Singaporean buyers often overlook properties in the United States for overseas investment. A significant deterrent is that traditional retail banks typically do not offer financing options to non-residents. Consequently, many have missed out on the robust U.S. property market and its growth in recent years.
However, there are retail banks that do provide financing options for foreigners interested in purchasing properties, presenting valuable opportunities for savvy investors.
Benefits of Buying Properties in the United States
There are many benefits when it comes to purchasing investment properties in the U.S. These includes:
- Availability of interest-only mortgage options.
This option is preferred by investors as the monthly mortgage is lower and you take on less risks.
- No U.S. credit check requirements for foreign buyers
Your current Credit Bureau rating in Singapore will not affect your loan eligibility, nor will it be reflected on your Singapore credit
- No need for proof of personal income
Unlike buying properties in Singapore, there is no need for proof of personal income (and no 30% haircut on self-employed income). This makes it possible for almost anyone to purchase an investment home there. The mortgage qualifies on the cashflow of the property.
- Standard 30-year fixed-rate loan, regardless of buyer's age
This means that even at the ripe old retirement age of 65 years old, you can still take on a 30-year loan.
- Min loan amount of $100k USD
This makes buying properties in the States highly accessible to almost anyone who can afford the downpayment.
Understanding the United States Mortgage System
The mortgage system in U.S. is highly regulated and requires all housing loans to go through a licensed broker. The brokerage fees typically range between 2-5% of the loan amount, which is a standard practice in the market.
If you are a foreigner looking to take a loan for U.S. properties, you will face challenges with traditional banks as those with wholesale banking licenses do not offer mortgages to non-residents. However, there are many financial institutions with retail licenses that do.
Key Loan-to-Value (LTV) Ratios
Similar to Singapore, there is also a Loan-to-Value (LTV) ratio when purchasing or refinancing properties in the U.S. The LTV cap for buying properties stands at 75%, while the refinancing cap is slightly lower at 70%.
This means that you will need to cough out 25% of the home value as downpayment for your property. Do note that this has to be in cash and you will not be able to utilise CPF for this.
Tax Advantages and Absence of Duties
The average interest rate on a mortgage in U.S. currently stands at 8%. While this may seem high, there are other tax advantages that makes buying an investment property financially attractive to potential investors.
Firstly, there are many federal income tax benefits when you purchase your property under a Limited Liability Corporation (LLC). Most foreigners are encouraged to set up an LLC company which will take around one to two months.
Additionally, there are no Buyer Stamp Duties (BSD) or Additional Buyer Stamp Duties (ABSD) in the United States, which can significantly reduce the overall cost of purchasing a property.
Simplified Document Signing Process
The signing of loan or closing documents can be conveniently done at the U.S. embassy or, in some countries, through an Apostille stamp, streamlining the process for foreign buyers.
Timeline and Procedures
The timeline for buying a property in the U.S. is much simpler than buying a property in Singapore. Ideally, you should narrow down the state you are looking to buy your property in and set up your LLC as you search for your home. This will take away one to two months from the purchasing timeline.
The duration from receiving an In-Principle Approval (IPA) to the completion of the mortgage process generally takes about 30-45 days, as shown here:
Conclusion
Buying property in the United States offers numerous financial and procedural advantages for foreign buyers.
By understanding the mortgage system, adhering to LTV ratios, and utilizing the benefits of an LLC, foreign investors can navigate the U.S. real estate market with ease.
The absence of credit check requirements and stamp duties further simplifies the process, making the United States an attractive destination for property investment.
