By Gregory Sweeney of International Investors Mortgage LLC
Immigrants come to the United States to build a better life, enhance their career opportunities, and provide a better future for their families. In their transitional years they face many challenges, especially when they engage with US banks and look to get a loan for the purchase of property.
Challenges Immigrants Face in Accessing Credit
One of the biggest challenges for new immigrants to the United States is their ability to access quality credit and financing opportunities across all credit facilities, from credit cards to personal, auto, or student loans, to mortgages. Financial institutions operating in the US are subject to strict guidelines from federal agencies regarding the requirements for investors to secure credit financing in the US.
These requirements are focused on the domestic, US citizen borrower.
Regulations require borrowers to have established a strong credit history over a period of time to be eligible for the most attractive rates. They, unfortunately, do not take into consideration the ability of many new immigrants to be able to service loans through their accumulated wealth in their home countries. This means that new immigrant investors could be at an unfair disadvantage for anywhere between 2-10 years when trying to access good quality financing in the US.
What is Credit History?
An individual’s credit history is an aggregate record detailing how they have managed their debt facilities. It includes all accounts the individual has ever opened and/or closed, the type of credit provided by such accounts, outstanding balances, and a record of repayments. A credit bureau can prepare a credit report for any individual with their detailed credit history, personal information, and public records such as bankruptcies, liens, or pending investigations. Anyone that has had a credit account in the US can request a copy of their credit report from an approved credit bureau and is eligible for one free report annually.
A credit score is assigned based on an individual’s credit history to gauge creditworthiness. This allows any future lender to assess the individual’s complete credit profile including potential default risks.
Importance of Credit History in the US
An individual’s credit history impacts many big aspects of their life. Employers are increasingly referencing credit reports prior to extending new employment offers. Landlords will assess a prospective new tenant’s credit risk. Lenders providing financing options for personal loans, school loans, and credit cards will first review an individual’s credit reports to determine the amount and the rates at which they will extend credit to a borrower.
For new immigrants, establishing a credit history in the United States, that accurately depicts their creditworthiness can take years. In the meantime, it would be difficult for them to obtain credit options.
For EB-5 investors, in particular, investing a large amount of money in the US to file their petition for Green Cards, and having significant wealth in their home countries, is oftentimes not enough to be considered “creditworthy” by traditional US lenders.
While real estate is widely considered to be a stable asset, one that creates wealth for its investors, purchasing power in the real estate market is heavily influenced by credit history. Mortgage underwriting guidelines define what credit history and documentation are required from borrowers. Investors who meet these requirements are offered conforming loans that are backed by federal agencies.
In the absence of a credit history that fits within the guidelines of the industry’s underwriters, lenders are only able to offer non-conforming loans, which are typically structured with high down payment requirements and high-interest rates, in order to protect the lender from cases of default, since non-conforming loans are not backed by federal agencies.
Homeownership: Part of the American Dream
For most new immigrants, the concept of living the American Dream involves finding the right career opportunities but also includes finding the perfect home for their families.
However, many EB-5 investors are unable to access mortgage loans through regular providers and banks, despite having a strong financial standing in their home countries. Very few may get lucky and be offered some sort of financing option, but are typically subject to down payments of 40% or higher. This can often be burdensome, especially after investing in an EB-5 application.
Some may need to primarily use their savings from their home country, or seek assistance from family members. Complicating things further, several countries have foreign exchange controls in place and restrict large remittances of money overseas. any others would need to wait until their EB-5 capital is returned, or until they build sufficient US credit history, both of which could take years to come to fruition.
The lack of access to good financing options leaves many EB-5 investors frustrated and unsure of how they should proceed.
Addressing these Challenges: The Need for New Solutions
A small group of operators have identified the challenges associated with the lack of credit options available for new immigrants and have started to introduce immigrant-specific financing programs and solutions.
While these new programs are a great first step in bridging the gap, there is also a need for tailored solutions specifically for EB-5 investors who have significant capital invested in the US for at least 5 years, and in some cases, maybe even 10 years or more.
Furthermore, finding a trusted real estate agent, understanding the market, researching different neighborhoods, and understanding how to structure the purchase can be just as challenging as accessing quality financing options.
There is a significant opportunity to serve EB-5 investors and their needs for access to strong, trustworthy, high-quality credit options by taking into account home country credit history and leveraging the value of their EB-5 investment. Mortgage lenders and operators should aim to remove the stress from the buying process and make the US property ownership experience for EB-5 investors as delightful and gratifying as it should be.
To read more, please visit This Link Page 29 & 30 – IIUSA Regional Center Business Journal – May 2021