Navigating Finances When Buying a New Home in the US as a Non Resident

A big house with an open front yard, a two-car garage and a white picket fence – sounds like the American dream, doesn’t it? Whether you’re shopping for an investment property from abroad or you’re an expat hopping to put down roots in the U.S., homeownership in America is legal and attainable for non-U.S. residents.

You don’t need a green card, a particular type of visa, or U.S. citizenship to secure the keys to your U.S. home either. You do, however, need to obtain certain requirements, such as a tax identification number, and meet specific criteria to secure a mortgage as a non-U.S. citizen. You’ll also need a hefty down payment, great credit history (in the U.S. or abroad) and a stable income.

While it may be a more complex process for non-residents, don’t be dissuaded – international homebuyers pour billions into the U.S. housing market, to the tune of nearly $78 billion last year alone. Here’s the NewHomeSource step-by-step guide to buying a home in the United States as an international homebuyer.

The Housing Landscape for Foreign Homebuyers

Stable returns, diversifying your investments, low interest rates, steadily increasing home prices, and a potential path to U.S. residency – these are just some of the prime reasons why there is such strong international demand for American property.

International buyers inject billions into the U.S. housing industry. From April 2018 to March 2019, foreigners bought 183,100 homes with a total value of $77.9 billion, according to the National Association of Realtors. International buyers paid a median price of $280,600 for their homes – higher than all existing homebuyers (they spend roughly $259,000).

International homebuyers from China were the leading buyers for the seventh year in a row, according to the NAR report. They spent $13.4 billion on residential property, followed by buyers from Canada ($8 billion), India ($6.9 billion), the U.K. ($3.8 billion), and Mexico ($2.3 billion).

It’s no surprise that one in five international homebuyers purchased their property in Florida – think of the Canadians dubbed “snowbirds” flocking to the sun during cold winters. Apparently, they never met their new neighbour, Florida Man. California, Texas, Arizona, and New Jersey were the next most popular states for foreign homebuyers, followed by North Carolina, Illinois, New York and Georgia.

A Twist on the Basics to Getting on the Property Ladder

As an international homebuyer, the homebuying process is similar to what you’d encounter at home but as a foreigner, you need to jump through a few more hoops. Solid savings for a down payment, a great credit score, and proof of stable income are always important when you want to purchase real estate – regardless of where you’re trying to buy a home.

A big difference in the homebuying process for international buyers is that, while you don’t need a green card or a visa to buy property, it’s mandatory that you apply for and obtain an ITIN or an Individual Taxpayer Identification Number. The ITIN is a tax processing number issued by the Internal Revenue Service to people who need a tax ID number but don’t have a Social Security Number.

Just like anywhere else in the world, you need to make your case to lenders that you’re a responsible candidate for a mortgage, too. Good credit is crucial here, whether you have a solid credit score from your home country, or if you’ve strategically opened up a U.S. bank account and credit card, both of which you’ve kept out of the red to cultivate your U.S. credit history.

Consider Your Status

Your route to securing a mortgage and a home in the U.S. depends on your residency status – whether you’re a green card holder, on a work or study visa, or if you’re living abroad without any ties to America. Here’s how these various groupings differ:

Green Card Holders

Getting approved for a mortgage is much easier for a green card holder (a permanent resident). Green card holders have access to nearly identical privileges as U.S. citizens when it comes to getting a mortgage. These groupings may even qualify for government-backed mortgages, such as Federal Housing Administration (FHA) loans. FHA loans are among the most well-known government-backed loans, created to help protect lenders from default.  They’re up for grabs for both permanent and temporary residents, too.

People On Valid Work Visas

Those in the country on a work visa are also entitled to FHA loans, but need to provide your Employment Authorization Document and your Social Security Number to qualify. A visa is a bit of a ticking time bomb for lenders – they may need a letter from your employer that shows they’re committed to extending your contract or some proof that you will be living and working in the U.S. for the next few years. They need do their due diligence to make sure you’ll stay committed to repaying your mortgage and that you’ll have a steady income to cover it.

In both instances, if you’ve been in the country for more than two years and you have a paper trail outlining your employment, U.S. residency, income, and good credit history, this will help you significantly with showing your creditworthiness to lenders. If not, you may want to work towards strategically building up good credit by regularly paying your credit card and other bills.

If you’re an expat from a country, such as Canada or the U.K., or your bank has branches in the U.S., lenders may use your credit history from your home country to build a snapshot on your creditworthiness.

Hombuyers From Outside the US

If you’re not in the country at all, don’t fret – you’re still eligible to buy property in the U,S. You just won’t have access to government-subsidized loans and you’ll need a much higher down payment too – about 30 percent to 50 percent of the property price to convince a lender to loan you the rest. For comparison’s sake, FHA loans only require a 3.5 percent down payment for consumers with a credit score of 580 or higher.

You’ll also need thorough paperwork documenting your identification, salary, income and bank statements, and reference letters from your creditors. Lenders may review your income to make sure everything checks out too.

Cash is King, But Non Residents Can Secure Mortgages Too

The easiest route to homeownership as an overseas buyer without any ties to the U.S. is to pay for your home in cold, hard cash, circumventing the need for a mortgage.

Foreign investors buying up rental properties have deep pockets – the NAR estimates that 60 percent of homes purchased by international buyers were all-cash transactions, compared to just one-third of domestic sales to American citizens.

Not everyone can cough up the full price for a home, or they may want to take advantage of low interest rates on mortgages. If you’re purchasing a home that serves solely as a rental or investment property, there are foreign national mortgage programs offered by certain lenders precisely for those who don’t plan on being U.S. residents or living in the home they’re buying.

These loans are typically about two to four percent higher than conventional mortgages. This isn’t too much of a setback considering how low interest rates have sat at over the past few years.

Across the board, you’ll need to establish a bank account in the U.S. and deposit your down payment into this account, too. This account will also hold onto your cash to cover other costs too, such as lender fees, closing fees, and homeowners insurance – all of which apply to international buyers and Americans alike.

Build Your Team

As an international homebuyer, you’re a unique segment of the real estate market in the U.S., but there are specialized experts that know exactly what you need to do to buy your home. Your job is to assemble your roster of professionals from real estate agents, to attorneys, mortgage brokers and bankers. They’ll do the heavy lifting for you, making the process much smoother and less daunting.

Some real estate agents focus their business on foreign homebuyers – they’re nicknamed “international property specialists,” and their work includes traveling abroad to meet with potential clients. They are experienced in working with foreign homebuyers, and clearly understand the paperwork and number-crunching involved to help their clients successfully buy U.S. property.

They also have direct links to attorneys, loan officers and accountants who can help foreign homebuyers with the process.

Pay attention to certain builders too, as some developers welcome foreign homeownership and partner with lenders who offer mortgages to international buyers.

Finally, do your research on banks as several offer home financing solutions for international borrowers. HSBC, for example, notes that international clients shopping for a mortgage on an investment property in the U.S. don’t need U.S. credit history – instead an international credit report would suffice. Consumers can secure loans of up to 75 per cent of the appraised property value or purchase price.

Chase, Bank of America, Citibank and Wells Fargo are also among the list of banks that offer a specialized approach for international buyers, whether as expats or international investors.

It’s worth shopping around to see what interest rates and what loan amounts lenders will pre-approve you for. You’ll also notice that some lenders make an international borrower jump through more hurdles than others.

Prepare for the Disparities

Between the terminology and the products, taxes and fees, international homebuyers are bound to come across some culture shock – sometimes good, and sometimes bad.

For example, all homebuyers need to account for annual property taxes when purchasing a home in the U.S. These taxes vary according to state and county – in one side of the country, property taxes could be a meagre hundred dollars, while in another state, it could be in the thousands.

Depending on your nationality, property taxes in the thousands could seem unreasonable. However, if you’re originally from Hong Kong, London, or Tokyo – where property taxes are notoriously high – thousands of dollars may seem like a deal.

You may need to wrap your head around the various mortgage options available to you too from fixed to variable rates. Fixed rate mortgages lock in the same interest rate for the duration of your loan agreement, while variable rates can fluctuate. This may be different from Europe, where especially low interest rates may be offered only as an initial promotion.

Real estate fees, rigorous credit checks, inspection fees, and closing costs – these expenses may be unnatural for international buyers, too. It’s important to get up to speed on what you’ll encounter and earmark enough savings to cover these expenses.

Trust in your team and do your part to wade through the red tape – at the other end of your efforts will be the keys to your new home or your investment property!