Maximum LTV: 75 per cent
Term: typically 30 years
Minimum loan can be $75,000 but most commonly $100,000.
Rates from: 8.62- 8.87 % for 30-year fixed rate.
Arrangement fees and taxes: roughly 4.25% of the purchase price.
Is it still possible to obtain finance?
Mortgages are available for purchases up to 75 per cent of the property’s value. 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. A term of 40 years is available with the first 10 years at interest only. Rates currently start from 8.62% for a 30-year fixed rate deal.
Many of mortgages have no early redemption penalties so lump sums may be paid off the balance at any time without incurring a penalty. There’s typically 3–5 years for a prepayment penalty period. Some lenders allow the option to buy out the prepayment penalty or, reduce the term at a cost. The penalty is often 6 months interest at 5% of the amount prepaid. The first 20% of the original loan amount can be paid each year without penalty regardless of whether the borrower is within the penalty period.
What is the lending decision based on?
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.
Most lenders use the rental income a property is deemed to be able to generate, as assessed by the valuer/appraiser, to demonstrate serviceability of the loan. This is called the DSCR – Debt Service Coverage Ratio. They do not consider the individual’s personal income in this calculation. This is where the LTV may have to be adjusted. The rent must cover the principal, interest, property tax (like council tax), buildings insurance, and homeowners association fees.
How long does it take?
The initial ‘conditional’ decision is given within 72 hours of submitting the application. It then takes 6 – 7 weeks to clear the conditions before ‘clear to close’ is given. It can be a quick process compared to the U.K.
Other things to note
You must open a U.S. bank account. You must also show evidence of deposit funds, closing costs and reserves. Reserves is the term used for an ‘Emergency Fund’ which lenders insist on the borrower having to fall back on. It’s usually 12 x the monthly mortgage payment including a monthly figure for property tax and insurance. The requirement is that funds must be sourced for a 60-day period.
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.
At what stage should I apply for a mortgage - before or after I've found the property I want?
It’s sensible to get the mortgage process started as early as possible, even if you’ve not begun to look at properties. In particular, you need to establish how much you can afford.
An 'Approval in Principle' will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search. It will also prove that you’re a serious buyer, could make you better placed to negotiate price with the vendor. Even better, it costs nothing.
Should I go directly to a bank to get the mortgage?
You can go directly to lenders in the USA, but each one has different criteria and you may not necessarily be offered the most suitable loan, or the best deal available.
A specialist broker will know the exact mortgage application requirements and can source the best possible deal. They’ll also know of any restrictions and administration requirements, which will save you a lot of time, cost and hassle.
Borrowers beware!
Borrowers should not transfer funds to their checking (current) account to use for closing unless they are going to be here in person to close. Banks will not accept wire transfer instructions without the borrower/account holder being in front of them. The solution is to wire the funds directly from the U.K. to the title company (the firm that does the work of the solicitor).