Get a mortgage without a Social Security number
Plus, feedback on draining a 401(k) to buy a home with cash
By Lew Sichelman
Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 40 years, responds to readers’ questions on real estate.
WASHINGTON (MarketWatch) — Question: My name is Guillermo. I am a foreigner without a Social Security number, only an employer identification number. I have a condominium in California for which I paid cash. Now, I want to buy another property for investment and I plan to put up 50% of the purchase price in cash. Do you know where I can find a bank that can give me a loan for the other half? — G.G., Temecula, Calif.
Answer: A 50% loan-to-value ratio is something every lender covets. After all, if a borrower already has a 50% stake in the property that stands as collateral for the mortgage, it is highly unlikely that he will fail to meet his obligations for any but the most extraordinary circumstances. And even if he does default, it’s doubtful the lender will lose money unless the value of the property falls by more than half.
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That said, in today’s very restrictive lending environment, lenders are making certain to dot every “i” and cross every “t.” Consequently, the lack of an all-important, nine-digit identifying Social Security number sends up an immediate red flag, causing some lenders to back off. Still, many foreign nationals are buying property in the U.S., especially in this economic environment in which real estate is selling at rock-bottom prices. And they are obtaining mortgages to do so. So your dilemma is finding a lender who actively lends to foreigners, which shouldn’t be too hard.
Start by calling some real-estate agents who specialize in dealing with foreign buyers. They will have the names of appropriate lenders, because without them, their deals fall through and they don’t get paid.
I’d also give the Hispanic National Mortgage Association ( www.hnma.com ) a look. This is a for-profit company with a mission of increasing Hispanic homeownership in the United States. You are already a homeowner, but that shouldn’t matter to HNMA members, who believe the mortgage business has not been responsive to the particular needs of minority groups. Any one of them should be more than willing to discuss your situation.
Some years ago, there was a movement to make mortgages to people who had an individual taxpayer identification number but no Social Security number. But the effort fizzled under a firestorm of protest about giving mortgages to undocumented, illegal aliens. Still, some lenders will lend on the basis of such an identifier.
An ITIN is a tax processing number issued by Uncle Sam to individuals who are required to have a taxpayer ID number but are not eligible for an SSN. They are issued regardless of immigration status because both resident and non-resident aliens have to pay income taxes on money earned in this country. According to the Patriot Act, this is an acceptable form of identification. I am going to presume that since you have a condo in California, you pay taxes and have such a number.
Just nosing around on the web, I found an outfit called ITIN Lending ( www.itinlending.net ). I don’t know anything about this company, so this is not an endorsement. But it says it offers loans of up to 97% of the property’s value with full borrower documentation, including a credit report and proof showing two years of employment and income tax payments. The company also says it will make loans of up to $600,000 to foreign nationals without an ITIN, just a passport, “as long as you have a down payment of 25% ... no documentation is required.”
Looking around further, I found Foreign National Mortgage ( www.foreignnationalmortgages.com ) in Florida as well as a bunch of other possibilities. Let your fingers do the walking.
Response
Heard from a number of financial planners about my advice to the reader who was considering raiding his 401(k) to purchase an investment property (Realty Q&A, April 8, 2011 ). Their suggestions were basically the same: Why not move his 401(k) assets into a self-directed IRA, where the money could be put to work buying rental houses without incurring any tax penalties.
That’s all well and good, and I agree that I should have offered that as a possible alternative. But at the same time, there are certain tax rules regarding self-directed that must be followed to the letter — rules that don’t apply when you are simply buying and renting out investment houses.
Yes, you’ll avoid the 10% penalty for pulling money out of your retirement account before you reach age 59½, as well as having to pay income tax on that money, perhaps at a higher bracket than normal. But the self-directed IRA rules are considered by some to be onerous.
Still, John Farrell, a certified financial planner, was pretty adamant: “One issue which you did not address is if they empty their 401(k), they’ll pay income taxes at their highest marginal rate and a 10% penalty,” he responded. “At the income levels they mentioned, they should be in the 28% marginal tax rate. Then, at the 10% penalty on top of that, they’ll pay $76,000 in taxes. So based on that alone, I think they should seriously rethink this.”
Chris Maggard, an investment manager with Fifth Third Securities in Clinton Township, Mich., also weighed in. “A 10% penalty would and does matter,” said Maggard, who calculated the reader’s return at about 8.85%. That’s “gross, net of repairs, taxes and other expenses,” he added, noting that 8.85% is below historical, though not recent, stock market averages.
On another note, meanwhile, David Crooks, a financial adviser with Bleakley, Schwartz, Cooney & Finney in Fairfield, N.J., rightly points out that most 401(k) plans do not permit employees to take a distribution prior to reaching age 55 if they still work for the company unless they file for a hardship withdrawal. “This wouldn’t meet that test,” Crooks said.
Question: Don’t a lot of employers not allow plan distributions while still employed? Also, isn’t there a 10% penalty for pulling money out before 59½ and all that money would be taxable in the year they do it? —N.L.
Answer: See above.
Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 40 years. MarketWatch readers are encouraged to send their real estate questions to him at lsichelman@aol.com . Answers will be presented in this column every Friday. However, because of the volume of e-mail he receives, he cannot answer every reader’s query.
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