Foreign Financing

Basic Steps


The following are the basic steps related to buying real estate. As your Realtor, I will be coordinating the process throughout the search offer and closing:


1.    If planning to purchase with a mortgage, then preliminary contact and discussions with a mortgage broker would be very helpful
2.    When a property is found, an offer will then be made to the seller (prepared by me).
3.    At the time of offer( Unless the property is a short sale), cash needs to be put into the real estate broker's escrow, so the seller knows it is a good faith offer. If the offer is not accepted, then the funds are immediately returned. Foreign buyers should have access to at least $3,000 US through checks, travelers checks or other means for an offer to be submitted.
4.    If an offer is accepted, then the closing is typically scheduled for 30 to 60 days from date of acceptance.
5.    Shortly after acceptance, an additional deposit of approximately 10% of the purchase price is to be made to an escrow account to secure the offer.
6.    A local bank account should be established, and if using mortgage financing, amounts equal to the total down payment plus amounts equal to several months of mortgage payments and expenses need to be on deposit before closing. A local bank account is also useful for paying monthly expenses (electricity, fees, mortgage payments, etc.).
7.    Traditionally, a closing company will coordinate all the legal documents and signatures needed to transfer the property deed and legal notices.
8.    Buyers do not need to be present at closing, all activities can be accomplished through the mail.
9.    Transfer of services such as electric, phone and cable can all be done through phone and mail.


Financing and Mortgage


If you prefer not to pay cash, then mortgage programs would be available. The majority of mortgage loans are done through licensed mortgage brokers. Mortgage brokers in SW Florida work with many sources of lending funds and banks, to get the best possible rates. Mortgage rates for properties in the SW Florida area are always very competitive.
There are many advantages to being pre-approved for a mortgage loan. One advantage is the comfort in knowing what would be affordable, plus sellers view pre-approval for a mortgage as a positive thing. It is best to start the approval process slightly ahead of beginning your property search. Basically, you would need a letter from your banker and certified/chartered accountant stating that you have sufficient capital recourses and/or an ongoing flow of cash income. The letter from your Banker should be a confirmation of your deposits and investments, and a brief description of the length and nature of the banking relationship. Typically for foreign buyers, 30% of the purchase price would be required to be made in cash, but if you have strong finances then 20% down would not be a problem.


Tax Implications


Foreign buyers, same as US citizens, will be subject to various state and county taxes at the time of purchase annual taxes based on the value of the property, and on gains (the selling price less the original purchase price) when the property is sold.
Foreign buyers are also eligible to defer the tax on gains when they sell, by doing what is called a 1031 exchange. A 1031 exchange may be available when you sell an investment property held for over one year, and then purchase another within a specific time frame. It permits the gain from the property sold to be deferred from taxes, until such future date that the new property is eventually sold. Very specific rules need to be followed, but several companies are available to help coordinate the 1031 exchanges for a low fee.
Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), requires that an amount equal to 10% of the selling price be withheld from a foreign seller of real estate. This amount is withheld to cover the potential taxes on the gain, but the 10% withheld can be much higher than the actual amount of tax due. The foreign seller will then need to file for a tax refund to collect the excess amount of taxes withheld. Some advance paperwork filings can reduced the amount withheld, the wait for the refund and other hassles. I recommend that shortly after the original purchase of real estate, a foreign buyer talk with an accountant, get a tax id number, and be prepare for the future. Eventually a foreign buyer will end up selling, so it is best to plan in advance.