Immigrants can be very good for housing
California is home to an estimated 2.6-2.8 million undocumented immigrants. Together, they comprise approximately 7% of California’s total population. Many of these individuals believe the doors to homeownership are closed to them, even after years of living, working and paying taxes in this state.
A meager 17% (442,000) of undocumented immigrants are homeowners, according to the National Association of Hispanic Real Estate Professionals (NAHREP). This is much lower than the average 54% homeownership rate in California. Bringing this 17% homeownership rate for undocumented immigrants up to the state’s average homeownership rate translates to an additional one million homeowners.
However, undocumented immigrants seldom have giant piles of cash lying around, so they (like most homebuyers) are reliant on obtaining a mortgage. Fortunately for California’s housing market, undocumented immigrants — and all individuals without a social security number (SSN) — can still become homeowners if they have an Individual Tax Identification Number (ITIN).
According to anecdotal evidence from various banks that offer ITIN mortgages, these mortgages perform better than traditional mortgages, with lower default rates. Obtaining an ITIN mortgage is often more difficult than obtaining a traditional mortgage, thus, only those with exceptional financial qualifications and an extraordinary willingness to go the extra mile to own a home end up taking out ITIN mortgages.
Editor’s note — Statistics on the undocumented immigrant population, homeownership rates amongst undocumented immigrants and ITIN mortgages are often estimates, as many undocumented individuals and the banks that serve them are unwilling to provide data in order to protect themselves from possible deportation.
Where can buyers take out ITIN mortgages?
Not all lenders offer ITIN mortgages, and some who do screen homebuyers for legal status. Probably the biggest reason for this is because Fannie Mae and Freddie Mac won’t purchase mortgages taken out by undocumented immigrants. Thus, the threat of default for ITIN mortgages often lies squarely with the bank that originates the loan.
All the same, when your potential homebuyer lacks an SSN there are still a few ways to find them a mortgage.
Citigroup partners with the Neighborhood Assistance Corporation of America (NACA) to provide ITIN mortgages on a national scale, making it the only major bank to do so. Their California offices are located in Oakland and Los Angeles. Wells Fargo has considered returning to the ITIN mortgage business (it used to offer ITIN mortgages in California during the years leading up to the Great Recession).
There are a few other national banks that lend to ITIN homebuyers, but these are often hard money lenders, offering loan terms as short as a single year with inflated interest rates. The Scotsman Guide provides a list of such lenders.
But for the most part, ITIN mortgages with more reasonable terms can be found through small community banks and credit unions. Even then, expect these mortgage rates to be slightly higher than the average mortgage rate. Since the bank can’t sell the mortgage to Fannie Mae or Freddie Mac, a higher risk premium is warranted. Some banks will also require larger down payments to demonstrate more skin in the game.
Have you had experience assisting a homebuyer with an ITIN mortgage? Share your experience with other readers in the comments below.