Homeownership is one of the core concepts of the American dream.
Even for the native-born, the process of buying a house in the US can be pretty complicated. Therefore, it is easy to assume how intimidating it can be for foreign first-time buyers. But knowing what to expect can reduce some of that anxiety and help you confidently find your way to a new home.
This guide will give you some pointers on how to navigate the process of purchasing your dream home.
How to Buy a Home as an Immigrant
The formal process of buying a home for foreign buyers is not much different from US citizens. You do not need a green card, a particular type of visa, or even US citizenship to be eligible to do so.
However, getting a loan can be much more difficult. Immigrants’ financial profiles don’t look like a regular homebuyer’s profile, and as a result, immigrants are usually marked as more high risk by loan services. Although this does make the process more difficult, it is remedial.
We will break down the basic steps in the house buying process, provide useful resources, and discuss how it can be different for immigrants.
1. Determine how much you can afford to spend on a house
Unless you have a small fortune to pay for your new home in a full lump sum, you will need a mortgage to finance your purchase. This is why for many people; the first step to buying a home is to save for the down payment. In most cases, lenders require a 20% down payment and generally recommend that people look for homes that cost no more than 3 times their annual income. However, you can make this determination based on your own financial situation.
Buyers may choose to open a savings account in advance, or the down payment may be given as a monetary gift from a family member.
2. Get Pre-approved for credit for your Mortgage
Purchasing a home in the US as a foreign citizen is simple if you plan to pay in cash. However, if you are not in the financial position to be able to pay in lump sum, you will need to obtain a mortgage loan. This is where the process becomes tricky.
US mortgage lenders look at a borrower’s US credit history to determine their eligibility for a mortgage loan. As a non-US citizen, you do not have a US credit report, making it difficult for lenders to analyse the risk of loaning you money. This would mean it may take longer to find a lender who is willing to work with you, and it may take longer to get approval for your mortgage loan. You might also pay a higher interest rate.
Before you start looking for a home, open a US bank and credit card account and make sure to report all of your income on your tax returns. Tax returns are often used by lenders to decide how much you can afford to buy. To get prequalified, you need to provide some financial information to your mortgage banker, such as your income and the amount of savings and investments you have. Your lender will review this information and tell you how much they can lend you.
When you are ready to apply for a mortgage, choose a financial institution which has some experience when it comes to dealing with foreign buyers. That way, they will know how to judge your credit history.
3. Find the right Real Estate Agent
There is no benefit to going without a real estate agent because you do not pay an agent’s commission – sellers do.
Working with an agent you trust, who will not push you beyond what you are comfortable offering or rush you into making a bad decision, is key.
If possible, work with realtors that have undergone training in dealing with foreign buyers. Not only do they have expertise in property types, neighborhoods and negotiation; they can also explain how the process works and assist with paperwork, closing costs and other details.
If you’re not fluent in English, choose agents who are conversant in your native language.
4. Shop for a Home
Be prepared to be overwhelmed with data as you enter this stage. You will likely look at dozens—or even hundreds—of homes online. Your needs and wants list will help you narrow down your options, as well as help you determine if your budget and your home dreams align. To start, make a short list of must-have features and start asking yourself questions such as – How many bedrooms and bathrooms will you need? Do you want a townhouse or a condo? Do you want to live close to work? Do you want a family-friendly neighborhood with good schools? You will be a more efficient shopper if you know what you are looking for.
5. Make an Offer
Once you set sight on a property, work with your real estate agent to negotiate an offer based on the value of comparable homes in the same neighbourhood. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the period of time it takes to complete all of the remaining steps in the home buying process.
6. Get a Home Inspection
Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.
Usually a home inspection costs between $300 and $600.
7. Secure the Mortgage
This is done by completing the mortgage application. If you are pre-approved, go back to your lender, and let them know you are ready to move forward with the process. Your lender will order an appraisal and have you sign some more paperwork. Your loan application will then enter the underwriting stage before it’s approved. If you have not been pre-approved or pre-qualified, it will likely take longer to complete this process.
Lenders have a wide range of competitively priced loan programs. You should evaluate your own priorities when choosing a mortgage.
8. Obtain insurance and establish utilities
You will need to purchase homeowners insurance for the property. This will protect it in the event of fire, theft, or other potential liabilities. You can use the insurance suggested by your lender or you shop for your own. Some of the major brands are Geico, Progressive, and State Farm.
You will also want to give utility companies your move-in date to establish their services. There’s nothing like moving into a cold, dark house because you didn’t get an account with the power company!
9. Close the deal
It typically takes about 30 days to close. At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender. Once the check is delivered to the seller, you are ready to move into your new home!