Finding a Home Loan for Canadians

Most Canadians who buy Arizona homes pay all cash. However, if you are not in position to pay Cash or simply choose not to and would rather finance  a portion of your loan there are options for you.

If you choose to finance a portion of the purchase, it is important that you start the process early. The requirements are constantly changing and the process can take anywhere from 30 to 60 days in most cases. As a general rule here are the Foreign National Requirements For Arizona Loans

1. International credit report – It is ordered here in Arizona. If the lender needs to build a credit history, the lender may require a 12-month history for 3 trade lines which are credit cards, mortgages, car payments, or other charge accounts. Cost is $40 per bureau, and takes 1-3 days for Canadians and 10-15 days for buyers from other countries.

2. Copies of passport and visa

3. Last two pay checks

4. Bank statements for the last 2 months

5. Assets – most recent quarterly statements

6. Last two years tax returns – If self employed, the lender may need the business tax returns and a letter from an accountant stating number of years in business.

7. Verification of 2 years employment history in the same line of work

8. Need to put X% down. The minimum down payment changes frequently.

9. Need to set up American bank account for transfer of money.

Buying A Home: The Up-Front Costs

Financing and Closing for Canadians

“The foreign national buyer is typically better capitalized, with a higher income than the U.S. buyer,” says Dan Green, a loan officer with Mobium Mortgage and author of “The thing is, banks can’t really track down defaulting buyers in this case, so they have very little leverage.”

What this means is that lenders require more up-front evidence of financial stability from foreign national buyers than from the typical U.S. buyer. For one thing, many lenders require that buyers place closing costs and 12 months of principal interest taxes and insurance (PITI) in a U.S. bank account. They also require foreign national buyers to put more money down—in many cases, as much as 25-30%–and to demonstrate that they have at least three to six months of liquid reserves available (the equivalent of three to six mortgage payments).

In addition, in the current market, many banks offering loans to foreign nationals are holding the loans on their own portfolios, says Green, resulting in a range of loan packages and opportunities. He urges buyers to purchase properties that are already established. “For all foreign national buyers, a major risk is time,” he says. “Look for properties that are available now. The mortgage market is changing rapidly, so mitigate your risk by moving up your time frame. You’re taking a chance with a property that’s set to deliver in late 2009.”

When you purchase a home in Canada, there’s typically a shorter closing time than there is when buying in the U.S. Be prepared to wait three to five weeks to close on your U.S. property from the point in time that you’ve signed the contract, during which time all of the third parties involved (inspectors, appraisers, insurance companies, lawyers, etc.) will be working on their part of the transaction. It’s wise to begin the loan pre-approval process before you begin searching for a particular property, so that when you find the one you’ve been looking for, you’re negotiating from a position of power. Finally, expect the term of the loan to differ from what’s available in Canada. Rather than the three-, five- or seven-year mortgages you’re used to, U.S. mortgage loans are typically 15 or 30 years in duration.

How to Maximize Profit and Minimize Taxes

As a Canadian, you can be treated as a U.S. citizen for tax purposes if you spend too much time at your American getaway. A good rule of thumb is to spend less than six months in the U.S. This minimizes the tax implications for you and doesn’t compromise your Canadian health care benefits.

Avoiding Estate Tax: The Non-Recourse Mortgage

“There are ways that Canadians can reduce their exposure to U.S. estate tax,” says Ritchie, author of The Canadian Snowbird in America: Professional Tax and Financial Insights into a Temporary Lifestyle. “One of the ways is by placing a non-recourse mortgage against the property.” With this type of mortgage, the lender only has recourse against the property itself and not the borrower’s other assets. Furthermore, if the monies from the non-recourse mortgage are utilized for income-earning purposes, such as investment in Canadian stocks or bonds, borrowers may be able to deduct the interest paid.

Don’t Get Hung Up in Probate

Probate—the process by which real estate is transferred to a deceased owner’s beneficiaries—is notorious as a lengthy, stressful and costly process. To avoid the hassle, consider putting the deed in the name of a Cross Border Revocable Living Trust (CBRLT) rather than an individual person. There are a number of advantages to this option. For one thing, properties held by a CBRLT are exempt from Florida probate and do not have any filing requirements for the U.S. or Canadian tax authorities. Should the primary beneficiary of the trust become mentally incapacitated, the trust simply passes to the next designated beneficiary, avoiding the guardianship process. There are additional benefits to the CRBLT regarding divorce of the beneficiary, deferral of estate tax, and protection from creditors should the property be sold.

If you do not have a loan officer you work with in Canada, or you want a second opinion, please let me know and I have a couple that I can refer you that have programs specifically for Canadian Buyers.