Home Loan Financing for Foreign Nationals
Foreign nationals who seek to finance a property here in the United States might find there aren’t as many options compared to a U.S. citizen. Traditional financing won’t work yet there are loans designed specifically for someone considered a foreign national.
Who is Considered a Foreign National
A foreign national is simply someone who lives or visits here legally that is not a citizen of our country. Foreign national lending has increased over the years and in fact, foreign buyers actually helped the real estate economy recover, buying foreclosed and distressed real estate. It’s important to note that since loans for foreign nationals are not very common, individual lenders will set their own internal lending guidelines and can and will differ from lender to lender.
Home Loan Requirements for Foreign Nationals
Loan programs for foreign nationals fully document the applicant’s income, assets and credit, just like any other mortgage program yet in a different manner in many cases. Here are the basics:
Determining Income
Foreign nationals will not have a green card, a visa status that allows a foreigner to legally work here, which means there won’t be any W2 forms, federal income tax returns or paycheck stubs. There is no work here so there is no income reported. To calculate debt to income ratios, there needs to be income, right? The lender can verify income from their foreign country with a certified letter from an accountant as well as verification of employment and income from their employer for the previous two years.
Lenders may also use the rental income from a prospective property comparing that with the mortgage payment, property taxes and insurance. Debt service coverage is calculated by dividing the total mortgage payment by the gross monthly rent. The result should be at least 1.25, meaning the rent is 25% more than the total financing costs. If the monthly rent is $2,500 and the total house payment is $2,000, the debt service ratio is 1.25%, a qualifying amount.
Determining Assets
Mortgage loans for foreign nationals will require a down payment of at least 20% with most such loans asking for a 30% down payment. In addition to the down payment, closing costs will need to be considered just like any other mortgage. 12 months of cash reserves are also a common requirement. To verify there are sufficient funds to close, the lender will verify the funds are coming from a legitimate source, primarily from the borrower’s own bank or other financial institution accounts.
The borrower must be able to provide verification the accounts have been opened and active for at least two years while at the same time providing at least 12 months of bank statements. The lender may also require a new account to be opened here in the United States to house 12 months of reserves and may not fall below that level at any time.
Verifying Credit
Unless the borrower has opened credit here in the United States it’s highly likely there will not only be any credit scores available but no credit report as well. If there is a two-year history of credit here in the U.S. there should be at least three open trade lines on the report as well as a minimum middle credit score of 680.
If there is no credit available, the lender can require credit letters from foreign creditors that have issued credit to the foreign national. Typically, foreign national loans ask for three or four such credit letters.
One Final Idea
It’s very likely the documentation requested will be in a foreign language. Larger financial institutions will often translate financial and credit documents into English but if not and the document is needed, a translator will be required.
There are a few more hurdles approving a foreign national but at the same time such borrowers tend to buy and finance higher end homes, ending up with a larger amount compared to the median home price area they’re buying.
