The Sunshine State has long been home to a large number of immigrants. Immigrants altogether make up more than a quarter of Florida’s labor force, and one in five residents in the state was born abroad. Additionally, one in eight residents is a native-born U.S. citizen with at least one immigrant parent. It is no surprise that Florida is one of the favorite destinations for foreigners who want to invest in real estate. It is crucial to understand foreign investment in Florida real estate and how to do it properly.
Buying a Property in Florida Will Not Automatically Get You a Visa
U.S. Law does not preclude foreign nationals from buying real estate in the country. Instead, any foreign national can buy real estate without any involvement of a government agency, as long as they abide by the law.
However, buying real estate in America does not provide foreign nationals with any rights or privileges when it comes to acquiring legal status. Many people think that immigrating to the U.S. legally is just as simple as acquiring real estate in the country, which could not be falser. Any individual interested in acquiring a Visa must consult an immigration attorney to understand what the requirements are.
While a foreign national does not need a green card, they do however require an Individual Taxpayer Identification Number (ITIN) that is available for nonresidents, resident aliens, their spouses, and dependents who cannot receive a Social Security Number.
Selling US Real Estate as a Foreigner – FIRPTA
Non-US citizens intending to sell real estate must adhere to rules under the FIRPTA legislation. FIRPTA is an acronym for Foreign Investment in Real Property Act. The legislation was passed in 1980 and applies to both non-U.S. Citizens and foreign entities. It allows the United States Federal Government to withhold income tax that is owed at the point in time when a property is transferred. Usually, the withheld amount ranges between 10%-15% of the gross purchase price depending on the transaction, regardless of any profit was made.
There are a few exemptions to this withholding, including, but not limited to:
The personal residence purchased is valued at $300,000 or less;
The transaction is categorized as a non-recognition transfer; or
The realization of the transaction amounts to zero.
For more information: FIRPTA Withholding of Tax on Dispositions of United States Real Property Interests
Buying US Real Estate as a Foreigner – An Overview
When it comes to taxes and regulations, non-US citizens buying real estate in Florida must be careful. Should a client purchase a property for leasing purposes, the real estate will be subject to taxation on rental incomes. In this sense, foreign buyers need to be aware of the guidelines provided by the IRS (Internal Revenue Service) for determining what constitutes a US-resident for tax purposes. The IRS utilizes a method called “Substantial Presence Test” to determine how many days an individual has been physically present in the country for tax purposes. Plus, foreign property buyers may be affected by tax liability in their native country, depending on which country the buyer comes from and if the country has a tax treaty with the U.S. In Florida, there is no income tax. At present, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—levy no state income tax at all.
Commonly, buyers are responsible for paying the costs associated with:
Title search;
Legal fees; and
Recording costs.
When summed up, these costs tend to fall in the 1%-2% range of the property purchase price. In case the buyer cannot attend the closing in person or remotely, it is possible to execute a Power of Attorney authorizing a trustworthy third-party to represent the buyer at the transaction closing or do a remote online notary which is a very easy process. Title Companies help the foreign investors in scheduling a remote online notary for the closing.
Financing a Property in Florida
When applying for credit, lenders determine credit risk by examining credit scores. If you live abroad, then you will not have a good or bad credit score. Therefore, your interest will be higher. Any buyer interested in mortgage options for financing a property in Florida should consider banks with global operations or mortgage companies that offer unconventional lending programs. These well-established financial entities will have the necessary expertise to verify credit established abroad and to provide the process’ guidelines.
Commonly, qualified foreign buyers with a 30%-40% down payment will be able to obtain financing for a property in Florida. Many banks require foreigners to give a minimum amount of money on deposit, so be aware.
If you’re not a US citizen, but you want to set up roots in the state of Florida, you need a Foreign National Program for mortgage with flexible underwriting guidelines and great rates. While the Foreign National Program isn’t the same as a traditional mortgage found at a local bank or credit union, it’s a great program for non-US citizens, offering many solutions for those who think they can’t own a home in the United States. In fact, most banks and credit unions in Florida only lend to US citizens, and do not offer Foreign National Financing.
What are Foreign National Programs?
A Foreign National Program is a mortgage for non-US citizens with decent credit and who can prove they can afford the loan. The premise of the loan is the same as a traditional mortgage loan: you make a down payment and borrow the remainder of the purchase price to buy the home. You make monthly payments consisting of principal and interest and build equity in the home as you pay the balance down.
Foreign National Programs put non-US citizens on even playing ground with citizens, allowing them to establish home-ownership in the U.S. which can be convenient as well as a good investment for the future.
As long as you can prove you can afford the loan by providing documentation of your income, reserves, and work history, you have a chance of owning real estate in the United States.
Who Qualifies?
It’s easier than most people think to qualify for a Foreign National Program mortgage with these requirements:
At least a 35% down payment unless you live in Brazil or China, then a 50% down payment is required
At least 20 months of mortgage reserves in a liquid account
Verification of tax documents either from the US or your origin country
Set up a Reserve account with at least 4 months of PITI (principal, interest, taxes, and insurance) with ACH auto-payment debit enabled for your mortgage payment (must set this up within 2 – 3 weeks of closing)
You can borrow loan amounts of $100,000 USD to $6.5 million USD based on your income, assets, debts, and debt-to-income ratio.
You can use the program to buy the following types of homes:
Single-family home
Townhomes/ Villas
Condominiums
Condotel
Specialty properties, such as a Barndominium, large-acreage homes, etc. (Note: specialty home types are considered on case-by-case basis)
You must prove you can afford the loan – there isn’t a specific loan amount maximum for certain countries, types of income, or credit scores. If your income, debts, and potential mortgage payment fit within the parameters, you can qualify for a higher loan amount.
If you’re using the loan to buy an investment property, you’ll need a higher down payment of 45%, though. This helps us reduce the risk of default that occurs often with investment properties since you aren’t at risk of losing your primary residence when it’s an investment.
Paying All Cash for a Property in Florida
Non-US citizens can purchase real estate in Florida paying all cash. Nonetheless, U.S. law provides that all-cash real estate transactions over USD $10,000 must be reported to the Federal Government.
Typically, the largest number of cash buyers in Florida are concentrated in the luxury market in the Southern portion of the state. However, there are also cash buyers in all price levels of the condo market. While most tend to be individual investors or groups of investors, some non-investor individuals are paying all cash for properties intended for personal use.
Buying US Real Estate as a Foreigner – Attention to Detail
Non-US citizens interested in buying real estate in Florida can do it in their own names or through a legal entity. In this case, the term legal entity includes limited partnerships, corporations, joint ventures, trusts, or limited liability companies.
It is important to note that the structure by which a foreign buyer purchases a real estate property may affect taxes. Housing cooperatives are not considered real property and often have rules prohibiting foreign ownership.
Free Service to the Buyer
In addition to making all real estate listings available in one location, the MLS and its brokers share the real estate commission paid by the seller.
As a result, buyers benefit by getting free agent representation. In almost every sale brokered through the MLS, the seller pays the real estate brokerage fees, which means the buyer receives the benefits of agent representation FREE of charge.
Taxes on Rental Income
If you decide to rent your vacation home out (lease, let, put into the rental pool) while not in use, you must pay income tax. Find out more about your income tax obligation by visiting the IRS website page here:
You will need an Individual Tax Identification Number (ITIN) to pay taxes. Find out how to obtain one here:
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