Many international buyers — often from Canada, China, Mexico, India or Great Britain — buy U.S. real property to offset the risk of their country’s currency devaluation, or simply to diversify their assets. If you’re a buyer from outside the United States, or a seller making an international sale, advance knowledge can help you navigate a few quirks in the process.
What Are the Rules? Who Are the Experts?
Within the United States, each state has its own laws on how sales are conducted and closed, what contract provisions are and are not acceptable, and the qualifications of the professionals involved. There is some level of disclosure in nearly every home sale, because everyone who engages in or assists with a sale for at least USD $10,000 has to report the activity to the U.S. government.
When the typical home goes up for sale, it’s entered into databases shared by brokers who use multiple listing services. The general public can pull up the data, too — from Zillow, for example. Real estate agents are the licensed brokers who guide buyers though the experience of house hunting, assessing the suitable homes, and locating suitable mortgage and title specialists. Look for an agent who has international sales experience and is familiar with your language.
Who are the other specialists available? Real estate attorneys, although not required, can review a sales contract, oversee the review of deeds and other documents, and advise on inheritance rights or other questions. You’ll need a mortgage broker, and your agent will be introducing you to a title company. You’ll likely encounter surveyors and appraisers who affirm the legal description and current market value of the home, and inspectors who go through the major equipment, wiring and plumbing, to assess the condition of the home you want to buy. It also makes sense to have a tax expert inform you what expenses are deductible.
Can a Foreign Buyer Get a Mortgage?
Cash is simpler and faster. It can avert mortgage application and loan origination fees, appraisal costs, and title insurance policies that cover lenders — but which homebuyers have to purchase. On the other side of the coin, financing has tax benefits.
In the United States, the first step to a mortgage is the prequalification phase, which will indicate how much money the buyer can borrow, and at what interest rate. Although the mortgage specialist can use an international credit report when determining eligibility for a certain loan amount, it’s typical for a buyer to develop a U.S. credit history by opening U.S. credit card and bank accounts.
Expect higher interest rates than U.S. residents can obtain. Be ready with a down payment in the 35% range, and a 10% deposit. Interest, including prepaid interest (“points”) can be tax-deductible home mortgage interest.
- Copied passport pages (with visa if applicable).
Mortgage specialists usually request:
- Photo identification cards.
- Credit references from financial institutions and professionals.
- One year of housing payment records.
- Verification of employment and income for at least the past 24 months.
- Year-to-date pay for the current year.
- Address verification, such as a utility bill.
- Proof of funds for down payment, deposit, title insurance, and additional fees and transfer taxes.
Additionally, expect your mortgage specialist to ask you, perhaps multiple times during an extended negotiation process, to show your work income and the activity in your bank account going back three months. Yes, it feels intrusive; but you’ll need to go with the flow. They do the same to U.S. residents.
Buying From a Distance
You can make an offer and buy a house without coming to the United States, through a representative, by executing a power of attorney for the specific transaction.
The other steps to take are as follows.
Obtain an Individual Taxpayer Identification Number (ITIN) by applying through the Internal Revenue Service (IRS), or an IRS-approved accountant.
Research properties online, and hire a U.S. real estate agent to help you.
Let your agent know when you see a suitable property and wish to make an offer.
Sign the document drawn up by your agent, employing Docusign and eSignature technology.
Your agent will communicate the offer and loan pre-approval to the seller’s agent.
If applicable, have your lawyer to review the offer agreement before the parties sign it. (During this period the seller is still free to show the house and accept another buyer’s offer.)
Negotiate the preliminary agreement and send a 10% deposit to the designated U.S. escrow account.
Your agent will guide you through the appraisal, surveys and inspection, the condo association approval if applicable, and the title search and insurance. Your mortgage specialist will tell you when the loan approval comes through. Results of these processes can be transmitted electronically.
Expect to cover title insurance, fees for title and recording services, and applicable federal, state and local taxes.
Money will be wired between the parties’ banks, and the title company can take care of the closing and deed recording. The buyer can receive the keys and deed by mail.
International Real Estate Sales — and Taxes
Property taxes vary, according to place, home value. International investors can be individuals or business entities, each with specific tax rules to follow.
Non-U.S. investor owners pay state and federal income taxes on net rental property income. Investor buyers usually use their rental income to cover taxes as well as mortgage loan payments. Those who do not receive a net profit are still expected to file their tax returns.
The buyer should also have a grasp of the tax rules in the home country, noting whether it has a relevant tax treaty with the United States.
Special Considerations for the New York Condo Market
Many international sales involve condos in Florida, California, Arizona, Texas or New York. The New York City market is the most competitive of all. Condo purchases are typical for the international buyer in New York City. The buyer typically covers:
- New York State and City transfer taxes and mansion taxes.
- Attorney fees, which can cost up to $4,000 these days.
- Property-specific fees for applications, managing agents, and move-in deposits.
If you are taking out a loan to finance your purchase, get a rundown from your mortgage specialist. You’ll need to anticipate a variety of bank fees and insurance costs, recording fees, and New York City’s mortgage recording tax.
What You Should Know if You’re Selling to an International Buyer
As your transaction involves verifying credit and moving assets from one country to another, it makes sense to have a seller-protective sales agreement and a substantial down payment. Have a professional review the agreement with this specific concern in mind. Other ways to make sure things go right include:
- Setting a reasonable closing date to accommodate the loan approval process for a foreign borrower.
- Appreciating cultural differences, and seeking out professionals who have worked with an international clientele.
- Observing the political winds at the time you sell, and how they can impact your buyer. As we go to press in 2020, for example, a Chinese buyer will be dealing with heightened scrutiny and fees.
For timing purposes, sellers should be aware of the new “know before you owe” provisions. Mortgage applications must comply with the Truth in Lending Act – Real Estate Settlement Procedures Act, requiring lenders to give all buyers their loan documents three days prior to the scheduled closing. After that point, a last-minute change in terms and conditions will entail redrafting the loan documents — and a new three-day wait.
We’re All Connected
We live in an electronic era. This means international home purchase agreements are neither unusual nor especially difficult. International home buying is expected to rebound after its 2020 slowdown, when a global pandemic closed mortgage offices and interrupted international flight schedules. Readers might wish to review our information on remote closings and other pandemic-prompted innovations here.
Photo credit: Kyle Glenn, via Unsplash.