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Foreign Buyers Guide

IFRELGOGO

INTRODUCTION

THE ANSWER BOOK FOR FOREIGN BUYERS COVERThe American economy has strengthened considerably since the 2008 financial crisis. In some areas, such as Miami and New York, prices have bounced back tremendously. However, in most other parts of the US, prices are still well below where they were before the crisis. This is particularly true of the West Coast of Florida. The general consensus is that it’s going to take another five years or so for the market to fully rebound, so there is no better time than now to invest in property in the US.

The US Property market is very open, most notably because of the Multiple Listing Systems (MLS). It’s for this reason along with several others that it’s very different from other markets. This guide will give you a clear idea of how the market operates and explain the different issues you may have to face.

HOW THE PROPERTY MARKET WORKS

RESTRICTIONS ON PURCHASES BY FOREIGN BUYERS

There are virtually no differences between a foreign national and a U.S. buyer when it comes to purchasing real estate.

SEARCHING FOR PROPERTY

In the U.S., a property that’s being handled by an agent has to be posted to the MLS within 24 hours and will then be available to all agents. In many countries, buyers have to go from agent-to-agent in order to find a property. As an agent in Florida, we have access to all the listings in the state and can assist you in the purchase of any one of them.

COMMISSION

The seller of the property nearly always pays the sales commission. As a buyer, you don’t pay anything to have a real estate agent working on your behalf.

FINANCING

Financing is readily available for foreigners in Florida. Because the financing institutions don’t have access to a foreign buyer’s credit history, the down payment on property is typically set higher (about 30 percent of the cost of the property) than for a U.S. buyer. It may be advantageous for you to arrange financing in your home country, or at least compare conditions with those available in the U.S.

Because of the competitive nature of the market, once you have identified the property you want, it’s vital to move quickly with an offer. It’s for this reason that the financing should be in place before the property search. Should you opt for U.S. financing, you should obtain pre-approval from local financial institution.

THE PROCESS OF BUYING A PROPERTY

DEFINING YOUR OBJECTIVES

The process starts with you identifying your objectives and deciding the type of property you want, the location in which you want to live, and the price range that works best for you. Our role is to help clarify these objectives and present properties that closely resemble what you are looking for.

FINDING THE PROPERTY

Once these objectives have been established, we’ll conduct a search through the MLS, establish a short list of applicable properties, and give you an estimate of the fees associated with buying each property.

VISITING THE PROPERTIES

Although it’s possible to buy a property at a distance, we advise you to come to Tampa Bay to tour the properties. We’ll set up an appropriate schedule and accompany you for each visit.

SUBMITTING A WRITTEN OFFER

Once you’ve chosen a property, we’ll write an offer on your behalf that outlines all the terms of the sale including the price, the amount of the deposit, the closing date, the terms of financing, and the inspections that have to take place. The offer is then presented to the seller who has up to 48 hours or less to respond with an acceptance, rejection, or counter offer. If the offer is countered, we’ll negotiate the news terms on your behalf.

SETTING UP THE CONTRACT

Once the seller has accepted the offer, the terms are then transcribed into a formal contract that both you and the seller must sign and date. It’s then up to both parties to fulfill the terms of the contract.

FULFILLING THE TERMS

The contract will typically contain the following terms:

Amount of deposit – The contract will require that you make a deposit (usually about 3%) – also called earnest money – to prove that you’re truly interested in buying the property. The money will be placed in an escrow account and held by the seller’s broker or the title company. Should you decide not to complete the transaction, and the decision is not based on one of the contingencies in the contract, the deposit will be lost to the seller.

Financing – You can either pay cash for the property or submit an application with a local financial institution. As previously mentioned you’ll already have obtained pre-approval from this lender before the home search begins.

Contingencies – These are the terms that will allow you to withdraw from the contract without losing your deposit. The most common contingencies are an unfavorable inspection report and refusal by the financial institution to provide a loan.

Inspections – It’s strongly recommended that you hire a certified property inspector to thoroughly check out all aspects of the property. Also, the law requires that a WDO (Wood Destroying Organisms) inspection be done within 30 days of the closing on a home, however, it’s advisable to have it done before then. The inspection includes searching for termites as well as wood rot and fungal decay. If live termites are found, an extermination must be done and the house will have to be reinspected. If dry rot or fungal decay is found, all affected wood must be replaced with clean wood, and a re-inspection will have to be done. We can recommend qualified professionals if you don’t already have someone in mind, and we’ll schedule the inspections with the seller. If possible, you should be present at the inspections. The contract will be contingent on the findings of these inspection reports, and will allow you to decide whether you want to proceed, cancel, or ask the seller to make repairs.

Title search and insurance – It’s recommended you have the title company do a search to find out if there are any defects in the title. Even if no defects are found, it’s standard in the US to take out title insurance anyway. This involves paying a one-time premium, which is usually paid for by the seller, and it covers you for the purchase price of the property should defects in the title surface in the future. If there’s local financing involved, the financial institution will require title insurance for the unpaid amount of the loan. The buyer usually pays this one-time premium. In the case of two insurance policies (one in the buyers name and one in the name of the financial institution) a common title search will be made and the costs shared.

Property appraisal – The bank will have an appraisal done if you have obtained local financing. This is to ensure that the value of the property is not lower than the contract price. If it turns out that it is lower, the bank might not approve the loan.

Financing approval – Once the appraisal is accepted, the lender finishes the approval process and provides a conditional loan commitment.

THE CLOSING

The closing will typically involve the following steps:

Final agreement by the bank – The banks will send a “clear to close” instruction to the title company.

Preliminary closing document – The title company will prepare a preliminary closing document called the HUD, which details the amount that has to be brought to the closing.

Providing the funds – The closing funds are wired to the title company.

Insurance – Homeowner’s insurance will be secured and if the property is in a flood zone, flood insurance as well.

The walk through – A pre-closing walk-through inspection is scheduled. We’ll accompany you on a tour of the property to ensure that everything is in order and working properly.

The closing meeting – This meeting, which involves the simultaneous exchange of documents and funds that are required to complete the transaction, is the final step before you take possession of the property, and we’ll be present to guide you through the steps. This normally takes place at the office of the title company who will also take care of recording the deed and mortgage.

CLOSING COSTS

The seller will be expected to pay the brokerage sales commission through their listing contract with their real estate agent. The additional costs that need to be paid, however, are negotiable and must be clearly defined in the contract.

TITLE INSURANCE

The title insurance is one of the largest expenses paid by the seller, and it protects the buyer against claims to ownership of the property. If there’s a loan involved, there will be a policy covering the lender for the amount of the borrowed funds. In this case, since only one title search needs to be done, title companies will give a simultaneous issue rate that is substantially less than if either policy was purchased separately. In a cash sale, there would only be an owner’s policy.

For example, on the sale of a house priced at $250,000, title insurance, including closing fees, search and exam would probably cost around $1800 for both owner and lender policies. On a cash sale, the owner’s policy for the same amount might be around $200 or less.

DOCUMENTARY STAMP TAX ON THE DEED

The Documentary Stamp Tax on the deed is a Florida tax on the sale of real estate and is based on the purchase price. Typically a seller cost, the rate is $0.70 per one hundred dollars, or a fraction thereof. For example, on a $250,000 sale, the tax would be $1,750.

DOCUMENTARY STAMP TAX ON THE MORTGAGE

The Documentary Stamp Tax on the mortgage is a Florida tax on new and assumed mortgages, and it’s based on the amount of the mortgage. The rate is $0.35 per one hundred dollars, or a fraction thereof. For example, the Documentary Stamp Tax on a $200,000 mortgage loan would be $700.

INTANGIBLE TAX ON THE NOTE

This is a tax that’s charged on all new loans. The rate is $0.20 per one hundred dollars. For example, a $200,000 loan would be taxed an intangible tax of $400.

LENDER FEES

A tax service fee, an underwriting fee, and an application fee are some of the typical lender fees, and the cost of each can vary from lender-to-lender. The total for all the fees typically costs between $400 and $600. After you’ve submitted the application, the loan officer will provide a good faith estimate of these costs.

SURVEY

A survey is nearly always required if there’s a loan involved, but even if it’s not, it’s a good idea to get one anyway. It will show any easements or encroachments on the property, such as a neighbor’s fence that is more on your property than it should be. It will also reveal if the property being purchased is encroaching on a neighboring property. The typical cost for a survey on a lot is between $375-450, although a survey on a large, complex, or waterfront property will cost more.

APPRAISAL

The appraisal is required by the lender in order to determine that the money they’re loaning is being used for a property that is worth what the buyer is paying for it. Typically, the appraisal costs are around $400, although one done on a large or complex property will usually cost more.

RECORDING FEES

The cost of recording a deed is usually around $25, while the cost of recording a mortgage is approximately $275.

HOME INSPECTION

Paid for by the buyer, the home inspection allows the buyer to have a qualified home inspector thoroughly check all aspects of the home they’ve contracted to purchase. Inspections on small homes usually cost $250+.

WDO (WOOD DESTROYING ORGANISMS) INSPECTION

Many homeowners carry a transferable termite bond protection plan. A WDO inspection usually costs around $100 for the initial inspection as well as a re-inspection.

SEPTIC SYSTEM INSPECTION

All homes over 5 years old that use septic tanks for waste-water disposal must have a septic system inspection, also known as a drain field inspection. It typically costs around $200, but if the tank has to be pumped, there’s an additional charge.

HOMEOWNER’S WARRANTY

Buyers are usually more comfortable having a home warranty, particularly on older homes, in the event that a major appliance fails, such as a hot water heater or air conditioner. The warranty will cover the major appliances for one year from the time of closing, but will involve a service charge. Either the buyer or the seller can purchase a home warranty, which usually costs around $400.

MISCELLANEOUS CHARGES

Additional charges that may be issued include:

Credit report – Paid for by the buyer at the time of the loan application.

Overnight delivery charges – Charged by a title company to deliver closing packages overnight to those who cannot appear in person for the closing.

Prepaid charges made by the seller – Some charges, notably property taxes and HOA (Homeowner’s Association) charges, will have been paid for by the seller in advance. At the closing, the buyer will reimburse the seller for these costs.

ANNUAL COSTS

This section provides information regarding the annual costs that a homeowner will face after the closing. We’ll provide an estimate of the following charges for a property that is of interest to you. This won’t include estimates for costs such as electricity, water, telephone, television, and WiFi.

PROPERTY TAXES

The local tax authorities systematically appraise newly purchased properties on the basis of current prices. This assessment might not be as that being used to calculate the taxes that the seller is paying. Property taxes, which in Florida include city taxes, county taxes, and school board taxes, are levied on a calendar year basis and are paid at the end of the tax year. There can also be special assessments that are one time taxes imposed on properties to pay for certain public improvements that benefits the property, for example, an extension of sewers or paving of roads.

HOMEOWNER’S ASSOCIATION FEES

These are fees that are charged to each owner in a condominium, and cover the cost of running the building and the common areas.

PROPERTY INSURANCE

The cost for property insurance will vary considerably depending on the type and size of the property and whether or not it’s in a flood zone. Insurance is typically higher in Florida because of the risk of hurricanes.

THE REAL ESTATE AGENT

The following are just some of the ways that we can help a foreign buyer.

DEFINING OBJECTIVES

We’ll help you define your objectives by asking you some of the following questions:

  • Is this to be a principal residence, a secondary home, an investment, or a combination?
  • What are the immigration issues and what sort of visa would you require?
  • How much do you intend to invest? What are your financing needs?
  • What sort of property is appropriate?
  • What are the tax issues both in the US and in your country of origin?
  • How long do you intend owning the property?
  • What are the estate planning issues, both in the US and your country of origin?
  • What is the appropriate legal structure for your purchase?

FINANCING

Should you need to obtain a local mortgage, we can recommend mortgage professionals in the U.S. who offer financing to foreign buyers. As previously mentioned, you’ll have to obtain a “pre-approval” or “pre-qualification” letter from a mortgage professional before we can show you properties.

COMMISSION

Buyers don’t typically pay for the services of a real estate agent. Our commission comes out of the seller’s proceeds, and we’ll get paid only when the sale is completed. There are some cases where a buyer pays the commission, but it’s always negotiated at the beginning of any transaction.

SEARCHING FOR THE PROPERTY

Once it’s established that the funds are available, we’ll search the MLS for appropriate properties that meet your criteria.

VISITING THE PROPERTIES

At your request, we can visit a limited number of properties prior to establishing a short list of viable options. Once this short list has been completed, we’ll coordinate all appointments to provide the most efficient use of time for all involved.

PROVIDING INFORMATION ON A PROPERTY

We’ll provide all relevant information on the properties, such as the history of tax records, sale and listing background, comparable sales, and cost of insurance. We can also provide data on schools, crime, and neighborhood demographics.

NEGOTIATING THE TERMS OF A PURCHASE

We’ll help negotiate the terms of the purchase once you find the right property, and will also fill out and explain the purchase contract, which is a legally binding agreement between the buyer and seller.

PROVIDING A LIST OF PROFESSIONALS

We can provide a list of reputable professionals ranging from a mortgage lender to a contractor that makes home improvements.

PROBLEM SOLVING

We’ll make sure that all contingencies in the contract are met in the time frames required. Additionally, we’ll maintain contact with the mortgage and title company and trouble-shoot if problems arise. Every transaction is different and problems can arise, so we’ll do everything within our power to make the transaction as easy and stress free as possible.

RECOMMENDING A LAWYER

Although it’s not required, you might prefer to hire a lawyer to review all the documentation involved in the real estate transaction and deal with any legal issues that might arise. You can use a lawyer of your own choosing, or we can recommend a list of lawyers who specialize in property law.

AFTER THE PURCHASE

We’ll remain in contact after you take possession of the property to help with any issues you might have. For instance, Smith and Associates offers property management services that can help with taking care of your property – from finding tenants to taking care of the maintenance – while you’re away.

GENERAL ISSUES FOR FOREIGNERS

The following are some general issues that you might have to face when buying property in the US.

FINANCING

Because the lender might not have access to your credit rating, they’ll typically ask for a bigger down payment, which could vary from 25% to 50% depending on the type and value of the property. The interest rate might also be slightly higher than that paid by U.S. residents. You’ll have to provide proof that your income is sufficient to repay the loan and cover the running costs of the property. Rather than try to obtain financing in the U.S., you might prefer to arrange for financing in your country of origin and pay cash in Florida.

IMMIGRATION

The type of visa available will depend to a certain extent on the treaty that exists between your country of origin and the U.S. A tourist visa might be suitable if you don’t intend spending long periods of time in the U.S., but if your intention is to live in the states or to eventually immigrate, we recommend the use of an immigration lawyer. We can provide a list of specialized lawyers.

The most common types of visas available are:

Visa “B1” – This allows a stay of up to 90 days for tourism or business. Note that the Visa Waiver Program (VWP) enables citizens of certain countries, most notably of the European Union Countries, to travel to the United States without obtaining a visa provided that their passports are valid, and as long as they’ve registered online through the Electronic System for Travel Authorization.

Visa “L” – For directors or senior managers of multinational companies transferred to a subsidiary or parent company (a minimum one year of experience in the company is required).

Visa “O” – This concerns persons of national or international reputation known in the world of science, arts, sports, education, or business in the exercise of their profession.

Visa “E-2” – For those who own or wish to invest in a business in the U.S., the E-2 visa may be filed directly at the Consulate of the United States in certain cities (notably Paris), thereby avoiding a longer and more difficult route through USCIS (Unites States Citizen and Immigrations Services). The E-2 visa is given for a maximum period of five years. To obtain this visa, the investor must demonstrate that:

  1. They own at least 50% of the shares of the Florida company.
  2. The funds belong to the investor and were invested irrevocably.
  3. The activity of the company is commercial in nature (and not a passive investment).
  4. The amount invested is substantial.
  5. The investor will develop and manage the company.
  6. The company is already in operation or will soon be ready to open its doors.
  7. The company justifies significant business expenses, showing that the investor has taken a real financial risk.

Visa “K-1” – Allows the fiancé of an American citizen to travel and reside in the U.S. provided that the couple marries within 90 days of arrival to the states.

Visa “K-3” – Allows the spouse of a U.S. citizen to be sponsored for a temporary visa which thereafter gives rights to permanent residence.

Green Card – An Immigrant Visa, grants rights to permanent residence. There are four major grounds to acquire green card status:

  1. Family sponsored permanent residence.
  2. Specialized workers and persons of extraordinary ability.
  3. Asylum and persecution.
  4. The Diversity Visa Lottery.

LEGAL STRUCTURES, INCOME TAX AND ESTATE PLANNING

Prior to buying a property in Florida, you should consider the tax and estate planning implications of this investment.

There are tax agreements between many countries and the USA. This is the case for most European Countries (France, UK, Belgium, Switzerland etc), Canada, and South Africa for example. One of the purposes of these treaties is to avoid double taxation, but there are also other implications, for example regarding estate duties.

We therefore advise you to consult a tax specialist who will detail your options and what their implications are. Each situation is different and it is important to choose an approach that suites your particular circumstances. We can suggest a consultant in your country who is expert on local taxation as well as in the USA.

For the purchase of a property, this consultant might, for example, advise you to set up a legal structure in the US such as an LLC (Limited Liability Company) and/or in your country of origin.

By following the consultant’s advise you can optimize your tax situation both in your own country and in the USA.

The information in this section is deemed reliable but is not guaranteed.

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