Pros and Cons of Foreign National Hard Money Loans

There are several pros and cons to consider before seeking a foreign national hard money loan to acquire or refinance a property in the United States. This blog post will quickly cover the benefits and negatives of private money that I've experienced over my past 10 years as a mortgage broker working with foreign national hard money loans.

Let’s dive in!

Pros: Benefits of Foreign National Hard Money Loans

• Close Quickly — If your conforming, conventional, or bank portfolio loan falls through at the last minute, hard money loans can speed the closing process. 
• Easier Approval Than Bank Loans — Loan approval is determined by a combination of down payment and equity position in the property, borrower financial strength (income, liquidity, experience, etc.), and likelihood of a successful exit strategy (sell or refinance).
• Exit Strategy — To set you up for success, hard money lenders will verify your exit strategy, even facilitating a pre-qualification from a bank loan officer if you choose to refinance with a bank portfolio loan.
• Sourced and Seasoned Down Payment Funds — You want lenders to follow anti-money laundering laws to source down payment funds. This improves the security of your investment in United States real estate.
• Many Financing Choices — There are bountiful hard money capital sources for investment properties. Competition gives you better options.

Cons: Drawbacks of Foreign National Hard Money Loans

• Higher Costs — Hard money loans carry a higher interest rate and closing costs than bank financing.
• Short-Term Loans — Most hard money loans are 12-month bridge loans with a balloon payment. You’ll need to secure long-term financing within the 12-month period.
• Leverage Capped at 60-65% LTV — As a foreign national borrower, you should expect the loan-to-value (LTV) to be capped at 60-65% LTV. Most conforming, conventional, and bank portfolio lenders historically have kept their foreign national loans at this rate.
• Extension Fees — If you’re unable to pay off the bridge loan within 12 months, you may have to pay extension fees to extend the loan 3, 6 or 12 months.
• Difficult to Obtain — It can be difficult to get a hard money bridge loan for your primary residence or owner-occupied property, due to regulations and a lack of participating lenders. If you need this type of loan, please reach out to FCTD to see if it’s possible in your state.

Above are the most common pros and cons our non-resident borrowers encounter when considering foreign national hard money loans. At FCTD, we work closely with our borrowers to ensure they understand what a foreign national hard money loan will mean, and if it's the right solution for them.