Understanding U.S. Mortgage Calculators and How They Work

Mortgage calculators are powerful tools for anyone looking to buy a home or invest in property. They provide estimates of monthly mortgage payments, helping users plan and make informed financial decisions. But how exactly do these calculators work, and what makes them different for U.S. citizens versus international customers like Canadians? Moreover, how do the criteria used by Canadian lenders compare to those used by U.S.-based lenders like Milo?

Here’s what we’ll cover:

• How mortgage calculators work
• Differences in mortgage calculators for U.S. citizens versus Canadians/international customers
• Criteria used in Milo’s mortgage calculator
• Comparison of Canadian lenders vs. U.S.-based lenders for U.S. mortgages for Canadians

How Mortgage Calculators Work

Mortgage calculators require a few primary inputs to estimate monthly mortgage payments, including:

• Loan Amount: The amount borrowed.
• Interest Rate: The annual interest rate on the mortgage.
• Loan Term: The number of years over which the loan will be repaid.
• Down Payment: The initial payment made towards the property.

Using these inputs, the calculator applies the formula for calculating monthly mortgage payments:

Where: M = Monthly payment P = Principal loan amount r= Monthly interest rate (annual rate divided by 12) n = Number of payments (loan term in years multiplied by 12)

Differences in Mortgage Calculators for U.S. Citizens vs. Canadians/International Customers

While the basic functionality of mortgage calculators remains consistent, there are differences in how they operate for U.S. citizens versus Canadians or other international customers:

• Credit Evaluation: U.S. citizens typically have their credit scores evaluated, impacting the interest rate offered. For international customers, like Canadians, lenders such as Milo might not require a U.S. credit score but will consider other factors such as international credit history and financial stability.
• Documentation Requirements: U.S. citizens may need to provide extensive documentation of income, employment, and credit history. International customers might need to provide equivalent documents from their home country, along with proof of income and assets.
• Specialized Loan Programs: There are specialized loan programs in the U.S. designed with the foreign investor in mind. These programs do not penalize foreign investors for lack of U.S. credit history or income sources but instead evaluate them based on simpler terms such as projected property cash flow and necessary liquidity to close.

Criteria Used in Milo's Mortgage Calculator

Milo’s mortgage calculator is designed to provide accurate estimates based on several critical fields. Here’s why we require each piece of information:

• Citizenship Status: Determines the type of documents required and eligibility. Foreign national investors are not required to submit credit scores, simplifying the process.

• FICO Score: A higher credit score can lead to better interest rates, impacting monthly payments. Although a FICO score is not required for foreign nationals, it can be beneficial if they have a high score.

• Occupancy Type: Indicates if the property is for investment purposes. Affects the maximum loan-to-value (LTV) ratio.

• Property Type: Different property types can influence the interest rate, with multi-family properties potentially having higher rates.

• State: Different states have varying closing processes, and Milo serves 38 states, ensuring they can facilitate your loan.

• Purchase Price: Helps determine the maximum LTV ratio.

• Down Payment: Higher down payments can lower monthly payments and improve loan terms.

Canadian Lenders vs. U.S.-Based Lenders for U.S. Mortgages

Canadian lenders like RBC, TD Bank, and Scotiabank typically evaluate mortgage applications based on Canadian income and credit history, which can be a barrier for Canadians investing in U.S. properties. In contrast, U.S.-based lenders like Milo do not require U.S. credit history or income sources, offering more flexibility for international investors.

Canadian Banks (RBC, TD Bank, Scotiabank):

• Credit Scores: Evaluated based on local Canadian credit scores.
• Income Verification: Requires detailed income verification through Canadian pay stubs, tax returns, and employment letters.
• Loan Programs: Offer traditional mortgage products, including fixed-rate and variable-rate mortgages.
• Down Payment: Minimum down payment requirements vary based on the property value and type.

U.S.-Based Lenders (Milo):

• International Credit History: Accepts international credit history and considers other financial stability indicators.
• Documentation: Requires equivalent documentation from the borrower’s home country, including proof of income and assets.
• Tailored Programs: Offers specialized mortgage products for international investors in U.S. real estate, focusing on property cash flow and liquidity.
• Flexibility: Provides more flexibility in terms of documentation and credit evaluation for foreign nationals.

For more detailed comparisons between Milo and Canadian banks like RBC and TD Bank, you can refer to the following articles:

• Milo vs. RBC: Best U.S. Mortgages for Canadian Investors in 2024
• Milo vs. TD Bank: Best U.S. Mortgages for Canadian Investors in 2024

Conclusion Understanding how mortgage calculators work is essential for anyone considering a mortgage. They provide invaluable insights into potential monthly payments and help compare different loan scenarios. For international investors, particularly Canadians, using a specialized lender like Milo can offer tailored solutions that consider unique financial backgrounds and investment goals. Comparing Milo’s criteria with those of major Canadian banks highlights the flexibility and specialized services available to foreign nationals investing in the U.S. real estate market.

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.