MORTGAGE FINANCING FOR FOREIGN BUYERS

Most banks and financial institutions will not make mortgage loans to foreign individuals or their corporations. However, we at Mortgage & Investment Consultants have put together specialized loan programs for our foreign friends and here to share with you what you should know before deciding to finance property in the United States of America (U.S.).

Programs for foreign buyers vary greatly as does the cost to obtain financing. U.S. Banking practices tend to be much stricter than most foreign buyers are used to so it is vital that the mortgage financing process be started very early on. The entire process from start to finish often takes 90 – 120 days or more. It is important to note at this point, that there is a strong correlation in the amount of documentation provided and the cost to obtain financing. The more information provided and documented the better the financing terms, i.e. interest rates, closing costs, points, prepayment penalties, etc.

Down Payment

Rarely will financing options exceed 70 percent loan to value (LTV) and often they will be limited to 50-60 percent LTV based on the lower of the appraised value or purchase price.

Interest Rate

Interest rates may be fixed for the life of the loan or they may be adjustable rate mortgages (ARM’s). Most loans will be fully amortized over 15, 20, 25 or 30 years. Loans made to foreign purchases and refinancers often are made on terms less favorable than those governing loans made to U.S. residents.

Adjustable rate mortgages generally have rates lower than fixed rates mortgages, but as the name indicates, they may vary over time. These rates are tied to a specific index, often the Prime Rate or London Interbank Offered Rate (LIBOR), and adjust accordingly as the index moves.

Other Terms

Once a loan program has been determined to best fit a foreign buyers wants, needs and ability, a “good faith estimate” (GFE) will be provided to the prospective purchaser of all known costs to be incurred by the purchaser at closing. These fees are disclosed on behalf of many participants in the transaction, including those from lender, appraiser, title company and/or attorney, insurance provider, State fees, County fees, pest inspector, surveyor, realtors, etc.

Considerations used to determine required down payment, interest rate and terms of loan include anticipated property use, type of property, borrower’s immigration status, ability to verify credit history, debt-to-income ratio and the amount of verifiable liquid assets in the U.S.

Property Use

Homes being used as a primary residence and/or second home have more flexible financing terms. Properties bought as investments have inherently a higher risk of foreclosure and therefore have more strict lending requirements such as lower loan to values, more credit documentation and higher reserve requirements.

Type of Property

Single family homes and townhomes are the preferred properties to our banking communities. Condominiums are separated into three categories: Low-rise, high-rise and condo-tels. Low-rise condominiums, four stories or less, being the easiest of the three to get financed. High-rise condominiums have some financing options, but tend to have higher rates and lower loan to values, where as condotels are unlikely to be offered financing.

Multi unit homes, referred to as duplex, triplex or 4-plex can be financed strictly as investment properties with higher down payment requirements and rates.

Immigration Status

A valid passport is required on all transactions for our foreign friends. In addition, a copy of any visas as applicable will be required.

Internal Revenue Service (IRS) form W-7, Individual Taxpayer Identification Number will also be required in many cases. Currently the IRS is taking 12-16 weeks to process so this form needs to be completed very early in the process.

Credit History

While program requirements vary greatly in this area specifically, remember the more information provided the better the financing terms may be. There are programs that do not require any of the following and those that require all. Be prepared to provide:

1. Two letters of reference from creditors (i.e. bank, credit card, mortgage company).

2. Letter from employer or other verification of employment terms

3. Personal financial statement for previous two years

4. Where applicable, two years tax returns and/or year end statements

5. Bank statements for proceeding months

6. International credit report

Debt-to-Income Ratio

Debt-to –Income (DTI) Ratio is the ability to service existing debt in addition to the new proposed debt. DTI is calculated by dividing all monthly expenditures to creditors by the total verifiable monthly income. In most cases this figure should not exceed 40-45%.

For those that have difficulty documenting income, there are “no income verification” programs available when other strong financial factors are present.

Liquid Assets

Liquid assets are defined as those assets that are accessible immediately or almost immediately, such as bank accounts and publicly traded stocks and bonds.

Assets needed for down payment, closing costs and reserves will most often need to be held in a U.S. bank account for a minimum of 30 days, some times longer. Reserve requirements vary by program. Three to six months of reserve mortgage payments is common, though can be as high as twelve months.

Opening a U.S. bank account should be one of the first tasks a foreign buyer takes when contemplating making a property purchase in the U.S. Many banks require an in person visit to start the process. Since this can result in having to make an extra trip to the U.S. we have arranged to have our foreign friends given the ability to open a new U.S. bank account over the internet and via mail. See our Seven Steps to Buying in the U.S.

Mortgage & Investment Consultants is a mortgage broker and lender with lending offices in many States throughout the U.S. We are currently able to offer residential financing in the following states: Florida, California, Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Tennessee, Iowa, Missouri, Illinois and Wyoming. We are able to close various types of commercial loans in all 50 states.

Our Mission is to bring the world closer together by creating real estate programs without borders.

We look forward to serving you.

Also see, Seven Steps to Becoming Market Ready: A step by step guide on how to own property in the U.S.A. www.sandongroup.com/7steps