By James Duncan
So you’ve realized that you’d like to own a vacation home in a luxury condo hotel (condotel) in the U.S. and now only have to figure out how to finance the purchase.
You have good credit in your home country, a decent income, and have never had a problem paying back any previous loans. Should be easy enough to get a mortgage, right? Well…there are some things you should know first.
As a foreign national trying to get a mortgage on a U.S. condo hotel, the important thing to realize is that financing definitely is available. That’s the good news. The bad news is that it’s not going to be quite as easy to get a loan as you might assume.
In order to make sure your purchase of that beautiful condo hotel suite goes through without a hitch, it’s best that you understand the potential difficulties. With that knowledge, you can to put the odds in your favor.
First and most importantly, please understand that the mortgage markets and banks that make mortgages have been devastated over the past few months, and now they are more risk averse than they have been in decades. So, its not you!
They don’t necessarily have a problem with you specifically, and certainly don’t blame you for the bad choices they made on who they lent to in the past, but they are understandably gun shy. With billions of dollars in delinquent mortgages on their hands, you can imagine how everything looks from the lender’s perspective. As a foreign citizen purchasing a condotel, you represent potential risk to them.
But, you will say, I’ve never even been late on a loan payment, why should they not lend to me? Well, unfortunately, the days of relationship banking are long gone. Today, everything in the U.S. system is based on an individual’s U.S. credit score number, which is something you don’t have.
Lenders don’t know you personally, and the way the system is now designed they are not even allowed to get to know you. And even though many of the same companies track your credit in your home country where you have a good score, that score unfortunately does not fit into in the U.S. credit and mortgage market system as it is currently constructed.
Just one of the downsides to everything becoming quicker and more computerized is that the lender needs the number to fit into the best parts of the system.
Additionally, with fraud rampant in the current loans on which banks are currently losing money, many lenders now want more documented proof of everything a potential borrower tells them regarding their income and assets.
Therefore, documents coming from another country, written in an unfamiliar format, can cause additional concern to a mortgage underwriter reviewing an application.
Merge these two components with the fact that in a worst case scenario, if the lender had to attempt to foreclose on your condotel, you as a foreign national having no other legal ties or commitments in the United States, look more risky to them. Should the lender need to seek legal retribution, it could be an expensive process.
Last, in this current mortgage lending market of fear, waiting for real estate prices to regain their upward momentum, lenders can sometimes be very skeptical of condotels in general.
Condo hotels are a fairly new concept to the United States and to mortgage lenders. While many condo hotels turn out to be good investments for the client, however, not all do.
Lenders look at everything from a risk basis first, and they realize that if your finances become tight, it would likely be your second home, your condotel unit, not your primary home where you live, on which you’d stop paying your mortgage.
Or, if for some reason beyond your control (lack of tourism because of a recession for instance), the hotel does not generate sufficient income, you might choose to stop paying your mortgage.
Finally, most condotels, as newly constructed developments, do not have a historical track record. From the lender’s perspective, this spells risk.
Lenders are now looking for stable returns with less risk, instead of rolling the dice for potentially bigger profits.
So, that’s a quick summary of all the bad news. The good news is that if you get with a mortgage broker who has experience in foreign national financing, they will most likely still have the connections to find you adequate financing through what is called “portfolio” banks, or regional lenders.
These are typically smaller banks that might have a vested interest in a certain area or region, and in most cases did not suffer as severe a hit from the current sub-prime mortgage meltdown.
What else can you do to put the odds in favor of obtaining a mortgage on your condotel?
Simple–increase your down payment. All of the risk for lenders can be mitigated, to some extend, by putting down more of your own money.
In fact, if you wish to have your condotel purchase fly through without a problem, you should be prepared to now put down 40% of the purchase price.
Portfolio lenders will sometimes allow you to carry a second, private mortgage, behind their first (if the seller or an individual will agree to issue this to you) of up to a total of 75% on the unit. But these can be tough to find, so it’s best to plan on putting down 35% to 40%.
A larger down payment combined with the assistance of a specialized mortgage broker should enable you to get your U.S. condo hotel vacation home financed.
Also, keep in mind there is plenty of good news that make this a great time to move forward on your American real estate dreams.
The dollar is extremely weak, so your national currency will buy you more. Prices on properties may seem discounted to you by as much as 25%-50% because of exchange rates.
In addition, interest rates are currently low. Finally, prices on nearly all real estate in the U.S. have fallen in the past year. It truly is a buyer’s market.
Just remember, the key is down payment, down payment, down payment, and having the right team in place to guide you through all the ups and down to getting the property purchase finalized. Like always, opportunities abound, if you have the right knowledge!