The advantages of financing for foreign nationals
Before purchasing real estate in the USA, the question of payment always arises right from the start: cash payment or financing? And in the case of financing – do I finance in my home country or in the USA? In general foreign banks which are not located in the USA do not finance property in the USA.
In order to finance with your local bank you will have to draw on the free assets in your home country for collateralization or obtain a personal loan. When it comes to mortgages in the USA, buying and financing are definitely linked together. It starts with the “Finance Contingency”. If this financing clause is filled out correctly in the contract, the requirement to acquire the property is dependent on the financing commitment received from the US bank. If financing should not work out for you – for whatever reason – you have the right to cancel the contract as indicated by this clause. This assumes, however, that all given deadlines (which are also stated in the contract) and formalities are met. In any case it is an extra security measure for you! Important: If you are financing a property you should always make sure that this clause is included in the contract. We would be glad to check your contract for you before you sign it.
If financing occurs, the mortgaged property is the only security for the US bank. Additional assets such as accounts, real estate etc. will not be accessed – neither in your home country nor in the USA. Aside from the financing clause and the associated right to withdraw from the contract, you have some additional advantages when financing:
01
Our advice and the advice from your US banker are always independent from all other providers. This is especially important for you when you are still new to the market.
02
The processing also incorporates the ordering of several linked services, which include for example an appraisal by a licensed appraiser, inspections, insurance companies etc. You as the borrower also benefit from the control mechanisms of the financing US bank regarding the property and the process which do not occur when paying in cash.
03
Particularly for first time buyers an easy introduction into a market that has been unfamiliar until now with only a little equity is possible. In general, financing of up to 70% is possible. This way you can preserve your liquidity and are able to spontaneously pay for additional potential costs (renovations, furnishing, boat purchase etc.).
04
If the US dollar rate should not be favorable during the purchase, you will only have to exchange a minimum of your equity.
05
If you are renting out your property in the future and you will receive payments in US dollars you do not carry the currency risk for the repayment of the financing.
06
Since the US banks do not have a prepayment penalty, you can pay off the financing in part or entirely at any point without having to pay penalties. This allows you maximum flexibility during the payback, for example with certain personal financial circumstances, attractive US dollar rates, if money becomes available in your home country, during low-priced refinancing, or the selling of your property etc.
07
If you report your US loan together with your Social Security number (SSN) to the American credit bureaus, you can build yourself a credit history in the USA. You acquire this in the USA only if you take on liabilities and pay them ahead of time or right on time. This can be of importance for future engagements, for example if you should decide to move to the USA and take additional loans, because it will allow for cheaper conditions.
08
If you want to rent out your Florida property you have to provide a tax return in the USA. You can deduct the capital acquisition costs and monthly interest payments against the rental income on the US tax return.
Conclusion
Although the capital acquisition costs and the interest are generally a little higher in the USA when compared to your home country, a lot of investors do not finance because of a need for capital but because of the previously mentioned reasons. Or they simply combine the advantages of both sides and take up mixed financing – in part at home and in part in the Sunshine State.
Please inform yourself for free today about your loan options.
