Buying a Home When You're Not a U.S. Citizen
Immigrants are having a significant impact on the U.S. housing market. According to the Research Institute for Housing America, immigrants accounted for nearly 40% of the net increase in U.S. homeowners from 2000 to 2010. Meanwhile, the same group estimates that U.S. homeownership rates among Latino immigrants will hit 50% by the year 2020.
Overall, the number of immigrant homeowners is still relatively small, representing only 11.2% of owner-occupied homes in 2014, according to the Joint Center for Housing Studies. Even so, that's up from 6.8% 20 years earlier.
So immigrants are clearly buying homes. But what sort of obstacles and challenges do they face that native-born homebuyers do not?
There are no legal barriers to foreign nationals buying property, owning homes or obtaining loans in the U.S.
Foreign investors buy U.S. property and do business with U.S. banks all the time -- getting a mortgage and buying a home is simply more of the same, on a smaller scale.
"Residency of any kind is not a requirement for home ownership in the U.S.," said Jason Madiedo, president of Alterra Home Loans, in Las Vegas. "The challenge for the consumer is to gain financing."
Documenting Foreign Financial Info Can Be a Challenge
For a legal immigrant with an established employment and credit history in this country, the process of buying a home is much the same as it is for a citizen. However, there are still certain challenges that non-citizens may face when seeking to buy a home in the U.S. that native-born borrowers are unlikely to encounter.
"It becomes a little more difficult for a foreign national to buy an owner-occupied property unless they're here with a job in the U.S.," said Bill Ashmore, president of IMPAC Mortgage in Irvine, California. "The longer somebody's here and the more they can document their income through tax returns, the better off they are."
Even if they've established themselves professionally and financially in their home countries, recent arrivals may find it challenging to get a mortgage in the U.S., Ashmore said.
One of the major reasons is because the information needed to document income and credit is coming from abroad. That means the information may need to be translated into English, or may be in a different format or based on different conventions than American bankers are used to -- for example, there will be no W-2s for earnings abroad.
There's also the matter of verifying the validity of information provided by unfamiliar individuals or institutions.
"Are you going to accept the profit and loss statement of the accountant?" he asked.
As a result, many foreign nationals tend to simply pay cash for home purchases, which Ashmore termed the "path of least resistance."
That's not to say that foreign financial information can't ever be used in obtaining a mortgage from a lender in this country. Ashmore said his company is developing a program in cooperation with about 25 foreign banks to enable borrowers to document assets abroad. However, potential borrowers would need to have accounts with a participating bank to benefit.
Alternative Measures of Credit, Income Sometimes Needed
Non-citizen homebuyers tend to fall into two groups, according to Madiedo, who is past president of the National Association of Hispanic Real Estate Professionals. The first group, he said, are affluent foreign nationals with the financial resources to buy property in the U.S. and the ability to come and go as they wish.
The second, he said, are the ones who come here seeking work and opportunity, people he calls "the type that this country was built on."
"These folks have a much harder time obtaining financing," he said.
The way some immigrants handle their finances is part of the issue, Madiedo said, given that some prefer to do their transactions in cash. As a result, they don't build a credit history. (If you want to see if you have a credit history, you can check your free annual credit reports through AnnualCreditReport.com, and you can check your free credit report summary every month on Credit.com.)
"What we run into is, number one, a thin-credit or no-credit situation," he said. "Many immigrants tend to be credit-adverse, which limits their options."
For borrowers who haven't established traditional credit, some lenders will use alternative methods of qualifying them for a loan, such as looking at rent payments, or phone and utility bills. But doing so is more labor-intensive for the lender and the loans carry higher interest rates than those done with conventional underwriting.
Another issue that sometimes arises with immigrant families is that many people may contribute to the household income, rather than the one- or two-earner households that lenders are more accustomed to evaluating.
"One of the challenges we're seeing from an underwriting perspective is the multigenerational family," Madiedo said.
In such a household, you may have grandparents, parents and children all working and contributing to the loan payment. Documenting all that income, and proving that everyone will be an occupant in the home, is a challenge in today's lending environment, Madiedo said.
Not all lenders will be willing to go through the extra steps needed to underwrite such loans, although Fannie Mae, Freddie Mac and the FHA do have certain loan products that accept both nontraditional credit and varied income sources.
"The key for consumers is to be working with the right lender who understands their cultural nuances and packages the loan into whatever (product) works for them," Madiedo said.
Nonpermanent Residents Can Still Get Loans
Another type of immigrant borrower is one who does not have permanent residency (green card) status, but who has come to the U.S. on a temporary visa because he or she has special professional skills that are in demand.
From a lender's perspective, one concern with such borrowers is how long they will be able to remain in the country. As such, they may need to provide a statement from their employer/sponsor attesting to the expected duration of their employment, Ashmore said.
Both Fannie Mae and Freddie Mac offer mortgage programs that are available to nonpermanent residents from other countries who are here on a temporary work visa (H1B or H2B). Down payment requirements are higher than the minimums allowed on other Fannie and Freddie loans, however, and other restrictions may apply.
Nonpermanent residents from other countries may also be able to go outside of the Fannie/Freddie structures for what are called non-agency loans, which have fewer restrictions but also have higher interest rates and higher down payment requirements.
What About Undocumented Immigrants?
What about undocumented immigrants? Many are surprised to learn that even in that situation, it's still possible to get a mortgage and buy a home.
A standard loan application will require the borrower to provide a Social Security number and indicate their citizenship or residency status. But those requirements aren't established by law -- those are requirements imposed by the agencies backing those loans, such as Fannie Mae, Freddie Mac or the FHA. And there are certain types of non-agency loans that don't have those requirements.
For some loans, a borrower may use what is called an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number. This is an alternative form of taxpayer identification that is issued to foreign nationals working in the U.S. who are ineligible for Social Security.
Lenders themselves aren't equipped to check a person's immigration status -- Ashmore said that if a person has their financial and credit information in order, the lender really doesn't have a way of knowing what their immigration status might be.
"If somebody's going to come to me, I'm not going to check that their driver's license is right, I'm going to do a fraud check," he said. "It's more documenting your ability to repay, rather than whether you're illegal or not," he said.
ITIN mortgages aren't widely available, and are generally offered by small community lenders who are willing to put in the extra effort needed to underwrite them, according to Madiedo. Interest rates typically run about two to three percentage points above what someone would pay on a conventional 30-year loan, he said.
Madiedo said that undocumented immigrants who obtain mortgages tend to be dependable borrowers with low default rates. They also tend to keep their loans for a long time, being less likely than other mortgage borrowers to refinance to a lower rate or sell the property before the note is paid off.
"The loans perform extremely well, so it's a good investment opportunity," he said.