Investors Guide to U.S.A.

The Purchasing Process

Procedures for purchasing property in the USA can vary between states and is very strictly regulated across the country. The processes are well established, offering safe investment purchases for buyers of all types of real estate property.

To ensure the safest possible purchasing options, it is highly advisable to contract the services of a solicitor specialising in real estate in the USA. There are various legal due diligence checks the solicitor will carry out to ensure the property to be purchased complies with legal regulations. Checks to be carried out by the solicitor will include title deeds, title insurance policies, occupancy certificates, permits and mortgages amongst various others.

Deposit payments are normally held in the solicitor’s escrow account until closing, enabling further security for buyers. A reservation deposit will be required to take the property off the market, while the solicitor carries out the legal searches and the private purchase contract is created.

Upon signing the purchasing contract, a 10% deposit is usually required, although the amount may vary between developers. Any payment schedules throughout the construction process will be outlined in the contract, along with other obligations between the buyer and seller.

Fees & Taxes

Total associated purchasing costs on property in the USA are quite low, yet the taxation system can be complicated and quite high. The total costs paid by the purchaser amount to between 1.5% and 4.2% of the purchase price, with variations in costs and processes between states.

Taxes in the USA follow a progressive system based on the amount of income earned. There are also four different categories for submitting tax declarations including married couples filing jointly, married couples filing individually, single individuals and head of households.

Residents are required to pay taxes on their worldwide income, and non residents are required to pay state income taxes in the location where they are earning an income from their property. The state income tax is not applicable in Florida and some other areas of the country.

Foreign investors who sell a property in the USA that has been owned for more than 1 year, with the intention to purchase another property in the country, are permitted to defer the payment of tax on gains. This is only applicable if the property to be bough is made within a specific timeframe.

Inheritance tax features an exemption for properties up to US$2 million, followed by a progressive rate depending on the cost of the property. Rental income is subject to a 30% withholding tax and is taxed at both progressive and federal rates.

• Legal fees are between 0.5% and 1%
• Real estate transfer tax ranges from 0.01% to 2%
• Title search insurance 0.5% and 1%
• Recording fee 0.5% to 0.2%
• Inheritance tax is between 18% and 45% after the exemption
• Income tax is between 10% and 35%
• Capital gains tax is 15% for property owned less than 1 year
• Property owned more than 1 year is subject to 5% capital gains tax

Financing the Property

The mortgage market in the USA has undergone some strong changes in recent years due to the country’s economy and real estate market downturn. After almost a decade of low interest rates and relaxed lending criteria, the market has begun to adopt stricter regulations.

A full range of financing for mortgage and loan options remain accessible to both residents and non residents, yet obtaining financing is not a simple as it once was. Arranging a pre-qualification is highly advisable to ensure the required financing is not denied once transaction payments for the purchase have been made.

A great benefit to buyers requiring financing is the extensive range of options from a wide variety of providers. The mortgage market is well established and many providers advise clients to use independent advisors to ensure a greater range of options, rather than being restricted to only one bank’s terms and conditions.

Considerations to be made when arranging financing for real estate in the USA include the currency of the loan, the different rates for residents and non residents that apply and the intended use of the property. Differences between the intended use and the actual use of a property being mortgaged in the USA can be considered as fraud, as the types of loans can vary.

Different providers will offer distinct terms and conditions, yet as a guide the options available include the following:

• Currency of loans can be in USD and GBP
• LTV is often up to 80%
• Loan maturity up to 30 years
• Variable and fixed interest rate options
• Minimum amount of loans is around US$60,000
• Interest rates vary between around 7% and 8.5%

More about overseas property finance

Visitors Guide to U.S.A.
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