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Mortgages In The USA
Find out everything you need to know to get a mortgage in the USA.
Owning a home is part of the American Dream, and this also extends to many UK nationals looking for a mortgage to buy property in the US.
In this article we’ll look at how to get finance to buy a house in the USA, how the mortgage market differs from the UK, and why the shrewd move to find the best deal is to seek advice from a broker who specialises in US mortgages.
Can UK residents get a mortgage in the USA?
Yes. It’s very common for people from overseas to buy property in the States using an overseas mortgage. And many borrowers are able to complete in less than two months provided they are properly prepared before applying.
How do mortgages work in the USA?
The options available to you when it comes to mortgages to buy property in America are:
- Remortgage a property you already own to raise funds for a cash purchase
- Get a mortgage with an international lender
- Borrow from a US mortgage lender
None of these options are objectively better than the others. Your individual circumstances will determine which is right for you. So, it’s advisable to get expert help from someone with in-depth knowledge of overseas mortgages for buying property in America.
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Eligibility and deposit requirements
The rules and eligibility criteria vary from one state to another. This means that it’s impossible to provide a simple set of rules that cover all possible scenarios and borrowing options.
However, broadly speaking, the main eligibility factors are:
- Affordability – US lenders typically look for a debt-to-income ratio below 29%, with the top end for approval with an otherwise strong application being around 43%.
- Age – Most lenders in the US have an age cap of 75 when the loan expires. Older borrowers may still be able to borrow but will usually need to find a lender who looks at applications on a case-by-case basis. Retirees can submit Individual Retirement Accounts or a 401k plan to prove income with some lenders.
- Employment status – Self-employed are more likely to get approved by specialist lenders as most mainstream banks are concerned about potentially fluctuating income. Typically, self-employed applicants will need to provide a minimum of two years accounts and three months bank statements.
- Creditworthiness – A US credit rating is preferable, but some lenders will apply for an international credit check if you don’t have at least two years of US credit history.
Lending criteria and necessary documentation also vary depending on whether you have a Green Card or not.
Permanent residents
If you’re a British expat with a Green Card, you basically have the same borrowing options as US citizens.
To apply for a mortgage, you will need to provide:
- Two years of W-2 forms (this is similar to a P60 in the UK)
- Your most recent payslip (sometimes referred to as a pay stub)
- Your social security number
Green Card holders can apply for a Federal Housing Administration (FHA) mortgage. These are designed for borrowers who struggle to obtain finance from a private lender and a 3.5% deposit is usually enough.
Non-permanent residents
If you don’t have a Green Card, you may need to provide proof of your work status to satisfy lenders that you are there for the long term. Typically, this is a work visa or Employment Authorization Document and your social security number.
As a non-permanent resident, you can expect to need a deposit amount of between 20% – 30%.
It’s not impossible to get an FHA mortgage without a Green Card, but there are more hoops to jump through. For example, you will need to prove your intention to use the property as your permanent residence.
Interest rates tend to be higher too. If you have savings or assets that can be used to raise cash for a larger deposit, you may be able to get a better deal. This is because a lower loan to value (LTV) reduces the risk to the lender.
How to get a mortgage in the US
Prior to the financial crash, most American mortgages were taken out over fixed terms of 25 – 30 years. In recent times, however, 5-year and 10-year fixed rate mortgages have become more common.
While the application process will differ slightly according to state laws, lender criteria and your method of borrowing, generally speaking it is similar in all states:
Decide on a location
This will be largely determined by your reason for buying. If you are looking for a mortgage for a holiday home in the US, you might consider California or Florida. If you’re buying an investment property in America, you may want to research up and coming areas to maximise your return.
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How much could you borrow?
If you’re using a lender based in the US then the amount you can borrow works slightly differently than the UK. US lenders use the proposed mortgage repayment, based on the amount you’re looking to borrow as a percentage of your gross income. In most cases a lender would want this repayment to be between 28%-36% of your overall gross income.
UK based lenders will use a multiple of your yearly income – typically around 4-4.5 times annual salary – as a guide to how much you can borrow. So, the amount you can borrow will largely depend on which lender you’re planning to use and how you’re looking to raise the finance.
Which lenders offer American mortgages?
Most UK lenders allow you to remortgage to raise funds to buy property overseas. LTVs of up to 85% are available with some lenders. This includes major high street names such as Santander, Halifax and TSB.
HSBC has a range of mortgage products specifically aimed at expats living in the US, while Chase has a team dedicated to supporting expats based in America.
Both Bank of America and Citibank have mortgage products aimed at international buyers.
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How does buy-to-let work over there?
In America, buy-to-let is known as buy-to-rent. With a booming rental market across the pond, lots of investors are looking at mortgages to buy rental property in the US. As such, there are lots of lenders willing to help fund those investments.
Rates tend to be higher than for residential mortgages and you can expect to need a deposit of at least 30%.
The biggest concern for lenders is affordability. So, there is no reason you can’t get a mortgage in America while living in the UK, provided you can show you can manage the repayments.
The documentation required varies according to lender and location but is very similar to that for a residential mortgage in the US. Mortgage providers may want to know about your experience as a landlord, though. If you’re a buy-to-let landlord in the UK, be prepared to show your accounts.
Get matched with a broker who specialises in American mortgages
When it comes to international money lending, the need to seek expert advice cannot be overstated. It’s the only way to ensure you get the best deal on an American mortgage and comply with all legal responsibilities.
In addition, it will give you confidence that everything has been handled in accordance with the rules and regulations of overseas borrowing.
And remember, your broker is on your side. If there is anything you don’t understand or need clarified, you can be upfront and ask them without fear of weakening your position.
We work with brokers who have expert knowledge of overseas mortgages and the US housing market. When you contact us, we will assess your circumstances and then pair you up with a broker who has a track record of securing the best deal for people just like you.
To get matched with your ideal broker call on 0808 189 2301 or enquire online.
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!
Pete Mugleston
Mortgage Advisor, MD