Foreign National Hard Money Bridge Loans

Foreign national hard money bridge loans are short-term mortgages available to non-U.S. citizens to purchase or refinance real estate in the United States. These loans are typically used to quickly close on a property or refinance equity from one investment property for a down payment on a new property.  

1. Foreign National: A citizen of a country other than the United States. In the context of this topic, this individual is interested in securing a loan in the U.S.
   
2. Hard Money Loan: A type of asset-based loan financing where a borrower receives funds secured by real property. In the U.S., private investors or mortgage companies typically issue these loans. Their primary advantages are their speed and flexibility. On the downside, they tend to carry higher interest rates than bank loans because they're riskier for the lender.
3. Bridge Loan: A bridge loan is a type of short-term (6-24-month) loan, intended to "bridge the gap" until a borrower secures more permanent financing or sells the property.

Why Do Foreign Nationals Use Hard Money Bridge Loans?

Foreign national real estate investors use hard money bridge loans for the following situations:

• Bank financing fell through at the last minute and they need to close quickly
• Lack of credit in the United States preventing bank financing
• Purchasing a vacant commercial building that doesn't qualify for institutional financing

Here is a blog I wrote on why people use hard money loans, which details 20 different scenarios where First Capital Trust Deeds (FCTD) worked with borrowers to secure financing. At FCTD, we’ve handled numerous situations where hard money financing is the best solution to solve a specific problem.

Pricing, Terms, and Closing Costs

As I mentioned above, hard money loans carry higher interest rates than bank loans. This is on top of the approximately 1.00% higher interest rates for foreign national bank loans, as I wrote in this article.

Closing costs will vary depending on the unique circumstances of the transaction. The main factors determining pricing are:

• Loan Amount: Smaller loans may have higher fees on a percentage basis than larger loans. For example, a $100,000 loan may have a $5,000 origination fee (aka 5 points). However, a $1 million loan may have a $20,000 fee (2 points). Many hard money lenders and mortgage brokers charge a minimum fee for their services, since each require the same amount of work.
• Loan-To-Value (LTV): Loans with a lower LTV usually have lower pricing than higher LTV loans. Most lenders will limit foreign national borrowers to an LTV that is in line with their exit strategy (see below) rather than over-leverage the property.
• Property Condition: A property in rough shape may have a higher fee and interest rate to compensate for the possible need for repairs. If a foreign national borrower defaults on the loan, the lender may have to foreclose and take over the renovation project on the property. 
• Borrower Financial Strength: A borrower with significant liquidity and/or real estate investments in the United States and low-leverage mortgages will usually qualify for better pricing than a foreign national with limited reserves and assets.
• Exit Strategy: I wrote about the exit strategy – refinance or property sale – in another article. How likely is the exit strategy and what is the expected time frame? These questions factor into pricing.
• Capital Availability: The availability of capital within a given market impacts pricing. If you’re buying a duplex in Los Angeles, where there are hundreds of hard money lenders, you'll likely get better pricing than for a vacation rental condo in Steamboat Springs, Colorado.
• Lender Pricing Structure: Each hard money lender has a different pricing structure. There isn’t a one-size-fits-all cost structure across the industry because every loan has unique characteristics that impact pricing.

Obtaining a Foreign National Hard Money Bridge Loan

If you’re a non-U.S. resident and need to use a foreign national hard money bridge loan to purchase or refinance an investment property in the United States, you’ll want to have your financial documents organized for your broker or lender. This includes your citizenship and employment information, bank statements, investment accounts, schedule of real estate, budget, exit strategy, property insurance, and more. The better organized you are prior to applying for a hard money bridge loan, the smoother the qualifying process. Make sure to save your documents to your computer or a cloud storage account, so you can quickly send information upon request.