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Can foreigners buy property in the USA? A guide to buying property overseas

Making a new home in the US as a foreigner is difficult. Buying a home as an overseas citizen, on the other hand, is remarkably straightforward. Compared to the obstacles, restrictions and volume of paperwork that foreigners must wrestle with to obtain a green card, there are far fewer hoops to jump through for non-residents who wish to purchase property in the USA.

Not surprisingly, non-resident buyers are seizing the opportunity. The value of property sold to foreign buyers stood at US$54.4 billion (€45.9 billion) in 2021, led by buyers from China (6% of foreign property sales), followed by Canada and Mexico. Unlike those foreigners who immigrate to the US in search of a better life, these overseas citizens are simply looking for an investment property or vacation home.

For these investors, the border is open. There are no restrictions on citizens of other countries buying property in the US. In fact, a foreign buyer does not even need to set foot in the country, and the whole process can be conducted through power of attorney.

Nevertheless, there are certain obstacles to consider. Obtaining financing for a purchase is a significant challenge, and there is a tax regime to navigate that some overseas buyers may find harsh and complex.

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What do foreigners need to buy property in the US?

The simplest route for foreign buyers to own property in the US is through a cash purchase. Given that the median US home price hit $363,300 (€305,633) in June 2021, however, the option is not without its obstacles. Apart from the security issues of transporting such a big quantity of cash, there is the requirement for all cash transactions over US$10,000 to be declared to the federal government, detailing all parties involved in the purchase (such as real estate agents, accountants etc.) and proof that the money was legally obtained.

If financing is required, matters become more complex. Few US mortgage lenders cater for foreign buyers, and those that do will typically demand a much higher down payment (expect 30% or more) and charge higher interest rates (starting at around 7%) for a Foreign National Loan.

The process is easier for foreign buyers who are a:

  • Permanent resident - green card holders can enjoy the same financing options as US citizens and can even apply for a Federal Housing Administration (FHA) loan with much lower interest rates.
  • Non-permanent resident with a valid work visa - easier financing options are available for non-permanent residents with a Social Security Number (SSN), providing they can show that they plan to live and work in the US for at least three years.

All other overseas buyers will need a credit report, bank statements, proof of income and reserves, and tax return from their home country, ideally certified by an accountant. To open a US bank account or apply for a mortgage, buyers will also need an Individual Taxpayer Identification Number (ITIN).

How to get your ITIN

Issued by the Internal Revenue Service (IRS), the ITIN is for non-residents and resident aliens who do not qualify for a Social Security number. The application should be made directly to the IRS using form W-7, although an Acceptance Agent can act on your behalf.

What are the rules for foreigners buying property in the US?

Unlike countries such as Vietnam or Thailand, which do not allow foreigners to buy land, the USA puts no formal restrictions on property ownership by foreign citizens. At a more grassroots level, however, foreign buyers will find it difficult to purchase housing cooperative-owned (co-op) real estate as these usually require a buyer to have a US income or assets.

Beyond this minor consideration, most of the rules that foreign buyers will need to navigate relate to property, income and capital gains taxes. Bear in mind that both federal and local taxes apply and that the latter can vary significantly by state, city or county. Property taxes, for example, range from 0.3% in Hawaii to 2.21% in New Jersey.

Tax obligations as a foreign property owner

Foreign buyers who have secured residency and intend to occupy the property will be incorporated into the same local tax regime as US citizens.

By contrast, foreign investors who sell or receive income from a US property are subject to the Foreign Investment in Real Property Tax Act (FIRPTA) and must file a 1040NR tax return annually to report any income. By default, income on rental property is taxed at 30%, but owners can reduce their tax burden with a Section 871(d) election. This gambit allows property income to be treated as business-related, meaning that deductions can be made for mortgage interest and property tax. Unless exempt, nonresidents are also subject to a 15% withholding tax on gross sales.

Foreign buyers should also be aware that, depending on the tax treaty between the US and their home country, income from property owned in the US can affect their tax liability in their country of residence.

Does buying a property in the USA give you residency?

Buying a property in the USA is not a shortcut to residency. Owning a home as a foreigner confers no special privileges as far as residency is concerned. Consequently, owners will be limited to a tourist visa with a 90- or 180-day duration until they can apply for and obtain more permanent status. Immigration authorities can even deny entry altogether if they suspect a property owner is planning to work in the USA without the required paperwork, or stay beyond the time limit of their visitor visa.

There is a route for investors via the EB-5 visa program, but the minimum threshold for investment
is at least US$900,000, and it must be allocated to residential projects that create at least 10 jobs. Under this scheme, however, property owners can obtain a green card.

The US remains an attractive property market for both overseas investors and non-residents who want to maintain a vacation home. The key considerations to bear in mind are that financing options may be limited within the US, and that occupying the home is restricted to the duration of the entry visa unless the owner obtains residency.

Planning on buying property overseas? Avoid hefty markups on exchange rates when buying and selling overseas real estate with CurrencyFair's low-margin FX rates.
Learn moreDisclaimer: This article is for general information purposes only and does not take into account your personal circumstances. This is not investment advice or an inducement to trade. The information shared is for illustrative purposes only and may not reflect current prices or offers from CurrencyFair. Clients are solely responsible for determining whether trading or a particular transaction is suitable. We recommend you seek independent financial advice and ensure you fully understand the risks involved before trading. Leveraged trading is high risk and not suitable for all. Losses can exceed investments. Opinions are the authors; not necessarily that of CurrencyFair or any of its affiliates, subsidiaries, officers or directors.

Photo by Craig Tidball on Unsplash

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