Financing Options For Non-US Residents Purchasing US Property

Being one of the largest real estate markets in the world, the United States continues to be an attractive investment hub. Being a highly liquid property market, it offers long-term capital appreciation and good returns with potential for value appreciation. There are several financing options available to non-US residents who desire to invest in United States property.

Whether you’re after a second home, an investment property or a commercial space, there are different options available to suit your needs. The different financing options available vary dependant on loan-to-value (LTV) ratios, interest rates, documentation requirements and processes.

Traditional Mortgage Options for Non-US Residents

Traditional may offer competitive rates, but they tend to be more conservative than private banks in their lending criteria. For non-resident borrowers, US lenders may have concerns about creditworthiness and the risk associated with lending to a foreign national.

Typically, the LTV ratio generally ranges from 50%-70% of the property’s value. Moreover, the ratio will also be dependant on the property’s location, value and the overall financial profile of the borrower. Interest rates are typically structured on a SOFR (Secured Overnight Financing Rate) basis. Furthermore, an additional margin of 2-3%, based on the overall rate determined by the LTV, property location and the financial profile. It is important to note that the SOFR plus is subject to variation based on market conditions. Therefore, all cases are judged on an individual and timely basis.

If you wish to purchase a new build development, lenders often require the development to be at least 70% sold out before approving financing, but this will depend on the lender and market conditions. This acts to insulate the risk from property values in new developments that have not yet proven their market demand.

Documentation for a traditional mortgage includes:

• An accountant’s letter specifying the borrower’s liabilities, income, assets and expenses
• Bank statements to validate the declared amounts
• A valid form of identification and residence proof
• The lenders may call for an international credit report or international bank references

This entire process will normally take around 2-3 months, and it’s important to note that additional costs such as valuation fees, closing costs and arrangement fees will also be charged by the lender. To make the process easier, non-residents typically consult a mortgage broker and legal professionals familiar with the nuances of the US real estate market and financing to navigate these costs and the process efficiently.

Private Bank Options for Non-US Residents

If you’re looking to purchase a high-value property, a private bank mortgage can be a great option.  The process of obtaining a mortgage from a private bank is relatively similar to a traditional mortgage. Both types of mortgages require similar documentation to assess the borrower’s financial profile, and the length of the application process also takes 2-3 months. However, private banks may speed up the process for high-net-worth individuals. They also offer more flexible and potentially more attractive terms. The rates are around 5.5% higher and the LTV ratios are often up to 80%. As non-US residents do not have a traditional US credit history, to be able to secure these terms, lenders will require an assets under management (AUM) relationship between themselves and the borrower as a loan condition. The value of the asset must be at least $2 million to qualify, but this will be based on the lender. Generally, private banks are a desirable option for high-net-worth individuals since they can offer personalised loan terms based on the client’s complete financial profile, with assets considered and not just credit history.

Bridging Finance for Non-US Residents

If you’re looking to purchase commercial real estate or multifamily properties, bridging finance can be a viable option. More commonly known as “bridge loans”, these types of loans in commercial real estate are short-term financing used to “bridge” the gap between the purchase of a property and its long-term financing or sale. The LTV is typically 60-70% for commercial property, again, depending on the property type and location. You can borrow more with a bridging loan, with loans typically starting from $3 million. However, the rates for this type of financing are usually higher than a mortgage, ranging from 7.5% to 12%, depending on the loan terms, property type and market conditions. The typical term for a bridge loan is up to 3 years, and the borrower may be required to provide a personal guarantee, which is common for larger loans, particularly in the commercial space.

To reduce risk, lenders will require the commercial property to be held within a holding company (using an LLC). This structure offers legal and financial security, which is preferred with lenders when in the case of working with non-resident borrowers.

Next Steps

The US market offers diverse financing solutions for non-residents with options ranging from traditional mortgages to tailored private banking solutions and bridging finance for commercial properties. To help you navigate this process, Enness has a team of experts that are familiar with how to buy and finance property in the US, ensuring that you find the best solution for your needs. Whether you’re an investor or simply want to purchase a second home, our expertise and personalised advice make securing your US property purchase seamless and straightforward. To find out if we can assist you, get in touch today.

 

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