America: A big country with a big variety in its loan market for overseas investors.

This month I thought I would explore some of the variations in the biggest home loan market of all and how these can impact on the overseas investor. I’ll explore, the variation in lender’s geographical preferences, the views on different types of property investment and finally some of the variety of lending products themselves.

Working in the finance industry, we often feel like these variations are simply different ways for a lender to say no, I have received many calls this year alone from investors who have been declined by lenders over seemingly small clauses in their lending policy.

The first thing for an overseas investor to realise is that most US banks will not lend to you, because you are not from there. Indeed, even when you find a bank that will lend to “Non-Resident Aliens” as we are know, very often they will not lend to you where you want to buy.

From a geographical perspective lenders fall into 3 categories: Local, Multi-State and National. Now if you are looking to buy in Florida, the banks have been used to foreign buyers for a long time, we actually use 5 banks in Florida, so there is a nice choice to find a good fit for many of our clients. But 2 of these banks are Local and do not lend outside Florida at all.

So when you are looking in different locations you may get less choice and less chance of finding a lender who will entertain your application. You are then limited to the Multi-State and National Lenders. But you need to be aware that even a wide spread of location does not mean you’ll be accepted. One of the major Multi State lenders will lend to most European nationalities but not Australians.

National lenders are just that, they can lend in all States and provide the best chance of a decent mortgage product across the whole country. Just because they can lend everywhere, do not imagine that they actually will.

Lenders globally have had a rough few years and the US is no exception. This has lead to most lenders becoming “careful” about what property types they will lend on.
Lenders have increased the minimum property value they will lend on, some now not looking for properties below $300,000. Many will not lend on rental investment properties and there are masses of rules about property the property type itself.

We all see a lot of advertising for repossessed investment property, turn around opportunities and incredible bargain properties in big cities around the States. Unfortunately most lenders will not lend on these properties, they are either too low in value to make a loan worthwhile, on the wrong side of town or simply, the type of property that helped start the US real estate crisis in the first place.

So, what are the options and variations within lending products themselves? Well, if you are looking at one of the low price investment properties that are available, firstly check if the company you are buying through have an in house loan option, if they do I would suggest that you take it as it will be the easiest thing to do.
Otherwise you will need to either pay cash or go to a hard money lender. Hard money lenders are generally private lenders who will lend for certain purposes, there are a lot of them in the States and you can usually find one to finance most things. The problem with them is the cost; you can be looking g at very large set up fees and interest rates of 15%. If you take this route, you must view the loan as a cost of doing business and build it into your overall finance plan, ask yourself “is it worth it?”

Aside from hard money and even considering the limited number of lenders, there is still a huge variation within the lending products available. There are variable rates and fixed rates as you might expect, although fixed rates in the states are more often fixed for the term of the loan rather than a few years.

Rates vary widely from lender to lender; we currently have loan rates between 3.25% and 7.0% for holiday homes in Florida alone. Set up fees can also be considerably higher than you might expect, do not be surprised to see loan arrangement fees getting up to the 5% level with minimum fees of $5000. Again you need to balance out higher set up fees with lower long-term interest rates.

One thing all the lenders do have in common is maximum loan against purchase price of 65-70%; you will need to come up with a good deposit to buy in the USA. Minimum loan sizes again vary widely; we can currently get loans starting from $35,000 in Florida and $50,000 elsewhere with no upper limit that we have come across.

The variations in the US loan market, be they geographical, related to property type or simply within the lending products themselves, create a complex maze that you will need to navigate. My advice as always is; use an expert to steer you through the possibilities and get you to the right solution for you.