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Go West? The USA may offer opportunities for overseas property buyers

There are signs that the US housing market is emerging from its slump. Average home prices in the US were up 1.2pc in July compared with the same month in 2011, according to the S&P/Case-Shiller index. July’s reading was better than economists had forecast and improved on June’s 0.9pc increase.

There is hope now that prices are beginning to climb off the bottom after five years of decline. The US property market has certainly endured a torrid time. What does this mean for outside investors considering purchasing property in the US? Well, HSBC’s recent Overseas Property Report showed that your money goes furthest in Orlando compared to anywhere else in the world. £125,000 (US Dollar equivalent) could possibly get you a four-bed house in Florida and £250,000 could possibly get you a six-bed house!

HSBC reported that: “prices are just starting to rise again, enabling foreign buyers to obtain a relatively large home for their budget, which is boosted by a favourable exchange rate and low level of purchase taxes and fees”.

The potential bargains on offer in the US are really quite significant at the moment, especially when you consider that the £125,000 for a 4-bed apartment in Orlando could currently only get you a 2-bed apartment in Costa Del Sol, Spain, or the Algarve, Portugal.

House prices remain stubbornly low – but only for now. Average values of mainstream family homes across America are 32 per cent down on 2005, while many Florida agents admit prices are 50 to 75 per cent below their peaks. The Association of Foreign Investors in Real Estate – a body of estate agents worldwide – has nominated the US as its “top tip” for investors in 2012.

When you talk about purchasing property in America, many people automatically assume that you are primarily talking about Florida. However, that is not necessarily the case. The current most popular States in which to buy property in America are California, Colorado, Florida and New York. All of them offer quite a different atmosphere and style of property. In Florida, most people tend to buy in three areas: along the Gulf coast; the Atlantic coast; and central Florida, close to Disneyworld.

It is relatively easy to purchase in the US – there are few restrictions on foreign ownership and they have a well-regulated property market. It can also be an exciting place to be when you get there.

In terms of  obtaining finance, it would normally b8e from a US lender rather than an overseas lender. Mortgages are  from a maximum of 70% loan-to-value in  the majority of States or 75% loan-to-value in selected States (such as Arizona, California, Colorado, Florida, New Mexico and Texas).

Loan-to-values on a ‘Condo’ (essentially a leasehold apartment) are lower than single-family homes by approximately 5% to 10%.  A Condo is normally either a multi-storey block of flats or a row of four or five terraced houses.

It is worth noting that Condos have to be ‘Fannie Mae’ (the national mortgage association) approved.  That is to say the financial management of the Condominium has to be solvent and certain ratios of occupancy have to be fulfilled, such as the balance between owner occupied, investment and buy-to-let.

Completing a mortgage can take up to an average of 45 days, but will depend on how quickly the supporting documentation is received, plus the time for the valuation and legal work to be carried out. Closing needs to take place either in the USA or at a US Embassy or Consulate by utilising an approved Power of Attorney.

This market still has a supply of distressed properties, both short sales and foreclosures, but competition for the best deals can be fierce.  It can take several months for the lender to approve a short sale and mortgages should be pre-approved for foreclosures before signing a sales contract, as the selling bank will wish to close within 30 days. Buyers should make detailed inspections to uncover defect, debt or repair issues with these homes, so taking independent legal and valuation advice is crucial.

This popular overseas destination may not offer such incredible value when the market takes off though, so now is the time to consider it.

 

 

 


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Details correct when this article was originally posted on October 16, 2012.