Table of Contents
Can Foreigners Buy Property in the USA?
How to Buy a House in the USA as a Foreigner
Tips for Foreigners Buying Property in the USA
Getting a Mortgage as a Foreigner
Buying Property in the USA as a Foreigner Bottom Line
Can Foreigners Buy Property in the USA?
Yes, foreigners can buy property in the USA, but it is not as easy for non-citizens to buy a house in the United States as it may be for American citizens to do so. The main reason for this is that mortgage providers have more stringent requirements for foreigners and non-citizens if they decide to lend at all. Foreigners who choose to pay in cash, if they have the funds or sourcing of the funds readily available, can avoid this problem altogether.
How to Buy a House in the USA as a Foreigner
- Find a Location
- Research US Tax Laws
- Hire a Real Estate Agent
- Search For Properties and Make an Offer
- Do Your Due Diligence
- Gather the Funds and Finalize Your Loan
- Close on the Property
1. Find a Location
The first step towards buying a house in the USA as a foreigner is to decide where in the US you want to buy the property. There are no laws preventing foreign nationals or non-residents from buying property anywhere in the country, so you can look wherever you like.
Which states and cities you look at will depend on whether you’re looking to purchase a primary residence, vacation home, or investment property. But you should do thorough research before choosing a particular location, so you can be sure it’s a smart long-term investment.
2. Research US Tax Laws
The second most important step when it comes to buying US property as a foreigner is understanding tax laws. Tax laws can get complicated, especially if you are a non-resident or foreigner buying property in the USA. So, it’s essential to research the US tax code so you know what you owe.
Luckily, you won’t be expected to pay an additional tax just for being a foreign investor. But you will still be expected to pay property taxes to the US, like any other homeowner. If you’re purchasing an investment property, you will also pay taxes on the net income it earns. So, it may be wise to consult a tax professional with knowledge of US property laws before you start your search.
3. Hire a Real Estate Agent
Once you’re ready to get serious about your property hunt, you’ll want to hire a real estate agent with experience working with foreign nationals. The process is more complex than working strictly with US citizens, so you’ll want to find someone with the knowledge to help you through the process.
Foreigners can hire a real estate agent specialized in working with international clients from various sources. One common approach is to conduct online research to identify real estate agencies or individual agents with experience assisting foreign nationals. Additionally, you can seek recommendations from other expatriates, international communities, or professional networks.
In the US, the buyer agent’s commission is typically paid by the seller. So, as a buyer, there is little downside to working with a realtor, and they will provide knowledge on the local real estate market that you may lack.
4. Search for Properties and Make an Offer
With the help of your agent, you can start scouting for properties. It’s probably best to take a trip to the US to view the properties in person, but if that’s not feasible, you can have your agent show you homes via video tour. Once you find a property that suits your needs, work with your agent to determine a fair price and submit an offer. The seller will then have the chance to accept it, reject it, or provide a counteroffer, which you have the opportunity to respond to as well.
5. Do Your Due Diligence
Once you and the seller have come to an agreement on a fair price for the property, the due diligence period begins. This is a critical phase where you have the opportunity to thoroughly assess the condition and value of the home before finalizing the purchase. One essential step during this period is conducting a home inspection. Hiring a qualified home inspector can help uncover any potential structural issues, hidden damages, or safety concerns that may not be immediately apparent.
Additionally, it's advisable to arrange for an appraisal of the property to ensure that the agreed-upon price aligns with the current market value. An appraisal provides an unbiased assessment of the property's worth based on factors such as its condition, location, and comparable sales in the area.
If the home inspection or appraisal reveals any significant issues or discrepancies, you may have grounds to renegotiate the terms of the purchase agreement with the seller. This could involve requesting repairs, price adjustments, or other concessions to address the identified issues.
6. Gather the Funds or Finalize Your Loan
After you sign the purchase agreement, you’ll want to prepare for closing by gathering the funds. Many foreign nationals pay cash when buying US-based homes, although getting a mortgage is possible. Many non-residents don’t have a US credit score, which makes getting a conventional mortgage in America difficult.
However, some banks do offer loan products to foreign nationals. For example, HSBC and First American Bank offer mortgage solutions specifically catering to foreigners. You can also your agent help you look at options and complete the underwriting process before the closing.
7. Close on the Property
Once you have your financing in order, all that’s left to do is sign the contracts and close on the property. Before closing on the property, it's customary to conduct a final walkthrough to ensure that the home is in the agreed-upon condition. This walkthrough is your opportunity to verify that any negotiated repairs have been completed satisfactorily and that the property is in the same condition as when you made the offer.
In today's digital age, conducting a final walkthrough virtually is becoming increasingly common, especially for international buyers who may not be able to be physically present. Through video conferencing or a virtual tour facilitated by your real estate agent, you can remotely inspect the property and address any concerns or questions that arise. This allows you to finalize the purchase with confidence, even if you are unable to be physically present for the walkthrough.
Once you are satisfied with the condition of the property, the final step is to sign the closing documents and officially close on the property. This typically involves meeting with the seller, your real estate agent, and a representative from the title company or closing attorney to sign the necessary paperwork and complete the transfer of ownership. With the closing process completed, you are officially a homeowner and can begin making memories in your new home.
Tips for Foreigners Buying Property in the USA
- Focus on Condos Not Co-ops
- Avoid the Estate Tax (Death Tax)
- Understand Your Home Country’s Tax Policy
- Offset Expenses From Your Income
Although there are no specific rules for foreigners buying property in the USA, there are some best practices to be aware of that will help mitigate your taxes and the costs associated with buying and owning property in the US. The following tips apply to non-citizens as well as foreigners with no ties to the USA who are seeking to purchase property for themselves or as an investment.
1. Focus on Condos, Not Co-ops
Co-ops are intended to be permanent residences. And owners of the co-ops are hesitant to sell to foreign investors because he or she could easily relocate back to their former country and rent the co-op out.
There are also legal complications associated with selling co-ops to foreign investors. If issues arise, seeking a remedy from a foreign investor is difficult because his or her assets are typically held outside the US. For these reasons, condos or individual homes are a safer bet for foreign investors.
2. Avoid the Estate Tax (Death Tax)
The first $11.4 million ($22.8 for couples) of a US citizen’s estate is exempt from the estate tax upon death. Non-citizens, however, are only exempt from the first $60,000. And since the estate tax can take as much as 46% of the total estate, foreign investors need to create a plan to avoid those taxes.
A possible solution is to use a corporation headquartered outside the US instead of an individual or LLC to purchase the property. A life insurance policy can be used to cover the tax for the heirs as well. You should always consult with an attorney and accountant when buying property in the USA as a foreigner, as they will help you avoid unforeseen taxes and expenses.
3. Understand Your Home Country’s Tax Policy
It is possible that a tax treaty exists between the US and the foreigners’ home country. This will make for a unique tax experience. It is best to consult a tax consultant with international real estate experience to help you understand how the policy may affect you. In some cases, there may actually be benefits, while for others, there may be additional costs.
4. Offset Expenses from Your Income
The IRS will automatically take 30% of your gross rental income if you do not offset expenses from your income, which can be devastating to your bottom line. When filing a US tax return, foreign investors simply need to ‘elect’ for this option on the form. With this election, along with depreciation, you may actually show tax losses. Nonetheless, you will need to file the tax return.
Getting a Mortgage as a Foreigner
Most US based mortgage providers will examine a prospective borrower’s US credit history. Most foreigners do not have a US credit report, so providers will have a difficult time assessing the risk associated with foreign buyers. For providers that wish to lend to foreigners, they may use alternative methods to evaluate the potential borrower’s risk. These may include:
- Credit scores - in most cases 720 will suffice, though 780+ is ideal
- Size of down payment - down payments greater than 20% are preferred
- Possession of a SSN or ITIN
- An existing source of US-based income, especially incomes that are expected to continue for more than 3 years
- Foreigners who have lived or worked in the US for more than 2 years
The exact options available to a foreigner will depend on their US credit report and the stipulations provided above. Simply meeting several of the requirements above, however, does not guarantee a foreigner will receive a mortgage.
For those lenders who do wish to provide mortgages to foreigners with no tie to the US, may do so at higher interest rates. The entire process may take longer as these foreigners will likely have to consult multiple providers and go through a more thorough examination. Many lenders will tack on additional stipulations:
- A minimum of 30% down payment
- Maximum $3 million in mortgage amount (with a 30% down payment this equates to a property value of $4.3 million)
- A requirement of 12 months reserve to cover mortgage, interest, taxes to be on deposit
Receiving a mortgage is easier for Green Card holders and individuals in the US on a work visa than it is for individuals who are living outside the US with no other ties to the country. Some foreigners inside the US may even qualify for government-backed loans by the FHA.
- Green card holders have nearly the same privileges as US citizens do when it comes to receiving a mortgage. They have access to FHA loans as well as Fannie Mae or Freddie Mac loans.
- Temporary non-residents such as those on a valid US work visa may also receive FHA loans. They will need to provide a valid SSN and Employment Authorization Document.
- Refugees and other foreigners granted asylum in the US have the same terms as US citizens do.
Buying Property in the USA as a Foreigner Bottom Line
It's relatively easy and straightforward for foreigners to buy property in the US. While there may be a few things to think about and plan ahead for to avoid small issues, buying property in the US offers many advantages, whether you want it for yourself or as an investment. It's a good idea to talk to real estate and tax experts to get a complete understanding of everything involved. They can help you navigate through the complexities of buying property as a foreigner and ensure you make the best decisions for your situation.