages will require you to have a much larger down payment. Many foreign investors, especially in countries with lower property sale costs than Canada, actually pay for the property in full. Nonetheless, paying for a property in full is not feasible for everyone, so there are a couple of other ways to explore financing.

Places Canadians Are Buying Property

There are a few countries that have become popular for Canadians to invest in property, for various reasons.

The United States

The US, specifically Florida and Arizona, have become very 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.

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Brazil

Brazil has been popular for foreign investment because of its beautiful beaches and relatively cheap property prices. You should 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 it 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 opportunities for employment, 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 of course, the capital.

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Italy

Italy hosts many beautiful towns along with incredible Mediterranean fare. Not to mention the rich history, including architecture and art. While property costs in big cities like Milan and Rome can still be pricy, there are many smaller towns and villages with more reasonable prices. Recently, the village of Castropignano in the region Molise has begun 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.

Additional Reading

Can You Apply For a Mortgage Outside Your Home Country?

Although many buyers might opt for purchasing a foreign property upfront, there are multiple ways for you to obtain a mortgage abroad, offered by various Canadian banks.

Cross Border Mortgages

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 – RBC offers cross-border mortgages and resources to Canadians in all 50 states. They also give you the option of only putting a 20% down payment on the property, unlike many other foreign real estate investments.

BMO – BMO offers similar services for cross-border mortgages to RBC, including support with loan terms and rates and the option to only put down a 20% down payment.

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 US mortgages:

US	Canada
Longer (30 years) amortization periods	Generally 20-25 year amortization periods
No fees for paying mortgage off before end of term	Fees associated with paying mortgage before end of term
Canadian or American credit history needed	Canadian credit history needed
Generally a 20% down payment	Generally a 20% down payment

Other Ways You Can Finance a Mortgage Outside of Your Home Country

If you aren’t able to secure a mortgage in a foreign country, don’t worry. There are a few other avenues you can take.

Purchasing 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. If you set your mind to it, you can save up enough money to buy a foreign home, and oftentimes it can be comparable to the same amount of money as a down payment for a Canadian property.

HELOC

The home equity line of credit can be a great option for securing financing for your foreign home. This, of course, is only applicable to people who are already homeowners. The home equity line of credit allows you to borrow money, at a relatively low-interest rate, against the equity in your home.

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. 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. Regardless of the route you choose, here are some helpful tips to consider before purchasing property abroad:

Make sure you speak with a financial advisor and a real estate agent
Research general laws and cultures of the country you want to invest in
Inform yourself about currency exchange rates
Research the rules and laws of owning property in another country
- Taxes
- Type of foreign property you can buy
Money Transfer fees in different countries

Final Thoughts

Investing in real estate abroad can be a rewarding, exciting experience with many perks. It’s important to research the real estate laws, tax rules and culture of a country before making any big decisions.

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Chrissy Kapralos

Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.