Construction Mortgage Loan in the USA
Wanting to buy a house, not having the financial ability to do so, you go to the bank for a mortgage loan for purchasing real estate. In this case, the house itself considers as a mortgage. It becomes a guarantee for the bank for a loan granted to you for its purchase. When registering such a transaction, the mortgage object will be officially entered into register of titles to real estate. As a result, the information on the status of real estate on security will become public. Until you completely repay the loan, the property will be documented by the pledge holder – the bank, and formally by you. A mortgage loan is a type of loan in which funds are provided for the purchase of real estate.
A bank transaction in providing you an easy loans, for example, to buy a car, as a guarantee of your real estate will be considered a “loan secured by real estate”.
The average market value of a 5-room house varies from 60,000 to 150, 000 in different states. Despite the fairly affordable housing prices, many Americans take a mortgage for a period of 30 years (it is not easy to pay a loan back). This makes it possible to monthly debit the minimum part of their income to repay the loan, and not stay in the conditions of austerity.
The amount paid on interest for such a huge period of time will significantly exceed the interest on the loan for a period of 10 years. A mortgage for a period of 30 years at a 5% rate will cost the borrower twice the property value. This is because the client, paying a small amount on a monthly easy loan, pays almost 1%, without reducing the size of the principal of the loan. The borrower has the right to make a monthly payment several times larger than specified in the contract, thereby reducing the loan repayment period, if this does not contradict the contract terms.
What is the interest rate for US real estate lending?
Americans make up their mind, which mortage option will be more profitable. The size of the floating interest rate is always lower than the fixed one (by 1-2%), but it is significantly affected by the conditions associated with the state of the US economy at the time the bank revises the rate.
Having taken such a mortgage, the borrower “plays a kind of roulette” with an interest rate, and is not able to distribute his expenses in the future. Depending on the conditions of such a fast money loan, the floating interest rate may not change in the first 3, 5, 7 years (3ARM, 5ARM, 7ARM) from the moment of mortgage registration, after which it can be raised to limit values (CAP), for example, from the initial 3 % to 7%, of which 4% will be CAP.
At the end of the fixed period, the bank will annually review the rate until the borrower fully repays the loan, and in extremely rare cases, decrease in rates. This type of mortgage is preferred by those who plan to repay the loan in a short period of time. Rates on such a loan on average vary from 3.1% to 4.5%. To date, the rate on 5-year mortgages (ARM) averages 2.85%.
The option of a mortgage with a fixed interest rate, due to the lack of risks, is increasingly attracting Americans. It is used by 75% of borrowers. Often, potential clients of real estate wait for a moment of economic stability in the country, at which the rate of FRM is not too high and the entire loan period includes a lower interest rate.
90% of Americans wanting to buy real estate choose a mortgage for a period of 30 years with a fixed interest rate. The average rate on such a loan at the beginning of 2016 was 3.72%.
In addition to favorable loan conditions, the US state provides its citizens with the opportunity to refinance mortgages (paying off the loan balance by issuing a loan at another bank with a lower interest rate), and also creates all kinds of mortgage lending programs for low-income citizens, veterans, victims of disasters (who lost their homes), pensioners, citizens using energy-saving systems, etc.
Advantages of Mortgage in the USA
The main features of mortgages in the United States are the following:
- Low interest rate. Mortgages have the lowest interest rate of all kinds of loans. This is explained by the fact that a mortgage is often issued for a long term – 30 years.
- Primary and secondary real estate markets. The US banks are willing to take on any transaction, either with secondary estate or the one that is under construction.
- High competition. Due to the fact that the mortgage is very popular in the USA, each of the banks tries to keep its client. Therefore, such loans are available to many segments of the population. In extremely rare cases, borrowers are disapproved.
- Accounting for customer income. When considering an application for a mortgage, American banks take into account not only the client’s income considering wages, but any personal savings, including pension, as well as dividends and rental income.
- An initial installment. The size of such a payment is 10-50%. But in some bank programs, there are no such obligations at all.
- People who have reached the age of 25, but not older than 75, can borrow real estate in the USA.