If you are a foreign-born and looking for an opportunity to buy property in the United States, you can certainly do so. America has always welcomed foreign investors with open hands. In fact, they encourage foreign investors to invest in their real estate by offering flexible financing methods.
The best part is that the American government does not charge or ask for any additional hidden fees. Everything is put on the table. The only thing you need to do is to pay up the sum, and the property is all yours.
However, the experience of buying property in American might not be any different than what you experience in your home country. However, you might have to go through some additional steps to verify yourself in the American database.
In this guide to foreign property investment, we will discuss what will be necessary for you to know when you are buying property in America.
Most foreign people who are looking to buy pearl estate property in America fall under the following categories.
- Permanent Residents.
- Non-Permanent Residents.
There are other subcategories that also influence the whole process.
A permanent resident is a regular citizen of American. They have a green card and social security number that defines their permanent residency. If you have a green card, the mortgage application process will be identical to the American Citizen.
Non-permanent residents are the people who are in the US for work, study, and tourism. If you are a non-resident, the whole process of buying a property starts with getting an Immigrant visa. If that is not possible in your case, you need to connect with a US citizen and show a lender who will stay in the US for at least three years.
Having an issuer helps a lot. Even if your work permit expires, you can take help from the insurer to spend some extended time in America.
Finally, you have no connection whatsoever and are still willing to buy a property in America; financing is the only way possible. Being a non-resident of America restricts you from getting a mortgage loan.
You are only left with the financing procedure with a private lender who offers national loans.
What Are Foreign National Loans?
A foreign national loan is a financing option that is available to all non-resident of America. A foreign national loan can only be issued if the non-resident is willing to buy property in America.
Conceptually, a foreign national loan is similar to traditional mortgages but does have certain differences. For instance:
1. Higher Down Payment
As the buyers live in foreign lands, lending them money comes with great risks. Hence, A foreign loan has a higher down payment than traditional mortgage loans. The down payment can be as high as 20% to 30%. If you can pay more in down payment, the interest rate is reduced.
2. Higher Interest Rates
A foreign loan comes with a higher interest rate. For instance, if you are a non-resident American man looking for a foreign loan, the interest can be as high as 7%, which is almost double what US Citizens have to pay.
3. Different Documentation Requirements
The documentation process can be tiring. Because the non-residents do not have any credit data, or anything similar to look upon, lenders require alternative documentation to approve the loan.
The document requirement varies from lender to lender. But the bank statement and the written statement from the accountant remain mandatory for all.
As a non-resident of America, you cannot get a social security number. Hence, you must offer the second most important thing – The individual Taxpayer Identification Number.
4. Closing Cost
Though the process might be different, there are a few aspects that remain the same for both US citizens and non-residents; that is, they must pay the closing cost and lending fees, which is equal to 2% of the total loan amount.
But for the foreign buyers, this amount exceeds by adding all the transportation costs and other additional charges. Real estate buying and swelling is a multiple-step process. Hence, you might have to visit America several times for the documentation.
Fortunately, America’s real estate law understands this pain and allows non-resident buyers to use a power of attorney. Using this power, the foreign buyer can authorize someone in the US to deal with the process.
Paying Taxes On Foreign National Loans
Yes, buying real estate property in America does come with tax benefits. But that doesn’t mean it is tax-free. Anyone living in the US must file a tax return at the end of the financial year. Now that you know that you are liable to pay taxes, you must know what kind of tax benefits you can accrue.
For instance, if you are renting your property, you are liable to pay 30% withholding tax. In addition to that, tax laws vary from state to state. Hence, you must check the state laws before venturing.
Out of all the taxes that can be reduced, there are two taxes that are most difficult to avoid.
Capital Gain Tax
When a foreigner sells a property, they are required to pay capital tax. The amount you will have to pay depends on how long the home has been the primary residence. However, if you do not qualify for the primary residence, you are still liable to pay a certain amount of tax.
An estate tax is also known as a death tax. This property tax needs to be paid after the property transaction from the deceased to the heir. If you are a US citizen, you are exempted from paying tax over $11.4 million. This amount is reduced to a mere $60,000 for the non-residents.
The US is a profitable market for foreign investors. The federal laws have been quite flexible with foreign investors and have encouraged them to invest in real estate.
The bottom line is that – yes, a foreign-born can buy a real estate property in America. Although the process is quite complex, you can certainly do so. If you would like to advise, we would like to suggest hiring a property lawyer. This will ensure the compilation process is taken care of.