5 challenges foreign nationals face when buying a home in Houston TX

Foreign nationals face no restrictions on buying and selling real estate in Houston or anywhere else in the U.S. for that matter. But it doesn’t mean that buying a home is as easy for them as it is for the U.S. citizens. Foreign buyers have to go through a tighter scrutiny and follow additional legal and financial obligations.

According to the National Association of Realtors, foreign nationals including residents and non-residents buy property worth roughly $100 billion dollars every year in the U.S. They play a key role in the stability of the property markets. Texas is a lucrative destination for foreign buyers due to the affordable home prices and a better supply-and-demand ratio.

The biggest challenge for intentional buyers is the lack of a credit history in the U.S. The lenders don’t acknowledge the credit history in their own country when evaluating their home loan applications. As a result, they have three options:

• Buy a home with cash
• Keep a large amount of money in a U.S. bank account as proof of funds
• Or, put a large down payment (up to 50 percent).

In a recent article, we discussed how foreign national can overcome credit challenges and buy homes with owner financing. Let talk about what other challenges they face and how they can easily overcome them:

Additional paperwork and formalities

Additional paperwork and legal and financial formalities complicate property transactions where a foreign national is involved. It becomes more difficult when a foreign national is buying out of town.

The process of overseas currency transfers, nonstandard purchase agreements, and identity and credit verification are governed by different U.S. laws.

When a U.S. citizen buys a property, the terms in purchase agreement are pretty standard including contingencies, home inspection and closing. But in the case of a foreign buyer, certain customizations may have to be made. The seller also has to verify the identity of the buyer. There are some verification requirements for the transfer of funds into the U.S. from other counties when the amount is more than $10,000.  A clearance for electric signatures and power of attorney is also required for foreign buyers who can’t be physically present.

A foreign buyer may need to seek assistance from qualified professionals including lawyers and financial advisors to navigate their way through these formalities.

A large down payment

Most Houston home owners are wary of selling to foreign buyers. The reason is that the sellers believe contacting foreign buyers would be difficult in the event of any violation of the contract terms.  Many sellers ask for a large down payment to protect themselves.

The foreign buyers run the risk of losing a lot of money if the deal falls through. The seller is entitled to keep the down payment or in some cases, the escrow amount, if the buyer backs out from the deal after signing the purchase contract.

Time constrains

While most U.S. citizens buy homes to make them their primary residence, the foreign buyers have a different goal. They want to invest in a property with good prospects of appreciation in the value.

This makes finding a suitable home even more challenging and time consuming. Out-of-town buyers usually don’t have time to tour neighborhoods and visit properties. They rely on the information they find online or provided to them by professionals such as real estate agents.

Currency exchange rates also have a huge impact on property transactions. Foreign nationals wait for a favorable currency exchange rate and try to time their home purchase accordingly.

Some buyers delay the closing so that they can be physically present to oversee all the legal and financial formalities. They would ask for additional time for travel.

Cultural differences

Most home sellers are not aware of cultural and traditional differences when working with international buyers. It might make negotiations a bit difficult.

Challenges after buying a Houston home

Foreign nationals, particularly non-resident and out-of-town buyers, may find it challenging to comply with all the complex U.S. tax laws. If you have rented out your Houston home, you will need to submit a tax return at the end of each year. Most foreign nationals don’t know that they are entitled to offset expenses just like the native homeowners are. You can also deduct depreciation. But to avail any tax benefits, you need to file a tax return. Foreign buyers should also pay property tax on time to avoid penalties.

If you have bought a co-op, the housing co-operative may have imposed restrictions on renting it out. Co-ops are intended to be primary residences. It is for this reason that most foreign buyers prefer to buy detached or semi-detached homes.

In conclusion

Many countries around the world have imposed restrictions on foreign buyers. The New Zealand government recently banned foreigners from purchasing existing homes. Buying a home in the U.S. is comparatively easier as there are no restrictions on foreign ownership of real estate. However, you should be familiar with various laws with regard to currency transfer, identity verification etc. to avoid legal and financial pitfalls.

Here at Shop Owner Finance, we help foreign nationals – both residents and non-residents – buy homes with owner financing. You don’t need a U.S. credit history to buy a home in Houston in our program.

Interested in learning more about our program? Set an appointment today.