Financing for a Foreign National

[Anna Doumkina]

Hello! My partner is an EU citizen looking to invest in the USA to purchase properties that will later be for Section 8 tenants. He does have an ITIN number, recently opened up an Amex card in the States to start building credit history, and has an LLC and a US address. I am a US citizen with no credit history in the USA; just have an address in the USA. We are looking to purchase 5-10 properties at least, in the next 6-12 months. Thus, we want to find a reliable vendor who works with foreign nationals or US citizens with almost no credit history. We are not looking to pay 35% of downpayment. The less downpayment - the better. Overall, looking to find creative approaches to our situation. Any recommendations would be greatly appreciated!

[Stacy Raskin]

There are lenders that will do 25% down for a single family rental and 30% down for 2-4 units for foreign nationals. This requires an unexpired passport and bank statements showing down payments and closing costs which would need to be translated and in U.S. Dollars. This would be structured as a DSCR loan. More info on DSCR loans:

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

Some lenders assign foreign nationals assign a 680 credit score for pricing and the loan. 

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to discuss further.