Still game for a US home?

Britain, home

Property prices in the US have fallen sharply. The mounting inventory of unsold foreclosed homes may have triggered the thought in many to consider buying a home in the US? The highest numbers of foreclosures are reported in Nevada, California, Arizona, Florida and Texas and these have been favourite locales for Indians. So if all this has prompted you to take the plunge after considering the risks to the same, we explain some of the legal and procedural aspects to bear in mind.

Wanna buy a home in US?

If you’re looking to buy property in the US, acquiring good knowledge of Federal and State laws is a must. It is also important to go beyond the legal aspects and do some homework on the economy and the infrastructure facilities available in the State you’re looking at.

Property purchase in the United States is quite straightforward. The legal and buying process is highly developed. The system is easy to understand and transparent, while many of the taxes and specific requirements will vary from State to State. As a foreigner, it is very important to hire the services of an experienced US real estate agent who can brief through the buying process including property visits. These agents are easier to find in highly populated areas such as California, New York, Nevada and Texas.

Housing lacks sparkle this season

Price apart, due diligence, financing and taxation are other major aspects involved in buying property in US.

Why due diligence?

Thorough inspection is mandatory before buying any property. This is even more essential in case you are not well acquainted with the real estate market in the US. Yet, it is mainly foreclosed homes that have become really cheap in the recent rout. Inspecting a foreclosed home is generally not an easy process and whether you get an opportunity to do this will depend on the way in which you buy property. Homes at risk of foreclosure are usually sold through three means – auctions, Real Estate Owned (REO), where a bank acts as a seller, or pre-foreclosed, where the owner puts the home on the block before foreclosure.

Home loan growth slowing

In a physical auction, buyers typically do not get to inspect the home in advance but on winning the bid, are required to pay on the spot the value of the house. The REO process involves a bank which sells the property after considering quotes or bids from various buyers. Here, before the sale, bidders are given a chance to inspect the property, title and insurance.

The third option would be pre-foreclosure sales, where information about a home in pre-foreclosure is available online through Web sites such as www.homeforeclosures.com and www.realtytrac.com. This process is done mostly online and is more like a private deal between the potential buyer and the seller.

Don’t buy unfinished homes

Though auction is the most popular method of buying a house, REO is considered the safest, as it gives the buyer an option to thoroughly inspect the property. As REO involves auction by the bank, you may not stand a chance of buying the home at the cheapest possible rate.

Popular financing options

Though most properties are purchased through outright cash payments, mortgages and bank loans are the popular means of financing a property investment in the US. Though regulations were revised to grant non-permanent resident aliens the same opportunities as US citizens in securing mortgages, procedures relating to financing have become stringent post-crisis. US mortgage companies now require a down payment of 30-40 per cent of the value of the property for non-US residents. It is mandatory to provide proof of employment. Post 9/11, proof of the source of income has become an additional requirement. The level of documentation required depends upon the lender’s assessment of financial stability of the borrower.

Realty cools but home retail still hot

Generally, banks don’t insist on a social security number, green card, credit history or even a US bank account to avail mortgage loans. Choosing the right type of mortgage would depend on the borrowers’ existing financial circumstances and time span of investment. Mortgage lenders often set up escrow accounts to cover payments of additional costs such as property taxes, local taxes and property insurance premiums for the period of mortgage. These will ensure that statutory bills are paid without hassle to the investor. Deutsche Bank, Citibank, America’s Mortgage Banc, Bank Of America, Chase Bank, Bravo Credit Corporation are some financial institutions that extend mortgages on property in the US.

Taxation angle

Taxation in the US has always been considered complicated. Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) imposes tax on the gains made upon disposal of “real” property and rental income. Rental income would suffer a withholding tax at 30 per cent while capital gains would be subject to 10 per cent withholding tax. Thus, any income arising from US property transactions will be subject to tax, regardless of a foreign investor’s personal tax status and whether the US has a tax treaty with the foreign country.

Resident Indian

A resident Indian’s income earned outside India is usually taxable in India. Therefore, rental income or gains from sale of property for resident Indian will be subject to tax in India. However, one may take shelter under the Indo-US double taxation avoidance agreement treaty. Good tax planning is essential in such circumstances.

There is no specific visa that one needs to hold in order to acquire property in the US. But remember, property ownership has nothing to do with gaining permanent residency status, acquiring a green card or becoming a US citizen.

Says Ramesh Nair, MD, Jones Lang La Salle Meghraj, “It is a very attractive investment option available for high net worth individuals. However, one needs to exercise caution before acquiring property in the US. Frequent visits, extensive study about the place and good financing back up are must.”

More India business stories

So, if you have looked beyond the prices alone and still are yearning for that US home, acting on it is not really difficult for those with the spending capacity and risk appetite.

SEARCH