You don’t have to be an American citizen to want to make America a better place. Buying an investment property may help your financial future while also potentially providing a place for a renter to live — or even a vacationer, given the recent lifting of long-standing COVID-19 travel restrictions.
But what does it take to qualify for a foreign national loan?
How does a foreign national loan differ from a conventional mortgage?
The good news is, foreign national loans do make it possible for non-U.S. citizens to buy real estate in the States.
But the qualification requirements for these loans can differ substantially from what most Americans encounter on their home-buying journey.
Here are a few of the ways foreign national loans differ from conventional mortgages.
You’ll need a bigger down payment.
For many American buyers — particularly first-time homeowners — down payments can be quite small. With a government-backed mortgage program, like an FHA loan or VA loan, the down payment might be as little as 3.5%, or even $0.
But with a foreign national loan, you’ll likely need a substantial hunk of cash saved up ahead of time. While the exact figure will vary depending on your lender, aim to have about 25% of the purchase price available to put down in cash. There may also be caps on the total loan amount available along with the LTV, or loan-to-value, ratio.
You’ll face a higher interest rate.
Along with bigger down payment requirements, foreign nationals usually face higher interest rates, too; even in this rate market (per the time of this writing in November 2021).
Higher interest rates mean paying more for the property over time, unless the borrower is able to repay the loan quickly. (Even then, you need to check to make sure no early repayment penalties apply.)
You’ll be asked for different documents.
As a foreign national, your income and employment verification documents may not fit the standard mold of most Americans’. You likely don’t have a standard U.S. credit report, credit score or tax return, so those metrics won’t be part of your loan application or underwriting process — but two or more months of bank statements, as well as a letter of explanation from your accountant or employer, might be. (Again, every lender has slightly different requirements, so refer to your mortgage loan originator or broker for full details.)
At Quontic Bank, for example, because we’re a Community Development Financial Institution (CDFI), we don’t require any credit checks (i.e., no foreign credit reports or credit reference letters required like other banks), bank reference letters, nor foreign income tax returns. With our unique Foreign National program, all we need is your accountant or auditor to state in writing your income for the last 2 years + Year To Date. Additionally, with our Foreign National-DSCR, also known as Debt Service Coverage Ratio, program, we don’t need to verify any employment or income (just like our regular DSCR program); as long as the rental income covers our PITI (Principal, Interest, Property Tax and Insurance) payment, and you are able to meet the down payment requirements.
You can’t live on the property full-time.
Here’s a big one: with most foreign national loans, you won’t qualify if you plan to move onto the property and live there full-time. These mortgages are specifically for investment properties (though you may be able to live on-site part time, using it as a vacation home while traveling out of your home country).
Even so, buying a home on American soil can be a great financial move for many foreign nationals: along with wrapping up capital into an investment that likely stands to appreciate over time, you may be able to rent out the property on either a long- or short-term basis. Vacation rentals are really hot these days, especially with those travel restrictions lifting!
Where to Find Affordable Foreign National Mortgages
Another difference between conventional mortgages and foreign national loans is accessibility: not every bank offers the latter. But we do!
As one of only 3% of U.S. banks with a CDFI, or Community Development Financial Institution, certification, bringing prime mortgage loans and other financial goods and services to underbanked communities is part and parcel of our mission. That includes foreign nationals as well as self-employed borrowers, lower-income families, and more; we help first-time property buyers as well as those looking to refinance existing home loans or buy a second home.
Our foreign national loan program involves a qualification process that assesses your holistic financial profile, without paperwork-related roadblocks and red tape. Investing in a U.S. property from abroad could be a major investment in your future — and ours. We’d love to help you get started today.