Expenses people overlook when buying real estate in the U.S.

Besides the purchasing price, there are other expenses that come along with buying a U.S. investment property. International clients should be fully aware of the added costs that are included in their U.S. real estate acquisitions.

Buyers should understand the additional potential financial responsibilities, such as Homeowners’ Association dues, property insurance policies, and property taxes.

To help international clients prepare for their U.S. investment property purchases, here is a look at the types of expenses that accompany your transaction. We’ll also be covering the impact that taking out a mortgage can have on reducing the expenses owed on the purchase. Generally speaking, these costs along with other transaction closing costs can add up to as high as 2%-5% of the purchase price depending on the property’s location.

Homeowners’ Association Dues

Many communities are under the management of a homeowners’ association or HOA. HOA’s are run and operated by residents of the community and they are responsible for keeping the community clean, orderly, and fully operational. The added management structure makes an HOA a wonderful asset to investors, who may not be there in person to oversee their investment property. Usually, homeowners’ associations take care of budgeting, enforcing rules and regulations, and providing services and amenities.

If you’re buying a property in a community managed by a homeowners’ association, you’ll need to prepare for added expenses like monthly HOA fees, and other special collections to fund repairs and potential property upgrades. In general, how much you pay will depend on the area, your home, the amenities offered by the community, and other factors.

Since the fees charged by homeowners’ associations vary, buyers will need to get all of the details from the property’s association. One item to be specifically aware of is the annual inspection. If your community’s association requires an annual inspection, buyers may have to pay the fee upfront at closing in a lump-sum amount.

Homeowner’s Property Insurance Policies

Taking out an insurance policy for your new home is an essential aspect of safeguarding your investment. Your insurance policy rates will depend on the property you’re buying and its location. It’s a good idea for buyers to shop around for various policy quotes to find the insurance company with the best offer.

If you are financing the purchase of your property, insurance policies are required by most lenders. In these cases, the insurance costs are typically bundled or escrowed into your total monthly payment. A percentage of your monthly payment will go towards your policy. If you do not have your insurance premium escrowed as part of your loan, you will be responsible for making payments directly to your policyholder.

Property Taxes

The taxes that international clients will be required to pay on their U.S. property purchases primarily include the property taxes. Property tax responsibilities vary by location. Different states have different policies, and the property’s immediate location will also influence its taxes. Buyers should keep in mind that some states, including Florida, have documentary stamp and intangible taxes instead of property taxes. Since the specific amount of taxes owed on the property will vary listing by listing, buyers should speak with their trusted tax professionals for more details.

When you finance your home with a mortgage, lenders typically bundle the property taxes owed into your loan. Your lender will collect the taxes owed and hold them in an escrow account until tax season comes along, at which point they submit your tax payment on your behalf.

At the time of purchase, buyers will be responsible for paying the taxes owed on the property after closing until the end of the year. The seller will be responsible for the taxes owed for the months that they owned the property. This way, each party pays their appropriate taxes for the transaction year.

Don’t Forget About Title Fees, Property Appraisal, and Property Inspection Expenses

In addition to HOA dues, insurance, and taxes, international buyers will want to have room in their budget to cover the preliminary costs associated with their purchase.

Buyers will be responsible for paying for the property’s appraisal, which determines the fair market value of the property for loan purposes. Buyers may also need to pay for a home inspection, to ensure that there are no hidden issues in the home before buying. Finally, buyers will need to pay for title fees at closing. This fee covers the expenses of officially recording your title when you buy the home.

International Buyers Can Deduct Their Mortgage Interest When Filing Taxes

One of the biggest benefits associated with obtaining a mortgage loan to finance your U.S. property purchase is the ability to deduct the interest paid on your loan from your taxes. This can lessen the amount of taxes you are required to pay, potentially helping make the purchase more affordable.

Foreign buyers who plan on using their home for personal use, as either a first or second home, have the opportunity to deduct their mortgage’s interest from their taxes. However, investors interested in renting out their U.S. properties do not have this option. Discuss this point with your tax professional to see how this can apply to your specific situation.

Milo Home Loans for International Buyers

We understand that the financial responsibilities related to buying real estate in the U.S. may be different than the regulations in your home country. Understanding how the full scope of financial responsibilities will impact your real estate investments in the United States should be one of the first steps taken towards your purchase.

Milo recommends that all of our international clients talk to trusted tax and financial professionals about their specific situations.

If you’d like to get a home loan for your purchase of U.S. residential real estate, Milo is here to help.

Get in touch with Milo, your friends in the mortgage business. We proudly provide U.S. home loans for foreign nationals. We are a team of multiple nationalities and we understand the specific challenges international buyers face when acquiring homes in the United States.

Click here to visit our website and learn more about how we’re reimagining financing for global consumers.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.