Financing property in the US is not impossible for "foreign nationals" (what the US call people who are not US citizens, and have no residency status in the US either), however it is very, very tough.
By way of background, the lending market is very different in the US. In Australia, if you want a loan with the ANZ, you get a loan with the ANZ. They are a bank that operates nationally. As do Westpac, St George / BankSA, Commonwealth Bank, National Bank and so on.
By contrast, in the US, each lender needs to be registered in the particular State that they want to offer loan products in. Consequently, there are very few lenders who are registered in all States. Some truly National lenders in the US are Bank of America, ING Direct, Wells Fargo and Ditech. And, that is about it.
Problem one – none of these lenders offer loans to foreign nationals.
The same rules apply to mortgage brokers – they are registered on a State by State basis also. In reality, it is no good talking to a broker from New York (or even worse, in Australia) if you want to buy a property in Texas. They will not be familiar with the lenders and lender policy in that location. You need to talk to a broker active in the market you want to purchase in.
What that means is that if you wish to finance your property purchase, you need to select your property first. The lender selection will depend on the location of the property (which State it is in, but often also which county).
So that is step one – decide which State you want to buy in.Some States, like Florida for example, have a reasonable number of lenders who offer loans to foreign nationals; however they are restricted to the State of Florida for such loans. Other States have no lenders that will offer loans to foreign nationals. And then there are some States (such as NY for instance), where there are only 1, 2 or 3 funders who extend credit to foreign nationals to chose from.
And that is step 2. Identify the lenders that will extend credit to foreign nationals in that location.
Whether the lender will extend credit against the property depends on a number of variables, but the most important factors are:
1. Purchase price
2. Property type (i.e. is it single family residential, or mutli-family, or apartment block)?
If you are like most Australians, you are looking to take advantage of the price reductions as a result of the GFC, and purchase property at a low purchase price. Unfortunately, the lenders will probably have a minimum loan amount or minimum valuation of the purchase property, which will also vary from location to location.
Step 3 – decide which property you wish to purchase, and see if you can then fund it.
I know what you are thinking…. That it seems counter-intuitive to do this. Perhaps your objective is to leverage as much as possible, and thus your property location will be selected upon where you can achieve greatest amount of leverage. Be prepared for a maximum of 70% (or even 60%) LVR.
There is one more problem I have not discussed. Australian banking legislation. Some lenders (like Lloyds TSB, and Barclays Bank (both in the UK) for example) offer international mortgages to residents of many countries. However Australian legislation precludes them from offering loans to Australians living and working in Australia.
So there is the dilemma.
And the reason why most Australians say they want to invest in US property, however do not. It is very, very difficult to do so. And I have not even touched on the complexity of real estate practices and purchasing yet (which also varies State to State).
I talk to a lot of people, and observe the following:
1. Many people seem to have a strong desire to invest in the USA
2. The desire seems to be to purchase lower priced dwellings that have decreased in value as a result of the GFC, as well as properties that will deliver a strong rental yield
3. Investors have some cash, but would like to leverage as much as possible to enhance the return
4. Investors knowledge is growing, but not at a level where they could invest with a degree of comfort yet (for reasons explained above)
5. Investors usually don't know exactly where they wish to invest yetThe obstacles and risks associated with this strategy are as follows:
(a) Investors will find it difficult to qualify for a loan due to the property prices they are seeking. Thus any purchases will need to be bought with all cash most likely
(b) Any properties bought will be exposed to potentially poor returns if there is even one poorly performing property in your portfolio, thus your investment is exposed to higher risk of loss
(c) Time and effort and financial cost to complete due diligence is high (especially if the investor is going to fly to the US to view properties)Investment in a pooled property / private equity fund would be a better solution for the majority of people. I say this because:
1. The upfront costs and time compared to doing it yourself are lower
2. The investment risk is spread over a few hundred properties instead of 2 or 3
3. You will be able to utilise leverage within the fund itself, and thus enhance your returns that you would not achieve
personally, and do so at historically low US interest rates
4. You will still be able to take advantage of decreases in property values
5. You will still be able to take advantage of favourable exchange ratesQuite honestly, this is what I think the majority of people in Australia (including people on this website) who have an interest in investing in US property should be doing – 95%+ of people do not know enough about US property (and US property law, property financing, etc) to invest with a through understanding of the investment. Thus, poor knowledge equals higher risk.
Have a look at an interview I did with Sky News a month or so ago – it might interest you
http://www.switzerbroker.com.au/broker-video/troymcervale/
My contact e-mail is [email protected] if you wish to contact me
It is extremely difficult for American citizens to obtain financing for homes, let alone additional financing for income properties. Has anyone had any luck with this?
Hi Detroit Dan
Just appointed a new lender this week that will lend to non-residents up to 75% LTV (but more likely 65% for most) in any State at most price ranges.
Pretty exciting – standby for more information to come in a new thread
Wow. What are the details on this?
Everyone that is looking into financing…..Be sure to look at SEASONING!!!! Most lenders require 90 day seasoning on assets owned by the seller. I see very few good deals out there offered from wholesalers owned for more than 90 days. Point is, you are probably over-paying for something owned for 90+ days anyway.
CheevesFinancial | Cushman & Wakefield - Commercial Property SW FL
http://www.CommercialRealEstateVoice.com
Email Me | Phone MeTroy McErvale wrote:Hi Detroit DanJust appointed a new lender this week that will lend to non-residents up to 75% LTV (but more likely 65% for most) in any State at most price ranges.
Pretty exciting – standby for more information to come in a new thread
If i could outright buy property for the amount of cash i have I would even if it is cash flow breaking even. but other than that, i will just have to keep saving or get seek out a personal loan here is oz to help.
Cheeves Financial – Seasoning is waived until the end of 2011.
Hi Troy,
Does that include cheaper properties i.e. the $20k-$50 bargains out there at the moment?
Also, what sort of interest rate and term?
Hi,
What is “seasoning?”
Angel
Hi guys,
I'm new to the forum and just have a couple of questions to add.
1. For anyone who has already purchased US property, how did you finance it if you didn't have the outright cash or couldn't get US financing? I assume you borrowed the money from an Australian lender?
2. If you did manage to borrow from an Australian lender, what type or kind of loan did you get?
3. If you did finance from an Australian lender, how do you go about repaying the loan considering the rental income you would receive would go into your US bank account? Do you simply wire the rental income back to cover your loan? And if you do this, aren't you at more risk of currency fluctuation and fees associated with moving the money?
Just trying to get my head around some practical aspects of investing over there. By the way I'm very interested in all types of investing including property and the sharemarket including derivatives etc, and would be interested in meeting anyone in Brisbane who may be interested in the same and maybe work together or share ideas etc as I'm planning on travelling over to the US later in the year and going for it, a companion or partner to work with would make life easier. I recently attended the US property seminar that was held in Brissy presented by Steve also and there was a lot of people there who seemed to be very interested but lack the support of other like minded people, let me know if your keen to catch up!
Cheers Adam
Angel,
Seasoning is how long someone has been on the loan or on the title of a property. Different lenders have different seasoning requirements. Some have none, others require someone to hold a title for 6 months before a property can be resold or refinanced.
Hope this helps.
-Dan
Adam
There are a few ways to finance your US purchase
1. Use equity in your existing Australain property, and set up a line of credit to access it. Draw down this credit, and use this as your purchase monies – whether it be to purchase your US properety with cash, or to use as a deposit
2. Qualify for a mortgage with a US funder. These are in small numbers, but can be available up to 75% LVR for the right property in the right State. Some States there are no loans available at all for foreigners.
Hope this helps
Hi Adam
Great question.
Lending is available in all states of the US at the moment. It is dependant on the property. The LTV ranges from 50% to 75%. This finance is available, you just need to know where to look in Australia.
Hey Adam,
If you been working full time for a while, but poor in cash, have difficulty in getting finance, have you thought about using your "super" to buy property overseas, hence you don't even have to use your own fund or equity from your house?
Anyone able to get FINANCE for USA property ?
PropertInvestor wrote:Anyone able to get FINANCE for USA property ?Hi Propertyinvestor,
Let me make it clear….I am not offering to get US finance…not in the business. As an Aussie investing in the US market I sidestepped all the buyers agents and went to the US myself to do the groundwork. For my first property I purchased in the north of Texas…late last year I got finance at 70% LTV, 20 year term loan @ 6.75%. This was from a local lender and they will only lend in there specific area. Speaking to them….they have approved finance for another Aussie investor since but you have to purchase in this area and use a specific purchasing source known to the bank (and a customer of theirs)……the ONLY way you'll get in the front door
I am heading to DFW in 2 weeks time for my second purchase and have finance lined up…..minimum 50% LTV but up to 65% depending upon how much paperwork I can provide them. It will be a 30 year loan this time and the rate will be a little higher but running my numbers I am still way out in front by leveraging. Again the only reason this is possible is due to the purchasing source being known to the lender.
I'm not going to post details of the lenders etc….not pushing their barrow….you'll have to PM me to get details. It gave me great comfort knowing that the lenders did there own appraisals so I know I paid a local market value and didn't pay too much. It is very difficult in Texas as sites like Zillow or Trulia and the like don't work well in Texas. TX is a non disclosure state so sales prices do not get disclosed at the local county office and if you know how Zillow & Trulia get zestimates etc…you'll appreciate that in TX it's way off track.
So it is possible for an Aussie to get finance….just need to know the right contactsFinance is hard but possible in USA for international investors. In fact, due to credit crunch, US banks have limited funds to lend. As all businesses, banks also work for profit. Doesn’t matter, property is worth of $20k or $150k, they have to do the same legal-paper-leg-work to close a deal. Therefore, currently, they are NOT lending to cheap properties, when they have buyers for expensive properties.
Apart from the standard requirements about documentations, different US lenders may have some extra requirements before they approve any loan. Basically depends upon the price and location of the property.
I have some minor success in that ive got a lender lined up and have pre approval. 3.75% to 5+% and with 30% down. Can lend to almost any state. Has minimum borrowing of 100K though. No biggie. Find out in a month if it goes through
Nice post. Financing a property investment in the USA is an important decision and today, more than ever, could entail injecting your own cash resources or employing an equity release scheme. Taking out a loan based on the value of a property that is either on the market or in the process of being sold is a popular strategy for many investors who do not want to let an unbeatable opportunity pass them by.
reeco wrote:I have some minor success in that ive got a lender lined up and have pre approval. 3.75% to 5+% and with 30% down. Can lend to almost any state. Has minimum borrowing of 100K though. No biggie. Find out in a month if it goes throughInteresting reeco. I have just returned from Atlanta GA, and I met with a 'hard money lender' there. Terms were no where near as appealing as yours so please keep us posted.
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