What Canadian and U.K. "Snowbirds" Need to Know
About Buying a Second Home in the U.S.

Posted April 18, 2009

     While there have been many contributors to the decline of home prices and home sales in Florida, an increase in foreign nationals buying Florida homes and condos has helped limit the damage. The National Association of Realtors (NAR) conducted a survey in 2008 of more than 4,800 Realtors who had completed over 4,000 real estate transactions involving a foreign buyer. They found that foreign national buyers recognize U.S. real estate as a desirable, profitable and secure investment.

     The U.S. credit crunch and the flood of homes and condos for sale in Florida has created some outstanding opportunities for foreign nationals. "Snowbirds" from Canada and the United Kingdom are taking advantage of this opportunity flocking to the warmer climate particularly in Florida. The relative weakness of the dollar and the dramatically reduced prices have given "snowbirds" who have dreamed of owning a second home in the warmer climes of the United States the opportunity to fulfill their dreams.

     if you are a Canadian citizen, before you purchase your winter get-away spot, you would be well-advised to understand the differences between Canadian and U.S. home buying processes, as well as the tax implications of owning a second home south of the border. An experienced Sarasota Realtor like Judie Berger, can best help you understand the U.S.-based real estate buying process and its implications.

• Focus on Existing Properties in Established Developments

  Real estate consultants have been recently advising foreign nationals to give preference to existing properties in established developments. This avoids the problems associated with unsuccessful developments where the nature of the development and the surrounding area can change quite dramatically if the original developer goes into default and the property is taken over by a different developer.  While this may mean that you the buyer miss the opportunity to buy at so-called "pre-construction" bargain prices, nut the reduction in risk may prove well worth the slightly higher price you'll pay.

• Qualifying to Buy

  Since it is more difficult to track down foreign nationals in case of a mortgage default, Florida lenders require more up-front evidence of financial stability from their foreign national buyers. Some lenders require that buyers place closing costs plus 12 months of principal, interest, taxes, and insurance (PITI) in a U.S. bank account. They may also require foreign nationals to put more money down, as much as 25 - 30% and demonstrate that they have liquid reserves available to cover three to six mortgage payments.

• Financing and Closing Costs

  "Begin the loan pre-approval process even before you startng at homes or condos in Florida." says Brian Ward, a respected Sarasota real estate expert who serves many international buyers. In this way, when you find the that dream second-home you’ve been searching for, you will be negotiating price with the seller from a position of strength. The seller will know upfront that you are fully prepared and "qualified" to buy.
  
  Expect the length of your mortgage loan to differ from what you may be used to. For example, rather than the Canadian standard of one to ten-year mortgages, U.S. mortgages are typically written for 15 or 30 year terms.


It may take more time to complete a real estate sale in the U.S. Be prepared to wait three to five weeks or more to close on your Florida real estate property once you have a signed purchase contract. During that period, all of the third-parties involved (inspectors, appraisers, insurance companies, title companies, etc.) will be conducting their portions of the transaction.

• Minimizing Taxes & Protecting Your National Health Benefits

  Even though you are a citizen of Canada or other nation, you may be treated as a U.S. citizen for tax purposes if you spend too much time at your Florida get-away. In general, limiting your time in Florida to less than six months each year minimizes your tax implications and may not compromise your national health care benefits.
  
  If you rent your Florida property for the portion of the year that you spend in your own country, you will need to file a federal U.S. income tax return and declare your rental income, but you may be able to deduct expenses such as maintenance, utilities or mortgage interest. Since Florida doesn’t have a state income tax, income from the property will only be taxed by the federal government.

• Property Taxes

  Be aware that non-residents of Florida do not get all of the property tax advantages granted to permanent residents of Florida, so be sure to inquire as to the difference this will make in your on-going costs. Again, a competent Realtor can explain these restrictions to you.

• Property Insurance

  Property insurance in Florida can be expensive. One way to limit this is look for properties built after the most recent set of building code updates, mandating that structures be able to withstand higher winds. Insurance companies charge less to insure properties that meet the latest code requirements. Homes and condos that are not located directly on or adjacent to the waterfront or in designated "flood zones," cost less to insure.

• Avoiding Estate Taxes and Probate

  Foreign nationals can eliminate or reduce their exposure to U.S. estate taxes. For example, one of the best ways for Canadians is by placing a non-recourse mortgage against the property. A non-recourse mortgage gives the mortgage-holder recourse only against the property, itself, not against any other assets of the borrower.
  
  The probate process of transferring property to beneficiaries can be lengthy and costly. Putting the deed to your Florida home in the name of a Cross Border Revocable Living Trust (CBRLT) rather than in an individual's name may offer several advantages. Properties held by a CBRLT are exempt from Florida probate and thus have no filing requirements for U.S. or Canadian tax authorities, for example.
  
  There may be other benefits under U.S. or your own country's rules to avoid estate and probate costs. Check with a Florida-based attorney to see what benefits may be available to you. I can help you identify a competent attorney who deals with cross-border property investments.

     In summary, as a foreign national considering buying a home or condominium in Florida there are things you need to understand. Nonetheless, there has never been a better time to buy that seasonal or second home you've been dreaming about, especially here in the Sarasota Florida area including our gorgeous barrier islands, Casey Key, Siesta Key Lido Key, and Longboat Key.