Advice for Foreign Home Buyers
Original Post Date: September 7, 2010
By: June Fletcher
Q: I am a Canadian who is interested in buying a house in California. I am a non-permanent resident alien. Do you foresee any difficulties, and will I be able to get a mortgage from an American lender?
A: Lots of Canadians buy real estate in the U.S. In fact, last year the largest proportion—23%–of foreign buyers of American property came from Canada, according to the National Association of Realtors. For you, and for every foreigner looking to buy a home, the home-buying process is essentially the same as it is for American citizens: You find a home, make an offer accompanied by a deposit, obtain a mortgage, pay for inspections and appraisals, and—when all contingencies have been removed and the financing is in place—close.
It’s a very straightforward process if you pay all-cash. If you need a mortgage, the process will be challenging. It will be impossible if you have diplomatic immunity, which would prevent lenders from seeking redress should you default.
Assuming you don’t have diplomatic immunity, get your paperwork in order. Expect lenders to ask you to show at least a two-year history of employment and credit history in the U.S. or another country. You’ll also have to prove legal residency in the U.S. for at least two years; if you haven’t lived here that long, some lenders will accept two bank references instead. You have some flexibility here, since no specific documents are required to prove these things. You also should be prepared to show your passport, a valid visa, and, if you have it, work authorization.
If you need a jumbo loan to buy a high-end property, lenders are likely to demand at least a 20% down payment and may charge you a higher interest rate than they would an American citizen. But if you’re applying for a conforming loan guaranteed by the government-sponsored entities Fannie Mae or Freddie Mac, you will have the same access as an American citizen to all of their programs, at the same interest rates, and with the same terms and fees.
You also should investigate Federal Housing Administration loans. Loan limits differ throughout the country, and are higher in expensive places like California. Moreover, down payments for borrowers with excellent credit can be as low as 3.5%. But act quickly. At this time, you do not have to provide a Social Security number to borrow funds. But in Congress, H.R. 5072, known as the FHA Reform Act of 2010, has passed the House and been referred to the Senate. As now written, it will require that non-permanent resident aliens have both a Social Security number and be authorized to work in the U.S. to qualify for an FHA loan.