Are harsh Canadian winters getting you down? If you’re dreaming of walks along the beach or afternoons spent on a sunny golf course, the thought of buying a property in the United States might be very appealing. Before you get too excited, there are some key points to keep in mind…
These days the US banking system is much more highly regulated that our systems in Canada. Applying for and securing a mortgage in the States can take more than a month from application date until closing and you should be prepared to provide more documentation than you’re used to since you’re not going to be a full time resident at this property. According to the Financial Post, closing costs will likely be higher than you’d expect as well, including taxes, titling and insurances that can vary from state to state plus a foreign national premium that is charged to international buyers to compensate for the fact that American banks won’t be able to get a full picture of your Canadian credit history. And then there’s the fact that in the US, mortgage interest is compounded monthly, not semi-annually as it is in Canada.
Converting Canadian dollars to US can sometimes prove to be a huge hurdle as well, given the general strength of the US dollar. It might make sense to consider securing a US mortgage with a US bank so that payments can be made in US dollars, allowing you to convert funds occasionally and in smaller increments. Keep in mind though, that this is a somewhat speculative strategy that will have best results if the Canadian dollar stays relatively strong against the American dollar, reducing the conversion rate.
What If I Rent My U.S. Property Out?
If you choose to rent out your property while you’re back living in Canada, you can simply make payments to your US mortgage in the US dollars you’ll be collecting from your tenants. It is still in your best interest to seek professional advice to make sure you’re well aware of any potential tax consequences both at home and in the States.
Probate and Estates
US Probate (the legal procedure of settling the legal property of the deceased) is an important component of the purchase of property in America. Probate regarding an American property owned by a Canadian resident will have to be conducted and concluded in America, even if the bulk of your estate is to be probated in Canada. This can become expensive as, in Florida for example, an attorney is allowed by law to charge as much as 3% of the fair market value of the property (or assets) in question as your probate fee. Estate Tax can present similar concerns for wealthy Canadians with significant property holdings in America.
Health Can Become An Issue
If an American property is purchased in two names, a husband and wife, for example, and one of the two owners becomes incapacitated, that property is effectively frozen until a guardianship procedure can be completed. This can be both time consuming and expensive, so once again, it is paramount that you have reliable experts in your corner to safeguard against potential issues before they arise.
Links for Further Information:
Financial Post – Want to Buy Properties in the U.S.? Read this First
SnowBirdAdvisor.ca – Top 10 Snowbird Considerations Buying U.S. Real Estate
SnowbirdAdvisor.ca – Top Mortgage Tips Canadian Snowbirds When Buying U.S. Real Estate
Altolaw.com – Cross Border Tax Estate Planning Blog – Issues Canadians Face When Buying U.S. Property