With interest rates hovering at all-time lows and property values stabilizing at 30% to 50% of 2006 levels, many overseas buyers see this as an opportune time to make their move into the U.S. housing market. But, in an atmosphere where mortgage financing is tough to nail down for even solidly credentialed U.S. homeowners, securing financing for foreign nationals is obviously a more complicated affair. Very few lenders are willing or able to underwrite foreign tax returns, assets, income sources, and the many other elements fundamental to the loan process. Translations along with unconventional or nonexistent credit histories add another layer of complexity to all the above.
Fortunately, we now have some excellent lending sources accustomed to underwriting foreign nationals. Even better, borrowers with significant assets may be able to pledge a portion of their accounts, thereby limiting the amount of money they need to put down. Here is an example, using pledge money on a $2 million purchase, with the borrower putting only 10% down and pledging the balance of security needed:
Purchase price is $2 million. (The standard down payment would be 50%, or $1 million down.)
The borrower wants to limit their down payment to 0% or $200,000. To limit liquidation of their accounts, they can pledge the 40% difference in the following ways:
- $800,000 pledged in a 1:1 ratio if they have assets deemed "non-volatile," such as checking, savings, money market, or CDs.
- $1,600,000 pledged in a 2:1 ratio if they have assets deemed "volatile," such as stocks, bonds, mutual funds, etc.
The assets must be held in an account based in the U.S. (either by a U.S. entity or the U.S. branch of a foreign entity), but the borrower can still move monies between pledged accounts as well as continue to earn dividend income, etc.
For U.S. citizens living overseas, the process of securing mortgage financing is generally easier, though still more complicated and demanding than usual. If, as required, they have been filing U.S. federal returns, then annual income can at least be substantiated per regular underwriting standards. But there are often other obstacles to contend with. Income, employment, and asset verifications are generally more elusive. Housing payments are often covered, in part, by the employer, and must also be substantiated to the underwriter's satisfaction. Certified translations are often required for these items and much more. U.S. citizens who've lived overseas for extended periods sometimes lack credit ratings and need to build a credit history, which can take months. (Lenders are more forgiving of foreign nationals who lack credit ratings.) On a positive note, overseas citizens can usually get by with just a 20% down payment and they can also benefit from pledged assets.
The key to working through the mortgage process for both overseas citizens and foreign nationals is to begin the process early. Certain underwriting requirements -such as building a credit rating -can require months of work. It is also essential to find the right lender and to maintain a coordinated link with the underwriting team to keep the loan process smooth and on track until the purchase has funded.