Lately, we have been trying to highlight how buyers can and should take advantage of the opportunities presented by this changing real estate market. We’ve discussed our Top 10 Reasons It’s a Great Time to Buy Real Estate Right Now, why Arizona Ranks As One of the Nation’s More Affordable Markets, but today we would like to point out that all that good news for local buyers holds true for foriegn nationals as well!
Citizens of Canada, Ukraine, the United Kingdom, China, Japan, India, and many other countries around the globe, have started to recognize the growing strength of their currency against the U.S. Dollar, and if you’re a foreign investor, you should too. To better familiarize yourself with United States and Arizona real estate terminology and laws, here are some key points to know. Buying American Properties 101 is now in session!
If you are going to buy property in the United States, it may also be wise to establish a U.S. bank account to pay your closing costs out of and even to manage property expenses. This will eliminate the hassle of continually converting foreign currency into U.S. Dollars and vice versa.
A non-U.S. citizen selling property in America will be subject to the Foreign Investment in Real Property Tax Act, better known as FIRPTA. This federal law requires sellers to withhold 10 percent of the sales price of a property if the seller(s) of the property is/are foreign. The escrow or title company employed in the sale should help coordinate this holdback, so as to ensure that foreign sellers pay all of the appropriate taxes. Since the seller’s ultimate taxes may be less than the 10 percent that the buyer withheld or zero, that seller may receive a refund. If the buyer of a foreign seller’s property does not withhold the 10 percent, and the seller does not pay all of the appropriate taxes, that buyer may be left holding the seller’s tax bill.
Hire a U.S. accountant familiar with real estate and foreign nationals. Such an accountant will be able to advise foreign nationals on filing tax returns, utilizing 1031 exchanges, paying capital gains taxes, and other such uniquely American laws.
Hire a U.S. attorney who specializes in immigration. An immigration attorney will be more knowledgeable about visa laws, which will help foreign buyers purchase property in the United States and ensure regular access to their newly acquired property.
Find a lender specializing in nonresident borrowers, or who has worked with at least 15 foreign clients. Often times, because of strict U.S. lending guidelines and credit history requirements, foreign buyers are required to pay all cash for their U.S. real estate purchases. However, many foreign nationals are still able to qualify for a mortgage, as long as they work with a lender who has the right loan programs for them. One such loan program requires foreign nationals to provide a valid entry visa, proof from their employer that they’re working, at least three credit references, and pay between 20 and 30 percent down. Foreign buyers also need to learn what typical closing costs in America include: the down payment, loan origination fees, points, appraisal fee, credit report fee, Private Mortgage Insurance (PMI) premium, pre-paid homeowner’s insurance, pre-paid property taxes, escrow fee, deed recording fee, title insurance policy premium, homeowner’s association fees (if the property purchased has a homeowner’s association), and inspection fees. Actual closing costs will vary depending on the lender and the loan program chosen.
Buyers, especially foreign buyers, have a valuable investment awaiting them here in Phoenix. Forbes Magazine recently ranked Arizona as one of the nation’s more affordable markets. Forbes Magazine also recently ranked Phoenix as the second fastest growing city in the nation. Now, with Buying American Properties 101 under your belt, and such huge potential being presented, the rest is up to you!
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