Each year, thousands of foreigners buy property in the USA. Whether you're veteran or new to the field, the process can be daunting. We hope that this guide will serve as background information, while you consult an experienced agent and team who will help you further.
How the U.S. Real Estate Market Works
The way real estate transactions are carried out in the United States may differ from your home country. Each state, too, has its own set of rules on almost every single aspect of the process - which is why you're advised to gather an experienced team of real estate agents, attorneys, mortgage brokers and accountants to consult along the way. Perhaps the three most important U.S. differences are the following:
- In the United States, real estate agents share property information. Consumers, such as you, can access most of that same information using real estate sites like Zillow. In many parts of the world, agents keep the listings to themselves and consumers have to go from agent to agent to find and compare property.
- In the United States, it is the seller who, usually, pays the agent the fee (i.e., sales commission). In many other countries, you would be the one to pay the agent to scout properties and show you around.
- In the United States, real estate agents need to be licensed to operate. The licensing laws of each state differ regarding the details of this license. Look up the state and its regulations to learn more.
Foreigners are allowed to buy almost any type of property in the US (single-family homes, condominiums, duplexes, triplexes, quadruplexes, townhomes, and so forth). Your only exceptions would be buying housing cooperatives or co-ops.
Resources: Most popular real estate websites/ April 2017
- Yahoo! Homes
Before you start your property search, it is important to know what you want this home for:
- For vacation?
- While doing business in America?
- For your children, while they attend college in America?
- An investment?
Answers to these questions will guide the search and sale.
The general steps, process, and details of buying real estate in the U.S. are barely different from most other countries:
- You make an offer and write up a contract
- The seller provides you with disclosure documents, a preliminary title report, copies of city reports and any specific local documents.
- You put a certain amount of money down toward the purchase price. That's where you work with the bank (or other lenders) for a loan.
- The closing that may happen at an attorney's office or with an escrow officer at a title company. Other times, buyer and seller sign closing papers separately. In all cases, plan on signing dozens of documents at closing. Expect, too, to pay additional fees for the title search and insurance, legal fees and recording fees which add a further 1-2.25% to the total transaction. So for a $300,000 home, that comes to another $3,000 at least.
You may or may not want to travel to the U.S. for the closing. In the event of the latter, you'll need to sign a "Power of Attorney", where you authorize another person to represent you and sign on your behalf.
Looking for a Real Estate Agent
To find your perfect agent, you'll want to do the following:
- Ask reliable friends or associates for references
- Search websites
- Search real estate directories
- Check that the agent is licensed. He may carry the Certified International Property Specialist (CIPS) Designation, which means he or she has done additional coursework. Your best bet is to look for certified "international property specialists" who help foreigners buy homes.
- Check references and ratings.
You may want to find a real estate attorney, too. He, or she, can review the sales contract for you, check the title and other documents relating to your purchase, and advise on legal and tax issues concerning your property.
How to Find Financing
With mortgage rates so low, many international buyers opt to finance their purchase. On the other hand, few lenders in the U.S. offer home loans to foreign buyers. It's all a matter of finding the right lender. Expect your identity, income and credit history to be thoroughly reviewed. Also know that foreign borrowers pay slightly higher interest rates than U.S. residents.
To win the best deal, you'll want to have the following in order:
- An Individual Taxpayer Identification Number (ITIN), which is assigned to foreign nationals who are temporarily working or temporarily staying in the US.
- At least two forms of identification, such as a valid passport and driver's license. Depending on the nationality, some buyers need to show a B-1 or B-2 (visitor's) visa.
- Documentation to show sufficient income.
- At least three months bank statements.
- Reference letters from your bank or credit institutions.
- Most banks require qualified foreign borrowers to pay at least 30 percent of the value of the home as a down payment. This can be in cash, although cash transactions over $10,000 are reported to the federal government to check that the money was legally obtained. Lending terms vary with most banks requiring that you have at least 100,000 in your account while others limit loans to one or two million.
All credible U.S. banks offer an an array of safe, affordable mortgages, including interest-free loans for Muslims.
You may end up paying two types of taxes on that property:
- To your home country, depending on whether or not your country has a tax treaty with the United States. Consult a tax attorney familiar with your home country's treaty for guidance.
- To America for U.S. income taxes on any net income received from rental property. You'll be paying both state and federal tariff.
The amount of property taxes vary by state and county, from a few hundred dollars to thousands of dollars a year, depending on the area and value of the property. Depending on your country of origin, some foreign buyers find these taxes high, others rate them cheap. Manhattan's property taxes are affordable in contrast to London and Hong Kong.