BUYING A HOUSE IN THE USA: OUR ADVICE

 BUYING A HOUSE IN THE USA: OUR ADVICE

Whether it's to live there or to build a profitable portfolio, buying a home in the USA appeals to many future homeowners and real estate investors. If owning a home across the Atlantic is part of your dreams, you should know that a real estate transaction requires expertise in complex financial and legal matters. It can also require expertise in seemingly mundane issues, such as property lines and flood zones. In this article, Investir US offers useful advice for considering buying a home in the USA.

Take stock of your financial resources

In most cases, buying a home in the USA is done on the basis of a mortgage loan (i.e., a real estate loan, quite simply). To do this, you must obtain a loan from a lending institution.

The median price of a home in the United States exceeds $300,000. To qualify for such a loan, it's essential to be able to repay the borrowed amounts. This means a mortgage lender will first need to closely examine your finances and resources before making you an offer.

A stable job, a steady salary history, and stable financial resources are among the essential elements that will allow you to obtain a mortgage loan. Credit scores and credit reports are among the elements the bank relies on when considering the desired loan amount.

In the United States, there are three major credit reporting agencies responsible for reviewing loan applications: Experian , Equifax , and TransUnion . Each agency offers a free, full credit report once a year. Note that you shouldn't rely on scores provided by outside sources, as these can be inaccurate. The most reliable reports can be obtained from these three agencies.

Credit scores are reported based on the FICO model. An applicant typically achieves a score between 300 and 850. Any score above 760 qualifies for the best rates and loan terms. Conversely, scores below 500 are almost always considered too low to qualify for a mortgage, unless they are applying for a VA loan. Buyers considering a home in the U.S. with a minimum score of 620 can qualify for a conventional loan. Generally speaking, the minimum score required to qualify for an FHA loan is 580. Furthermore, even if buyers achieve these minimum scores, they still end up paying higher interest rates, higher fees, or both. In short, the higher your credit score, the less you'll pay and the more money you'll save over the life of your home loan.

Also note that credit reports provided by the agencies mentioned above may show possible late payments that other lenders may have reported. Carefully review the reports and dispute any incorrect information immediately.

When reviewing your finances, determine how much cash can be used to cover the down payment and transaction fees. The latter can represent an additional 1 to 3% of the purchase price. Also note that some loans require a 3 to 5% down payment. Still others require a minimum down payment of 20%. Private mortgage insurance, if the down payment is less than 20%, should also be considered.

establish a budget for buying a house in the USA

Obviously, there's no point in looking at homes priced at $500,000 when you can only afford to spend $200,000. To narrow your search down to a realistic price range, you need to set a budget beforehand.

To create a budget for buying a home in the USA, make a detailed list of your usual monthly expenses (including credit card payments, student loans, car loans, and other recurring expenses) and add all the expenses related to the new property you are considering. This includes monthly mortgage payments, property taxes, home insurance, etc. While you won't be able to get 100% accurate figures, calculating this will give you an idea of the selling price for your purchase. You will find many online calculators that will help you estimate this and narrow down your choices.

You also need to consider your total monthly expenses and divide it by your total monthly income. This will give you a percentage corresponding to your debt-to-income ratio. In the United States, this percentage is called your DTI. This is precisely the figure the bank will look at to decide if buying a house in the US is within your budget. Ideally, you should stay below 43%. If you're below 36%, you should benefit from better terms and interest rates.

With a DTI above 43%, you may not be able to afford a home at the price you originally considered. You'll need to scale back your ambitions and choose a property with a lower price.

Check with lenders and get pre-approved

At this stage, you're not yet ready to sign the sales contract, of course. However, it's important to contact lenders before you start buying a house in the USA for two reasons:

First, these agencies will give you an idea of the types of mortgages you might be eligible for. You can ask them as many questions as you like about possible terms, interest rates, and specific credit score and DTI requirements. These agencies will also direct you to loan officers or brokers who will offer the best rates based on your profile.

Then, lending institutions are able to offer you a mortgage pre-approval. This is not a guarantee of loan approval; it is simply a declaration that you are financially qualified to be eligible for a loan, based on a preliminary review of your finances.

A few words about pre-approval

Pre-approval includes the maximum mortgage amount you'll be eligible for. This figure gives you a much clearer idea of how much you'll be able to spend on a home purchase in the U.S. Having your pre-approval doesn't mean you have an agreement from either party to lend you money. However, it does allow you to do more research to get a better deal once you've chosen your dream home.

A loan pre-approval isn't necessary if you're looking to buy a home in the U.S., but it makes things much easier. Some sellers give more weight to an offer from a pre-approved buyer. Some sellers and real estate agencies simply refuse to show the house for sale without seeing the pre-approval document. So, while pre-approval isn't an absolute necessity, it's very helpful and makes many of the steps easier.

When choosing a lender, it's tempting to rely on a simple recommendation... But that's not enough. It's essential to do your research and seek the best possible deal. Request quotes from mortgage lenders, national lenders, banks, and other local credit unions. These often offer more competitive interest rates. Take the time to do your research, perhaps by reading borrower reviews online. Don't be afraid to ask loan officers what their commission is on your mortgage. Generally, the higher the loan officer's commission, the higher the interest rate or fees the borrower will pay.

Find a trusted real estate agent or broker

Buying a home in the United States is usually done through a real estate professional. Most of the time, the seller pays the buyer's real estate agent's fees, along with their own. It's advisable to do some research on online real estate sites to get an idea of the type of properties for sale in the area you're interested in. However, an experienced agent will be your best ally when you're ready to take the plunge, especially if this is your first purchase.

A real estate agent can provide valuable insight into market conditions, show you comparable sales, and help you determine if a home is worth the asking price. They will also provide information on how long the home has been listed on the property to help you prepare an offer and counteroffer and resolve any objections. A real estate professional can suggest properties in neighborhoods that are more suited to your needs and goals.

Contact a French-speaking real estate expert in the United States

Towards buying a house in the USA

By your side, the real estate professional who accompanies you will be your best guide throughout the process. It is also important to trust your own instincts. For example, if you find the house of your dreams and all it needs is a simple cosmetic renovation, it is important to make an adequate offer so as not to miss out on the opportunity to buy it. If all the details of the house you are interested in seem correct, but something leaves you doubtful, there is no need to force yourself. There are always other houses to buy nearby...

Also consider certain deadlines: for example, it takes 30 to 45 days on average to close a sales contract for a new build. So, if you want to move in before the start of the school year or if you need to sell your old home, and you want to be out by a specific date, a retrospective schedule will be essential.

Have in mind, or on paper, a list of what you are really looking for in order to optimize your search and focus only on the houses that are likely to suit you.

Preparation of documents

Although it doesn't happen in any specific chronological order, preparing the documents for buying a home in the USA is essential. At some point, you'll need to submit financial documents to your lender. The sooner you start gathering them, the better. Documents you'll most likely be asked for include:

– Your last two tax returns

– Your pay slips and other documents proving your income over the last two months

Your bank statements and other brokerage and investment information, over a period of two years

Proof of your ability to pay the deposit

A letter of recommendation from the previous landlord, if you were a tenant

Your identity documents (passport)

Depending on the type of property to be sold and the lender's requirements, the lender may require other documents.

Appoint a lawyer (if necessary)

Not all real estate transactions involving the purchase of a home in the USA require the presence of an attorney. In some states, this professional is required, but in most cases, it is optional. Your real estate agent will inform you whether an attorney is required in the state where you are considering purchasing a home in the USA.

To simplify the purchase, you may be able to avoid the additional costs of hiring a lawyer. Most transactions are conducted using standardized documents, and the best real estate agents are adept at making sure everything runs smoothly.

On the other hand, if the state requires it, or simply if you are not comfortable committing to such a large purchase without the support of a lawyer, if the transaction involves delicate issues, it is better to turn to a competent professional.

Avoid hiring the cheapest lawyer you can find. Ask for recommendations and interview each potential candidate before making a decision. Don't hesitate to consult your real estate agent, who likely has some good contacts in their network to share with you. 

In the United States, a real estate lawyer doesn't just handle a specific legal matter. He or she can review and advise you on all the numerous documents required to complete a home purchase agreement in the United States. He or she will help you avoid potentially costly mistakes.

Make an offer and start negotiating

Once you've found your dream home and decided to buy it, your real estate agent can explain how to make an offer. They know the market and can advise you on how much to offer the seller. Your agent will also let you know if the property you're interested in is attracting any interest from other potential buyers. This will help you determine what type of offer to consider.

If you're not about to enter into a back-and-forth bidding war, don't be afraid to attach conditions to your purchase offer. These could include a desired closing date, a request to include certain appliances and/or furniture in the sale, or a clause stipulating that the purchase is tied to the sale of your old home. You may have to go through a number of back-and-forths with the seller, which can lead to frustration. This involves written counteroffers, resulting in delayed responses—all part of the game of buying a home in the U.S.

To show how serious you are, you'll need to include a check or money order with your offer. This earnest money deposit is between 1 and 3 percent of the sale price. It can also be a fixed amount of several thousand dollars. This amount varies depending on the real estate market in the area you're interested in. If the deal falls through due to a seller-related issue, you get your money back. If the problem is on your end (for example, if you can't get financing), you may have to take the transaction to court to have any chance of getting your money back.

Organizing financing for the purchase of a house in the USA

An approved offer signals that you can contact your lender, or select one, to begin the mortgage application process. You'll need to be patient, as it's not uncommon to see a lot of back-and-forth with the loan officer or mortgage broker during this process. Underwriters, the people in charge of calculations in the back office, typically ask questions as they review your financial information in detail. They may request additional documentation or letters of explanation if they have questions about certain items.

Final approval may not come until shortly before the closing date. There's no need to panic. The lender simply wants to be 100% certain of your creditworthiness and repayment capacity.

At the same time, it's important to find a good insurance company that will cover your home. You'll also need to take care of other important details, such as finding a title deed, purchasing insurance, etc. Your lender can guide you through the process and, in some cases, handle these steps for you.

Inspection and evaluation of the future house

Never purchase a home in the USA without a prior inspection. No contract should be signed without a contingency clause stipulating that the home must be inspected. This will allow you to ensure that there are no known structural or functional issues.

The home inspection is payable by the buyer: your real estate agent will be able to suggest several reputable inspectors. You will also be able to stay with the inspector while they complete their work. At the end of this step, you will receive a comprehensive list in the form of a report.

A home inspection may reveal minor problems (electrical, plumbing) that can be easily repaired. It could also be more serious issues, such as mold or a cracked foundation. It's up to you to decide how serious the problems are before closing the sale.

An inspection related to an infestation by termites or other pests must also be carried out.

Finalization of the real estate transaction

You're nearing the end of the process of buying a home in the USA. Contracts are in place; inspections are complete; unforeseen circumstances have been resolved; and financing is in place. All that's left is to sign the documents and get the keys to your new home. Before finalizing your home purchase in the USA, make sure you have a certified check or wire transfer as payment for the down payment and transaction fees. Also, make sure you have homeowner's insurance in place; you should have a documented proof of this.

The signing of the sales contract can be done in person. In more than a dozen US states, it can also be done online, using a secure digital electronic signature service. If you have an attorney, they must be present at the signing to review all documents beforehand. If you cannot attend the closing in person, it is possible to assign your power of attorney to a third party.