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Wondering whether a non-US citizen can buy property in the USA? Great news! Anyone can buy property in the U.S., no matter their citizenship. In fact, nearly half of foreign citizens Here bought homes in the U.S. last year, compared with 66% of the US-born residents.
But, if you are a non-US resident, know that the home buying process can take longer and involve more steps. As a foreign national, you will have to deal with mountains of paperwork and understand residency requirements, visa restrictions, and how mortgages and loans function in the U.S. However, know that the time and effort you put into owning a home as an immigrant is worth the effort.
Does my residential status place any restrictions on buying a home in the United States?
The short answer is No! Buying a home in the U.S. does not have any residential status restrictions. There is no citizenship requirement legally for a real estate sale all over the United States.
So, it is possible for foreigners living outside of the USA and immigrants to purchase property in the U.S. However, buying a home in any country requires significant resources, and undocumented immigrants usually do not have access to these resources. In such a case, immigrants either purchase a home with cash or use a little-known investment tool known as an ITIN mortgage.
Furthermore, a non-US resident may face more paperwork, tax implications, and potential restrictions on loan options while purchasing a property.
Continue reading this guide if you are interested to know the typical process for a non-US citizen to qualify for a mortgage and buy a house. We will see critical steps that an undocumented immigrant or foreign resident takes to purchase a home in the United States.
How Resident Status Impacts Home Loan Options
There is a common misconception that foreigners cannot buy property in the U.S. It is far from the truth as there is no citizenship requirement to buy any property. Below are the home buying options that non-US residents can use to fulfill their dream of homeownership in the United States.
Lawful Permanent Resident or Green Card Holder
As a lawful permanent resident or green cardholder, you can access a home loan through all significant lenders like a United States citizen, including Here FHA loans (fair housing authority) and other government-basked services like Freddie Mac and Fannie Mae. With a good credit score, lawful permanent residents (LPR) are also required to show their recent tax returns, asset statements, and bank statements to secure a mortgage.
With a green card and LPR, you can also secure a home with as little as a 3% down payment. Plus, lenders will charge you better interest rates if you have been in the USA for longer and have established a good credit score. You can also call out to large mortgage lenders, local banks, and credit unions for home loans with established credit.
DACA Residents
DACA residents can purchase a home with a mortgage as long as they intend to use it as their primary residence. If you intend to buy the house and use it as your primary residence, your credit score needs to be 620 or higher.
The financing options may be limited for DACA recipients, but one option that caters to all needs is the FHA loans option. It is a loan option that offers flexible underwriting for homebuyers who have smaller down payments, with a higher debt-to-income ratio and low credit scores.
Work Visa
Individuals who live in the U.S. on a work visa can also seek out a Federal Housing Administration (FHA) loan. However, they need to provide proof of their stable employment and a social security number to secure the loan.
It is because lenders require a guarantee that a person on a work visa will remain in the country until the loan is paid off, and the best way to do so is to request proof of a valid work contract that spans up to three years at least. Additionally, they ask for positive credit history, bank statements, and tax returns for the previous two years.
Undocumented or Illegal Residents
If you are an undocumented or illegal resident in the United States with an ITIN number, you can get an ITIN mortgage and purchase the house. An ITIN number is a unique tax identification number necessary to pay federal taxes regardless of a person’s immigration status. It is different from a social security number and can be obtained by non-US citizens. Although it is possible to purchase a home with an ITIN number, you must establish your credit history.
You will have to seek a private lender as traditional banks may not provide you with a loan due to your status. It is also important to mention that if you have an ITIN number, you can purchase a home if you intend to live in it as your primary residence.
To get an ITIN number as an undocumented or illegal resident Here.
Once you have an ITIN number, you can apply for an ITIN mortgage. It is a lending option that many undocumented immigrants use to purchase a home. An ITIN mortgage is almost the same as a standard mortgage, where you take a loan at a specific rate of interest and make monthly payments. An ITIN mortgage typically requires a 20% down payment and a 30-year loan term.
However, the loan is against the value of your house, meaning that the lender can repossess it if you fail to make payments. You can get an ITIN mortgage from larger home loan companies or smaller banks and credit unions with better rates.
Once you know how your resident status can impact your housing options, it is time to explore what impact it can have on your taxes in the United States.
Does my status as an immigrant impact taxes?
All individuals who purchase a home are subject to pay the same taxes. However, foreign property owners face a more challenging tax situation than U.S. citizens. So, it is advisable to understand the tax rules before buying any property in America, as it will help you make the most of your investment.
Below we have listed what foreign property owners need to file in the U.S. and what they should expect to pay in taxes when renting out a property or to sell one.
1. IRS Publication 515
As a foreign resident, the first thing you need to know about purchasing property in the U.S. is the IRS Publication 515 Here, which summarizes the rules for nonresident aliens (NRA). It is worth mentioning that in 1980 Congress enacted the Foreign Investment in Real Property Tax Act (FIRPTA), which imposed a tax on foreign persons when they sell or receive income from a U.S. real property interest.
2. Tax Rates
Generally, if you rent a property in the U.S., its income is taxed at a 30 percent rate if it is not effectively connected with the U.S. trade or business.
3. Choose How Property Income is Treated
Suppose a nonresident alien owns or holds interest in property located in the U.S. for the production of income. In that case, the NRA can treat income from that property as income connected with a trade or business in the U.S. However, this will apply only when income from real estate is located in the U.S. If such a choice is made, then deductions can be claimed attributable to the real property income. Thus, net income will be taxable.
Note that the choice can be made by making a Section 871(d) election.
4. Withholding Tax
Foreign residents are subject to a 15 percent withholding tax on the gross sales of the transaction unless they have a specific exemption from the withholding. In order to get a certificate of exemption (Form 8288-B Application for Withholding Certificate for Dispositions by Foreign Persons), a petition would be needed to be filed with the IRS in advance of the sale date. A lower rate of 10 percent applies to dispositions under $1 million for U.S. property acquired as personal property.
5. State Tax
There can be state tax withholding or tax liability as well. The tax can vary depending on the state.
6. 1040NR
The NRA (Non-Resident Alien) is obliged to file a timely 1040NR tax return to report the income from real estate and any associated withholding if the 871(d) election is made. Nonresidents must obtain a U.S. Taxpayer Identification Number (TIN) to file a tax return.
How to Buy a House in the U.S. as an Immigrant
If you are a foreign national and want to purchase a house in the U.S., you will have to seek out a foreign national mortgage program Here or pay in cash. Regardless of which country you live in outside the U.S., you will have to take the below critical steps to make the home purchase process flow as smoothly as possible.
Prepare for Your Home Purchase
Prepare yourself for the factors that drive your initial down payment and your monthly mortgage payment, including income and employment status, credit score, down payment, and HOA and Co-op fees.
Research the Market
Once you know the area where you would like to have your home, visit a real estate website Here, research and compare property rates to pick the one best suits you.
Determine Your Mortgage Price Range and Budget
Calculate your debt-to-income ratio, knowing your monthly utility costs, maintenance and repairs, and other expenses. Use a mortgage calculator to estimate your total monthly payment. Remember, your debt-to-income ratio should not be more than 28% to 31%.
Get Preapproval for Your Mortgage
A preapproval proves that the lender is willing to give you a loan. It makes real estate agents more interested in working with you. So, get preapproval when you are ready to buy a house.
Qualify for a Mortgage
If you have an ITIN number as an immigrant, you can easily qualify for mortgage assistance from private lenders.
Find the Right Agent
Buying a home is a complicated process, and having the right agent can surely help. To find one, do your research, visit their website and read a few reviews. You can also take advice from a friend or colleague who has already purchased a house.
Make an Offer
Once you find the right agent and house, the next step is to make an offer. Consult your real estate agent to draft an offer letter to send to the seller.
Perform Home Inspection and Appraisal
After putting your offer through an agent, opt for both a home inspection and an appraisal.
Close the Deal
Since you live outside of the U.S., you will have to mail the signed paperwork to the closing agent or assign someone a power of attorney to sign the paperwork on your behalf. Next, close the escrow and get the keys to your new home.
The Bottom Line
Owning a home in the United States has many benefits that even non-US residents and undocumented immigrants can enjoy. But, the process involves legal and financial obstacles that should be passed to reach the homeownership goal. If you have read this far, you may already know the steps involved in becoming a house owner.
Remember that homeownership helps promote stability and builds wealth over time. Additionally, it is one of the ways undocumented immigrants can contribute to the budget and economy of the country.
