Financing

GUIDE FOR FOREIGNERS

For financing when buying in Florida

Florida real estate has always been attractive to foreign buyers, even before the housing crash that depressed prices for both residential and commercial real estate and made foreign investment in Florida real estate a bargain for many buyers.

According to the National Association of Realtors, Florida has the largest number of foreign real estate investors in the U.S., with 41% purchasing vacation homes, 25% making a dual use purchase (vacation home/rental property) and 23% investing in rental property.

Qualified foreign buyers with a 30 to 40 percent down payment can often obtain financing for their U.S. real estate purchases. You may also be required to present a minimum of three months of bank statements.

Before applying for a U.S. mortgage, you must first establish credit and earn a good credit score. You can start building your credit score by opening U.S. bank and credit card accounts. You’ll also want to be sure to report all income on your tax returns. Lenders use this income information to determine how much money they’re willing to loan you to buy a home.

When the time comes to apply for a mortgage, consider major banks with global operations. These lenders will have the experience necessary to verify credit established in other countries and to guide you through the U.S. home-buying process.

GETTING A MORTGAGE FOR FOREIGNERS

A foreign buyer can obtain a loan from several banks. Foreigners are not required to have a credit record in the US. Borrowers must have a job or be self employed in their home country.

When buying a home in the United States, foreign buyers can pay cash which is a much easier, quicker process.

STEPS TO OBTAIN A LOAN IN THE US

  • STEP ONE:

    • Typical conventional mortgage, the amount is usually 30% to 40% of down-payment of the purchase price (loan of 60-70%)

     

    Lender will need:

    • bank statements
    • reference letters from their banking or credit institution
    • two forms of identification
    • copy of their passports
    • Visa if there is one

    (opening a checking account in the US: Usually borrower will be required to open a checking account. Usually at the Lender Bank. Many people would have an auto-debit set up to pay for the mortgage automatically)

  • STEP TWO:

    • Property address and purpose
    • Title will be held in borrower’s name. Holding title can be joint-tenancy, community property, etc…

    (purchase contract: copy of the ratified contract is required)

  • STEP THREE:

    • Borrower/Co-Borrower information
    • (Verification of identity is usually verified through a copy of the borrower’s (copy of: Passeport and US visa if you have a US visa)
  • STEP FOUR:

    • Borrower/Co-Borrower employment information
  • STEP FIVE:

    • Income information
    • (income is usually verified through a letter of employment from employer, even if you are self employed)
  • STEP SIX:

    • Asset and Liabilities
    • (assets are usually verified through bank statements. Many lenders will require proof of down payment and a reserve which may be in the order of 12 months PITI (Principal, Interest, Taxes and Insurance) payments.(credit references: sometimes, the lender will require a credit reference from a local credit card or insurance company. Alternatively, in some countries, the lender may require an International Credit report ex: Canada)
  • STEP SEVEN:

    • Transaction Detail (purchase price, down payment, etc…)
  • STEP EIGHT:

    • Declaration
  • STEP NINE:

    • Signatures
    • (Signing of loan documents at escrow offices and subsequent funding of the loan: Alternatively, borrower can sign a power of attorney which is approved by the lender and escrow company. The attorney can then sign on behalf of the borrower at the escrow office)
This whole process will take 30-45 days from the day the application is submitted.

The lender is required to conduct detailed reviews of the borrower’s income and asset documentation. The review is looking for transparency of the borrowers, getting an understanding of where and how their income and wealth is generated and how their assets move around.

Considerations for Foreign Real Estate Buyers and Sellers

Foreign nationals are able to purchase real estate in the U.S. for personal use — either in their own names or the name of a corporation or LLC — without any involvement of a U.S. governmental agency.  However, when it comes to selling U.S. property, foreign nationals or entities must adhere to certain rules under the Foreign Investment in Real Property Act (“FIRPTA”).

Under FIRPTA, any profits made from the sale of U.S. property by a foreign national are subject to taxation.  There are three exceptions that would exempt the sale from taxation:

-If the seller is a resident alien and has a tax identification number;

-If the sale price is less than $300,000 and the buyer will use the property as a personal residence at least 50% of the time for the next two years after closing; or

-If the seller has obtained a withholding certificate from the IRS.

-If none of these exemptions apply, the buyer (or buyer’s closing agent) must withhold 10% of the sale price to pay to the IRS.

Foreign investors are also entitled to defer capital gains taxes in the U.S. by purchasing another investment property under Section 1031 of the IRS Code.  The actual tax treatment of foreign real estate buyers may depend on any existing tax treaties between the U.S. and their home countries.  This can be a complicated area, which is why it is advisable for foreign investors to consult with an experienced Florida real estate attorney.

Investment Property

Under the International Investment and Trade in Services Survey Act, foreign nationals purchasing large tracts of real estate in the U.S. must report that purchase to the U.S. Department of Commerce.

The information that must be reported includes the names and addresses of buyers, sellers and owners of more than a 50% interest, and financing information (income, expenses, etc.) about the property.  More reporting details are required for property over 200 acres or property with a purchase price of more than $1 million.

Rental Property

Foreign nationals purchasing Florida real estate for leasing purposes are subject to taxation on rental income.  Foreign landlords have a choice on how to be taxed:

-Pay 30% of gross rental receipts; or

-Pay regular U.S. income tax rates on net income from the property by filing a Form 4224 with the IRS.

Florida Requirements

Florida has certain filing requirements for foreign nationals and legal entities purchasing real estate here.  Any property owned by a foreign business entity or U.S. corporation whose ownership by foreign nationals exceeds 10% must have a registered Florida office and agent on file with the Florida Department of State.  If the sales tax on rents is collected, a foreign national must register as a sales tax dealer with the Florida Department of Revenue.

Found a good attorney that will share their knowledge and experience in the South Florida real estate market with a commitment to personalized, detail-oriented legal services