When you’re looking at Florida villas for sale with a view to buying one, questions on finance are naturally high on the agenda.
If you’re wondering about your funding options, what sort of home will make you a profit, what returns you can expect, why you should – or shouldn’t – buy Florida real estate, or anything else related to the money side of things, then you’ll find the answers below.
Can I get a mortgage in the US?
You can, but financing any of the Florida villas for sale that you see with an American loan requires you to be put in contact with a specialist lender. The number of lenders who will loan to foreign nationals is limited. You would need help to find the right person.
Most of the regular lenders (banks) won’t lend to foreign nationals, it’s a highly specialist field. Rather than banks, viable financiers are called mortgage lenders or investors; it’s a little different than in the UK.
What’s the process?
If this is your initial foray into buying in the US and you want to do it with a loan, the first thing to do is to have us schedule a phone call between you and an appropriate lender so that they can ‘pre-qualify’ you: they’ll want to look in-depth into your circumstances, your loans, assets, liabilities, job, income, expenses . . .
After that they’ll be able to say ‘this is the sort of loan we’ll be able to get you’, including the percentage of the property value you’ll be able to access funding for. The typical figure is about 65% but it varies from under 60% to (currently) a maximum of around 75%.
Only around 20% of international buyers use a US loan, the majority use alternative funding methods.
How do UK buyers typically fund their investment in Florida villas for sale?
Most people either have sufficient liquid capital to cover the cost, or mortgage a UK property, or take money out of a pension fund or other part of their portfolio, thereby becoming a cash buyer in Florida.
This is very much the trend in recent years, mainly for two reasons:
- Getting a loan from a US lender is usually extremely bureaucratic and painful in terms of the amount of information they require and the woefully poor customer service, for example, the number of different times they ask for the same thing !
- Buying Florida property with a US loan is more expensive. If you’re a cash buyer for homes in Florida, you can expect to pay something like 1-2% ‘closing costs’ – stamp duty, legal fees and so on.
If you have a US loan, the percentage rises sharply because the lender AND the state will impose fees; that 1-2% becomes 5-6% typically. On a $300,000 property the difference could be as much as $15,000 added to your costs.
The flip-side is that if you do get a loan in Florida, you’re dealing exclusively in one currency – matching a dollar asset with a dollar loan, and therefore minimising currency exchange rate fluctuations. For some buyers, that’s advantageous.
What about taking a UK-based mortgage on a US property?
That’s not possible any more. Up until the crash in 2007/08 there were a number of lenders offering this sort of arrangement, but since then such deals have vanished from the market.
Instead, common practice is to take a mortgage on your UK property, and be a cash buyer in Florida.
A benefit of bringing the money from the UK is that you’ll enjoy extra leverage in terms of getting the property you want or possibly driving a harder bargain when negotiating on price. As in the UK property market, cash buyers are prized because of their lack of loan dependency and their ability to close the deal more quickly. So bear that in mind when you’re looking at Florida villas for sale that same mindset applies to the vast majority of sellers.
How quickly does the buying process usually take?
The timescales may surprise you. With a US loan, after you’ve looked at the Florida villas for sale and found your dream home, it will still typically take around 45-90 days from signing a purchase contract through to completing and taking possession of the house (that’s for re-sale homes, new build homes take around six months or more). A cash buyer on the other hand usually completes within 20-30 days (again, re-sale homes), but can close within seven days!
Really, it can be as quick as you want it to be. Unlike the UK where the legal aspects take time, a cash buyer can come into town, sign a deal today and provided there are no other wrinkles, can take possession within a week. We work on accelerating that process where the buyer so desires.
Because you’re a potentially more rapid and secure buyer if you are not using a US lender, you can move much more quickly while striking a tougher bargain.
If I have £100,000 liquid capital and want to buy a £250,000 home in Florida, will I be able to make a profit from rentals?
Many people buy homes here because they like Florida and they want to cover the costs and upkeep through rentals. At this sort of price, you’re likely to be able to cover the ownership and running costs of the house via rentals; or, you could cover the cost of a US-based mortgage via rentals. But you’re unlikely to be able to cover both.
So if you asked us this question, we’d say: “Here’s how the numbers look without a loan, and here’s how they look with one – does that give you what you want?”
Our approach is the opposite of most. We’re not about the hard sell. We’re not interested in encouraging you to buy a home regardless of circumstances for our own benefit. That’s not who we are, nor how we work.
Instead, we’ll explain the options clearly and explicitly, pros and cons, and work with you to decide what’s best – for you, not for us. We’re not shy about telling you when your likely costs of both financing and running costs won’t be covered by the rentals. We’re not in this to sell as many homes as possible by telling people what they want to hear. We’re here to tell you how it is and give you straightforward, honest advice so that you can decide whether one of the very nice Florida villas for sale is going to be your perfect place, taking everything into account.
So what sort of price are we talking about to cover both financing and running costs?
You’d need one of the larger homes – probably between $500,000 – $600,000 in the current market (around £400,000 – £480,000 in December 2016).
End of Part 1 – for more information on financing villas for sale in Florida, click here.