Some of the challenges faced by immigrants are inaccessibility to certain privileges that are bestowed on permanent residents or citizens of that country. While some are worth the wait, others like the desire to own a home take precedence. If you are an immigrant in the U.S., what are the roadblocks to owning your own home - job location, cost of living, affordability and being eligible for a mortgage loan?
To address these questions, we will go into details about applying for a mortgage loan in the United States as an immigrant and how you can negotiate a better mortgage rate.
The U.S. remains the top destination for migrants from all over the globe (50.7 million international migrants). This also makes the U.S. the top remittance-sending country with countries like India, China, Mexico, and the Philippines being the top remittance recipients.
The U.S. has a long history of welcoming foreigners who come to the country for various reasons; to achieve financial success, gain better employment opportunities, to seek political or religious freedom, and many others. Simply put, the chance to create a better life and achieve that American dream.
The cornerstone of the American dream is homeownership. The chase to buy your own home and build a family. A home is a place where you will make memories and celebrate many milestones of life, and live through the ups and downs of life.
Making the transition from being a renter to a homeowner is a matter of pride and gives a sense of belonging to the country. There is notable variation in the rates of homeownership across race and ethnicity. It has been projected that the immigrants will drive the demand for homeownership in the years to come.
The easiest option for owning a property in the U.S. is paying the total value in cash. But for many, it may not be always possible to buy a house without a mortgage. You can pay for your home over many years with a mortgage, hence it is more manageable and affordable.
The great news is that as an immigrant, you can buy or apply for a home loan in the U.S. The key is to provide the necessary documentation and requirements and the process becomes way easier.
To start off, your mortgage eligibility is determined by your residency status in the U.S among other requirements. It is easier to get a mortgage for Green Card holders or immigrants working in the U.S. with a work visa as compared to foreign nationals living outside the U.S.
The following are the basic requirements to apply for a mortgage as an immigrant:
Permanent Resident Aliens
As a permanent resident, you will get the same privileges as US citizens when applying for a mortgage. You will need your Green Card and your social security number (SSN). Green Card holders can apply for Federal Housing Administration (FHA) loans, Fannie Mae, or Freddie Mac loans just like US citizens with only 3% as a down payment. Fannie Mae and Freddie Mac are government-sponsored enterprises providing conventional loans to US citizens. FHA loans are government-backed loans designed for low-moderate income borrowers.
It is best if you have been in the U.S. for at least 2 years and have a work history and tax reports for two years because any mortgage lenders will ask for your credit history to give you the loan. The lenders may also ask for a bank statement for at least two months.
Non-Permanent Resident Aliens
Non-permanent resident aliens without a Green Card but having a social security number are eligible for a home loan if they have a work permit (Employment Authorization Document) or special employer-sponsored visa indicating that they will be living and working in the country for at least 3 years.
You can also apply for FHA loans if you are prepared with the necessary paperwork. Like the permanent resident, your lenders will ask for tax returns and credit history for at least 2 years and also a bank statement for two months.
Immigrants who are granted asylum are eligible for applying for mortgages in the U.S. They need to provide evidence that they are refugees or asylum seekers to get approved for the loan.
Keep in mind that unlawful residents in the U.S. are not eligible to apply for such loans. Although there are private lenders that offer mortgages to foreigners living outside the U.S., they have higher interest rates and larger down payment (30%-50%) as it is riskier for the lenders.
Ways to Secure a Good Mortgage Rate as a U.S. Immigrant
Good Credit Score
A credit score of 720 or above is considered good for securing a mortgage. One major challenge for non-US citizens is the lack of credit reports when you move from another country. It can be hard to provide a reliable credit report when you are newly settled in the country. It takes years to accumulate enough credit history to get a good score or any score.
You can do international credit conversion where you convert your existing credit to the U.S. credit to apply for the loan or credit card. In some cases, it may be possible to do a non-traditional credit check. You may need to provide payment histories like rental and utility bills or other documentation that shows your credit history in your country of origin.
However, not all lenders provide this facility. Applying for conventional loans like Fannie Mae or Freddie Mac requires a 620 median FICO Score. For FHA loans, a FICO score ranging from 500 to 579 is ideal for a 10% down payment and 580 or above for a 3.5% down payment.
Larger Down Payment
A larger down payment means a lower mortgage rate. Making a larger down payment puts you in a better position to negotiate your mortgage rate. If you are able to make a 20% down payment or more, you can skip paying the monthly mortgage insurance.
In case the down payment is less than 20%, you can request the mortgage insurance to be removed when you reach 20% equity. Depending on the type of loan you are qualified for, for a one-unit primary residence, you may only need to pay 3% as a down payment.
Mortgage Fees Negotiation
There are many types of fees associated with getting a mortgage. The costs of the loan can be added up by fees such as loan origination fees, loan application fees, discount points, appraisal fees, commitment fees, title services, rate lock fees, survey fees, pest inspection fees, taxes, credit report fees, etc.
Some of them are set in stones and cannot be negotiated but most of them are negotiable. You can ask for lower costs or waiver. Negotiating fees can reduce the total costs incurred.
Get Multiple Quotes
It is important to shop around and gather quotes from multiple lenders to be able to negotiate a better mortgage rate or even down payment. Compare loan estimates of the various lenders. Every mortgage lender needs to provide the Loan estimate within 3 business days when you apply for a mortgage.
This is how you can compare the rate, loan amount, costs of the various mortgage lenders. This will give you leverage when negotiating for a mortgage rate.
It can give you more negotiating power because:
This exercise may help you find the right mortgage company that will offer the type of loan you need. And you are more likely to get a competitive rate.
Getting a mortgage is a long-term financial commitment and preparation is key. Paying off debts, increasing your credit score, and saving up for a down payment takes time but this will pay off in the long run and place you in a better position to negotiate your mortgage loan. Always consult with a financial advisor or a real estate agent to help you understand the often complex process of buying a home as an immigrant.