Buying a vacation home in a warm country is a lifelong dream and goal for many Canadians. Whether you’re looking for an escape from the cold winters or a more permanent place to retire, moving down south is an exciting option to consider.
Related: Thinking about buying real estate outside Canada? The stars might be aligned for the Sunshine State
It’s also important to keep in mind that purchasing a property in a foreign country, like Mexico, Costa Rica, or even the U.S. is significantly different than purchasing a house in Canada. Because of this, understanding your options and seeking the right professional help is a great first step to take.
Ways to finance a vacation property abroad
There are numerous ways to finance your vacation property abroad, but some of the most common ways include a HELOC, cash, or a cross-border mortgage.
Refinance Canadian home and use equity to purchase a vacation home
Tapping into your home’s equity is a great way to finance your vacation property abroad. In particular, a home equity line of credit will allow you to borrow up to 75% – 80% of your home’s value. Moreover, you don’t have to pay the principal until the draw period ends, which can be as long as 20-25 years. Till then, you’ll only be responsible for the interest payments.
Choose a Canadian bank that operates in the country where you want to purchase
When it comes to looking for a lender to finance a mortgage to purchase a home abroad, you should look into Canadian banks with international ties.
Qualifying for a mortgage in the US or any other country can be difficult, especially when your Canadian credit history isn’t transferable. Instead, you should look to apply with a Canadian bank that has branches in the country you’re looking to purchase the property. Currently, this is plausible for properties in the Caribbean and the US. Moreover, by applying with a Canadian bank, you’ll be able to access much lower interest rates.
Cross-border mortgages
If you plan on purchasing a vacation property in the US, you can opt for a cross-border mortgage, which is offered by a few banks in Canada. With a cross-border mortgage, you can apply for a mortgage through a Canadian bank for a property in the US.
Cash
If you’re unable to qualify for a mortgage in another country, then it may be worth looking into buying the house outright. Houses in Brazil, Portugal and Italy have much lower prices, which make it possible to save enough cash to purchase the home without a mortgage.
Tips for purchasing a vacation home abroad
Now that you know what your financing options are, there are a few other factors that you should take into consideration when looking for the right location and perfect property.
Down payment
In Canada, we know that a down payment of at least 5% is required to purchase a home, and a down payment of 20% is ideal. But when purchasing a home abroad, this may not be the case. Expect to need a down payment of at least 20%, but also make sure you understand that you may need more. Before you set your eyes on the perfect location, speak with a professional about what the down payment requirements are.
Home insurance
In Canada, mortgage providers require you to purchase home insurance before you take possession of the property. Depending on the country where you’re purchasing a vacation home, this may also be the case. Also, keep in mind that insurance companies in foreign countries may have specific laws surrounding short-term rentals. Your insurance policy could be void if you rent out your home without telling your insurance provider.
Research general laws and cultures
This one is just as important as securing the appropriate financing. It’s important that you understand the laws and culture of the country you’re looking to invest in. You may want to consider speaking to someone who was born in that country or who has at the very least lived there for a significant amount of time.
More specific laws about owning property
In addition to understanding laws that will affect your daily life, such as those regarding driving or the purchasing of alcohol, it’s important that you research the specific laws about owning property in that country. For example, you should learn about property taxes, construction, and short-term rentals if you plan on renting out your home when you’re not there.
Research the exchange rate
This isn’t difficult to figure out but nonetheless is still important. What is your Canadian dollar going to be worth in the country where you plan to purchase a property?
Bottom line
While financing may be your biggest cost, don’t forget to also budget other expenses such as home insurance, maintenance, renovations and other essential costs with setting up your vacation home. Moreover, no matter where you plan on purchasing a vacation home, be sure to do your research on the country’s laws and regulations on foreign property ownership, particularly the rules on taxes.
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