How to get a real estate loan in the USA?
In the USA, there is a special banking product known as a real estate loan. Lending terms and rates for each organization may vary. Typically, the minimum loan amount is $100,000, the minimum down payment is from 30% (depending on the estate), the interest rate is from 5% per annum depending on the loan term and down payment. The loan term reaches 30 years.
An ID is the main document required to apply for a real estate loan.
Depending on the terms of the bank, you may additionally need:
- proof of income;
- tax return;
- an accountant letter (if the borrower owns a share in the authorized capital of the legal entity), or employer letter (if the borrower is employed);
- bank account extract.
There are loan programs without proof of income. In this case, the interest rate on the loan will be higher (7.5 – 8% per annum).
In any case, you should contact a loan specialist. As a rule, he/she works with various lenders and can pick up a loan product that meets your requirements. In addition, he/she will calculate the maximum loan amount, select the optimal interest and loan term, taking into account your income, credit history, and down payment.
You will receive official written confirmation of the loan terms (pre-approval letter). It is very important to first obtain such confirmation and only then begin the search for a house or apartment.
Bank confirmation of loan approval is subsequently attached to the offer to purchase.
Step-by-step instruction for a standard real estate transaction
Step 1: Opening a bank account in the USA
An account with an American bank is required only if the property is bought on credit.
Step 2: Preparation of the tender offer
As soon as you select the property you like, the realtor will prepare a tender offer. It is a standard-form contract drawn up by state real estate associations. It will indicate all the terms on which you offer the seller to enter into a transaction.
In the case of a loan, a bank confirmation of loan approval is attached to this tender offer. If the buyer plans to pay with his own funds, he is required to provide confirmation of the funds’ availability in the bank account.
Step 3: Signing the agreement and making a deposit
If the seller accepts your offer, then an agreement is signed indicating all the terms of the transaction – the amount of the sale, deposit, terms of sale, the timing of the inspection and evaluation of the object, as well as an indication of the specific date of the transaction.
A mandatory participant in the deal is a Title Company, and Escrow Company or a buyer’s lawyer registering the deal – Closing Attorney. It is they who administer legal control of the entire deal, verification, and certification of documents.
Home inspection clause
The agreement must contain a mandatory home inspection clause, which indicates a certain period of time (usually within 10 days). This inspection should be conducted by a third party. The purpose of the inspection is to ensure that there are no hidden problems with real estate. The seller must provide the buyer and the inspector with free access to the facility for these purposes. The buyer agrees to pay for the inspection. In most cases, this procedure lasts 10 days.
Loan Contingency Clause
This clause usually indicates that if the buyer has applied for a real estate loan, but has been declined, he has the right to decline the transaction. Often, at the same time, he/she is allowed to regain the deposit without further obligations to buy the estate.
This clause states exactly who pays for the preparation of the agreement, insurance, and storage of funds in the account of an independent company (escrow). These terms can vary significantly depending on the facility. Most often, all additional costs are borne by the buyer. But it also happens that some of them are charged from the seller. The contract should clearly indicate all types of expenses, and who will pay for them.
As a guarantee of obligations’ fulfillment, the buyer makes a deposit to the account of an independent company (escrow). Storage of the deposit is carried out by the title company or agency having the exclusive right to sell the object. Subsequently, it is taken into account in the final calculation.
Usually, the minimum deposit is 3.5% of the object value, but experts recommend offering a larger amount. The larger the deposit, the greater the likelihood that your offer will be chosen by the seller among others.
If the seller or buyer does not fulfill their obligations, the contract may be terminated. This can happen in the following situations:
- the buyer did not make a deposit on time.
- the buyer or seller cancels the transaction in the absence of force majeure.
- the seller does not perform the work prescribed in the agreement.
- the seller prevents access to the facility for inspection or final inspection.
- the seller does not move out on time.
Upon termination of the agreement, the deposit is returned to the buyer.
How to search for real estate in the USA?
Start your purchase with a preliminary selection of the object. There are special websites with offers of real estate objects. You can sort offers by parameters important to you, save the options you like, and subscribe to updates. You can also leave a request to select an object according to your requirements – realtors will send you a selection of appropriate options.
Articles and news will help to understand the situation in the local real estate market.
How to look for a realtor in the USA?
In the US, the realtor participation in the deal is optional but recommended. The realtor will represent your interests all the way from the beginning of the search to receiving the keys to new housing. A realtor follows a client in the following ways:
- help in finding the right housing and determining the real market value;
- trade with the seller to get a better price;
- help in the preparation of all documents, the choice of a lawyer, technical inspector, and other specialists necessary in the purchase process.
Is it possible to conduct a real estate deal remotely?
Yes, it is. You can draw up a certificate for a lawyer. The lawyer sends the buyer a special form of power of attorney by mail. The buyer will transfer the money to the so-called trust account of his/her lawyer. At the end of the transaction, the funds from this trust account will be transferred to the seller.
Risks, in this situation, are practically reduced to zero – provided that the buyer uses the services of a licensed specialist. The lack of transaction integrity may lead to a lawyer losing the license. The lawyer will not be given another license for similar activities. Therefore, the buyer can be sure of the operation legality.