May 3rd, 2008 by Michael Oliver

Share This Post

For foreign buyers — especially from Canada — purchasing real estate in the United States can be fairly simple. With the U.S. dollar falling in value against many foreign currencies, American real estate markets are inexpensive now compared with 5 to 10 years ago. The current U.S. real estate recession means homes can be purchased for 50-60 cents on the dollar when considering dollar depreciation. A Canadian buyer can purchase a nice home with amazing views in Tucson AZ for $250k. Ten years ago, with their currency devalued and home prices up, the same homes would cost 120%-130% of what they cost now. Essentially, homes are now on sale for 50% off! This is why interest in American properties is rapidly growing. So how do you obtain a home in the United States?

Nearly anyone can purchase a property in the United States if they can pay cash for the home or obtain a loan for one. To qualify for a home loan, you would need to get qualified with a US mortgage broker who specializes in what we Americans call a “Foreign National Loan.” Generally, a borrower will need to put 30% down on the home. Other than that, the loan process is very similar to a loan anywhere else in the world. Some documentation will be needed from the borrower. Also, payments for the mortgage will need to be on an automatic draw from a US banking institution. Rates are typically 1%-1.5% higher than the current going rates in the U.S. If you are Canadian, it makes more sense to obtain a HELOC (Home Equity Line Of Credit) or a second loan against your primary home in Canada where rates are somewhat lower and then make your U.S. purchase in cash. In my opinion, this is the simplest and cheapest way if your country’s interest rates are less than rates in the U.S.

Property ownership in the U.S. is relatively all-inclusive. A foreigner can have outright ownership of their property just the same as a U.S. citizen. Other countries do not allow this type of ownership and restrict certain areas from foreigners. In the U.S., you will not have to worry about this since all areas of the country are available. In Tucson Arizona, you can get properties from $125,000-$6,000,000 with complete and unencumbered ownership.

Real estate taxes in the U.S. are dictated by local and state governments and help to pay for local school systems, roads, and other government expenditures. In Tucson Arizona, real estate taxes are very low compared to other parts of the world. To roughly calculate taxes in this part of the U.S., multiply the purchase price of your property by 1.15%. So lets say you are purchasing a $250,000 home here in Tucson. The yearly tax you would be responsible to pay semi-annually (due in October and March) would be $2,875 PER YEAR. ($250,000 x 1.15% = $2875 per year.) Other than this, there are no other taxes collected on the property. In Arizona, there is no sales tax collected on a real estate purchase. When you purchase a home, you just need to pay the annual taxes for your home and nothing more.

Another process you will need to be familiar with is title insurance. Title insurance is a requirement. If your property ever has a claim against it — someone else claiming ownership, whether valid or not — the title insurance company will defend your title. In some cases, they will pay out claims if it is found that a situation was not correctly identified with the title work. Such a situation rarely arises, but like any other insurance, if it does arise, you are covered. Title policies are inexpensive. Expect to spend about 0.75% of the purchase price for your policy. This will cover your title and home indefinitely. I strongly suggest that you purchase a general title policy, which means that the title to the home and underlying land is researched as far back as records exist. Other policies are available that guarantee the title within a shorter timeframe (the past few owners or a designated number of years). In my opinion, it is worth the very little extra it costs to have coverage back as far as documentation exists.

The last item you are most likely already familiar with in your home country is home insurance. A homeowner’s policy protects your home against loss in the event of fire, theft, and natural disasters. You will need to obtain a policy from an American insurance company, and since this home will most likely be a second or winter home, it’s my recommendation you have a good policy in place. You’re not going to be home all year round to monitor the home, and any issues could only become worse with your absence from the property half the year. Home insurance policies are relatively inexpensive. Expect to pay between $1000-$3000 a year depending upon home size and items being insured.

If you would like additional information about purchasing a property in Arizona, please let us know. Our team is comprised of real estate experts who have successfully represented foreign buyers. We understand the issues that these particular clients need help with and have reservations about. If you would like additional information, send an email or call and I’ll be more than happy to assist in helping find solutions.