Mortgages, the bad and the ugly, oh, and maybe a bit of good!

What a tumultuous time and not to mention inconvenient! Just when property is half off in Florida, is there a mortgage to be found?

The good news is that it’s not impossible to arrange a mortgage in the US for a non US resident but be prepared to verify everything, gone are the days when we enjoyed non status. Gone are the days when we promised specific closing dates, and gone are the days that flaming hoops were not a standard part of the qualification process.

All joking aside though, mortgages are harder to find and certainly harder to qualify for. The US mortgage process, aside from the lingo, is really quite similar that of the UK. Instead of using income multipliers, US lenders work with a “debt to income” ratio. Quite simply it is your monthly debt (current mortgage, credit cards, car payments and the proposed new mortgage payment) divided by your monthly income. No rental income on the new property can be used and the ratio must be less than 45%.

More good news is that the few lenders still offering mortgages to Non US residents, generally are looking for a letter that states 2 years of income and year to date earnings. This can be more forgiving to the self employed as audited trading accounts are not usually required.

Mortgages are generally a maximum of 70%of the purchase price at the moment and rates are all over the board. It is not unusual to expect that a non US resident would be in the mid 7’s to 8’s.

It also makes a big difference what you are buying. For instance, condominiums are more difficult to arrange financing on than a detached villa.

Even with the higher rates and more stringent lending guidelines, the hardened investors are swarming in. It’s hard to pass up the best buyer’s market that I have ever seen. It makes sense to purchase at this time and sit on the property and just realize that you might not get the mortgage of your dreams. No vacuum exists forever and it will be a matter of time before some sense of normalcy returns to the mortgage market. We will probably never see it quite as it was but I’m sure that it will relax some more and the potential to re-mortgage later is more probable than the opportunity to buy at this price later.

For those of you that already own property in Florida and have “Option ARM” (negative amortizing) mortgages, now is a perfect time to modify the interest rate at the bank’s expense. They may be offering heavily discounted terms to entice you to switch out of this type of scheme, the problem being that the lenders are inundated with this type of request and cannot keep up.

Should you have any questions on modifying an existing mortgage, we have a section on our website that explains the process in detail

Standard documentation for a mortgage is comprised of the following:

4 page application and a stack of legal disclosures

International credit report (ordered by the lender)

Letter from employer (or accountant if self employed) stating 2 years income and YTD earnings

2 months bank statements

Proof of wire transfer of funds

A US bank account (this is the easiest part) with at least 6 months reserve mortgage payments deposited

A copy of passport

Valuation (ordered by the lender)

With the dollar so weak, why aren’t the foreign buyers knocking our doors down to purchase more homes? Or are they trying?

Don’t misunderstand, there are many foreign buyers looking for bargains in this real estate market, we are seeing the number of foreign national clients increase by the week but by and large, they are not purchasing in the numbers that I would expect given that the time is perfect.

Some of this may have to do with difficulty in obtaining mortgages in the US. Unfortunately this is a small sector of the overall mortgage market but certainly wasn’t immune to the effects of the mortgage debacle that we are continuing to experience. We went from 80% mortgages to 75% to now 70%. The number of lenders that still offer loans to foreign national clients is continuing to decrease, largely because there is no secondary market on Wall Street on which to sell these loans. To explain further, mortgages are originated with a mortgage broker, lender, or bank and the borrower. The mortgage is ultimately packaged along with similar type mortgages into mortgage backed securities. These securitized mortgage packages or MBS are then sold on Wall Street to investors, in a similar way that bonds would be sold. With all of the fall-out of sub-prime and Alt A aka: non-conforming mortgages (conforming mortgages are those that meet the guidelines set forth by Fannie Mae or Freddie Mac and that that qualify with full income verification, A credit, primary or second homes etc), this has also had a detrimental effect on Foreign National borrowers, who also come under this umbrella of Non-Conforming or Alt A mortgages.

So what is the main problem? The difficulty is that most lenders do not originate mortgages without knowing that they can sell them at any point in order to create more liquidity. If Wall Street does not currently have an appetite for a particular type of mortgage, who then does? We are still able to fund these loans with International banks such as Lloyds TSB that stills offers up to 75% financing and very competitive interest rates and terms to foreign and US National alike, and other smaller banks that lend their own discretionary funds or portfolio funds at a higher rate to our foreign national buyers. Even with these various lenders, this unfortunately does not help our International buyers to purchase as we are working with a tap that is dripping rather than a flowing source as before.

Ultimately, Central Florida, although experiencing a correction in the market, is still a great bet for any buyers, be it local, out of state or out of the country. As long as people still strive to move to our great communities, long for our fabulous weather, and every other reason that millions of people have for visiting and/or moving here (the list of which would be too lengthy but I believe is a point that we can all agree on, Central Florida can only continue to get better!) This surge in homes for sale and difficulty in obtaining a mortgage are temporary. A wise man once told me that you should grab a deal when you know that it is a bargain, if you continue to wait and try to catch it when you think that it is at the absolute best bargain, you run the risk of missing it completely because just as you know that you are reaching the top of a roller coaster, if you wait until you reach the very top point, you have probably missed it and on the way back.

Feb 8^th, 2008

Justine Assal, CMC

Board Member - British American Chamber of Commerce

Vice President - ACM Home Loans Inc.