Considering buying a vacation home south of the border? Snowbird destinations like Florida and Arizona may offer relief from the cold and snow – but Canadian buyers can get frozen out by American mortgage rates. Here are 3 options for financing that U.S. home, from our friends at The Housing Block.
Author: The Housing Block
With winter fast approaching, many Canadians are making plans to escape the cold. Who can blame them? After the coldest, snowiest winter in decades, wouldn’t it be a lot nicer to be relaxing in a warm destination by purchasing a home for sale in Florida or Arizona rather than sticking around to shovel snow in Canada?
Last month we looked at Canadians investing in U.S. real estate. While wanting to invest in U.S. real estate is fine and dandy, figuring out how to pay for it is another story. With U.S. real estate prices on the rebound and the Loonie falling below 90 cents, buying a home down south isn’t as affordable as it once was.
Investing Your Retirement Nest Egg in U.S. Real Estate
While “location, location, location” is the mantra for real estate, “don’t put all your eggs in one basket” is the mantra for investing. A lot of Canadians find the majority of their net worth tied up in real estate. That’s fine as long as real estate prices continue to go up, but what if they don’t? Buying a second home in the same city can be risky. By purchasing a home in the U.S., you can better protect yourself if a real estate correction happens in Canada.
Here are three of the most common ways to finance a home purchase in the U.S.
1. Home Equity Line of Credit (HELOC)
With Canadian real estate values at record levels, why not take advantage of the untapped equity in your principal residence? This can be accomplished with a HELOC. This works along the same lines as refinancing your mortgage to purchase an income property, except the funds are used to purchase U.S. real estate. With prime rate frozen at 3 per cent for over four years, today you can find a HELOC for as low as 2.4 per cent (prime minus 0.6 per cent). Best of all, you can avoid the headache of dealing with a U.S. mortgage lender.
2. Unsecured Line of Credit
If you’re a renter or a new homebuyer who hasn’t built up enough equity in your Canadian home, you should consider an unsecured line of credit. Just like a HELOC, you won’t have the hassle of dealing with a U.S. mortgage lender. As its name suggests, an unsecured line of credit isn’t backed by a valuable asset like your principal residence. For that reason you’ll pay a higher interest rate than a HELOC.
3. U.S. Mortgage Lender
Unless you’re naturally wealthy and can pay in cash, your third and final option is to deal with a U.S. bank. Although Canadians can obtain a U.S. mortgage, this option can prove very costly. Here’s why: oftentimes U.S. banks don’t count your Canadian credit history. Without U.S. credit history, you’ll pay a much higher mortgage rate.
If you decide to go this route, your best bet is to deal with a Canadian bank that has U.S. branches. TD Bank is a great choice, as it has more branches in the U.S. than Canada. If you’re able to use your Canadian credit history, you’ll be able to obtain a mortgage at a lot lower rate.
About the Author: The Housing Block
The Housing Block provides users with convenient access to many valuable real estate tools. Our vision is to build the most innovative and valuable real estate platform to help buyers and renters find a new place to call home.