Foreign national mortgage loan expert Michael Abrams.
The terms of foreign national loans change based on the current US lending environment. In stricter times during recessions, lender requirements tighten- lenders want higher down payments of 40%, offer adjustable-rate loan programs only instead of fixed-rate programs, may ask for more documentation, and may take longer to close, taking 45 days instead of 30 days. Over the years working with foreign nationals I have observed the loosening and tightening of the lending terms. We are currently in a loose lending environment in the US since we are still in economic expansion.
Banks underwrite foreign national loans as investment property loans. The nice thing about underwriting the loan this way is it doesn’t require as much documentation which is always one of the biggest obstacles for foreign nationals. No tax returns are required for foreign national loans. Sorry, if you are not a US Citizen or Residential Alien, you will not be able to get a primary residence home loan on your US purchase which will have the standard loan fees and interest rates. TWO MAIN THINGS: LTV and Property type, banks like single-family better than condos or income properties
Not every bank offers foreign national loan programs. This is a very specialized program that not every bank does. I have found the best success with international banks like HSBC, East West Bank and China Trust to name a few for the big banks since they have international customers who they want to provide this service for. US-based domestic banks like Wells Fargo, Chase, Bank of America don’t like to lend if you don’t have US Tax Returns and usually won’t have a foreign national loan program. In addition to the big international banks, there are also private lending programs in the US for foreign nationals that a mortgage broker can direct you to.
If you are not from the US, you probably don’t have a US Credit Score. Some Foreign investors will have international credit scores. Some countries require citizens to file taxes and some don’t. Some countries have English as their primary language and some don’t. If you are dealing with tax returns in a different language then the lender may need to hire a translator at a cost of $50 per page to translate the documents. Taxes work differently in every country, which is one reason foreign national loans are harder than conventional financing.
Foreign National Loan Terms
Slightly Higher Interest Rate
Foreign national loans usually have a 1% to 1.5% higher interest rate than normal loans. So if the average mortgage interest rate is 4% in the US, then expect to pay 5% to 5.5% on a foreign national loan.
Right now lending is loose, so down payments on Foreign nationals have dropped to 25% to 30%. I have seen this go up to 40% to 50% during tough economic times. In general, expect to put more money down.
In down years, only Adjustable Rate Loans Available
When the US is in a recession, lenders will only offer Adjustable rate loan programs to foreign nationals. The typical program would be a 5-year/ 7 year /10-year adjustable-rate with either interest only or amortized. Right now Foreign nationals can get fixed-rate financing.
Loan times are the same as Conventional Loans
The loan time for foreign national loans is the same as regular loans there isn’t any difference between the two. We are currently closing loans in 30 days in the US, but it can slow down to 45 days during recession years.
Borrow Paid Interest vs. Lender-Paid Interest
Borrowers have the choice between borrow paid interest and lender-paid interest for loans. For borrow paid interest the loan fees will be higher but the interest rate lower, whereas lender-paid interest, the loan fees will be lower but the interest rate will be higher. The typical rate on buyer paid interest is 1 point, which means 1% of the total loan as a fee. The interest rate will be 1% to 1.5% + the normal interest rate. If you choose lender-paid interest, there is no extra 1% fee but the interest rate will be about 1% higher, so add 2% to 2.5% to the normal interest rate.
Let’s look at an example so you can see the difference:
Let’s suppose you are buying $1,000,000 USA property. Current interest rates are 4%. You are putting 35% down payment which means $650,000 loan. The average us mortgage rate is 4%.
For Borrow Paid Interest, you would pay 1% of $650,000 as a fee- or $6,500 and the interest rate would be 5% – 5.5%
For Lender Paid Interest, there would be no fee but the interest rate would be 6% to 6.5%.
Prepayment Penalty for the first 2-3 years
A lot of foreign national loan programs will have a prepayment penalty for the first 2-3 years. This means that if you pay off the loan either by selling the property or refinancing that the bank will charge a prepayment penalty fee. The fee works on a sliding scale that goes down over time until there is no fee. If you had a 3 year prepayment penalty as a loan term and you sold in the 1st year the penalty might be equal to 5 or 6 months or mortgage payments, in year 2, 3-4 months of mortgage payment, and year 3- 1 – 2month payment.
Some Countries Excluded
For various reasons, some banks may not borrow to foreign nationals from certain countries and put them on an exclusion list. The main reason for this the country has an unstable government, but it can also be about money laundering or terrorism. If you live in a first world or 2nd world country this should not be an issue. Every bank has a different program so just because one bank says no, doesn’t mean a different one won’t, so I’d shop a little bit more if you get turned down once.
Special Thanks to my Dutch friend geld lenen met BKRfor helping me with this article!