The ultimate guide for a Canadian buying house in USA
As a Canadian, you can buy a house in the USA with no restrictions from the US government. In fact, there are no restrictions on buying US real estate as a foreign national. This can be an appealing decision for many Canadians looking to take advantage of relatively lower home prices in the US and access to snowbird vacation homes found in many parts of America.
However, the home buying process in the US can be overwhelming for someone who is not familiar with how the US real estate process works. This blog will explore the key things that a Canadian should keep in mind while doing cross-border real estate transactions in the US.
Before deciding to purchase real estate on the south side of the border, it is important for Canadians looking to invest in US property to understand and consider some unique aspects that can impact their decision.
We will provide some key insights into Canadian citizens’ historical trends in cross-border US real estate transactions and some of the key insights that can help Canadians buy US property. In addition, we will guide how the US real estate and mortgage process works.
How much US real estate is purchased by Canadians every year?
Per NAR (National Association of Realtors), Canada emerged as the top country of origin among foreign buyers during April 2020-March 2021, accounting for 8% of foreign buyer purchases in terms of the number of units of existing home purchases.
Canadians bought 8,800 existing home units worth $4.2 Billion from April 2020 – March 2021, down 52% in terms of the number of units (18,300 units during the same period last year) and 56% in terms of dollar volume ($9.5 Billion during the same period last year). Most of this reduction can be attributed to travel restrictions due to Covid-19.
Below is the table for the historical trends in dollar volume and the number of existing home purchases by Canadian nationals in US real estate:
Table of Historical Trend for US Existing Home Purchases by Canadians
Where do Canadian nationals buy property in the US?
Florida remained the top destination for Canadian sunshine, with 38% of all Canadian purchases last year (Apr’20-Mar’21) taking place in the state. That said, other popular destinations included Arizona (24%), California (7%), Ohio (4%), New York (3%).
51% of Canadians buy their US property in a suburban or resort area, while the remaining 49% purchasing in rural or urban/central city areas.
Are houses cheaper in the USA than in Canada?
Per Zillow Home Value Index, the typical value of homes in the United States is $298,933 as of July 2021, 16.7 percent higher year over year. In contrast, the average home price in Canada as of April 2021 was C$716,828 (USD $573k), according to the Canadian Real Estate Association’s MLS system, 31.6 percent higher year over year.
Home prices in many US metro areas are comparatively low compared to prices in the central areas of global cities.
For example, you will pay on average USD $10,947 per sq. meter for a home in Toronto (Canada), compared to per sq. meter price of $7,180 in San Francisco (California), $2,660 in the Miami Area (Florida), $1,940 in Orlando (Florida), $3,070 in NY metro areas, $2,620 in Austin (Texas), etc.
Following is the list of median home prices and per square meter price in key US metro cities:
Table of Median Home Prices and Price Per Square Meter for key US Metro Cities
What is the median and average purchase price of cross border US real estate transactions by Canadians?
During Apr’20-Mar’21, the median purchase price for US real estate bought by Canadians was $400,900, and the average purchase price was $473,600.
The median purchase price was up 37%, while the average price was down by 8% compared to the same period last year.
Historical Trend in Purchase Price of US Real Estate by Canadians
|Year||Median Purchase price||Average Purchase Price|
How do Canadians intend to use their US property?
Many Canadians considering purchasing property in the US may not be aware that they can still live and work in Canada, buy a house or condo in the USA as a non-resident buyer, and maintain their status as Canadian citizens.
This is because of NAFTA (free trade agreement between Canada & Mexico), which means that Canadians can legally stay in the US as visitors for up to six months in any consecutive 12-month period, without the need for US residency or a work visa.
This explains why the majority (~75%) of Canadian buyers of US property are non-resident foreign buyers. 84% of Canadian buyers bought a home for vacation use, rental property, or both.
With this in mind, Canadians can buy real estate as an investment property to rent out on a long-term lease and make money off it while they’re living at their primary residence back home in Canada. They can also use American homes as vacation properties that can be rented out while not in use.
|Intended US Property Use by Canadians|
|Both Vacation & Rental Property||24%|
Understand the various steps involved in the US home buying process for a Canadian national.
Buying a house in a foreign country can be a daunting task if you are not familiar with the real estate buying process in the new country and how it’s different from your home country. However, it can also be an exciting adventure if you have taken the time and effort to educate yourself.
Following steps are involved in the home buying process in the US. Please refer to our comprehensive blog on Buy a house in the USA – A Complete Guide for Foreign National Buyers for a detailed explanation of each step outlined below:
- Decide where you want to buy the house in the USA
- Find a Real Estate Agent experienced in international real estate transactions, preferably with a specialized designation such as CIPS (Certified International Property Specialist). CIPS designated real estate agents have the expertise to work with international clients – both Canadian citizens residing in the US and non-resident Canadian buyers of US real estate.
- Understand how working with a Real Estate Agent works in the USA
- Understand your cross border tax situation
- Start your home search process with the Real Estate agent
- Make an offer on the property you like and finalize your dream home in the USA
- Conduct a Home Inspection
- Sign purchase contract with the seller
- Complete a Title Report
- Obtain Home financing through a US Mortgage for foreign nationals
- Take ownership of your new house in the USA
If you’re looking to purchase a rental property in the US to generate rental income (or use the property as a rental property and vacation home), keep in mind the following quick tips.
5 tips for Canadians purchasing rental property in the US:
- Research the rental demand in your intended purchase area. Understanding how much rental income your property can generate will allow you to make a more informed decision on which type of investment option is best for you.
- If you plan to use your investment property as a vacation home as well, make sure that you’re aware of the peak season and demand for rentals in peak months, so you can squeeze in your perfect vacation in the US.
- Hire a good property management service company that will take care of your investment while you are away.
- Work with a real estate agent experienced in foreign national transactions, such as a CIPS (Certified International Property Specialist) designated real estate agent
- Don’t forget about taxes and insurance – If you’re looking for a return on investment in your US property, make sure you understand the tax liability with capital gains (when you sell the investment property) as well as taxes owed in the US on your rental income. You are also responsible for paying the property tax on your US property.
Find the best real estate agent with international expertise
Connect with a local US real estate agent(s) with CIPS designation
Financing your US property – Can you get a mortgage in the US as a Canadian?
66% of the Canadians who bought US property from Apr’20-Mar’21 paid in all-cash. However, did you know Canadians can get a mortgage in the US at competitive rates with no US credit history!
You can take advantage of low mortgage rates in the US and put your cash towards higher returning assets.
Canadians can find US mortgage providers that are willing to offer mortgages in the US for foreign nationals. So whether you’re buying a home in the U.S. to live in or use as an investment property or vacation home, mortgage solutions are available without US credit history at competitive rates to meet your need.
These are US Mortgage lenders specializing in foreign national mortgage products and take into account non-traditional data points to assess your credit risk, including your credit history outside the US. These lenders might also consider your rental income in the US to qualify you for a US mortgage.
You will most likely be required to put a minimum downpayment of 20-25% of the purchase price for most foreign national mortgage product options in the US. Getting a US mortgage saves you the uncertainty of the currency exchange rate for mortgage payments and provides you with peace of mind.
Following steps are involved in the mortgage home loan process in the US. Please refer to our comprehensive blog on How to Obtain a U.S. Mortgage for Foreign Nationals with No or thin US Credit History for a detailed explanation of each step outlined below:
- Estimate your budget and your home financing needs
- Obtain Mortgage Pre-approval for your foreign national mortgage from your lender
- Prepare your documents for a foreign national home loan
- Shop for your home and make an offer
- Finalize your foreign national mortgage loan application
- Lock the interest rate on your mortgage loan as mortgage rates in the US change daily
- Navigate through your US Mortgage Loan Processing and Underwriting
- Conduct Property Appraisal
- Prepare for Closing
US Mortgages for Foreign Nationals & Expats
Get pre-qualified for a US Mortgage as a foreign national buyer without US credit history
Cross border tax implications for Canadians buying US investment property
As per IRS (Internal Revenue Service), a foreign person (non-resident buyer) is subject to US tax on its US source income, including income from the property.
US source income received by a foreign person is subject to a US tax rate of 30%. However, a reduced rate, including exemption, may apply if an Internal Revenue Code Section provides a lower rate or a tax treaty between the foreign person’s country of residence and the United States.
Non-residents of the United States can also choose to be taxed as if their rental income was effectively connected with the conduct of a trade or business in the US.
In such cases, taxpayers can deduct any expenses incurred while renting the property from their rental income and are then taxed on their net rental income, taking into account expense deductions rather than a 30% flat rate on the gross rent. To avoid the 30% withholding, a taxpayer must complete form W-8ECI and provide the form to the person who is paying rent.
Canadians looking to purchase property in the U.S. must first file a tax return, form 1040NR, as a non-resident to deduct expenses to be taxed on their net income. To file a 1040NR, a non-resident investor must obtain a US Individual Taxpayer Identification Number (ITIN).
Tax compliance for Canadians selling US property
If a US non-resident sells real estate located in the United States, they are subject to a 10% or 15% withholding tax of the gross selling price under FIRPTA (Foreign Investment in Real Property Tax Act).
If the property is sold for more than $300,000, but less than $1,000,000, and the purchaser intends to use it as their residence, they will only pay 10% for withholding rather than 15%. If there is a capital gain on the sale, you will owe US taxes offset by FIRPTA tax withholdings.
What property is exempt from FIRPTA requirements?
If the sale price of the non-resident’s US property is for less than $300,000 to a buyer who intends to occupy it for use as a residence, you will be exempted from FIRPTA withholdings.
As per IRS, the buyer or member of the family must plan to reside at the property for at least 50% of the number of days any person uses the property during each of the first two 12-month periods following the date of transfer. In addition, any capital gain on the sale from the US property is still taxable, and the non-resident foreigner must file a tax return (1040NR).
Buying property can be a daunting task no matter where you live, but as an international buyer in the US, it can complicate the process even more. In this blog, we have shared some key information and things to keep in mind to help make buying your American property a more seamless experience.
Frequently Asked Questions (FAQs)
Can a Canadian citizen buy a house in USA?
Yes, Canadian citizens can buy a house in the USA without any additional restrictions. This holds for both Canadians residing in the US as well as non-resident Canadian buyers.
Refer to this definitive guide on how to buy a house in the USA as a foreign national.
Can Canadians qualify for a US mortgage?
Yes, Canadians can qualify for a US mortgage with no US credit history. Some lenders may even allow using the rental income from investment property to qualify for a US mortgage.
Refer to this comprehensive guide on How to Obtain a U.S. Mortgage for Foreign Nationals with No or thin US Credit History for a detailed step-by-step process.
Do Canadians pay taxes on US property?
Canadians will be required to pay their property tax on US property like any other US citizen. In addition, Canadians will have additional tax obligations if they generate income from a rental property in the US or sell US property for a gain on the sale.
Refer to this section in the blog for details on cross-border tax implications for a Canadian buying house in the USA.
Can Canadians live in the USA if they buy a house?
Buying a house in the US doesn’t provide Canadians with any special immigration status or residency in the US. Canadian visitors are generally granted a stay in the U.S. for up to six months at the time of entry.