Indian Loans: Buying Property Across State Lines

Indians can purchase property in the US, and some US mortgages are available to non-citizens. However, most US banks do not offer overseas mortgages, and a US bank would have no legal basis to repossess a property in India. Therefore, it is not possible to get a home loan in the US for a property in India. Indians looking to buy property in India may consider getting a mortgage through an Indian bank, or a HELOC or investment loan on a US property. Additionally, within India, there are certain states and territories where people from other regions cannot buy land or property, including Arunachal Pradesh, Himachal Pradesh, Uttarakhand, Sikkim, Meghalaya, and Nagaland.

Foreigners can buy property in the US

In the United States, there are no legal restrictions on who can buy property. This means that anyone can buy property in the US, regardless of their citizenship status or residence. Foreigners can purchase all the same types of real estate that a US citizen can, including residential and commercial properties.

However, it is important to note that the process of buying property as a foreigner can be complex and challenging. Foreign buyers often face difficulties in securing financing from US financial institutions due to a lack of US credit history, which may limit their options. As such, many foreign buyers opt to pay in cash to avoid these complications. For those seeking financing, some US banks do offer foreign national mortgage programs, but these typically require a higher down payment, usually around 30-40%, and may come with higher interest rates. It is also crucial to be aware of tax implications, such as the Foreign Investment in Real Property Tax Act (FIRPTA), which imposes withholding taxes on foreign sellers of US real estate.

• Determine your budget and financing options: Consider your financial situation and whether you plan to pay in cash or seek financing. If you choose the latter, research lenders that offer foreign national mortgage programs and be prepared to provide a larger down payment.
• Understand the tax implications: Consult with a tax professional to understand the tax laws and potential withholding requirements, such as FIRPTA, that may apply to foreign buyers.
• Hire a real estate agent: Engage the services of a real estate agent who has experience in international transactions and understands the complexities of buying property as a foreigner. They can help you navigate the legal and financial aspects of the process and provide valuable insights on locations, market trends, and legal requirements.
• Conduct due diligence: Research the local real estate market, including recent sales, trends, property values, and the specific neighborhood you are interested in. This will help you make a well-informed decision and ensure a profitable investment.
• Get pre-approved for a mortgage: If you are using a mortgage, securing pre-approval from a lender is crucial. It will help set your budget and demonstrate to sellers that you are a serious buyer.
• Start your property search: With the help of your real estate agent, begin your search for properties that meet your criteria and fall within your budget.
• Make an offer and conduct inspections: Once you have found a suitable property, work with your real estate agent to submit an offer. Before finalizing the purchase, it is essential to conduct a thorough inspection of the property to identify any potential issues and be aware of any necessary repairs or renovations.
• Finalize the purchase: Proceed with the necessary paperwork and legal steps to finalize the purchase, ensuring that you comply with all applicable laws and regulations.

By following these steps and working with experienced professionals, foreigners can successfully navigate the process of buying property in the US and make informed and rewarding investments.

US loans for Indian citizens

Indian citizens can obtain loans in the United States, although the process may be more complex than for US citizens. The type of loan an Indian citizen can access depends on their visa status and their purpose for requiring a loan.

Indian Citizens with US Visas

For Indian citizens with US visas, there are a few options for obtaining a loan in the US.

• Mortgages: Indian citizens can obtain mortgages in the US, although the criteria are more specific than for citizens. Foreign national mortgages can be used to fund property, and buyers can either get a conventional loan or explore other options such as investment loans. FHA loans are simple to obtain and only require a 3.5% down payment. However, conventional mortgages offered by lenders such as Freddie Mac and Fannie Mae require a social security number, proof of residency, and proof of income for at least the last three years. Most US banks do not offer overseas mortgages, but some specializing in international business do. Additionally, a mortgage broker can be employed to find a suitable lender.
• Personal Loans: Personal loans are usually unsecured, meaning no collateral is required. Interest rates can range from 5% to 20%credit history and whether there is a cosigner. Lenders like Stilt provide loans to visa holders, although there may be obstacles, and not many lenders offer this service.
• Student Loans: Indian students can apply for international student loans to fund their studies in the US. A cosigner is often required for private loans, and they must be a US citizen or have lived in the US for at least two years. The maximum loan amount covers the total cost of attendance, including tuition, books, health insurance, and other necessary expenses.

Indian Citizens Living in India

For Indian citizens living in India who want to obtain a loan in the US, there are a few options:

• US Loan for Property in India: It is difficult to obtain a home loan in the US for property in India, as US banks have no legal basis to repossess the property if loan repayments are defaulted on. However, it is possible to get a HELOC on a US property, a loan against investments, or to borrow from friends and family.
• India Home Loan: An India home loan is a personal loan used to cover the down payment for a new home in India. This can be a good option to avoid the hassle and extra costs of obtaining a loan in India. Repayments are made in Indian Rupees through Non-Resident External (NRE) or Non-Resident Ordinary (NRO) accounts.

Indian states that restrict outsiders from buying land

In India, certain states and Union Territories (UTs) restrict outsiders from buying land or property. These restrictions were introduced to recognise the needs of the people inhabiting these regions. While some states allow outsiders to purchase residential homes, they bar them from acquiring agricultural land. Here is a list of Indian states that restrict outsiders from buying land:

Himachal Pradesh

Section 118 of the Himachal Pradesh Tenancy and Land Reforms Act prohibits the transfer of land to a non-agriculturist through sale, will, or exchange. However, Section 118 also allows outsiders to buy land and property after receiving government approval. To obtain approval, a prospective land buyer must apply, stating the purpose for which the land will be used, and the state government will make a decision after verifying the credentials.

Nagaland

Article 371A of Nagaland's Constitution prohibits non-residents from buying land. Only tribals who are residents of the state can acquire land according to the law.

Sikkim

Article 371(F) grants special provisions to Sikkim, prohibiting the sale and purchase of land or property to outsiders. Only residents of Sikkim can buy land in the state, and only tribals can purchase land and property in tribal areas. However, outsiders are allowed to buy land for setting up industrial units.

Arunachal Pradesh

Arunachal Pradesh does not permit the sale of land or property to outsiders and non-tribals. Previously, even indigenous tribals had no individual rights over land, as it was owned by communities.

Uttarakhand

In Uttarakhand, outsiders can only buy 250 square meters of agricultural land for residential purposes, according to an Act enacted in 2003. Additionally, outsiders cannot buy agricultural or horticultural land in 11 of the state's 13 districts, according to a new draft law approved by the Uttarakhand Cabinet.

Getting a loan in India vs. the US

The process of obtaining a loan differs between India and the United States, particularly in terms of eligibility, requirements, and the types of loans available. Here is a detailed comparison of getting a loan in these two countries:

Getting a Loan in India:

In India, various types of loans are available, including personal loans, which can be applied for online or through financial institutions. The eligibility criteria and requirements for obtaining a loan in India can vary depending on the lender and the type of loan. Some common requirements may include providing proof of identity, address, and income. A good credit score is also crucial for loan approval.

Getting a Loan in the United States:

In the US, loans can be obtained from banks, credit unions, or other financial institutions. The eligibility criteria and requirements may differ based on the lender and the loan type. For instance, for a mortgage, a social security number, proof of residency, and income verification are typically required. Additionally, US loans may require a higher down payment compared to Indian loans, and the interest rates and loan terms can vary significantly.

One key difference between the two countries is the availability of loans for non-citizens. In the US, non-citizens can obtain loans, including mortgages, although the options may be more limited. Specialized lenders or international banks may provide these services. On the other hand, in India, the availability of loans for non-citizens is less clear and may depend on the specific circumstances and the lending institution's policies.

Furthermore, the loan application and approval processes vary between the two countries. In the US, the process is often streamlined, with online applications and quick approval times. The loan approval status can be received within minutes, and funds are typically available within a few business days. In India, the process may involve more manual steps and could take longer, depending on the lender.

Lastly, the tax implications of obtaining a loan differ between the two countries. In the US, foreign property owners may face more complex tax scenarios than US citizens. Understanding the tax consequences is crucial before acquiring a loan or purchasing property in either country.

Tax implications of buying property in India with a US loan

It is important to note that you cannot get a home loan in the US for a property in India. However, if you already own a property in the US, you can get financing or refinancing and transfer those funds to India to purchase a property.

Now, let's discuss the tax implications of buying property in India with funds from a US loan. When purchasing property in a foreign country, it is essential to understand the tax laws and regulations of both countries to ensure compliance and optimize your tax obligations. Here are some key points regarding the tax implications of buying property in India with a US loan:

US Tax Implications

According to US tax laws, a taxpayer filing a tax return can generally claim deductions for mortgage interest and property taxes on their first or second home, regardless of the country in which the home is located. This means that if you are a US taxpayer and you own a home in the US and another home in India, you may be able to deduct the property taxes and mortgage interest paid on both properties when filing your US tax return. However, it is important to consult with a US tax professional to ensure you meet the specific requirements for these deductions.

Additionally, if you earn rental income from the property in India, the tax rules become more complex. The treatment of rental income depends on the number of days the property is used for personal use versus rental use. If you rent out the property for 14 days or fewer and use it for personal use for more than 14 days or 10% of the total rental days, whichever is greater, it is considered a personal residence. In this case, you can deduct mortgage interest under the standard second-home rules, but you cannot deduct rental losses or expenses.

Indian Tax Implications

When purchasing property in India, it is essential to understand the tax implications, especially if you are a Non-Resident Indian (NRI). Here are some key points:

• Tax Deducted at Source (TDS): When an NRI sells a property in India, the buyer is responsible for deducting TDS at a specific rate from the sale proceeds. The TDS rate is typically 20% if the property is sold after two years from the date of purchase or 30% if sold before completing two years. The buyer must obtain a Tax Deduction Account Number (TAN) and deposit the deducted TDS amount with the Indian Income Tax Department within the prescribed timeframe.
• Repatriation of Sale Proceeds: For an NRI seller to repatriate the sale proceeds from the property sale to a foreign bank account, they must submit specific forms (Form 15CA and 15CB) to an authorized dealer bank. These forms typically need to be signed and certified by a chartered accountant. There may be limits on the amount of money that can be repatriated annually.
• Capital Gains Tax: If you sell the property and make a capital gain, you may be able to claim exemptions under certain conditions. For example, you can invest the gains in constructing another property in India within three years from the date of sale. Alternatively, if you have not invested the gains by the time you file your tax return, you may be able to deposit the gains in a designated bank account under the Capital Gains Account Scheme, 1988, and claim this as an exemption from capital gains tax.

In conclusion, when buying property in India with funds from a US loan, it is essential to understand the tax implications in both countries. Consult with tax professionals specializing in US and Indian tax laws to ensure compliance and optimize your tax obligations.

Frequently asked questions