ITIN Mortgages: Making Homeownership Possible for Non-citizen Residents

In the United States, a significant development has been emerging in the mortgage market that has the potential to empower the dream of homeownership for millions of non-citizen residents. For them, this dream has always been elusive due to entrenched financial barriers and regulatory restrictions. However, with the introduction of Individual Taxpayer Identification Number (ITIN) mortgages, newfound opportunities for homeownership are surging among this group. In this article, we examine both the advantages and challenges of ITIN for non-resident. We also cover the ITIN mortgage loan impact on borrowers, lenders and the broader housing market.

According to the Urban Institute, Latino households are expected to drive 70 percent of net homeownership gains through 2040, and they also comprise most current ITIN borrowers. Most of them are hardworking, blue-collar tradespeople who work in the construction industry or as journeymen electricians, plumbers, and landscapers. Another significant group works in the hospitality industry, primarily in restaurants or hotels.

According to the Filene Research Institute, there are 21 million underbanked customers in the U.S. and the same report states that there were over 3 million ITIN applications between 2019 and 2021. However, despite these substantial numbers, the IRS estimates that only 5,000–6,000 ITIN mortgages were made in 2023, though the report also states that this number could rise to 73,000 to 88,000 if market barriers were removed.

ITIN Mortgage

Individual Taxpayer Identification Numbers (ITIN) are issued by the Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but may not be eligible for a Social Security number. Typically, these individuals include non-citizen residents, foreign nationals residing in the U.S., or individuals with certain visa statuses.

It is necessary to note that the official individual documentation and officially recorded entry or presence in the United States is a must for this type of mortgage.

Utilizing their ITIN, these borrowers can apply for a mortgage loan from a qualifying lender to purchase a home. Because they are usually unable to verify their income and creditworthiness via traditional documentation such as W-2 forms and credit scores, alternative documentation is generally required.

Additionally, mortgage lenders who offer ITIN mortgage loans often have their own lending criteria that applicants must meet, and those terms and conditions may vary. Therefore, it is incumbent on individuals who are considering this type of loan to thoroughly research lenders to understand the risks and requirements associated with these mortgages. Consulting with an experienced lender who offers ITIN loans or a knowledgeable mortgage broker can help navigate this process.

Though specific terms and conditions may vary from lender to lender, here are some advantages and disadvantages of the ITIN mortgage loan program:

ITIN Mortgage Advantages

• Access to Homeownership. For those individuals who are not eligible for Social Security numbers, ITIN mortgages create a pathway to homeownership. This allows non-citizen residents the opportunity to achieve the security and wealth-building benefits that are derived from owning a home.
• Building Credit History. Individuals lacking Social Security numbers have a difficult time establishing a credit history in the U.S. Timely mortgage payments contribute to a positive credit score, which can lead to additional financial opportunities, such as car loans or credit cards.
• Housing Market Diversity. ITIN mortgages foster a more diverse group of homebuyers. This inclusivity can stimulate housing demand and bolster market expansion and innovation. It also encourages developers to meet the housing needs and preferences of a more varied demographic.
• Community Stability. Homeownership promotes stability within communities. Homeowners are more likely to invest in their neighborhoods and contribute to the local economy. ITIN mortgages encourage non-citizen residents to become stakeholders in their communities, promoting social assimilation and cohesion.
• Economic Benefits. By facilitating homeownership among undocumented individuals, ITIN mortgages can accelerate economic growth and vitality. It creates jobs in construction and related industries, promotes consumer spending, and strengthens the overall economic well-being of communities.

ITIN Mortgage Disadvantages

• Limited Availability. Though access to homeownership became larger with the introduction of ITIN mortgages, this loan product is still relatively scarce. Not all lenders offer ITIN mortgages and eligibility criteria can be restrictive, constraining the options available to potential borrowers.
• Higher Interest Rates and Fees. There is a perceived greater risk associated with lending to individuals without SSNs, which results in higher loan interest rates and fees. This can increase the long-term costs to borrowers, making homeownership less affordable and feasible.
• Rigorous Documentation. Lenders that offer ITIN mortgages may impose rigorous documentation requirements to reduce their risk. Applicants may be required to provide extensive proof of residency, income, and tax compliance, which can be onerous for undocumented individuals with irregular income streams and non-conforming documentation.
• Susceptible to Economic Fluctuations. During economic downturns and fluctuations in the housing market, non-citizen residents have been particularly vulnerable to disruptions. They may face heightened risk of foreclosure or default on ITIN mortgages, leading to housing instability and financial hardship.
• Legal Uncertainty. Immigration policy in the United States is subject to change, creating an environment of legal uncertainty for non-citizen residents seeking homeownership. Government policies or enforcement standards could shift, potentially impacting lending practices, eligibility criteria, or even the availability of ITIN mortgage loan products.

Potential Size of ITIN Mortgage Market

Despite some inherent risks in the ITIN mortgage market, this loan product is gaining traction, though the numbers are currently quite small, especially in comparison to conventional loans. Still, given the sluggishness of the present mortgage market, originators of all kinds have a growing enthusiasm for ITIN mortgage loans, primarily due to their future potential.

In addition to their future potential, lenders are embracing ITIN mortgages because the origination process is relatively uncomplicated, and the costs are equivalent to other loan products. They are also generally safe and have the capacity to deliver higher yields. Finally, closing times can be just as fast as a conventional loan, if not faster.

One major barrier for lenders is the lack of a significant secondary market for ITIN loans. The government-sponsored enterprises Fannie Mae and Freddie Mac do not typically buy ITIN loans, and the Federal Housing Administration does not insure mortgages if the borrower cannot prove legal U.S. residency. Modifying these policies can bring much-needed liquidity to the ITIN mortgage market and persuade more lenders to participate.

Another hurdle for both borrowers and lenders is the presence of language barriers. Experienced ITIN mortgage lenders are addressing these concerns by employing bilingual loan officers and providing documentation in an applicant’s native language.

ITIN Mortgage Requirements

Borrowers who apply for an ITIN mortgage may have to meet certain requirements and conditions that differ from conventional mortgage loans. While specific conditions may differ among lenders, here are some common factors a borrower can expect:

• ITIN Verification. Lenders will verify the validity of a borrower’s ITIN. It must be current and active before applying.
• Creditworthiness. Lenders will assess a borrower’s creditworthiness, even if they don’t have a traditional credit history. They may consider alternative credit data, such as rental payments, utility bills, and other non-traditional sources.
• Income Verification. Borrowers will need to provide documentation that verifies their income, such as pay stubs, tax returns, bank statements, or other income sources.
• Employment Verification. Lenders will verify a borrower’s employment status to ensure that they have a reliable source of income to repay the mortgage.
• Proof of Residency. Borrowers will need to provide proof of their current residency, such as a valid driver’s license, utility bills, or rental agreements.
• Debt-to-Income Ratio (DTI). Lenders will assess a borrower’s Debt-to-Income ratio, which compares their monthly debt obligations to their income. Generally, a lower DTI ratio is more favorable to lenders.
• Down Payment. Compared to traditional mortgage loans, ITIN mortgages may require a higher down payment amount.
• Interest Rates. Interest rates for ITIN mortgage loans may differ from traditional mortgage rates, and they may be higher due to the perceived risk associated with limited credit history.
• Loan Amounts. Some ITIN mortgage programs may place limits on the maximum loan amount an ITIN borrower can receive.

While ITIN mortgages accommodate borrowers without an SSN, the requirements may still vary among lenders. ITIN borrowers must research different lenders, review all loan offers, and understand all the fees and costs involved.

Conclusion

Challenges such as limited availability, higher costs, and legal uncertainty underscore the need for continued advocacy, innovation, and policy support to ensure equitable access to homeownership for all individuals, regardless of their immigration status.

However, ITIN mortgages represent a significant step towards inclusivity and empowerment for non-citizen residents seeking homeownership in the United States. By providing access to financing and the opportunity to build credit, ITIN mortgages provide tangible benefits to borrowers and contribute to the diversification and vitality of the housing market.