Property Purchase Process | Property Purchase Costs | Mortgage Finance

Overview:

Unless you’re fortunate enough to be in a position to buy in cash, you’ll be looking for a mortgage to purchase your US property.  Before you dive in, it’s crucial to work out how you plan to pay for everything – not just the asking price of the property itself, but also all the extra costs involved, not forgetting the cost of moving and any necessary renovations.

Financing Options
 
You can look at the following sources for generating the money to purchase your property in the USA:

• Your personal savings, ISA funds, premium bonds, fixed deposit certificates etc.
• Your stock market shares.
• A low interest (or no interest) loan from friends or family members.
• Additional borrowing on your mortgage (sometimes referred to as 'flexible loans').
• A personal loan.
• If in a two-car family, the sale of one of the cars (a small price to pay, perhaps!).
• Approaching a US bank for a mortgage.
• Approaching a bank in your own country for a mortgage on a property in the US.
• In extreme cases, when you want to 'live the dream', the cash remaining from the sale of your own house.
• Contacting an overseas mortgage specialist.

Documents needed – General

The documents you will need to submit vary from lender to lender, but as a rule, you will have to supply at least the following:

• Copy of passport and proof of permanent address.
• Certificate of marital status (wedding or divorce certificate) if applicable.
• Bank statements from the last 6 months.
• Pay slips from the last 3 months and a referral letter from your employer.
• Referral letter from your bank.
• Two most recent P 60 tax declarations

Self employed applicants will also be required to supply copies of their most recent tax return.
Documents will need to be legalized according to your country’s official procedure.

Financing a property investment in the USA is an important decision and could entail injecting your own cash resources or, as most serious investors prefer, a mortgage or equity release scheme.

Availability

The wide availability of mortgage products available to foreigners in the USA is a clear advantage to investment here. As ever, requirements vary from state to state and therefore the information below must be considered solely as a guideline in principle.

All 50 of the American states base their mortgage lending on affordability. To gather this information, lenders look at income vs. expenditure. The maximum loan available to borrowers is usually 80 per cent of either the purchase price or a property valuation, whichever figure is the lowest.

Banks in the USA have a minimum lending figure of $50,000 and mortgage costs can be quite expensive. Depending on the state in which you are buying and the purchase price of the property, mortgage costs could range from $4,000 to over $12,000.

UK citizens buying into the USA property market also need to be aware that they need a USA Social Security Number, a Green Card, or a US Passport in order to borrow over 70 per cent loan to value. These documents show that the borrower is registered in the US. To borrow under 70 per cent loan to value, a UK passport will serve. Furthermore, to borrow over 70 per cent LTV, borrowers will need to prove their income. Loans under 70 per cent are typically self-certification.

Points

Terms such as ‘points’ need to be understood as well as the implications of repayment and application costs and as most agents and brokers agree that it is advantageous to consult a mortgage broker and pre-qualify before looking for your property. Pre-qualification will enhance your credibility in the eyes of agents and sellers as well as assisting in speeding up the purchase process.

The majority of USA mortgage companies require a down payment of 20% for non-USA residents with proof of employment or documentation to confirm proof of income for the self-employed. In general the higher the deposit, the easier the process and the fewer proof of income documents are needed. Proof of the source of income has become an additional requirement since September 11th.

The right type of mortgage for you depends on your existing financial circumstances, the length of time you wish to extend your investment and your choice in mortgage rate option. A fixed rate mortgage over a period of say 15 to 20 years could save many thousands of dollars over the period of the loan, but repayments will be higher. However, an adjustable rate mortgage may start with lower monthly payments, but these will fluctuate in accordance with prevailing interest rates.

Mortgage lenders often set up escrow accounts to cover payments of costs such as property taxes, local taxes and property insurance premiums. These will ensure that bills are paid without bother to the investor.

Off-Plan Financing

Off-plan developments in the USA often offer installment plans over fixed periods. Charges applicable vary according to developer and repayments are usually index linked. The developer can often offer the most competitive finance options to investors and, while you should check all possibilities, these are certainly worth considering when looking at mortgage alternatives to finance your investment.

As always, before making a commitment, we recommend you discuss your investment strategy with a lawyer, a reputable property agent with experience in the area and even a financial advisor.

Bridging Loans

Taking out a loan based on the value of a property that is either on the market or in the process of being sold is a popular strategy for many investors who do not want to let an unbeatable opportunity pass them by.

You should consult your mortgage advisor or speak to an IPIN advisor who has experience in mortgages and re-mortgaging in both your home country and the USA. Obviously, using a company who deals worldwide will be highly advantageous.

Equity Release

If you are in your mid-50s or older and own your own home, you may be able to get a cash lump sum, a regular income, or both, by using an equity release scheme based on the value of your property. These schemes can be helpful in certain circumstances to raise funds for a mortgage to finance your American property investment.

Equity release allows investors to release cash from an existing property without having to sell up. If you have property in your own country and would like to borrow against this in an equity release plan, we can introduce you to independent financial advisors who will help you raise the necessary finance for your investment in the USA.

Dollars or sterling?

The basic choice comes down to "do I want a US Dollar or UK Sterling mortgage for my US property purchase?" Both have pros and cons and it is important for you to evaluate your own goals with regard to these choices.

A sterling mortgage is typically available up to 75 per cent loan-to-value on a self-certified basis and 80 per cent with full documentation. Completion will take place using US dollars with the mortgage being converted into Sterling simultaneously.

A dollar mortgage is typically available to 75 per cent loan-to-value on a self-certified basis (although certain geographic restrictions may reduce the percentage available). Benefits are that the debt actually matches the asset (your property); different payment structures available include low-start, interest-only and capital repayment. Some worry that the fluctuations in the Dollar to Pound rate will affect their monthly payments but that can simply be eliminated by using a buy-forward currency order with one of the well-known currency exchange providers.

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