Do’s and Don’ts of Applying for a U.S. Mortgage

For international investors seeking U.S. mortgages, whether it’s a full documentation or cash-flow-based loan, preparation is key. Lenders like Milo offer tailored mortgage solutions with flexible terms, but understanding the do’s and don’ts in the months leading up to your application can help secure the best deal. Here’s a breakdown of essential steps for full-doc and DSCR (Debt-Service Coverage Ratio) loans, along with general tips for preparing for your U.S. mortgage.

Do’s and Don’ts for Full-Doc (Income-Based) Mortgages

A full-documentation mortgage involves a comprehensive review of your income, assets, and financial profile. For international investors, the emphasis is often on credit history rather than a U.S. credit score. However, if you are a U.S. citizen or resident, your credit score will also be considered.

Do’s:

1. Organize Financial Documents: Prepare and verify your income statements, tax returns, and asset records. Lenders will typically ask for at least two years of financials.
2. Maintain Consistent Income: Keep your income steady. This is especially important for self-employed borrowers, where stable business earnings can strengthen your application.
3. Reduce Debt: Lowering your debt-to-income (DTI) ratio by paying off small debts will improve your standing with lenders.

Save for a Larger Down Payment: International investors often need a down payment of 25-30%, so make sure you have the necessary funds.

Don’ts:

1. Don’t Change Jobs: Lenders prefer income stability. Avoid switching jobs or making significant income changes before applying.
2. Don’t Take on New Debt: Large purchases or new loans can negatively affect your DTI and mortgage application.
3. Don’t Neglect Your Credit History: Ensure your credit history in your home country is solid. U.S. citizens should aim to keep their credit score as high as possible and avoid any actions that may lower it.

Do’s and Don’ts for Cash-Flow-Based (DSCR) Loans

Cash-flow-based loans, such as DSCR loans, focus on the property’s income potential rather than your personal income. Milo specializes in these loans, offering flexible terms tailored to international investors. While these loans involve less scrutiny of your financial profile, it’s still essential to prepare carefully.

Do’s:

1. Choose Properties with Strong Rental Comps: Select properties in neighborhoods with strong rental comparables (comps), as lenders will evaluate the area to determine potential rental income.
2. Build Cash Reserves: Some lenders may require several months of reserves to cover mortgage payments in case of vacancy or unexpected expenses. 3.** Work with Specialized Lenders**: Rather than a general lender, work with one that understands international investors and DSCR loans. Milo has the experience to guide you through the process efficiently.
3. Understand Market Trends: Pay attention to market conditions in areas like Miami, New York, and Los Angeles, where rental demand remains high.

Don’ts:

1. Don’t Overestimate Rental Income: Be realistic about the income potential. Lenders will compare your estimates with market data, so inflated figures can harm your application.
2. Don’t Ignore the DSCR Calculation: Some lenders, including Milo, will work with you even if your DSCR is below 1. A DSCR less than 1 means the rental income doesn’t fully cover mortgage payments, resulting in higher interest rates due to the increased risk.
3. Don’t Forget About Property Management: International investors need a reliable property management plan to ensure consistent rental income. Have this in place before applying.

General Do’s and Don’ts (12, 6, and 1 Month Out)

12 Months Out:

• Do: Review your financial situation and ensure all documents (tax returns, income records) are in order.
• Do: Begin saving aggressively for your down payment and reserves.
• Don’t: Apply for new credit or take on additional debt that could negatively affect your financial profile.

6 Months Out:

• Do: Get pre-qualified with a specialized lender like Milo. This will help you understand what you can afford and which mortgage options suit you best.
• Do: Narrow down your property choices and research the local rental markets to find properties with strong comps.
• Don’t: Make any large financial changes, such as job shifts or significant purchases.

1 Month Out:

• Do: Finalize all necessary documents and ensure everything is in order for the application process.
• Do: If possible, lock in your mortgage rate within the month leading up to your closing. Rates fluctuate, and locking within a shorter window helps secure a favorable rate.
• Don’t: Delay your application. The process can take time, so make sure you’re ready to proceed when you find the right property.

In Summary

Securing a U.S. mortgage as an international investor takes thoughtful planning and preparation. Whether you’re going for a full-doc mortgage or a DSCR loan, following these do’s and don’ts will position you for success. Working with a lender like Milo, who understands the unique needs of international investors, can help you navigate the process efficiently and secure favorable terms.

By taking a proactive approach and preparing in advance, you’ll be better equipped to make the most of your U.S. real estate investment opportunities.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.