What do Canadians buying US real estate need to know? With RBC’s Alain Forget

What do Canadians buying US real estate need to know? RBC’s Alain Forget shares the best US real estate opportunities for Canadians, plus what you need to know about US mortgages! 

Who is Alain Forget? 

I’ve been with RBC for over 40 years. I’m a Canadian but have been living in Florida since 2000. In 2004, RBC was looking to develop a cross-border strategy so I was the one who started it off. 19 years later, I’ve gained a lot of experience. 

Because we’re a cross-border bank, I realized it would be good for me to better understand the opportunities and challenges in real estate on both sides of the border. So I got my real estate licence in Florida about eight years ago and got a specialization four years ago. Now I can better help my clients achieve their goals in real estate. 

What prompted you to move to Florida?

In 1995, I was in private banking and wealth management with RBC in Montreal when the bank gave me the opportunity to lead a private banking team in the Caribbean. So my family and I moved to the Bahamas and I worked in offices around the Caribbean with clients from all over the world. I did that for five years and then was offered a position in Miami. 

So I moved to Florida in 2000 to continue working in private banking. In 2004, the bank realized I had quite a bit of experience with Canadians relocating and banking around the world and asked me to start up their cross-border strategy. 

I work for RBC Bank USA, which is a fully owned subsidiary of the Royal Bank of Canada. We’re a US bank and a national residential lender for Canadians only. 

RBC seems to be one of the only major Canadian banks to offer real estate financing in the US. Why is RBC the major player for Canadians buying US real estate? 

A lot of Canadians are connected with the US one way or another, whether it’s through family, leisure travel, business or something else. Whatever someone’s cross-border lifestyle is, that’s where RBC comes in. 

A lot of Canadians need US financing. Our focus is to help our clients with those financing and banking needs in the US.

In 2012, we sold our domestic branches in the US to another bank to become a direct digital bank. Canadians can easily transfer funds from CAD to USD; it’s very seamless. Everything is done remotely. 

We learned that Canadians are the number one buyers of US properties, so we wanted to be a resource for Canadians buying real estate south of the border. Because it’s all remote, we can help you wherever you are.

What is required for Canadians to get a US mortgage?

We qualify Canadians for US mortgages based on their credit history, assets, income and debt in Canada. We are a US bank but we can qualify Canadians based on what they have, own and earn in Canada.

Because RBC Bank USA is a national residential lender, we are fully dedicated to helping Canadians only. We don’t work with the local US domestic market. We want to provide financing as well as the right information and advice. We have to educate our clients on the differences between Canadian and US real estate. 

What do Canadians need to know about US mortgages?

Mortgages are quite a different process in the US than they are in Canada. In Canada, you can get a mortgage within a week from approval to closing. In the US, it’s a bit more cumbersome. 

Once you have an approved purchase contract in the US, you can then apply for a mortgage. Our mortgage lenders will provide advice on what documents are needed. Let’s say gathering those documents takes a week. You get the approval and then we plan for the closing. That whole process takes 35-45 days. 

It’s not a longer process because the buyers are Canadian; that’s just how the mortgage business works in the US. Even if you were an American purchaser, it would take the same amount of time. 

You can get a pre-approval in just a couple of days, but closings still take longer in the US than they do in Canada. Closings are usually 45-60 days after you sign a purchase contract.

How are mortgage terms different in the US than in Canada? 

In the US, all of our mortgages offered at RBC are on a 30 year ammortization and they are all open mortgages. It’s the same at most US banks. At RBC, we offer terms of 3, 5, 7 or 10 years to our Canadian clients, all ammortized over 30 years. 

Currently, rates are 6.25-6.5% for those terms. However, if rates go down in a few years, you can refinance because mortgages are open. But each time you do that, you have to incur the closing costs, such as appraisals, title insurance and lender fees. Those closing costs are mostly third-party fees and they vary between states. 

In Florida, the closing costs are about 3%. In Arizona, it’s about 2% and in California it’s roughly 4-4.5%. US closing costs are similar to fees you pay in Canada like the land transfer tax or lawyer fees. In the US, those are all part of the closing costs. 

Canadians assume closing costs in the US are more expensive than in Canada but that’s not necessarily true. It’s just that all of the fees are paid in bulk at the closing table instead of throughout the process.

Closings can be done anywhere because we work remotely – you can sign in your backyard in Vancouver to close with us on a property in Florida. The only exception is California; they don’t allow closings outside of the state. Three days prior to your closing, you’ll receive an itemized list of the closing fees so you know exactly what to expect.

What are the legal considerations for Canadians buying US real estate? 

Canadian buyers need to spend time doing their homework on the legal, tax and estate side of cross-border ownership. My best advice is to seek professional cross-border advice. Each person’s situation is different. For example, in the US there’s a gift tax. So if you put your kids on title but they don’t pay their dues, that’s considered a gift and it’s taxable. 

There are a lot of things where you want to avoid double taxation, such as when you have a capital gain when you sell the property. Canada and the US have a wonderful tax treaty that works to ensure you’re not being taxed twice, but you need to know the ground rules and seek professional advice. Usually what you have to pay in the US can be credited against what you would owe in Canada. 

It is important from the get-go to seek professional advice to get clear on the issues and establish the best ownership structure for your situation.

This is why for us at RBC, we want to be a holistic resource for Canadians. Not only do we provide cross-border banking and financing, but we also provide tools and resources from our partners to assist clients on their cross-border journeys. We have attorneys on both sides of the border who have worked with us over the last 20 years. They are specialized and experienced in helping Canadians. 

What mistakes do Canadians make when buying real estate in the US? 

Sometimes Canadians forget that they can get financing in the US. Right now, the average purchase price for Canadians is $500,000 USD, which is about $675,000 CAD. So you need to understand your options and key considerations. You have to do your due diligence from day one to make the process seamless. 

At RBC, we want to offer a one-stop shop from dream to doorstep. 

• We’re hosting a series of webinars with cross-border professionals to provide legal and tax information for Canadians thinking of purchasing real estate abroad. We have three top advisors who are experts in their field ready to share helpful info.