By Erin Nicks
Whether born in the United States or from elsewhere throughout the world, owning a home in this country is a dream for millions. However, the steps involved in buying a home in the U.S. as a foreigner or immigrant are different, as well as lengthy and time-consuming.
Buyers must understand the requirements as foreign nationals or resident aliens and the visa restrictions involved.
This article has all the information you need to know about buying a home in the U.S. if you’re a foreigner or an immigrant.
You may have heard that only naturally born citizens can purchase homes in the U.S., but that isn’t the case. Your status will affect which loans are available, so it’s best to know your options.
Lawful permanent residents (LPRs) and people with green cards can often buy a home with as little as a 3% down payment. In addition, they are eligible for Federal Housing Administration loans and other loan programs supported by the government, like Freddie Mac and Fannie Mae.
An LPR must have a current tax return, asset statement, bank statement, and a solid credit score when applying for a mortgage.
Foreign nationals working in the United States temporarily can apply for a Federal Housing Administration (FHA) loan. Still, they must show proof of income and social security number to be approved.
Lenders seek confirmation that a borrower will be in the country long enough to repay a loan. They may ask for things like a good credit history, bank statements, tax returns from the preceding two years, and a legal job contract lasting up to three years.
Anyone who has been granted refugee or asylum status is eligible to apply for a home loan through the same government-backed services available to citizens of the United States. After a year, persons granted refugee or asylum status can apply for a green card and begin purchasing a home. Then, after confirming their residency and employment status using a form I-94 or another government-issued document, they can apply for a mortgage.
If you have a credit score of 620 or better and are a DACA recipient, you can buy a property in the United States if you plan to make it your principal residence. However, your financing alternatives may be limited. DACA recipients can also apply for FHA loans.
International purchasers: Lenders often require a social security number, an established credit score, and a minimum of two years of continuous U.S. residency for foreign people looking to get a mortgage in the United States. This is why many people from other countries prefer to pay cash for a house.
According to the National Association of Realtors, all-cash sales accounted for 44% of international buyer transactions between April 2021 and March 2022, nearly twice the rate (24%) of all existing home buyers. In addition, non-resident foreign buyers (60%) were twice as likely to make an all-cash purchase as resident foreign buyers (30%).
Nearly 7 out of 10 Canadian buyers (69%) made all-cash purchases, the highest share among foreign buyers. Asian Indian buyers were the least likely to pay all cash, at just 9%. On the other hand, almost 6 out of 10 Chinese buyers (58%) and a quarter of Mexican (27%) and Brazilian buyers (26%) made all-cash purchases.
Buying a home in the U.S. as a foreigner or immigrant
The same mortgage financing options are available to permanent residents and people with green cards as they are to American citizens. However, if the buyer is a foreign national residing abroad (Hello, Snowbirds), they should investigate foreign, federal mortgage programs or consider paying cash for the acquisition. In addition, no matter where the buyer currently lives, they must take a few necessary actions to ensure the house-buying process goes as smoothly as possible.
Prepare for the purchase of a home
Buyers must decide on the purpose of the home before making any other plans. Will they use it as their primary residence? Are they looking for a second home or an investment property? The needs and wants can significantly vary depending on the house’s intentions.
Practicality is vital if you’re looking for a family home to live in as your primary property. Prioritize the number of bedrooms and bathrooms, the kitchen’s design and amenities, and the house’s location in relation to parks, recreational areas, and grocery stores. Buyers should compare school districts and public transit options for their children.
The location, renovation, maintenance, and potential return on investment are crucial factors to consider when buying a second home or investment property.
Income and Employment Status: As evidence of employment and financial stability, homebuyers must often submit two or more recent pay stubs and two years’ worth of income tax returns when applying for a mortgage.
Credit Score: Non-citizen homebuyers must have a credit score of 720 or above, while some lenders may demand a practically perfect 780.
Down payment: If you don’t have permanent residence in the United States, you’ll probably need to put down a sizable down payment or deposit on the property, which may be between 20 and 50 percent of the total price.
HOA and Co-op Fees: Some homes are subject to regulations upheld by a group that looks after all the houses and properties in a neighborhood. This group is called a homeowner’s association (HOA) or co-op, and it charges a monthly fee on top of the monthly mortgage payment.
Can I buy a home in the U.S. without a green card?
The short answer is yes — but be prepared for lots of planning and research. As stated above, you’ll be subjected to stricter requirements. You’ll need a larger down payment and a shining credit score.
Next, you’ll need a real estate agent with a Certified International Property Specialist (CIPS) designation. These agents know to properly guide you through the rules and regulations of purchasing a home in the U.S.
Also, prepare to apply for U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) from the IRS.
Foreign nationals who want to purchase property in the United States need an SSN or ITIN from the IRS. This number is used for tax purposes and is required when applying for a mortgage.
What about paying taxes on a home in the U.S.?
As a foreigner purchasing a home in the U.S., you are responsible for paying taxes on that property. There’s plenty for a buyer to know, but we will cover the essential facts below.
- IRS Publication 515: IRS Publication 515 describes the regulations for non-resident aliens, and you must familiarize yourself with them before purchasing property as a non-U.S. citizen. Congress passed the Foreign Investment in Real Property Tax Act (FIRPTA) in 1980 to charge foreign individuals a tax when they sell or receive income from an investment in U.S. real estate.
- Tax rates: Here’s something to know if you’re purchasing an investment property in the U.S. In general, if a non-resident alien’s income from real estate in the U.S. is not actually tied to a U.S. trade or enterprise, it is taxed at a 30% rate. (If your resident country and the U.S. have a tax treaty, this rate might be lower.)
- You get to choose how your rental income is handled: A non-resident immigrant may treat all income from property used to generate revenue in the U.S. as being linked to a U.S. trade or enterprise if they own the business. This choice is called an 871(d) election; you can read more about it here.
If you choose this option, you can deduct expenses related to real estate income, making the net income taxable. This will apply to all income derived from your U.S.-based real estate.
- Capital gains will affect taxation: When a non-resident sells a property in the U.S., any capital gains are taxed as if the seller were a U.S. citizen or resident. However, if the property has been owned for over a year, the gain may be eligible for lower long-term capital gains treatment.
- State taxes: Depending on your property’s location, you might be required to withhold or pay state taxes. A qualified tax professional will be able to help you.
Where are foreigners buying homes in the U.S.?
Florida reigns supreme for those coming from abroad, according to the National Association of Realtors. For the 14th straight year, Florida remained the top destination for foreign buyers, accounting for 24% of all international purchases. California ranked second (11%), followed by Texas (8%), Arizona (7%), and New York and North Carolina, tied at 4%.
Be prepared and do your research
Buying a home in the United States as a non-resident requires more work and the assistance of some knowledgeable assistants, but it can be accomplished. First, ensure your documentation is secured and organized before you begin and establish your purpose for the home right from the jump. It will make it easier to discern your wants and needs going forward. Then, take your time, ask questions, and be patient. The right home awaits you in the U.S. when you’re ready.
