If you are a real estate investor living in a foreign country looking to make your first real estate purchase in the US, you must learn about foreign mortgages before engaging in the US real estate market. Generally, foreign nationals don’t have a US credit history to get a mortgage. Jia Finance foreign mortgages are designed to help people get mortgages in the US with no or thin US credit, and without the use of income. If you have decided to buy a property in the US, it’s good to learn all about foreign national loans.
In this guide, we will discuss all you must know about foreign national loans step-by-step to help you understand the loan options, process, and requirements. Also listed are a few tips on how you may find the best investment properties to suit your budget and investment goals.
FIRST A QUICK SUMMARY OF RECENT DATA FROM THE NATIONAL ASSOCIATION OF REALTORS FROM 2022:
Per the National Association of Realtors (NAR) report, foreign nationals purchased $59 billion worth of US existing home sales between April 2021 and March 2022 ($153B at its peak in 2017). Foreigners bought 98,600 existing home units worth $59 Billion from April 2021 – March 2022, up by 8.45% in terms of dollar volume ($54.4 Billion during the same period last year). A key item to note is that more than 40% of transactions were based on cash deals. This compares to ~20% for domestic purchases in the US. A big factor attributing to this is lack of efficient funding and a streamlined process. Jia Finance program offers mortgages to foreign nationals without US credit and no income, employment verification. We make the process straightforward with the credit decision mostly dependent on the value and cashflow ability of the financing property.
Jia Finance program offers mortgages to foreign nationals without US credit and no income, employment verification. We make the process straightforward with the credit decision mostly dependent on the value and cashflow ability of the financing property.
Before delving into the loan specifics, let's take a brief look at the macroeconomic context.
TRAVEL DEMAND FROM AROUND THE WORLD:
Many countries have lifted their travel bans, including the United States which lifted its travel ban in November 2021, allowing fully vaccinated travelers to enter the United States. With the progress on vaccinations and easing of travel restrictions, travel has started to pick up. As of February 2022, the largest increase in the number of arrivals compared to one year ago were from Canada (+1.6 million), Western Europe (+407,248), and Mexico (+380,196). As of February 2022, the 2.3 million monthly tourist arrivals to the United States were still at 45% of the nearly 5 million arrivals in February 2020. The strongest recovery has been among arrivals from Mexico (71% compared to February 2020), Central America (219%), Western Europe (131%), and Canada (46%). Arrivals from Asia have recovered the least (18%).
STRONG US HOUSING BACKDROP
The most pronounced subject is lack of housing inventory where the U.S. housing market remains undersupplied. This in turn provides tailwind for rising rental prices and firmer home prices even in scenarios of low buyer demand due to financing costs such as 2023.
USD represents a great currency hedge for those investing from volatile regions. Moreover, the USD makes a major component of reserve currencies. Notwithstanding the strong price gains in the U.S. housing market, U.S. single-family home prices remain affordable compared to the cost of a property in a central business district in other countries (see excerpt from NAR research).
WHAT WILL YOU NEED TO APPLY FOR A MORTGAGE?
Applying for a foreign national mortgage with Jia Finance is straightforward. Here are the documents you will need:
- Copy of passport
- Credit report from your home country in English
- Open a US bank account
- Proof of foreign assets for reserve requirement
- Subject property appraisal with a rent schedule addendum
- Executed purchase agreement for a purchase transaction
- Property ownership inside and outside the U.S.
- Subject property tax and insurance amounts
No financial documents or US credit history are required if you are buying investment property in the US. You can get the loan based on the rental income you will generate from your US rental property.
Foreign national is the quickest option to get financing for a US property. However, if you have established US credit, you can get conventional loans also.
FOREIGN NATIONAL MORTGAGE WITH NO OR THIN US CREDIT HISTORY
1. FOREIGN NATIONAL LOAN
This type of international home loan is designed for foreign citizens looking to purchase a home in the US as a secondary home. Foreign investors who are non-residents can get a mortgage through Foreign National DSCR program. They don’t need a green card, visa, or Social Security Number to apply for the Loan. However, they need to prove their creditworthiness through a credit report from their country of origin. To learn more, refer: Credit Guide to Foreign National Mortgage Loans with No US Credit
2. FOREIGN NATIONAL DSCR
The Debt Service Coverage Ratio (DSCR) loan is a popular option for foreign investors. The DSCR loan requires investors to have a rental income that typically cover monthly mortgage outlays. DSCR loans are based on the Property’s potential to generate positive income and are effective if you have a thin or no US credit history.
3. FOREIGN NATIONAL NO RATIO LOANS
These cash-flow loans are designed for foreign investors who want to purchase an investment property but the property’s rental income is insufficient to cover the monthly mortgage payment. Cash flow loans work on the cash-out principle. Mortgage lenders consider the ability of the Property to generate profitable cash flow. They use this estimate to decide upon the lower and upper range of mortgage, which can be approved.
4. NON-PERMANENT RESIDENT ALIEN WITH US CREDIT:
Non-permanent resident aliens can qualify for a mortgage if they plan to live in the home they are buying. In other words, they are using the home as their primary residence. These loans can be Conventional (Fannie Mae/Freddie Mac) or FHA and have much more stringent documentation and eligibility requirements than the investor loans described before.
These borrowers also need to provide a valid Social Security Number and an Employment Authorization Document (EAD), commonly known as a “work permit”. A social security card cannot be used as proof of eligibility to work.
Many non-permanent residents do not have an EAD, but a special visa obtained by a sponsoring employer.
Lenders accept these types of visas as proof of legal residency when applying for a mortgage:
- H-1B and other H series visas such as H-1C, H-2, H-3 and H-4
- E series
- G series
- L series
- O series
- NATO series
- Canadian and Mexican NAFTA series
Any work eligibility document must indicate the applicant’s ability to live and work in the United States for at least three years. Each lender will request documentation based on its own guidelines and the borrower’s situation.
WHAT TO CONSIDER WHEN GETTING A LOAN?
1. FINDING A GOOD INVESTMENT AREA
The most important fact to consider is that real estate is a very local industry. Finding the right Property offering higher economic incentives is tough. Thorough research should be conducted on migratory trends, proximity, local economic developments, schools and education centers, etc. Conducting online research using survey data and working with local realtors in the area could be a great way to learn more about the local markets.
2. IDENTIFY A STRATEGY
BUY AND HOLD FOR RENTAL
Involves purchasing a property and renting it out for an extended period of time. It’s probably the simplest and purest form of real estate investing.
Essentially, a buy-and-hold investor seeks to create wealth by renting the property out and collecting monthly cash flow. Among this strategy’s advantages is that while you hold the property and rent it out, the mortgage gets paid down every month, decreasing your principal balance and increasing your equity over time.
Another strategy is to buy properties for total home price appreciation gains. Purchasing properties on either coast of the US can be attributed to such strategy. For such properties it is common for monthly rental amounts generated to not cover the monthly mortgage expense. However, compounded growth on larger properties sizably offset negative carry cost of holding the properties up till the point of disposition.
BUY FOR SHORT TERM RENTAL
A common strategy in the recent years has been for investing in properties for vacation or theme purposes. For example, properties in the surrounding neighborhoods of Orlando, FL are let for short term leases (via services such as Airbnb, Vrbo). These properties can be modified to provide a ‘look and feel’ consistent to specific theme. For example, for properties near Disney Land, a home that has children’s rooms designed after Mickey Mouse. The typical consumer of these short term leases are interested in the “experience” are willing to pay a premium
CASH-OUT FOR FUTURE PURCHASES OR REHAB
Lastly the big benefit for purchasing real estate for investment property is leverage. Several years after loan origination, real estate properties usually rise in value and extra equity can be extracted as downpayment for the purpose of buying additional investment properties or making significant upgrades to the home which will result in higher revenue generated by the property.
An added bonus to real estate investment is for income tax benefits, whereby expenses can be deducted from the topline revenue. Expenses include interest cost, taxes, insurance, property upkeep costs, marketing, etc. This reduces the tax burden to the homeowner. Please consult with a tax adviser on specific advantages.
3. FINANCING TERMS
Next, reach out to a specialty lender, such as Jia Finance, and complete an online application to receive a quote with financing terms. The quote typically consists of interest rate on the loan, amount of down payment required, terms of the loan and lender fees. This is essential in calculating the return on an investment strategy. Keep in mind these terms are indicative and finalize once the origination process is completed. Jia Finance’s process allows it quote with high degree of certainty on preliminary terms of the proposed transaction.
4. FIND AN INVESTMENT PROPERTY
Combining steps 1-3, find a suitable investment property. Work with a realtor, conduct your due diligence and run the numbers to make sure the opportunity is attractive.
Estimate true cost and expense: make sure to take into account property taxes, hazard insurance premiums and home owners association fees if applicable. Certain states are known for higher property taxes such as New Jersey, Illinois, Connecticut, Texas.
5. GET CONDITIONAL PRE-APPROVAL
Getting a conditional pre-approval for a loan is when making an offer on a property. This will allow you to make an offer confidently, as it increases your chances of getting approved.
6. LOAN PROCESSING
Working with the processor at the lending firm and submitting the required documentation will help keep timelines for a successful closing. Refer to aforementioned section ‘What will You Need to Apply for an International Mortgage?’ for a list of documents. The advantage of Foreign National Mortgage is lower documentation needed, which translates into quicker closing times.
7. PROPERTY APPRAISAL
Simultaneous to document submission, Jia Finance will arrange a property appraisal. This is required to demonstrate the value of the subject property and the ability for the property to generate rental income. Moreover, the inspection provides feedback on condition and quality of the subject property.
Once the paperwork has been submitted, the loan is sent to an underwriter with Jia Finance to make a final credit decision. This typically takes 1-3 days to review and corroborate the information provided.
After receiving a clear to close for your loan. A closer with Jia Finance will work with your title/escrow company and schedule a closing with a notary. For a foreign national who may not be present at the US during this time, we can coordinate a closing in a few manners. Either schedule a closing at the embassy in the foreign country or schedule a remote closing in the foreign country with a qualified local notary.
The closing is the final part of the process whereby the borrower will review all charges owed as shown in the Closing Disclosure package and signs all necessary documents. The borrower is responsible for bringing cash to close required to consummate the transaction.
Once this is completed, the borrower is the new owner of the home!
Getting a foreign national mortgage is very simple and easy if you’re working with the right partner. Be sure to work with your lender, submit all required documents to keep the process streamlined for a quick close!