Dear Debt Adviser,
I have heard that rules for foreigners buying a vacation home in the U.S. have changed recently. What are those changes? Are there any banks that will lend to foreigners based on their European incomes? Any other guidance is greatly appreciated.
There are no recent changes to the law. What you may have heard is that the U.S. Internal Revenue Service, or IRS, will be taking a much closer look at the improper use of taxpayer identification numbers by foreigners working in the U.S. to get a child tax credit on their income tax. But that shouldn’t affect you.
A good U.S. real estate agent will be able to walk you through the steps of buying in America, where the process of a foreigner buying a home is far less bureaucratic than in most countries. I suggest you interview several buyers’ agents at some of the larger U.S. agencies by phone or e-mail and only settle for one who has a proven track record of selling to international buyers. The larger the population of the area you’re targeting, the better chance you will have of finding an agent experienced in multiple international sales. Shy away from “dual agents” who represent buyers and sellers in the U.S. A buyer’s agent is legally obligated to represent your best interests.
Yes, there are numerous lending programs open to European buyers, who have been purchasing homes in droves due in part to the highly favorable euro-to-dollar exchange rate of the past few years.
While some banks have dropped out of foreign national lending programs, several others have stepped in to fill the void. Typically, U.S. lenders require a down payment of 25 to 30 percent of the purchase, which is more than they require of domestic purchasers.
Most lenders simply require a valid passport and an American bank account, although you will be asked to demonstrate financial stability. You also may be required to place a sum that is equivalent to closing costs, as well as a year’s worth of principal, interest, insurance and taxes, into that U.S. bank account. As for a credit check, U.S. credit-reporting agencies now have agreements with most European countries that allow lenders to track your current assets and income.
If you aren’t renting the house, you may want to find someone to look into the place in your absence to make sure vandals or squatters aren’t roosting there. If you do rent it, know that nonresident aliens are generally taxed at a flat federal tax rate of 30 percent on gross rental income. Also, I strongly suggest you buy an existing property in an established neighborhood and shy away from new-construction developments where pricing can be unstable, especially if homes sales are flat or the developer may be struggling financially.
Good luck with your U.S. home purchase!