The housing market in the United States has a track record much like a rollercoaster from your favorite theme park. The seemingly constant ups and downs of the market certainly keep home buyers and sellers tuned in, bracing themselves for whatever comes next.
From the 2008 bubble burst to today’s low mortgage rates and seller’s market, it seems there is always something happening in the real estate industry. And according to U.S. News, the activity is not likely to slow down anytime soon. It’s not uncommon to hear about buyers purchasing homes sight unseen.
So it’s not strange to consider how popular property purchases are in today’s market. And we completely understand those of you who are non-U.S. residents wanting to get in on the action.
But can foreigners buy property in the United States?
Can non-U.S. residents qualify for a mortgage?
We’ll explore these questions and others about foreigners buying property in the United States. We’ll examine different property types, the various loan options, what taxes are considered, and the various closing paperwork when purchasing a property.
Let’s first take a look at if it’s possible for a foreigner to buy a property in the USA and, if so, how you can go about making the purchase.
How to Buy Property in the United States as a Foreigner
The good news is: a foreigner can purchase real estate in the United States. No matter where you are from, you have the opportunity to propose a bid or make an offer on a property. If your offer is accepted, you could own U.S. property as a foreigner.
And property can have great value in the United States. The “land of the free and home of the brave” certainly has a lot of the former.
Whether you’re looking to purchase farmland and multiple acres of property, a commercial building such as a factory or production plant, or an investment property, you will have several options to consider.
Types of Property
Trying to buy property in the United States varies in difficulty depending on the type and location of that property. You won’t find industrial buildings in a place known for agriculture. And the same goes for trying to purchase a commercial building in a residential neighborhood: unlikely.
Every state, county, city, and municipality differs in its ordinances and allowances for zoning for each type of real estate property. We won’t dive into these government rules (it’s best to research these in the area that you’re looking to buy), but let’s look at the different types of properties foreigners can purchase in the United States.
Are you looking to purchase a home for your family to live in for years? Then a residential property is what you need.
Residential properties are single-family houses, multi-generational houses, townhomes, condominiums, or duplexes. The house can be in a gated suburban neighborhood or a brownstone in the city.
Foreigners can purchase an already built U.S. home or buy land to build a house.
To find a home for sale, foreigners can work with a local real estate agent or search real estate online sites such as Zillow.com, Realtor.com, and Homefinder.com. If you are not in the U.S. while searching for a home, working with a real estate agent is perfect because they can take you on a virtual tour and answer any questions you may have about the home or community.
You can purchase a residential home outright with a one-time payment of cash or take out a loan and make payments over several years. We will cover these payment options a little later in this article.
You can find Commercial Real Estate (or CRE) in every small town and big city across America. Foreigners are allowed to buy U.S. commercial property and should have no trouble working with a CRE agent to find and purchase property that suits your business.
Commercial property is any real estate designated (or zoned) for business purposes. This includes, among others:
- Retail shops (including malls)
- Restaurants (including fast food and dine-in)
- Medical offices
- Hotels or Apartment Buildings
- Urban or Suburban offices
- Self-storage facilities
- Private Parking Lots or Garages
- Cinemas or Movie Theaters
- Grocery Stores
- Gas Stations
Typically commercial real estate properties are not listed publicly. Foreigners will need to work with a professionally licensed real estate agent to find properties for sale. Or you can try online commercial real estate sites such as LoopNet, RealtyMogul, or CREXi.
If you are an international investor interested in U.S. commercial property, consider these 14 tips from Forbes magazine.
Speaking of investments: investment properties are another type of property non-US residents can purchase.
Some foreigners have no intention of living or working in the United States but can still buy a property in the USA as an investment. You may see your real estate purchase simply as an opportunity to make extra money.
Investment properties can be residential or commercial real estate bought to rent or lease to a third party.
However, because you are earning income from the property, there will be additional taxes from the Internal Revenue Service (IRS).
Regardless of the type of property you purchase, whether as an investment property or not, foreign homeowners can expect to file tax returns to both the USA and their home country for any property owned in the United States.
We’ll discuss taxes a little later as well.
But before we get to how foreigners can buy a property in the U.S., let’s explore the different citizenship categories. These categories will help us understand the qualifying process for loans later in the article.
The United States classifies peoples as either non-residents, non-permanent residents, or permanent residents. And each category has its own verification papers. Your citizenship status is the bank and government’s way of knowing who has a social security card, a green card, a permit, visa, or living outside of the USA.
Anyone can buy a property in the United States, but the category determines how easy purchasing will be for you.
Let’s take a look at each of these categories:
You are a non-resident if you live outside of the United States and are a citizen of another country.
Typically non-residents are interested in USA investment properties and have no intention of moving to the home or becoming a U.S. citizen.
Or you may want to buy a vacation home in the United States and come for a visit. Whether it’s a beachside bungalow or mountaintop cabin, non-residents can buy a property in the USA as a vacation home or investment property.
Non-residents may not qualify for a mortgage, but you can buy a property with cash or through private lenders.
Foreigners are non-permanent residents when they are in the USA on a work permit or employer-sponsored visa. To work in the U.S., non-permanent residents are issued a social security number but not a green card.
With the social security number, non-permanent residents can qualify for a traditional mortgage loan if you can show the lender that you can live and work in the United States for a minimum of three years. Most mortgages have a fixed interest rate of 15 or 30 years, but as long as you have stable employment for three years, you should have no trouble qualifying for a loan.
Suppose your work permit expires within three years at the time of your loan application. In that case, non-permanent residents should still qualify for a mortgage loan if the lender believes you will remain in the country and continue making payments.
Foreigners are permanent residents when they have a green card and a social security number.
The process to become a permanent resident of the United States takes between 7 months and 2½ years, depending on where you apply, the basis for filing, and various other factors. Foreigners can apply for a green card at usa.gov.
Once you are a permanent resident, the home buying process is practically identical to what a U.S. citizen experiences. You can either buy a property with cash or apply for a traditional home loan.
Buying Foreign Property With Cash
As we’ve mentioned, anyone can buy a property in the USA. Whether you have a green card or social security number or not.
Perhaps the easiest way to purchase real estate in the U.S. is by paying with cash. This means you are paying the total value of the property at the point of sale.
When buying U.S. property with cash, you don’t need to worry about being eligible for a loan or qualifying with a lender because you aren’t borrowing money from a U.S. bank or lender.
There are definite benefits and disadvantages of purchasing real estate with cash; let’s explore more.
Benefits of Buying Property With Cash
According to the National Association of Realtors, 32% of sales are cash purchases. Foreign buyers who can afford to pay the total cost of a property will find many benefits using cash. And sellers are likely to opt for buyers who can offer payment in full.
Benefits include potentially keeping thousands of dollars that would otherwise go towards the loan’s interest. Instead of borrowing money, when you pay with cash you’re actually saving money.
Other benefits of purchasing real estate without a loan include less paperwork and a more streamlined closing process. Buyers also have more leverage in negotiations.
No Debt/No Interest Payments
You could see this benefit as either saving money from not paying mortgage interest or not going into debt because you don’t have a loan. Either way, it’s a win-win.
When you buy a house with cash, there are no debt, monthly payments, or interest rate payments.
If you were to take out a $200,000 loan with a 30-year fixed interest rate of 3.5%, you would pay $123,000 in interest alone over the life of the loan. You can check our math, but you’ll find that you’re paying more than half of the original loan in interest.
Or pay cash and keep that $123,000 for travel, toys, or trinkets.
Some people aim to live a debt-free life. When you live debt-free, you have fewer monthly expenses and potentially less stress in your life. It can be a life-altering lifestyle for those who can afford it.
More Negotiation Leverage
As we mentioned, sellers like working with cash buyers. Less paperwork is usually an excellent motivation for real estate sales.
If a buyer uses a mortgage to buy a property, their purchase is contingent on being approved for the loan. If there are any complications, the process takes longer, and the sale could fall through.
These are non-issues when foreign buyers pay in cash.
Oftentimes, if there are multiple offers on a property, the seller will opt for the cash buyer. And some foreigners have even offered a lower amount than the listing price and will still get picked simply because they are paying in cash.
At the negotiation table, offering cash in full is a bold move and excellent leverage for buyers.
Easier Closing Process
If you have ever bought real estate, you know the amount of paperwork involved for both buyers and sellers. There are a lot of i’s to dot and t’s to cross when transitioning property between owners.
When you buy a property with cash, there is no loan application or lender paperwork to worry about. That’s a mountain of paperwork that magically disappears when you pay cash.
The paperwork you will have to deal with is the title, insurance, and taxes. Depending on how quickly you transfer the funds, the entire real estate closing process could take two weeks.
That means if you have found the home of your dreams in the best neighborhood in the entire country and you purchase the property with cash, you could potentially start moving in a fortnight.
Disadvantages of Buying Property With Cash
While it is possible to buy a property with cash, and there are several benefits for doing so, it may not be the best option for foreigners to purchase real estate with cash.
Real estate property takes years to appreciate, so you may want to use that money in other investments.
There’s also the possibility that an emergency occurs and you don’t have the equity available to handle it. You also miss out on tax breaks that come with a mortgage.
So while foreigners can buy property in the U.S. with cash, you may want to consider the disadvantages first.
Miss Out on Tax Breaks
One of the benefits of buying real estate with a mortgage loan is the interest rate tax deduction that comes with it. If you purchase a property with cash, then you don’t get the benefit of these tax breaks.
As an alternative, some foreigners may qualify for a HELOC loan (Home Equity Line of Credit), and the IRS will allow for deductions on property taxes and the HELOC loan equity. But if you don’t qualify for these loans, then paying with cash means missing out on tax breaks for your U.S. property.
Harder to Get Home Equity
It should go without saying that buying real estate is a big purchase. But think about it: Unless you have even more money saved away, you have just spent a considerable amount of money in a real estate transaction. What happens if there is an emergency? Do you have more money to handle the extra expenses?
Buyers with a traditional mortgage can apply for a second mortgage and access cash quickly.
But if you pay for the property with cash, you don’t have that option.
Again, a HELOC loan could be a solution, but you must first qualify for the loan, and some foreigners may not be eligible.
Buying Foreign Property With a Mortgage Loan
The alternative to buying property in the United States is to take out a loan or mortgage. A traditional loan is available to those who qualify or a foreign national loan for others. Each loan is paid back in monthly payments with interest.
Paying cash is undoubtedly the easiest way for foreigners to buy property, but there are requirements to consider if you need financing.
Your citizenship status will determine eligibility for a traditional mortgage loan. If you do not qualify, consider applying for a foreign national loan.
Let’s take a look at the qualifications for each citizen category:
Qualifying for a Mortgage
Lenders do not give money to just anyone. Qualifying for a mortgage is a checklist of requirements that foreigners and U.S. citizens alike must meet.
Among the requirements include:
- FICO Credit score = 720+ (the ideal credit is 780+)
- Ability to do 20% down payment
- Have a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
- Have an existing source of income (and expect it to continue for at least three years)
- Have lived in the United States for at least two years
- Have worked in the United States for at least two years
Those with a green card may find it easier to qualify for a loan than those who do not. If you live outside the country, getting financing in the U.S. is difficult but not impossible.
Your citizenship status starts to come into play when it comes to qualifying for a mortgage and purchasing property. Let’s break these down:
Green Card Holders
Permanent residents with a green card have almost the same privileges as natural U.S. citizens in the loan application process.
You can potentially qualify for a private loan with a lender or even a government loan such as Freddie Mac or Fannie Mae. The government loans require only a 3% down payment (compared to the typical 20% down payment).
Foreigners with a green card can buy residential, commercial, or investment properties with a traditional mortgage as long as they qualify with a lender. You will need sufficient paperwork such as two years of tax history and proof of income for at least two years. Your credit history is another important factor in determining eligibility and also defines the terms of the loan.
Your real estate agent can help in understanding the process of buying a property with financing.
Non-Permanent Resident Buyers
If you live in the United States with a work permit or visa as a non-permanent resident, you can take out a loan with the FHA (or Federal Housing Administration).
Your work history is an important determining factor when applying for a traditional mortgage, making sure you have at least two years of work in the United States. You may also want to get a letter of intent from your employer showing future employment possibilities.
Lenders have just one concern when approving a loan: will the buyer be able to make monthly payments? If you can prove income and history of paying off debt, then you have a better chance of qualifying for a loan.
Suppose you are originally from a country similar to the United States, such as Canada or England. In that case, lenders may also consider your work and debit history from that country as well.
If you are a refugee or were granted asylum in the United States, you can apply for financing similar to how U.S. citizens apply.
As long as you have a valid “Employment Authorized” stamp on your I-94 form (Arrival-Departure Record), can prove two years of work, and have good credit, you should be able to qualify for a loan.
Some lenders may see refugee buyers as a riskier investment and require larger down payments (between 30-50%) and higher interest rates. You can still apply for a loan and buy U.S. property, but there are more steps and red tape for refugees.
Living Outside the U.S.
If you live outside the United States and don’t have a green card or work visa, you are not eligible for a traditional mortgage loan. But you can apply for an FHA loan and work with the U.S. government to secure financing.
Because you don’t have the required credit history report or meet the requirements for eligibility (such as work history and residents in the U.S.), it is more difficult for lenders to approve a loan.
You may want to ask for loan terms with a higher interest rate or put more money down as an initial investment, but even this does not guarantee that your loan application is approved.
If you are a foreigner that wants to buy property in the United States but is having difficulty qualifying for a traditional loan, consider applying for a Foreign National Loan.
What are Foreign National Loans?
A financing option for those outside the U.S. is the foreign national loan. Permanent residents and non-permanent residents can also apply for foreign national homes. However, this type of loan is only for vacation homes or investment properties.
Again, lenders will require a high down payment (usually 30%) and adjust the interest rate depending on eligibility factors. Here’s how to qualify for a foreign national loan:
How to Qualify for Foreign National Loan
Foreigners who want to qualify for U.S. government loans simply need to provide paperwork showing proof of income and debt history. It’s similar to the process a U.S. citizen experiences, but the paperwork will come from your home country.
Here is what you’ll need to qualify for a foreign national loan:
- Proof of work experience for the last two consecutive years. (If self-employed, provide accounting documents with proof of income).
- Debt history documents – this could include a letter from your bank showing at least two years of consistent monthly payments.
- Proof of residency in your country (two documents with your name and address, such as a utility bill).
- Copy of passport or other government-issued I.D.
- U.S. financial institute bank account
If you are looking for a U.S. investment property and have no intentions of moving to the United States, a foreign national loan is a perfect opportunity for your foreign investment.
Taxes for Foreign Home Buyers
It’s a great opportunity for foreign investors to buy U.S. property. But before you buy, you will want to have an understanding of U.S. tax laws and obligations.
Every property in the United States is subject to taxes. Here are some definitions to help you out:
- Tax rate is the percentage at which an individual or company is taxed. Generally, foreigners are taxed at a 30% tax rate for income on U.S. property.
- Property taxes are monies due for the perceived value of the home or business. The property is appraised and assessed based on competitive pricing in the community.
- Income tax is monies due for any income made in the United States. If you are renting a property (either long-term or short-term), you will need to pay the Internal Revenue Service income tax.
- Estate tax is a tax on your right to transfer your U.S. property after your death.
- Capital gains tax is monies due after selling your U.S. property; this rate varies on income and tax status.
Buying real estate in the United States is an excellent investment for those living outside the country. Whether you live in Canada, England, Italy, Brazil, China, Japan, or Australia – or anywhere really – you can buy a home or business in the USA.
You can either pay for the property in cash or apply for a home loan. Depending on your citizenship status, you can get financing from a private bank or work with the U.S. government with a foreign national loan.
Ensure that you understand the qualifications required to be eligible for a loan and all the tax implications of owning U.S. property.
The U.S. housing market is an exciting market to invest in (remember that roller coaster ride?), but it could result in great wealth for foreigners who want to buy property in the USA.