South Florida, especially Miami, is considered the gateway to Latin America and other parts of the world. Foreigners from all over the world come to South Florida to enjoy the beaches, nightlife, shopping and much more. What if I told you, foreigners, not only come to the southern tip of the sunshine state for a mojito on the beach?
Ever since the housing market crash of 2008 (and the years leading up to it), there has been an influx of foreign buyers, investing in all kinds of real estate in South Florida. Purchased properties ranged from commercial strip malls to small income producing apartments on the beach. Home Financial Group was at the forefront of assisting foreign nationals to finance real estate since our inception in 2002. Having the processes, infrastructure, and expertise in place. HFG was able to capitalize on the increase in demand from foreign investors the years after the “Great Recession”.
Structuring & Guidelines for Foreign National Mortgages
Structuring a foreign national real estate finance transaction is not a “one size fits all” transaction, there are no specific foreign national mortgage guidelines. Depending on the type of property and its use, the borrower or “guarantor” of the loan, is a huge deciding factor when structuring the transaction. A thorough background check is done when doing business with a foreign national client.
Some questions we ask our foreign national clients:
- Who are they?
- How do they make money?
- Is their business legitimate in their home country?
- Are they a government official?
Due to heavy regulation in the U.S., when obtaining “portfolio financing” (better rate and term as compared to private or hard money transactions), the borrower needs to be in good standing with their home country and the U.S. In recent years, there has been a tightening in “Bank Secrecy Act” or “BSA” standards, preventing money launderers and people with illegitimate business to “wash” their dirty money through real estate.
For most programs, tax returns are not needed; we understand that in some countries, it’s citizens avoid a majority of their tax obligation. Due to this, tax returns usually do not represent the actual income of the client. A certified CPA letter (Written by a licensed CPA in the home country) will suffice as proof of income.
Next is the funds to close. It all depends on the type of property and its use. For new construction condos on Sunny Isles, the client usually puts down 50% of the sales price, prior to the construction even beginning. Once the building is complete and the title is transferred, clients will need financing for the rest of the 50% and won’t need funds to close, given they have already deposited 50% two-three years prior. Single-family homes are considered less risky and therefore require less of a down payment as compared to condominiums. The funds to close will ideally come from a U.S. based account but can also be used from a foreign account
Once we verified the potential borrower’s income, understand who they are, and verify the funds they will use for closing. We are able to provide a pre-approval letter, they can use to put offers on potential properties.
Foreign National Mortgage Processing and Underwriting
When processing and underwriting a Foreign National Mortgage, there are different risk factors that are taken into account. Being a foreign borrower, there is a bigger risk that they will stop paying in the case they come into financial hardship. They won’t need to declare bankruptcy and the foreclosure won’t affect them in their home country. Due to this potential default risk; processors and underwriters of the file take extra measures to assessing the borrower’s stream of income, and likelihood of longevity. Other liabilities are also taken into account; how much is their current monthly debt obligation in their home country? This is usually viewed as a monthly figure. But again, it all depends on the type of property and its use. If its an investment property, the cash flows of the property are the main factors taken into account when approving or denying a deal.
Additional requirements might come up during the process, such as; letters of explanations for certain events or situations that might hurt the borrower’s risk profile. An example would be; “What is the reason for switching careers four years ago?” or “Explain to us in detail, the nature of your primary business and its subsidiaries structure”.
During this phase, is when a dynamic mortgage specialist is key. Questions arise throughout the process and the loan officer working the file will need to be proactive with providing the correct and proper answers and also preempt any additional inquiries that may arise or cause the file to be delayed.
In real estate, dates are very important. Borrowers can lose their deposit if a loan commitment isn’t granted on time, as set forth by the date of the contract. That is way during the processing and underwriting stages, prompt collaboration from the borrower is very important. Sometimes issues arise and the borrower is on a business trip or vacation and is unable to answer on a timely manner; this puts the transaction in jeopardy and the realtor along with the loan officer needs to communicate this importance and expectation to the borrower.
Closing a Foreign National Mortgage
The home stretch is here, and everyone that has been working on the transaction is waiting to close. During these final step of the process, working with an experienced title company is imperative. Depending on where title of the property is going to be held (individual, LLC, trust, etc.) closing and the documents that will be signed vary greatly. Because foreign national mortgages aren’t sold on the secondary market, the portfolio investor keeping the note in their books and servicing the loan, will also have their attorneys review the closing documents and have them work with the title company chosen to close the transaction.
Also, given that foreign national clients aren’t always in the United States, they have the option to close in the U.S. Embassy in their home country or elsewhere. Appointments need to be made with ample time and borrower needs to make sure that there will be an official U.S. notary present (in addition to two witnesses) for the documents to be legally signed and the transaction closed.
Working with the Best Foreign National Mortgage Lenders in Florida
Whether you are a Realtor, that represents foreign national buyers from every part of the world, or a financial advisor that represents Latin American clients investing in the U.S. You want to look good for your client, and will only recommend the best. Home Financial Group has been closing dynamic foreign national mortgages for over 15 years; representing clients from Argentina, Brazil, Chile, Spain, China, Norway – just to name a few.
Just like our domestic clients; We have an initial conversation and understand their needs and their current situation; we prequalify the client and offer them the best financing options. Its no secret why we have constant referrals and return foreign national buyers, looking to refinance the property we financed for them, or purchase a second investment property.
Do you have any questions about foreign national mortgages? Leave us a comment below!Questions? Contact Home Financial Group Today!