International Real Estate Advice for Foreign National Buyers

International buyers who want to purchase second homes and investment properties are not restricted in any way from buying U.S. real estate.  But financing a real estate purchase may pose a challenge for international buyers.  In some cases, foreign nationals can also face tax implications when they decide to sell property in the U.S.

“Global real estate transactions can be complex, and international buyers need the support and advice of professionals who are well-versed and know all the ins and outs,” advises Brian Meyerowitz, a buyer’s agent with Florida New Homes Realty.  

Meyerowitz earned designations as a Certified International Property Specialist (CIPS) and Transnational Referral Certification (TRC) - specifically to help him handle the special needs and circumstances of international buyers.   Through a network of well-connected associates, Meyerowitz insures his clients receive the expert advice of tax and real estate attorneys, mortgage brokers, currency brokers, and title and escrow specialists.  Together, they can evaluate the individual needs of foreign buyers and determine the best course of action.  Without such support, foreign nationals put themselves at risk to make mistakes that carry significant financial consequences, when they buy or eventually sell their U.S. real estate.

“Our goal is to see that your real estate transaction is planned and executed to work to your best advantage and to maximize your return, whether you’re buying a vacation home or an investment property,” says Meyerowitz.  “When we work with international buyers, we must consider their visa classifications, the type of properties they’re interested in purchasing, their long-term goals and their financing needs.”

Securing Financing for International Buyers

Depending on an international buyer’s visa classification, lenders may have more stringent underwriting guidelines. Mortgage lenders are more cautious about financing second homes and investment properties for foreign nationals for a very practical reason.  If a non-U.S. citizen were to leave the country and default on a mortgage loan, the lender would have little or no recourse.  To hedge their risk, lenders often require that international buyers make substantially larger down payments and submit to certain requirements in order to meet underwriting guidelines.

“With the additional requirements from lenders, international buyers need to be patient with the financing process.  It’s not unreasonable to expect that it may take considerably longer than it would for U.S. residents to get a loan,” Meyerowitz adds.

One of the challenges many non-permanent residents (foreigners with working visas) face is a lack of an established credit history in the U.S.  Even when mortgage lenders allow for alternative credit documentation, ”non-perms” sometimes must settle for less than optimal financing terms, then refinance later for better rates and terms once they establish a positive credit history here in the states.

Visas for foreign nationals do not allow them to work or reside in the U.S.  This category includes Canadians, Europeans (or any other non-U.S. residents) who want to buy second homes for investment or vacation purposes.  Before the home financing crisis, international buyers had more mortgage options available.  Some lenders still offer loan programs for foreign nationals, but they carry stringent documentation requirements.  Without a credit history to consider, mortgage lenders focus on documented income and other assets.  To underwrite a loan for foreign nationals, lenders typically require a substantial down payment of 35% or more, in addition to closing costs.  Foreign nationals can expect to pay higher interest rates and possibly upfront charges for these loans.

Requirements will vary from lender to lender, but here are some tips Meyerowitz offers international buyers to help them prepare for financing a property in the U.S.  Following these steps can help foreign nationals secure a mortgage.

Financing Tips for International Buyers

1. Establish credit in the U.S. if possible.
2. Open up an account with a U.S.-based bank at least two months before you seek financing.
3. Start an account in your home country with a large, international bank with branches in the U.S. close to where you want to purchase a home.
4. Get three reference letters declaring you are in good standing from three financial institutions in your home country if you can’t accomplish #1 or 3.
5. Obtain verification of your gainful employment and line of work.  A simple letter from a CPA or some other third-party in your resident country will suffice.
6. Apply to extend your visa or passport if it’s due to expire in six months or less.

Tax Implications for Foreign Nationals Selling U.S. Properties

Selling real estate may also involve some considerations specific to foreign nationals.  “International buyers should have an understanding of how FIRPTA,” (which stands for the Foreign Investment in Real Property Tax Act of 1980), “can impact their profit at resale,” Meyerowitz says.  “Because tax laws and codes can be both complicated and convoluted, there’s no substitute for the advice of a good real estate/tax attorney.”

Before FIRPTA became law, non-U.S. citizens could purchase U.S. real estate and sell it at a profit, without paying a dime in taxes.  Under FIRPTA, buyers who purchase property from foreign nationals are required to withhold 10% of the sales price in a real estate transaction as a deposit for the seller’s potential tax liability.

There are exceptions to the law, as well as situations that can result in a reduced withholding amount.  One such exception is if a buyer purchases a home from a foreign national for less than $300,000, and the home will serve as the primary residence for the buyer’s family, then there is no FIRPTA withholding requirement.

For more information on these topics, as well as direct assistance and support throughout the entire home buying process, international buyers can contact:

Brian Meyerowitz, MBA, ABR, C-CREC, CIPS, E-PRO, GRI, RFC, TRC
Buyer’s Agent - Broker Associate
Florida New Homes Realty, Inc.
1-800-251-9595
brian.meyerowitz@newhomes.com

Amy Stier, ABR, RSPS, CIPS Candidate
Florida Managing Broker
Florida New Homes Realty, Inc.
1-800-251-9595
astier@newhomes.com

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