From taxes to loans and important documents, here's what you need to know about buying a home or property in the US.
October 22, 2020 — 5 min read
So you’re thinking of purchasing a home. Congratulations! This is a huge milestone in anyone’s life. It makes your residence feel that much more permanent, and is often the first step into further milestones such as starting a family.
When you purchase a home as an expat, the excitement is often multiplied. Purchasing your own home can be a major step in helping your new country to feel like your home rather than just an extended vacation. But purchasing a home in a different country can also feel like a new challenge. Can you purchase a home as a non-citizen? Is there anything special you’ll need to do?
Are you an expat looking to purchase a home in the United States? We’re here to help. Here’s our guide to everything you need to know about buying property in the US.
Your first question might be whether you’re even eligible to buy or own property in the US. Well, then we’re happy to start this guide off with some good news: that doesn’t matter. There are no laws or restrictions that prevent anyone from purchasing property in the US, regardless of citizenship.
There’s only one real requirement that stands in the way of purchasing a home (and even that has exceptions). You must be eligible for a Social Security Number, but if you aren’t, you can instead apply for an Individual Taxpayer Identification Number in order to purchase a home. That’s all!
There are a few things that you’ll want to know before purchasing a home. The first, and probably the most important, is that homeowners in the US will need to file a tax return each year and elect to offset expenses from income. If you don’t do this, you won’t be able to benefit from tax exemptions on property investment, you’ll need to pay the IRS 30% of gross rental income, and you won’t be able to deduct certain expenses (such as maintenance, interest, and depreciation).
Estate tax is something that you will also need to keep in mind. For most US citizens, estate tax only comes into play when they’re valued at under $11.2 million USD. However, foreign homeowners would only be exempt for $60,000, making it imperative that you plan your estate to avoid high taxes for your eventual inheritor. Some choose to cover the difference with their life insurance policy, while others opt to purchase their homes through corporations headquartered outside the US.
There are a few other tax considerations to keep in mind as you prepare to purchase a home:
Check your state tax laws. Depending on the state, there may be additional state withholdings or tax liability.
Get to know IRS Publication 515. IRS Publication 515 summarizes taxation rules for nonresident aliens (NRA).
This can also get tricky. Unfortunately, only US citizens qualify for traditional mortgages. You can still qualify for loans as a non-citizen, but the type of loan will depend on your visa and immigration status. For example, permanent residents with green cards are able to apply for loans with the Federal Housing Administration (FHA) and Fannie Mae. If you’re on a work visa, you may be able to apply for these loans, but if your visa is due to expire within the year, you may also need to provide your lender with a letter from your employer indicating that your visa will be renewed.
Because most lenders use US credit scores to determine eligibility, you will need to find another method to get pre-qualified with a lender. Conventional mortgages require a 20% down payment for single-family homes or 25% down for multi-family homes, but foreign buyers typically pay 25-40% of the home’s selling price for down payment.
Foreign national loans are also an option, but they can only be used to purchase investment properties.
The first step to purchasing your new home is narrowing your search to the type of property that best suits you.
Single Family Homes (SFH) are residences made to hold one family, and typically contain front and back yards as well as a garage and a driveway. They’re most commonly found in suburban areas.
Multi Family Homes (MFH) are residences that can hold two (or more) families, typically coming as duplexes or triplexes.
Condominiums (condos) are apartments or homes that are part of complexes with common areas (such as pools and gyms). They’re more common in urban areas.
Townhouses (or townhomes) are tall, narrow, close-set buildings with small backyards. These are typically found in cities.
Bungalows are small, single-story homes, often found in suburban areas.
Along with a set budget and some assistance from a professional third party or real estate agent, you’ll need the following things to purchase property in the US:
Proof of ID
Social Security Number or Taxpayer Identification Number
Most recent pay stub
We hope that our guide has been helpful in giving you some direction in your home search. If you will be purchasing your home or making a down payment from a country outside the US, make sure to use a provider that will give you a good exchange rate and ensure that you won't be paying more than necessary. At Xe, we can facilitate money transfers to the United States from many countries around the world and would be happy to assist you. Log in or sign up to get started!