Homes & Relocation Detail
The American mortgage maze
Lizzy McNaney-Juster and Stephen Parnell give their top tips for a successful American mortgage process
With the confusion and, in some cases, panic currently surrounding both the UK and American mortgage system, it's understandable that securing a mortgage in an alien market may fill British emigrants with dread. However, these words of wisdom from Emigrate America's US mortgage experts may help to put your mind at rest.
At first glance, there are enough similarities in terminology to make Brits obtaining a mortgage in the USA think that the system will be quite easy to find their way round, but this is wrong. The one thing that every UK citizen buying in America must remember at every single stage of the process is to never make any assumptions about how things work.
To find the right loan for you, you need to consider your long- term goals. If you plan to sell the house in a few years you may want to consider an adjustable rate loan. On the other hand, if you plan to keep the house for a longer time, you may want to look at a fixed rate loan. Compare different programmes.
Avoid working with an inexperienced mortgage loan officer, who quotes US resident criteria (lower rates, lower down payments) to non-residents, leading to disappointment further into the transaction when the true facts are revealed.
Get pre-qualification. This process occurs before the loan process actually begins and is usually the first step after initial contact with the loan/mortgage broker is made. The broker gathers information about the income and debts of the borrower and makes a financial determination about how much you can afford. By getting pre-qualified or pre-approved, you don't waste time looking for property you can't afford.
You may be coerced into committing mortgage fraud and perjury by stating a use for the property that is not the intended use. However, if the lender in this type of situation catches you out, they can ask for the loan to be repaid immediately.
Make sure you have access to independent mortgage brokers who are not tied to mortgages from any one company and will allow you to compare the relative advantages of American and British mortgages.
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.
Title insurance insures against errors in the title search and guarantees that you and your lender retain financial interest in the property. A title search checks for liens, encumbrances and legal errors, as well as fraud, forgery, missing heirs or divorce proceedings that could affect your rights of ownership, possession and/or use of the property. The required title insurance only protects the lender, so if the property has a long and chequered history, you may want to take out a separate owner's title insurance policy protecting yourself
Many closing costs are standard and won't vary from lender to lender – for instance appraisals, credit reports, title insurance, government stamps and recording fees. Others, however, may be eliminated simply by opting out of a service, such as overnight delivery of documents. If a fee seems vague or questionable, ask!
Don't make any major purchases such as a car, furniture or another house until after the loan is closed. This will affect your debt to income ratio and could ultimately kill the deal.
Be sure that you can provide a written explanation for any unacceptable late payments, collections for judgment, change of name, location, etcetera. All can be verified if required
During closing you will be required to sign the final loan documents in front of a notary public. Make sure that the interest rate and loan terms are what you were promised as well as the name and address on the loan documents are accurate.
For more information on the US mortgage process:
Lizzy McNaney-Juster can be contacted through Brits Finance in USA and Stephen Parnell can be contacted by email.
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