Mortgages: all you need to know

Are you a home buyer or investor looking to finance your purchase with a mortgage? Learn all you need to know about loans and the mortgage process.

Mortgage basics and terminology

A mortgage is a loan taken out by a borrower that’s used to finance their purchase of a real estate property. More specifically, a home loan is a type of mortgage that’s used to purchase a residential property. A mortgage loan is different from other types of loans because the property acts as collateral, or assurance, that the lender will get their money back. This allows the lender a greater amount of security than other types of loans. 

You’ll likely encounter a lot of real estate jargon when you begin the home-buying process and start searching for a mortgage to finance your purchase. Let’s go through some of the most common mortgage terminology before you delve into the specifics of the mortgage process, starting with general mortgage terms and then moving on to US-specific terms. ‍

General mortgage terminology

• Mortgage lender - an organization that offers and processes mortgage loans for borrowers (e.g. bank, credit union).

• Mortgage broker - a company that shops at multiple lenders and finds multiple, competitive mortgage loan offers for borrowers. 

• Down payment - the amount of money you initially pay towards the price of a home when taking out a mortgage loan, given as a percentage of the purchase price. 

• Principal - the total amount of money borrowed (the purchase price minus the down payment). 

• Interest rate - the cost to the borrower that is charged yearly for a loan, given as a percentage.

• Interest - the money that you pay back given the interest rate, or the amount of money paid back in addition to the principal. 

• Mortgage term - the amount of time that a mortgage contract is in effect and the borrower is locked into loan conditions (e.g. the interest rate) with a current lender. 

• Amortization term -  the amount of time during which the borrower agrees to repay the loan in full based on the current interest rate and payment plan, including the initial amount borrowed and the accrued interest. 

• Loan estimate - a 3-page document with information about the mortgage loan you applied for, including estimated loan costs. Sent after the mortgage application is submitted. 

• Property valuation - when a qualified professional assesses a property, estimates the market value and writes up a formal report. 

• Property appraisal - a measure of the market value of a property. Often used interchangeably with property valuation. 

• Title - ownership status of a property. 

• Title deed - a document stating who legally owns a property. 

• Title search - a search of public records and a property’s transaction history to identify the owner of a property and discover any issues with the title. 

• Title insurance - insurance provided by a title company that covers lenders, bankers, and buyers from financial loss related to defects in the title deed of a property.

• Loan-to-value ratio (LTV) - loan amount divided by the property's appraised value.

• Home inspection - examination of a home by a licensed inspector. 

• Sales & Purchase Agreement (SPA) contract - a legal contract that’s used to ensure that a transaction will occur between 2 parties. 

• Contingency - a condition specified in an SPA contract that must be satisfied before the transaction is finalized (examples here). 

• Encumbrance - a claim against a property by someone other than the owner (e.g. mortgage, easement, property tax lien).

• Notary - a public official that acts as a witness when legal documents are signed. 

• Closing - the formal process of finalizing a property transaction, including signing documents and paying closing fees. 

• Mortgage contract - an agreement between the borrower (the buyer) and the lender that lays out the terms of the mortgage loan used to finance the real estate purchase.

US-specific mortgage terminology

• Home equity - the portion of a home’s value that the owner possesses, or the value of the home minus any liens (such as a mortgage).

• PITI -  the 4 main parts of a monthly mortgage payment: the principal, interest, taxes, and insurance. 

• Pre-qualification - an initial estimate of the amount of money a lender is willing to loan you based on debt, income, and assets.

• Pre-approval - a document that gives a conditional commitment of the exact amount of money a lender is willing to loan you.

• Escrow - financial agreement where money is held by a neutral third party while 2 parties are in the process of completing a transaction before funds are transferred. 

• Loan origination - the processing of a new loan application, including financial checks and documentation review.

• Underwriting - the process to approve or deny a borrower's loan application. 

• Homeowners insurance -  property insurance that covers losses and damages to the property and the resident’s belongings.

• Private mortgage insurance (PMI) - a monthly insurance fee required if your down payment is < 20%.

• Lien - a claim against an asset that's used as collateral to satisfy a debt, such as a repayment of a loan.

• Closing Disclosure - a 5-page document with the final details about the loan, including loan terms, projected monthly payments, and other closing costs. Provided to the borrower at least 3 business days before closing. 

An overview of the entire mortgage process

US citizens and residents

Now let’s look at each step of the mortgage process for US citizens and residents in more detail.

1. Find a broker or lender 
Shop around to find a broker or lender that can provide you with a mortgage loan. Start to figure out which loan types you qualify for and which are the best for your financial situation (more on specific loan types later). 

Get pre-qualification from one or a few brokers/lenders. Pre-qualification is usually done over the phone or online and has no cost. They will look at your debt, income, and assets. 

Then, get pre-approval from the broker/lender. This requires completing an official mortgage application and submitting documents for an extensive check on your finances and credit history. You may have to pay a fee for them to run a credit report.

2. Find a real estate agent 
Talk to friends and family for referrals to real estate agents in the area where you’re looking to buy a property. Make sure that the candidates you’re considering are licensed real estate agents. It’s even better if they’re a member of the National Association of Realtors (NAR) since this requires that they pass an additional course and follow a specific code of ethics.

You may consider searching for a local real estate agent that has specific certifications or experience working with buyers in similar situations (whether that be age, residency status, financial situation, etc.). During this process, you can interview multiple agents and ask about their experience as an agent, past areas of expertise (e.g. a specific neighborhood), their typical number of clients, how long the process usually takes, their price range, and commission fees. You can also request references from their past clients and get in touch with them. 

Once you choose a real estate agent, you’ll sign a contract that specifies the length of the contract and the real estate commission the agent will receive (a percentage of the purchase price that is paid by the seller).

3. Property search
Search for properties in your desired location(s). Your real estate agent can provide support during this step as they generally have insider knowledge of specific neighborhoods. Look at online portals of properties for sale and attend open houses. Consider your intended use for the property (e.g. primary/secondary residence or investment) and the listed price.

4. Submit an offer
Once you’ve decided on a property, have your real estate agent present the seller (or the seller’s agent) with an offer. Don’t forget to account for additional costs like the closing costs (usually 2-5% of the purchase price) when deciding on your initial offer.

5. Sales & Purchase Agreement (SPA) 
Draft a Sales & Purchase Agreement (SPA) contract with your real estate agent. This is a legally binding contract that ensures that the transaction will occur. Include contingencies and make any additional requests to the seller. Present the seller with the SPA contract and negotiate to finalize the contract. Sign the SPA contract along with the seller.

Learn all about the SPA contract, sections, and procedures here.

6. Deposit money into an escrow account 
Make the initial deposit of your earnest money into an escrow account, as specified in the SPA contract.

7. Apply for a mortgage 
Secure financing for your purchase by applying for a mortgage loan. Since you aren’t obligated to use the lender that you received pre-qualification and pre-approval from, continue to shop around at different brokers or lenders to find the best loan option. 

Here are some of the documents you may need to provide for your mortgage application:

• Photo ID 

• Social security number (SSN)

• Credit score - authorization to generate a credit report 

• Proof of income 

  • Pay stubs for the most recent month

  • W-2 or 1099 forms from the past 2 years

  • Tax returns from the past 2 years

  • If self-employed, profit and loss statement (P&L) for the current year 

• 2 months of bank statements for checking, savings, investment, and retirement accounts

• Proof of other income (e.g. alimony or child support) 

• Social security benefit verification letter - more info here

• Documentation for other sources of income you want to use to qualify for a loan

• Verification of debts 

• Rental history from the last year 

• Certificate of eligibility (if applying for a specific loan type, like a VA loan) 

• Documentation about previous negative credit events

The lender will check your credit score, verify your employment and initial deposit, and calculate your debt-to-income ratio (DTI). Given that you meet the requirements to qualify for a loan, they’ll provide you with a loan estimate which includes loan information and explanations a few days after submitting your application. If you’ve applied for a loan with multiple lenders or used a mortgage broker that does this process for you, then you can compare the loan estimates to accept the best deal.

8. Underwriting/loan processing 
Underwriting, or loan processing, is when the final decision is made on whether or not to approve your loan application. A mortgage underwriter that’s working for the lender examines all the information included in your mortgage application and verifies information as necessary. 

During this process, the lender requires some additional steps. 
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The lender requires the completion of a:

• Home appraisal - learn all about property appraisals

• Title search (done by a title company) - learn all about title deeds 

They also require the purchase of:

• Title insurance - learn all about title insurance

• Homeowners insurance 

Once the underwriter has completed all checks, they will give you their decision to either accept the loan, reject the loan, or approve the loan with conditions. You can then continue along with the process or change course depending on the decision that is made. 

9. Lock in the loan 
Lock in the loan conditions and interest rate for your mortgage term with the broker/lender. This will set the interest rate for your loan with the time frame and other specifics that vary based on the type of loan and market conditions. Rate locking may also occur before the underwriting process if the borrower prefers to lock it in sooner.

10. Home inspection
Hire a trained professional to inspect the property for quality, safety, and overall condition. This will ensure that there aren’t any unexpected repairs or serious defects with the structural integrity of the property. 

You may also want to have a pest inspection done. During this, a specialist would look for the presence of wood-destroying insects. Some states legally require a home and pest inspection before a property transaction can be finalized.  

11. Remove contingencies and renegotiate 
Make sure that all contingencies outlined in the SPA contract have been met. If the home appraisal, title search, or home inspection have uncovered any issues, renegotiate for more favorable conditions if your SPA contract allows.

12. Final walk-through
Do a final check to ensure that the seller has vacated the property and that all repairs and requests outlined in the SPA contract have been completed.

13. Closing 
The closing meeting will take place either at the title company’s or an attorney’s office (some states require that an attorney oversees the closing process). The parties that must be present at closing include: the buyer, the seller, the lender, the notary, the registrar (public official that registers the mortgage agreement), the buyer’s real estate agent, the seller’s real estate agent, the guarantor (if applicable), and any other employed parties (e.g. lawyer, attorney). 

You’ll sign the closing documents, including the mortgage contract and closing disclosure. The closing disclosure is one of the main documents and lists the estimated closing costs versus the final closing costs. Your lender must provide you with the closing disclosure 3 days prior to the closing date so that you have time to understand and review the mortgage costs and terms. The title will also be transferred from the seller to you. However, the lender will hold onto the title deed until you pay your mortgage back in full.  

In addition to signing the closing documents, you are also responsible for paying a variety of closing costs. These costs vary depending on the state, the loan type, and the lender. Some of the closing costs you will be responsible for (unless negotiated otherwise in the SPA contract) include the home appraisal, title search, mortgage insurance, and origination fee. In general, closing costs are anywhere from 2 to 5% of the purchase price. 

During closing, you’ll receive the keys to the property.

14. Homeownership 
You’re now a property owner! 

All that’s left is to stay on track with your mortgage payments. The 4 main parts of your monthly mortgage payment are known as PITI: the principal, interest, taxes, and insurance. You can always consider refinancing your mortgage loan if the current payment schedule becomes unsatisfactory.

Non-resident foreign nationals

As a foreigner, you’re still legally able to purchase property in the US.  If you have a green card or a work visa, the process will be similar to the one outlined above. However, if you’re a non-resident, then the mortgage process requires a few additional steps. The pre-approval process and mortgage application will generally take longer due to additional documents required to assess your creditworthiness and verify your income. As a non-resident, you can only use a mortgage to finance a property for investment purposes.

Now let’s look at those steps of the mortgage process that are different for non-resident foreign nationals.

Find a broker or lender 
Shop around to find a broker or lender that can provide you with a mortgage loan. Start to figure out which loan types you qualify for and which are the best for your financial situation. As a non-resident, you will have fewer loan options since you’re considered a higher risk to the lender. Expect mortgage loans with higher down payments and higher interest rates (more on specific loan types for foreign nationals later). 

Get pre-qualification from one or a few brokers/lenders. Pre-qualification is usually done over the phone or online and has no cost. They’ll look at your debt, income, and assets. 

Then, get pre-approval from the broker/lender. This requires completing an official mortgage application and submitting documents for an extensive check on your finances. As a non-resident foreign national with no or limited US credit history, you have to submit additional documentation to get pre-approved. This process will likely take longer. 

You must submit:

• Passport and copies

• Letter from your current employer

• Bank statements 

• Tax returns 

• List of collateral with the property’s location and proof of the loan-to-value (LTV) ratio

Find a real estate agent 
Consider searching for a real estate agent that can give you specialized guidance, such as a Certified International Property Specialist (CIPS).

Review your tax situation 
As a non-resident foreign national, you’ll want to look into your specific tax obligations so you aren’t surprised by unexpected costs later on. If you don’t have a social security number (SSN), then you’ll need to get an Individual Taxpayer Identification Number (ITIN). Learn how to apply for an ITIN here. 

Just like all property owners, you’ll be required to pay property taxes. In addition, if you’re buying a property that will produce income, you’ll have to pay taxes on the property’s net income and taxes if you sell the property for a profit. 

Taxes will vary depending on state tax laws (the state in which you’re buying a property) and your country of citizenship as a result of varying tax treaties that countries have with the US. There may also be additional taxes depending on your specific situation, so it’s a good idea to seek out professional help from an attorney.

Property search
As a non-resident, you can only use a mortgage to finance a property for investment purposes. This includes real estate that you intend to use for vacation and rental purposes. However, you can’t get a mortgage for a primary or secondary residence.

Apply for a mortgage 
Since you aren’t obligated to use the lender that you received pre-qualification and pre-approval from, continue to shop around at different brokers or lenders to find the best loan option. 

As a non-resident that probably doesn't have an SSN and has no or limited US credit history, there are some extra documents you’ll need to provide for your mortgage application. 

Here are some of the documents you may need (all must be translated into English):

• Passport and copies

• Letter from your current employer

• Visa status 

• Individual Taxpayer Identification Number (ITIN) 

• Evidence of 2 years of consistent, continuous revenue

  • W-2 forms from the last 2 years

  • Employers for the last 2 years (names and addresses)

  • Tax returns for the last 2 years

• Pay stubs for the most recent month

• 2 months of bank statements 

• If self-employed, a profit and loss statement (P&L) for the current year

• Proof of other income (e.g. alimony or child support)

• Investment account statements (savings, retirement, brokerage, etc.)

• Proof of steady payment of bills (e.g. utility bills, rent) 

• List of collateral with the property’s location and proof of the loan-to-value (LTV) ratio

• An International Credit Report (ICR)

• Credit card history 

Which parties are involved in the mortgage?

There are many parties in addition to the buyer and the seller that are involved in the mortgage process. Let’s learn about the groups that are commonly involved, including banks, wholesale lenders, correspondent lenders, mortgage brokers, real estate agents, and title companies. We’ll also include some resources to help you discover companies and professionals that you can rely on. 

‍Banks directly provide mortgage loans to borrowers and are one type of lender. They offer a wide variety of financial services in addition to working as a mortgage lender and they finance the loans with their own money. Professionals working at the bank correspond with borrowers, provide the documentation for mortgage applications, and underwrite the loans. 

Wholesale lenders provide mortgage loans to borrowers through a mortgage broker, focusing solely on the financial side of the lending process. They only offer home loans and generally provide a wider range of loan types with fewer requirements and more options for borrowers that can’t qualify for a typical mortgage loan. They are a middleman between a mortgage broker company and a bank, meaning that you won’t interact directly with them as a borrower. To obtain a mortgage loan from them, you must work with a mortgage broker company that partners with the wholesale lender. Learn about the top wholesale mortgage lenders in the US. 

‍Correspondent lenders are initial lenders that set the terms of a mortgage loan. They sell mortgage loans to investors (known as sponsors) that then resell them on the secondary mortgage market, or they provide mortgage brokers with loans. A correspondent lender sometimes services the mortgage loans they provide but not always.

‍Mortgage brokers are companies that shop at multiple lenders and provide borrowers with various, competitive loan options. These companies typically have a network of wholesale and correspondent lenders that provide more competitive loan rates than the average lender. Since mortgage brokers rely on the lender to process loans, they can focus on customer service and providing personalized guidance to each borrower.
‍Learn about the top mortgage brokerage companies in the US.

Real estate agents are licensed professionals that help clients buy and sell real estate. The seller usually has an agent, known as the seller’s agent, unless the property is For Sale By the Owner (FSBO). Buyers also usually have an agent, known as the buyer’s agent, that helps them search for properties. Real estate agents oversee the negotiation process and usually write up the Sales & Purchase Agreement (SPA). 

‍Title companies oversee processes related to the title of the property and closing. They conduct a title search to uncover past issues with ownership of the property, provide title insurance, and finalize the mortgage. Title companies generally hold deposited money in an escrow account, prepare closing documents, and register the title deed with the county government after the transaction is finalized. Learn about the top title companies in the US.

Should I choose a broker or a lender?

Whether you’re a US citizen, resident, or non-resident, one of the first steps is choosing the right company to finance your mortgage loan. This will influence your loan options, including the type of loan, the payment schedule, the down payment, and the interest rates. You can apply for a mortgage either through a mortgage lender or a mortgage broker.  

A mortgage lender is an organization such as a bank, credit union, wholesale lender, or correspondent lender. These organizations provide mortgage loans to borrowers and finance the loans themselves, whereas a mortgage broker works to connect borrowers with loans offered by lenders in their network. Mortgage brokers not only provide borrowers with more competitive loan options but also collect your documents just once and help you apply for mortgages from multiple lenders at the same time. Generally, you’d have to go in person to visit each lender individually to apply for a mortgage loan, but a mortgage broker simplifies the process immensely. 

Especially if you’re a foreigner, a mortgage broker can guide you through the extra documentation and help you find a personalized loan program from their network of lenders.
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‍Learn more about the differences between using a broker or a lender to finance your loan. ‍

Types of mortgage loans

Since buying a property is one of the biggest purchases that most people make in their life, it’s essential to know what loan options are out there so you can find a financing situation that fits your needs. When comparing different mortgage loans you should look at: the amortization term, interest rate, and down payment. 

‍The amortization term tells you how long you have to repay the loan. Some common terms include 5-year, 7-year, 10-year, 15-year, 20-year, 25-year, and 30-year, however, it could be shorter than 5 years or longer than 30 years in some cases. 

The interest rate tells you the cost that you’ll be charged for borrowing the loan amount and is given as a percentage of the purchase price. Interest rates for mortgage loans can vary greatly since they are dependent on market conditions (such as the federal funds rate), the loan type, the lender, and your financial situation. For example, your credit score, debt-to-income (DTI) ratio, the down payment amount, and the amortization term can all affect the interest rate of your loan. Interest rates can either be fixed or variable. For fixed-rate mortgages, your principal and interest payments stay the same over the entire term. For adjustable-rate mortgages (ARMs), your principal and interest are fixed for a period of time but then can increase or decrease with market conditions over time. Fixed-rate mortgages are historically preferred by borrowers in the US since they’re less risky, although they have a higher initial rate when compared with ARMs.
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The down payment tells you the initial percentage of the purchase price you’ll have to pay to get the mortgage loan. This largely depends on the type of loan since many programs require a certain minimum down payment. 

In general, a longer amortization term will have lower monthly payments, but you’ll pay more interest in the long run. Each loan program has its own requirements, which means that not every borrower can qualify for every loan. Let’s look at the most common loan types including their purpose and requirements.

Conventional mortgages 

Conventional loans are not part of a specific government program. To qualify for a conventional loan, a borrower must have a US credit score. This means that only US citizens or residents that have a credit history in the US are eligible. There are two types of conventional mortgages: conforming and non-conforming.
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Conforming loans are the most common loan type in the US. The maximum loan amounts are set by the US government and either Fannie Mae or Freddie Mac establish the loan rules and provide backing. Fannie Mae and Freddie Mac are both federally-backed home mortgage companies that were created by Congress. Since these companies guarantee conforming loans, these loans are more affordable with lower down payments as low as 3%. However, to be eligible, borrowers must have good credit, and a stable employment and income history. Foreigners with a work visa may also be able to qualify for Fannie Mae loans, even if they don’t have US residency, as long as they have an SSN and a good credit score. 

You may have heard about the home affordable refinance program (HARP), which was a government program active from 2009-2018. HARP gave homeowners with lower home equity the option to refinance their mortgage loan to lower interest rates. To be eligible for a HARP loan, the mortgage must have been guaranteed by Fannie Mae or Freddie Mac and the borrower must have had a history of making mortgage payments on time. While HARP is no longer an active program, there are other similar, current programs such as the Enhanced Relief Refinance Mortgage from Freddie Mac. 

‍Non-conforming loans aren’t guaranteed by Fannie Mae nor Freddie Mac and are less standardized. A common type of non-conforming loan is a jumbo loan, which includes any conventional loan of an amount that exceeds the maximum loan amount for conforming loans. To be eligible, borrowers must generally have large cash reserves and good credit. They require a higher down payment of around 10-20%.

Government-insured mortgages

The most common government-insured mortgages include FHA, VA, and USDA loans. A popular type of government-backed renovation loan program is a 203K loan. 

‍FHA loans are insured by the Federal Housing Administration and are a more affordable option for borrowers with a lower credit score or those that can’t make a very large down payment. The down payment can be as low as 3.5% with lower credit score requirements in place. FHA loans have a maximum loan amount that varies by county and always requires mortgage insurance. A 203K loan is a popular type of FHA mortgage that’s often used for properties that need to be renovated. It’s meant to help low and middle-income individuals or families finance both a home purchase and the costs of renovations on a property that is in need of repair and will be their primary residence. A 203K loan has the same requirements set out by the FHA and includes an upfront mortgage insurance premium and sometimes an additional origination fee. It can only be used to cover basic types of renovations (not luxury), total construction must take less than 6 months, the borrower's DTI ratio must be less than 43%, and typically up to $35,000 can be borrowed for renovation purposes. 

‍VA loans are guaranteed by the Department of Veterans Affairs and as such are only available to veterans, current service members, and surviving spouses. They provide these groups with easier, more affordable, and more protective loan options. VA loans have low or no down payment and don’t require mortgage insurance, but have an upfront fee. 

‍USDA loans are offered by the US Department of Agriculture and are available to low and middle-income borrowers in rural areas. They have no down payment but require mortgage insurance and an upfront fee.

Refinance mortgages 

Refinance mortgages are for people that already have a mortgage on a property and want to change the conditions of their current loan. Borrowers often refinance their mortgage when interest rates in the market decrease substantially or when their economic situation changes and they need a new payment schedule. Essentially, you’re trading out a previous mortgage with a new mortgage. You don’t need to get a refinance mortgage with the same lender that provided you with your first mortgage. Some common types of refinance mortgages include HELOC and reverse mortgages. 

‍A home equity line of credit (HELOC) is when an owner borrows against their home’s equity. Home equity begins with the down payment and accumulates as a borrower makes mortgage payments; however, it can also decrease due to market changes that affect the property’s value or if the borrower takes out a HELOC. A HELOC generally has lower interest rates since the home serves as collateral and is often used to finance home renovation projects. Typical requirements include more than 15% home equity, a credit score of 600 or higher, 2 years of consistent income, and a DTI ratio of less than 40%. 

A reverse mortgage is for seniors that are 62 years or older and have more than 50% home equity. It provides cash, which you can receive in a variety of different ways, and doesn't have any monthly mortgage payments. To be eligible, the property must be kept in good condition and be the borrower’s primary residence. Unlike other loans that require monthly payments, the amount owed to a lender actually increases over time with a reverse mortgage and is usually paid back with the profit from selling the home at a later time. A reverse mortgage is an option for seniors that have a lower credit score and don’t qualify for a HELOC. The most popular type is the Home Equity Conversion Mortgage (HECM), which is an FHA loan and is also referred to as the FHA reverse mortgage. 

Renovation mortgages

There are many other types of mortgages that can be used for renovation purposes, in addition to the FHA 203K loan described above. Refinance mortgages like HELOC or cash-out loans can also be used for renovation purposes. Renovation mortgage loans vary greatly in terms of requirements (such as what types of repairs can be done) and payment plans.

Fix & flip mortgages

Fix & flip mortgages are a short-term financing option used for house-flipping, the process where an individual buys and renovates a property to resell it for a profit. It’s a small-business loan where the loan amount is usually dependent upon the after-repair value (ARV) of the property. A HELOC may also be used for house-flipping situations.

Non-qualifying mortgages 

Non-qualifying mortgages (non-QM) are mortgages that have more flexible eligibility requirements based on methods other than verification of employment. Non-QM loans aren’t required to meet federal government guidelines that are in place to ensure that borrowers can pay back their loans. Because of this, non-QM may be riskier and have higher down payments and interest rates than traditional mortgage loans. However, non-QM loans provide financing opportunities for a large variety of borrowers, especially for non-resident foreign nationals, those that are self-employed, and those with poor credit. 

‍Some popular types of non-QM loans include:

• Bank statement 

  • For self-employed borrowers or business owners 

  • Required: 2 years of bank statements 

  • Not required: W-2s and tax returns 

• ITIN

  • For borrowers that don’t have an SSN nor a US credit score (residents and non-residents)

  • Must have an Individual Tax Identification Number (ITIN)

  • Required: US source of income 

• Debt Service Coverage Ratio (DSCR) or investment property loan

  • For investors (citizens, residents, and non-resident foreign nationals)

  • DSCR - a measurement of a property’s cash flow versus its debt obligations

  • Required: the property must earn income and have a minimum DSCR (varies by lender)

• 1099 income

  • For self-employed borrowers that are business owners 

  • Required: 1099 forms 

• Written Verification of Employment (WVOE)

  • For those without tax returns

  • Required: WVOE form from the employer you’ve worked for the past 2+ years 

• Asset utilization

  • For borrowers with substantial liquid assets

  • Assets that can be used include: checking, savings, investment accounts, and money market accounts

Non-QM loans vary greatly when it comes to eligibility and required documents. These are only some of the most common non-QM loan types, but many brokers and lenders offer their own specialized programs, such as loans for foreign nationals. While non-QM loans may be the only option for foreign nationals, if you have a green card or a work visa that’s valid for 3 years or more, you can likely still qualify for many traditional loan types.

Mortgages in the US vs the rest of the world

If you’re a foreigner looking to buy a US property or a US citizen looking to buy a property abroad, it’s helpful to consider some of the main differences in the mortgage process and mortgage loans in general. Let’s take a look at real estate agents, the property search, regulations, and interest rates. 

In the US, real estate agents are typically paid for by the seller, including both the seller’s and the buyer’s agent. Elsewhere, it’s typical that the buyer and seller pay for their respective agents. As a buyer in the US, you can benefit from this by choosing the best real estate agent for your situation, regardless of their fees and/or commission. If you’re a foreigner, you can find a Certified International Property Specialist (CIPS) to give you expert advice through the home-buying process without worrying about the extra cost. You can be confident that licensed real estate agents in the US have completed the adequate training and requirements set in place by the state. Agents that are also National Association of Realtors (NAR) members are required to follow a set code of ethics. 

When searching for property in the US, there are many comprehensive listing websites, such as the Multiple Listing Service (MLS) and other local MLS systems. MLS.com America's Real Estate Portal is an independently owned and operated website where affiliated real estate professionals post property listings from across the US. It allows potential buyers to search through home listings from various agents that are on the market and ensures that the price listings are consistent no matter the buyer. Elsewhere, once you choose a real estate agent, you may be restricted to their listings and not get to see all of the options. You might need to work with multiple agents when searching for property abroad to get a better idea of the available properties. 

‍The US has more regulations than other countries when it comes to the mortgage and home-buying process. The Code of Federal Regulations (CFR) from the Consumer Financial Protection Bureau (CFPB) contains specific federal regulations regarding mortgage processes in the US, such as the real estate settlement procedures act (RESPA). The CFPB is a government agency with the main goal of ensuring that consumers are treated fairly by lenders, banks, and other financial institutions. Another important regulation is the Truth in Lending Act (TILA) which was implemented by the Federal Reserve Board’s Regulation Z. In the face of all these regulations, it can be extra helpful to enlist the help of a mortgage broker to make sure that you and the lender are following all the necessary requirements. 

We’ve already learned about the different types of loans including the difference between fixed-rate mortgages and adjustable-rate mortgages (ARMs). It turns out that countries have a dominant type of interest rate, tending towards either fixed or variable interest rates. The dominant type of interest rate in the US and UAE is fixed interest, whereas variable interest is the dominant type in Serbia.

Cross-border mortgages

A cross-border mortgage is exactly what it sounds like, a mortgage taken out from one country to finance a property purchase in another country. It can also describe when a borrower gets a mortgage in one country but receives income from another country. Cross-border mortgages typically have certain conditions regarding the loan term, interest rate, and loan amount, since these types of loans can be riskier for lenders in the face of potential political instability or changing country relations. The loan is typically offered in the currency of the country where it’s processed, which may necessitate some additional steps before finalizing the property transaction. 

Cross-border mortgages give you the option to finance your property purchase abroad through a lender in your country of residence. A mortgage broker can be invaluable during the process of getting a cross-border mortgage loan as there are often additional processes, regulations, and programs specific to each country and lender.
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International mortgage brokers

It’s clear that there are many types of mortgage loans to choose from, and differences in the mortgage process depend on the country and your citizenship/residency status. But what if you don’t know about the specifics when you're searching for a broker or a lender at the start of the home-buying process? Here’s where it’s beneficial to use an international mortgage broker, like Kredium.
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Kredium is one of the latest up-and-coming international mortgage brokers in the industry, focused on changing the digital mortgage brokerage landscape to cater to all sorts of buyers from citizens to foreign nationals across the globe. We’re partnered with lenders in many countries and US states, and offer conventional mortgages, refinance mortgages, non-QM mortgages, and more. Kredium has specialized expat and cross-border mortgages, in addition to US mortgages for citizens and foreign nationals including DSCR mortgages, ITIN mortgages, and‍ bank statement mortgages. We plan to expand our coverage to start offering FHA, VA, and USDA loans as well. 

In the US, Kredium currently has licenses in California, Colorado, Florida, Maryland, and Texas and is in the process of expanding to additional states such as Virginia, with the goal of nationwide coverage. However, for business purpose loans or investment property mortgages, we can cover 35 to 42 US states via our lender network.

‍Kredium offers brokerage services in a total of 60 countries. We have a European branch with headquarters in Belgrade, Serbia, and a Middle Eastern branch with headquarters in Dubai, UAE. The map below shows where Kredium offers mortgage brokerage services and the countries are listed by region after. We are continually forming new partnerships, with coverage in even more countries to come!
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Europe

Americas and the Caribbean 

Middle East, Africa, Asia, and Oceania 

While we specifically stand out as a leader in the cross-border and international mortgage field as very few mortgage brokers offer these services, Kredium continues to help borrowers in a large variety of situations. We also integrate property buying into our services and can help customers find a property in their desired location, such as Dubai, UAE, Belgrade, Serbia, or Montenegro. We’re committed to helping our clients with start-to-finish guidance, personalized loan offers, and time-saving services.

Offer shopping 

No matter what type of loan you’re applying for and your specific financial and residency situation, offer shopping is one of the most important things to keep in mind during the mortgage process. Once you finalize your mortgage loan during closing, you are legally bound by the mortgage contract to pay the loan back. Given the amortization term of your loan, this process could take anywhere from a few years to a few decades – a serious financial commitment! Offer shopping is the process of comparing offers from multiple lenders.  When done right, it can save you a lot of money in the long run. 

After applying for a mortgage loan, the lender will provide you with a loan estimate. While this document doesn’t detail the official conditions of the loan, it’s the best estimate of loan costs that a lender can give you before continuing with the underwriting process. These loan estimates are what you want to look at when offer shopping since you can easily compare the potential monthly payments and loan conditions that each lender will offer you. If you’re getting a mortgage loan directly from a lender, then you’ll have to go to each organization individually to drop off your mortgage application. However, if you’re working with a mortgage broker, you will only need to upload your application materials to their digital platform and they can forward your application to multiple lenders to provide you with multiple loan estimates.
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In addition to offer shopping, other best practices can help make the home-buying and mortgage processes much smoother.‍

Use a mortgage calculator 

You can use a mortgage calculator as a first step when figuring out what you can afford. By putting in a hypothetical property and potential financing information (such as the down payment, interest rate, and loan term), you can get an idea of the typical costs, conditional upfront costs, and recurring additional costs given a specific scenario. A mortgage calculator will also give you the potential payment plan (amortization plan) and can help you estimate how much rent you should charge to cover the costs of an investment property.

Get pre-approved before the property search 

While it’s not necessary to get pre-approved for a loan before you find a property, it can simplify the process. First of all, it helps you determine what properties you can afford so you can make a better-informed offer. Secondly, it shows the seller and the seller’s agent that you are serious in your consideration of a property and have sufficient financial backing. Getting pre-approved can make the mortgage application process more efficient since you’ve already gathered your documents and information. 

It’s also helpful to have your real estate agent come to property showings with you to demonstrate your intent. Try looking into points and lender credits which can allow you to make tradeoffs related to upfront fees, interest rates, and closing costs.

Going forward

This comprehensive blog about the mortgage process has covered the essential information that prospective buyers need to know, including terminology, an overview of the mortgage process (for citizens, residents, and non-residents), the parties involved, loan types, US differences in the process, international mortgage brokers, and offer shopping. You now have a much better idea of what questions to ask during the process and areas where you might need to do more research. Learn more about property appraisals, title deeds and title insurance, and the SPA and mortgage contracts. 

You also know what companies you can rely on during the mortgage process such as an international mortgage broker. Kredium has a wide variety of international mortgage and property services, as well as experience working with citizens, residents, and non-resident foreign nationals, offering start-to-finish guidance to all types of buyers. Get in touch or sign-up to start getting professional guidance at no extra cost today!
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Photo Credits: 

• Cover photo, flowcharts, and coverage map by Mina Živić | Kredium  

• Photo by rawpixel.com | freepik 

• Photo by Lucas George Wendt | Unsplash