Exit Strategies for Foreign National Hard Money Loans

You're a foreign national searching for a hard money loan to purchase U.S. property. Before you get any further, you need to work through multiple possible exit strategies for your bridge loan — aka how you'll pay it off. A clear, realistic and viable exit strategy in place from the outset will give a mortgage broker and hard money lender confidence that you know how to get in the property, and out of the short-term bridge loan. Simply put, you won't secure short-term funding for your loan without a good, detailed plan. 

This blog post will cover the two primary exit strategies we at First Capital Trust Deeds (FCTD) see the most:

1. Refinance
2. Sell

Let’s dive into the exit strategy details…

Refinance Hard Money Loan into Long-Term Bank Financing

If you're planning on refinancing out of a short-term hard money bridge loan to a long-term 30-year mortgage within the next 12 months, you’ll need to get prequalified before taking out the loan. It might seem backward or like we're "putting the cart before the horse" to do it in that order. But as hard money mortgage brokers, our lenders and trust deed investors rely on us to verify that the success of the exit strategy, whether refinance or property sale, is highly probable.

As a foreign national borrower, you can refinance into several different types of mortgages, including:

• Conforming Loans
  - Fannie Mae & Freddie Mac
• Conventional Loans
  - Jumbo mortgages
  - NonQM loans (bank statement programs)
• Bank Portfolio Loans
  - Fixed-rate loans for 5, 7, & 10 years (deposit relationship required)
• Debt Service Coverage Ratio (DSCR) Loans
  - Residential (1-4 properties)

Since I, Ted, do the majority of FCTD’s bank financing and rental property loans, I can prequalify foreign national borrowers before we originate a hard money bridge loan. We can originate foreign national bank portfolio loans, or refer borrowers directly to bank loan officers to discuss setting up a depository relationship and mortgage financing.

By prequalifying your exit strategy, we know the approximate loan amount you'll qualify for when you refinance the hard money loan. This allows us to write the hard money loan for near the same amount as your take-out loan. The last thing a hard money lender wants is to write a hard money loan for $750,000 to a borrower who only qualifies for a $500,000 mortgage. That would put pressure on the borrower to do a cash-in refinance of $250,000 plus closing costs. This is fine if the borrower has significant liquidity — but if not, it puts them in a fragile place.

Property Sale

As with a refinance, a good hard money broker or lender will perform due diligence if your exit strategy is selling the property. Since hard money bridge loans are usually written for 12 months, brokers and lenders will verify the condition of the property, and the timeline to complete the work if you're renovating. We'll verify permit timelines, contractor scheduling, and availability of materials — which can be hit or miss since the outset of the COVID-19 pandemic.

Additionally, I’ll check with your real estate agent for information about list price and marketing time. I like to know this information up front, and get the hard money loan right rather than writing a loan that doesn’t fit your situation.

For example, if the property is nearly finished and your listing agent thinks it will be in contract within a month, we can write the loan for six months with no prepayment penalty or guaranteed interest, rather than a 12-month loan with a two-month interest guarantee.

Conclusion

It’s important to know your exit strategy details before you apply for a foreign national hard money bridge loan. If your exit strategy is to refinance, check with a bank that provides foreign national loans or a mortgage broker to prequalify for financing. The more you know, the better the hard money bridge loan will work for you. If you intend to sell the property, bring your real estate agent into the discussion before taking out the hard money bridge loan. With their market knowledge, listing agents can help you get the right hard money financing at the best pricing and terms — so you can maximize profits when selling your property.