In the last couple of years, many foreigners have used their wealth to buy high-end residential real estate located in the US. The two obvious reasons: (1) US real estate is considered a safe haven, and (2) they had an advantageous dollar exchange rate. The National Association of Realtors (NAR) put out a report called “2015 Profile of Home Buying Activity of International Clients.” The report said that US real estate remains a relative bargain compared to other global cities favored by the wealthy. For instance, a condo costing $1.6 million in New York would cost more than $4 million in Paris and $2 million in Moscow.
The NAR report also said sales of US residential real estate to overseas buyers between April 2014 and March 2015 reached a record $104 billion. According to the report, the Chinese took the lead as the top foreign buyers of real estate last year. Canada was ranked second, with $11.2 billion, with India following at $7.9 billion. Foreigners favored homes in Los Angeles, San Francisco, Seattle and New York. The top state for overseas real estate buyers was Florida, accounting for 21 percent of all US sales to foreign buyers. California came in second, with 16 percent, followed by Texas with 8 percent and Arizona with 5 percent. The top four states accounted for half of overseas buying. Overseas buyers accounted for only 3 percent of sales in New York State, although the share was much higher for New York City.
The average purchase price for overseas buyers was $499,600, nearly twice the national mean purchase price of $255,600. Foreigners are also paying 26 percent more than they were last year: Most favored the suburbs over the city and most favored single-family detached homes over apartments.
Some 55 percent of overseas buyers paid all-cash, according to the report. In a number of cases some REALTORS® had international clients who did not purchase a US property because they “could not find property,” or “could not obtain financing” and many “other reasons.”
For those “all-cash” buyers, great for you and glad you have a place to park the cabbage. For all my foreign and temporary visitors and friends who may need financing, or want financing, read below for general requirements on the documents needed for you to obtain residential mortgage financing.
Borrowers who are not US citizens must currently reside in the United States to be eligible and fall into one of two classifications: permanent resident alien (PRA), or non-permanent resident alien (NPRA). Non-citizens who do not reside in the US are classified as foreign nationals (FN).
In general, obtaining a loan for a permanent or non-permanent resident alien is not much different from getting a loan for a US citizen in that financial documentation for income, credit and assets is still required. Underwriting may be slightly different.
The classifications are as follows:
FN: The borrower has no Green Card and no visa* or has income from foreign sources.
NPRA: The borrower lives and works in the US and is here on a visa* (of which there are many different types and must be unexpired and valid for at least six months). Does not have a green card. Must have US employment contract and social security card.
PRA: The borrower lives and works in the US and has a Green Card. Usually must have two years US income/tax returns.
*Acceptable Visa types for Fannie and Freddie Mac: A1-A2: Cannot have diplomatic immunity. E1 & E2, G1-G5, H1, TN-NAFTA: Works from Canada and Mexico, here for business purposes. L1: Intra-company transfer, O1: Famous actor, musician, etc. O2: Assistants to famous actor, musician, etc.
Properties are bought as primary residences and second homes, and for investment with differences in guidelines and rates based on occupancy status. For our purposes, we will focus on primary residences. Being a specific niche type of borrower, many foreign borrowers typically fit a portfolio lender’s profile. Portfolio lenders have their own unique guidelines, lend their own money and service their own loans (instead of selling them). The other mortgage products fall into secondary market buyers of mortgage loans, Fannie Mae; Freddie Mac and the major insurer of government loans, FHA.
Some nuances to be aware of:
Portfolio lenders may and the FHA program will accept an EAD (Employment Authorization Document) as an acceptable form of documentation for non-permanent resident aliens. The EAD must be valid within one year of the closing date (no exceptions) and must have a prior history of renewal being granted. If a history of renewal does not exist, information from the BCIS (Bureau of Citizenship and Immigration) must be provided to determine the likelihood of renewal.
Borrowers residing in the US by virtue of refugee or asylum status are automatically eligible to work in the country and must show documentation to support this status if they do not have an EAD card.
Foreign Nationals are not eligible for FHA, Fannie Mae or Freddie Mac type of loans.
Fannie and Freddie both require a green card to show eligibility.
If a borrower’s visa will expire within 6 months of the loan application and he/she is still with the same employer since sponsorship, a copy of the employer’s letter of sponsorship for visa renewal must be provided. If jobs were changed since sponsorship, and the visa expires within 6 months, documentation must be provided showing that an application for extension or permanent residency has been filed.
What kind of financial documentation may be needed?
FN:
Greater down payment required may be anywhere from 25 percent to 40 percent. Credit: No FICO required. International credit reports are acceptable, or credit references from country of origin. Alternative forms of credit may be acceptable such as a letter from an employer, bank or creditor; utility bills etc.
Income: Two years income-verification history. It is not necessary to have US tax returns; tax documents from country of origin are okay. If the country of origin do pay stubs, bank statements and an employment letter on company letterhead explaining compensation.
Assets: Must source seasoned assets in a known verifiable worldwide financial institution; the funds cannot be in an institution that cannot be verified. The main reason for sourcing the income and assets is for OFAC (Office of Foreign Assets Control), which monitors foreign countries, regimes, known terrorists etc. In addition, the borrower’s name, employer and financial institution from the country of origin where the borrower has his/her funds will be run through an OFAC verification engine.
If the income and asset documentation is in a foreign language you may need to get a translator. It might be wise to hire an Accountant/CPA (tax preparer or equivalent) to analyze, interpret, convert and present the information in such a way so the underwriter can easily understand it. That is, have a comprehensive summary and accounting of the borrower’s financial position. However, a language translator may suffice and would probably be less expensive.
All US embassies provide translation services. You are not required to have a social security number or tax identification number (TIN). You will need a passport or other form of valid ID.
Power of attorney is not permitted. The borrower will have to go to an American consulate to sign and have loan documents notarized.
Non-Permanent Resident Aliens:
Standard financial documents are required.
Permanent Resident Alien:
The borrower should have US credit and US assets. The borrower must have a social security number.
What a great country!
By Carl Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and President of Greenback Capital Mortgage Corp. and a Zillow 5-star lender: http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y. He is a residential and reverse-mortgage financing expert and a deal maker with over 26 years’ industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com, ceg@greenbackcapital.com
