Things That the Canadian Should Know Before Buying Real Estate in US
The main attraction for all the Canadians is to buy real estate in America as they not only wish to head south during winter but they find investing here to be a lucrative business. Due to economic downturn many US citizens are planning to sell their house and move into a low maintenance small apartment. This economic depression has drawn attention of many foreigners to invest in real estate. The two countries like USA and Canada have similarities but have few noticeable differences along with it. So the Canadians should know few things before they plan to invest your hard earned money in real estate in US.
US Tax Systems:
As each country has different terms and conditions of taxation on investment properties so it is advisable to consult a financial advisor experienced with American real estate investment.
If you are interested in investment in real estate in US then you need to be aware of the following things:
1) With 1031 Exchanges you can have some capital gains from the sale of an investment property. This capital gain can be used to purchase a similar type of property. But the condition is that you need to buy it within 6 months from the date it has been sold. This process can be continued till the time the end asset is finally disposed off and not replaced.
2) If you have already sold the property and received the cash then 15% tax is levied on the total net gain. This tax is imposed on you because you have owned the property for more than one year. But the tax would be overpriced if you keep the property less than a year.
3) Canada and U.S. have quite similar structure of the property taxes. If you are a Canadian and own a property in a Southern state like Florida or California the tax you have to pay as a “non-resident” would be much higher compared to the local residents or if you invest in other U.S. States.
4) U.S. tax does not levy tax on your primary residence so you can ignore the interest charged on your home.
How is the process of lending in U.S. different from Canada?
The U.S lending scenario has changed drastically with the cash crunch and doldrums in the sub prime market. Therefore the lending plans and procedures have changed in U.S with the financial melt down. Fetching mortgage loans has never been a difficult job in U.S but in recent times the entire market is facing a change. The loan applicants have been granted loan but the lenders have high risk as the loan is issued to borrowers without job, income or any collateral. But with the introduction of ARM that is adjustable rate mortgages the interest rates have mounted. And this is one of the major reasons for foreclosures cropping up across the nation. But the Canadian does not need to worry about it as there are innumerable other options that are available.
1) In U.S there are many banks that can offer innumerable varieties of lending policies and guidelines;
2) The license of mortgage broker differs from one state to another. But there are many states that require no testing or licensing.
3) State and federal law implements the bank regulation. But the criteria of lending procedure might vary from one bank to another as the regulations and laws would be different.
So these are few things that the Canadians should keep in mind before investing in real estate in U.S.
Author Bio :
This is a guest post by Kevin Craig who is a financial writer. He has helped lots of burdened people with free counseling and advices on many finance related topics.
September 2010 Net Worth Update / Debt Update
August was a busy month with vacations and a sudden welcome spike in some business income. The timing couldn't be better as a couple of members of our family were handed an opportunity to have a once in a lifetime experience. Although it was well worth the cost, the cost was quite significant and unexpected. Some things are worth the money.
Our current net worth is $680,509, which is an increase of $5,265 and our balance in our All In One Mortgage account is $177,059. The represents the debt on our residence. With September being a good month for business income we are hoping to be able to report an increase in our net worth of more than $10,000.
I also hope that I have some more time to blog, but I am not sure that will happen. I will have to see.
Mortgage Rate Game
Banks like to play what I call the Rate Game. Banks have a posted rate, various other advertised and special rates. I use the Alberta Treasury Branch as an example, but all banks play the Mortgage Rate Game. As of today has a posted 5 year fixed rate of 5.59%, an extreme discount rate of 4.19% and are advertising 4.39% at one of their branches. On top of this is extra discretion at the branches for lower rate. This is very confusing for the average consumer.
When shopping for a mortgage you have do to your due negligence. While 4.19% is a competitive rate 3.89% is readily available right now. No doing your due diligence can cost you, but how much? The following compares the total interest paid on a $300,000 mortgage over a 35 year term with the difference fixed rates. All calculations are made with the same monthly mortgage payment amount to eliminate any time value of money issues.
5.59% - $378,788
4.39% - $191,145
4.19% - $181,151
3.89% - $157,386
As you can see a small difference in the rate over the life of a mortgage can cost you tens of thousands of dollars.
How do you avoid playing the rate game? Call your bank and ask for their "best rate." Then do some research online and talk to a mortgage broker and let them find you their best rate. Whether you use your bank or a mortgage broker ensure that the mortgage has features that meet your current and future needs. I will have an article on this in the near future.
Loan Program Overview 2010
Although all of the content to date has been Canadian the following is a guest post from Robert Stretch from USDAloans.com in U.S.A. Thank you Robert for your contribution.
Finding your best loan option is a difficult task. While qualification restrictions help the process, you need to make sure that the one you choose is the one that’s right for you, saving you as much money as possible. Here are some government loan programs worth exploring:
FHA Loans
Any loan insured by the Federal Housing Association is considered an FHA loan. And because they are insured by a government association, banks are much more willing to lend them out, meaning that you could qualify for an FHA loan even if you can’t qualify for a conventional loan. Anyone can apply for an FHA loan since there isn’t an income limit, but they’re best for those looking to buy smaller homes, as mortgage loans are generally on the smaller side and based on house price of the area. Major benefits that will save you money include…
- You can finance up to 96.5% of the purchase price of your home and still have only 3.5% down payment
- Monthly Insurance Premium of only 1.5%
- Low closing costs
VA Loans
If you served in the armed forces and are looking to buy, build, repair, or refinance a home, start looking into the VA loan program. Backed <entirely by the government, truly are meant to help as many as possible – 8 out of 10 VA loan borrowers could not have qualified to borrow with a conventional loan. And not only can VA loans be offered to more people, but their lending rules save their borrowers lots of money as well:
- No down payments, even when financing 100% of your home’s cost
- No required Private Mortgage Insurance (PMI), a monthly payment associated with most conventional loans
- Lower monthly interest rates than conventional loans, usually lower by about .5%-1%
USDA Loans
If you live in a rural area, a USDA loan may be a good option for you. Like VA loans, (even with 100% financing) as well as no mortgage insurance – two simple ways to keep more money in your wallet each month. To qualify, you have to live in an area with a population of 10,000 or less, however if you’re in a town or small city, sometimes the population limit is extended to 25,000. Unlike FHA loans, USDA loans have income restrictions for their borrowers, so they are geared towards a certain income bracket and not everyone can qualify. But if you meet the requirements, USDA loans are definitely worth looking into.
August 2010 Net Worth Update / Debt Update
Although we still want to be debt free by July 2013 we are also going to focus on our net worth. Currently our net worth is $675,244 and our balance in our All In One Account is -$179,900. This represents the debt on our residence. We will not be including the mortgage on our rental property in our debt, but it is included in our net worth.
I still believe most people will be better off by paying off all of their debt before investing, but with our overall goals there are a couple of things that we cannot overlook. Currently I work full time and have my own business part time. When we are debt free I will leave my full time employment and work on my business full time. Unless we are very fortunate my income will drop as I expand my business.
We intend to contribute to my RRSP while my income is high and I am heavily taxed. When my income drops it will present us with an opportunity to withdraw from funds from my RRSP if required. It is off in the future, but if I incorporate my business and do not take any income from it I should be able to withdraw a certain amount from my RRSP tax free. Although this will take some more research and planning I will be pursuing it when I leave my full time employment.
The other opportunity is buying back pensionable time for my spouse. I will be evaluating this in the next couple of months to determine if it is the best course of action for us.