The Easiest Way For Foreigners To Buy A House Is An All-Cash Purchase
While foreigners can buy property in the US, the easiest way to purchase your home if you are a foreigner is to pay the full price in cash. If you need financing (a mortgage), you will have to meet certain financing requirements.
Foreigners Can Get Mortgages If They Meet Certain Requirements
Most lenders require that foreigners meet some of the following requirements in order to secure a mortgage:
Credit score of 720 or better, ideally 780+
Be able to make a 20% downpayment
Have a valid SSN or ITIN
Have an existing US source of income and expect that income to continue for at least 3 years
You have been in the US for at least 2 years
You have at least 2 years of US work experience
Taking out a mortgage is easier for a Green Card holder or for someone working in the US on a visa as opposed to someone living abroad with no ties to the US. Foreigners in the US may even qualify for government-backed mortgages. This is a type of mortgage subsidized by the US government to protect lenders from default. The most well-known government-backed loan is the Federal Housing Administration (FHA) loans which is available to both permanent or temporary residents.
The options available to you will also depend on how long you have been staying in the country and your ability to establish your ability to pay. As a foreigner, your credit report may not have enough information to establish a reliable credit history. This means that assessing your creditworthiness will be harder for lenders if you’ve been in the country for less than 2 years. To these lenders, allowing you to borrow money may be considered riskier. You may want to invest in trying to build your credit score up before applying for a mortgage. Companies like NOVA Credit have special programs to help immigrants build credit if you are struggling to get approved for your first credit card or loan. However, if you meet the requirements listed above, it is likely that you will be able to find a lender who will provide you with a mortgage.
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Green Card Holders
Green Card Holders Have Some Advantages When Applying For US Mortgages
Green Card holders receive almost the same privileges as US citizens when it comes to getting a mortgage. Fannie Mae and Freddie Mac are government sponsored enterprises that offer affordable conventional loans to US citizens. Green Card holders can take advantage of FHA loans and Fannie Mae or Freddie Mac loans just like US citizens.
This means that as a Green Card holder, you can potentially buy a home with as little as 3% as a down payment. But be prepared to comply with normal mortgage documentation. However, it’s best if you’ve been in the US for at least two years and have two years of tax and work history. All lenders will ask for your tax returns for the past two or three years, credit history for the past two years, and bank statement for at least two months. Other requirements may differ depending on the lender.
Related Article: How Much Tax Will I Pay As An H1B Working In The US?
Temporary Non-Resident Aliens
Temporary Non-Resident Aliens Can Also Qualify For Mortgages
If you are in the US under a valid work visa such as an E-1, E-2, H-2A, H-2B, H-1B, H-3, L-1, or G-1 to G-4 visa, you also have the option to take out a loan from the Federal Housing Administration. In this case, you may need to provide an Employment Authorization Document and a Social Security Number (SSN). If your contract with your employer will expire in less than a year, the lender may request for a letter from your employer showing their intent to renew your contract. Lenders will usually look for proof that you will be able to live and work in the country for at least three years. The lender’s priority is making sure that you will stick around and pay the loan! Like a Green Card holder, you need to have at least two years’ worth of tax returns and credit history. Your lender may also request for your bank statement for at least two months.
If you come from a country like Canada or the UK which have credit systems similar to the US, lenders may also consider your credit history from your home country.
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Refugees and Foreigners Granted Asylum Can Also Qualify For Mortgages
If you were granted asylum or you are a refugee staying in the US, you can apply for home loans under the same terms as a US citizen. You need to show a valid Form I-94, Arrival-Departure Record with the “Employment Authorized” stamp to prove your eligibility to work as an asylee or refugee. This form is a valid work document for up to 90 days from your US entry date. After the expiry of the form’s 90-day validity, you should present the Employment Authorization Document issued by the US Citizenship and Immigration Services.
Those Living Outside the US
Borrowers Living Outside the US May Have Trouble Getting Conventional Financing
If you are not a Green Card holder or someone holding a valid work visa, you are not eligible for conventional mortgages or US government-backed loans. Lenders will have minimal resources to assess your credit history. It will cost more to get a credit report if you don’t live in the US. Given your status, private lenders - if they will lend at all - will most likely request a down payment from 30% to 50% of the property price.
Related Article: What Is The Financial Impact Of Dual Citizenship?
Related Article: An Immigrant’s Guide To Building A US Credit Score
What About Investment Properties?
It Is More Challenging To Get An Investment Property Mortgage As a Foreigner But It Is Possible
It is possible for foreigners living in the US to secure mortgages for investment properties but lenders may impose stringent requirements including requiring a high credit score, proof of continuing US income, and a downpayment in order to qualify.
If you are planning to purchase a property in the US that will serve as a rental or investment property, you can also take advantage of foreign national mortgage programs offered by lenders like 1st Capital Group, HSBC, and Quontic Bank. This type of loan is only valid if you don’t have plans to be a permanent US resident and the property will serve as an investment property. These loans usually feature higher interest rates, typically 2-4% higher than a regular mortgage.
Purchasing a commercial real estate property can also potentially count toward the required $500,000 minimum investment in a rural area or the $1M investment in an urban area to get an EB-5 visa. The EB-5 visa is an investor program that grants a Green Card to an individual who meets either of the investment requirements above and who hires at least 10 full-time US workers.
Related Article: 8 Ways To Get Extra Income While You Are On An H-1B Visa
Related Article: EB-5 Visa Applicants Need To Plan Taxes Carefully
Related Article: EB-5 Visa - How Immigrants Make America Great Again
Related Article: Tax Benefits of Investing In Opportunity Zones
Consider eliminating co-ops from your property options. Foreigners may find it challenging to get approved by a co-op board. The approval process for a co-op many involve lengthy and detailed financial disclosures, which may be challenging to comply with if your assets are abroad or if you do not have a substantial work or tax history in the US. In addition, co-ops often have restrictions on subleasing, which may make it challenging to rent out the apartment if you need to return to your home country. Condos often have a much easier review process for buyers. In general, co-ops are also about 20-25% cheaper in price than a comparable condo.
When It Comes Time To Sell
Selling Your US Property - Foreign Persons Are Subject to a 15% Withholding Tax
When you eventually decide to leave the US and sell your home, there’s another complication if you are a foreign person or non-resident alien. Under the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980, when a foreign person sells a property, 15% of the sales proceeds are withheld at source. There are some exceptions.
If you are subject to the withholding tax, you should receive a stamped copy of the Form 8288-A from the IRS. You need to file a tax return with the stamped 8288-A form so the taxes withheld from the sale can be credited to you. Some states like New York also charge non-residents with capital gains tax of 8.82%
Seek Expert Guidance When Needed
A specialized tax and financial advisor like MYRA can help you navigate the financial complexities of buying a home as a foreigner.