If your clients vacation frequently in Canada or have children who are attending a Canadian university, they may ask you whether it makes more economical sense to invest in property than to continue incurring high hotel or apartment rent costs. And then they might wonder if they can -- and how. If you are looking to move to Alberta Canada, Bwalk.com offers apartments in many parts of Calgary.
It's actually pretty easy for U.S. citizens to buy property in Canada. There's no governmental red tape and lenders are happy to take your money. Also, Toronto, Montreal and across Canada stayed low in 2012 and the risk of an increase this year is modest, according to Canadian Mortgage Trends. Current posted rates for a 5-year term are below 3 percent.
Tougher bank lending rules were imposed in October and may affect clients with less than perfect credit or those buying homes in the $1 million-plus range.
Is buying a second home in Canada a good investment? Here are some things to consider:
1. Down Payment
Most lenders require U.S. residents to put down at least 25 percent of the selling price when buying a home in Canada. Some may demand a down payment of up to 35 percent of the selling price.
2. Upfront Payment
Some, but not all, lenders may also ask you to pay the first 12 months of interest and principle in advance.
3. Credit Verification
Lenders may look for credit information about you through an international credit bureau. They may also ask for letters of reference from your U.S. banking institution.
4. Amortization Period
For loans from banks and other federally-regulated institutions, the maximum amortization period is 30 years. Loans through provincially-regulated lenders, such as credit unions, may be extended for up to 35 years. If you've purchased a home in Canada before, you may have obtained a 35-year mortgage from a bank, but the lower 30-year term took effect last October as part of a general tightening of lending regulations.
5. Mortgage rate term
There is no such thing as a fixed 30-year term mortgage in Canada. The longest fixed-term period for anyone buying a home in Canada is 10 years. A mortgage broker in Vancouver or other major Canadian city can help you determine whether it's better to take out a mortgage for a term of 6 months or 1,2,3,5,7 or 10 years and to help you find the best mortgage rate when it's time to refinance.
7. Additional Costs
When buying a home in Canada, you face costs in addition to those involving the down payment. If you've purchased a home in the U.S., you will find some of these expenses standard. But a few may surprise you. Budget for these expenses:
Renting Your Canadian Home
If you purchase a house in Canada as a vacation residence or as an alternative to paying dormitory fees or apartment leases while your son or daughter attends a Canadian university, you may want to rent the property when it's not in use.
The Canadian government permits this but, not surprisingly, wants to share your wealth.
Here are some costs associated with renting a Toronto or Vancouver condo, a Montreal bungalow or a cabin in the Laurentian Mountains:
The federal government requires Canadian landlords to pay 25 percent of their gross property rental income in taxes every year. But as a U.S. citizen, you can choose to pay 25 percent of your net rental income. Talk to someone who specializes in tax law about what expenses are permitted and what forms (NR6 for example) need to be filed in order to claim expenses.
When you sell your Canadian home, the Canadian government will take 50 percent of the sale as a withholding tax, according to Investopedia.com.
If you file income taxes in Canada, you can deduct your property taxes and interest paid on mortgage loans.
Any profits from selling property you own in Canada must be reported as capital gains on your U.S. income taxes. If you've paid taxes on your gains to the Canadian government, you can offset your U.S. tax by claiming a foreign tax credit on your return, according to Investopedia.
Before you invest in Canadian property, talk to your U.S. tax advisor and those knowledgeable about buying and selling property in Canada.
Visit Geoff Lee Mortgage Group to learn more on how you can finance an investment property in Canada.