Mortgages in America are far from the cheapest in the world: the smallest annual loan rates in Japan, Switzerland, and the rest of the Eurozone countries. However, its conditions seem more acceptable than in Russia, where the bank interest on a loan today is on average 7–9%. But this is only at first glance. Faced with the requirements of banks, borrowers are convinced that the cheapest loans in the United States are issued to their citizens. For foreigners there are much less profitable offers. Each individual who has come to a new approach has an individual approach, and the main selection criterion is the presence of a clean credit history, a high level of income and recommendations from banks. Credits are given to immigrants not so reluctantly, but with the sole purpose of making good money on them, especially since the majority of people who go to America are not poor. For wealthy people, the doors are open there, and the socially vulnerable in the USA are not expected; they themselves, as they say, have enough of their needy. As a result, it may be that those prices that you expect in the United States may simply not be. So, what is mortgage in America today?
Mortgage in the US in 2018: what’s new?
The turnover of mortgage housing in the US today is the highest in the world. The country has experienced the effects of the crisis in the mortgage market, which led to the collapse of many banks and the emergence of a whole army of homeless people – bankrupt mortgage borrowers. Then the state was forced to save the entire banking system from complete collapse, pouring large cash flows into it. Currently, the situation has improved, and the mortgage continues to be a popular product, because the national mentality is such that people are born from birth to live in debt. The majority of the population – rented or borrowed housing.
Rates and mortgage situation in the USA and Russia
At present, the annual bank interest in the United States ranges from 3.5 to 7%. That is, the rate is still low. But we should not forget about the rate taken by the Fed to raise rates, which occurs in stages. Over the past 2017, the rate has changed by 0.7%. This year there were already two increases (in March and June), which added an additional 0.5%, and at the moment the Fed’s key bank rate is 2%. This leads to some increase in the cost of mortgages in the United States: the minimum percentage on which banks agree to issue loans today is close to 4%. In Russia, the opposite situation – the rate is reduced (now it is 7.25%), and mortgages are getting cheaper. It turns out that mortgages in Russia and in America are moving at prices towards each other.
- US banks invest the current situation in their conditions by entering into an agreement with borrowers at a floating rate. The floating rate is beneficial for the bank, as it allows you to flexibly respond to changes in the key rate and raise the tariff in sync with the Fed.
A fixed rate is more profitable for a borrower:
- overpayment on the loan does not exceed the calculated values;
- monthly payment will be the same throughout the crediting period;
- if the base rate starts to decrease, then you can simply refinance the mortgage (refinancing is allowed no more than once a year).
Usually banks try to find a compromise solution:
- fixed rate for the first few years;
- lower the tariff by 1 – 2% subject to the conclusion of the contract at a floating rate.
Where is the mortgage more expensive?
Despite the fact that the annual mortgage percentage in Europe and the United States is lower than in Russia, the absolute cost of a mortgage abroad is high due to the fact that housing there is very expensive, and the monthly payments are much higher than ours. But in relation to the size of the payment to the total household income (KDN – the debt burden ratio), mortgages in European countries and America are still cheaper than in the Russian Federation: this figure is 20–30%, in Russia – 45% (and formally – in reality, banks issue loans even at a collective return rate of 60%!).
Advantages and disadvantages of the American mortgage
In general, the advantages of mortgages in the United States include:
- a large number of proposals in the primary and secondary markets for all tastes and opportunities (housing from $ 35 thousand to $ 1 million);
- relatively low rate;
- loyalty to borrowers (for example, the bank will take into account not only real income, but also personal savings; you can arrange a mortgage without a personal presence at the bank through the consulate);
- ease of processing, in some cases not requiring the personal participation of the borrower;
- the availability of social and preferential mortgage programs (only US citizens can use them).
The disadvantages include:
- Floating rate.
- Compulsory social insurance.
- The presence of an additional fee for opening and servicing the loan (for a foreigner, the commission can go up to 10%).
- Increased demands on foreigners:
- the need for additional banking protections;
- the requirement to open an account with an amount equivalent to the annual transfers on the loan;
- less favorable conditions (double interest, increase the amount of the first installment).
The sequence of actions when looking for an apartment and mortgage design
First you need to find a suitable apartment (in the US, this is done mainly through a realtor), arranging by price, layout and location. (Attention: an apartment in the United States that is too cheap in price may end up in a disadvantaged area where mainly African Americans live). In order not to take the “cat in the bag”, do not rely on the photo alone in the advertisement of the broker, but take a look and see the apartment.
An alternative in this case may be the process of adaptation and job search, rental housing, obtaining a residence permit, and then citizenship, giving the right to participate in social mortgage programs.