Owning property in the United States is one of the smartest investments one can have. For the most part, land values continue to increase here over time which means homes become appreciating assets that add to your wealth while also diversifying your investment portfolio. That all sounds great, but what about those who live outside the US? Can foreigners buy property in the USA, and if so, how?
There are no citizenship requirements to become a homeowner in the United States of America. To buy a property in the US, non-US citizens will need to register for a tax identification number so that the government is aware of who owns what property. In addition, non-US citizens should expect to have higher demands from US-based lenders, including higher interest rates on a mortgage and higher down payment, usually around 30% of the purchase price. Lenders do this because it’s much more difficult to foreclose on homeowners who are not based in the US.
So is it worth it? Well, let’s get into that. But first, let’s talk about why someone would want to buy property in the US when they’re not a citizen, how to do it, and what you should expect from a lender when applying for a mortgage. Let’s dive in.
Why Would Someone Buy a Home in the US if They Don’t Live There?
The United States of America is a great place to own property, as it’s an investment that will usually appreciate. Even in times of economic recession, owning property can be a smart investment to keep because of its tendency to bounce back. Plus, mortgage rates here in the US have some of the lowest interest rates for any loan type.
You may have read news articles that talk about an influx of foreign investors buying up property in the US and Canada. What makes it so appealing to foreign investors? Aren’t there properties for sale in their countries?
Besides having things like rental incomes or vacation homes, owning property abroad is a good way for foreign nationals to diversify their assets. It’s especially important for those who live under oppressive or dictator-run governments. By buying homes outside of their country, they’re able to protect some of their wealth in case their governments decide to seize it. Using property in another country makes it more difficult for government seizure by adding the extra headache of diplomatic relations.
What You’ll Need to Have Before Buying a Property in the US
Whether you’re planning to buy a house in the US for investment planning or as a second home, there are a few things you’ll need to have in place before you can close on a property.
While there are no citizenship requirements to own property in the United States, the US government still wants to know who owns what on their land. Since you likely won’t have a Social Security number (a unique number given to each US citizen when they’re born) to identify you, you’ll need to register some other way.
This is where tax identification numbers come into play.
The Different Types of Tax IDs You May Need
Luckily, it’s very easy to register for a tax ID here in the US. Tax IDs are registered with the Internal Revenue Service (IRS) and are used both to identify who owns what and make sure the taxes you pay (like property tax) are correctly attributed to you.
There are a few different tax IDs you may be eligible for but talk with a real estate attorney to decide which will work best for your situation.
ITIN – Individual Tax Identification Number. This will be registered under your name and is a personal ID. If you plan to own the property yourself, an ITIN is your equivalent to a Social Security number.
EIN – Employer Identification Number. If you plan to purchase property under a business like a Limited Liability Corporation (LLC), you’ll need to register for an EIN. EINs are used for corporations even if they have no employees. This ID number is tied to your business rather than you. There are a few requirements for creating an LLC in the US that go beyond getting an EIN, so consult an attorney to see whether it’s better to create an LLC or just get an ITIN.
You may also need to register for a sales tax ID with the individual city or state tax office where your property is located, but this is only if you plan to do transactions on US soil. Each state will have its own individual requirements for sales taxes, so make sure that you understand all of your responsibilities to the state in which you plan to own property.
Things to Consider When Applying for Financing as a Foreigner
For US citizens, the process for buying a home often works like this:
- Find a home and make an offer
- The offer is approved, the contract is underway with deadlines for due diligence.
- Have the home inspected
- Begin the process to be approved for a mortgage. Credit checks, employment history, and other financial background checks are made.
- Put down deposit
- Get approved for a mortgage
- Mortgage pays seller
- Seller transfers title to the buyer
- Buyer owns home
Granted, this is a 30,000 f00t view of the home buying process. There’s more to each step, but this gives you a quick run over how things are typically done.
For you as a non-US citizen, you may not have a credit history or verifiable employment record that will satisfy a US bank. That said, it’s still possible to get a mortgage from a lender here; you’ll just have a few more hurdles to overcome.
Mortgage rates vary, so it’s hard to put a specific amount here for what to expect. For one, you should expect to have a higher interest rate than a US citizen for your mortgage. If you feel you’re getting an outrageous rate, you may be able to shop around different banks to get a better deal.
Secondly, you should also expect to put down a larger deposit for your mortgage. This can also vary, but somewhere around 30% of the purchase price is typical.
These both may seem surprising, but these are how the lender protects itself should something happen. It’s much more difficult for a US bank to foreclose on someone who lives outside of the country, so they have to find ways to increase their safety net.
While it’s not as easy for a non-US citizen to own property in the United States, that doesn’t mean it’s impossible. You may need to go through a few extra steps and have more money to put down than a US citizen would, but it may be well worth the trade-off for an appreciating, stable asset on US soil. Give a few of these considerations a try and consult an attorney familiar with overseas real estate transactions to help navigate your way through the buying process.