Financing as a Foreign Client – Orlando is a mecca for foreign real estate investors. Many foreigners who purchase property in Orlando, judging by their median purchase price of 18% more than the median paid by locals, are highly successful investors looking to add to their wealth. For these investors, buying the home with cash is the most sensible option. For others wishing to break into the market or diversify their assets to grow their portfolios, financing the home may be their only choice. That means getting a foreign national mortgage loan. While finding financing as a foreigner is a fairly straightforward task, finding attractive financing can be tricky. Here’s what you need to know:
Know Your Options Financing as a Foreign Client
Both banks and private lenders offer foreign national mortgage loans. Loans from private lenders tend to be easier for Financing as a Foreign Client to obtain than loans from banks. However, though few banks offer foreign national mortgage loans, the ones that do typically offer lower interest rates than private mortgage lenders because they have easy access to cash from deposit accounts, and thus, a lower cost of funds.
A foreign national mortgage loan is much like a standard mortgage loan, the main difference being that foreign national loans usually require a higher down payment, ranging from 25 to 50% of the cost of the property. Of course, a higher down payment will entail lower interest rates. For example, with a 25% down payment, interest will be approximately 8.5%. At 30%, the interest lowers to about 6% annually. A 40% down payment will typically qualify you for a rate of about 4.5%, and with 50% down, you can expect rates of approximately 3.99%.
Foreign national loans have a minimum cutoff for property values and loan amounts. These loans will only be granted for properties valuing at least $175,000. If you aren’t financing the whole purchase, the amount financed must be at least $100,000.
Finding a Lender
Start with the international banks, as they are accustomed to doing business with non-U.S. citizens. Work your way down through progressively smaller institutions as you compare estimates. When you reach the level of community banks, you can look in areas with high populations of immigrants for banks used to working with foreigners.
If the banks put up too much resistance or don’t offer programs that fit your needs, you might find that a private mortgage lender is the way to go. Some private lenders even specialize in foreign national loans.
A third option is to finance through a credit union. These institutions often have very competitive rates, and some even have special programs for borrowers who hold green cards or visas.
The Next Steps Financing as a Foreign Client
Most foreign national mortgage loans require a down payment of 25-50%. You’ll be asked to open a United States bank account in which to deposit the down payment, with some lenders stipulating that the account remain open for a minimum of two years.
You’ll also be required to produce documentation of your income, bank statements and references from whatever institution(s) you bank with at home, and two forms of ID.
Fixed-Rate vs Adjustable-Rate Mortgages
You will likely be presented with the choice between a fixed-rate and adjustable-rate mortgage. Fixed-rate mortgages offer the advantage of a fixed interest rate for the life of the loan, though they often start at higher rates than adjustable-rate loans. Adjustable-rate mortgages are attractive because they usually start out at lower interest rates, however, they are subject to change over time, either at fixed intervals, or in accordance with changes in various economic indices.
As with most traditional mortgage loans, foreign national loans require borrowers to take out an insurance policy on the home. The cost of homeowner’s insurance depends on several factors, such as the amount of coverage desired, the neighborhood’s crime rate, the size and age of the home, borrower credit, and the surrounding area’s propensity for natural disasters. For instance, homeowner’s insurance in Florida is costly due to its vulnerability to hurricanes. In fact, Florida’s average home insurance premium is the highest in the country. Luckily, rates in Orlando are cheaper than on the coast, where hurricanes and flooding do the most damage.
For foreigners financing with a foreign national loan, the borrower’s credit score is important for getting approved and securing the best rates. This can be a problem for some foreigners who, having only lived here a few years, if at all, have yet to establish a solid American credit history.
However, many lenders will offer to build a credit report off of your history with companies to whom you make regular payments. These can include utility companies, internet/phone providers, and landlords, so be sure to keep up with your bills in the time leading up to your loan application.
Since the signing of the Patriot Act and its provisional Customer Identification Program (CIP), followed by the economic recession 7 years later, American financial institutions have gotten much more prudent on matters of documentation. As a reflection of this prudence and the resulting extended time it takes for banks to investigate borrower identity, the timeframe for purchasing a financed property as a foreigner is approximately 45 to 60 days.
If you need financing as a foreign client for your Orlando home, you need the Authentic Real Estate Team. Using our wide-ranging network of lenders and years of experience serving foreign clients, we can help you cash in on Orlando’s real estate scene from anywhere in the world.