Foreign national loans: US mortgages for buyers who live in Europe

Why the standard loans are closed

Most American mortgages are written so that they can be sold to Fannie Mae or Freddie Mac, and lenders follow those institutions' rule books. Fannie Mae's rule on non-citizens covers people who are lawful permanent or non-permanent residents of the United States. Someone who lives in Amsterdam, Munich or Manchester and visits on an ESTA is neither. However strong your finances are, a loan to you cannot be sold on those terms.

So lenders who want your business keep the loan themselves or sell it to private investors, and write their own rules. The market calls these foreign national loans. They belong to a wider group known as non-QM loans, meaning loans that fall outside the federal definition of a Qualified Mortgage.

What the law fixes, and what it leaves open

For a home you will use yourself, federal consumer rules still apply. Under the ability-to-repay rule, a lender must make a reasonable and good-faith determination that you can repay, looking at your income or assets, your employment, your other debts and your credit history, and it must verify what it relies on. A lender is allowed to make a loan that is not a Qualified Mortgage as long as it does this.

What the law does not fix is the price or the down payment. Each lender decides how much it will lend against the value, what rate it charges for the extra risk, which countries it accepts and what documents it wants. That is why two quotes for the same buyer can differ widely, and why we do not print typical percentages here.

Loans on pure rental property are treated differently. Regulation Z counts credit to buy a rental that the owner does not occupy as business credit, outside the consumer rules. If you expect to use the home more than 14 days in the coming year, it does not count as non-owner-occupied.

What lenders usually ask a buyer from Europe for

Requirements are lender-specific, but the themes are consistent with what the regulations and the wider market expect:

• Identity and status. Passport and the visa or ESTA you travel on. US institutions must comply with sanctions rules, so expect checks on your name and country of residence.
• Income and assets. Tax returns, payslips or accounts and bank statements from home, in English or translated.
• Credit. You will have no US score. Some lenders look at a credit report from your own country or at references from your bank. Bring what your national credit register provides.
• Funds in the United States. The down payment and closing costs in a US account before closing, with a clear trail from the source.
• Reserves. Several months of payments left over after closing.
• Insurance. Home insurance, and flood or wind cover where the location calls for it.

Questions to put to any lender

• What is the maximum loan as a share of the price for my country of residence and this type of property?
• Is the rate fixed, and for how long? If it adjusts, how and when?
• Is there a prepayment penalty, and for how many years does it apply?
• Is any part of the loan interest-only, and what happens to the payment when that period ends?
• Will you count rental income, and on what evidence?
• May I let the property short-term under the loan terms, and does the local zoning allow it?
• What are your fees, and what are the total closing costs?

Tax follows the property

Three US tax rules apply to an owner who lives abroad, whatever the loan.

Rental income. Rent from US property owned by a non-resident is taxed at 30% of the gross amount, or a lower treaty rate, unless you elect to treat it as business income. With the election you are taxed on the net amount after expenses and must file a US return each year.

Selling. When a foreign person sells US property, the buyer generally has to withhold 15% of the price under FIRPTA and pay it to the IRS. You settle the actual tax through a return.

Estate tax. For someone who is neither a US citizen nor a US resident, an estate tax return is required once US assets exceed $60,000. Whether your country has an estate tax treaty changes the picture: see the country comparison.

Each of these calls for an ITIN at some point. The IRS lists a home mortgage on US property and the sale of US property by a foreign person among the grounds for applying.

Questions people moving from Europe ask

Continue your research

• How much down payment and cash you need for a US home
• Funding a US home with European savings or home equity
• Buying a US home as a European: closing costs, title insurance and selling
• Florida
• ITIN and US bank account: what a European buyer needs
• Renting out your US home from Europe
• Start a personal US mortgage scan