Purchasing Property in Chicago
More and more foreigners buy property in the US, especially Europeans who invest as the Euro is stronger than the dollar and as the prices decrease due to the economic downturn. According to a 2015 National Association of Realtors about international home buying activity in the US, the Midwest area had 11% of homes purchased by foreigners whereas the South of the country had 49% and the West 31%. The State of Illinois is ranked #7 among the top US states where foreign buyers buy real estate. Illinois has only 2% of all international home buying transactions.
There is no limitation on ownership of a US property by a foreign national unless his country of origin is at war with the US. Keep in mind that because the United States of America are, in fact, federal states, some states may have different rules for foreign nationals than those that apply to US citizens. Also, remember that being an owner in the US means you have to pay taxes because of your ownership of the US territory. Therefore you have to obtain either a SSN (Social Security Number) or a Taxpayer Identification Number (TIN). This is very important to do, especially if you wish to sell your property in the future.
Initial Steps
- Check the status of citizenship before beginning the purchasing process.
- Obtain a SSN (Social Security Number) or a Taxpayer Identification Number (TIN). On how to get a SSN, see the section about tax and the special sub-section about SSN. Only noncitizens authorized to work in the United States by the Department of Homeland Security (DHS) can get a Social Security Number. Therefore, those who cannot get a SSN should obtain an Individual Taxpayer Identification Number (ITIN). An ITIN is a tax processing number only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security Number (SSN). To get an ITIN, you must complete IRS Form W-7 (IRS Application for Individual Taxpayer Identification Number). You can have the form online: http://www.irs.gov/pub/irs-pdf/fw7.pdf. The instructions are explained on the forms.
- Check the state regulations for foreigners buyers where he/she wish to buy. According to our research, there are no specific restrictions for foreign home buyers in Illinois.
Mortgage Process
Before you start to house hunting, you have to search for a mortgage broker/agent by screening the mortgage market. Once you have found one, ask the lender to give you a loan pre-approval letter. It is a checking of your income plus a credit report. Then choose your mortgage type. When you purchase your real estate, you will have to sign a promissory note. It states that you MUST pay back the money you borrowed to buy your property: this is the loan. A mortgage is a second contract in which it is stated that your house will serve as payment if you fail to pay off your loan.
Documents to provide to apply for a mortgage:
- You will be asked to prove your income for the past two years. As an expatriate, you will then have to provide your past two years pay stubs.
- The complete address for the past 2 years (including complete name and address of landlords for past 24 months). For first-time buyers, you might be asked to provide a letter from your landlord stating that you have always paid your rent and on time.
- You will have to prove all your money-related assets. For this, you will have to provide a copy of the last two or three months’ statements from all checking accounts, savings accounts, money market, mutual fund and brokerage (stock) accounts, etc.
- A copy of the sales contract signed by buyers and sellers.
- Social Security Number of all mortgage applicants. As a non-US citizen, you might also be asked to provide your passport and visa.
- If you own other real estates, you will have to provide their address and their current market value. If you have a mortgage on that real estate, you will have to provide the lender’s name, address, account number, monthly payment, and current balance. If you rent it, a copy of the lease will be needed.
Other documents might be asked according to your personal situation.
For the payment, one specific rule may apply to foreigners. They may need to put down a higher down payment of the purchase price than what an American citizen might usually do. It may vary between 20% and 30% of the buying price. Keep in mind that your down payment will also depend on the lender’s rules.
Private mortgage insurance is often required by lenders if the home buyer’s down payment is less than 20%. The Homeowners Protection Act of 1998 has set rules and limitations to this practice. For instance, it states that the lender must allow you to cancel the PMI when your equity has reach 22% or more.
Average Mortgage Rates in Chicago in January 2010:
- Rate for the fixed 15-year: 4, 74%
- Rate for the fixed 30-year: 5, 39%
Resources on how to finance your real estate purchase:
http://homebuying.about.com/od/findingalender/qt/GetMortgage.htm
http://www.marketwatch.com/story/how-to-get-a-us-mortgage-without-a-us-credit-record
Mortgage services in Chicago:
- Perl Mortgage http://www.homestartmortgage.com/
- Michael L Castronovo, Private Mortgage Banker https://www.wfhm.com/loans/michael-castronovo/index.page
- A and N Mortgage services http://www.aandnmortgage.com/
- Network Mortgage LLC
- AAA Reverse Mortgage Specialist, Inc http://www.aaarmsi.com/home.html
The Purchasing Process
1. Real estate agents
In the US only state licensed individuals may act as real estate agents/brokers or sales associates. To reinforce their professionalism on the market, a lot of real estate agents choose to subscribe to the National Association or Realtors (NAR) and to become certified by specific agencies.
If you decide to buy real estate in Illinois, we recommend hiring a real estate agent who is used to international sales and transactions as well as accredited or certified (for example CIPS: Certified International Property Specialist). It might also be a good idea to hire an attorney or a lawyer who will be able to guide the prospective buyer among US laws and taxes. This advisor must also have an international practice of real estate.
Before looking for a real estate agent in the US, it is important to know how US real estate agencies work. Real estate agents can represent either the seller or the buyer but also both of them. For more equity, it is advisable to work with a real agent that will represent only you. Therefore, search for buyer’s agencies on the web and pick one from those who are Accredited Buyer’s Agent (ABR). For more information about ABR, check the Real Estate Buyer’s Agent Council website: http://rebac.net/
Real estate agents’ mission is to represent his/her client. In Illinois, real estate agents have a “fiduciary duty” to their customers; it means s/he has to look for your best interests. Moreover, if the customer is a home buyer, the agent has specific duties according to the law. The main rule is that the buyer’s agent has to negotiate the lowest price and the best terms for his/her client, the buyer.
2. Purchase Agreement, Counter Offers and Earnest Money Deposit
Once you have found the house or apartment of your dream, you have to write and sign what is called a purchase and sale agreement or a sales contract. It is very important to stress the point that this document must be in writing. It must be an offer by the buyer and an acceptance by the seller. All the owners of the real estate must sign this document. The agreement must be very detailed and contain all the terms of the transaction. Be aware that you can negotiate and write counter offers. Your real estate agent is there to help you to do so. There are no limits to counter offers. Once your offer is accepted by the seller, you have to make an earnest money deposit to a reliable third party, but never the seller. An earnest money deposit is an amount of money you give to show the seller that you are a serious buyer. Generally the amount is specified in the written purchase contract and served to secure the contract. An earnest money deposit is different from a down payment. There is no set amount for an earnest money deposit. And there are no rules or law governing it. Therefore it depends of the market and varies across the city of Chicago. For example, in the Southwest Chicago suburbs, the earnest deposit amount is of $1000 for purchases in the $100 000. But in Chicago downtown and surrounding areas, the average earnest money deposit is about 10% of the contract price.
3. Residential Real Property Disclosure Act
In Illinois, this Act requires that the seller must attach a disclosure document when signing the purchase agreement. This disclosure document must list all the real estate defects and problems that are known by the seller. The buyer can then request the seller to repair them or ask for a price cut.
4. Home Inspection Service
It is recommended to request an independent professional home inspection before you buy a real estate and more particularly a house. It can consist in an examination of the roof, the electrical system, the plumbing system, the heating system, the global structure of the house, etc. Obviously, it is better to do so before you do an offer and as the prospective buyer, you will have to pay for it. The American Society of Home Inspectors (ASHI) is a professional society of home inspectors founded in 1976. They can help you to find a home inspector. For this, check their website: http://www.ashi.org/
5. Legal Title Issues
Your real estate lawyer will search the legal title of the real estate you wish to purchase. It is better to do this checking as your lawyer may find legal title that you will have to understand.
In the US, documents of title are used for real estate and other types of intangible property. When such documents are used, they are often part of a registration system whereby ownership of such property can be verified. In the case of real estate, the legal instrument used to transfer title is the deed. The rule is that a thief cannot convey good title, so title searches are routine for purchases of a real estate. In the US a standard title search is required under the law as a part of ownership transfer.
Therefore when you buy a real estate, you buy the legal titles that are with it. The title gives you the right to enjoy your property but unfortunately there might be restriction titles to your home and it is advised to know them before you purchase it.
For instance, in Illinois, there are two kinds of restrictions: implied easements and liens.
Implied easement: it may exist when a use of property continues for a certain period of time. For example, if a neighbor has been using a path on the property for years, s/he can acquire the right or easement to keep using it the same way. In Illinois, there are two kinds of implied easement: easement by necessity and easement by a preexisting use.
Lien: It is a charge on the property to satisfy a debt owed by the current owner.
6. Closing Costs
In Illinois, you will have to pay for charges, also called closing costs, when you purchase your real estate. They includes: Application deposit, broker’s commission, attorney fees, transfer taxes, attorney fees, title insurance, real estate taxes, private mortgage insurance, homeowner’s insurance. Other fees can be added.
7. Real Estate Settlement Procedures Act (RESPA)
This program from the US Department of Housing and Urban Development applies to almost all mortgage loans and mortgage companies. RESPA protects and informs buyers against unethical practices by settling disclosures throughout the buying process. You do not have to sign up for this or contact them. Under the RESPA, lenders and mortgage brokers are required to provide borrowers a booklet from HUD titled “Shopping for your Home Loan. HUD’s settlement Cost Booklet” within three days of when the borrower applies for a loan. You can find this booklet there: http://portal.hud.gov/portal/page/portal/HUD/documents/Settlement%20Booklet%20December%2015%20REVISED.pdf
It is a detailed guide on how to buy a house and get a mortgage.
For more information about RESPA, please check the HUD
