Achieving U.S. Homeownership as a Foreign Buyer: Your Comprehensive Guide.
Exploring U.S. Homeownership, Tax Benefits and Home Loan Options for Foreign Nationals in 2023.
South Florida, particularly cities like Miami, Miami Beach, Orlando and Fort Lauderdale has historically been a popular destination for foreign nationals looking to invest in U.S. real estate. Factors that have made South Florida attractive to international buyers include its favorable climate, diverse culture, robust real estate market, and a range of property types to choose from, including luxury condos and waterfront homes.
In the past, South Florida has seen significant numbers of foreign nationals from countries like Canada, Latin American nations, Russia, and Europe investing in real estate. These buyers have sought both vacation homes and investment properties in the region.
In the context of mortgage lending, a “foreign national” typically refers to an individual who is not a citizen or permanent resident of the country where they are seeking a mortgage loan.
One who currently holds a Visa (temporary or permanent) would not be considered a foreign national and would be able to explore other financing options such as Traditional Financing through Fannie Mae, Freddie Mac, Work Visa, DACA and/or ITIN Loan Programs. If you have a U.S. Social Security Number, you may not be considered a foreign national.
If you are a foreign national dreaming of owning a piece of the American dream, whether it’s a second home for vacation or an investment property for rental income, explore how you can turn this dream into a reality.
Realizing Your Vision:
- The first step is to clarify your goals – are you interested in a second home for personal use or an investment property for rental income?
- Each option has its own unique benefits, so understanding your objectives is crucial.
Tax Exemptions/Obligations for Foreign Nationals:
- The Foreign Investment in Real Property Tax Act (FIRPTA) ensures foreign taxpayers pay appropriate income tax on the sale of all U.S. real property. Under this law, a buyer who is purchasing real property in the U.S. from a foreign seller is required to withhold between 10%-15% of the gross sales price from the seller to cover FIRPTA requirements. If the seller is a foreign person and the buyer fails to withhold, the buyer may be held liable for the tax.
- A withholding holding agent will be personally liable for the full amount of FIRPTA withholding tax required to be withheld, plus penalties and interest. The buyer is ultimately liable for the proper FIRPTA filings. A foreign seller will not be required to pay FIRPTA if:
- The sales price is $300,000 or less and;
- The buyer signifies before closing that the property will be occupied for personal use and reside in such for at least 50% of the time within the first 24-month period. Due to changes by the IRS regarding FIRPTA, risks regarding this option to buyer, seller, and all agents involved may occur if:
- the seller does not pay standard taxes required upon transfer of real property or if the buyer neglects to meet residency requirements. Keep in mind, the buyer certification of residential use for exemption from further withholding only exempts the buyer from the requirements. The seller will still need to pay state and local taxes regarding the transfer of real property.
Exploring Home Loan Options for Foreign Nationals
1. Foreign National Loans:
- Also known as Non-QM/Portfolio Loans.
- Qualifications often include a strong credit history, proof of income, a substantial down payment, and verified reserves between 3-12 months’ worth.
- Purchase or Refinance of 2nd home (Vacation Property) and Investment Property.
- Competitive Fixed, Variable and Interest Only Rate options available.
2. Debt Service Coverage Ratio Loans (DSCR):
- Qualifications often include a strong credit history, NO Proof of Income or Employment, a substantial down payment, and verified reserves between 3-12 months’ worth.
- These loans are also suitable for foreign nationals with established financial backgrounds.
- Purchase or Refinance of Investment Home Only
- Competitive Interest Rates: ensuring that your investments remain profitable.
I’ve helped 2 separate Canadian citizen families purchase properties here in Florida within the last 2 months. One was a full documentation loan as a second home and the other was a Debt Service Coverage Ratio loan on a non-warrantable condo.
We typically see these loan types take between 30-45 days to close however, with the buyer’s immediate cooperation and a team of real estate professionals working efficiently behind the scenes, we successfully cleared our Canadian buyers to close in just 21 days. This is a perfect example of how these 2 loan programs can run smoothly when you have the right Real Estate team on your side, equipped with experience and knowledge in the industry to exceed expectations.
Your dream of U.S. homeownership is within reach. If you’re ready to take the next step towards property investment here in the states, our team of experienced mortgage advisors is here to help. Schedule a personalized obligation free consultation and to learn more about the options available to you.