When buying property in Florida, you can soften the effects of the exchange rate by purchasing with a mortgage. Purchasing from a British owner could also help your case. We take a closer look and highlight some pointers for helping you to secure a home loan.
The markets fluctuate daily. This can lead to considerable risk when purchasing property overseas. For buyers on the verge of making a purchase, there are ways to counter the pain of the exchange rate and save you from losing money unnecessarily.
Cash isn’t always king!
The UK’s mortgage market might be in turbulent waters, but not so in the US. The simplest solution is to buy with a dollar-based mortgage, an option made especially attractive to would-be cash buyers by the US’s flexible redemption rules. Opting to purchase with a mortgage allows you to leverage your cash. You’ll only need to exchange enough Sterling to cover your deposit and closing costs in US dollars, so avoid exposing the bulk of your Sterling funds to today’s poor exchange rate.
Crucially, early redemption – or prepayment – penalties are virtually non-existent in the US, even with fixed rate deals. This means that as and when Sterling strengthens again, you can choose to pay off all or part of your home loan with the better exchange rate making the Sterling cost less than if you’d bought outright at the outset.
Another reason to buy with a US mortgage is the boost is gives to your buying power and opportunity to earn a better rental income. In central Florida in particular, a trend for large well equipped vacation properties – between 6 and 10 bedrooms, located in desirable communities or resorts attract higher occupancy levels and rental yields than smaller properties with less amenities available. Typically, stretching your budget through a mortgage and choosing your property carefully is worth it.
Ask any realtor or agent and all will advise you to get a pre-approval for a home loan before beginning your property search. This is a written conditional commitment from a lender for an exact loan amount, which means you can confidently make offers for a home at or below that price level. To gain this you will need to provide the lender with all relevant documentation needed to check your financial background and current credit rating. There will usually be a small application fee involved. Having it in place shows your realtor and any vendors that you’re serious about buying and ready to move on a purchase quickly.
Don’t confuse pre-approval with pre-qualification. While better than nothing, pre-qualification is an indication of the type of deal a lender will offer you based on less detailed information, and as such does not have the same commitment or carry the same weight as a pre-approval.
What can you get?
Typically, US lenders today require a minimum 20-30 per cent deposit from foreign borrowers buying a second home. Most buyers opt for terms of 20-30 years with fixed rates currently ranging from 5.5-6.5 per cent. The better deals might require you to have cash reserves in a US bank account, as a type of security. Expect deals to come with minimum and maximum loan amounts too.
Meanwhile, according to realtors another way to spin the exchange rate in your favour could be to seek out properties with British vendors. Most will have a ballpark amount of Sterling they wish to repatriate from the sale of their US home, an amount they approximated when the dollar was weaker. Given they now need fewer dollars to achieve that figure, they just might be open to a deal!