Canadians will find getting a mortgage in the U.S. to be very different from the process in Canada.
Learning about the differences beforehand will help your home buying go more smoothly.
With today’s low interest rates and wide selection of U.S. properties available, this is an excellent time to consider purchasing real estate in the United States, and a U.S. mortgage1 can give you significant benefits, including:
- No pre-payment penalties. You can repay your mortgage at any time you like.
- Mortgage interest may be deductible against taxes in the U.S.2
- Mortgages are amortized over 30 years, longer than typical Canadian mortgages, which will reduce your monthly payment.
With the benefits in mind, it’s also important to consider these major differences between U.S. and Canadian mortgages:
While it takes only a few days to secure a mortgage in Canada, in the U.S., loan processing takes around 45 days and begins when you have a sales contract and a completed mortgage application with all of the requested documentation provided.
Before you start looking for your home, pre-qualifying with your lender is a good way to start. It’s a relatively quick process depending on your personal situation and helps you learn how much you can borrow and what your monthly payments might look like. When you pre-qualify, be sure to discuss with your lender your timeline for completing your purchase.
Typically, the mortgage application and approval process will include:
- Completing a mortgage application
- Accessing your Canadian and/or U.S. credit history
- Gathering income and asset documents that you, as a buyer, provide
- Ordering and getting documentation for an appraisal and for the title search
- The credit loan review and approval
- Preparation of closing documents
U.S. mortgage application
You'll complete a standard application used by all U.S. financial institutions. It asks for information about your income, assets, liabilities, real estate you own (in all countries), and the type of property being purchased, plus a two-year history of your residency and employment. You should have a sales contract for your home before you start the application process.
Documentation you provide
In the U.S., securing a mortgage requires more documentation than in Canada. Our convenient Mortgage Documentation Checklist shows you what you may need. The specific documents required will be communicated by your Cross-Border Mortgage Specialist.
Typically, a down payment of at least 20% of the value of the home is required in the U.S., but the amount depends on whether you’ll use the property as your primary residence, second home, or investment property. You’ll be asked to provide information and documentation about the source of your down payment. To avoid delays, it’s critical that once you’ve deposited your down payment funds into your banking account and they’ve been verified, they remain in the account and not be moved.
The costs associated with a mortgage in the U.S. can be higher than in Canada, due largely to third party services that are required to complete the process. There are standard application and transaction settlement fees for required items such as the property appraisal, the title search, and flood certification. On average, you can expect to pay from 3% to 5% of the selling price in fees. Details about these fees will be included in the initial disclosure package you’ll receive once your application is completed.
In the U.S., for mortgages or a home equity line of credit secured by your home, lenders require you to maintain homeowner’s, or hazard, insurance to protect the investment if the property is damaged or destroyed. The coverage amount must cover any outstanding loans on the home and property or the replacement value, whichever is less. Since policies generally run for 12 months, your U.S. lender must receive yearly verification that the home is covered.
RBC Bank recommends establishing an escrow account to ensure both your property taxes and homeowner’s insurance are paid yearly on your behalf. This is common practice in the U.S. and is particularly convenient for borrowers north of the border.
In the U.S., interest is accrued monthly, while in Canada interest is accrued semi-annually. In addition, mortgage interest may be deductible against taxes in the U.S.
Documentation you’ll receive
Once your completed mortgage application is submitted, within three days, you will receive a:
- Truth-in-Lending (TIL) Statement – outlines the estimated costs of your loan, including: the annual percentage rate and other terms, including points; any other finance charges; the amount financed; the payment amount; and the total payments required. These costs are factored into an Annual Percentage Rate (APR) which is the true cost of the loan.
- Good Faith Estimate – itemized estimate of the costs to originate your loan and to whom they are payable. Includes all fees, taxes, and interest.
- Guide to Settlement Costs – A U.S. Department of Housing and Urban Development (HUD) publication, Shopping For Your Home Loan: HUD's Settlement Cost Booklet, which describes the settlement process and your rights and includes an item-by-item explanation of settlement services and costs.
1 All loans and lines of credit are subject to approval, including verification of acceptable income, creditworthiness, and property valuations. Minimum and maximum property values and maximum loan-to-value ratios apply. Homeowner’s insurance is required for all loans and lines, and flood insurance is required if property is located in a Special Flood Hazard Area. Escrows may be required. There are closing costs associated with these products.
2 Consult your financial, tax, legal, and other professional advisors prior to applying for a U.S. mortgage.