The American real estate market remains an appealing option for out-of-country investors. It offers lucrative opportunities for investors to grow their wealth and secure properties that can generate solid sources of income.
However, many foreign investors must utilize alternative finance options to buy American real estate. Non-qualified mortgages, or non-QM loans, can offer the ideal solution for financing that they need to invest in properties in the U.S. today.
What are Non-QM Loans?
Non-QM loans, also known as non-qualified mortgages, are designed for out-of-country real estate investors. Lenders design these loans to help investors who are located outside of the U.S. overcome challenges, such as credit criteria and not having Social Security numbers, that exclude them from qualifying for traditional real estate mortgages.
Further, non-QM loans satisfy the diverse needs that real estate investors outside of the country may have. Without these types of mortgages, some foreign investors may have no other way to buy into and grow wealth in the American real estate market.
Characteristics of Non-QM Loans
Non-QM loans have characteristics that set them apart in numerous ways from traditional real estate mortgages. To start, they have more flexible underwriting guidelines when compared to traditional mortgages.
Traditional real estate mortgages that are processed through programs like Fannie Mae, Freddie Mac and FHA typically come with stringent underwriting criteria. These criteria are often difficult for foreign real estate investors to satisfy.
With that, non-QM loans make accommodations for foreign investors who may lack American credit profiles or have non-traditional sources of income. They make it easier for these investors to qualify for financing in the American real estate market.
Further, no FICO requirements exist for non-QM loans. They allow for financing for properties for investors who have not yet or have no desire to establish credit histories in the U.S. Investors can provide references or use credit histories from their own countries when applying for these loans.
Moreover, non-QM loans allow for higher loan amounts. Foreign investors who have their eyes on pricier or larger properties may get the financing they need that is not available to them through traditional real estate loans when they apply for and get non-QM loans.
They can also use non-QM loans to finance various types of properties. These loans can provide investors with the opportunity to buy real estate like:
- Vacation properties
- Single-family rentals
- Short-term rentals
- Multi-unit properties
With non-QM loans, out-of-country investors can more easily diversify their real estate portfolios. They get access to a greater selection of properties that may otherwise would have been off-limits to them.
Real estate investors can also purchase points to lower the interest rates on their non-QM loans. When they utilize the discount points opportunities with this type of financing, they can save themselves thousands of dollars in interest during the life of their loans.
Finally, non-QM loans offer prepayment options for out-of-country investors. A prepayment option allows an investor from outside of the country to pay back the loan early. It can also save the loan holder a significant amount of money on interest costs.
The Benefits of Non-QM Loans
Non-QM loans offer a variety of benefits for out-of-country investors. Arguably, the foremost benefit focuses on allowing investors from other countries the opportunity to buy into the American real estate market. Foreign investors do not have to rely solely, if at all, on traditional mortgages.
Even more, non-QM loans offer competitive interest rates. Borrowers avoid the worry of lenders raising the loans’ interest rates simply because the loan holders live or work outside of the country. These competitive interest rates make non-QM loans more affordable and convenient for foreign investors to pay off in good time.
These loans also do not require that applicants have a Social Security number. Foreign investors can use an Individual Taxpayer Identification Number, or ITIN, or other sources of ID to apply for and secure non-QM loans.
Last, non-QM loans offer greater credit flexibility to qualify for them. Foreign investors who have not yet established or prefer not to establish credit profiles in the U.S. often cannot qualify for traditional mortgages. They typically face rejection of their applications for loans underwritten through programs like FHA or Fannie Mae because they have no established American credit reports.
However, non-QM loans allow applicants to use credit profiles from their home countries to qualify for financing. They can also use alternative means like credit references from other creditors.
Qualifying for and Finding Non-QM Loans
To qualify for non-QM loans, foreign investors need to prepare accordingly first. To start, they should compile the necessary paperwork that many lenders require. This documentation can include:
- Government-issued identification
- Bank statements
- Foreign credit reports
- Credit references
- Appraisal reports for investment properties
They should also plan ahead for costs associated with investing in the American real estate market. These costs can include:
- Closing costs
- Property taxes
- Insurance premiums
- Property management fees
Likewise, out-of-country investors need to prove their liquidity, which includes liquid assets like their cash reserves. Most non-QM loan lenders want to know if applicants have enough liquid assets to cover several months’ worth of costs like mortgage payments, insurance premiums and taxes. Liquidity provides non-QM loan companies with a financial security net in the event of possible loan default or fluctuation in how much income an investment property generates.
Moreover, it is vital that foreign investors do not simply choose the first non-QM lender that they find online. In fact, they are encouraged to work closely with a real estate investment service that can help them navigate the non-QM process. This service can also help them find ideal investment properties and make sure all of the clients’ paperwork is in order before they submit their applications for non-QM loans.
Upside Investments assists all of our clients, including foreign investors, with these and a variety of other tasks associated with finding and applying for non-QM loans. The American real estate market is lucrative but at the same time complex and sometimes overwhelming. Let us at Upside Investments help you find the right investment properties and apply for financing like non-QM loans today.
