Parents want to buy a house for their child in the United States, how should they proceed?
Many international students in the United States rely on their parents' financial support when purchasing their first home. Therefore, it is important to understand the process and considerations for parents in another country who wish to buy a house for their children.
Many international students in the United States rely on their parents' financial support when purchasing their first home. Therefore, it is important to understand the process and considerations for parents in another country who wish to buy a house for their children. Typically, if parents provide a down payment for their children's home purchase in the United States, it can help secure better loan terms. Banks generally waive mortgage insurance requirements and provide the most favorable interest rates for down payments greater than 25%. However, children must provide specific documents to the loan officer to verify that their parents are providing financial assistance.
Initially, the loan officer will create a letter confirming that the funds are a gift from the parents to the homebuyer. This letter will mention the exact amount given, and both parties (parents and children) must sign it. However, if the money has been transferred to the homebuyer's account three months in advance, the bank typically considers it the homebuyer's personal asset and will not require the letter. Naturally, these requirements may vary depending on individual circumstances.
The United States Internal Revenue Service (IRS) stipulates that each parent (including in-laws such as fathers-in-law, mothers-in-law, fathers, and mothers) can gift up to $17,000 to each child annually without incurring a "gift tax." For example, if a newlywed couple intends to buy a house, and both sets of parents, totaling four individuals, each give $17,000 to this couple, multiplying $17,000 by 8 means the couple can receive a maximum of $136,000 without paying any gift tax. This amount of money should be sufficient for the down payment on their house. The $136,000 gifted by the four parents is not subject to gift tax, and the newlywed couple receiving the gift also does not need to pay income tax on it.
There are several methods available for remitting funds to one's children, which are as follows:
The first method involves each individual giving $17,000 at the end of the year, followed by an additional $17,000 at the commencement of the subsequent year. Consequently, parents have the ability to present a sum that is double the amount typically exempted from gift tax on an annual basis.
The second method is applicable for those who find it infeasible to present the gift at the year's end. There exists an alternative to give a larger sum midway through the year. According to the stipulations set forth by the United States Internal Revenue Service, every citizen or resident of the U.S. is entitled to a lifetime gift tax exemption amounting to $12.92 million. Thus, the surplus $17,000 in gifts can be effectively offset against this $12.92 million exemption.
What procedures do parents need to undertake in order to successfully remit funds?
If parents possess a United States Green Card or citizenship, their lifetime tax-exempt gift allowance amounts to $12.92 million; however, if parents hold Chinese nationality (and do not possess a United States Green Card), their lifetime tax-exempt gift allowance is limited to $60,000. That being said, even if parents of Chinese nationality gift amounts exceeding this limit, the United States government has no jurisdiction over them. Nevertheless, if the children who are recipients of the gift receive more than $100,000 from foreign individuals annually, then these American children (the beneficiaries) are obliged to declare this to the United States government by completing Form 3250; failure to do so will result in fines.
As for parents with U.S. citizenship, if they give their children more than $5.49 million, they must fill out Form 709. Therefore, as long as a gifting behavior occurs and exceeds the specified tax-exempt amount, at least one party must proactively report to the IRS.
The Chinese government stipulates that each Chinese citizen can only transfer $50,000 per year from China to overseas, including the United States. It is best for parents to directly transfer funds from their Chinese accounts to their children's accounts in the United States, rather than first transferring the money to their own accounts in the United States and then transferring it to their children's accounts.
Parents must also be aware: never give cash directly to your children and have them deposit it into their own accounts afterwards. This is because in the United States, if more than $10,000 in cash is deposited into an individual's account, the individual must provide detailed information about the source of that income. If children are studying or working in the United States, many Chinese parents consider helping them buy a house. However, the process of buying a house varies greatly depending on the child's stage and status in the United States.
Moving on to discussing children who come to the United States for study, they usually hold an F1 visa, which is a student visa. OPT is a legal internship visa that F-1 visa holders can apply for after graduating to stay in the United States. F1 visa students have 1 year of OPT time after graduation, during which they can search for internship opportunities in fields related to their major. Only by applying for OPT and obtaining an EAD (Employment Authorization Document) issued by the immigration office, can F1 students transition from student status to work status, specifically H1B. Most individuals who pursue their careers in the United States follow this path: F1 - OPT - H1B - green card.
Purchasing a property is easiest for children holding student visas. However, they do not have advantages when it comes to securing loans; in other words, the interest rate for the loans would be higher than in cases with other statuses. The property can be paid for in full or through foreign loans. After the child graduates, they can apply for OPT from the school. OPT is a legal internship visa in the United States that students holding F1 visas can apply for after graduation
Starting from this stage, since they have an income and a record of filing taxes in the United States, they can enjoy the same low down payment ratio and low interest rates as U.S. citizens when purchasing a house. The conditions for loans are also much more lenient. For example, well-known large U.S. banks such as JPMorgan Chase and Bank of America do not grant loans to foreigners, but if you are on OPT or H1B, you can obtain loans from them. When OPT ends, if the child has secured a job, their status changes to H1B, which is a work visa. Obtaining this visa is dependent on a lottery system and is purely luck-based. Many outstanding Chinese students wish to stay in the U.S., but they have to return to China because they do not secure this visa. (Of course, outstanding individuals will thrive wherever they are; this is just addressed to those who intend to stay in the U.S.~)
H1B has natural advantages when it comes to obtaining a loan for purchasing a house. If selected for H1B, individuals can enjoy the same low down payment and low interest rates as U.S. citizens. Even if H1B is not selected, as long as the individual is still within the OPT period, they can still enjoy the same low down payment and low interest rates as U.S. citizens.
In terms of loan conditions, there are more lenient options available when choosing a loan institution. Many loan banks can provide loans. The loan conditions are also easy to meet. Since H1B is a work visa, having a work permit, recent income, and tax returns means that the loan requirements are the same as those for local loans. The bank will determine your loan amount and interest rate based on your income, credit, and tax returns. You may even be eligible for tax exemptions for primary residences.
What types of loan programs are suitable for H1B visa holders?
As a Chinese individual holding an H1B visa, you are likely eligible for traditional loan programs in the United States. To qualify for these programs, you need to meet the following criteria:
Minimum credit score of 620
No income restrictions
Ability to provide at least two years of tax returns
By meeting these requirements, you can apply for a loan, and the down payment percentage will vary depending on the bank and loan institution, as well as the loan amount. The mortgage insurance you will need to pay in the future will be lower compared to FHA loans, and the insurance costs will disappear once you have paid off 20% of the loan amount based on the market value of the house. Additionally, you do not need to pay extra broker fees or application fees.
Tax issues that may arise with the H1B visa:
Unlike green card holders, the H1B visa is a non-immigrant visa, and with subsequent extensions, you can work in the United States for six years. In other words, if you still have H1B visa status after the six-year period, you will not be able to continue staying in the United States. If you plan to sell your property and leave the United States after that, you will need to pay income tax on the profit portion, and this tax can be quite significant. If you have plans to change your status, it is recommended to start preparing early.
In summary, for Chinese citizens holding the H1B visa, as long as your documentation is comprehensive, the chances of successfully obtaining a loan to buy a house are high, and you can also enjoy certain benefits.
I hope this article can help those who intend to stay in the United States! If you have any intention to purchase a property, feel free to contact us for consultation on high-quality properties in New York!