Many people believe that a mortgage is a type of loan, but from a legal point of view, this is wrong. A mortgage is not a loan itself, but a security measure provided for by US law. When a person takes a loan from a bank to purchase a house, this house becomes a subject of collateral, so that in case of default by the buyer, the bank can obtain the rights to this real estate. If the entire loan is paid off, the pledge is terminated and the house becomes the full buyer’s property.
Types of mortgages
A loan for the purchase of real estate in the United States is called a mortgage. There are two types of loans:
- fixed-rate mortgage;
- adjustable-rate mortgage.
The overwhelming majority of borrowers prefer the first type, because here the rate cannot be changed. For the entire period of lending, the one that is prescribed in the loan agreement will be applied. The peculiarity of the floating rate is that it is usually 1-2 % lower, but the bank has the right to raise it, although in principle it can leave it unchanged. Usually, in practice, it happens like this: within 5-10 years, the bank undertakes to lend at a fixed rate, but after this period, it has the right to change it (up or down). Thus, the second type is associated with a certain risk, it is more profitable mainly for those who are going to sell the house later.
Mortgages for US citizens
An american citizen mortgage approval applicant must be:
- at least 25 years of age but not older than 75;
- legally employed in America;
- able to make the down payment (from 10% to 50% of the total amount). This is where the basic requirements end, although individual banks may have their own requirements, but not so significant.
Set of documents
A person who wants to take out a loan from an American bank under a mortgage must provide:
- ID (or it can be an American driver’s license, green card);
- Social security number;
- Credit history;
- Income certificate (as a rule, this is a certificate of the amount of salary for the last 3 years);
- Bank statements confirming that they have funds (usually for the last two years). A copy of the contract under which you are purchasing the house;
- Other documents (banks have the right to request other documentation, it all depends on the specific case).
A down payment
Most often, it ranges from 10 to 50% of the loan amount (while for foreigners it is higher than for US citizens). However, some banks may provide loans at a lower down payment or without it at all. Therefore, it is recommended that a potential borrower look well for more profitable lending options, there are a lot of offers on the market.
Usually, US banks provide funds in the amount of $ 100,000 to $ 20 million. Although each bank has its own characteristics, carefully study the offers of different banks.
Mortgage loan term
The specific term is indicated in the loan agreement between the bank and the citizen. The minimum term is usually 5 years. If we turn to practice, then most often a loan secured by real estate (mortgage) is provided for 15-30 years.
Where is it more profitable to buy real estate?
The most expensive US real estate is located in the states of California and Hawaii (the price is several times higher than the American average). But in other states, you can buy a house for much less. These include Georgia, Michigan, Arizona, Philadelphia, and Florida. Accordingly, you can quickly repay the mortgage loan.