Foreign national lending has become a large component of the US housing market. The National Association of REALTORS reports that over $99 billion of real estate investment money comes from abroad, as of March 2014 and that number is only expected to rise in the near future. The homes that foreign nationals are purchasing are vacation homes and investment homes – some foreign nationals spend a few months out of the year here in the US while others see a lucrative investment possibility in homes in popular cities, such as California or Florida. Not a lot of banks offer this type of lending, but they are out there.
What is a Foreign National?
It helps to start with defining what a foreign national is to understand who would need these types of loans. A foreign national is a person that is a legal resident of a country other than the United States. This person may come to the United States throughout the year, whether on vacation or on business, but his primary home is in another country. This borrower does not have a green card or any other type of citizenship in the US. The income, assets, and credit that apply to the borrower are all based in his resident country. These stipulations are what render the foreign national loan the only loan available to this borrower since he is not a resident of the United States.
Foreign National Lending Requirements
As you likely guessed, the stipulations to obtain the foreign national loan are much stricter than any other loan, for the mere fact that the borrower does not live here in the United States. The home is obviously not a primary residence so there is an elevated level of risk right from the get-go. In addition, if there are other escalated risks, such as the property not being a single family property, such as a 2 or 3 unit property, the risk of default becomes even worse.
In general, a lender that offers foreign national lending will require a higher down payment and by higher, that means a minimum of 30% of the purchase price. Sometimes the down payment required can even be as high as 50%, depending on the exact circumstances. Just what does a bank consider risky with a foreign national loan? Here are a few examples:
- The purchase is the borrower’s first foreign purchase, which means he does not have extensive experience in investment properties or even owning a second/vacation home
- Purchasing a condo rather than a single family home
- Purchasing a multiple-unit property
- Other factors that are considered in creating the loan for a foreign national include:
- Proof of stable and credible income for the last 2 years; this proof must come from an accountant as well as their place of employment. Some banks will also use bank statements to verify the receipt of income.
- Credit reports from your native country or from the United States if you have experience with foreign national lending already.
- Proof of adequate assets for the down payment as well as the required amount of reserves as is determined by the lender, but is typically a minimum of 12 months’ worth of the mortgage, interest, taxes, and insurance.
- Many lenders will also do a reference check on the company that the borrower works for in their country to determine if there are any issues with the company that poses a risk.
In addition to the above requirements, you will need to provide your passport for identification as well as your Tax Identification Number or TIN. The TIN is necessary in order to ensure that the appropriate taxes are paid to the United States each year.
Miscellaneous Issues for Foreign National Lending
There are a few unique issues that foreign national lending encounters. These include the need for documents to be notarized. If the documents are signed anywhere but the United States, they need to be notarized by the U.S. embassy and must include the embassy seal. Some loans allow the power of attorney, but foreign national loans do not allow it – all loans must be done in person. All documents provided for qualification purposes must also be translated into English. A majority of the foreign national loans offered are from Canada and the United Kingdom, but others do come from countries where they do not speak English including China and Mexico.
In addition, any assets that are used for qualification purposes, whether for the down payment or for use as reserves must be seasoned for 12 months – which means they must have been in the borrower’s account for 12 months. This prevents any “fluffing” of the numbers and just stuffing another person’s money in the borrower’s account to make him look as if he can afford the loan when in reality he cannot. Typically no lender allows a non-occupant borrower or the use of gifts as a source of funds.Click to See the Latest Mortgage Rates»