Foreign Investors in US Property  

Prepared by: Rolan Shnayder, Director of New Development Lending

Prospective purchasers of property in New York or elsewhere in the US may benefit by financing a portion of the purchase with a local lending institution.

Banks offer foreign purchasers a variety of mortgage products and typically lend foreign purchasers between 60% and 75% of the total purchase price of the property.  Borrowers may assume that the loan-related costs for fees, odd-days interest and New York State taxes will total approximately 6% of the mortgage loan amount when purchasing real property in a new development.

In some circumstances, you need not actually visit New York to arrange financing.  We at HOME working with your attorney will arrange the paperwork.  It generally takes 25 days to process the loan application and obtain the bank commitment letter, starting from the day we receive your application, supporting documents and signed purchase contract.

Ultimately, banks decide how much to lend (the percentage of the purchase price/property value). How much to charge for a loan (fees called points), and how much interest to charge (the rate) based upon a number of key factors concerning you and the property you are purchasing.  In essence, the lender weighs the risk of the transaction and then determines the rate, points and loan-to-purchase/value accordingly.  Below are some key points that ALL banks evaluate when making a loan decision:

Occupancy

Do you or one of your family members intend to use the property as a personal residence OR do you intend to rent the property immediately after closing on the purchase?  In general, you will be able to get more favorable terms (less of a down-payment, more competitive interest rates and terms) if you intend to use the property as a personal residence (Second Home).  However, if you in fact intend to immediately rent the property, you will be encouraged to provide a copy of the proposed lease agreement to the lender (demonstrating a positive cash-flow) prior to closing on the apartment.  The financing terms are much less predictable under these circumstances.

The bank will need to perform a risk analysis prior to confirming the rate and terms to be offered on the financing.

Ownership

Banks strongly prefer individual ownership as opposed to corporate ownership.  If you must purchase in a corporate name, you will be required to establish a US Corporation.  You will be allowed to finance up to 70% of the purchase price. In the event that you elect this type of ownership you will be REQUIRED to personally guarantee the mortgage.  UNLESS you are financing only 50% of the purchase price.

Citizenship

If you intend to purchase the apartment as a personal residence, you will be required to provide a copy of a valid passport AND a copy of your United States Visa.

If instead, you are purchasing only as an investment, you will only be required to present a copy of a valid passport to establish your identity.

Verification of Assets

While asset verification is NOT required to be offered a mortgage, providing the bank with documentation of your assets may allow the bank to offer you a lower interest rate or require less of a down payment. At the very least, we recommend that you get a letter from two different world class financial institutions that you have a depository relationship (written in English) outlining the length of time that you have been a customer and that your accounts have been managed satisfactorily, along with the amounts on deposit.  A bank statement (in English) is preferred.

Credit History

Banks typically rely on a borrower’s credit worthiness (a history of the repayment of debts).  Because foreign purchasers usually do not have credit in the United States, we recommend that alternative credit documentation be supplied under most circumstances.  This alternative documentation should consist of a minimum of three different creditors (Visa, Mastercard, American Express, Utility Bills, Mortgage Banks, etc.) from your country that can provide evidence of a timely payment history.  Alternatively, copies of statements (translated into English) or letters from various institutions attesting to a good credit rating may also be acceptable.  However, if you have a social security number and one or more US credit cards, we may be able to run your credit report and offer you even more favorable loan terms.

Property Selection

Banks heavily weigh their level of risk in real estate lending based on the type of property being purchased.  Although you may strongly qualify based upon your credit and assets, the bank may deny the loan if they have an issue with the building or the specific unit to be purchased.  Some banks reject buildings with less than 20 apartment units, or because 30 to 40% of the units in the building are already owned by investors, US or foreign, or because the building is under construction and has not sold enough units to make the bank comfortable.

Mortgage Products & Terms

Some banks offer 30 year terms. However, the interest rate may be fixed for a shorter period of time such as 1 year, 3 years or 5 years.  Typically, the shorter the defined term, the lower the initial interest rate.  Once the initial term expires, the interest rate automatically floats for the balance of your 30 year loan.  The rate will be reset each month or each year depending upon the bank and loan program.  Annual and lifetime rate caps are instituted to limit the rate increases permitted over the 30 year life of the loan. 

Pre-payment Penalty

The banks who offer the most favorable terms to foreign investors will institute a pre-payment penalty for the first 3 years of the loan term.  Pre-payment penalties may be reduced or waived by paying additional points.

Please call me with any questions you may have.  This document is intended to be a short tutorial on foreign investor purchasing, however, each deal is unique and the market is always changing.  

For further information please call or email:  

Rolan Shnayder  

P:  646-421-2246

F:  646-421-2266

rolan@home-mortgage-express.com