Would the United States qualify for a Mortgage?

By Susan Weber Pomilia

Published: 06/12/2024

If subjected to the guidelines that individual borrowers must follow, how would the US do?

While this question is pure folly, and clearly just a hypothetical question with no real world application. However, at the Tax Project we thought it would be a good thought exercise in something that most Americans are familiar with to understand their own credit worthiness, and often take a sobering look at their own finances and in doing so assess the state of our country in something more tangible and relatable.

We also realize that there are very sizable and distinct differences that don’t make the comparison likely, but there were enough similarities that we thought it would be instructive to review. First, let’s get the caveats out of the way that illustrate the folly of a real comparison. While the US has many other advantages, these are big ones:

Power of Taxation¹ – The US has the unlimited ability to Tax, through any source, to raise funds.
Reserve Currency – As the World’s reserve currency (See Article: Reserve Currency) the US is in a unique position to print money to raise funds in their own fiat currency. While this may devalue the dollar, the ability to print more is undiminished.
Assets – The US has tremendous assets. The Federal government owns more than a quarter of US land, over 600 million acres³. They have a sizable Real Estate Portfolio, Cash Reserves⁴, Strategic Oil reserves up to 700 million barrels⁵, substantial Mineral, Oil and Gas rights some of the largest in the world⁶, and a huge number of physical assets including an estimated $11 billion in Gold reserves alone and these are just to name a few. In short, the US has considerable assets as collateral.

All the caveats aside though, the US debt to income ratio, the long term debt, credit worthiness, and other metrics are all fair game to look at to ponder this question and understand and get a sense of how our country is doing financially. So, to put this question to the test, we asked an experienced Mortgage Broker to process the US Mortgage application, and here was her response:

Susan Weber Pomilia

Susan has had over 30 years experience in the Mortgage Broker lending business, and has held leadership positions at several leading Finance companies and is currently a Regional Manager at Supreme Lending. Susan is a Director at Hennessy Advisors a Financial Services firm managing $4 billion in Assets Under Management. Susan is an Advisor for the Tax Project Institute.

To find out, let’s break down the typical guidelines for an individual qualifying for a mortgage and then consider how they might apply when comparing them to the country as a whole. There are several tests, as follows, to determine an applicant’s credit worthiness, and each MUST pass to qualify.

Lending Criteria

Credit score: Individuals can obtain a mortgage with a minimum credit score of 580, but to obtain the lowest interest rate available, most Investors require a score of 760. Similarly, a country might be evaluated based on its credit rating, which reflects its ability to repay debts. As of November of 2023, Moody’s is the only rating agency that maintains the US’ Federal Government Bond ratings at AAA credit rating (Highest rating, low risk) but downgraded their outlook for the future to “Negative”⁸. This means they believe the country’s rating will soon drop. Both Fitch and Standard & Poor’s rate the US at AA+^9,10. Even based on a reduced rating of AA+, the US would meet the credit score guideline, but may not secure the best terms or the lowest interest rate.

RESULT: PASS (albeit at a higher rate and cost)

Income and Debt-to-Income Ratios: Mortgage lenders calculate an individual’s gross monthly income and their monthly debts to determine their Debt-to-Income (DTI) ratios. Dividing the total debts by the gross income determines the DTI percentage. Lenders typically require a DTI of 49% or below. For a country, this could translate to evaluating its Gross Domestic Product (GDP), a measure of a country’s total economic output, and its Debt-to-GDP ratio. According to the US Bureau of Economic Analysis (BEA) the US GDP for Q1 2024 was $28.26 Trillion¹¹. As of 6/10/24 the US National Debt according to the US Treasury has soared to $34.7 Trillion¹². Based on this the DTI for the US would be: 122%. The US would need to be at a ratio of 49% or below to qualify, so based on the 122% ratio, the US would not meet the DTI guideline and would therefore not qualify for a home loan.

RESULT: FAIL

Employment Stability: Lenders look at an individual’s employment history and stability. They typically require 12 months of employment in the same job and two years in the same field. Similarly, a country’s employment rate and stability of its job market could be factors in determining its mortgage eligibility. The US’ current employment rate or labor force participation rate is 62.50%¹³, which is lower than the long-term average of 62.84%. The unemployment rate currently sits at 4.00%¹⁴. There are 6.6 Million people unemployed¹⁵ today (people that are looking for work but can’t find jobs). Yet surprisingly, the US job market has remained resilient with 272,000 new jobs added in May¹⁵. Based on the current data, the US would meet the employment stability requirement.

RESULT: PASS

Down Payment: Individuals typically have a down payment of 5% to 20% of the sale price when purchasing a home. For a country, this could be compared to its ability to make an initial payment or provide collateral. Countries with substantial reserves would have an easier time securing a mortgage. The US has $241 Billion¹⁶ in reserves alone, without the collateral mentioned above. Based on this number, the US would meet the reserve guideline.

RESULT: PASS

Property Appraisal: Lenders will have the property being purchased (collateral for the mortgage) appraised to ensure its value supports the requested loan amount. Lenders will then compare their Loan amount to the appraised Value known as a Loan-to-Value (LTV) ratio. Lenders will lend between 80% to 97% of the sales price in most cases but will offer more favorable interest rates with a lower LTV. In the case of the US, we should look at the total value of improved real estate, which is $47 Trillion¹⁷, while the amount of mortgage debt the country carries is $20.2 Trillion¹⁸. The LTV for the US is 42.9%, which is low. For this reason, the US would qualify under the appraisal guidelines.

RESULT: PASS

Interest Rates: Individual mortgage rates are influenced by market conditions, credit cycles globally and the US central bank, the Federal Reserve, and the borrower’s risk profile as detailed above. A country’s mortgage rate would be influenced by global economic factors and its perceived risk as a borrower. If the US did qualify for a loan, their rate would likely be below that of the best customers with higher credit ratings based on the credit ratings agencies outlook for the US and collateral and material advantages as a Sovereign nation. However, the very high Debt to Income ratio could be cause for concern amongst lenders potentially increasing rates.

Conclusion

As we’ve seen, qualifying for a mortgage isn’t easy, even for a nation as powerful as the United States. While the US would NOT pass a traditional mortgage test due to its high debt-to-income ratio, its unique position allows it to borrow money in ways individuals can’t. However, this exercise highlights the importance of fiscal responsibility for any entity, even a government.

Unlike an individual mortgage default, a sovereign debt crisis can have far-reaching consequences, impacting global markets, economic stability, and disrupting the lives of its citizens. While the US isn’t facing imminent danger, the long-term outlook requires addressing our debt and investing in our future.

We hope this thought exercise sparked your interest in US fiscal health. Here are some resources for further exploration: