Cash isn’t the only way for offshore buyers of US real estate

Lenders see opportunity in offering nonconforming mortgage loans to wealthy international buyers

TRD New York /
Sep.September 02, 2016 01:30 PM

If you’re a wealthy foreigner wanting to invest in the U.S. property market, producing the full pot of cold hard cash up front may not be necessary.

Non-resident foreigners can’t get government backed loans or jumbo mortgages. But some banks will give non-conforming loans to wealthy overseas buyers, and then sell them onto non-traditional lenders.

It’s seen as risky by many banks but Total Mortgage Services, for example, will lend between $200,000 and $2 million to off-shore buyers who make the cut, according to the Wall Street Journal.

“The applicant goes through the standard qualifying process using alternative forms of verification for credit, income and assets,” Total Mortgage CEO John Walsh told the Journal. These loans, however, require the buyer to put up more on a down payment – 30 percent and up on loans up to $1 million and more for larger loans for a second-home purchase. Rates range from 5 percent on a five-year, adjustable-rate mortgage to 6.625 percent on a 30-year, fixed-rate mortgage.

The option for a loan gives overseas buyers the chance to spend much more, according to Chris Furie, a partner at Los Angeles-based Insignia Mortgage, whose nonconforming loans are backed mainly by regional banks. “Most [overseas buyers] don’t think they can get a loan, so they pay cash. But they’d much rather take a loan, even if they have to put down 40 percent.”

It appears foreign investment in the U.S. residential market, with rising property values and a strong dollar, is also on the downswing. Non-U.S. residents bought $44 billion worth of residential real estate during the fiscal year that ended in March, a $10 billion drop from the prior fiscal year. It’s bad omen for struggling Manhattan luxury condo developers who often rely on foreign buyers to claim high-priced units. [WSJ]Miriam Hall

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