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A GUIDE FOR CANADIAN'S BUYING IN ARIZONA
ITS EASY!
Now that the Loonie has reached heights not seen in decades, many Canadians are seriously considering buying property in the U.S, and why not? With prices off their highs in many markets, the timing seems perfect. I've put together some information that I hope will answer some of your questions and help you decide if buying in Arizona is right for you.
FAQ'S
SEARCHING FOR THE RIGHT PROPERTY
CAN I GET A MORTGAGE?
WORKING WITH A REALTOR
PREPARING THE OFFER TO PURCHASE
AFTER YOUR OFFER IS ACCEPTED
CLOSING THE DEAL
FAQ'S
Is it a good time to buy in Arizona?
For Canadians, it may be a "Perfect Storm". The news media in Canada has made much over the rising Loonie and the greatly increased buying power Canadians have south of the border. Thats just the start. In the greater Phoenix area speculators have, over the past four or five years, driven up the price of homes to unsustainable levels. That ended last year and home prices are well off their highs. Add to that, the fact that Boomers are starting to retire and looking to move to warmer climates. To top it off, Phoenix is the fastest growing city in America, surpassing Las Vegas in 2006.
Do I need a visa or "Green Card" to buy in Arizona?
Absolutely not! There are no restrictions on Canadians buying or selling property in Arizona.
If I buy an investment home, who will rent and manage it?
There are dozens of Property Management companies to choose from. Fees typically are 6% to 8% of the rent.
Do Canadians pay any foriegn, or special fees or taxes?
No, unlike some states, like Florida where foriegn owned property is taxed at a higher rate, Canadians are not charged any additional fees. Additionally, Arizona does not have a land transfer tax!
Is there a Capital Gains Tax when I sell?
If you make a profit on an investment, yes you will pay some taxes. This is true in both Canada and the U.S. In the U.S, taxes on gains from Real Estate owned by "nonresident aliens" are taxed at the same graduated rates applicable to U.S persons.
Also when you sell, it is typical to expect about a 10% withholding for potential taxes. You may actually owe nothing, or you could owe more. Most homes sold under $300,000 are not subject to this withholding tax.
Because tax laws are so complicated, its best to talk to a financial planner or accountant about your particular situation.
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SEARCHING FOR THE RIGHT PROPERTY
Before starting your search you should decide on what you intend to use the property for. If you're planning on living there yourself, your needs will be very different than if you buy strictly as an investment.
Right now there's a large supply of homes on the market, in fact there are almost 60,000 active listings in the greater Phoenix area including a great many brand new homes.
The greater Phoenix area has its own MLS system. This is unlike Canada where you can go to MLS.ca and search properties coast to coast. There is no national MLS service in the U.S.
I've included a link to the Phoenix MLS system on this site. Please feel free to use it as much as you'd like, there's no registration to fill out first and I encourage my clients to ask me any questions they may have. If you've been to Phoenix before you may have some thoughts on where you may want to buy, if you haven't been here before, I can point you in the right direction.
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CAN I GET A MORTGAGE?
Yes! As long as you meet standard lender requirements similar to Canadian standards. There are thousands of Canadians who own property in Phoenix today, many with mortgages.
I'll help you find a lender who has worked with Canadian loans before. Typically you'll need 25% to 30% of the puchase price as a down payment. Here's a list of requirements for Foreign Nationals.
1. International credit report, which the lender will do for you, or letters of credit reference from any 3 lending institutions, mortgage company, utility company, car loan, or line of credit.
2. Bank Statements for the previous 3 months.
3. Current list of assets.
4. Most recent 3 months of credit card statements.
5. Verification of 2 years employment in the same line of work.
Various lenders may require all, some, or additional information.
The Loan Process
Gather documents as above and complete and sign the loan application, the loan then goes to underwriting for pre-approval.
After pre-approval you'll be given an LSR or Loan Status Report. This is an important document as it shows sellers that you're a serious buyer and are already pre-approved.
You're now ready to put an offer on an Arizona home! Once the purchase details have been worked out, the final approval process begins.
- The property will be appraised.
- The loan goes back to underwriting for final approval.
- The title company (more on title companies further down) prepares the documents to transfer the property from seller to buyer.
- Loan documents are signed.
- Your Realtor takes you through the house for a final walk through.
- The House is yours!
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WORKING WITH A REALTOR
There are almost 90 thousand individuals licensed to sell Real Estate in the state of Arizona. Thats a lot! Choosing the one thats right for you is one of the most important decisions you'll make.
Not everyone who is licensed is a Realtor. A Realtor belongs to the National Association of Realtors and subscribes to a code of ethics. A Realtor also belongs to a Real Estate Board and has access to their local MLS service. This is critical for the Canadian buyer in order to have access to the full range of properties available.
Choose someone who is knowledgable and who you trust. Not all Realtors are created equal. Many jumped in during the boom and many of those are now out of the buisness. Choose someone who is a full time Real Estate Professional and who will listen carefully to your needs. You may want to choose a Buyers Broker for your purchase. That individual has a fiduciary duty to you, the buyer.
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PREPARING THE OFFER TO PURCHASE
You've found the home you want, now what? You and your Realtor now start preparing an offer to buy it. The offer, called a contract here, if for a resale home is usually prepared on a document called the Residential Resale Purchase Agreement. This is a document prepared by the Arizona Association of Realtors and is the "standard form" for the vast majority of resale transactions. If you're buying a new home, you'll be using the builders own contract. These tend to be much longer and vary significantly from builder to builder. In either case, your Realtor should spend as much time as needed explaining it to you and answering any questions you might have.
The first item to consider of course is PRICE. How much do you want to offer. Your Realtor can provide you with comparable homes that have sold recently, but you decide, its your money.
Next is the amount of the deposit, called "earnest money" in Arizona. This is the amount you submit with the contract and it goes toward the purchase price if the offer is accepted. Typically this amount is about 1% of the listed price in Arizona. This shows the sellers that you're serious about buying their house. If no agreement is reached, your Realtor will either return the cheque to you or destroy it, as per your instructions.
Now we come to the down payment. As I explained above, Canadians will generally have to put down about 25% of the purchase price. Thats not true in all cases, Canadians living here full time on Visas or Green Cards will often put much less down. Your contract will make the sale contingent on you being able to arrange a mortgage.
This brings us to the closing date. This is the date set for the transfer of the property to you from the seller. In Arizona this is typically 30 to 60 days from the contract's final acceptance. Of course this is negotiable between the parties.
Another item to be discussed will be fixtures and chattels (personal property) to be included with the home. The general rule is that if its permanently attached (decks) its a fixture and if its movable (appliances) it's a chattel. Because one person's fixture is another's chattel, it's a very good idea to clearly identify everything that comes with the property in the contract.
Now is also the time to ask for the seller to contribute some, or all, of the buyers closing cost. Although this is rare in Canada, it's common in Arizona. Market conditions play a major role in determining whether, or not, the seller will agree to these costs. In a sellers market it's unlikely, and in a buyers market (todays conditions) it's often used as a seller's incentive.
Another difference Canadians will notice is that escrow companies are used instead of lawyers to close most Real Estate Transactions. The buyer will almost always choose the escrow company for both parties.
Although not unheard of in Canada, in Arizona Home Warranty coverage is almost always included in the purchase and the seller is very likely to pay for it. Most warranty coverage is for 1 year and includes most major components of the home. There's usually a small, per service call, fee to be paid by the new owner.
Another part of the contract will deal with any additional items not previously covered in the "standard form", such as removal of items in the yard or any unusual requests the buyer might have.
Your contract will also have an expiration date, after which the offer to buy is no longer valid by you. You might decide to give the sellers 24 or 48 hours to accept or reject the offer.
Once the contract has been finalized by you, your Realtor will present it.
This process is almost identical to the way things are done in Canada. It's at this point the sellers can accept your offer exactly as presented and you now have a deal or, the seller can "sign back" the offer with any changes they want. The parties then negotiate back and forth until they either come to an agreement, or walk away.
If an agreement between the parties is reached, your Realtor will take the contract and all other proof of negotiation to the title company and "open escrow". The escrow company is a private entity that both buyer and seller will use to transfer the title from one party to the other. The escrow company is a neutral party that will rely on the contract for instruction.
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AFTER YOUR OFFER IS ACCEPTED
Now it's time to conduct your inspections. You have 10 days from the date of acceptence to inspect the home, neighborhood, schools and anything else you want to check on. Your Realtor can provide suggestions to you on items that perhaps you hadn't even thought of.
If you find something not to your liking, and it could be almost anything, including the colour of a neighbours house, you can cancel the deal and get a full refund of your earnest money.
Certainly the most common inspection, is the home inspection. It is highly recommended that you hire an experienced licenced inspector. He, or she, will provide you with a written report outlining any area of concern, such as broken or worn items that could cost you later.
No home is perfect, including a new home, so it's almost certain the inspection will turn up something. If you want the seller to fix, or address an issue, or any number of issues, your realtor will draw up a "request for repairs" and submit it to the sellers realtor. This MUST be done during the ten day inspection period. If you don't request repairs during this period, you have agreed to buy the house AS IS.
The seller has 5 days to respond to your request. If the seller agrees to everything you requested then the inspection period is over. If the seller agrees to some, but not all, of your requests you have 5 days to decide what to do. If you choose to accept the sellers response, then the seller must complete all agreed repairs no later than 3 days before closing. You may also choose to not accept the sellers response and walk away from the deal with your full earnest money refunded.
Other documents that the seller will provide to you will include a "sellers property disclosure statement" (SPDS) which must be provided to you within 5 days of the contract acceptence. This document will provide additional information regarding the condition of the property and should be read carefully. You have 5 days from receipt of the SPDS to examine it and if you find something not to your liking you may opt out of the deal, recieving a full refund of your earnest money.
You'll also receive a 5 year insurance claim history of the property from the seller within 5 days of acceptence. This report can point out if the property has had an unusual amount of claims or claims from faulty workmanship, such as electrical fires. You also have 5 days to examine this document to see if you will proceed with the escrow or opt out with your earnest money.
After the inspection period almost all the hard work is done. At this point the odds of you closing escrow are high. Just a couple of more things and you're done!
Your lender will want an appraisal to verify the value of the property. Once the appraisal has been accepted, just one thing remains. A couple of days before closing you and your Realtor will walk through the property once more to make sure any agreed to repairs were done and no damage has occured since you put in the offer.
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CLOSING THE DEAL
During the escrow period, your escrow company has been collecting and sending documents related to your purchase, performing duties similar to what a lawyer would do for you in Canada. Once all the documents have been prepared and assembled the escrow company will either courier them to you in Canada, or if you're in Arizona you'll come to their office to sign them.
Once all the funds have been received in the escrow account, the escrow company will create a new deed of ownership and send it to the County where you purchased for "recordation". Once the new deed is recorded you own the property!
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