Foreign Investors Are Buying U.S. Real Estate - Loans Not as Difficult As You May Think

I have a very good friend who lives in England.  When Ricky Hatton fought Floyd Mayweather here in Las Vegas in December, he flew out with a group of friends....for the weekend.

Now I have a personal belief that any flight over 3 hours requires at least a three-day stay-over.  They flew about 10 hours for 2 nights just to see the fight.  Crazy.

When I asked him, "why in the world would you do this?"  He said, "Aaron, everything in America today is half-priced!!"

When he got home from his Vegas Weekend, he emailed me to tell me that even though Hatton lost, they had a great time. 

He wrote about how he and his buddies even went out and bought extra suitcases.  They filled them up with all of the great clothes they had bought....at half price.

With the dollar so weak, and falling real estate prices in most areas, foreign investors are coming here to buy second homes and invest.  Many successful agents are marketing to this niche in tourist areas like Las Vegas, New York, Florida, California, etc.

Here is some of what you need to know about the financing from one of the nation's top foreign national lenders.

Qualifications for Foreign National

Documents Required to Prove Foreign National Status

• Valid (Unexpired) Foreign Passport for each borrower
• The Foreign National does not have to be in the United States at the time of application or closing.

Housing Payment History 

They cannot have been late on their own personal mortgage or rental in the last 24 months.

Previous BK and Foreclosure

• Standard guidelines for any Bankruptcy
• Foreclosure is an automatic denial for a Foreign National

Max Loan Amount

$1,000,000.  However, exceptions are made on a case-by case basis.

Income Documentation

Full Doc usually requires 25% down on loan amounts under $650,000

Full Doc usually requires 35% down on loan amounts over $650,000

Stated Doc usually requires 30% down on loan amounts under $650,000 (35% if soft market)

Stated Doc usually requires 35% on loan amounts over $650,000 (40% if soft market)

Cash-Out refinances are usually not allowed.

Reserves

• Plan on 6 Months for all Loans under $650,000
• Plan on 12 Months for all loans over $650,000

Credit

If they have a U.S. credit history, 700 minimum FICO score with at least 24 months on all 3 trade lines- all must be satisfactory payment history.

International Credit Report required to be pulled, if possible. 

If nothing shows up there then they can use U.S. non- traditional trades - 3 trade lines or they can get three credit letters from their home country.

The credit letters may be from a financial lending institution or a creditor or a combination.  

Other Documentation

A foreign national (nonresident alien) borrower should have a valid SSN or ITIN.   An ITIN can take 6-8 weeks to get.  You can download the ITIN application here: http://www.irs.gov/pub/irs-pdf/fw7.pdf

A signed W-8 is required if a foreign national (nonresident alien) borrower does not have a SSN or ITIN.

All Foreign Nationals must complete a W-8BEN form.   You can download it here: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf

Employment Documentation 

Salaried borrowers must have W2 or whatever is similar to a W2 in their home country; we also have to verbally or get a written verification of employment, and last pay stub, OR Comparable Documentation on Foreign Income from their country.

Stated Income must be reasonable and meet all criteria for Stated Income loans

Assets

Verification of Deposit (VOD) is required:

Down payment and closing costs must be placed and verified in U.S. institution prior to closing and then the wire or funds to close must come from that account.   So when your foreign buyers come to town and make their offer, direct them to the nearest bank to open a local account as well.

Reserves can be verified in a foreign institution with 6 months history.

Note: Foreign Nationals are not allowed to transfer down payment and closing costs directly to a Title Company from a foreign bank. This may present potential money laundering issues and as such is not allowed. The funds must be deposited in a U.S. depository institution.

Timeframe

You will want to allow 4-6 weeks for foreign national loans to close, if they need financing.  The verifications take much longer and an international credit report can take 1-3 weeks to get.

Tax Ramifications

When a non-U.S. real estate owner sells the real estate he has bought here, the IRS requires that 10% of the sales price be withheld at closing for an estimate tax payment.

There are exceptions to this. If the non-U.S. real estate owner sells the property to someone who plans on using the property as his primary residence, and the sales price is $300,000 or less, the seller is exempt from the withhold. You can also request that less be withheld if you believe the tax liability at the end of the year will be less.