A real estate loan is a common targeted consumer loan for the purchase of a real estate. The fundamental difference between such a loan and a mortgage loan is that it does not require the borrower to pledge the loaned apartment or house. Of course, this does not exclude the need for the borrower to provide security for its obligations to repay the loan – for example, in the form of a guarantee of third parties or “under” the real estate already at the borrower’s disposal.
A real estate loan is a good alternative for potential borrowers who for one reason or another do not want to conclude a mortgage lending agreement with the lender. Moreover, depending on personal circumstances, the borrower may also use a non-targeted loan (in particular, a loan for urgent needs) to buy a dwelling, but the final decision in favor of one or another loan option, apparently, should be guided by the criterion of profitability, that is, based on the specific conditions of the loan. A consumer loan for real estate, like a mortgage, is provided specifically for the acquisition of real estate; you cannot use the funds received to buy plumbing fixtures or furniture for new housing at the same time.
The owner of real estate is endowed with the following responsibilities:
- pay twice a year property tax;
- regularly pay utility bills.
Tax debtors can be fined.
Features of a real estate loan
Real estate loans are popular among Americans. Lending conditions differ depending on the organization offering this financial product:
- the amount of the mortgage loan: from $100,000;
- first installment: at least 30% of the value of the house;
- interest rate: from 5% per annum;
- loan term: up to 30 years.
Choosing a real estate loan is a rather difficult task. It is better to choose a loan with the help of a specialist who will find the best options, taking into account your financial situation, credit history and down payment.
Stages of the transaction
- Choosing a realtor (broker). You can buy a house without the help of a real estate broker / agent, but you shouldn’t. This specialist represents the interests of the buyer at all stages of the transaction, helps to bring down the price, warns of potential problems with the house. A broker should be a professional who is able to answer all questions clearly, honestly and clearly;
- Registration of pre-approval letter. No broker will start looking for suitable options until the buyer has proven his/her financial viability. To do this, you need to provide a letter from the bank confirming that you can get a loan. If your own savings are enough for the transaction, make sure that they are deposited in your personal account. A bank statement on the state of a personal account is also suitable for proof of solvency;
- Search for suitable properties. Brokers have access to real estate databases. This will make your searches faster. In addition, a specialist will promptly draw your attention to important nuances for each option;
- Finding a lawyer. A lawyer is another specialist who will help you with this transaction. You can search for it yourself, or you can trust the broker’s connections. The legal purity of the transaction depends on the lawyer, and, consequently, your future rights to real estate;
- Drawing up an offer to the seller. When you have found a suitable house, you need to make an offer to the seller. The document is a standard contract indicating the conditions on which you are ready to conclude a deal. If you have several interesting real estate options, no one will forbid you to send out several offers at once. With prior consent from the seller, you make a deposit. Then you will have 5 days for a detailed inspection of the house and discussion of all points of the contract, as well as for making amendments with the support of a lawyer. At this stage, you can exit the deal with impunity, but already on the 6th day, the refusal will be fraught with the loss of the deposit;
- Appraisal of the property. The appraisal of a house or apartment is carried out by an independent expert. This stage is important for a banking institution. If the assessed value is lower than the value requested by the seller, you may be denied a loan;
- Legal due diligence. The purpose of the procedure is to assess the legal purity of the property. This includes checking whether the owners have mortgage debt. At the same time, insurance is drawn up;
- Receiving a response from the bank about the possibility of lending (loan commitment). The bank needs about 3-4 weeks to issue a loan confirmation. Refrain from applying for additional loans during this period;
- Conducting the transaction. The transaction is registered at the office of the title company. You need to collect a full package of documents (the broker will acquaint you with the list of required securities) and with the agreed amount of money. The transaction is carried out by lawyers. And if there are no additional problems, you become the owner of your dream home. If any nuances arise in the course of registration, the transaction is postponed until all troubles preventing its implementation are eliminated;
- Transfer of money. The principal amount is credited to the seller’s account after the transaction is closed. At the same stage, additional costs are paid, incl. and taxes.
NOTE! When the entire amount of the transaction is transferred to the account of the lawyer or the title company, the documents for the title to the real estate are transferred to the buyer. In some states, deed must be registered. The title company is responsible for the registration, and the buyer receives the already registered document. The procedure can take 6 to 10 weeks.
Additional costs: what else you need to pay for
When buying Woburn real estate, the real costs significantly exceed the cost of the house itself. Here is a list of what you will have to spend extra on in the process of making a deal.
- Lawyer’s fee (usually $1000-1500). All lawyers have the right to certify documents. This means that you do not have to resort to the services of a notary;
- Insurance. The amount of insurance depends on its type. This can be title insurance (in case the object has another owner), insurance of structures, as well as insurance against accidents. The broker will help you choose the optimal package of insurance services;
- Services of the title company ($200). Almost always, the purchase of real estate is carried out through the title company, which is responsible for the purity of the transaction;
- Registry and court fees. In the United States, there is no state duty when processing real estate purchase and sale transactions. But in some states it is necessary to register ownership. This service is also paid;
- Household tax (about 1.19%). It’s paid twice a year. The buyer pays for it for the first time immediately after the closing of the transaction;
- Bank services. The bank will have to pay for a real estate loan registration (about $1000), as well as for maintaining a loan account (about $400). In addition, the mortgage broker receives an $800 fee for confirmation of the buyer’s solvency.
Where is it more profitable to buy real estate?
The most expensive real estate in the United States 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, in these states, you will be able to repay the loan faster.
Buying your own real estate is not an easy task, both financially and legally. But with the support of experienced specialists in the field of lending, as well as real estate services, you can find the option that suits you and become the full owner of a house or apartment.