The US real estate market attracts many foreign investors. They view the US as a safe haven to diversify their investments into and gain exposure to strong income-producing assets.
Over the past eight years, the total value of residential homes purchased by foreign investors in the US totals $415 billion. This number includes investments by many Israeli investors, who continue to receive higher rental returns than they could with properties in Israel. The average return (yield) on a rental apartment in Israel is around 3%, while a rental home in the US can yield 6% or higher.
The majority of these investors have limited options to leverage their investment by taking out a mortgage. They are required to pay the full purchase price in cash out-of-pocket.
Traditional US banks are hesitant to write a mortgage loan to foreign investors. The main reason for this is that foreign investors do not have any credit history in the US. American lenders are usually not equipped to verify the credit of foreign nationals. In addition, the US mortgage industry is built on securitization, whereby the banks sell the loans to the government-backed agencies Freddie Mac and Fannie Mae. The applicable regulations prohibit the securitization of loans to foreign investors.
This leaves Israeli investors with few other options to receive a mortgage in the US.
Some of the lenders who might work with them include:
- Multinational Banks (such as HSBC and Citi). These banks do offer mortgages to foreign investors. However, the complex process, cost, and conditions involved make this option unappealing to most investors.
- US Non-Bank Lenders. These lenders typically write loans with shorter terms, complex approval processes, and expensive rates. Many of them are currently not lending to foreign nationals since the start of the Covid-19 crisis.
- Local Israeli Banks. While local banks have access to the borrower’s credit report, they are unable to underwrite a US property. Therefore, they are unable and unwilling to write a mortgage on a property outside Israel. Other collateral may be used to secure the loan, but that makes the process more complex and expensive.
- Lenders such as USA-Mortgages recognize this underserved market and provide mortgage loans to foreign investors, based on their local credit score in their country of origin as well as the details of the property in the US.
At USA-Mortgages, we understand that international investors with good credit scores in their home countries get frustrated when they cannot leverage a US real estate investment with a mortgage from a US bank.
Investors that already own property in the US can refinance that property with a loan from USA-Mortgages by completing an online application to get pre-approved.
By taking out a mortgage and leveraging a property intelligently, investors can enhance their return on investment and use that money to make further investments.
The popularity of cross-border residential real estate investments is expected to remain steady as investors seek stability and growth in the current low-interest-rate environment, amidst the general market turmoil inflicted by Covid-19.