Buying property in a foreign country can be tricky, given that home ownership laws for foreigners tend to vary from one region to another. Fortunately, the United States is rather welcoming and makes the process of buying a home convenient for people who are not citizens of the country. The American government, for instance, does not levy extra taxes on foreigners who purchase property in the country.
The Regulations
You do not need American citizenship, a green card, or any particular kind of visa to be eligible to buy a home in the U.S. However, you may purchase a home only if you have an individual Taxpayer Identification Number (TIN). The American government issues this to foreign nationals who do not qualify for a Social Security Number. You may apply for a TIN through the Internal Revenue Service (IRS).
You might come across restrictions imposed by cooperatives, condominium associations, homeowner associations, or other types of community associations. These organizations are typically incorporated as legal entities, and are entrusted with managing a given piece of real estate. Once you buy a unit in any such community, you automatically agree to abide by its rules and regulations. In some states, associations hold the power to decide who may or may not purchase units in their property.
Co-ops, Condos, and Individual Homes
Co-ops in the U.S. are typically meant to be used as primary residences. Most co-ops tend to discourage sales to foreign nationals because they want owners to reside in the homes they purchase. The possibility of a foreign owner renting out the property is usually higher than a local renting it out. When this happens, a co-ops’ transience increases, and this is what it typically wants to avoid.
Another factor that deters co-ops from selling to foreigners is the ability to hold them liable in American courts. Even if a co-op sues a foreign national in an American court and wins, implementing the judgement can be challenging if the owner’s assets are located outside of the U.S. As a result, if you are looking to buy a home in the U.S., your best bet might be to seek a condo or an individual home.
Taxation
As a homeowner in the U.S., you will need to file a tax return every year. If you wish to benefit through exemptions allowed by the IRS for property investment, you need to file a tax return and elect to offset expenses from income. If you fail to do this, you will need to pay 30% of the gross rental income to the IRS, and you will not be able to deduct expenses such as maintenance charges, interest, property taxes, and depreciation.
If you plan to reside in the U.S. for long, you also need to prepare for and try to avoid paying estate tax. While estates of American citizens are exempt from estate tax as long as they are valued under $11.2 million, foreign homeowners are exempt for only $60,000. As a result, if you do not plan your estate in time, your inheritor might have to pay a steep tax. One way to avoid this situation is to buy a home through a foreign corporation headquartered outside of the U.S. Another option is to cover for the expense using an affordable term-life insurance policy.
The Little Differences in the Real Estate Market
Real estate markets tend to function differently the world over, so it might be worth your while to look at the little differences.
- You do not have to approach different real estate agents because they share their listing information using multiple listing services.
- Real estate agent fees are borne by sellers, not buyers.
- Real estate agents cannot operate without valid licenses, requirements to obtain which tend to vary from one state to another.
Getting Financed
You may qualify for a home loan even if you are not an American citizen, although the kind of loan you are eligible for depends on your immigration status. If you are a permanent resident with a green card, you may apply for the same loans that American citizens can, which include Federal Housing Administration (FHA) and Fannie Mae loans.
You may also qualify for a typical loan as a temporary resident with a valid work visa. However, if your visa is due to expire in less than a year, the lender might require a letter from your employer mentioning that you visa will be renewed.
Without a legal status to work in the country, you cannot apply for a conventional home loan. However, you might still qualify for a foreign national loan. A drawback with this kind of loan is that you may use it only to purchase investment property, and not to buy a home in which you plan to live.
Foreign buyers typically need to pay around 25% to 40% of a home’s selling price as down payment. A number of banks require foreign borrowers to maintain minimum balances in their deposit accounts, whereas some others set maximum loan limits.
If you plan to make the down payment from outside of the U.S., pay close attention to the exchange rate you get and the fees you need to pay. With cross-border fund transfers, specialist companies such as TransferWise, WorldFirst, and WorldRemit tend to fare better than most banks.
Where the Market Stands
According to a recent report released by the National Association of Realtors (NAR), buyers from China spent more than $31.5 billion on residential property in the U.S. from April 2016 to March 2017. However, Chinese spending in the American real estate market fell since China imposed restrictions on outflow of capital from the country in August 2017.
Experts opine that it is only the frontrunners that change with time, and buyers from other regions are quickly filling up the gap. For instance, while Japanese buyers led from the front through the 1980s, their share had dropped to around 2% now.
According to Mansion Global, an independent newsroom that is part of Dow Jones, Asian buyers are among the most active in and around Los Angeles, and these include people from Indonesia, Singapore, Taiwan, Vietnam, Thailand, and even the Middle East. Incidentally, several Brits are also interested in Los Angeles luxury homes market.
The trend of Asians leading the overseas buyers’ list continues in New York, whereas the number of buyers from Russia and East Europe seems to be on the decline. When it comes to Miami and thereabouts, Latin American buyers are at the top of the chart. However, while buyers from Argentina and Venezuela have dwindled in numbers, there has been an increase in buyers from Mexico, Colombia, Brazil, Chile, and Peru.
Conclusion
Buying a home in the U.S. as a foreigner is not as complicated as it might seem, and you can simplify the process significantly by getting the right kind of professional assistance. What’s important, though, is that you give the process due time and compare your options well.
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This article has been contributed by iCompareFX.
