Financing A Mortgage On An Investment Property Without U.S. Citizenship

Added April 1, 2005 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: Financing a mortgage for an investment property where one of the owners is not a U.S. citizen can be tricky. Most mortgage lenders are reluctant to finance a mortgage on an investment property to an immigrant who does not have a long-term visa or has become a resident of the United States. Ilyce and Sam help this reader figure out the best way to finance a mortgage on an investment property where his potential co-owner does not have U.S. citizenship.

Q: My cousin and I live in Vegas and tried to buy a house as an investment. In the end, I had to buy the property without him.
He just moved to the United States and while he has work papers, he isn't a resident yet. He has good income and I would like to do a joint venture with him on the place. I thought I could give him title to 75 percent of the home and I could keep 25 percent.

Would the mortgage lender call the property due if I transferred a part of the title to him? If I transfer title to him, can he claim the tax benefits?

A: Many recent immigrants to the United States face similar problems in obtaining financing. Lenders generally won't give a loan to an immigrant unless he has a long-term visa or has become a resident of the United States. Some lenders, however, will give loans to individuals who have shorter-term visas.

To find these lenders, you usually have to go to a lender that actually has the funds to give and keep the loans after they have closed. These loans are usually called portfolio loans as opposed to loans that are sold off to investors or in the secondary market as with most loans.

If you still want to have a loan in both of your names, you should seek out a mortgage lender in your area, and not a mortgage broker or national lending institution that generally brokers loans.

If you elect to keep the current loan and transfer title to your cousin, it can trigger the due on sale clause of your loan. If you have a copy of the mortgage you signed, you can read the provision in the document that deals with sales and the due on sale terms of your loan. You will probably find that a transfer of 75 percent of the property to your cousin falls within the lender's ability to call the loan.

But more important from your perspective is if your cousin owns 75 percent of the property, his name will not be on the mortgage. If he does not pay his share of loan payments, you and your credit will suffer the consequences.

If the lender doesn't call the loan after your transfer, each of you will be able to take tax benefits for your investment. Your cousin's tax benefits may be different depending on his status in the United States. Certain of the tax code provisions are intended for legal residents and citizens only.

As far as having a joint venture or partnership with your cousin, you should first sit down with a real estate attorney to determine whether the current loan structure you have is viable for what you want to do with the property and the length of time you want to keep it. Then you should sit down with a good accountant to discuss your strategy.

If this is the only property you intent to buy together, you may be told to incorporate or create a limited liability company (LLC) to hold title to the property. Each of you would have an interest in the new company. Company documents would create the understanding you each would have for the affairs of the company and your obligations to do work for the company as well as to contribute more money to the company as may be needed.

If you're going to buy and hold many real estate properties, you may need one or more companies to handle your affairs with one master agreement to handle your arrangement with your cousin.

Sit down with an attorney to discuss your options then decide whether you want to risk the due on sale or start over. You might also want to ask the attorney or an accountant whether transferring 75 percent of the property to your cousin would trigger a taxable event: The IRS might require you, or your cousin, to pay a gift tax.

April 4, 2005.

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