Foreign Investors - Buying Property in Hawaii

Foreign investors are pouring billions into the U.S. housing market, according to the National Association of Realtors.

Foreign buyers purchased more than $68 billion worth of U.S. residential real estate over the 12 months ending March 2013. That’s approximately 6.3 percent of the total U.S. Existing Homes Sales (EHS) market of $1.08 trillion for the same period.

International buyers frequently pay all cash with about 63 percent of reported transactions being cash purchases. How the payment is made depends of course on the buyer, country of origin and type of property they are purchasing.

Mortgage financing for international clients can be tricky because of a lack of U.S. based credit history, lack of a Social Security number and difficulties in documenting mortgage requirements and financial profiles. However, with the right people and right documents in place, foreign investors can obtain U.S. backed financing.

Find the Right People

Finding the right professionals to guide them through the process is the first thing an international buyer needs to do. “An experienced agent helps because they have the knowledge of what to expect and what questions to ask as the transaction progresses,” says Michelle Kozlowski, a licensed REALTOR® with Prudential Locations in Honolulu.

“Also, an experienced agent knows what to anticipate and how to set things up properly to ensure the transaction goes smoothly. In addition to their experience, and it’s especially true here in Hawaii, many agents speak more than one language. Having a REALTOR® in your corner who is fluent in your native tongue helps avoid costly misunderstandings and mistakes.”

Assembling a good team is critical and an experienced agent can direct buyers to lenders, attorneys and accountants who work with foreign investors. Navigating through the complex process of home buying while living abroad, especially if you want a mortgage, can be overwhelming, but with mortgage rates so low, many international buyers are choosing to finance their purchase.

“There are loans available, but it depends on their foreigner status,” says Erein Trawick, senior home loan consultant at Central Pacific HomeLoans in Honolulu. “Most foreigners will qualify for a portfolio loan and not a conforming loan and these require a larger down payment and more money in the bank.”

Kay Flache and his family are a great example. Flache is a University Student attending University of Hawaii, Manoa, and is in the United States on a student visa. He moved to Hawaii in 2010 from Germany and spent months looking at property and speaking with various real estate agents. However, when it came to financing the loan, the agents drew a blank. Simply put, he would have to pay cash.

That’s when Flache met Kozlowski at an open house. “Michelle was ready to offer us a solution,” states Flache. “She helped my family purchase a home. Other agents could show me property, but weren’t able to help us get from point A to point B. Michelle helped us every step of the way.”

Working with Flache and his family turned out to be a enjoyable experience for Kozlowski.

“It was such a pleasure working with Kay and his family and helping them buy their first home in Hawaii,” says Kozlowski. “I had shown them a few properties around Waikiki, but when we walked into this one condo, they knew within seconds it was the one! I won’t forget that smile on all their faces as they walked through the door.”

Kozlowski’s expertise certainly helped. “Michelle was excellent during the entire process,” Flache exclaimed. “She took a long time to explain the entire process to me and my family and she made sure we understood everything that was written in the contract.”

Kay Flache, second from left, with his sister Kim, right, his mom Simone and dad Mathias, pictured in their new condo in Honolulu, Hawaii.

Flache’s parents are homeowners and business owners in Germany and there is no credit scoring in that country. “My dad owns a company and doesn’t have a typical employee-type job,” explains Flache. Nevertheless, the family wanted to buy in Hawaii, so Michelle referred them to Erein Trawick and he started the loan process.

“A foreign investor should expect to pay, at a minimum, 30 percent as a down payment and they are required to have six months mortgage payments in the U.S. bank account at all times,” explains Trawick. “The entire loan process takes around 60-70 days and if the client is signing in a foreign country, they may have to travel to the nearest U.S. Embassy, as the final loan documents need to be notarized there.”

In Flache’s case his family provided the bank in Honolulu with:

Translated banks statements
Translated tax returns
Income and operational answers referencing the family-run business
Copies of other outstanding debt
Debt to income ratio table that included the mortgage on the property back in Germany
Reference letters from their banking institution
Copies of their passports
Copies their visitor’s visa.

Per U.S. standards, the lender is required to conduct detailed reviews of the borrower's income and asset documentation. The review is looking for transparency, where and how their income and wealth is generated and how their assets move around.

Depending on the buyer's nationality, a visa may be required and typically, the interest rate is slightly higher than for U.S. residents. However, since current rates are at an all-time low, foreign investors may still qualify for a mortgage with a really competitive annual interest rate.

Today Flache is enjoying his new home in Hawaii, and looking forward to the next visit from his family. “Michelle was extremely diligent and professional,” says Flache. “After so many people told us ‘no’ or not knowing how to help, she made the entire process easy! Not only was she able to refer us to the right people so we could get a mortgage, but she did her research to maximize our savings.

Michelle made sure we knew everything we could about the property and that gave us a competitive advantage over the seller’s agent. She did her homework up front and it paid off.”