The Ultimate Guide to Buying US Real Estate For Canadians

Are you a Canadian who is considering buying US real estate? Well do we have the article for you! In this article we’ll go over everything you need to know when buying US real estate. We’ll go over the basics that would apply whether you’re buying a property in Canada or the US like choosing a property type and selecting your real estate dream team. We’ll also go over topics more relevant to the US like getting a mortgage there as a Canadian.

Choosing a US real estate property type

Before going out and buying a property in the US, you’ll want to decide the type of property that you’ll want to purchase. Here are some things to consider with respect to this.

Second home

A second home is as the name sounds. It’s a second home besides your primary residence. It could be a home that you live at on the weekends or one that you use as a snowbird during the time. With that in mind, you’ll probably have different criteria than you would buying a primary residence. You’ll want to keep that in mind when searching for the ideal property.

Cottage

If you’re looking for somewhere to spend your summers, look no further than a cottage. A cottage in the US can be the perfect way to relax and enjoy time outside of Canada.

When buying a cottage in the US, you want to take some time to reflect and make sure you will visit the property enough for it to be worthwhile. Otherwise, you might decide that renting a cottage makes more sense than buying a cottage in the US.

Rental property

A third option is a rental property. If you’re looking to build your rental property portfolio and better diversify, why not consider buying an investment property in the US? Some areas may be a lot more affordable than Canada.

Just make sure you work with a local realtor who knows how much rent you could expect to make sure the property is cash flow positive. That is crucial since it’s all about the numbers when you’re buying a rental property.

Choosing your US real estate dream team

Similar to buying a property in Canada, you’ll want to assemble your US property buying dream team. Here are some US real estate professionals you’ll want to hire.

US real estate agent

First and foremost, you want to find a US real estate agent. As you would with a Canadian real estate agent, you’ll want to find a US real estate agent who is familiar with the area that you want to buy in and the property type.

For example, if you’re buying a cottage, you’ll want to work with a real estate agent who is familiar with cottage country in the US. If you want to buy a rental property, you’ll want to work with a real estate agent who is familiar with rental properties in the US and so on.

When hiring a US real estate agent, you’ll want to treat it likes a job interview. You’ll want to ask for refences from satisfied clients.

You’ll also want to come prepared with a list of questions, so you can evaluate each real estate agent. It’s a good idea to interview at least two or three real estate agents in the US before making your final decision of who you’re going to work with.

US real estate lawyer

Equally important is finding a US real estate lawyer. You’ll want to find a US real estate lawyer, not a Canadian one. The reason is that the US has different laws that Canadian lawyer may not be familiar with. Not to mention that Canadian lawyers may not be allowed to work in the US unless licensed there.

US real estate home inspector

Getting a home inspection is a must unless you’re buying a new build. Even then you might want to consider an inspection since things can always be missed.

You want to find a local US home inspector who is certified and licensed. That way you’ll know that you’re dealing with someone who is likely to be a lot more reputable.

You’ll also want to do further due diligence. You can read reviews online and ask for personal references to see how happy the home inspector’s clients are with her or his service offering.

US real estate home insurance

Just like in Canada, you’ll need to buy home insurance. Most mortgage lenders require it and it’s just common sense. The policy you buy depends on how you intend to use the property. If you use it as a second home versus a rental property, the home insurance policy may be different.

Make sure you are honest with your lender on how you intend to use the property. If you aren’t honest, it could mean that your home insurance policy is null and void. Make sure your policy will be valid when you’re not there. You wouldn’t want to find out it’s not valid because you don’t visit it often enough.

US real estate property manager

If the US property is going to be a rental property and you aren’t able to visit the property on a regular basis, you’ll want to consider hiring on a property manager. A property manager can take care of the property while you aren’t there. It can save you time and money by not having to fly or drive down there for small trivial things. A property manager can also keep a watchful eye on the property to make sure your tenants are subletting it without your permission and are taking good care of it.

Contractors

If you’re going to be doing some work on the property, you’ll want to find some US contractors. Make sure you do your due diligence to make sure it’s a trustworthy and honest contractor you’ll end up working with.

Red flags to watch for include asking for a big deposit up front and delays in work being done. You should be hesitant to give more than a 25% deposit up front. You should hold back money until anymore work is done. By doing that, you better protect yourself.

When you hire a US property manager, the property manager can keep an eye on the work being done and ensure it’s good quality before you provide anymore money to the contractors. It’s a win-win for everyone involved.

Viewing US real estate properties

Viewing properties in the US isn’t as easy as viewing properties in Canada if you don’t live there. You have a couple main options. You can see them in person or view them remotely.

The benefit of seeing them in person is that it lets you get a much better feel for the property you may be buying. Sometimes properties look better or worse in person versus the photos in the listings. You can be the judge yourself.

You can also do a more thorough review of the property. It’s possible to hide defects of a property in photos. However, it’s not so easy to hide them in person. You can run the taps, try out the electrical outlets and more.

If the US property isn’t within commuting distance, you could take the weekend to visit a few properties by flying down there. That’s quite common and worth the effort since US properties don’t come cheap.

A second option is to buy a property remotely. Thanks to technology, that’s a reality these days. You could view the property remotely via a combination of photo and video. This can let you help decide if this is a property you want to make an offer on or not.

Just be aware of limitations that come with remote viewing. A property can look totally different in person versus the photos or videos. There can also be stuff that you may miss by not seeing it in person. Make sure you’re aware of that and do some extra due diligence if you’re going to buy a property sight unseen.

Mortgage financing when buying US real estate

Getting mortgage financing to buy a US property isn’t as straightforward as you may think being a Canadian citizen. That being said it’s still possible. Here are three ways to still make it happen.

You’ll want to get your financing in order before you start looking at properties and making offers. That way you avoid the stress of being turned down for mortgage financing. By getting pre-approved ahead of time, you can avoid that stress.

US bank

The first option is to go to a US bank. This option may work depending on closely tied to the US you are. If you’re a dual US-Canadian citizen with ties to the US, you’ll probably find it easiest out of everyone.

That’s because US lenders want you to have ties to the US before approving your mortgage application. The lesser ties you have with the US, the harder it is to get a mortgage with a lender there. Likewise, if you work for a US employer, that helps as well.

If you’re a Canadian citizen with little to no ties to the US, it can be next to impossible to get a mortgage there. Thankfully, there are other options.

Refinance Canadian property

Option number two is to refinance a Canadian property. Let’s say that you own a Canadian property. Maybe it’s your primary residence or a rental property. If you have equity built up in that property, you could refinance it to pull out the equity.

In order to refinance your property, you need to have at least 20% equity built up in the property. Not only that, you need to have enough equity to pull out and buy the US property.

Let’s say you own a property that’s worth $800k and you have a $300k mortgage. 80% of $800k is $640k. $640k minus $300k is $340k. Therefore, you could withdraw $340k from your Canadian property (assuming you have the income to qualify).

You want to make sure the $340k is enough to buy the US property. If not, you’ll want to have savings to make up the shortfall.

Keep in mind that there is a cost to refinancing your mortgage. You might need to pay a mortgage penalty if you’re doing it in the middle of your mortgage term. On top of that, there are appraisal and legal cost. All in you’re looking at about $1,200 to $1,300 (not including the mortgage penalty).

HELOCs

When pulling out the equity, you need to decide if it will be done as a mortgage or home equity line of credit (HELOC). There are benefits and drawbacks to both options.

The benefit of doing it as a mortgage is that the rate on a mortgage is almost always lower than a HELOC. The downside of a mortgage is that you are required to make amortizing payments consisting of principal and interest.

This makes it tougher to afford from a cash flow standpoint. Also, you’ll begin paying interest on the money you borrow immediately, even if it takes you a while to find a property.

On the flip side, the benefit of doing it as a HELOC is that your payments will be more affordable since you’re only required to make interest-only payments most of the time. You also won’t pay any interest on the money until you actually withdraw the money. If you don’t find a property for several months, you won’t be needlessly paying interest on the borrowed funds in the meantime.

The downside is that a HELOC will more than likely end up costing you more in interest over the long run since the rate on a HELOC is almost always higher than a mortgage. The interest rate may be tax deductible, so be sure to speak to your accountant and take that into account.

Canadian bank with branches in the US

If you don’t have enough equity in a Canadian property, a third option is to take out a mortgage with a Canadian bank with branches in the US.

Did you know that TD Bank has more branches in the US than it does it in Canada? That’s right. If you have travelled in the US, you have probably seen TD branches in most big US cities.

You’ll probably have better luck with a Canadian lender with branches in the US state that you’re thinking of buying in than a US lender. It’s worth a shot if you don’t have any other options.

Structuring US real estate ownership

How you structure the ownership of the property from a legal perspective largely depends on what you plan to do with the property. Will it be a second home, Airbnb or rental property?

The first and most obvious choice is to buy it in your own name. This can make sense in a lot of cases if you’re looking to keep things simple, but not always.

You might look at buying the property under the name of a corporation. If you choose to do that, you’ll need to decide if it will be an operating company or a holding company. There’s are pros and cons for each option. You’ll want to discuss it with an accountant first who is familiar with US-Canada cross border taxation to make sure you make the decision that’s best for you.

Frequently asked questions about US real estate