Why obtaining real estate financing is so important in the United States.

When buying or financing real estate, it goes without saying that any potential risks should be either minimized or completely ruled out. This holds especially true for buying real estate abroad. Whom can you trust with your down payment? Which construction companies are trustworthy? How can you determine the real value of your property? First-time real estate buyers will have many related questions during the process.

The primary reason for real estate buyers to obtain financing from a U.S. bank is capital procurement. Often, investors also consider obtaining financing as a means of additional control. When financing a property in the United States, the buyer is not the only person interested in ensuring a correct buying transaction. Every bank or financial institution evaluates the transaction according its own strict standards to minimize or eliminate potential risks. This is, of course, also in the interest of the buyer, who benefits from the additional control provided by the financial institution.

Financial institutions provide the following services, among others:

Property appraisals: The first step in the process is the appraisal of the current market value by a certified appraiser. The appraiser determines the property value by comparing it to three properties that are similar in construction and asking price that are located within one mile of the property in question and were sold within the last 12 months. This way, a potential buyer always knows what his or her property is actually worth. The corresponding appraisal report also includes obvious damages (for example, roof damage, damage to pipes or the siding, etc.). The bank may require any damage to be fixed before the actual transfer of ownership takes place.

Screening of construction companies: If the property is a new construction, the bank not only checks the credit history of the borrower, but also the credit history, solvency, references, etc. of the construction company. The construction company is required to provide the bank with balance sheets, profit & loss statements, references and other conclusive documents. This is done to rule out the risk of default to the greatest possible extent. For construction companies that are regularly involved in bank transactions, these documents are already available and just need to be updated.

Building Inspections: If the property is under construction, the bank regularly sends a building inspector to the construction site; the inspector monitors the construction progress and the strict compliance with the specifications of the building contract. Since equity and mortgage financing depends on the progress made in the individual construction stages, the construction company will be paid in installments, after the inspector has visited the construction site. A construction inspector usually visits each site six times during the construction of the home and three times during pool construction. This way, the property owner knows that the proper building process is adhered to and that the contractor will only be paid for properly performed services.

Insurance: As far as refinancing is concerned, having the proper insurance is a prerequisite for refinancing a home in the United States. It is really surprising how many properties lack insurance or adequate insurance. Often, the owners simply forget to renew their insurance policy on a yearly basis and, as a result, are no longer covered. This is simply reckless.

Termite inspection: An inspector checks the house for possible termite infestations and past damage that may have been caused by termites. Even if no present infestation is detected, the inspector can determine if any previous infestations caused substantial damage that is not visible to the naked or inexperienced eye. He does that, for example, by checking partitions or intermediate walls. Any damage due to termite infestations should be repaired prior to the transfer of ownership (A termite inspection is not to be confused with pest control.)

Property survey: During the property survey, the boundaries of construction objects such as buildings or pools, are determined and verified. A property survey provides proof that the property was built within the plot or property boundaries and that all required minimum distances were observed. This may sound like something that can be taken for granted, but unfortunately, this is not always the case. In some situations, a building or pool was built right over the permissible plot or property boundary, which can lead to lengthy legal disputes or even to the purchase of adjacent lots.

Water Supply and sewage: Many residential areas or communities in Florida are not connected to the public water supply or to water treatment facilities. Instead, they have their own septic tanks and water wells. When you apply for financing, the bank or financial institution will automatically verify that the water wells or septic tanks comply with all sanitary and health requirements.

For good reason, U.S. banks have strict requirements for approving a mortgage for a particular property. They check that everything complies with local or state regulations. As a consequence, buyers can be sure that unpleasant surprises that may be associated with buying real estate will be kept to a minimum.

In any case, it is reasonable and prudent to apply for a mortgage or loan, even if you initially considered a cash payment. In most cases, there is no prepayment penalty and a loan or mortgage can be paid off at any time without penalty interest. Resourceful investors often decide on a line of credit, because interest only accrues when the money is withdrawn. The financial institution still carries out the necessary checks and inspections, regardless of the loan amount. And there's another important advantage to this: When you obtain financing, you start building your credit history in the United States.

Author: Kirsten Paul (info@paul-finance.com)
Website: www.paul-finance.de

Kirsten Paul is a qualified banker and mortgage broker who specializes in providing consulting services for European investors in Florida. After living in the Sunshine State for many years, Kirsten now works from her Munich and Florida offices on a regular basis. Phone: +1 (239) 565-7057