The United States is among the minority regarding real estate purchases. They allow foreigners to purchase real estate in the US. Primary residences, vacation homes, and investment homes are all possible purchases for those living outside the United States. Finding a loan for foreigners to buy real estate in the United States does require a little creativity and patience. However, there are banks out there willing to lend the money. Here is what you need to know about the process.
Higher Down Payment
No matter the type of home you purchase or the credibility you can provide, expect a higher down payment requirement. Lenders often require 40 – 50% down on the home. This helps minimize the risk the bank takes. You are much less likely to let a home go into default when you have thousands of dollars invested in it. Of course, just like with a citizen’s home purchase, there are certain situations that make your loan riskier.
The more experience you have with foreign national lending, the better. If this is your first time conducting such a transaction, most banks will be nervous. They would rather see a borrower with experience in owning a second home, whether an investment or vacation home. If you wish to purchase the home for investment purposes, showing a history of managing properties can greatly help your cause.
The type of property you purchase also plays a role. Certain properties pose a higher risk to lenders than others. Condos and multiple unit properties are the riskiest. Condos, in general, are risky because you are not the only owner. The value of your property relies on the actions of the other owners. This puts the lender’s money at risk. The same goes for a multi-unit property. You can purchase a 3 or 4-unit property and rent the units out. The rent can help you make your mortgage payment. However, there is the risk that the renters will either not pay you or just leave without notice. This puts the lender’s loan at risk.
Any situation that puts the lender’s money at higher risk usually requires a higher down payment. This way the lender can minimize their risk. The more money you invest of your own, the more likely you are to keep up with your payments.
Verifying Your Income for Foreigners to Buy Real Estate
Verifying your income from the US differs from verifying income from abroad. Lenders cannot use your paystubs or tax documents. Generally, lenders require proof from a third party, such as an accountant. They may also accept verification from the employer himself. This way the lender knows beyond a reasonable doubt that you are employed and exactly how much money you make. In rare circumstances, a lender may use your bank statements to verify the receipt of your income. Lenders often need some reassurance that the company you work for is legitimate. They will conduct reference checks on the company to ensure that your income is stable and will continue for the foreseeable future.
Verifying your Assets
Not all loan programs require citizens of the United States to verify their assets. However, any foreign national needs to verify assets in large amounts. Oftentimes, lenders require at least 12 months’ of reserves on hand. This means enough money to cover your principal, interest, taxes, and insurance for 12 months. The bank statements you provide to verify your income can serve double duty to verify your assets.
Determining Your Credit Score
There are a few ways lenders can verify your credit worthiness. The easiest is to pull your credit report from the US. This is only possible if you owned homes here before or you established another type of credit here. If not, the lender can work with the credit bureaus in your country to obtain your credit reports. Some translation may be necessary to help the lender understand how financially responsible you are with your money in your home country.
Determining the Legitimacy of the Documents
One major issue lenders have with foreign national lending is determining the legitimacy of the documents. In order to ensure they are legitimate, lenders require a notary to sign the documents. This is done at the US Embassy. Prior to bringing the documents over, however, they must be translated in order for the lender to fully understand them.
The bottom line is that it is possible for foreigners to buy real estate in the United States, but it is a lengthy process. There are more documents and more scrutiny the documents must go through. Lenders need to protect themselves from default in order to make lending to foreign nationals a profitable business.