Many friends who have immigrated to the United States or are planning for U.S. investment immigration have the intention to purchase property and settle down in the United States. So, is it possible to obtain a mortgage for buying a house in the United States? And how should one go about applying for a mortgage when buying a house in the United States? WorldWay U.S. immigration experts will provide you with a detailed analysis of the U.S. real estate loan mechanism for the reference of friends buying homes in the U.S.
U.S. real estate loans are divided into residential loans and commercial real estate loans. The mechanisms for these two types of loans are different, especially regarding interest rates. Currently, the review procedures for mortgage loans by various U.S. banks are much stricter than before. Obtaining a favorable loan plan and interest rate for property buyers generally depends on the following four major factors:
Good Credit
All borrowers must pass a review of their personal Social Security Number to obtain a personal credit report score from the three major credit reporting agencies. Currently, all banks will take the median value of the three reports as the credit assessment score.
This number summarizes an individual's past credit history and assesses the likelihood of the borrower making timely repayments in the future. A high credit score not only qualifies one to apply for a mortgage but also makes it possible to obtain a better loan interest rate.
Stable Income
This is the guarantee for lending. Generally speaking, monthly income should be 2.5 times the loan expenditure. The currently accepted debt-to-income ratio (DTI Ratio) is below 55% of income, but standards vary by bank. However, it can be calculated using the formula: (Loan Principal + Interest + Property Tax + Fire Insurance + All Monthly Credit Payments (from credit report records)) / Total Monthly Income ≤ 55%.
There are two benchmarks for reviewing income:
1. Stable income. Borrowers are required to have a record of continuous employment in their industry for more than 2 years;
2. Sufficient sources of income. Proof of income can be provided in the following ways:
Fixed salary: For office workers, provide 2 years of W-2 forms, reviewed based on pre-tax income;
Self-employed business owners: Receive 1099 forms, provide 2 years of tax returns, and calculate the 2-year average income based on post-tax AGI.
Proof of Assets
This is the key to ensuring a loan is approved quickly. This includes savings, checking accounts, fixed deposits, retirement accounts, and stocks, etc. The down payment and home purchase costs, plus 3 months of monthly mortgage payments, need to be proven to have been in the bank for more than two months.
In addition, any deposits outside of monthly employment income must be accompanied by a letter of explanation (LOE) regarding the source of the funds. If large deposits are remitted from abroad, the source of the funds must also be explained and proven. Usually, the remittance slip is used as the basis.
Property Value
This is the scale that determines the amount of the loan that can be obtained. Since it is a mortgage loan, the value of the collateral is crucial. Most homeowners choose loan plans with an LTV (Loan-to-Value ratio) within 80%, because if the loan exceeds an 80% mortgage ratio, additional mortgage insurance, i.e., PMI (Private Mortgage Insurance), is required.
Depending on the loan amount, the monthly premium ranges from $150 to $250. The lower the LTV, the better the loan plan and interest rate.
In addition to reviewing 2 years of W-2 income forms, 1099 forms, and personal tax returns (Tax Return), banks also require the borrower to fill out IRS Form 4506-T to obtain personal tax filing records from the IRS to verify the actual reported income. If the verified tax income does not match the income filled in the loan application form, the bank may refuse to grant the loan.
