When investing in property in the USA, there are various financial options available to you. Below is an overview of investment finance currently available in the USA.
Financing a property investment in the USA is an important decision and today, more than ever, could entail injecting your own cash resources or employing an equity release scheme.
Sadly the current subprime lending crisis has for now put an end to the wide availability of mortgage products available in the USA and with prices dropping by as much as 25% from last year, many Americans are now sitting on negative equity while waiting for an eventual and inevitable revival in the market.
Lending criteria have of course tightened considerable and if you decide to try and raise bank finance today, you should be prepared for disappointment. In principle, bank requirements vary from state to state and therefore the information below must be considered solely as a guideline in principle.
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.
Down Payments - 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 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.
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 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.
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.
Click here to learn more about financing your USA property investment with equity release.
Not everybody falls into a category and some investors will need to raise alternative finance to equity release or mortgage options.
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