How to Finance a US Real Estate Purchase
Jarek Bucholc

How to Finance a US Real Estate Purchase

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These days there's a large influx of Canadians interested in buying real estate in the U.S. Of course this draw is due to the effects of the subprime mortgage crisis which has led to a saturated market of foreclosure properties selling at much less than market value. Also, Canadians are running to the US to put the strong value of their robust loonie to good use. Likewise, in Canada house prices are continually on the rise, with Canadian vacation properties at a premium. These factors are making the US market all the more attractive to Canadians. So, if you're a Canadian looking to invest in the US housing market here are some details on financing options.

Take note that the terms of the loan will be more favorable if you're seeking a second, or vacation home in the US. This category of home, is defined by the purchase of a home that you intend to use for recreational purposes for a portion of the year. The property is not be your main place of residence and under these terms you are not to derive any monetary benefits from this secondary property. In other words, you can't rent it out.

With such a loan you'll need a minimum down payment of 30% and additionally will have to demonstrate 3-6 months of liquid reserves. You can calculate this by multiplying your monthly payment by 3-6. Not all lenders require these reserves at present, but given that US credit markets are in such a state of flux, and loan programs are always changing, it's best to be able to cover this possibility.

{sidebar id=1}Part of the approval process requires that you show 2-3 months of bank statements to demonstrate that the funds for the down payment and reserves are indeed available. Take note that the lender will be suspicious if there are large deposits, beyond your regular income in your account. Be prepared to explain any such deposits. The mortgage lender will request verification directly from your bank and take note, that your assets must be with an approved Canadian financial institution

In terms of identification you may need to supply both your passport and and a driver's license. While some lenders may be fine with one or the other, it's best to be prepared to present both.

More stringent regulation comes into play if your planning to purchase an investment property. Such a property is one that is not occupied by the owner, and is usually purchased specifically to generate profit through rental income and/or capital gains. In this case the down payment required will be more than 30% and will be determined on a case to case basis. You'll also have to demonstrate more reserves; possibly up to 12 months worth.

If you can fulfill the above conditions, then the first step you'd take is to find a reputable lender and fill out a mortgage application. Along with the application you'll be asked all the usuals: what is you source of employment, monthly income, available liquid assets etc. Next you'll be required to present a letter of employment, relevant bank statements and a copy of personal identification.

As already mentioned credit markets in the US are in a state of flux, so while these features are available today, they may not be tomorrow. Keep up to date with changes in the market and best of luck finding good financing for your American real estate investment.

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