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United States of America (USA) - Buying Property
However, many homeowners associations, condominium associations, cooperatives, or other forms of community associations may limit the ability of individuals to sell property within their community boundaries to absentee owners.
If you are looking at the price of older, independent US property from abroad and thinking it is a bargain, think again. Many of the areas which seem cheap reflect the lack of local desire to live there. Houses in towns where all the factories have closed, high crime rates, or areas frequently devastated by natural disasters have put people off living there for a reason. Properties under foreclosure - where the mortgage lender has repossessed the property - may take longer to process because the debt does not disappear with transfer of title and the correct legal processes must be followed to protect the purchaser.
Sometimes a nice house in a nice area can be particularly affordable because of the long commute to the nearest city jobs, but remember that the cost of every mile of the car journey to work and back home again will be adding to a surprisingly large sum of money each year.
It is best to carefully work out the type, location and aspects of your new home which are important to you before chasing property based on price.
Banks are reluctant to loan mortgages (also known as a ‘note’) to purchasers living abroad, with high down payments and high loan interest rates demanded. People who are moving to the US for work may find it advisable to be in the country before initiating a home purchase, as this should mean a better deal with the bank, your awareness of the area and whether a home is in the right location will be better, and you are on hand to resolve queries or sign documents.
In the US a mortgage will be offered, usually with a fixed interest rate, for a term of 15 or 30 years. The latter is popular because it is easier to qualify for, has lower monthly payments, and allows the purchase of a higher priced home. However, the additional interest paid over the years will be significant and it will take longer to own your home.
It is now rare to find mortgages available for 100% of the purchase price, so a down payment will be required. When assessing how much to borrow, first begin by calculating how much down payment is available. Those able to cover a higher percentage of the property value by down payment are able to access the lower interest rates for the mortgage element, as they represent a much lower risk to the lender.
Mortgages offered tend to be either Conventional (regular), FHA (the government protects the bank from losses if the purchaser defaults on the loan) or VA (similar to FHA, but for veterans).
You can get pre-qualified with one lender before looking at properties; sometimes a small fee is required to do this. It is best to consider a variety of mortgage offers available before choosing the lender to tie into. They will obtain your credit history, assess your income and affordability limits, and work out how much you could borrow.
If you purchase a home with a mortgage, it is important to keep up to date with mortgage payments, which are due each month. At closing you will be given a form to sign allowing the bank to make the payment automatically every month. Failure to make each payment due will swiftly result in foreclosure, which means you will lose possession of the home, and the bank will sell it to recover their costs.
The bank will send an annual statement showing how much interest you have paid on your mortgage loan for the year; this can be used to deduct the interest from assessed income when calculating your annual tax bill.
Real estate salespeople are licensed by individual States to represent either buyers or sellers in property transactions in that State.
• Regular Agents: No additional training or memberships required.
• Brokers: Can be an individual or company. Required to have more education and training than regular agents.
• Realtors: A licensed real estate agent who has joined the National Association of Realtors. Requires the highest level of education and training in the sector.
Licensing is complicated, with each state having its own terms and conditions from age to training and tests required. Many states require background checks, fingerprints and a high school diploma. Though some states offer free online checks to show whether your realtor is licensed, the departments in each state responsible for the licensing will be called something different to the others. The easiest way to check that you are using a licensed professional is to use a Realtor who is licensed with the National Association of Realtors.
You may receive a personal recommendation from a colleague or acquaintance, but be aware that some agents pay referral fees to anyone bringing in new business.
In most areas purchasers are able to view all residential property for sale by agents on the Multiple Listing Service (MLS) database. However, there continue to be benefits in using an agent to purchase property; suggesting a realistic price, negotiating with the seller’s agent, and guiding you through the contract.
Many agents will ask prospective property purchasers to sign a Buyer’s Agency Agreement, which sets out the terms of business. Before signing up to one, make sure you have spoken to two or three agents and decided which one would work best for you. Look at the website, blog, ask how many clients have been helped to buy and sell in the last year, and assess how well they listened to what you said about the property you are hoping to find. Moving house is stressful, so your relationship with an agent is an important one. Make sure you are happy with the terms of the Buyer’s Agency Agreement before you sign it.
Individuals may decide to sell their homes without any agency involvement, called For Sale By Owner, although this is unusual. They may offer a commission to agents to bring genuine buyers to view the property, but if they do not then no agents will be involved. They may advertise in local newspapers on the website For Sale By Owner. This does give the buyer an opportunity to negotiate on price, as there will be no sale deductions for agent’s fees. The onus is then on you as the purchaser to thoroughly investigate the value of the property, such as paying a fee to an agent for a Competitive Market Analysis or to bring in the more expensive Appraiser who would provide a valuation for both you and your mortgage lender. Do not rely on free valuation websites alone.
If a seller is using the services of a real estate agent they will agree, in a signed contract between the seller and the broker, a fixed percentage of the property’s selling price as their fee; the industry standard for this fee is usually 6%. The agent typically shares half of the fee with the buyer’s agent, and will then pay up to 1% to the broker they are working under. If the buyer does not have an agent, the seller could request a reduction in the sales fee, though this must be agreed in writing before the property is signed over to the buyer.
When looking round prospective homes, regardless of who is selling them, be aware that there may be unusual catches; high home-owners association fees, long-term leases about to expire, disconnected utilities with high reconnection costs, mould issues that could make a house uninhabitable, or high insurance costs for extreme weather events including hurricanes. Local Government taxes associated with the property can be high, often funding services that other countries pay with national taxes. The State of Florida, for example, does not have State income tax, so must receive all funding for its comprehensive range of services from property owners. Property taxes will be paid twice a year with little opportunity to pay by installment. The amount due is nearly always computed as the fair market value of the property times an assessment ratio times a tax rate; it will cost the property owner thousands of dollars each year.
At the point you find a property that you would like to make an offer on, the agent will undertake a Comparable Market Analysis which will inform your offer price. You will receive a Seller’s Disclosure report, which details all physical problems and defects that the seller is aware of. There is no legal requirement to disclose issues the seller is unaware of, so you cannot sue them for defects after purchase that they cannot reasonably have known about.
If the property was built before 1978, Federal law requires buyers to receive the following before being obligated under contract to buy the property:
• An EPA-approved information pamphlet on identifying and controlling lead-based paint hazards, called Protect Your Family From Lead In Your Home
• Any known information about the presence of lead-based paint or lead-based paint hazards in the home or building
• An attachment to the contract, or language inserted in the contract, that includes a "Lead Warning Statement" and confirms that the seller has complied with all notification requirements
• A 10-day period to conduct a paint inspection or risk assessment for lead-based paint or lead-based paint hazards, which may include investigation from a certified inspector. Parties may mutually agree, in writing, to lengthen or shorten the time period for inspection. The purchaser may waive this inspection opportunity.
An offer to buy a property is made in writing, which may be accepted or prompt a counter-offer. This stage can be repeated. At the point both parties are in agreement, the offer or the counter-offer which has been agreed will become the contract which is ratified, and you are now under a legally enforceable contract. The inspection period, typically 14 days, should be agreed in advance of contract acceptance, which is the point the inspection period starts.
The purchaser now pays a deposit, called Escrow Money or Escrow, into a Trust. The purchaser chooses the escrow office/account; it is normal, but not compulsory, for the title company doing the closing to hold the escrow. The title company is usually chosen by the party purchasing the title insurance. At closing, the Escrow will be removed from the Trust and paid to the seller as part of the purchase price.
A Home Inspection is carried out, paid for by the property purchaser and within the agreed inspection period. Any repairs needed can then be negotiated between seller and purchaser. These inspections will include lead based paint investigation, termite inspections, and Appraisal (valuation) of the property for the mortgage company.
All the processing checks for the purchase of your property takes place at the office of a title company. The ownership of the property and their right to sell is confirmed, and any outstanding claims against the property should be identified.
Some purchasers hire an attorney to undertake these checks, but most people don’t. Every state has a lawyer referral service, and you should expect your lawyer to be a member of the American Bar Association. Expats have additional legal checks to cover including proof of right to residency, and may feel more secure having their paperwork processed by lawyers. Different states have different rules about tax and inheritance, and if you own a property this becomes an important issue.
The process of transferring ownership of the Property and Title and the associated funds, will differ between States. It will often involve registration at the county court house, and becomes a matter of public records. It is best to use professionals local to the State where the property is located, so that the correct procedures and laws are followed.
It is mandatory to purchase home owner’s insurance for your new home, whilst private mortgage insurance is discretionary and may be a good choice for some households but not others.
Make sure you get a written quote from the removals firm in advance of the moving day, as they have been claims of firms demanding higher payments once the furniture is in their van. If you are moving from one State to another, a US Department of Transportation number is issued by the Federal Motor Carrier Safety Administration, so you can check with them whether the removals firm is licensed. For moves within a State, requirements vary between state, county or local consumer affairs agencies.
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