Foreign National Loans Are A Great Option For Individuals Without U.S. Credit Scores or Social Security Numbers
If you’re a foreign national looking to buy property in the United States, you might be wondering whether you’re eligible for a mortgage. Luckily, there are several loan programs for foreign nationals who are interested in buying property in the US, even if you don’t have a social security number or any previous US credit score.
The demand for foreign national loans is higher than most people might think. Approximately 46 million foreign-born people are residing in the US as of 2022, which is the highest it’s been since 2017.
In this guide, we’ll be covering everything you need to know about foreign national loans. Our aim: to provide insights into the broader landscape of international transactions in US real estate and shed light on how foreign nationals can secure home loans without having a US credit history.
Who is a Good Candidate for a Foreign National Loan?
Generally, those who would be interested in foreign national loans would be international buyers who want to invest in US real estate and non-US citizens who are relocating to the US for work or education. International buyers can obtain a mortgage through foreign national lending programs without a Social Security number, green card, or visa. Foreign national loans do not require applications to have a FICO score to show proof of credit. Instead, borrowers can prove their creditworthiness through several methods or by submitting a credit report from their home country. Otherwise, it could take years for a foreign individual to build their credit in the US before being able to qualify for a conventional mortgage. Foreign national loans give foreign nationals a faster and more direct pathway to homeownership.
Definition of a Foreign National Loan in the United States
A foreign national loan in the United States is a loan type that is specifically designed for non-US citizens and non-US residents. These loans make it easier for foreign nationals to buy property in the US without a US credit score (FICO), green card, visa or social security number.
Typically, foreign national loans are non-qualified or nonconforming mortgages (also known as non-QM), which means that they don’t need to meet the strict underwriting guidelines of government agencies, such as Fannie Mae and Freddie Mac. Not having to adhere to these guidelines allows lenders to be more flexible when it comes to approving loans for foreign national borrowers.
Lenders tend to view foreign national loans as slightly more risky loans – meaning that mortgage rates could be higher than traditional loans and a higher down payment may be required.
The Benefits of Foreign National Loans
The main benefit of a foreign national loan is having access to the US housing market despite not being a US citizen or resident, which can allow you to have investment gains and diversify your investment portfolio. Some lenders, like us at Defy, offer DSCR loans for investment properties. Foreign national loans take into account your credit and financial history from your home country rather than your US credit history. Building up a good US credit score can take years, which slows down the homeownership process for a foreign individual. Foreign national loans can help you cut down that timeframe significantly by allowing you to be eligible for a home loan right away.
Foreign National Loan Terms
Depending on the lender, foreign national loan terms may vary. Below, we’ve outlined the most common terms:
- Maximum Loan Amount: The maximum loan amount will depend on the lender. Some lenders may provide a higher loan amount depending on their credit history and down payment amount. At Defy, we offer loan amounts of up to $5 million.
- Loan-to-Value Ratio: The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. It is used to determine the amount necessary to put in a down payment. LTV varies depending on lender. At Defy, we offer up to 75% LTV.
- Minimum Down Payment Requirements: Most foreign national loans require a down payment of at least 20%.
- Loan Terms: Loan terms vary depending on the lender, however, most lenders, like us at Defy offer 30-year-fixed and adjustable rate options.
- Loan Length: Loan lengths for foreign national loans vary anywhere between 15 to 30 years.
- Prepayment Penalty: Some foreign national loans might have a prepayment penalty. This is a fee that’s charged if the borrower pays off the loan early.
Qualification Requirements for Foreign National Loans
There are several qualification requirements for a foreign national loan. Below, we’ve listed a few criteria that are common for lenders to use when determining whether a borrower is eligible for a foreign national loan.
- Has good credit report/history from their home country or the US
- Depending on the applicant’s US credit history, an International Credit Report may be required
- Has the necessary documentation needed for pre-approval (more on that below)
- Has verifiable income with a stable work history
- Two years of employment history
- Income statements
- Can pay for the down payment, which is typically between 20-30% of the purchase price
- Has liquid cash reserves to cover closing costs and several months of mortgage payments
The Application Process for Foreign National Loans
If this is the first time you’re applying for a foreign national loan, it might seem a bit daunting. Even though it seems more complex than a conventional loan, the foreign national loan process is much more similar to a traditional loan than you might think. Below, we’ve outlined each step of the foreign national loan process to make it as smooth as possible.
1. Determine How Much Home You Can Afford
The first step in the application process is to determine how much home you can afford. By doing this, you can narrow down your property search and avoid any wasted time looking at homes that are out of your price range. Searching for property can be overwhelming when you’re faced with too many options, so narrowing it down by price can help you better evaluate your options.
To determine your budget, you should consider your income, debt, and expenses. If you need some further guidance, you can use a mortgage calculator to help you with this.
It’s important to consider the subsequent elements within your monthly payment and work with your lending partner to asses them: your principal and interest, property taxes, homeowners’ insurance premiums, and, if relevant, homeowner’s association dues or assessments, in conjunction with your other financial obligations and income.
2. Begin The Home Shopping Process
After calculating your budget, you can start focusing on the fun part! You can begin the home shopping process by looking at properties that you think would be a good fit for you. Beyond the home prices, you can also use location to narrow down your property search. Some location-based criteria to think about are school districts, town centers, public transportation and proximity to your work or school.
Working with a knowledgeable real estate agent who’s both familiar with the area and with the foreign national loan process can help you quickly find a home that meets your specifications.
3. Prepare Your Documentation
When submitting an application for a foreign national loan, you’ll have to provide lenders with certain documentation. Usually, this includes:
- Proof of income
- Proof of assets (stocks, savings accounts, checking, etc)
- Proof of residency (two years’ history of residency – rent/own, address, and dates)
- A copy of your passport and visa (if applicable)
- A US credit report (if you have one) or International Credit Report
Keep in mind that each lender may have different documentation requirements. Ensure you reach out to lenders early in the process to be prepared with the documentation that they’ll ask for.
4. Research Your Loan Options
Just like a conventional mortgage, there are many different foreign national loan programs out there. Since buying a house is a rather large financial decision, it’s important to research your loan options and compare offers from several lenders before choosing one.
Some factors that you should consider when reviewing your options are:
- Loan amounts and LTV
- Purchase or refinance with cash-out
- Lender experience with international borrowers
- Down payment requirements
- The terms of the loan
5. Search For A Lender
After reviewing your loan options, it’s time to search for a lender. When shopping for a lender, you should compare offers from several different lenders before choosing one. Not only should you consider the loan terms that they’re offering, but you should also consider the lender’s reputation and experience with international borrowers. It’s important to find a lender who’s experienced in handling foreign transactions and is familiar with the regulations regarding international finances. You can search for a lender who specializes in foreign national loans by looking online or asking your real estate agent for recommendations. (We happen to be one of them!)
6. Get Pre-Approved
Once you’ve chosen your lender, you can apply for a pre-approval with them. Getting a pre-approval will give you a better idea of how much money you can borrow and what the monthly mortgage payments will be. Having a pre-approval ready also shows sellers that you’re a serious buyer when you’re shopping around for a property.
7. Continue The Application Process
After getting a pre-approval and finding a property, you can continue the application process. The lender will have you complete a loan application, which also includes providing the lender with any required documentation. Should you work with us at Defy, you have the option to lock the interest rate. US mortgage rates fluctuate daily, so locking your mortgage rate will ensure that your interest rate stays the same until the loan’s closing. Of course, your personal Mortgage Consultant will assist you with this process.
Your loan application will move to the processor who will prepare your information and application for review by the underwriter. Your mortgage underwriter will determine the final qualification based on the lender’s underwriting guidelines.
8. Get A Property Appraisal
When giving out home loans, lenders want to make sure that the property is worth the amount that they’re lending to the borrower. Thus, if a borrower can’t make their payments and must default on a loan, the lender can repossess the house and sell it to cover the remaining loan balance.
The loan processor will order the appraisal, and the property appraiser will inspect the property and write a report for the lender that estimates the value of the property.
9. Get Ready For Closing
The last step in the foreign national loan process is to close on the property. This is where you’ll sign the closing documents and the ownership of the property transfers to you. You should have your photo ID, a duplicate of your Closing Disclosure, and all other essential final documents with you when you arrive at the closing table. Additionally, make sure to bring all the required funds to complete your home loan transaction.
Before signing all of the documentation, you should review everything carefully. Additionally, there are usually additional closing costs that you’ll need to cover, such as:
- Origination fee
- Appraisal fee
- Title insurance
- Recording fee
- Transfer tax
- Prepaid property taxes
- Prepaid homeowners insurance
- Attorney’s fees
To avoid any delays, make sure that you have all of the necessary funds to cover the closing costs. Lenders will typically give you an exact amount that’s due on the closing date, so you can be prepared.
Once the closing is taken care of, congratulations! The home is now yours.
Foreign National Loans vs. Conventional Loans
The main difference between a foreign national loan and a conventional loan is that a foreign national loan is available for non-US citizens and non-US residents, whereas conventional loans are only available for US citizens and residents.
Because lenders tend to view foreign national loans as slightly more risky loans, foreign national loans typically have higher interest rates and higher potential down payment requirements. However, for foreign national loans, the credit history requirements are usually less strict since foreign national loans don’t have to follow the guidelines of Fannie Mae and Freddie Mac. More documentation may be required for a foreign national loan, however.
Conventional loans usually have lower interest rates and down payment requirements since borrowers who are eligible for a conventional loan will have a US credit history. However, the credit history requirements are more strict than for foreign national loans. Conventional loan lenders have to adhere to the guidelines set by Fannie Mae and Freddie Mac, which tend to be more stringent.
Foreign National Loans vs. DSCR Loans
The main difference between a foreign national loan in comparison to a DSCR loan is that a foreign national loan is based on the international borrower’s verifiable income, work history, proof of assets, among other things – while a DSCR loan is based on the property’s potential cash flow. Foreign individuals are eligible for both a foreign national loan and a DSCR loan.
DSCR stands for debt-service coverage ratio and it measures the property’s cash flow to pay loan obligations. DSCR is calculated by a simple formula:
DSCR = Net Operating Income (NOI) / Total Debt Service
Where net operating income is the property’s cash flow, minus operating expenses from the rental income. Total debt service is the monthly payments that include mortgage, taxes, and insurance.
For example, if a property is generating $2,500 in net rental income and the total monthly mortgage payment is $2,000 including taxes and insurance, then this property would have a DSCR of 1.25.
Requirements for DSCR loans for foreign nationals typically depend on the lender and the loan program. Most DSCR loans for foreign nationals require a DSCR of at least 1.25, which means that the property’s cash flow is at least 1.25 times greater than the monthly mortgage payment. However, some lenders, such as Defy, allow a lower DSCR minimum of 0.75. In this case, the property can be making less income than the monthly mortgage payments and can still be eligible for a DSCR loan.
Remember that DSCR is only one factor that lenders consider when approving borrowers for this type of loan. Other factors that would be considered include income, credit history, and down payment.
Foreign National Fix-and-Flip and Construction Loans
Foreign national fix-and-flip and construction loans are available to non-US citizens and non-residents to give them the opportunity to renovate and build new properties in the US. Fix-and-flip and construction loans are usually short-term and can be a good option for foreign investors looking to invest in US real estate.
Even though fix-and-flip and construction loans are often grouped together, there’s a main difference between the two depending on what the borrower plans to do with the loan proceeds. Fix-and-flip loans are used to renovate older homes to “flip” these properties for a profit. Construction loans are used to finance the construction of a new property.
For foreign individuals to qualify for a fix-and-flip or construction loan, they typically need to have a good credit history (International Credit Report or US), experience with real estate investing, and a down payment of at least 20%. Interest rates on foreign national fix-and-flip and construction loans tend to be higher because of the added risk that lenders take on by lending to a foreigner, however, these loans are more flexible and are a great vehicle to use to achieve your US real estate investment goals if you are a foreign national.
Top 5 Most Popular States for Foreign National Loans
Naturally, some states tend to attract more foreign investors than others for a variety of reasons, including a diverse economy and strong real estate market. The top five most popular states for foreign national loan are:
- California
- Florida
- Texas
- New York
- Arizona
The Pros and Cons of Foreign National Loans
Now that we’ve covered the basics on foreign national loans, let’s take a closer look at the pros and cons.
Pros
- Gives foreign nationals an opportunity to invest in the US real estate market
- Foreign investors can diversify their portfolio with US real estate holdings
- A social security number and US credit history is not required
- Less stringent eligibility requirements
- Loan terms are more flexible than a conventional loan
Cons
- Often higher interest rates and down payment requirements
- Lengthier underwriting process since the lender has to verify the borrower’s documents, income, and assets in their home country
- Risk of currency fluctuations between USD and the borrower’s home currency
If you’re still deciding whether a foreign national loan is right for you, be sure to review the pros and cons that are applicable to your situation. Every situation is unique and buying a home is a big decision. Take the time to carefully consider all the factors that might apply to you.
How To Find A Great Foreign National Loan Lender
Once you’ve made the decision that a foreign national loan is right for you, it’s time to start looking for a lender. If this is the first time you’ve had to look for a lender, you might be wondering what criteria makes a great lender. During your search, you should consider the following factors:
- Experience: Check if the lender has experience working with foreign individuals. If they have, this means that they should be more familiar with the unique challenges and requirements of foreign national loans.
- Reputation: Search online to find reviews of the lender from other borrowers. Reading reviews from others will give you an idea of the lender’s reputation and help you find a reliable lender.
- Customer Service: Along with reputation, make sure that the lender has good reviews from other borrowers about their customer service. Having a lender that’s well-known for their good customer service will ensure that they’re responsive and easy to work with.
- Non-QM Focus: Since a foreign national loan is a non-QM loan, working with an experienced non-QM lender is essential. Choosing a lender that’s experienced with the unique circumstances of foreign individuals can make the process much smoother. As a borrower, you’ll be able to approach an experienced lender with any questions and concerns about the process, and feel confident that they can help you.
- Interest Rates and Fees: Interest rates and fees may vary between different lenders. It’s important to carefully compare interest rates and fees before choosing a lender since it can affect profitability in the long run. Fees to consider can include origination fees, appraisal fees, and other miscellaneous closing costs.
- Down Payment Requirements: Foreign national loans usually require a down payment of at least 20%, but you should still compare down payment requirements from different lenders. Some lenders may allow for down payments that are less than 20% depending on the circumstances.
During this process, it’s crucial to ask questions and get as much information as you can from potential lenders. Finding a lending partner who best fits your needs help ensure a smooth process.
Why You Should Work with a Non-Bank Lender
When searching for a lender for a foreign national loan, consider a private lender. Compared to banks, they usually have quicker approval times and more flexible underwriting guidelines. On top of that, non-bank lenders usually have more specialized loan products, which include foreign national, DSCR loans, construction loans, bank statement options and more.
After narrowing down your search to a few potential lenders, start contacting them and collecting more information about their loan programs. If you’re happy with what they have to offer, you can start the pre-approval process to get a better idea of how big of a loan you can get and what the monthly payments will be.
The Top 5 Foreign National Lenders
Griffin Funding
Griffin Funding is one of the largest direct-to-consumer lenders in the United States. As of this writing, they have 4.88/5 stars on the Better Business Bureau and 5/5 stars on Zillow. Hundreds of non-traditional applicants are overjoyed with Griffin Funding. For those who are seeking non-traditional mortgage loans – like foreign national loans – Griffin Funding is a solid option.
HSBC Bank USA
HSBC, the Hongkong and Shanghai Banking Corporation Limited, offers a variety of mortgages for foreigners, including their HSBC Preferred (which is for borrowers with accounts ranging from $10k to $75k across personal deposit and investment balances) all the way to the HSBC Summit, which is for clients with more than $1m in assets.
Defy Mortgage
Defy Mortgage is a non-bank lender with a simple, clear mission: to empower dreams, enrich lives and elevate the mortgage experience for non-traditional borrowers, such as foreign nationals. An up-and-coming titan of the industry, Defy specializes in non-QM loans and is comprised of a team with over 100+ years of combined industry experience helping non-traditional borrowers obtain home financing. With the economy quickly changing (and the number of gig workers at an all-time high) borrowers of tomorrow need a different option than traditional lenders are typically willing to consider, and Defy already has a proven track record of being able to do that.
Trust Mortgage Lending
Trust Mortgage Lending is one of the top names in the non-QM space, even though they don’t strictly specialize in those loan types. They have over fifteen years of experience helping borrowers obtain conventional loans, FHA loans, USDA loans, and more. It currently has an A+ with the Better Business Bureau.
Quontic
Quontic was founded in 2009 and they offer home lending in all 50 states. They are a “Community Development Financial Institution (CDFI),” not a traditional lender, which means that they specialize in helping borrowers obtain foreign national loans, bank statement loans, and more.
The Foreign National Loan Closing Process
The closing process for a foreign national loan is fairly similar to the closing process for a traditional mortgage. However, there are a few added steps that need to be completed before the house becomes yours.
Keep in mind that these requirements change from lender to lender. This is by no means an exhaustive list of requirements. In order to be 100% sure, always check with the lender and ask if they can provide you with a list of documents to have ready before closing.
Regardless, the process usually looks like this:
- Apply for a loan with a specific lender. Choose any one of the lenders above, for example, and each one will outline some specific requirements that they have from borrowers
- Assemble the correct documents:
- Proof of assets (doesn’t have to be US-based)
- Proof of income (doesn’t have to be US-based). This is usually about 2 years of bank statements, small business income, or whatever other proof of income that the borrower may be working with.
- Identification (passport, for example)
- Any other required documentation, such as an international credit report.
- Get preapproved and wait for preapproval.
- Continue with the application process.
- Make an offer for a property.
- Wait to see if that offer is accepted.
- Once it’s accepted, you’ll need to obtain:
- A settlement agent (usually a recommended title company)
- Homeowners insurance. In order to close, you’ll need to obtain homeowners insurance in the United States.
- Title insurance. If any mistakes are made on the title, they could cost you hundreds of thousands of dollars. As a foreign national, you don’t want to have to be dealing with overseas legal issues.
- Review the closing disclosures.
- Obtain access to the property (typically keys inside of a lockbox or handed directly to you, if you’re present in the United States.
This is a rough list of what the closing process might look like. Some buyers may obtain a home inspection, as well, and all buyers will have to pay a host of fees related to closing, including the appraisal, document preparation, and more.
Here are some additional things to keep in mind about the foreign national loan closing process:
- You may need to travel to the United States to close on your loan.
- You will need to provide the lender with a number of documents, including your passport/photo ID, a duplicate of your Closing Disclosure, etc.
- There may be additional closing costs that you’ll need to cover.
- You may need to pay a higher down payment than a US citizen or resident would pay.
- You may need to pay higher closing costs than a US citizen or resident would pay.
The Tax Implications of Foreign National Loans
If you’re a foreign national who has property in the US, then there are several tax implications to keep in mind. Depending on the type of loan and the borrower’s residency status, the implications may vary. Some tax implications that foreign individuals should be mindful of are:
- Withholding taxes on rental income: Foreign nationals who borrow money from a US lender are subject to 30% withholding taxes on rental income. The lender is required to hold a certain amount from monthly payments to send it to the IRS. If you’re from a country that has a tax treaty with the US, this percentage can be reduced or eliminated.
- Capital gains tax: If you’re a foreign national who sold their property at a profit, you’ll have to pay capital gains tax on the proceeds of the sale. The tax rate depends on how long you’ve owned the property and your residency status in the US. However, generally, foreigners who aren’t residents of the US are subject to a tax rate of 30% on capital gains.
- Mortgage interest deduction: Some foreign nationals that itemize their deductions can use the mortgage interest paid throughout the tax year as an additional deduction on their personal tax returns (Form 1040). By adding mortgage interest as a deduction, you can reduce your overall taxable income.
- Foreign national tax filing requirements: Determine whether you’re a non-resident alien (NRA) or resident alien to ensure you’re filing your taxes correctly depending on your US residency status. If you’re unsure, consult a tax professional for advice and file accordingly.
Foreign National Loans: Final Thoughts
Overall, owning property in the US as a foreign individual doesn’t have to be difficult. Even with no US credit history, no visa and no social security number, foreign borrowers have a plethora of options to achieve their goal of homeownership.
Throughout this guide, we’ve covered the foreign national loan process from start to finish. Remember to consider all of your loan and lender options carefully before choosing one that’s right for you. Working with a lender that’s experienced with foreign national loans can make the process much easier and smoother.
At Defy, our personalized loan service offers a wide range of competitive loan options to meet your needs. Click here to see how we can help you make your US homeownership dreams come true.
FAQs:
What is a Foreign National Loan?
A foreign national loan is a loan type that a non-US citizen and non-resident can use to purchase a property in the United States. This type of loan helps foreign individuals buy US real estate without having a US credit history or social security number.
Can Non-U.S. Residents Get a Foreign National Loan?
Yes! Non-US residents can get a foreign national loan. This loan type is designed specifically for non-US citizens and non-residents to make homeownership an easier process for them.
What are the Requirements for Foreign National Loans?
The requirements for a foreign national loan may vary depending on the lender and the type of loan. However, similar to a traditional mortgage, most foreign national loan lenders require basic financial info, such as proof of income and assets, along with a down payment.
Are Foreign National Loans Available in California?
Yes! Foreign national loans are available in California. California has a very diverse population and a strong real estate market, making it a popular destination for foreign investors.
Are Foreign National Loans Available in Florida?
Yes! Foreign national loans are available in Florida. Just like California, Florida also has a relatively diverse population with a bustling real estate market that makes it an ideal place for foreign investors.
What Types of Foreign National Loan Programs Exist?
There are a variety of foreign national loan programs, such as non-QM, ITIN, jumbo loans and DSCR options for foreign nationals.
What are the Interest Rates for Foreign National Loans?
Interest rates for foreign national loans are usually higher than traditional mortgages since lenders are taking on more risk with foreign borrowers. However, interest rates may still differ depending on the lender and the borrower’s credit and financial history.
What are the Down Payment Requirements for Foreign National Loans?
Generally, foreign national loans require a down payment of at least 20% of the purchase price of the property. However, some lenders might allow you to put down less than 20% depending on the circumstances.
Can Foreign Nationals Get Loans For Investment Properties?
Yes! Foreign nationals can get loans for investment properties. One loan type that a foreign investor should consider is a DSCR loan, which uses the property’s cash flow as a basis for approval rather than the borrower’s income.
Are Foreign National Loans ITIN Loans?
Not all foreign national loans are ITIN loans. However, there are some foreign national loan programs that are specifically for borrowers with ITINs.
Can Foreign Nationals Get a Loan Without a U.S. Credit Score?
Yes! Foreign nationals can get a loan without a US credit score. In these cases, be prepared to potentially pay a premium with a higher interest rate and a larger down payment.
Can Foreign Nationals Get a Loan Without a Social Security Number?
Yes! Foreign nationals without a social security number can get a loan.
