With New York City’s real estate market presenting so many unique challenges to buyers, it’s natural that any first-time homebuyer would be pretty confused in the beginning.
Triplemint Agent Lawrence Lee knows how daunting the process can seem. “The whole idea of a board application or a condo sales application is pretty foreign to people who’ve concerned themselves with the New York City real estate market before,” he concedes.
If you’re not from the United States and don’t have permanent residency here, the entire process will feel a bit like trying to survive in the Hunger Games. We’re here to tell you that not all hope is lost, as long as you follow these simple tips.
Think Twice When it Comes to Co-Ops
Co-op boards typically require a lot of documentation with any board application. This includes two years worth of tax returns, a credit history, proof of good credit, and a financial statement from your bank detailing your assets and liability. If you haven’t lived in the United States long enough to build credit and you don’t have a bank account, this will be quite tricky.
However, those terms are negotiable, so you might be able to get past this mountain of paperwork by paying two years of maintenance up front.
“Putting two years of monthlies in escrow can be compared to putting down a security deposit when signing a lease,” says Lawrence. He also has a hot tip for anyone looking to avoid a stack of paperwork. “Foreign nationals like to go with new development, since the purchase comes with significantly less paperwork compared to condos and co-ops,” says the experienced agent.
Zoe Kellerhals-Madussi, a Triplemint agent with roots in Europe (who speaks five languages!), wants to take away the fear of co-op boards altogether. “I’ve realized that not all co-op boards are as strict as you would imagine, it just depends on the picture I paint of my client,” she points out.
Embrace America’s Credit Culture
A credit check is essential when trying to purchase property in New York City, not only when dealing with a co-op board, but also when you need to finance your purchase.
The problem that you’re going to face is to even qualify for credit to start building credit. Here’s how to do it. As soon as you get into the country, apply for a social security number and open a bank account. Get a credit card and actively use it to build a credit history.
“If you have no established credit at the time of purchase, that’s a concern, so open a domestic bank account as soon as possible,” says Lawrence. Lastly, make sure to stay on top of your credit and keep everything in order. Familiarize yourself with the U.S. credit system and definitely avoid late payments to keep your credit score up.
Find the Right Bank
There are some banks that won’t even give out loans to foreign buyers. Even if your bank is willing to loan to you, they will take you through a complicated process before they approve you.
Americans can normally get pre-approved by their bank relatively easily, especially if they have a good credit score. As a foreigner, your bank will likely create a “profile of credit-worthiness” for you, as Brick Underground reports. “Credit-worthiness is mainly established with an accountant letter, income and employment verifications, and, of course, assets.”
Zoe sits down with her clients and explains to them what exactly they’ll need to provide in order to get a loan. “Once I have the info I need, I get on the phone and speak to mortgage lenders and attorneys. They are always helpful and we have found solutions for everyone in the past,” the experienced agent says.
Lawrence states that many banks will give foreign nationals a loan of 50 percent only. “It depends on how much money you have saved with that bank and how many transactions that bank does with foreigners,” he explains.
Get in Touch With the Internal Revenue Service (IRS)
As a foreign buyer, you’ll be dealing with the so-called FIRPTA, the Foreign Investment in Real Property Tax. “Generally, the buyer is required to withhold 10 percent of the sales price and pay it to the IRS, instead of paying the full sales price to the seller,” real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder told Brick Underground.
Then it is up to the seller to file the appropriate tax documentation with the IRS to show whether it is entitled to a partial or full refund, depending on the seller’s situation. This way, in case there is any gains tax due from the transfer, the IRS has its money up front, rather than trying to collect from a foreign buyer they don’t have jurisdiction over when the corresponding income tax returns would come due.
With these challenges ahead of you, you’ll need all the help you can get. Hiring a real estate agent is step number one. They’ll be able to determine which other professionals you’ll need to close the deal. Generally, it’s a good idea to get in touch with an accountant, a tax advisor, and an attorney to get all your paperwork in order and to make sure you’re not losing the apartment of your dreams because of a bureaucratic step that you missed.
Lawrence Lee sees the light at the end of the tunnel: “If you have the right real estate agent and lender on your side, both of whom know which questions need to be asked, you’ll find yourself in your new home in no time.”
Zoe Kellerhals-Madussi is also there to help. “We’ve helped clients buy furniture for their new apartment or set up accounts before,” she tells us. Once you’ve got a good team together, there’s nothing that can stop you.