Researching the subject of “second home” in relation to American expats reveals that a “second home” is any home that is outside of America. Costa Rica is said to be the most popular place for Americans to retire to their “second home“. South-East Asian countries are seeing foreign retirees as “second home” purchasers. Spain is considered as being one of the most popular places in Europe for a “second home”. All of this gives one the impression that the a “second home” for Americans is any home that is not in America.
Yet, if an American living abroad seeks to buy their one and only single-family home in America, they are told that such is a “second home” or even an “investment property”. With citizenship-based taxation on world-wide income, isn’t the one and only American home in America of an American their “first home”? I would think so, but I’m told not.
I’m currently in the process of attempting to get a mortgage for my one and only single-family home in America as a “second home” and the entire effort is being threatened with a total collapse. The problem is that the building insurance will only recognize it as being an “investment property”. No problem, one would think, but this means that the American home of an American cannot be financed as a “second home” since it is insured as an “investment property”. I explained that I might visit the property every now and then or even retire to it eventually. Nope, that’s an “investment property” because it will be rented out, I was told by the building insurance. I explained to them that I could leave the property unoccupied and live in it whenever I visited the area. Yet, then it won’t be insured and if it’s not insured then it cannot be financed.
I thought that I was doing a good thing. I wanted to invest my tiny American inheritance into America by getting a mortgage to help the troubled housing market and I fought my way past all the puzzling hindrances all the way to closing, such as foreign address issues, language issues, currency issues, tax issues, etc., only to learn that it might not close because my American home is a first or secondary home investment property conflict doomed for failure, thanks to the building insurance which states that “it’s the law”.
If that wasn’t bad enough, banks in Switzerland are telling me that they won’t finance my “second home” in Switzerland for the sole reason that I’m considered to be a “US person”. Never mind my high credit ratings in the US and Switzerland. Never mind that I have no criminal record in the US or Europe or anywhere else. Never mind my qualifying income. Never mind that I was honorably discharged from the US military. Never mind the current inability to purchase a first or second home in America without it being defined as an “investment property”. So, what now with one day left to go?
Well, following the advice of the lender, I went to another agency and answered the questions asked without volunteering any additional information, receiving the HO-3 Policy required to purchase a “second home”. The price is the same and the conditions are pretty much the same, with the only difference being that the property insurance meets the requirements of the loan without the “abroad” identity being identified.
Jefferson, I don’t really think that this is so much of a US Person discrimination issue, but rather an insurance issue. Insurers in the US are extremely paranoid of vacant houses– always have been. You would have to ask them for their definition of vacant though.
I think their reasoning behind the paranoia is due to risk of fire. If the property is vacant, someone can slip in and start a fire to try to stay warm. Next thing you know, the whole house in on fire.
That’s why I would recommend a 2nd home in a country where the predominant construction materials are brick and mortar. This will give you most of countries surrounding the Mediterraean and almost all of the countries of South America. At least here, I know many people with apartments that sit vacant for 99% of the year and in some cases– full years. Houses are a little more complicated. Since stand alone houses are usually more isolated, people tend to let other people live in their 2nd-3rd vacation houses while they are away.
So as with most things, even from a 2nd home perspective, there are always easier (and likely better) choices than the USA.
@geez, I (not Jefferson) suggested leaving the single family home empty as an alternative to renting it out. My idea was to buy my “first home” and to then rent it out while living abroad similar to how my parents did so before me. Yet, the banks says that I may only buy a “second home” or “investment property” and the building insurance says that I may only buy an “investment property” unless I personally live in the property x days per year. I was operating under the assumption that Americans abroad may purchase a home under the same conditions as any other American, but such appears to not be the case. It appears that Americans abroad may only purchase investment properties in the US.
I would like to add to your misery and deliver some caution. Go into the US and Swiss tax resident web pages and begin reading. Switzerland will of course tax you as its resident. USA will also consider you a resident of USA if you own a home there which is available for your use (not rented). Vice versa would apply in Switzerland I am sure, because Sweden and Norway have the same rule. Everybody wants you to be their tax resident!!!!!!!!!!
With some work, you can get around this with the elements of the dual tax treaty by
–ignoring it and hoping you get away with it
–requesting to get a residency judgement from the tax authorities according to their instructions
–renting it out
–putting it up for sale on a cheap internet site (at a high-but-not-fraudulently-high price)
I believe that the closing has been extended, but haven’t received a confirmation of such. Was asked to get a check for a deposit, but was told by the bank that such could only be snail mailed to a US address, which could take week(s) to get to me. There was an English misunderstanding on a form, which the bank corrected, but the correction was rejected and the form had to be redone. The IRS couldn’t sent tax transcripts to the lender due to what it called “address problem”. After correcting the address, they still wouldn’t send the transcripts. I called and asked them to send the transcripts to the lender, and they said that they would, but I later learned that the transcript was sent to me in Switzerland. I called again and had them fax the transcript to me in Switzerland using my US phone number. So, I think that everything is clear now except for a copy of a check that I have never seen before
Over the weekend, I got an email from my real estate agent asking if I had sent in the IRS documents so that we could get a month extension. I responded that I had sent in the documents over a week ago and that I was considering renouncing since more and more banks are refusing to refinance my Swiss mortgage as a result of US policy. I pointed out that if I renounce, then I’ll have no need or interest in having a second home in the States.
Later today, I’ll contact the building insurance and explain my situation to them, apologizing for not being honest about my location. This will most likely cause them to change the the status to “investment property” which means that I won’t get a loan for a second-home. I view the act of buying a second home in the US as being a risk and I’m not going to lie to be able to purchase US property while the US government is causing banks to reject American customers.
*The real estate agent inquired about the IRS documents. I stated that I had sent them over a week ago and hadn’t heard anything since, and that in the mean time I was giving up on the idea of buying a second home in the US since Swiss banks are refusing to refinance my mortgage as a result of US policy. The agent and bank seem to want me to continue with the matter and so I guess that I’ll let them try since they have been nice and put a lot of effort into it. However, the agent wrote the building insurance, informing them that I’ll be renting and this could result in the building insurance changing the insurance type to “investment property”. I called the US bank about sending out a copy of a check and this time they told me that they would send it directly to the loan processor instead of to me in Switzerland, which would take about 6 days.
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