Foreign National Mortgages For Investment Properties

Over the last six months, the U.S. Dollar has been on a steady slide versus the Euro, raising the purchasing power of the Irish and other EU citizens against all-things American. This includes U.S. real estate.

The graph above illustrates, in real terms, the cost of a $300,000 property in the U.S. to a Euro-based buyer.

Because of the fading dollar, it's as if the price of every property available for purchase in the U.S. has fallen by 10 percent. This is one reason why the U.S. real estate market is looking attractive to non-U.S. citizens.

The other reason: Mortgage products for Foreign Nationals buying investment properties in the United States is back.

In mortgage lending, a "Foreign National" is a person that:
Is not a U.S. citizen
Does not have a social security number
Does not have a U.S. credit history.

This complete lack of ties to the U.S. would normally frighten a bank but Foreign Nationals buyers often display a few other traits with which banks are in love:

Foreign Nationals often have more-than-ample assets and reserves
Foreign Nationals often have strong, consistent income
Foreign Nationals often have experience managing rental properties
Foreign Nationals are often willing to make large down payments

Because of these credit-based traits, years ago mortgage lenders created niche products designed specifically for the Foreign National investor.

The terms were comparable to those offered to U.S.-based buyers, but with the stipulation that the Foreign National make a larger-than-typical downpayment.

So, whereas a given mortgage product would require a U.S. citizen to make a 10 percent downpayment, the Foreign National buyer would be expected to make a 20 percent downpayment.

For the well-capitalized Foreign National buyer, this wasn't a problem and he gladly accepted the bank's terms. And the banks were pleased because this extra collateral helped to hedge risk.
But late last year, when mortgage guidelines tightened nationwide, lenders stopped issuing Foreign Nationals loans for investment properties.

Mostly, this was because of speculation in markets such as Florida and Nevada where the extra downpayment amount was evaporating in the form of capital losses. Some Foreign Nationals defaulted on their debt obligations and the banks recognized that they had no recourse on the home loans.

In a move similar to how sub-prime mortgage defaults were handled, banks chose to cut the Foreign National investment property product rather than risk further losses.

Once it was removed from mortgage lending menus, Foreign National buyers were told that the only home loans available to them were home loans for vacation homes. Investment properties were a no-go.

This stopped almost all Foreign National lending in its tracks.

Until last week.

In a strange case of When It Rains, It Pours, two lenders re-entered the Foreign National investment property market, once again with larger-than-typical downpayment requirements,

but interest rates near the U.S. market rates.

The caveat: It's only available in Chicago where real estate values are stable and rent checks are plentiful. Speculative markets (i.e. Florida and Nevada) are not included.

As the dollar's slide against the Euro continues, expect to see more Foreign Nationals buying property in the United States, and expect them to concentrate in cities with healthy rents and strong growth prospects -- Chicago included.

If only because that's where the mortgage lending money is.