Moneyadviceblog » Business » Everything You Need To Know About Foreign National Loans

Many foreign nationals assume that they can’t invest in U.S. real estate as it would be next to impossible for them to qualify for a mortgage loan. However, that’s not necessarily the case. Foreign national loans could provide a solution for non-U.S. citizens looking to invest in the U.S. real estate market.

What Is a Foreign National Loan?

A foreign national loan is a type of loan that’s provided to foreign nationals who are not citizens or residents of the United States. This type of loan is provided by banks and private lenders to foreign nationals who qualify. Note that these loans often come with different qualification requirements compared to other types of loans since they are not federally backed.

Why Would You Need a Foreign National Loan?

A foreign national loan is designed for non-U.S. residents who are looking to purchase U.S. real estate. It can be challenging for foreign nationals to obtain a traditional mortgage as they often require permanent resident status and U.S. tax documentation. For example, loans may require you to have two years of income tax returns. These returns are exclusively American documents that come from the Internal Revenue Service (IRS). As such, foreigners usually do not have them unless they already have business interests in the United States.


Non-U.S. citizens who are residents of the U.S. in the country on a work visa or a green card may be able to qualify for federally-backed loans. So if you’re a current legal resident, there may be loan options available to you other than a foreign national loan.

What Can a Foreign National Loan Be Used For?

A foreign national loan can be used to purchase any type of investment property in the United States. For example, it can be used to purchase a residential investment property wherein the investor can rent out the property on a short-term or long-term basis. They can even use the property as a vacation home if they plan on visiting the United States on a regular basis.

It can also be used to purchase a commercial investment property wherein the investor rents out the property to businesses rather than individuals. Some different types of commercial properties include office parks, shopping malls, and apartment buildings. Finally, a foreign national loan can be used to purchase and develop raw land into either residential or commercial property.

Now that we’ve discussed the basics of foreign national loans, here are five things you need to know about them:

1. Foreign National Loans Can Only Be Used for Investment Properties

For starters, foreign national loans can only be used to purchase investment properties. The foreign investor is not allowed to move to the United States and live at the property in question. Instead, they must be able to show that they’re living in another country and earning income in that country rather than in the United States.

2. Foreign National Loans May Come With Higher Interest Rates

Foreign national loans also come with higher interest rates compared to other types of loans. This is because these loans are not backed by Fannie Mae and Freddie Mac and are, therefore, considered non-conforming loans. As foreign national loans are not backed by federal entities, lenders are taking on 100% of the risk. And since lenders are taking on 100% of the risk, they are going to charge higher interest rates to help mitigate some of that risk. While different lenders will offer different interest rates for foreign national loans, rates are usually somewhere around 7%. This is about 4% higher than the average interest rate for a fixed-rate conventional mortgage in 2021.

3. Foreign National Loans Require a Larger Down Payment

Since foreign national loans are not backed by the government, they also require larger down payments. For example, conforming conventional loans require a minimum down payment of 3%, whereas FHA loans require a minimum down payment of 3.5%. Foreign national loans, on the other hand, require a minimum down payment of 25%.


4. Foreign National Loans Come With Tax Implications

If a foreign national purchases property in the United States, they will be subject to a number of different taxes. For starters, they will be required to pay property taxes that are based on the value of the property. The percentage of tax levied depends on the state and county, with rates ranging from 0.32% to 2.31% but averaging around 1%. So if a property is worth $500,000, the property taxes will amount to $5,000 a year or about $416 a month.

They will also be required to pay capital gains taxes in the event that the property is sold for a profit. The IRS will automatically withhold 10% of the property’s gross purchase price to cover capital gains taxes before adjusting it after taxes are filed.

5. Foreign National Loans Have Different Documentation and Qualification Requirements

Foreign national loans come with different documentation and qualification requirements compared to other types of loans. For many other types of loans, the borrower is required to provide income tax returns during the pre-approval and application processes to verify their income. However, since foreign nationals may not have such documentation, lenders have other ways to verify their income. The exact requirements and process vary by lender, but many ask for things like bank statements, employer verification letters, and/or accountant letters.

So if you’re a foreign national looking to take advantage of hot real estate markets in places like South Florida, Crawford Finchley Capital is here to help. Give our offices a call today!