Historically low prices for Arizona real estate are enticing for buyers of all nationalities. Add to that the gorgeous sunsets, sunny weather, world-class amenities, and luxurious properties that are available in the Greater Phoenix area and you have a winning scenario for buyers of property in Arizona. It is important to remember that while purchasing property in the United States is relatively simple for Canadian buyers, differences exist in this home buying process as compared to the home buying process in Canada.
Purchasing Real Estate in Arizona as a Canadian Buyer
Canadian buyers go through the same basic buying process as American buyers when purchasing a home in Arizona. However, several facets of this process are different than the home buying process in Canada. A few minor differences also occur due to the fact that the individual buying the property is a Canadian resident rather than a resident of the United States.
Title Company and Earnest Money
Perhaps the two biggest differences between the home buying process in Canada and the home buying process in Arizona is the use of a title company to assist in the transaction as well as the holding of funds in an escrow account. The title company conducts a search on past ownership of the property to determine whether or not its current status is free and clear of all encumbrances.
Additionally, the title company sets up an escrow account to hold the “earnest money,” prior to the closing of the real estate purchase. The title company acts as a neutral third party that acts upon the terms settled upon by the buyer and seller of the property. Once the transaction is complete, the title company is responsible for the recording of the transfer of title at the local county office.
What Canadian Buyers Can Expect When Purchasing Property in Arizona
Since the services of a title company are utilized for the purchase of real estate in Arizona, it isn’t necessary to utilize the services of an attorney for the purchase.
A copy of a valid passport or Visa must be provided when purchasing real estate in Arizona as a Canadian resident.
Typically, Canadian buyers need a down payment that falls between 30 and 50% of the selling price. In some cases, it may be as low as 20%.
No extra fees occur outside of the ordinary ones when buying a property in Arizona as a Canadian buyer, but the homeowner may be subject to additional taxes when selling the home.
A supplemental tax may occur if the property is located in the Mello-Roos section of the desert. This tax supports new infrastructure for local communities in that area.
If a Canadian buyer is financing a property in the US, a U.S. bank account should be established prior to completing the loan application. Additionally, loans for Canadian buyers must be secured for a secondary home or real estate investment as opposed to a primary residence purchase.
Like U.S. citizens, Canadians are required to undergo a credit background check that provides a credit report. Canadian buyers do not need a social security number when applying for an Arizona home loan for Canadians. If planning to rent out the home, the Canadian homeowner will need to apply for an ITIN.
Information from Canada Revenue Agency
Canadians who intend to purchase a U.S. property and reside a portion of the year at the residence should read the following article: Are you a snowbird? Know your Canadian tax obligations
For more information on how Canadian taxes apply to you when you go down south, go to the CRA’s Vacationing outside of Canada webpage.
Canadian residents who intend to reside at their Arizona property should obtain important information on which specific moving expenses they can claim in order to minimize their costs.
Canadians who intend to rent a U.S. property should review the tax obligations with the IRS and CRA.
Buying Arizona Real Estate as a Canadian Buyer
Quite a few questions come up when individuals living outside of the United States are considering purchasing property inside the States. If you are a Canadian buyer interested in purchasing real estate in Phoenix, Arizona or the surrounding area, please review the information presented here and contact us for more information or to discuss the opportunity to buy an Arizona home.
Canadians undergo the same process as Americans when buying Arizona property with a few exceptions. Although many Canadians and foreign buyers pay cash when purchasing a home in Arizona, there are loan options available. If you intend to borrow the funds needed for your purchase, you should begin the process of obtaining a loan prior to your search for a home. All buyers must obtain pre-approval for their mortgage before viewing homes. Please contact us if you would like more information on local lenders.
The Process of Buying Arizona Real Estate as a Canadian Buyer
Purchasing a home in Arizona involves a number of steps that occur in a sequence of events. The Arizona home buying process for Canadians is almost identical to the one that American citizens go through with only a few minor differences. For detailed information regarding the process of buying Arizona real estate, please refer to our comprehensive Buyer Roadmap.
Taking Title in Arizona
Four basic methods of taking title on real estate in the United States exist. Each of these is explained below.
1. Community Property: The two individuals holding the title have a valid marriage.
2. Community Property with Right of Survivorship: The two individuals holding the title have a valid marriage and the estate passes to the surviving spouse.
3. Joint Tenancy with Right of Survivorship: The parties holding the title to a property do not need to be married. More than two individuals can be involved in this scenario. The estate passes to the surviving individuals.
4. Tenancy in Common: More than two tenants can be involved and they do not need to be married.
Things For a Canadian Buyer to Consider When Purchasing Arizona Real Estate
Purchasing an Arizona home involves quite a few steps involving additional fees, some of which should take place prior to the actual offer on the home while other steps can occur during the negotiation process. The results of some of these steps may be included as contingencies within the sales contract.
The typical items that you must include and pay for with the purchase of real estate in Arizona include: home appraisal, home inspection, termite inspection, HOA fees, escrow fee, title insurance, county recording fee, homeowner’s insurance, and property taxes.
Home appraisal: A professional appraiser completes a home appraisal on the property in question to determine the current market value of the home. The goal is to determine whether or not the purchase price is equal to or more than the amount of the borrowed funds.
Home inspection: Although it is not mandatory in Arizona, a home inspection is a good idea since it provides the buyer with a clear picture of the home’s condition. Home inspections usually assess the condition of the plumbing, the electrical system, and the roof as well as any additional requested inspections in order to determine the true condition of the property. This expense is paid for by the buyer in most cases unless other arrangements have been made. If repairs are indicated, then the buyer can arrange to have them taken care of or he can negotiate with the seller in an attempt to have him assist with the expense of the repairs.
Termite inspection: In Arizona, termite inspections are required in order to determine the structural condition of the property. Termite inspections take place prior to the closing of a real estate transaction. The buyer typically pays for this expense. If the presence of termites is revealed, then treatment must take place.
HOA fees: HOA (homeowner association) fees exist with all condominiums and most single family homes in Arizona. Since the HOA fees vary, it is important to find out how much they are for each of the real estate properties that you are interested in purchasing as this fee increases your annual expense of owning the property.
Escrow Fee: The buyer must provide up-front money that goes into an escrow fund for safekeeping. Escrow funds typically cover the cost of certain known expenses including property taxes, insurance fees, cost of repairs, etc. Typically, the title insurance company holds onto the escrow funds and charges a fee for doing so.
Title Insurance: This type of policy protects all parties against losses due to problems with the property’s title.
County Recording Fee: The title company takes care of recording the transfer of property with the county. The buyer must pay the expense associated with it.
Homeowner’s Insurance: If a cash sale is taking place, the buyer does not need to purchase homeowner’s insurance prior to the sale. However, buyers may want to purchase homeowner’s insurance to protect their investment. If the buyer is borrowing the funds for the purchase of real estate in Arizona, then he must purchase homeowner’s insurance and provide proof to the lender.
Property taxes: Current property taxes in Arizona exist on a single-tier system in which new homeowners are charged at the same rate as existing homeowners. Therefore, Canadian homeowners pay property taxes at the same rate as American homeowners living in Arizona. If the property taxes on the home have already been paid, then you must reimburse the current homeowner for your fair share. This expense is included in your closing costs.
Whether you are an American or a foreign buyer, you are not subject to a real estate transfer tax when purchasing property in Arizona.
Special Considerations for Canadian When Selling Arizona Property
Foreign Investment in Real Property Tax Act
When a foreign national sells an Arizona property, he is typically subject to U.S. capital gains taxes. The Foreign Investment in Real Property Tax Act (FIRPTA) applies to Canadian and other foreign buyers of property in the United States. FIRPTA requires buyers to withhold a full 10% of the purchase price from a real estate sale when a foreign national is doing the selling here in the United States. This amount is intended to cover the U.S. tax that is due on the income/gains on the real estate.
Some exemptions to FIRPTA apply so it is important to check into your particular situation for a full understanding of your tax obligations. It is possible that the sale price on the home falls below the starting point for the 10% withholding. If more money is held than is owed, the seller can file a U.S. income tax return at the year’s end to recoup his money.
If you have any questions, please contact us now. We look forward to making your dream of home ownership in Arizona your reality.