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Mortgages for Expats in the United States Of America

Author: Jim Newham
Submitted: August 2013

The credit crunch, which was largely caused by the US banks’ cavalier attitude to mortgages and other loans, has put paid to the previous days of easy credit. It is now much more difficult to obtain a mortgage from a US lending institution. For example, guidelines introduced in January 2013 encouraged lenders to demand full documentation from potential borrowers, and to be clearer about the consequences of low early repayment rates.

As an expat, you will find getting a mortgage even more difficult. Many lenders will not even countenance lending to foreign nationals, so you will need to be persistent and shop around. US mortgages are still attractive in many ways. Interest rates are low and there is still a wide range of mortgage products available. Note that, as in many cases, mortgage rates vary from state to state. If you are not sure where to buy a property, you can find information on mortgage rates in all states here:

https://www.bankrate.com/national-mortgage-rates/

Requirements

When you find an amenable lender, you will need to prove that you have sufficiently remunerative employment and enough funds to repay the loan. Bear in mind that the more cash you have readily available to pay for a deposit, the wider choice of mortgage you will have.

To qualify for a mortgage with a US bank you need to have a US bank account. You must also provide identification and proof of address. Furthermore, as most mortgages are now  ‘fully documented’, you will need to prove your income by supplying tax returns or the local equivalent up to 3 years previously. In addition to this, you will also need to show your last two months’ bank statements in order to show you have money sufficient to cover both down payment and completion costs. There may be further requirements, depending on the lender. Note that mortgages are assessed on the valuation of the property, not the property’s current value.

Under the new, stricter guidelines, most lenders will want your debt-to-income ratio to be no more than 35%. They may also request an international credit report. Some lenders may require a minimum of six or twelve months’ worth of mortgage repayments in your account before completion can take place.

Loan-to-value ratios (LTVs) are generally around 60-70%. This is a lower proportion than for US citizens, and means you will have to make a substantial down payment. The maximum full term is 30 years. Mortgages do not normally have maximum age limits, though your ability to pay will always be taken into account.

Mortgage types

A wide range of mortgage products is available in the USA. There are repayment mortgages can be variable or fixed-rate, with flexibility over the fixed-rate term. For young buyers, there are graduated payment mortgages, in which the amount repayable slowly increases. In addition to the standard interest-only mortgages, there are less than interest-only mortgages, in which early payments are very light.

Mortgages can also be flexible, in which you are allowed to miss the odd payment or pay sums early. You may be able to obtain a foreign currency mortgage, which has the advantage of freeing you from the unpredictability of your country’s exchange rate with the US dollar.

 

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