Home Loans for Foreign Nationals
When looking at the entire mortgage marketplace, only a very few loans are issued to foreign nationals. Yet for someone needing financing for a foreign national it can be difficult to find a home loan to finance property here in the United States. We do offer home loans for foreign nationals and understand the frustration when trying to lock down such a mortgage. But it’s not an impossible task whatsoever, it’s simply knowing where to look and how to find a lender experienced in foreign national lending.
What is a Foreign National?
A foreign national is simply someone who is not a citizen of the country where he or she is residing legally and not a permanent resident alien. And the next question might be, “Why is it so difficult to find lenders who make home loans to foreign nationals?” There are a few basic answers to that question but most lie in the fact that most foreign nationals may not have an established credit history reported to the three main credit repositories, Equifax, Experian and TransUnion. And if the lender is forced to foreclose on the property or otherwise take legal action against the foreign national, it might be difficult to serve someone who is either overseas or travels back and forth between the home country and the United States.
Providing a home loan to a foreign national can also require more paperwork and increased due diligence. If a lender is experienced making loans to foreign nationals the approval process is essentially no more difficult than any other type of mortgage loan. Conventional loans underwritten to Fannie Mae and Freddie Mac guidelines don’t have programs for foreign nationals nor do government-backed loans such as VA, FHA, and USDA mortgages. This special mortgage program is only for investment properties that cash flow and cannot apply to a primary residence, second home or vacation property.
Our foreign national home loan program requires us to verify sufficient income, employment and credit just as with any other mortgage, it’s just that sometimes we have to take a different route. When a lender processes a typical mortgage application one of the first things on the list is to order a credit report and then electronically submit the information to an automated underwriting system. However, if there is very little or no credit history at all that has been reported to the three credit repositories, there may not be any credit history nor credit scores and an automated approval can’t be accomplished.
A foreign national will not have a green card and does not have the authority to work here in the United States legally. That means there will be no W2 forms, federal income tax returns or paycheck stubs to review. Instead of such documentation, we verify the cash flow on the subject property using a Debt Service Coverage Ratio (DSCR) of at least 1.25. DSCR is calculated dividing principal, interest, taxes and insurance, or PITI, (and HOA dues if applicable) by the gross monthly rent.
For example, if monthly rent is $2,500 per month and the PITI is $2,000, the DSCR is $2,500 divided by $2,000 = 1.25. If the rent is $3,000 and PITI $2,000, the DSCR is $3,000 divided by $2,000 = 1.50 and so on. In each example listed the DSCR is at least 1.25.
Rental income on the property is verified both with a rental agreement as well as completion of the Fannie Mae form 216 on the standard appraisal report. This is completed by the assigned appraiser in addition to Comparable Rent Schedule.
If the foreign national does have at least a two-year credit history here in the United States, the minimum credit score is 680 and there must be at least three open and current trade lines. If no credit score can be found, alternate methods are used. First, if the applicant does not have a social security number but does have an individual tax identification number, or ITIN, we can request an International Credit Report if available. If no such report is available or the foreign national does not have an ITIN, credit reference letters will be required.
There should be at least four such letters, one from each of the individual credit letters. These letters must have the company’s letterhead and provide at least a two year history of timely payment history and no derogatory accounts. At least one of the credit letters must be for housing, either a mortgage or rent. The credit letters must contain similar information one would find on a traditional credit report showing the credit limit, current balance, minimum payments and when the account was opened. The letter must also be signed and dated by an authorized individual of the company issuing the credit.
It’s also possible the letters will be in a foreign language and in such cases the letters must be translated to English by a certified translator. Both the original and translated letters must accompany the loan file.
The minimum down payment required for this mortgage is 40% of the sales price or appraised value, whichever is lower. Acceptable funds must come from a financial institution and have at minimum a two-year history with the institution and all verified funds must have at least a six-month seasoning. If the funds are held by a foreign institution, which in most cases they are, the funds must be wired to the escrow agency and converted into dollars using the most recent exchange rate.
In addition to the down payment and closing costs, we need to verify at least 12 months of total debt or the combined totals of all monthly credit obligations including PITI as cash reserves. There must also be at least 12 months of PITI in the issuing lender’s bank account at all times and the monthly payments withdraw via ACH.
These are the basic requirements to qualify for foreign national financing and there are others that need to be satisfied but the key component obtaining financing for a foreign national is working with a lender who has experience approving such loans. The approval process for these programs takes a bit longer than a standard loan approval primarily because most requests are handled manually and not submitted electronically to an automated underwriting system. If you’re a foreign national or know someone who is that needs financing to purchase or refinance a property here in the States, just call and we can explain the process.