How to Buy a House in the USA as a Foreigner

The PropertyClub Team
Jun 30th 2020
If you're a non-citizen or foreigner that's interested in purchasing a house or property in the USA, you'll want to read this comprehensive guide to help you better understand what to expect.

Perhaps you have wondered before: can a foreigner buy a house in the USA? The short answer to that question is yes. There are no laws or restrictions against anyone purchasing property in the United States. Anyone - US citizens, US resident aliens, and foreigners - can buy a property. However, there are specific rules and ‘best practices’ that foreign-based investors or buyers deal with. 

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. 

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.

Rules for foreigners buying property in the US

There are some ‘rules’ or ‘best practices’ associated with buying a property in the US as a foreigner. These rules apply to non-citizens as well as foreigners with no ties to the US who are seeking to purchase property for themselves or as an investment. 

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. 

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. Generally speaking, there are options available to foreigners if they put in the effort, so the estate tax should not be a major turn off.

Understand the 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. 

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. 

Although there are seemingly several obstacles for foreign investors, the benefits of purchasing a property in the US are still great for individual pleasure or investment purposes. It is wise to consult real estate and tax attorneys to understand the full picture. If done correctly, major problems can be averted, and a new property will be added to your estate!