CNC Mortgage Blog

We receive requests from persons interested in buying a home in the United States who are not US citizens. The status of a person in the United States makes different loan programs available depending on the length of stay that the person is allowed to stay in the country.

We will try to describe these options from least difficult to most difficult.

PERMANENT RESIDENT ALIENS

These people are able to apply for a loan in exactly the same conditions as any US citizen. Loans to these customers are purchased automatically by Fannie Mae and Freddie Mac. The person must show us the “green card” issued to him by the Immigration and Naturalization Service (INS). Sometimes the bank will ask for an authorization to contact the Social Security Administration ( SSA) to confirm the social security administration. These borrowers have access to all loan programs, first mortgages, second mortgages, home equity lines of credit and mortgage insurance. Borrowers must have a valid social security number.

H1B VISA HOLDERS

H1B visas are issued to international workers who come to the United States for a definite period of time. Usually between three and six years. Normally banks treat these applicants as permanent residents, in some cases they will ask to see a petition to extend the residency permit. Interest rates and conditions will be similar to those offered to US citizens. The SSA will have provided these applicants with social security numbers.

WORK PERMIT

Known as the Employment Authorization Document ( EAD) the work permit is given to students, fiancées of US citizens, foreign diplomats, special workers. Fewer banks are willing to provide a mortgage to these persons due to the short term they are allowed to stay in the country. Other banks state that they are only concerned that the person is in the US legally and will provide a mortgage under normal conditions.

FOREIGN NATIONALS

It has become very difficult to obtain mortgage financing for foreign nationals in the last year. Fannie Mae and Freddie Mac have removed those options from their offerings. Most national mortgage lenders that provided foreign national mortgages no longer offer them. Several banks in Florida still offer loans to foreign nationals who are buying property in that state. The borrower usually has to put 25% as down payment and provide proof of employment and credit in his native country. They must provide a tourist visa that allows them to visit the US and the home they buy in the US will be considered a second (vacation) home for them. It is unfortunate that this kind of financing is so restricted at this moment. Investments by foreigners at this time of a glut in the housing market and a weak dollar would open up many options to sell homes.

ITIN MORTGAGES

For many years the Internal Revenue Service ( IRS) has provided non US citizens with Individual Tax Identification Numbers (ITIN). These numbers are used by the IRS to track (and be able to tax) income from dividends, savings, commissions and other income generated in the US. The ITIN does not allow the person to live or even be in the United States, it is only a medium for tax control. Some companies however are using the ITIN to identify their customers in credit transactions and thus reporting them to the credit bureaus. A limited number of national banks offer mortgages to ITIN holders. Some banks will use the ITIN number when assigning customers checking, savings accounts and CDs. Some local and regional banks offer mortgage loans to customers with ITINs. These customers provide a history of employment, sometimes alternative credit documents ( utilities, insurance bills, retail accounts, cellular phone bills) and bank statements to qualify for a mortgage loan. At one time loans for these customers only required 3% down payment, now most programs require between 10% and 15% down payment.

Those of us who have worked for so many years in the mortgage business sometimes assume that the consumer understands our terms. This is not true. Do not be intimidated to ask for further explanation if the person you are dealing with uses terms you do not understand. They could say that “we can’t be sure of what rate you are going to get because that will depend on your fico score, your ltv and cltv, the dti and the margin over libor, or cofi for the arm and the rate we can get for the pmi”. Easy, simple isn’t it?

Ask questions if you don’t understand!!! This whole process can be scary. When you sit down at the closing table you will be presented with many documents. You probably can’t change many of them because they are standard boilerplate developed by the state. But be sure they indicate to you where they are showing your interest rate, years of the loan, prepayment penalties, future adjustments, and other pertinent information.

By the way,

FICO is Fair Isaac Company, this is one of the credit scoring companies.

LTV means loan to value, that is the amount of the first mortgage on your property divided by the value of your property.

CLTV is cumulative loan to value, the sum of the first and second (or more) loans on your property divided by the value of your property.

DTI means debt to income ratio, it is the sum of your monthly obligations  (mortgage, credit cards, student loans, car payments, insurance, real estate taxes) divided by your gross monthly income. It is expressed as a percentage.

LIBOR is the London interbank offered rate, it is the rate at which banks lend to each other on short term overnight transactions.

COFI is the cost of funds index which is an indicator of how much banks are paying for the funds from checking accounts, savings accounts and certificates of deposit (I was tempted to say CDs) to their customers.

ARM is an adjustable rate mortgage as opposed to a fixed rate mortgage. The interest rate on these mortgages can change after a predetermined period of time.

PMI is private mortgage insurance, a premium you pay in addition to the interest and principal on your loan. It is a premium because it is the payment on an insurance policy that the lending bank takes out to be sure that you do not default on the payment of your loan.

Feel free to call if you are still confused, 952 545 6769

All the business news during the past few weeks has been reporting on the situation at Freddie Mac and Fannie Mae. I just want to make a short and simple explanation of their importance and operation in the mortgage market.

Both companies are private entities, chartered by the US government to provide mortgage financing for the residential housing market.

Their function is to buy mortgages from banks, bundle them and resell them to institutions that are interested in a long term investment.

An example is probably the best way to illustrate this.

10 borrowers want to get ten loans of $200,000 each. These loans will be mortgages; they will be secured by homes.

The ten borrowers go to mortgage brokers, credit unions, banks and obtain mortgages. So these “originators” have taken $2,000,000 of their capital and lent it to homeowners. If they want to continue lending they need to replenish that money.

These “originators” endorse (sell) the mortgages to Fannie Mae and Freddie Mac for $2,000,000 plus a profit. The originators receive the $2,000,000 and can now lend that money to other homeowners.

Fannie and Freddie now have ten mortgages worth $2,000,000. With these ten mortgages they produce a document called a “mortgage backed security” (MBS) and sell it to institutions who are interested in a secure investment that will produce a steady yield over a determined period of time. These institutions do not want and are not equipped to deal with the individual borrower or even small individual banks and financial institutions.

Fannie and Freddie sell the MBS to institutions such as insurance companies, foreign governments, university endowment funds, charities, pension funds, national and foreign banks and other companies or individuals who have cash and need a secure investment with a steady income stream.

Fannie and Freddie buy one half of the mortgage loans generated in the US, hence their importance in this market. If they were to stop buying mortgages, financing for new mortgages would disappear as soon as all originators had exhausted their own financial resources.

These are turbulent times in the mortgage industry. The Federal Reserve Bank would like to raise interest rates to control inflation but that would not be good for a sluggish economy. The slow housing market would also be negatively affected by an increase in mortgage interest rates.

There has been a restriction in available credit in general. But these problems should not have a great effect on the average borrower with acceptable credit and some equity (5%) either in their house to refinance or to put as down payment.

Jumbo loans ( over $417,000) have become more expensive and there are fewer banks interested in these loans. 30 year fixed rates on jumbos are high, it might be a time to consider a lower three year or five year arm and gambling on the drop in rates for fixed jumbos in the future.

The shrinking credit market means that you should consider using a mortgage broker rather than going to a single institution so that you can have more options available.

Have a great week.