international investors

1.    Definition of Non-Permanent Resident Aliens and Foreign Nationals
2.    The Financing Requirements
3.    Tax Return and Withholding

Definition of Non-Permanent Resident Aliens and Foreign Nationals

Non-Permanent Resident Aliens are foreigners who reside in the United States on a temporary basis and have documentation of a government issues work visa (H-1s), and could be purchasing a primary home while working in the U.S. 

Foreign Nationals, known as International Investors, are foreign citizens who are resident or nonresident alien visiting the United States on a temporary visa, and would only be purchasing a second home as an investment. 

The Financing Requirements

The requirements for buying a residential property in California are different between Foreign Nationals and Non-Permanent Resident Aliens.  

For Non-Permanent Resident Aliens, such as H-1 Visa, who want to buy a primary residence in California, the basic requirements are:
– 2 years residence in the U.S.
– 2 years credit history rating in the U.S.
– 2 years income/employment in the U.S.
– A minimum of 4 tradelines on credit report (items of credit, such as credit card, student loan, car loan, phone bill, water bill, etc).
– At least 20% down payment.

For Foreign Nationals (The International Investors) who want to buy a Residential Property in California as a second home, buying all cash is ideal but it is also possible to qualify for a loan with stricter terms.

For instance, you may be required to give 25% or more for down payment, show one year's worth of liquidity reserves, and there will be a loan value limit.  During the purchase transaction, many lenders require funds equivalent to closing costs plus six to twelve months of PITI (Principle Interest Taxes and Insurance) payments to be placed in a US bank account. You will need to deposit the PITI reserves and your down payment 2 months prior to loan approval in order for the lender to verify that the funds have been seasoned.

However, we suggest to Foreign Nationals that they choose to start an account in their home country with a large international bank, preferably with branches in California to avoid some issues such as US banks having problems accepting and translating or exchanging checks from International Accounts.

Several banks have International branches in California such as Bank of America, HSBC, or Citibank.  When the Foreign National is in the loan process, monies can easily be transferred and verified at these banks. They may even create U.S. based accounts for automatic monthly payment options.  High Net Worth Clients can also use the Private Wealth Management departments of these three International banks to get their accounts set up and verified.

Tax Return and Withholding

When Non-Permanent Resident Aliens and Foreign Nationals buy or sell properties in the United State are subject to withhold certain % of tax.  Please talk to your accountant or lawyer for more details.

downsize buyers and sellers

Have your children moved out to start their own path?  Maybe the annual maintenance and monthly bills for running a big home outweigh the benefits.  There are many reasons why one might want to downsize into a smaller home.  Here are some of the considerations facing this transition.

Do you need to sell your existing home?  We always recommend clients to hold on to their real estate investments to help grow wealth over time.  Being a landlord may not be for you, and if you need to sell, these are the challenges usually faced with moving up:

Timing — how to time the move out from your present home and move in to the new home.  Do you Buy First and then Sell, or do you Sell First and then Buy?

Contingent Offers — This is what you do when buying a new home that has a contingency upon you selling your existing home.  When you take this path, you will need to show the Seller that your home is ready to put on the market AND you will need to price it aggressively so it will sell somewhat quickly.  

Sell First — If you think your home will take time to prepare and sell, you may want to choose to sell your home first before you buy a new one.  Also, this may be the safer path if the thought of carrying 2 mortgage payments scares you.

Buy First — If you found your ideal home and don’t want it to get away, this may be the path you take.  When buying first, you will make a Contingent Offer as outlined above.

Bridge Loan Financing — If you have lived in your current home for quite a while and have a good deal of equity, you may be able to arrange a “bridge loan”.  This is a temporary loan you take out on your current home to make the down payment on your new home.  Once your current home is sold, you pay off this temporary loan.

Capital Gains — There is an exemption limit for capital gains on the proceeds of the sale of your home.  If you have owned your home for many years, the equity may have grown above this exemption limit thus leaving you to consider a tax bill.

1031 Exchange — This is a tax-deferred mechanism that is very useful if you are facing a significant tax bill when you sell your current home.  Basically, this section of the tax code allows you to roll over all your proceeds of the sale of your present home into another property, provided you make your present home a rental property for 1 year. 

Property Tax Basis — Depending on your age and where you move, you may have the opportunity to transfer your current property tax basis to your new home.  Rules vary from county to county so you will do best to check with your CPA. 

Move-up buyers and sellers

When is the right time to move up? 

You have a new baby or your current children are growing up and need more space.  Maybe your child is starting school and you want a good school district.  Maybe your parents need to move back in with you.  Maybe you are starting a home business and need a studio, or office, to work from home.  Whatever!  These or many other reasons may have you looking for a bigger space.  Here are some of the considerations facing this transition.

Do you need to sell your existing home? 

We always recommend clients to hold on to their real estate investments to help grow wealth over time.  Being a landlord may not be for you, and if you need to sell, these are the challenges usually faced with moving up:

Timing — how to time the move out from your present home and move in to the new home.  Do you Buy First and then Sell, or do you Sell First and then Buy?

Contingent Offers — This is what you do when buying a new home that has a contingency upon you selling your existing home.  When you take this path, you will need to show the Seller that your home is ready to put on the market AND you will need to price it aggressively so it will sell somewhat quickly. 

Sell First — If you think your home will take time to prepare and sell, you may want to choose to sell your home first before you buy a new one.  Also, this may be the safer path if the thought of carrying 2 mortgage payments scares you.

Buy First — If you found your ideal home and don’t want it to get away, this may be the path you take.  When buying first, you will make a Contingent Offer as outlined above.

Bridge Loan Financing — If you have lived in your current home for quite a while and have a good deal of equity, you may be able to arrange a “bridge loan”.  This is a temporary loan you take out on your current home to make the down payment on your new home.  Once your current home is sold, you pay off this temporary loan.

first time home buyers

Buyer roadmap

Defining Your Needs

Start with the end in mind.  Ask yourself questions like: Where do I want to live?  How much commute distance to work am I willing to accept?  

Some of these questions may be different for a first time buyer vs. move-up buyers but we basically like to start by doing a visualization exercise.  Close your eyes and picture your new home.  How much living space do you see?  How many bedrooms and bathrooms do you need?  What does the street and neighborhood look like?  What style is the home — modern or traditional, one or two levels, attached townhome or detached single home?  Can you see an outdoor yard space or patio or deck?  Will you have children attending public schools?  These questions help determine what are the highest priorities for your new home.

Realize tradeoffs — you can get anything you want, but you cannot get everything you want.  Maybe some things you really want will need to wait until your next home, after all, most Californians move every 7 years.

Get Pre-Approved

There are several benefits to getting a pre-approval before you begin your home search.  First of all, you will know exactly how much real estate you can afford and you can avoid any "payment shock" by knowing up front how much you will be spending each month toward your mortgage and property taxes.  Second, when you do find a property you want to buy, you will be able to move quickly to write an offer and be better positioned than someone less prepared.  Finally, being pre-approved is more efficient in that it reduces the amount of time it will take your lender to fund your loan because your loan application has already begun.

Be prepared to meet a loan agent and provide comprehensive documentation, which the lender may independently verify, including but not limited to:

  • Job and career status
  • Income
  • Monthly debt payments
  • Cash available
  • Total assets and debts

Sometimes the biggest issue with getting pre-approved is not about pushing the limit to get the most you can afford, it's more about finding what payment you feel comfortable paying each month.

From our experience, the initial payment shock lasts about 18 months.  After which time your income tax withholding has adjusted to the new payment and your lifestyle has normalized to home ownership.

House Hunting

Finding the right home for you is a process of elimination, not a process of selection.  When we begin a home search with a new client, we start by saying — of the homes on the market right now there may be 3 or 4 that fit your needs well, there will never be 24.  You do not need, nor should you want, to see every home on the market.

Based on the pre-approved price boundary and the needs analysis guideline from the first step above, it's time to begin your search.  Get to know the neighborhoods, complexes, or subdivisions that interest you.  Drive around to get a feel for what it would be like to own a home in the area and start getting a sense of the homes available in those areas.  Maybe ride a bike or walk through the area so you can see how people live; maybe go there on mornings, afternoons, and evenings as well as both weekends and weekdays to get sense of traffic and habits.

Select a few homes that interest you the most and have your real estate agent make appointments to visit them.  Keep detailed notes about what you like and dislike about each home so you can fine-tune your needs and trade-offs.

Make Offer

It happened.  You have been visiting homes and keeping notes until you walked into the home where you say — this is the one.  After reviewing the available inspections, reports, and disclosures given by the sellers you are ready to draft an intelligent offer.

Your agent should coach you on writing an offer most likely to be accepted by the seller.  Terms and conditions are just as important to the seller as the overall price.  How many days is the escrow time before closing — shorter time means the seller saves money on their mortgage, maybe the sellers need a rent-back from you so they can find their new home.  How much earnest money initial deposit are you putting down and how much time have you asked to do your inspections all show how serious you are about buying their home.

If there are multiple offers, you need to consider each aspect that makes your offer stronger than any other who comes to the table.

Home Inspections

Your offer is accepted and now begins your time of "due diligence".  As outlined in the purchase agreement, you will have time to perform your own inspections of the property.  It is wise to have professionals in specific areas like termite/pest inspectors, roof inspectors, chimney, etc go over the home and send you a report to make sure you know the condition of the home you are buying.

Depending on what is discovered by these inspectors you have several options:

  1. If a major issue is discovered, you may go back to the seller and ask they make repairs or credit you the cost of making these repairs
  2. You may break out of the purchase agreement and walk away from the home
  3. Or you accept what is found and continue to move forward knowing that you will need to pay for the needed repairs

Another important report that will be ordered comes from the Lender — the appraisal.  The lender will make sure that they are making a sensible loan so to protect you and them, they order a report to confirm the value of the property.

Close & Move-In

The "Closing" is just a term used for the time when all paperwork has been completed by both the Buyer and Seller, the escrow company has received all funds from the buyer and the lender, and the new owners are recorded with the county.

The final walk-through inspection takes place a couple days before the closing.  You visit the property to verify that all is in working order and in the same condition as when you decided to buy it (like making sure the movers didn't damage the walls or something).

You will need to transfer the utilities and services like cable, trash, etc so we will provide a list of useful phone numbers needed to get you started.

Finally, the seller will arrange to have all property keys, garage door remotes, and any other important information delivered to you when the escrow officer calls to confirm the new title is recorded with county.

 

first time home sellers

 

Seller roadmap

Inspections & Reports

Avoid surprises.  It is always best to know what is wrong with the home and have the opportunity to make repairs long before you put your home on the market.  Order as many inspections and reports as you can.  Most common are a general inspection, roof inspection, and termite inspection.  Your goal is to look for any "red flag" items that might scare away potential buyers.

The general inspection will highlight any issues that could potentially scare away a buyer.  They may also make a recommendation to have a specific professional like an electrician, or chimney expert, or furnace technician come out to look into the details of anything they find.

The roof inspection will give the general age of the roof and in most cases offer a 1 year "leak free" warranty so you can offer the new buyer some peace of mind.

The termite inspection is required.  An inspector will go through the entire home, including the crawl space under the home if you have one, looking for "wood destroying organisms" — termites, fungus, etc.  Their report will come in 2 sections of importance.  Section I includes active termites that need to be killed and where damage needs to be repaired.  Section II is where future damage may occur if some preventative care is not taken.  

Preparation & Repairs

It is now time to take the above reports made by the professional inspectors and make necessary repairs.  If you make the corrections they mention, potential buyers won't be able to find any issues with your home and use them as a negotiating point against your asking price.  Maybe you need to have a new roof installed; maybe you need to replace your bathroom tiles; or maybe you need to replace your carpets.

After all repairs are made you can begin preparing your home for sale.  You can do a lot to increase the appeal of your property over others in the market and to create a lasting impact on potential buyers.  When taken together, each of these suggestions may make your home sell faster or for higher money or both.

Curb Appeal — Keep your landscape pristine, and add creative touches to your yard, such as colorful flowers.  Make your home feel inviting to everyone before they have even stepped out of their car.  Paint your front door, add a neutral welcome mat, and remove any unnecessary items such as show closets, umbrella stands, etc which could make the opening look cramped.

Cleaning and Painting — Polishing the doorknobs, updating a fresh coat of paint to neutralize and brighten up each room, and cleaning every inch of your home makes new buyers believe they can just move right in.

Staging — Even if you decide that staging is not for you, the theory behind staging will always apply to your home.  We usually suggest our clients to move out of the home before we go on the market.  This allows buyers and agents to access the home without disturbing anyone and to have a "blank canvas" from which to arrange a furniture lifestyle.  Start by de-cluttering, depersonalizing, and neutralizing your home.  Keep in mind that less is more.  Remove personal pictures, CD, DVDs, etc and re-paint any rooms that have bold colors that may not appeal to most people.

Pricing to Sell

Your home is not worth what you say it should be worth, or what your agent says its worth, or even what your neighbor thinks it should be worth.

Your home is what a qualified buyer will offer with a lender who agrees to loan them money based on what an appraiser feels is fair market value.  That's it.

In today's market, if you want to get the most for your home, it MUST be priced correctly right from the start.  Buyers have a lot of choices.  They are looking for value.  When they see your home, it will be compared to everything else they and their agent have seen.  It may not feel natural, but it may be best to price your home a "little bit" under the market value so you get the most buyers showing interest and the greatest chance for obtaining competitive offers.

Accepting an Offer

Do not let yourself be fooled by the misconception: "The higher the price, the better the offer."  Price is not always the determining factor when accepting an offer for several important reasons: the initial offer is usually not final, and there are a number of other terms and conditions that are equally important.

Some important considerations:

  • Time duration for Buyer Contingencies — this is their time to inspect and back out
  • Escrow duration — maybe you need more time to find a new place to live, maybe  you want a fast close to save one more mortgage payment
  • Strength of financing — the strongest offer may have a higher down-payment and pre-approval letter.

Pack and Move

As mentioned above, we usually recommend our clients to move out of the home before we go on the market.  If you have done this, then your Pack and Move section is made easy.

If you have not moved out already, we recommend you wait until the contingencies are removed before packing.  Now is a good time to purge most of the items you won't need in your next home (yard sales, donations, etc).

Close of Escrow

The "Closing" is just a term used for the time when all paperwork has been completed by both the Buyer and Seller, the escrow company has received all funds from the buyer and the lender, and the new owners are recorded with the county.

The final buyer and agent will make a final walk-through inspection to verify that all is in working order and in the same condition as when the offer was made (like making sure the movers didn't damage the walls or something).

You will need to transfer or cancel the utilities and services cable, trash, etc so we will provide a list of useful phone numbers.

Finally, you need to arrange to have all property keys, garage door remotes, and any other important information delivered to the Buyer when the escrow officer calls to confirm the new title is recorded with county.