Financing FAQ
Top questions for European investors in Florida
What qualifies for a loan?
- Homes
- Apartments
- Property/Land
- New construction
- Refinancing
- Homes / Apartments: Cash-out refinancing (a loan is taken out on a property already owned and the loan amount is paid out in cash).
- Homes / Apartments: Mortgage-backed security. Objects that lie within the property boundaries are used as collateral; for example, a pool, boat dock, sea wall, etc (excluding furniture, cars or boats).
What is the maximum loan amount?
In general, a loan can be taken out for 80% of the home or property value; some refinancing loans can even be taken out for up to 90%.
Important: When buying real estate, the loan amount is determined according to the “lower of cost or market principle”, which means that the lower value will be applied. This can be either the resale value or the market value of the property, as determined by a certified appraiser.
What are the credit periods?
- Homes / apartments / new construction: 30 years
- Exception: 15 years with fixed interestWith a few exceptions, there is no prepayment penalty, i.e., you can pay off the loan without accruing penalty interest, whenever it is economically viable and matches your financial planning, depending on the solvency or exchange rate.
- Land financing: Credit periods vary between one, three, five or 15 years.
- Lines of credit: usually two to 10 years.
- Credit periods can be extended up to 40 years.
What are the periods for fixed interest rates?
Two types of mortgages with different interest are available: Adjustable rate mortgages (ARMs), where the interest rate is adjusted periodically, and fixed rate mortgages, where the interest rate remains the same throughout the credit period (either 15 or 30 years).
A variety of interest rate models are available: Monthly interest payments or interest rates that are fixed for one, three, five, seven, 10, 15 or 20 years.
Adjustable rate mortgages have limitations on charges, so-called caps, to limit the risk of financial hardship to the borrower.
What types of documents do I need to provide?
- The required documents depend on the loan amount.
- Buyers who provide 25% of equity capital may not need to supply supporting documentation.
How long does credit processing usually take and do I have to be in the U.S. at the time of closing?
Four to six weeks may pass from the time you apply for a loan to the actual closing (depending on how soon you can provide the necessary documents and whether the closing will take place in the United States or in Europe).
For credit processing, the borrower does not have to actually be in the United States. Everything—from the application to the actual closing—can be handled via phone, fax or courier services.
Can I wait until the loan commitment is approved, before I actually sign the contract?
No, you need a signed sales contract or a building contract to apply for a loan.
Important: Please ensure that the sales or building contract includes a so-called “finance contingency”. A contingency must be met before the contract is performed and gives you the right to withdraw from the contract, in case you are not able to obtain financing. In this case the down payment will be refunded.
Are there any specifics with regard to construction financing?
- There is usually no commitment interest.
- The bank monitors the construction progress and inspects the construction site.
- The bank checks the credit history of the buyer as well as the credit history of the construction company to minimize any risk of contingency or default.
- The loan will be paid to the construction company in installments, depending on the construction progress. Prior to paying installments, the bank commissions a building inspection (usually six building inspections and three pool inspections).
- Equity capital will be used first, so credit interest usually accrues at a later construction stage.
- Monthly payments have to be made after the building work has been completed.
Are there any specifics with regard to land financing?
- Due to the higher risk, land mortgages usually have higher interest rates.
- Credit periods can range either from 12 to 18 months, or from three to five years.
- Unscheduled repayment is possible.
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
