International Students In The Us: Can They Buy Homes?

The US has one of the most expensive education systems in the world, and international students are not eligible for federal financial aid. However, international students in the US can take out private loans from banks, credit unions, or online lenders to finance their education. These loans can be used to pay for tuition fees and living expenses, including accommodation. While some lenders require a cosigner who is a US citizen or permanent resident, there are a small number of lenders that offer loans without a cosigner. Additionally, international students can buy property in the US and may find it more financially beneficial to buy a house than to rent one, especially in cities with high rental costs, such as New York and California.

International students on F1 visas can buy property in the US

For example, Rahul, an F1 student from India studying for his Master's in California, found that rising rental costs made buying a home more financially viable than renting. Similarly, Samantha, an international student from Canada, also found that buying a property in California was a better option than renting due to the high rental costs in the state.

There are several benefits to homeownership for international students. Firstly, it provides a place to live during their studies, and secondly, it can set them up for future financial stability. Owning a property can also provide international students with a tangible asset that increases their net worth. Additionally, F1 visa holders can maintain ownership of the property even if they return to their home country. They have the option to sell the property, continue renting it out, or keep it as an investment.

However, it is important to note that F1 visa holders are usually considered non-residents for tax purposes, which can make reporting income from rental properties more complicated. It may be necessary to obtain an individual tax identification number (ITIN) if the individual does not have a Social Security Number (SSN). Seeking advice from an attorney or CPA who specializes in international tax can be helpful in navigating these requirements.

Foreign nationals can secure mortgages without a US credit history

International students on F1 visas can legally purchase a house in the US. They can also get mortgages, even without a US credit history or income. Some lenders offer specialised foreign national mortgages to international students.

Foreign nationals can secure mortgages in the US without a pre-existing credit score. However, the process may be challenging due to the lack of a credit report or FICO score, which lenders use to assess an investor's creditworthiness.

To overcome this, foreign nationals can provide credit references from their home country. These include rental payment history and bank reference letters. Additionally, establishing relationships with banks that have a US presence can help build an American credit report history.

Alternative mortgage programs cater to foreign nationals with minimal US credit history. These programs recognise that newcomers on visas generally have stable financial backgrounds and are therefore considered low-credit risks.

While paying in cash is an option, it can be risky to tie up large sums of money in a single asset. Obtaining a mortgage allows foreign nationals to leverage their investment and utilise their capital for other opportunities or liquidity needs. Building a mortgage payment history can also help establish a US credit history.

The application requirements for foreign nationals are not standardised, and additional documents may vary from lender to lender. It is advisable to have a down payment ranging from 20-25% of the purchase price when applying for a mortgage.

The high cost of renting in the US

International students in the US have the option to live on or off campus. While on-campus dormitories are ideal for freshmen, off-campus apartments and houses offer more freedom and amenities. However, the high cost of renting in the US can be a significant challenge for international students.

Over the past two decades, rents and house prices in the US have been rising faster than incomes across most regions. This trend has been exacerbated by the pandemic and various economic factors, making it increasingly difficult for individuals and families to keep up with the rising costs. According to a report by the Joint Center for Housing Studies of Harvard University, rents were unaffordable in 2023 for 22.6 million households, an all-time high. The report also found that half of all renters spent 30% or more of their income on rent and utilities, while more than a quarter spent 50% or more, categorizing them as "severely rent burdened" by federal standards.

Several factors have contributed to the spike in rent prices since 2020. Inflation has played a significant role, as higher costs for landlords, such as rising wages for maintenance workers or repair costs, have been passed on to renters. Additionally, there is a shortage of vacant rental properties, especially affordable ones. Prospective homeowners are facing barriers to homeownership, such as high demand, low inventory, rising mortgage interest rates, and supply chain disruptions, which have made it more challenging to construct new homes.

The shift to remote work during the pandemic also influenced rent prices. As more people sought larger homes in previously low-cost areas, rents in suburban areas increased. At the same time, rents in urban areas did not decrease significantly, resulting in a net increase in overall rents. Furthermore, the demand for studio and one-bedroom apartments has grown, further driving up housing costs.

The pros and cons of on-campus housing

International students in the US have various housing options, with on-campus housing being the most popular choice. On-campus housing typically involves dormitories, referred to as "dorms", "residence halls", or "res halls", where students have single or shared rooms. While this option is convenient and often mandatory for first-year students, it has its pros and cons.

Pros of On-Campus Housing

• Convenience and Immersion: On-campus housing is generally more convenient as it is within walking distance or a short commute from classes and other amenities. It also offers a more immersive experience, allowing students to easily socialise, attend on-campus events, and make friends.
• Security: Campuses usually have robust security systems, with campus security monitoring residence halls and parking lots to prevent break-ins.
• Pre-arranged Meals: On-campus housing often includes predetermined meal plans, which can be convenient, especially for international students who may not be familiar with the local cuisine or grocery options.
• Furnishings: Basic necessities, such as a bed, desk, and chair, are typically provided in on-campus accommodations, saving students the cost and hassle of furnishing their living space.
• Social Aspect: Living on campus provides a fantastic opportunity for social interaction and making lifelong friends.

Cons of On-Campus Housing

• Expense: On-campus housing can be expensive, and while utilities are typically included, meal plans can be very pricey.
• Roommates: Students usually have to share rooms or residence halls, which may be challenging for those who value privacy and personal space.
• Temporary Housing: During breaks and when the school is closed, residence halls may not be open, requiring students to find temporary housing.
• Limited Availability: On-campus housing may not be available at smaller universities or colleges, and spots can fill up quickly, so early applications are essential.
• Rules and Regulations: Living on campus means adhering to the institute's rules and regulations, which may limit students' independence and freedom to live as they choose.

In summary, on-campus housing offers international students convenience, security, and a rich social and cultural experience. However, it can be costly, with limited privacy and the potential for temporary housing disruptions during breaks. The decision ultimately depends on the student's budget, preferences for independence, and the overall campus experience they desire.

The upfront costs of purchasing real estate in the US

International students on F1 visas can legally purchase real estate in the US, even without a US credit history or income. This means that even if they return to their home country, they can maintain ownership of their US property.

The down payment is often the biggest upfront cost and can be a significant obstacle to homeownership. While traditional wisdom suggests a 20% down payment, it is possible to put down less depending on the mortgage loan, purchase price, credit score, and employment history. For example, a Federal Housing Administration (FHA) loan typically requires a minimum down payment of 3.5%, while a US Department of Agriculture (USDA) loan may require no down payment at all.

Closing costs, which include various fees associated with the real estate transaction, can range from 2% to 6% of the loan amount. These fees may include recording fees, homeowners' insurance, property taxes, and primary mortgage insurance (PMI).

Additionally, buyers may need to have cash reserves equivalent to 2 months' worth of mortgage payments to cover unexpected expenses. Lenders may also require prepaid items, such as upfront payments for interest, mortgage insurance, and property taxes.

It is important for potential homebuyers, including international students, to carefully consider their financial situation and budget for both upfront and ongoing costs when planning to purchase real estate in the US.

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