International Real Estate Purchase
Buying real estate is the United States has become a great investment vehicle for international buyers looking to invest in tangible assets with long-term growth potential, but the process can be a bit daunting.
Are you an all cash buyer or looking to finance?
Cash buyers are the norm but there are still plenty of opportunities available to international buyers looking to finance their second homes, investment properties, or new primary residence. I’m going to be cover the mortgage loan application process from asset and income verification to the closing table.
Many foreign born individuals believe they are incapable of obtaining a mortgage in the United States, this couldn’t be farther from the truth. According to the National Association of Realtors (NAR) 67% of resident foreign buyers had obtained mortgage financing from U.S. banks and private lending institutions in 2019. Non-citizens can even qualify for government-insured mortgages (FHA), which require substantially lower down payments than conventional lending but does require permanent residence.
How does all of this work?
First, you need to establish residency status. This DOES NOT mean you need to have permanent residency in the U.S. to obtain financing – Residency status typically falls into three categories:
- Permanent U.S. residents with a Green Card
- Non-Permanent residents with a Work Visa
- “Foreign Nationals” who’s primary residence is not in the U.S.
Second, you need to prove to the lender that you fit their “risk profile” – That means providing your employment history, credit history, and income verification.
Proving to a lender your creditworthiness can be a bit challenging when you have no established credit history in the U.S. however this does not prevent you from obtaining financing. If you have a relationship with an international bank from your country of origin with branches in the U.S. then proving your financial history just became that much easier. Many lenders are willing to forgo domestic credit reporting in leu of verifiable payment history and the FHA also accepts non-U.S. tax returns as proof of employment.
Where does this leave me and what are my options?
Foreign National Loan
ITIN loans or “Foreign National Loans” are an option available to individuals without a Social Security number, green card, work via, or FICO score. Borrowers demonstrate creditworthiness through income/asset verification and credit reports. Because of the obvious risk that is involved, rates are typically higher than conventional lending and require a substantial down payment (typically +35% of the purchase price). These loans are for investment properties only and typically have shortened amortization periods (less than 15 years).
Conventional Lending
When your mortgage loan application does not meet the Government-Sponsored Enterprise (GSE) qualifications, your next option would be to test the open market for non-conforming forms of lending. These are not “bad loans” by any means, they just do not meet the standard set by the federal government to be purchased by Fannie Mae and Freddy Mac on the secondary-market.
Since nonresident foreign nations are not eligible for government-backed fixed rate conventional lending, most end up with either adjustable ARM or sub-prime fixed rate mortgages offered by private lending institutions. Like Foreign National loans, these mortgages require down payment in excess of 30% of the purchase price and 6-months of credit card statements to qualify.
However, if you are working in the U.S. on a temporary work visa, or have established permanent residence with a green card, you can qualify for a Fannie Mae or FHA loan. Many banks and mortgage companies offer both conventional and FHA home loans to non-resident U.S. citizens, provided they can verify residency status, work history, and a good payment track record.
Foreign Investment in Real Property Tax Act (FIRPTA)
What is FIRPTA? A term commonly heard when discussing international real estate investment.
The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) states “Upon the sale, liquidation, redemption, gift, or transfer of property interest held by a nonresident of the United States a 15% income tax withholding must be withheld on the disposition.”
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