MORTGAGES MADE SIMPLE
Whether your goal is a vacation retreat, a lucrative investment, or a permanent change of scenery, when considering a U.S. property purchase, Canadians have multiple financing options:
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Cash
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Home Equity Line of Credit (HELOC)
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Cross-Border Mortgage
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U.S. Mortgage
Determining the best financing option for you will depend on your personal finances and investment goals, available mortgage terms and interest rates, and the currency exchange rate.
CASH PURCHASE
Buying a U.S. property with cash offers significant short-term and long-term advantages. By eliminating monthly mortgage payments and interest costs, you can save tens of thousands of dollars over the life of a traditional mortgage and obtain immediate, outright ownership of the property. A cash offer can also give you a competitive edge in negotiations, streamline and expedite the closing process, and reduce closing costs. Without a mortgage obligation, you can enjoy peace of mind and a significant cash flow advantage. The disadvantage of a substantial cash purchase is the reduction in your financial flexibility and ability to invest in other potentially lucrative opportunities. Without a mortgage you’ll also miss out on the tax benefits associated with mortgage interest deductions.
HOME EQUITY LINE OF CREDIT (HELOC)
Low interest rates, no prepayment penalties and reusable credit!
Take advantage of the equity you’ve built in your Canadian property to buy a home in the U.S. A Home Equity Line of Credit or HELOC, is a flexible, easily accessible form of credit that allows Homeowners to borrow against the equity in their home at a lower interest rate than a traditional line of credit. A HELOC is a revolving line of credit similar to a credit card, you can borrow and repay over and over, up to your approved credit limit, and interest is not paid on the available credit until you access the funds. To be eligible for a HELOC, you must have a minimum of 20% equity in your current home and good credit history. Additional restrictions may also apply.
CROSS-BORDER MORTGAGE
It's a common misconception that Canadians are ineligible for mortgage financing to purchase real estate in the United States. There's also widespread belief that Canadians need a 50% down payment to buy property. Not so.
Most of Canada’s top financial institutions offer excellent cross-border mortgage options with minimal barriers to entry and only 20% of the purchase price as the down payment.
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Working with a Canadian Cross-Border Mortgage Lender allows Canadians to leverage their Canadian credit history to pre-qualify for a mortgage faster, and to secure more favorable rates. These Lenders also offer more flexible terms, no prepayment penalties, and no foreign national premium.
Just like California Homes for Canadians, Canadian Cross-Border Mortgage Lenders understand the specific issues Canadians face when purchasing property abroad. They provide expert guidance on how to navigate the complexities of the U.S. mortgage process, ensuring your property purchase is stress-free.​​
CANADIAN CROSS-BORDER MORTGAGE LENDERS
U.S. MORTGAGE
While we recommend using a Canadian Cross-Border Mortgage Lender when financing the purchase of a U.S. property, working with a U.S. Lender to secure your U.S. mortgage is possible. The challenge is that most U.S. Lenders will require U.S. credit history, a U.S. source of income, and tax records. U.S. Lenders will also typically charge Foreign Nationals a mortgage premium and higher interest rates, and require a larger down payment.
Whether you opt for a cross-border mortgage or a conventional U.S. mortgage, it’s important to understand that the U.S. mortgage process is significantly different than the Canadian system. U.S. mortgages have a more complex and lengthy application process, and borrowers face sizeable lender fees ranging from 1-2% of the total loan amount. In Canada, Homebuyers can obtain a mortgage approval within 5 business days on average. In the U.S., the process takes 45-60 days and additional personal and financial documentation is required to support the mortgage application.
U.S. mortgage terms are also quite different compared to Canadian mortgage terms. In the U.S., mortgage terms span the entire length of the amortization period, so at the end of the term, your mortgage is paid in full. Canadian mortgages also have an amortization period that determines the total length of your mortgage, but during this period the borrower will have a number of shorter mortgage terms. The average amortization period in both Canada and the U.S. is 25 years.
Other key differences between Canadian and U.S. mortgages include the types of interest terms available, prepayment opportunities and penalties, and the mortgage interest tax deduction.
DIFFERENCES BETWEEN CANADIAN AND U.S. MORTGAGES
CANADA
UNITED STATES
MORTGAGING PROCESSING TIME
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5-10 days
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30-45 days
DOCUMENTATION REQUIRED
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Tax Returns
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Proof of Income
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Proof of Salaried Employment/Self-Employment or Retired Status
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Proof of Assets and Liabilities
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Existing Mortgage and Property Statements (if applicable)
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Proof of Identity/Citizenship
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Agreement of Purchase and Sale
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Confirmation of Down Payment
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Deposit Receipt
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Tax Returns
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Proof of Income
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Proof of Salaried Employment/Self-Employment or Retired Status
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Proof of Assets and Liabilities
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Existing Mortgage and Property Statements
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Passport and/or U.S. Visa
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Purchase Agreement
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Confirmation of Down Payment
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Deposit Receipt
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Homeowner's Insurance Policy
MORTGAGE TERMS
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6 month-10 years, average term 3-5 years​​
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Mortgage payments are typically amortized over a 20-30 year period.
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Available mortgage types: open, closed, convertible, hybrid, and reverse.
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Fixed or variable interest rates
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Fixed-rate mortgages are compounded semi-annually
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Term length and interest rate are re-negotiated at the end of each term.​​
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Pre-payment or lump sum payment options are common in open-rate mortgages. Closed mortgages generally have a penalty for pre-payment.
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15-30 years, average term 25-30 years​​
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Available mortgage types: conventional, government-backed loans (FHA, VA, USDA), and reserve.
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Fixed or adjustable interest rates
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With adjustable rate mortgages, the interest rate is typically lower for the first 3 to 10 years of the term, then adjust to a variable rate for the remainder of the mortgage term.​​
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Fixed-rate mortgages are compounded monthly
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Mortgage terms do not need to be renegotiated during the mortgage period.
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Most mortgages allow for pre-payment, lump sum payments, or payment in full at any time without penalty.
MORTGAGE RENEWALS & REFINANCING
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At the end of the mortgage term, the mortgage can be paid off in full; refinanced and renewed with your current lender; or negotiated with a new lender.​​
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Refinancing or breaking a mortgage during the mortgage term will typically result in a penalty.
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Reapplication is usually not required to renew a mortgage with your current lender. Mortgage application is necessary when partnering with a new lender.​​
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At the end of the mortgage term, the mortgage will be paid in full.​​
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Refinancing or breaking a mortgage during the mortgage term is very common, but will typically result in a penalty.​​
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Most lenders will require reapplication to switch mortgages terms. Switching to a new mortgage lender will warrant a new application and application fees.
DOWN PAYMENT
REQUIREMENTS
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5% for a property $500,000 or less​​
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10% for a property up to $999,999, 5% for the first $500,000, 10% of the portion above $500,000​​
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20% for a property over a $1 million or an investment property​​
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Mortgage insurance is required when a down payment is under 20%
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For a U.S. Mortgage, Canadians will require a 20% down payment for a primary or secondary home, and​​ 25% to 50% for an investment property. Down payment requirements will differ if using a Cross-Border Lender.
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Down payment requirements for U.S. Citizens and Permanent Residents are as little as 3% of the purchase price.
CLOSING COSTS
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Average costing costs are 1.5%-4% of the purchase price.
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Average costing costs are 2%-5% of the purchase price.
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In California, Buyer closing costs can be as low as 1%.
MORTGAGE INTEREST TAX DEDUCTIONS
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Not tax-deductible
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U.S. federal law limits deductions for home mortgage interest on mortgages up to $750,000 ($375,000 for married filing separately) for loans taken out after December 15, 2017.​​​
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The State of California allows deductions for home mortgage interest on mortgages up to $1 million plus up to $100,000 in equity debt.
This information is not intended to be financial advice.
Financial decisions are highly personal and depend on individual circumstances, risk tolerance, and financial goals. Consult with a qualified financial advisor for personalized guidance.
ADVANTAGES OF MORTGAGE FINANCING
Determining whether to pay cash for your U.S. home or finance the purchase is a nice problem to have. Depending on your specific circumstances and the currency exchange rate at a given time, financing can be a more cost-effective way of buying a U.S. property. When the U.S. dollar is strong, it can be more advantageous for Canadians to provide the minimum 20% down payment and finance the remaining purchase price over time, than to pay in full at an unfavourable exchange rate. With mortgage financing through a Canadian Cross-Border lender you also have the option to make prepayments to your loan whenever the exchange rate improves. However, carefully consider the long-term cost of financing to determine whether real savings will be achieved.
CASH VS. FINANCING A $500,000 U.S. PROPERTY
CASH
FINANCING
CAD**
$112,500
$155,250
$690,000
DOWN PAYMENT
x 38% CAD TO USD FOREIGN EXCHANGE RATE
$500,000
PURCHASE PRICE
USD*
CAD**
CASH NEEDED AT CLOSING
USD
*$112,500 USD includes minimum 20% down payment and 2.5% of purchase price for estimated closing costs.
**Calculations based on $1 USD/$0.72 CAD. Foreign exchange rates are dynamic and subject to change.
OTHER CONSIDERATIONS WHEN FINANCING A U.S. PROPERTY
PRE-APPROVALS & PROOF OF FUNDS
Just like in Canada, before you begin your search for a California dream home, it’s important to get a Pre-Approval letter from your Lender. This necessary step allows you to establish a realistic budget so you can confidently explore the local housing market. Your mortgage pre-approval should be in writing and include a guaranteed interest rate valid for a minimum of 30 days.
If you’re planning an "All Cash" purchase, you will need to obtain a Proof of Funds letter from your Canadian bank. This letter verifies that you have adequate funds to support a home purchase in U.S. dollars.
ELIGIBLE PROPERTY TYPES FOR FINANCING
Cross-border mortgages can be used by Canadian borrowers to finance a variety of residential property types, however, there are exceptions. Timeshares, houseboats, manufactured and mobile homes, co-ops, and zoned commercial properties are usually ineligible for mortgage financing. Check with your Lender on property type restrictions before beginning your property search.