Mortgages in the USA

USA2Everything about the USA is big and bold. Flanked by two oceans, the fifty states symbolised on the Star Spangled Banner occupy a vast and incredibly varied terrain. Home to more than 300 million people from every corner of the globe, this great nation is a fascinating melting pot of cultures and customs. With so much diversity, the hardest part is probably choosing where to live the ‘American dream’. There have been worries over recent years about the stability of the US housing market, with the housing crash of 2007 being the worst in the country’s history. Fast forward to 2015, however, and things are looking much rosier. Job growth and low mortgage rates have put homebuyers in a stronger financial position and there is rising demand for housing as the economic recovery approaches its seventh year.

Sales of previously owned homes increased in March 2015 by the most in four years, according to figures from the National Association of Realtors. Meanwhile, the share of first-time buyers inched up while distressed properties were a smaller part of the market, indicating a healthier mix in demand leading to the summer period when sales typically surge. Figures from the Federal Housing Finance Agency show that the cost of a purchased home was 5.4 per cent higher in February 2015 compared with the same time in 2014. The mortgage market has changed significantly over recent years and although financing the purchase of a property there is not as easy as it used to be, it’s certainly not impossible, especially if someone has a healthy deposit to put down.

Mortgages are generally available for purchases up to 70 per cent of the property’s value depending on the state in which the property is located. Most are on a repayment basis, the maximum term is 30 years, and interest rates and loan terms tend to vary depending on the property type and exact location. The minimum loan size is $85,000 in Florida and $150,000 in Alabama, California, Colorado, New Mexico, New York and Texas. The minimum loan for other states is $500,000. Rates currently start from 4.5 per cent for a 5-year fixed deal and 4.9 per cent for a longer term (15 year) fixed deal. Many of these mortgages have no early redemption penalties so lump sums may be paid off the balance at any time without incurring a penalty.

A key calculation used in the application is the debt-to-income ratio, which establishes whether you can afford to maintain the mortgage repayments, so your existing liabilities including loans, credit card payments and maintenance are taken into account, together with the proposed USA mortgage payments. All of this must not exceed 38 per cent of your gross monthly income. Lenders will be looking for very detailed information about your financial status, so it’s important to have your paperwork in good order. Your chances of being accepted for a mortgage will increase if you can prove that you’ve got a sound financial profile.

When it comes to location, top of the list is Florida, where prices are still a lot less than they were prior to the financial crisis, and if the property is within easy travelling distance of the famous theme parks, year-round rental opportunities are good too. Buyers should beware of buying repossessed properties at bargain basement prices in locations such as Detroit, which often involve too much risk. Mortgages are not available for such properties and cash purchases are not recommended. It’s advisable to stick with the better known and trusted markets such as California, Colorado, Texas and Florida, where buyers can also find bargains with a lot less risk involved.

As always, it’s imperative to take professional advice before making any decisions. Prospective buyers should always go through the same process that they would follow if they were buying a property in the UK, and this includes consulting a good real estate company, and ensuring that an independent valuation of the property takes place, even if it’s a cash purchase. Attorneys are always used for the completion (closing) process. One of the most effective ways of obtaining a mortgage for a property purchase in the USA is to use a specialist broker in the UK. They’ll know the exact mortgage application requirements and can source the best possible deal.

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