What International Buyers Need To Know About Today’s Foreign National Mortgage Market
As the dollar slides against the world's currencies, foreign national buyers are flocking to U.S. housing market for second homes and investment properties.
Looking at the graph, it's not hard to see why. Since September 2007, a European's cost to buy a $300,000 property in the United States has fallen by 13 percent.
But just because prices are falling doesn't mean that buying homes is getting easier. Mortgage guidelines have tightened for foreign national buyers just like they have for domestic ones.
Here's what foreign national buyers need to know about today's market.
You won't find foreign national investor mortgages at the Big Banks
In September 2007, the largest mortgage lenders all but eliminated foreign national home loans from their respective product menus. This squashed a huge source of mortgage money and it trickled down to the smaller mortgage players that sold their loans "up the chain".
Around the same time, mortgage brokers were closing their doors and leaving their Web sites intact. This is why you can still find hundreds of Web sites catering to foreign national buyers but can't get anyone to return your phone calls or emails.
Look for "private" investors to finance foreign national mortgages
Big Banks don't want to finance foreign national investment loans but there is plenty of money available. All you have to do it find it.
In every U.S. market, there are always small banks and financiers with direct ties to the community that want to lend in it.
Because these groups know the real estate scene so well, they will usually make common sense decisions and don't immediately reject foreign national buyers.
"Private" investors each have their own risk tolerance so expect mortgage terms to vary from source-to-source.
Choose your housing market wisely
Large cities like Chicago, San Francisco and New York offer strong support for foreign national buyers. Big City "downtown" areas are typically:
- Abundant in private investor money
- Stable with respect to long-term housing trends
- Filled with loads of entry-level jobs (i.e. renters)
Smaller markets or vacation centers may introduce seasonal or local economy risks. Be sure to do your homework first.
Be prepared with a downpayment of at least 30 percent in U.S. dollars
Private investors are scared of foreign national buyers because the borrowers often live halfway around the world. In other words, there's no way to hold foreign national buyers accountable should their home loan go into default.
Foreign national buyers should plan on putting a fair amount of their own money into their home purchase. 30 percent is the minimum in today's market and it carries the highest interest rates and harshest loan terms for foreign nationals.
A 40 percent downpayment can soften the rates and terms, but it's at 50 percent where the real shift happens.
With a 50 percent payment or more, foreign nationals get access to most attractive mortgage rates and very loose terms. This can include reduced documentation, reduced costs, and easier underwriting.
If you want to buy property in the United States, buy it now.
Mortgage markets are changing, the global economy is changing, and investor risk tolerance is changing. The outlook for foreign national mortgages is drastically different from eight months ago and eight months from now, it will be even farther removed.
There are plenty of homes available for purchase and there will be just as many next year. However, mortgage guidelines will be more strict. Making a 10 percent downpayment on new construction does not guarantee that your mortgage will be approved when the building is completed -- the approval only happens when it's move-in ready.
The dollar is right and the market is right. Maybe you should buy today.
Avoid mortgage fraud: "Second home" is not the same as "Investment Property"
In most states, lying on a mortgage application is a felony offense. If a home will have tenants, a lease, or the future promise of a lease, it is, by definition, an investment property. By contrast, a second home is a property for the exclusive use of the owner and his family.
When the Big Banks stopped lending on foreign national investor properties, some real estate agents and mortgage brokers "coached" foreign national buyers to use the Second Home designation as a means to get a home loan approval. This is fraud and if the offense is discovered, the homeowner (and every other party involved) will be subject to a court appearance and large fines.
In addition, the mortgage note will be called by the bank immediately to be paid in full by the homeowner.
Remember why you are buying real estate in the United States
Many real estate investors think that the U.S. real estate market is a good value. Property values are down nationwide and the falling U.S. dollar is pushing the relative prices of property even lower.
Financiers are requiring larger downpayments than in the past, but they're asking for those monies in U.S. dollars and not in the currency of the buyer's homeland.
If (when?) the U.S. dollar recovers, the return on that downpayment investment can be gigantic.
When NYSE-traded stocks are considered to be a "value", investors buy as much of that stock as possible. As it relates to foreign national real estate investors, the "stock" is the subject property and the home's downpayment is the investment.
Making a larger-than-expected downpayment may not be optimal in the short-term, but if buying U.S. real estate is part of a longer-term strategy, keep that long-term perspective in mind.
Above all else, make sure you work with professionals
The foreign national market changes very, very quickly in the United States and that's why every international buyer should be working with an experienced professional on both the real estate and mortgage part of the purchase.
Remember that most of the broker Web sites offering foreign national mortgages belong to loan officers that are no longer licensed or to companies that are now defunct. It's why your phone calls aren't returned, your emails are ignored, or the answers to your questions are vague.
Buying property sight-unseen is a scary proposition for most people -- especially when it's across the ocean (or farther!). You need solid advice and a realistic outlook.
If you're a real estate agent or a foreign national buyer in need of mortgage assistance, you're always welcome to contact me directly -- my email and phone number are all over this Web site.
If you need references to local real estate agents that are experienced with international buyers, please ask. We are a tight-knit community and know each other very well.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.