In this series of articles (“Bank Turndowns”), we explore why borrowers are turned down by their bank for a loan, and how they can get approved by another lender. To access all the volumes in this series, go to our “Series” page here.
If you are a non-U.S. citizen – whether a permanent resident, non-permanent resident, or a foreign national – entering the U.S. real estate market and obtaining a home mortgage loan may seem particularly daunting.
Indeed, in Florida, the majority of foreign buyers end up paying for their homes all in cash, without any financing.
In 2017 and 2018, 67% of foreign buyers purchased their Florida homes using all cash, instead of taking out a mortgage, while 27% were able to obtain a mortgage.
(Source: 2018 Profile of International Residential Real Estate Activity in Florida by the National Association of REALTORS (NAR) Research Group. The remaining 6% of those foreign buyers received financing through a mortgage from their home country, from investors, or from other sources.)
In other words, if you are a non-U.S. citizen having difficulties obtaining a home mortgage loan in Florida, you are definitely not alone.
However, a reassuring trend is that since 2010, with the effects of the 2008 Great Recession shrinking smaller and smaller in the rearview mirror, more and more foreign buyers are finding it easier to obtain a home mortgage.
There has been a steady uptick in the percentage of foreign buyers successfully obtaining a home mortgage loan in Florida – from 13% in 2011, to more than double, 27%, in 2018.
(SOURCE: 2011-2018 NAR annual surveys.)
With growing risk appetites, lenders have developed a wide variety of programs tailored to non-U.S. citizens, with favorable terms including lower down payments and lower interest rates.
Cash may be “king,” but it is indeed possible for non-U.S. citizens to secure a home mortgage loan in Florida (either from their bank, or, if turned down by their bank, from an alternative lender), without resorting to paying all in cash. This article will help point you in the right direction.
Step #1: What kind of foreign buyer are you?
Your eligibility for the different loan programs depends on which of the following three groups of non-U.S. citizens you fall into:
- Permanent residents with a green card (Form I-551);
- Non-permanent residents with a valid work visa (e.g., E1, E2, H1B, H2A, H2B, H3, L1 and G1-G4); or
- Foreign nationals whose primary residence is not in the United States.
Green card holders have the right to live and work permanently in the United States, and therefore, of the three groups of non-U.S. citizens, they have the highest chances of success in obtaining a U.S. home mortgage loan.
Permanent residents can qualify for conventional Fannie Mae or Freddie Mac loans, and generally have access to the same loan programs as U.S. citizens.
Permanent residents can also qualify for certain non-conventional loans backed by a government agency. Specifically, permanent residents can qualify for Federal Housing Administration (FHA) loans. The FHA offers similar loan terms to permanent residents as it does for U.S. citizens, including only 3.5% for down payment and relatively lower credit score requirements.
Non-permanent residents holding work visas in the United States are eligible for the same loans as permanent residents, but with slightly more restrictions.
Like permanent residents, non-permanent residents can also qualify for conventional loans.
Non-permanent residents can also qualify for FHA loans. However, the home must be used as the primary residence, not for occasional use such as vacation or secondary.
Additionally, non-permanent residents may be subject to some extra documentation requirements, including a valid Employment Authorization Document (EAD) and/or an unexpired visa. If the residency status is set to expire within three months, then additional documentation may be required, such as proof a continuance.
Foreign nationals do not hold either a green card or a work visa, and their primary residence is in a country outside the United States. Of the three groups of non-U.S. citizens, foreign nationals face the most obstacles to obtaining a U.S. home mortgage loan. However, the hurdles are not insurmountable.
Although foreign nationals are not eligible for conventional loans, many lenders have special foreign national loan programs designed just for foreign nationals, and these programs can offer competitive rates and terms.
Under these programs, foreign nationals can only qualify to purchase or refinance (either rate-and-term or cash-out) investment property or second homes in the United States, not primary residences.
A special note about foreign nationals: Some lenders will not lend to citizens of certain foreign countries due to the perceived risks. These countries may include Afghanistan, Burma, Cuba, Democratic Republic of the Congo, Egypt, Iran, Iraq, Liberia, North Korea, Russia, Somalia, Sudan, Syria, Ukraine, Venezuela, Yemen, and Zimbabwe. Finding lenders willing to extend credit to foreign nationals from these countries may be difficult, but it is not impossible.
Step #2: Find an alternative lender with the right non-U.S.-citizen loan for you
Many non-U.S. citizens believe that they are not eligible for U.S. home mortgages. Or perhaps they have already had their loan application denied by a bank, and they believe they have nowhere else to turn. They would be pleasantly surprised to learn, however, that there are many alternative lenders who, as compared to big banks, have more relaxed requirements and are willing to take on more risk.
Banks have more stringent guidelines, which are known as “lender overlays” or “bank overlays”. The federal government sets official minimum standards, but most banks are more conservative and therefore apply additional guidelines on top of the official standards, hence the term “overlays.”
The key, therefore, is finding a lender that imposes fewer restrictions or overlays than your bank, which will boost your chances of getting approved. No matter what your immigration status is, there is a loan program out there for you.
SPOTLIGHT – LOAN PROGRAMS : We highlight some notable, creative programs for non-U.S. citizens:
Are you a non-permanent resident with a valid work visa looking to purchase a primary residence in Florida? Some lenders offer up to 80% loan-to-value ratio (LTV) and allow creative ways to show income such as foreign rental income.
Are you a foreign national interested in purchasing a second or vacation home in Florida? Lenders typically offer up to 75% LTV and will not accept debt-to-income ratios (DTI) higher than 45% to 50%.
Are you a foreign national looking to invest in residential properties to rent out in Florida? Some lenders offer single rental or portfolio rental loan programs to foreign nationals, with LTV up to 65% or 70%. And, some lenders allow non-warrantable condominiums.
A mortgage broker can help you find the needle in the haystack:
Wading through the loan program requirements of multiple lenders and contacting them directly is difficult, if not impossible.
As a practical matter, lenders typically do not publish their requirements, but instead distribute them exclusively to banking officials such as licensed mortgage brokers.
Also, it is simply not feasible to even find the lenders – many alternative lenders do not advertise widely, but instead rely on mortgage brokers to refer them potential borrowers. A good mortgage broker with strong connections can quickly and simultaneously shop your loan at several different lenders for the best possible interest rate and terms.
Additionally, mortgage brokers are accustomed to helping non-U.S. citizens who may have been previously declined for a loan by their banks.
In short, working with a mortgage broker gives you access to a variety of lenders and more options.
SPOTLIGHT – CLOSED DEALS: Here are examples of how we helped obtain foreign national loans for our clients:
On behalf of a foreign national from Venezuela (one of the riskiest countries for which there are many restrictions on U.S. lending to its citizens), we obtained $200,000 in non-warrantable condominium financing to allow him to purchase a condominium in Orlando and close in ten days.
On behalf of a foreign national from Argentina who lacked documents to show his income, we obtained a $170,000 investment loan allowing him to purchase a non-warrantable condominium rental property in Orlando.
On behalf of a foreign national from Brazil, we relied on his foreign income streams to obtain a $240,000 purchase loan enabling him to buy a second home in central Florida.
In conclusion, you are now armed with the knowledge that (1) while the majority of foreign buyers in Florida still purchase their homes with all cash, there has been a recent upward trend in the success rate for obtaining home mortgages; and (2) there are plenty of alternative lenders willing to embrace your particular situation and lend money to you, regardless of your immigration status.
Continue exploring our “Bank Turndowns” series:
To access all the volumes in this series, go to our “Series” page here.
David A. Krebs is a licensed mortgage broker offering commercial and residential loan programs beyond your regular bank. Call us at 321-239-2781, click here to submit a message, or click here to book a free consultation.