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What are the Pros and Cons of Foreign National Loans?

In this article, I'll delve into the pros and cons of foreign national loans. These loans offer great benefits for non-U.S. citizens investing in real estate. But they also come with disadvantages for foreign nationals that simply don’t exist for natural citizens of the United States.

Below are some of the benefits and drawbacks that I’ve seen and heard from foreign national borrowers during my more than 20-year mortgage career.

Pros of Foreign National Loans

  • You can buy a property in the United States.
  • You can finance residential investment properties.
  • You can build equity in your property or properties.
  • You can have a hard asset that is secure, protected by established laws. This benefit is often cited as an important factor for many foreign national borrowers — especially those who come from countries where citizens live amidst corruption, and bribery is a part of life.
  • You can take advantage of the 30-year fixed-rate mortgage, which for conforming loans, are backed by the U.S. government. The 30-year fixed-rate mortgage is unique to the United States. Most governments across the world, including our neighbors in Canada and Mexico, don’t back the residential mortgage market. In these places, loans reset every five years.  
  • You can use a hard money bridge loan to quickly acquire an investment property in competitive markets. After acquisition, you can refinance into a long-term loan.
  • You benefit from tax deductions for items such as depreciation, capital investments, and property taxes.
  • You have access to mortgage programs to purchase or refinance a property, including:
    conforming, conventional, jumbo, NonQM, bank portfolio, and hard money loans.

Cons of Foreign National Loans

  • The process can be difficult. Let’s face it: applying for a mortgage isn’t fun and can sometimes feel like a practice in incompetence and futility, as lenders ask for the same documents over and over again. It’s not enjoyable for U.S. citizens — and it’s even harder for foreign nationals.
  • Your mortgage will be costlier than for a U.S. citizen. This is because you'll be charged a steeper interest rate — approximately 1.00% higher.
  • It's a given that you'll need to provide more documentation than a U.S. citizen. Expect to gather many documents, including from banks and investment companies in your home country. It’s all part of the process.
  • The loan approval will most likely take longer. In fact, it WILL take longer. With that said, there are ways to shorten it. Stay highly organized and maintain a working relationship with your banker and investment advisor back home, and you'll cut down on lag time.  
  • The lender may send out your bank statements and other documents to a translation service, which can take additional time and expense.
  • You’ll be required to have a higher down payment. That’s another given. Plan accordingly, with a 25-50% down payment.

To mitigate the challenges of obtaining a foreign national mortgage, collect and organize all your important documents and label as PDFs to your computer or cloud account so you can quickly send out upon request. You'll of course need identification (driver’s license, visa, passport, etc.).  More time-consuming will be collecting your financial documents, including: work authorization; two year’s tax returns (foreign and domestic); most recent paystubs; bank statements; investment account statements; profit & loss documentation, along with a balance sheet if you’re self-employed. Also, inform your banker from your home country that you’re applying for a mortgage in the United States, and that you may need their help verifying your assets and other information.

Conclusion

In this article, I've given an honest accounting of the common pros and cons of foreign national loans in U.S. real estate. I believe the advantages outweigh the disadvantages. You have the opportunity to acquire property in a country where there are established laws that protect the rights of real estate owners. The drawbacks? It'll cost you a little more time and money than for a U.S. citizen.

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