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How To Get A Mortgage Loan To Buy A Real Estate

How To Get A Mortgage Loan To Buy A Real Estate

Get Mortgage Loan Buy A Real Estate

Investing in real estate in the US is often done cash by foreign investors. How to borrow to buy American real estate?

Unfortunately, if you are a foreigner in the USA, it is virtually impossible to take out a mortgage with American banks

If you do not have US citizenship and residence, you will not have a social security number. And therefore no proof of good credit (credit score history). And it will be difficult to prove to banks that you have established income and that you are therefore a reliable borrower.

As a foreigner, you also do not have access to loans and grants from organizations such as Fannie Mae, Freddie Mac and the Federal Housing Administration.

One understands how the Americans manage to develop their real estate assets thanks to all this loan scheme. We also understand why and how the US real estate market is constantly redeveloping in spite of crises and speculation.

Because at some point in your life as a real estate investor abroad, you will run out of money. So how do you find more leverage in the US when in your home country, you have already exploded your borrowing quota?small personal loans

Finding a source of financing to invest in real estate in the US is a labyrinth. There are several funding opportunities that are not all open to foreigners. And especially the application conditions are restricted and and the process is complicated.

Who lends to real estate investors?

Two groups of Foreigners seeking funding:
  • Lifestyles buyers or fun buyers who buy feet or second homes in Florida, New York or Las Vegas for example
  • Real estate investors who buy real estate yield in Atlanta, St Louis or Chicago for example.

There are 5 sources of funding

1 / International banks

These are banks based in the world but can exercise in the United States through a mortgage license. For example, there is HSBC. Their clients have significant financial assets and these individuals can make a significant contribution.

2 / Portfolio lenders

It is often local or community banks that draw on their bank reserves to lend and then resell their debts on the secondary market.loans with no credit

The bank defines the terms of the loan as usual. They require high guarantees such as property or a high contribution of 40% to 50% of the amount borrowed.

The loan amount is 100,000$ minimum and often applies to the purchase of a second home. So you are limited to one property and this excludes yield real estate.

The regional banks will agree to work with you if they know you well and if the goods are located in their geographical area. So we have to build that relationship with these small banks.

The portfolio lenders can offer you more favorable terms than the big national banks.

3 / finance companies

These are private companies whose conditions are closer to local banks. Real estate loans are specific to each lender but the diversity of mortgage products makes them attractive to investors.

The minimum loan amount is 100,000$ to 300,000$.

You will be limited to certain types of real estate or states.cash loan

4 / Private lenders

These are companies called hard money lender, groups of individuals or just individuals who lend you money in return for a remuneration in the form of interest.

This is the most flexible form of loan.

Interest is very high (10% to 20%) and short duration (less than 12 years).

The contribution requested will be significant up to 50% of the amount borrowed.

5 / Partnership

With one or more investors who meet the borrowing requirements in the US as they have their residence, good credit, existing relationships with loan agencies, etc.

The terms of a mortgage in the US to browse the market and determine the best deals

Here are the main terms:

Fixed or variable or adjustable
term of the loan
Prepayment penalties
Possibility to sell a few properties during the loan
With mortgage bond (recourse) or without mortgage bond (non recourse)
Death insurance and who will return the goods purchased
Acquisition structure
Quality of the investment portfolio

What lenders are requiring

Your Real Estate Investor Profile and CV
States or geographical areas of acquisition
The purchase price
The loan-to-value ratio (LTV) you request
The contribution
The type of property, its ARV, land building ratio, yield, location, distressed?
The quality of the property (age, construction, type of roof, electricity, heating, air conditioning, renovated? Etc.)
Is the property empty or rented?
Does the loan cover one or more assets?
The visa and the citizenship of the borrower

The so-called 7 C:

Capacity (monthly income): rents, expenses and net income
Capital (Savings, Works Funds)
Collateral (these are the assets that the lender can seize in the event of default)
Character and personal characteristics
Competency and experience
Compensating factors (market conditions)
Debt coverage ratio (DCR): if assets generate enough revenue to cover expenses and loan (repayment + insurance = ITP).

Definition of loan terms

The interest rate
It can be fixed: fixed-rate mortgage

Or variable: adjustable-rate mortgage (ARM)

Some loans can also be hybrid. They start with a fixed rate and then a variable rate.

Finally there are other more sophisticated and speculative types: interest-only with a balloon payment, payment-option ARMs

How to calculate the DCR or DTR?
If the NOI is 24,280$ and the lender sets a margin of 25% DCR, divide the NOI by a rate of 1.25.

NOI / DCR = annual mortage payment

24 280 $ / 1.25 = 19 424$ or vice versa:

NOI / Debt service = 1.25

So with a DCR of 1.25, the property thus generates enough income to support the loan repayment of 1 619$ (19 424 $ / 12)

The DCR represents an evaluation criterion for a lending agency in addition to the other criteria cited above. The quality and consistency of rental income are also important.

Loan-to-value Ratios

It is a ratio that indicates up to how much of its value, the loan agency will lend you money. This ratio is proportional to the risks and conditions the contribution you will be forced to place.

The ration can vary from 50% to 75%.

Term of the loan

That is what the Americans call mortgage amortization period. Or how long you have to repay the entire loan

The most common durations are 30, 20, 15 years.

The advantage of long loans: the amount of the monthly repayment is less. The financial burden is less onerous. You can invest in larger projects and save more money for other projects.

The disadvantages of long loans: they are more expensive up to 2.5 than the 15 year term because the interest rate is higher because the lender takes more risks. In addition, you pay more interest and fees.

To assess how much repayment is right for you, you need to analyze each investment profile and its real estate project.

The advantage of short loans is that you quickly increase the assets of your assets. That is what the Americans call Equity (the difference between the loan amount and the value of the property).

On the other hand, a short loan will mean heavier monthly repayments and this can lead to a negative rental yield in addition to the vagaries of the investment (rental vacancy, large unexpected maintenance costs, etc.).

The interest of the loan is fortunately deductible from your taxes.

The leverage effect is a wonderful tool for wealth development but double edged. If you are over-indebted, you risk losing your investments and mortgaged assets.

The mortgage market is constantly evolving. The easing or tightening of loan rules and conditions are to be monitored constantly, as are interest rates.

With the crise des subprimes, the lending agencies have tightened their conditions but it is said that history repeats itself. The law of supply and demand always governs markets, especially in the USA. If they need more clients, lenders will relax their rules.

In conclusion

Borrowing is difficult when you do not have enough intake, when banks or other finance companies do not know you, when you do not have a significant holdings or sufficient experience / credibility.loan bad credit

Because even if banks make money by lending, they consider each investor to be a risk of loss. Especially when he's a stranger. The interest rates are thus extremely high, the guarantees more demanding and the conditions discouraging.

Lending to a foreigner in the US will always be less attractive than US citizens.

Study your financing plan carefully and make sure that the return is greater than the repayment of the loan. Rates are historically low and it is now that we must borrow but not at any condition. Goods must generate cash flow to pay for expenses and repay the loan.

So have an important reserve fund (min 6 months) to mitigate the vagaries of the rental including the vacancy so that you can always repay your home loan. This is to avoid delays in payments and foreclosures.

For more information about US lending market

The Leading Resource for Mortgage Originators .. : www.scotsmanguide.com