Homes & Relocation Detail
Home buying in America
Whether you choose to rent in the first few months or jump in at the deep end, permanantly relocating to America will inevitably result in a foot on the property ladder
Finance expert Lizzy McNaney-Juster takes a look at the home-buying process in the US and gives her tips for negotiating your way through a complicated process.
Even without the stress of finding yourself a new home in the US the process of emigrating is always going to be a testing time. Factor finding a home and getting an American mortgage in to the equation and just thinking about it all can turn your hair grey. Luckily you are not the first, and certainly won't be the last, person to do just this and as such there is plenty of advice available to you if you know where to look.
What do you want and how can you get it?
No matter how well you can picture your dream American house and communicate that idea to a realtor, (that's real estate agent to you and me) the house you finally fall in love with may have little resemblance to the picture you started out with in your head. But you have to begin somewhere, and a detailed wish list is a great start. Let's say your wish list in order of priority, looks something like this:
Two bedrooms, two baths;
Safe, quiet neighbourhood;
Garden;
Ability to add on;
No major repairs needed;
Close to downtown;
Craftsman-style detached home;
Lots of natural daylight;
Parking;
Good investment with excellent resale potential;
Affordable property taxes;
Neighbourhood fits family personality, culturally and politically;
Enclosed laundry area;
Walk-in closet in master bedroom;
Gas hookup for stove;
Back deck or patio;
Close to work, schools, church;
Finished basement for office or guest room;
No threat of commercial encroachment;
Within a half hour of the airport;
Hardwood floors;
French doors leading out back; and
Close to public transportation;
Now, what if you could only choose five to ten of these options? How would you prioritise it then? These details are invaluable when dealing with the realtor (guess you'd better get used to that word, if you are going to integrate into a new way of life)
What Can You Afford?
Every market is different, but the first step to answering this question is finding out the amount you can pay on a monthly basis after you've made your down payment – Will it be 5, 10 or 20 per cent of the asking price of the house? The deposit will also depend on the type of visa you acquire or whether you have a green card, but don't forget, you don't need a visa to buy a holiday home in the States.
Find a loan officer
The best way to learn what you can afford is to get prequalified for a loan. Your realtor may recommend someone or you can just walk into the office of a local lender. Do not expect it to be easy if you are a 'New Arrival'.
Prequalifying won't cost you anything, except a sales pitch, since the lender would love your business when you're ready to apply for a loan. You'll walk away with a good idea of how your income, assets and liabilities translate into what you can afford, and it can also help your chances of beating out the competition in a sellers' market (where there are more buyers than houses on the market). Or you will walk out banging your head against a brick wall.
Do the maths
You can start by doing a simple calculation on your own. Broker wisdom says that monthly payments should be 25 to 33 per cent of your monthly gross income.
To calculate: take your monthly income before taxes, including all sources, and divide it by four. Subtract from this figure the total amount you pay per month in debts (loans, charge accounts and the like). The result is the lower end of what you can reasonably afford to pay on a monthly basis. After deducting monthly homeowners insurance (say, $50 per month) and property tax payments ($100), you'll see approximately what you can afford for your monthly loan payment. To calculate the higher end, divide by three instead of four. To find out how this translates in terms of house pricing, multiply your final total above by 12 (months) and then divide that number by the average interest rate on loans today–say, 8 per cent cent. The result is the approximate market you'll be focusing on.
Additional costs
Keep in mind that in addition to the purchase price you'll need extra cash for closing costs (including points and fees), inspection and future expenses. Everyone who works on your loan expects to get paid. To get through closing – meaning once you've signed the last remaining paper after agreeing on price and terms with the seller – the cost to you will typically be 2 to 7 per cent more than the agreed upon selling price. If you calculate that from the middle zone, at 4.5 percent, a $200,000 house will cost $209,000 to purchase. Be sure to consider annual property taxes and repairs (predictable and unexpected). First time home owners in the States also typically have to pay the first years worth of house insurance up front, and at least two to three months of property tax (similar to council tax and with similar benefits). The closer, either an attorney or a title company depending on the state, will also require payment for their services.
Underwriting and processing fees can be hefty but ask your mortgage officer to ensure that you are protected and explain the process to you upfront. A good mortgage officer will go through the closing costs at the start of the application, so that there are no nasty surprises in store.
Also ensure that you are as honest as you can be with the mortgage officer, about your situation. Any nasty shocks can break a deal. Take heart in knowing that most first-time buyers in America are simply getting into the housing market. Your dream house may be a few houses into the future and, with so much choice, you could end up becoming an investment tycoon.
Starting the House Hunt
So now we know what the priorities are and how much we can spend we have to decide what kind of house we are looking for – perhaps a condominium (customised flat that you own) or a co-op (a flat that is within a shared building). maybe it will be a townhouse (we would say terrace house but heck of a lot bigger and nicer) or even a single-family detached home (detached house with a yard). If you really have cash to splash, then you could always go for a custom built mansion.
Begin by interviewing realtors. If you aren't sure, ask for references or maybe someone can refer you to an agent. A great realtor can educate you about what to look for and avoid, provide reliable references for other experts you'll need along the line (such as lenders and inspectors), and represent you honestly in negotiations and at closing.
Now you are ready to start looking around the housing market. Try to view as many houses as possible. Looking below the value you were thinking of and above it gives you a greater knowledge of what is available. Remember, for each house that you view (and that includes open houses) advise the owner/seller of both your realtor's name and your loan officer. Ask around about other people's buying experiences as there is no one better to talk to than people who have already done this. The Internet is a great place to start because as expats we have quite a lot of websites available to us.
Lastly, when your feet can take no more, take the day off. The houses will still be there tomorrow. You will look back on this experience and say it was all worthwhile.
Lizzy McNaney-Juster specialises in helping foreign nationals, non-permanent resident aliens and permanent resident aliens with residential, investment, second homes, holiday homes and commercial finance.
For more information:
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