The U.S mortgage process for international investors

Navigating the path to securing a mortgage in the United States can seem like navigating through a maze, especially for international investors stepping into the American real estate market for the first time. With an array of mortgage options available, the process requires assembling numerous documents and understanding the financial implications of your investment.

However, this journey can be demystified and managed by breaking it down into manageable, sequential steps. Typically, prospective homeowners encounter six main phases: obtaining pre-approval, searching for the perfect property, applying for a mortgage, undergoing loan processing, moving through underwriting, and finally, closing on the property.

This article aims to simplify each of these stages, providing a clear roadmap for international investors looking to grasp the U.S. mortgage process from start to finish.

Should I get Pre-qualified or Pre-approved?

In the initial stages of the U.S. mortgage process, understanding and obtaining pre-qualification and pre-approval are critical steps for international investors. Pre-qualification is a preliminary evaluation of your financial standing, giving you an estimate of how much you might be able to borrow based on the financial information you provide. It's a quick way to gauge your mortgage potential without undergoing a thorough credit check. This is distinct from pre-approval, which is a more comprehensive review of your financial history and creditworthiness, leading to a conditional commitment from a lender for a specific loan amount. While pre-approval is a stronger indicator of a buyer's ability to secure financing and is highly regarded by sellers, obtaining it traditionally through banks can be time-consuming, often taking several days.

For those looking to streamline this process, Milo offers a convenient solution. With an online pre-qualification tool, Milo enables investors to swiftly generate a letter in under five minutes, demonstrating their seriousness to sellers without the wait. Additionally, Milo’s calculator is an excellent resource for those at the very beginning of their property investment journey, providing quick estimates on borrowing amounts and anticipated rates. These tools not only save time but also empower investors with the information they need to navigate the property market effectively, making them invaluable resources in the preparatory phase of property investment.

Find a Property

Finding the right property in the U.S. as an international investor involves deciding whether to conduct the search independently or to engage the services of a real estate agent. Searching independently allows investors to move at their own pace and directly engage with listings, utilizing online marketplaces like Zillow or Redfin which offers a wide array of property options and detailed information, potentially saving on agent fees. This route can be beneficial for those who prefer a hands-on approach and have a clear idea of what they're looking for. However, navigating the U.S. real estate market from abroad can be challenging due to geographic and regulatory unfamiliarities.

Working with a real estate agent, on the other hand, offers distinct advantages, especially for international investors. Agents provide valuable local market insights, handle negotiation complexities, and guide you through the regulatory and legal aspects of buying property in the U.S. They can tailor property searches to your specific investment criteria and provide access to listings that may not be widely advertised.

When it comes to making an offer, the process includes submitting a written proposal along with earnest money—a deposit showing the buyer's good faith and intention to complete the purchase. This deposit is typically held in an escrow account and applied to the down payment or closing costs upon successful closing. The inclusion of earnest money and the negotiation terms of the offer are critical steps where having a knowledgeable agent can prove invaluable, ensuring that your interests are protected throughout the purchase process.

Apply for a mortgage

When seeking a mortgage in the U.S., foreign nationals, including Canadians, often consider starting with their local banks, which might offer specialized U.S. mortgage programs for international investors. Although this route may seem straightforward due to existing banking relationships, the available program options are usually quite conservative and limited. This restricts flexibility and could make qualifying for a mortgage more challenging for those looking to invest in U.S. real estate from abroad.

Alternatively, working with a mortgage broker or choosing a direct lender can offer broader options and potentially more favorable terms. Mortgage brokers serve as intermediaries, comparing rates and terms across various lenders to find the best fit for the borrower's needs, which can be particularly advantageous for foreign nationals unfamiliar with the U.S. market. Direct lenders, on the other hand, provide mortgages directly, which may lead to faster processing times and more direct communication during the loan application process. Both options present viable alternatives to traditional banking routes, allowing for a tailored approach that can meet the unique needs of international investors.

At Milo, we understand the specific challenges faced by international investors and have designed our services to address these needs directly. Our entire mortgage process is conducted online, from application to document verification, making it possible for most closings to happen remotely, depending on the property's location. This streamlined approach not only facilitates faster underwriting through technology but also removes the need for U.S.-specific documentation, though a U.S. account is required to close. With Milo, foreign nationals can expect:

• Pre-qualification in minutes, offering immediate insights into borrowing capacity and preliminary rates.
• Conditional approval within days, depending on the chosen program, through our efficient document verification process.

What documents will I need to apply for a U.S mortgage? For those applying for a mortgage, your lender will serve as your guide but here are the typical documents you might need:

Employment (If applicable)

• Name of current employer, phone, and street address
• Length of time at current employer
• Position/title
• Salary including overtime, bonuses, or commissions

Income

• Paystubs (some lenders require up to two years)’
• 12 months of bank statements (if self-employed)

Assets

• Bank accounts (savings, checking, brokerage accounts)
• Real property
• Investments (stocks, bonds, retirement accounts)

Debts

• Current mortgage
• Liens
• Alimony
• Child support
• Car loans
• Credit cards
• Real property

Property Information

• Street address
• Expected sales price
• Type of home (single-family residence, condo, etc.)
• Size of property
• Real estate taxes (annual)
• Homeowner’s Association dues (HOA)
• Estimated closing date
• Occupancy type

Credit History

• Bankruptcies
• Collections
• Foreclosures
• Delinquencies

This documentation helps lenders better understand your financial situation, enabling them to provide the most accurate and beneficial mortgage options for your investment in the U.S. real estate market.

Loan Processing

During the loan processing stage, international investors can anticipate a detailed review of their financial information and the property in question. This phase is where the lender verifies all the documentation you've submitted to ensure accuracy and completeness. For international investors, this might involve additional scrutiny of foreign income, assets, and credit history to meet U.S. lending standards. The process includes appraising the property value to confirm it aligns with the loan amount requested and conducting a title search to ensure there are no legal issues that could affect ownership. It's a critical step where the speed and efficiency of the process can vary significantly depending on the lender's familiarity with handling foreign investments. At Milo, we leverage technology to streamline these checks, aiming to make this phase as smooth and swift as possible for our clients, acknowledging the unique nuances of international financial profiles.

The Underwriting Process

The underwriting process is where the lender assesses the risk of lending to the borrower and decides whether to approve the mortgage application. For international investors, underwriters pay particular attention to the stability and legality of income sources, the integrity of the property being financed, and the investor's overall financial health. This involves a thorough evaluation of the loan application against the lender's criteria, including loan-to-value (LTV) ratio, debt-to-income (DTI) ratio, credit history, and the property's appraisal value. Given the complexity of evaluating foreign income and assets, underwriters at Milo utilize advanced algorithms and a deep understanding of international markets to accurately assess risk and make informed decisions. This meticulous approach ensures that the process is both fair and comprehensive, paving the way for a smooth transition to property ownership in the U.S. for our international clients.

Close on the property

Closing on a property in the U.S. signifies the final step in the home buying process, culminating in the transfer of ownership from the seller to the buyer. This stage involves a series of important actions: reviewing and signing legal documents, including the mortgage agreement, the deed of the property, and a number of other necessary paperwork to finalize the purchase. For international investors, the closing process also presents an opportunity to settle any remaining financial transactions, such as paying closing costs, which typically range from 2% to 5% of the home's purchase price. These costs can encompass a variety of fees, including but not limited to loan origination fees, title insurance, appraisals, and legal fees. Given these expenses, it's crucial for international investors to have a clear understanding of the closing costs involved and budget accordingly to ensure a smooth completion of the property acquisition.

While the traditional expectation might be for buyers to be physically present at closing, many lenders, including Milo, offer alternatives that cater to the needs of international investors. Remote closing options, utilizing electronic signatures and online document processing, enable investors to finalize their purchase without needing to travel to the U.S. However, it's important for international clients to note that, despite the possibility of remote closing, the majority of lenders will require them to possess the appropriate travel documentation, ensuring they have the ability to legally and freely access their investment property for at least six months post-closing. This requirement underscores the importance of planning and ensuring all necessary legal documentation is in order, facilitating not just the acquisition of the property but also the ability to visit and manage the investment as needed.

The bottom line

In navigating the U.S. mortgage process, international investors are presented with a series of well-defined steps, from pre-qualification to closing. Understanding each phase, from the documentation required to the specifics of loan processing and underwriting, is key to a successful property investment in the U.S. For those looking to streamline this journey, leveraging the expertise and digital solutions offered by lenders specialized in servicing foreign nationals can make all the difference. With tailored tools and processes designed to accommodate the unique needs of international investors, including the possibility of remote closing, the dream of owning U.S. property becomes an accessible reality, ensuring a smoother, more efficient path to closing.

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.