If you frequent the U.S. every year – as many Canadians do to escape the frigid temperatures of the winter – you may have considered buying a property there. Whether you want to buy a property in the U.S. as a Canadian for yourself or to rent out, the process is not the same.
Below are a few factors you need to consider when buying a property in the U.S. as a Canadian.
Key Points
- Canadians can buy any type of property in the U.S.
- Many mortgage types are available to help Canadians finance a U.S. home purchase, though it may help to use U.S. lenders affiliated with Canadian lending companies.
- You may need more documents when you apply for a mortgage as a non-U.S. resident to finalize a mortgage deal.
- The rules on buying real estate in the U.S. for Canadians may be slightly different than for U.S. residents.
Can I Buy A House In The U.S. As A Canadian?
Yes, Canadians can buy any type of property in the U.S. There are many types of mortgages and lenders available to help finance the purchase. However, you may require additional documents to finance a U.S. property.
Where Can You Get A Mortgage For A U.S. Property As A Canadian?
You’ll likely need some financial assistance to help fund this large purchase. Fortunately, several options are available:
- Canada’s Big Banks : You can also look into big banks in Canada that offer cross-border mortgages for Canadians looking to buy in foreign markets. Some lenders and banks in Canada have a significant presence in the U.S., so they may be able to help provide you with a mortgage to fund a U.S. real estate transaction. TD Bank, in particular, has a significant presence in the U.S., with more branches there than in Canada.
- U.S. Banks: Lastly, you can take out a mortgage with a U.S. bank. However, there are some significant differences between Canadian and American mortgages.
Differences Between Canadian And U.S. Mortgages
Compared to Canadian mortgages, U.S. mortgages typically differ in the following ways:
- Takes longer to close: In many cases, it can take longer for a Canadian to close on a real estate transaction in the U.S. compared to a domestic transaction in Canada due to cross-border financing complexities. More specifically, it can take anywhere from 45 to 60 days from application to closing.
- More documentation required: Since the U.S. mortgage industry has more stringent regulations compared to Canada, you can expect to be asked for more detailed documentation of your financial situation, including your income, assets, investments, and current debt load.
- Longer amortizations: In Canada, the longest amortization period you can get is 25 years — though first-time homebuyers or those buying newly built homes can take advantage of 30-year amortizations. In the U.S., you can extend that period to 30 years, which is actually the standard.
| Pro Tip: Working with a mortgage broker can help facilitate the mortgage process. A knowledgeable and experienced mortgage broker can help you choose the right mortgage program best suited for your particular situation. |
What Documents Do You Need To Get A Mortgage In The U.S.?
Much like buying real estate in Canada, you need to submit certain documentation when purchasing a home in the U.S. But as a non-resident of the U.S., the paperwork required may be more demanding than when buying domestically.
You may be required to apply for an Individual Taxpayer Identification Number (ITIN) as per the IRS as a Canadian buying the U.S. To do so, you will need to supply several original documents that will be outlined on the application form.
To get a mortgage in the U.S. from an American bank (if that’s the route you choose), the tax documents required may be different from what you may need to provide here in Canada.
Having said all that, here are the documents that you may need to provide to complete a real estate purchase in the U.S.:
- Proof of a down payment
- Real estate contract
- Real estate agency information
- Copy of your passport
- Proof of address
- International credit report
- 2 years of employment history
- Recent pay stubs
- 2-year history of residency
- 2 years worth of tax submissions
Steps To Buying Real Estate In The U.S. As A Canadian Citizen
If you’re contemplating a property purchase in the U.S., follow these steps:
Step 1: Set Your Budget
Consider things like property price, closing costs (2% – 5%), taxes, down payment, insurance, and currency exchange.
For example, Canadians who buy property in the U.S. typically need to make higher down payments than U.S. residents. For most primary or secondary homes, the typical down payment requirement is around 20%. If you’re buying an investment property, you can expect to put down even more, upwards of 40% to 50%.
Step 2: Get Pre-Approved
Getting pre-approved for a mortgage can provide you with a clear budget and will show sellers that you’re a serious and qualified buyer. You can apply through a Canadian bank with U.S. branches or a U.S. lender that accepts Canadian credit history.
When getting pre-approved, you’ll need to show proof of income, photo ID, and financial documents.
Step 3: Hire A Local Real Estate Agent
Work with an agent who is experienced in cross-border transactions. They’ll help you understand local laws and market trends, and will have their finger on the pulse of properties that check all the boxes.
Step 4: Open A U.S. Bank Account
While you don’t necessarily need a U.S. bank account when buying a house as a Canadian, it’s highly recommended for managing payments, taxes, and expenses. Plus, lenders may often require it.
Step 5: Get An ITIN
An Individual Taxpayer Identification Number (ITTN) is needed for tax reporting and mortgage applications in the U.S.
Step 6: Make An Offer
Once you find the right property, make a strong offer, and be sure to include contingencies, like financing and home inspection.
Step 7: Finalize The Mortgage
Submit all necessary documents and fill out the mortgage application. Then, sign all paperwork, which you may be able to do with a power of attorney or virtual closing, depending on the state.
Step 8: Don’t Forget About Taxes
You’ll need to report rental income or capital gains in both Canada and the U.S. Speak with a cross-border tax specialist to make sure you’re not double taxed and that you comply with laws.
Things You Should Know About Buying A House In The U.S. As A Canadian
Many people make the mistake of thinking that the laws surrounding the purchase and sale of real estate are the same in the U.S. as in Canada. In general, you will want to get familiar with the federal, state, and municipal regulations on foreign homeownership in the U.S., taxes, and property restrictions, as they can differ from what is required in Canada.
Here are some differences that Canadian buyers need to be aware of:
Title Transfers
In the U.S., home buyers don’t register the title change of a property, unlike in Canada. Instead, buyers in the U.S. purchase title insurance as part of the real estate transaction.
Availability Of Personal Data
In Canada, personal information from a real estate transaction is only available to real estate boards and agents. These stringent privacy rules are designed to prevent buyers and sellers from finding out everything there is to know about each other.
In the U.S., personal data from real estate transactions is available to the public. Buyers can find out all sorts of information on a home, including previous selling price and history, price per square foot, property taxes, Homeowner’s Association (HOA) fees, and so forth.
Probate Laws
When it comes to your heirs inheriting the property in the event of your passing, there may be U.S. probate laws that can slap your beneficiaries with an expensive legal bill. These probate laws may also enforce long wait times during which the asset is frozen before they can inherit your home in the U.S.
Condo Associations
There may be rules with HOAs in the U.S., similar to those of condo associations here in Canada, surrounding their right to choose their members and to establish legal expectations of homeowners. However, the process may be different in each country.
Further, HOAs in the U.S. tend to have more power than Canadian condo corporations, as provincial laws control these corporations.
Taxation Of U.S. Rental Property Income
If you rent your U.S. property, the rental income you collect is subject to taxation. There are a couple of ways you may be taxed on your U.S. home if you rent it out:
- 30% Withholding Tax. Gross rental income collected by Canadians on U.S. properties is subject to a 30% withholding tax. With this method, you won’t have to file a U.S. tax return, but you’ll still have to report the rental income on your Canadian tax return.
- Net Rental Basis. Alternatively, you can make a one-time election to treat the income as connected with a U.S. business. In this case, your rental income may be taxed at marginal rates based on your net rental income. You would file a U.S. non-resident income tax return on a net rental income basis annually. You may also need to file a separate state tax return, depending on the state where your property is.
Keep in mind that if you’re living in the property for part of the year, different rules apply. In this case, certain expenses may need to be prorated based on your personal use of the property.
Understand The Costs Of Owning A Property In The U.S.
Understanding the costs of owning property in the U.S. is an important factor to consider. For starters, you’ll want to see how much a property costs after calculating the exchange from American to Canadian dollars.
| U.S. House Price | Exchange Rate | Canada House Price |
| $350,000 | 1.38 | $481,299 |
Based on the example above, a $350,000 home in the U.S. is about $131,300 more in Canadian dollars.
Other common costs you should consider include:
- Down payment
- Mortgage origination fees
- Real estate commissions
- Lawyer fees
- Home inspector fees
- Appraisal fees
- Accounting fees
- Land transfer taxes
- Title fees
In addition to the mortgage payments, there are also ongoing fees that you will need to cover, including the following:
- Utilities
- HOA fees (if applicable)
- Community fees
- Property taxes
- Homeowners’ insurance
- Security
- Repairs and maintenance
Of course, don’t forget to factor in the travel expenses you will incur to get to and from your U.S.-based home.
What Happens If I Sell My U.S. Property?
You’ll need to pay taxes on income earned from the sale of your U.S. property to both the Canadian and U.S. governments.
When you sell property in the U.S., you’ll first be obligated to pay the U.S. government, even though you’re a non-resident of the U.S.
- If you owned the property for at least a year and are a single tax filer, you’ll have to pay long-term capital gains tax of 0%, 15% or 20%, depending on your income.
- If you owned the property for less than one year, capital gains are taxed as regular income.
As mentioned, you’ll also have to report your worldwide gains to the Canadian government when you file your income taxes.
| Note: Under the Foreign Investment in Real Property Tax Act (FIRPTA), when Canadians sell their U.S. property, 15% of the sale price is withheld for the IRS. This amount is held until you file your U.S. tax return, after which any excess is refunded. Withholding may be waived if: You sell under $300,000 and the buyer uses the home as a residence for at least half of the time over the next 2 years. If the IRS sends you a Withholding Certificate, it reduces the withholding tax on actual gains, not the full sale price. |
Should You Buy A Property In The U.S.? Pros And Cons To Consider
While U.S. real estate offers great opportunities for Canadian investors, it also comes with certain challenges that require careful consideration.
Pros
Buying a home in the U.S. comes with the following perks:
- The Cost Of Properties: Compared to major Canadian cities like Toronto or Vancouver, many housing markets in the U.S. offer much lower price points.
- Tax Treaties: Thanks to tax treaties between Canada and the U.S., foreign investors can benefit from reduced tax rates on rental income and capital gains.
- Proximity: The U.S. is relatively close compared to other nations, making property management, vacation use, or attending closings far more convenient.
- High Potential For Profit: U.S. properties often yield higher rental returns compared to Canadian homes, especially in high-demand states like Florida and Arizona.
Cons
Be sure to consider the following potential drawbacks to investing in U.S. real estate:
- Property Management: Managing properties from abroad can be challenging without some local assistance. And if you choose to hire a property management company, expect to pay a hefty price tag for these services.
- Hurdles To Get A Loan: Foreign buyers in the U.S. often face higher down payment requirements and interest rates compared to U.S. citizens. Plus, you can expect to require extensive documentation when applying for a loan, which can be cumbersome and time-consuming.
- Complex Tax Situation: When selling U.S. property, foreign owners are required to pay a mandatory 15% withholding tax on gross sale proceeds under FIRPTA.
Final Thoughts
Having a place of your own to retreat to whenever vacation calls is extremely convenient. You can leave all your belongings there and not have to pack so heavily, and you can really establish a home away from home. But to make this work, there are a few important details you will want to become familiar with first. Get in touch with a seasoned real estate agent and mortgage specialist to help fill you in on everything you need to know about buying a home in the U.S. as a Canadian.
