The subprime market meltdown or “credit crunch” has a very remarkable impact on lending in the U.S. real estate market.
The effects are so significant that even Canada is slightly affected. This huge disaster is mainly caused by mortgages given to bad loan candidates. These people with no jobs, incomes or assets were given mortgages that they obviously could not pay on time. The result is predictable and foreclosures happened throughout the United States. Canadians do not need to worry about having a similar disaster because of the much better lending environment.
Here are some of the important differences of lending between the two countries:
In the U.S. Real Estate Market:
1. There are hundreds of banks all over the United States with considerably different lending policies and guidelines. Most of the policies differ from one state and city to another due to state and federal laws.
2. Licensing for mortgage brokers widely vary from one state to another. There are some states that do not require licensing and most states have practically no testing for mortgage brokers.
3. Bank regulation is controlled at the federal and state level. This usually leads to less strict criteria when it comes to approving loans.
1. One Bank Act that is federally-regulated controls what all banks in Canada can and cannot do.
2. All of the major banks are able to finance mortgages but these institutions also own most of the licensed brokerage companies. This ensures that loans are strictly overseen and mortgages are not carelessly granted even to candidates who are not ideal.
3. The mortgage brokers in Canada are regulated provincially and the provinces require these brokers to go through extensive training and licensing processes.
For Canadians who plan to purchase U.S. real estate, here are some tips regarding financing:
1. Get a mortgage for U.S. real estate through a U.S. based bank that is Canadian owned. Some of the most common examples are Bank of Montreal’s Harris Bank or RBC Centura. Doing so will eliminate some common cross-border financing issues.
2. Purchasing using cash is advisable in order to prevent cross-border financing problems. Although this is not applicable to most, this will prevent a lot of problems and headaches in the future. Obtaining a personal loan from an acquaintance or pulling equity from your home are great ways to have cash for full payment of a U.S. real estate.
3. Creating a corporation in the United States with assets can make the process of obtaining a mortgage in the U.S. much easier. The company needs to be generating revenue or have equity in order to be eligible for a mortgage.
4. It is very important to know the exact property taxes and other related expenses that might cause financial problems and the eventual foreclosure of a property in the United States. Interest rates for late payment of mortgages can become a very big problem and should be anticipated in advance. The number of days that will be spent in the U.S. should also be considered because it might result to paying income tax in both countries.
It is very important to know the differences regarding lending in the U.S. real estate market and Canada.
Most Canadians assume that the policies are basically the same and compulsively obtain mortgages without even knowing some key issues. This usually causes a lot of future problems that can even result to foreclosure a U.S. real estate property.