How to Buy a Home in America If You Live Abroad
The process involves several steps and multiple parties, but it can be done quickly and efficiently.
Opinions expressed by Entrepreneur contributors are their own.
If you are an international citizen looking to buy a house in the U.S. any time soon, start the process early — especially when seeking a mortgage loan. As professional Realtor Nabaraj KC puts it, "Think 10 times before investing money in the house. Look for the features you have always wanted, like neighborhood and surroundings and age of the property."
The good news is you don't need to be a green-card holder or U.S. citizen. You can buy a house either directly in your own name or through your business entity, such as an LLC. Foreigners don't even need to travel here to close the deal. By using power of attorney, you can authorize another person to sign the closing document on your behalf, and can secure a mortgage loan by paying 30-40% of the home's purchase price as a down payment. Although you will need to obtain an individual tax identification numbers (ITIN), either from Internal Revenue Service (IRS) or a Certified Professional Accountant (CPA) on the IRS' approved list.
Here are some of the key steps necessary to move from mulling a home purchase in America to closing the deal.
Do your preliminary research
Think carefully about why you are going to buy a house in the States. Will you use it as a vacation home? Are you are buying it for your children studying at an American university? Or are you just buying this house for investment purposes? Obviously, depending on your goal, you will look at different kind of houses and be willing to spend different amounts. Once you have identified your purpose, you can start analyzing real-estate listings online and in newspapers and other sources. This will give you a fair idea about what's available within your budget. Over a period of time, by observing variations in prices, you will also be able to identify market trends.
Apply for a mortgage
If you don't have enough money to buy a house in the U.S. up front, the good news is that you don't need to worry; you can initially pay a small amount ranging from 5-20% of the purchase price as a down payment. And for the remaining amount you can pursue a bank loan known as a mortgage. However, to get the mortgage approved quickly, you will need a solid credit rating and history.
To get an idea of how much a bank will be willing to lend you, get yourself prequalified with a lender bank. After scrutinizing your financial records, the lender will inform you of the maximum amount you're eligible to receive. You should consider getting prequalification assessments from multiple banks and mortgage companies. Top mortgage lenders in the U.S. include Fannie Mae/Freddie Mac, Wells Fargo Mortgage, Bank of America, Chase Bank, Ally Bank, CitiMortgage and U.S. You may discover that a certain bank or company is willing to lend a large amount in easy installments.
In addition to these mortgages, you should also discover options for government-backed loans. Federal Housing Administration (FHA) loans are government-insured mortgages. If you are unable to pay large down payments, FHA loans are perfect for you, because you're required to pay as little as 3% of the purchase price as a down payment. Similar to FHA loans, the United States Department of Agriculture offer loans that people with moderate incomes can use to purchase a home in rural areas, and you can pay back the mortgage to the bank in monthly installments.
The general rule is that the more installments you pay, the fewer amounts you have to pay for each. However, if you feel that you will not be able to pay the installments even for the longest tenure of the mortgage, you should consider buying a large house and renting the extra rooms.
You can also look at freelancing and other career opportunities to earn extra income. Although initial earnings through alternative sources may be minimal, your income is likely to increase as you acquire more skills through persistent efforts. Keep yourself motivated by recognizing that any extra income from these activities will not only help you to pay down your mortgage, but will also make you more well-rounded. Once you have found best mortgage lender, you can get a prequalification letter from it by paying a small fee ranging from $40-$50.
Find the right real estate agent
Unlike practices in many other countries, the seller pays the commission to the real estate agents in the U.S. Hence, buyers can use the agents' services free of cost. These agents have specialized and updated knowledge about local properties and can be very helpful in finding the right property according to your requirements and budget. However, you should also beware that real estate agents get larger commissions if you pay more for a house.
You can find a good agent through referrals from your friends and family members or by visiting sites like Realtor.com. You can also start working with multiple agents to compare their levels of services. When you have finalized who your agent will be, you'll begin narrowing down which houses match your criteria.
Visit houses and ready offers
Now you can start visiting various houses identified by your agent. Take notes about, and pictures of, each home so that you can share them with friends and family members for their input.
You should also check the functioning of various fixtures in each house. For example, run the shower to check the water pressure and how long it takes for it to get hot. In addition, request the homeowner disclose any defects in the house about which the owner has prior knowledge. Check the windows. Make notes about street size so that you can know whether there is enough space available for visitors to park their cars, etc. How far are schools, shopping centers and hospitals? Take as much time as you need to find the house that meets all your requirements.
Next, consult with your agent about how much you should offer to the seller. It is very rare to meet at the listed price. Negotiate to get the most valuable deal. If the agent has sold comparable size houses in the current location, you can negotiate based on that data. It is important to note here that the bank or mortgage lender will not be willing to loan you any amount that is above market rate or real value of the house, and you might have to pay the extra amount as upfront or closing charges. Hence, it is of utmost importance that you don't agree to any unfair value.
After successful negotiation, you have to make an offer by signing a contract. After signing, both you and seller are legally obligated to complete the deal. However, certain contracts allow either party to walk away from the deal.
Get a professional inspection
Although you might have already inspected the house thoroughly on your own, you should arrange a professional home inspection to assess any structural damages. Inspection reports also identify things that need to be fixed to restore them in their original condition or operational form. Inspection reports are delivered to both the seller and potential buyer and can cost $400-$500. That cost is the responsibility of the buyer.
If the report reveals any major structural damage, you can cancel your offer without any penalty. Conversely, if the house requires only minor fixes, you can ask the owner to make the fixes themselves, or you can adjust the cost through negotiation. If the owner agrees to make the repairs, be sure to finally inspect that all the fixes have been made according to the agreement. Your estate agent will help you arrange the inspection visit under specified conditions. Beware of such wording in the contract; otherwise, you may be surprised to discover that a seller is no longer willing to fulfill its terms.
Get a property valuation from the bank or mortgage Lender
After signing, you can approach the bank or mortgage lender to evaluate the worth of the property without your involvement. However, the lender will charge you the cost of this valuation, which is likely to be $500-$600. Lenders will usually add this cost to closing costs or upfront costs.
You can also explore various mortgage options. Typically, there are two types: fixed-rate mortgages and adjustable-rate mortgages. Fixed-rate mortgages usually have anywhere from a 10-30-year period to pay back the loan. The interest rate for this kind of mortgage is high, but it remains fixed during the tenure. Fixed-rate mortgages are perfect if you are risk-averse and prefer security, stability and fixed payments for repayment.
Adjustable-rate mortgages charge a variable interest rate that is adjusted within predefined upper and lower limits. Usually, the interest rate on these mortgages is lower. However, make sure that if the interest rate rises to the highest cap value, will you able to make required payments.
If you are buying a new house without selling a previous one, you should also explore your options in bridge financing, in which lenders pay for the loan to meet the mortgages both for new and old houses, and you can repay the loan by selling your old house. Based on these characteristics, your personal preferences and particular situation, you can choose a suitable mortgage for you.
Secure property Insurance and close the deal
Select an insurance agent, and be aware that insurance costs and premiums are paid by lenders, and lenders add these charges to closing costs. However, if you prefer, you can pay insurance charges yourself.
As the last step of closing, you will need to secure the services of a title company that ensures the seller is the legitimate owner of the real estate, the property is free from any dispute claims and there are no pending lawsuits pending related to the property. You will then ask the mortgage lender to transfer the money to the title company. After making necessary verifications, the title company will process the sale.
If this all sounds complicated, it doesn't have to be, and it can move briskly and seamlessly if you are prepared. Happy house-hounting!