US Mortgages for Nonresidents and Resident Aliens
Posted by Rohit Mittal
Despite having only 5% of the world’s population, the United States of America attracts 20% of the immigrants from across the world.
Clearly, it is one of the most diverse nations in the world — a popular destination for highly-skilled and educated immigrants, housing a vast number of non-citizens.
But even with such a substantial number of non-citizens, getting a mortgage or loan from a conventional bank or credit union in the US can be difficult for immigrants.
Challenges Faced by Non-US Citizens
The lack of credit history and the uncertainty regarding visa status to determine the length of one’s stay (i.e. residency status) can be deterrents in securing a US mortgage for non-citizens (ranging from DACA dreamers to L-1 Visa Holders and beyond), and its mostly because of the risk of mortgage fraud.
However, despite the risk involved, there are a couple of lenders willing to provide mortgages, non-agency loans, and cash-out refinance mortgages to non-citizens that involve mortgage-backed securities with an average loan-to-value ratio of 55.5% (as per 2016 statistics).
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The Two Types of Non-Citizens in the US
There are mainly two types of non-citizens in the US: Permanent Resident Aliens and Non-Permanent Resident Aliens.
Permanent Resident Aliens
Permanent resident aliens have both a social security number and green card from immigration services (USCIS), which amounts permanent residency; non-permanent resident aliens only have a social security number, but no green card.
Getting a US mortgage for permanent resident aliens is comparatively easy, as they only need to provide a valid green card and their social security number along with regular documents. The qualification process is quite like that of a US citizen.
Non-Permanent Resident Aliens
Non-permanent resident aliens, on the other hand, need to prove their intention of living in and using the house they are buying as their primary residence. They need to provide their work permit, also known as the Employment Authorization Document (EAD), along with their social security number.
In case the borrower does not have an EAD, he can provide a special visa sponsored by his employer as proof of legal residency. The list of visas acceptable includes the H-1B and other H series visas such as the H-1C, H-2, H-3 and H-4, the Canadian and Mexican NAFTA series, E series, G series, L series, NATO series, and the O series visas.
All work eligibility documents must prove the borrower’s ability to live and work in the US for a minimum of three years. Depending on your case and situation, you might be asked to facilitate other documents for approval of the mortgage.
Also, the substantial presence test can determine the resident or nonresident status of a foreign national for tax purposes in the United States.
Types of Mortgages for Non-US Citizens
There are three types of mortgages/loans popular among all immigrants: FHA Loans, Conventional/VA Loans, and Jumbo Loans.
FHA Loans are easy-to-get specialized loans, with a down payment requirement of only 3.5%. Their credit standard parameters are much easier than their conventional counterparts.
The proof of residency that you submit should be valid for at least one year after the estimated closing date of the loan.
Conventional Mortgages, i.e. Freddie Mac and Fannie Mae, require borrowers to submit their social security number, proof of residency, and proof of income for at least three years. As per government guidelines, it is up to the lender to prove the legal residency of their borrowers — especially foreign buyers.
For a VA or conventional loan, it is mandatory to have a valid visa by the INS, along with an EAD, which can be either an I-765 or I-766. You may also be required to produce a Form I-797A with I-94, or other valid work authorization.
If you are seeking to have a normal Jumbo loan, it is mandatory to show that you are employed in the U.S for next 3 years and that you have been residing in the States for at least 5 years now.
Compared to a VA loan, getting a non-conforming Jumbo loan is a bit tough.
Conditions to Fulfill for Jumbo Loans as a Non-US Citizen
Here are a set of conditions that you need to fulfill for Jumbo Loans:
- You should be residing in the U.S for a minimum of 5 years
- You should be able to show sustained employment for the first 3 years of getting a loan
- The home you are getting the loan for should either be a condo or a single-family house and should be occupied by the owner
- You should provide a down payment of at least 30%
Paperwork Needed for a Jumbo Loan as a Non-US Citizen
In terms of paperwork, you need to produce:
- An EAD along with an I-140
- H-2B and H-1B visas
- A valid passport from the country in which you have citizenship, along with an I-94 form that is stamped, indicating authorized employment.
3 Criteria for Getting a Mortgage as a Non-Resident
The three most important parameters for getting a mortgage as a Permanent and Non-Permanent Resident Alien in the US are:
1. Duration of Residency
As stated above, residency status is of prime importance to mortgage lenders.
Borrowers must either have a green card or a work visa for a minimum of three years as proof of their residency.
People who do not have a green card or a long-term work visa can seek foreign national mortgages; such mortgages are widely available through banks and individual lenders that provide loans to foreign visitors for vacation home purchases or property rentals.
2. Proof of Income
One must have proof of constant, steady income for the past two years at least. Also, it’s important to show liquid assets and account balances to lenders to prove your ability to cover the downpayment and other related costs.
In case all of your assets and accounts are overseas, then you can choose a third-party to get your statements and pay stubs translated into English.
Otherwise, lenders can use websites to convert foreign assets and income into U.S. dollars at the current conversion rates as proof of steady income for loan approval.
3. Credit Score
Even if you do not have enough US credit history to qualify for a mortgage, you can get yourself a credit report with minimum trade lines in a minimum of 12 months.
A trade line is simply a credit account such as a credit card, an auto loan, or a personal line of credit. In some cases, it can be derived from the history of accounts such as water, electric, cell phone, and cable TV.
You need the credit history of two to three accounts for at least 12 months to generate a credit report and credit score.
How to Get a Mortgage Pre-Approved
To get a mortgage pre-approved, you need documents to verify your credit history, identity, and past records. Here is a list of the 5 most important things you need to be pre-approved for a mortgage.
Proof of Income
All potential homebuyers need to have W-2 statements for the past two years, and recent pay stubs that show the amount of income being received, as well as the year-to-date income.
Borrowers also need to disclose any additional income, such as alimony income, bonuses, etc., along with a statement of tax returns for at least the last two years.
Proof of Assets/Balance Sheet
To prove you have enough funds for the downpayment (and other costs), you need to present various bank statements and investment account statements.
For example, an FHA loan requires that you make a downpayment of at least 3.5% of the cost of the home, whereas for a traditional loan you need to make a downpayment of 10% to 20%.
And, in case you receive help or assistance in the form of cash from a relative or friend, you will need a letter that declares it as a gift to prove that it is not a loan.
Good Credit Score
Your credit score is the most important measure of your credibility. Most lenders are keen on offering low–interest loans to borrowers with a score of 740 or above; anything less than 740 will net you a higher interest rate.
Additionally, FHA guidelines have become stricter in last few months: borrowers with credit scores lower than 580 may have to make a larger down payment.
In fact, you now must have a minimum credit score of 620 to be approved for an FHA loan.
Want a good credit score? Read more on how to best get it there:
How to Build Credit
No Credit History vs Bad Credit: What’s the Difference and How Do You Fix it?
Benefits of Good Credit: 9 Ways Good Credit Will Improve Your Life
Lenders want to minimize their risks by only lending to borrowers with stable jobs. They may call up your employer to confirm your salary and nature of employment.
And in case you’ve switched jobs recently, they may even call your previous employer to check on you. Self-employed borrowers need to provide additional documentation to prove their business and income.
Obtaining a mortgage requires a lot of paperwork and documentation. You’ll be required to submit a copy of your social security number, a driver’s license, and your signature so that the lender can pull a credit report.
For the pre-approval session and the actual mortgage lending session, many more documents are necessary. Be prepared to facilitate whatever the lender seeks so that the whole mortgage process goes smoothly.
For even more in-depth insights on landing a mortgage pre-approval, check out our guide: The Complete Guide to Mortgage Pre Approval.
When is the right time to apply for a mortgage loan?
When applying for a mortgage loan, timing is everything and plays a critical role in your mortgage experience.
If you are not a United States citizen, the best time to apply for a mortgage loan is after 2 years. Most financial institutions require a minimum work and credit history of 2 years in the United States.
However, you must consider your employment and your financial situation as well before you apply for a mortgage loan as a non-citizen.
All financial institutions that give out mortgage loans have a regular monthly business cycle, making the best time to get a mortgage loan at the beginning of the month. Generally, the beginning of the month is devoted to acquiring and setting up new loans.
If you have decided to get a loan, contact your financial institution during the first business days of the month. Furthermore, don’t be late with your paperwork and have all documents prepared on time!
In the middle of the month, financial institutions gather documents and get loans ready for the end of the month, so they want to get as many loans set up as possible.
How to Improve Your Chances for US Mortgage Approval as a Non-US Citizen
As a Non-US citizen, you must have proof of income and assets for better chances of approval.
Also, you may begin working on your credit score by getting yourself a credit card and adhering to the payments and installments.
Additionally, obtaining a mortgage requires a lot of paperwork and documentation. Be prepared to facilitate whatever the lender seeks so that the whole mortgage process goes smoothly.
The best part about the US is its openness to accept all. Despite the initial deterrents, there are quite a few US mortgages for non-US citizens, be it for real estate or otherwise. Hence, there are many options available for everyone.
All in all, it may seem difficult to obtain a mortgage as a non-US Resident, but it is not impossible. There are many banks, credit unions, and government institutions working with immigrants to ease the whole process, and these institutions attempt to be as flexible and convenient as possible.