Real estate in the States doesn’t just add value to your net worth — it’s an investment that keeps on giving: the average house sale price increased by a whopping 28% in the last five years. The process of searching for and purchasing a perfect home can be quite intimidating even for citizens, let alone foreigners, which is where this step-by-step guide comes in quite handy. 

Step 1: Figuring out your ideal property

First off, let’s settle on the type of property you’re searching for. A single-family home is a standalone building which you’ll mostly see in suburbs, they often come with backyards and offer a bit more space — hence why they’re perfect for families. Apartments, on the other hand, are typically located in multi-unit buildings offering shared amenities but less personal space and privacy; perfect for single people or couples. A townhouse is somewhat of a hybrid between the two: it’s a house that typically shares one or more walls with a neighbor. Duplexes and triplexes are houses divided into two or three apartments with multiple residents. If none of these options work, you could also purchase a piece of residential land and build a home of your dreams.

Next up: figuring out how much sweat and tears you’ll put into remodeling the home. Depending on the condition, you could pay a premium for a beautifully designed mansion, or a much affordable price for a diamond in the rough.

New or like new houses will be either newly constructed or recently renovated. Well-maintained houses are typically a bit dated but otherwise in great condition and require very few cosmetic updates. A fixer-upper, also known as a handyman special, is a property you’ll be getting with the intention of some major changes. Regardless of the condition, the house must have great bones and be structurally sound, or else you’re risking purchasing a money pit.

Another major contributor to the overall decision is, certainly, location. Important things to consider include commute time, proximity to top-rated schools, safety, and culture, as well as the overall vibe. Some people prefer to live in walkable cities and are willing to sacrifice personal space, while others can’t live without a backyard and a 20-minute drive from Costco.

It’s also important to consider the history of the neighborhood and whether the house will appreciate over time. The up-and-coming areas are great to invest in due to lower costs and promising returns on the investment in the future. Make sure you seek guidance from a local real estate professional who will help you settle on a location with their expert knowledge of the area.

Step 2: Budgeting

When it comes to loans and other financing options for foreigners, lots of banks offer conventional and FHA home loans (a type of mortgage that the Federal Housing Administration backs) to non-U.S. citizens — granted, you’ll be required to verify your residency status, employment history, and financial health. Some of those loans, like the Foreign National Loan mortgage, are specifically designed for non-resident foreigners, although it’s likely they may have higher interest rates and larger down payments compared to mortgages for U.S. citizens or residents.

Personal loans could be another option for foreigners; however, these could come with shorter repayment agreements than mortgages. Personal loans are also notorious for higher interest rates, so they’d only work if you’re planning to pay it off rather quickly. In some cases, private lenders may also offer financing options to foreign buyers — this would probably be the least affordable option due to higher fees and generally stricter terms.

It doesn’t happen very often but sometimes the seller (especially a larger real estate developer) offers financing directly to the buyer. This could be a saving grace for foreigners who can’t get any other type of loan. The terms are typically negotiated between the buyer and seller, including the down payment amount, interest rate, and repayment schedule. 

An important part of the budget, besides the price of the house itself, is taxes. The American government will tax you into oblivion on almost every single thing, including owning the property, renting it out, and selling it at a higher price. Property taxes are set by local governments based on the value of the property; foreign property owners are generally responsible for the same property tax rates and regulations as U.S. citizens and residents. Also, if you’re planning on renting it out whenever you’re not in the States, it’s important to keep in mind that rental income is taxed under federal income tax, regardless of the property owner's residency status. According to the IRS, non-resident aliens are typically subject to a flat 30% withholding tax on their U.S. source income, including rental income, unless reduced by an applicable tax treaty (for instance, if you’re already paying income taxes in another country). Consider hiring a tax professional to help you out with everything related to taxes — trust us, you’ll want to stay in the IRS’ good graces.

Step 3: Knowing your rights

The United States allows foreign buyers to purchase land and real estate, including residential, commercial, and investment properties. You can own real estate directly in your name or through legal entities such as corporations, LLCs, or trusts. The choice of ownership structure may be dictated by your personal preference in terms of taxation, liability, and estate planning, and we highly recommend retaining legal representation to make sure your rights are protected. Also, it's incredibly helpful to have someone read the fine print for you.

Something else to consider: investing in real estate can be a pathway to residency (and subsequent citizenship) through various visa programs, and one of them is the EB-5 Immigrant Investor Program. If you’re planning on investing a certain amount of capital into a real estate development project, specifically at least $900,000 in a targeted employment area or $1.8 million in a non-targeted area, you could also apply for a green card. Disclaimer: This is not legal advice, and we suggest seeking proper legal counsel.

Step 4: Choosing your real estate agent

You may have seen real estate professionals being referred to as agents or brokers, especially if you’re into real estate reality shows (we sure are!). Let’s differentiate the two: real estate agents are licensed professionals who operate under the supervision of brokers. They help clients navigate buying, selling, or renting properties, and everything that comes along with it — searches, negotiations, and closing procedures. Agents are employed by brokers who have the same functionality when it comes to assisting buyers and sellers, except they also can work independently and employ agents, creating their brokerage firms. In short, a broker is just a more advanced agent with a bit more authority and responsibilities.

A good agent will always have your interest at the forefront and will be fighting tooth and nail to get the best property for you. Just like in the dating world, don’t settle for less! You’ll know it’s a match when you see they listened to you and kept all your preferences and deal-breakers in mind. They should also be knowledgeable about the local housing market to be able to determine which area would be the best fit for your needs, especially if you’re buying out of or state or even the country.

Step 5: Making an offer

During every property search comes the time when you’re ready to put an offer on a house you fell in love with, or maybe you have a vision for. It’s time to make an offer — but which one? Depending on your source of funding, you could make an all-cash offer (the most desirable offer for many sellers and a great opportunity for negotiating on the price), a conventional offer (your typical mortgage or loan offer with a down payment), or an FHA offer (in cases when the Federal Housing Administration insures your mortgage). Your offer could also be contingent, meaning it would have specific requirements for the deal to close. For instance, the contingency could be that if the appraised value of the property is lower than the purchase price, the buyer can ask for a lower price, or get out of the contract without penalty. If you’re not the seller’s first choice, your offer could be a backup offer, and depending on your luck and manifesting skills you may or may not close on this house. After all, there’s always a chance the other deal falls out of escrow.

Falls out of what? An escrow is a financial arrangement where an escrow agent or company holds funds and documents on behalf of two parties involved in a transaction. The escrow agent makes sure all conditions of the deal are met in a specific timeframe, or else the deal is off. Escrow protects both the seller and the buyer’s rights to a fair deal and a satisfactory outcome.

Step 6: Inspecting every inch of the property

Here’s the fun part: making sure you’re buying exactly what they’re selling, meaning you have to inspect the property and confirm it’s in the exact condition as presented by the seller. If a mortgage is your source of funding, your bank may require an inspection to confirm the value of the house (and the size of the loan you’re getting for it).

There are several types of inspections to consider. The general home inspection offers a comprehensive assessment of the property's overall condition, covering structural elements, electric systems, and major components like AC unit, heater, and others. Mold inspections focus on uncovering any moisture damage within the home which could be rather deadly depending on the type of mold that’s growing. A termite inspection targets identifying any presence of termites or other damaging insects that could compromise the home's structural integrity. Heating and cooling systems, and electrical, and plumbing inspections could be very handy in older homes to make sure all those elements are working without fault.

Based on the findings of the home inspections, you can (and should) order your home appraisal. If the house is valued at a lower price point, this will give you the re-negotiating grounds and might help reduce the cost of the property — but if it’s appraised higher than the asking price, congratulations! Maybe get a scratch-off since it’s your lucky day.

Step 7: Sealing the deal

By this point, both you and the seller finalized the deal. And if you thought you were done bleeding money, you’d be wrong! You’re now approaching closing costs — various costs and fees that are paid at closing for your mortgage. Closing costs vary and can be anywhere between 3% – 6% of the loan amount, meaning if you’re taking out a $500,000 mortgage, the closing costs could be up to $30,000. Ouch!

All-cash offers also have closing costs but they will be significantly lower due to the absence of loan origination fees, appraisal fees, and other bank-related fees. You’ll be paying for title insurance, escrow agent fees, government fees, and other smaller fees. Your residency status should not affect the closing costs unless the mortgage you’re borrowing has some specific conditions regarding those fees.

Summing it all up, buying property in the U.S. as a foreigner is not much more challenging than as a citizen. With careful planning, due diligence, and the help of various professionals and their expert guidance, you’ll be able to get the home of your dreams that will retain and multiply its value for years to come.