REPOST: Financing for Foreigners

This report from the New York Times reveals how foreigners looking into purchasing homes in New York are reacting to the low interest rates for financing. Read about it below: 


The foreigners streaming into New York to buy housing often pay in cash, but with interest rates low, more have been seeking to finance their purchases.

During the financial crisis, risk-wary lenders were less likely to extend financing to foreigners. The pool of lenders offering such financing is still limited, but their foreign loan business is up.

HSBC, the multinational bank based in London, reports that its volume of home loans extended to foreign borrowers in the United States has tripled since 2010. “It’s just the ability to get that money at such a low interest rate that is really driving all these applications,” said Joe D’Alessio, an HSBC mortgage consultant who works with high-net-worth clients.

With a presence in 81 countries and territories, HSBC has a big appetite for foreign customers and offers some of the most attractive mortgage terms. Financing is available for up to 70 percent of the purchase price, up to a maximum of $3 million.

Interest rates tend to be slightly higher on loans to foreigners, Mr. D’Alessio said, but the rate on a five-year adjustable mortgage is still in the mid-2 percent range.

HSBC’s terms are stiffer on apartments in buildings that are nonwarrantable (meaning they don’t meet Fannie Mae’s financing guidelines). In these cases, the bank may require 50 percent down.

“But that doesn’t seem to deter buyers,” said Mr. D’Alessio, who has worked with clients from Britain, Hong Kong, Turkey, Japan and Brazil. “They are usually coming and looking for all-cash deals. Then they find out they can borrow, and so they take advantage of it.”

Borrowing also gives foreigners more buying power. Some choose to “buy a larger property that might have a higher rate of return in the next few years,” he said.

Foreign interest in investing in New York is driven in part by the perception that property here is a bargain compared with that in other global cities, said Ace Watanasuparp, the president of DE Capital Mortgage, an affiliate of Wells Fargo.

A recent report by Knight Frank ranked New York the eighth-most-expensive city for residential property. Going by average price per square foot, New York has an edge over Monaco, Hong Kong, London, Geneva, Paris, Singapore and Moscow. The report notes that growth in high-quality housing in New York is also a draw.

Through Wells, DE Capital offers financing for foreign buyers, but the program is “not an aggressive one,” Mr. Watanasuparp said. Loan amounts are capped at $1 million, and borrowers must put at least 40 percent down.

First Choice Loan Services, a subsidiary of First Choice Bank, has seen an “uptick” in inquiries from foreign nationals in the last few months, according to Jason Auerbach, a divisional manager. The company will lend foreigners up to 65 percent of the purchase price. But such loans are carefully scrutinized by the bank before approval.

“We will also generally ask them to keep a small escrow account with us so we feel that we are definitely protected,” Mr. Auerbach said.

Other lenders that work with foreigners include the Bank of Internet and Apple Bank.

Still, currency remains king for many foreign buyers. Alen Moshkovich, a sales agent with Douglas Elliman Real Estate, says the vast majority of the foreigners he works with — most recently buyers from Brazil, Russia, China, Venezuela and Israel — continue to pay in cash.

For the superwealthy, any savings obtainable from financing is insignificant, Mr. Moshkovich said. More important, he said, “cash gives them more purchasing power, in terms of negotiating deals, and a quicker closing.”



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Pros and cons to seller-chosen lenders for apartment buyers

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Individuals interested in purchasing apartments in New York may encounter sellers who have already selected a mortgage lender for them. Sellers, it seems, are adopting a strategy quite similar to the tactic used by developers with a new offering. Many banks have taken a cautious stance when reviewing the types of buildings that they’re willing to finance so many developers started working with a preferred lender.

For apartment sellers, taking time to select and recommend their preferred lender will also allow them to avoid buyers who can’t find financing on their own. They’ve already made sure that the property they’re trying to sell is eligible for backing by Fannie Mae so the interested buyers they’ll end up conversing with are the ones who are also credit-worthy.

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Buyers also save more time with the preferred lender setup. With arrangements for a lender already in place, the buyers can opt out of dealing with management companies themselves.

However, agreeing to this condition does not mean that they can’t apply for a mortgage with another lender. It just means that when their own plans fail, they already have a solid backup plan that they can go with once they’re pre-approved by the seller-chosen lender.

In spite of the lender’s pre-approval, there is still no guarantee that the mortgage application will easily be approved. Without any previous encounter with the lender, they may have no solid proof that their application will be swiftly processed, and they may end up paying additional fees due to the length of the processing time.

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