A couple of weeks ago, Nicoletta shared her experience of researching where to live, and purchasing a house. It was a challenging journey. This week, she shares all the details about the process and paperwork that’s involved in purchasing a house.
Before starting your house searching, you should get familiar with some expressions, most of them completely unknown to European expats.
The first concept to know, which is also the most difficult to understand for most non-Americans, is Credit History. It really takes a while to get to know what that is and what it involves.
Credit History or Credit Score is the American way to understand whether or not a person is a reliable customer. Banks and financial institutions keep track of every single electronic transaction people make -from credit card payments to mortgage installments, to loan payment, to domestic bills, etc. They use this information to give us a score based on our punctuality in paying back our debts, our debt to income ratio, and more. The higher our Credit Score, the easier and more affordable to get a credit card, a loan, a mortgage, etc. The credit score is not directly related to how much money you have on your current account or on how much money you make. There is a very complicated system that companies use to determine your credit score, which is impossible for the typical person to understand, but you can read more about it here.
Problems for expats arise when they arrive in the USA: no matter how rich, reliable and honest they have been so far: they must have a credit history in the USA. Otherwise, no credit card, no mortgage, no car loans!!! To help employees overcome this incredible problem, most companies sign specific agreements with one or more financial institutions, which help newcomers open a bank account, get a credit card, be approved a mortgage and a loan at reasonable interest rates. Another idea may be to ask your credit card issuer or financial institutions for a sort of “reference” letter, where they explain your history as a reliable customer.
The second concept to get familiar with is mortgage. We all know what a mortgage is, but the way you get one in the USA may differ from other countries. At least, it differs from my country!
Once you can prove you have a sufficient credit score or the company is supporting you with it, banks can finance your house for up to 90% of its value, provided the monthly installment and taxes (which are approximately 0.013% per year of the real value of the house!!) do not exceed 45% of your gross income. It can also take a relatively short time to receive the money (approximately one month from the approval). There are hundreds of different mortgages and loans: their interest rates vary according to your credit score and the amount of your down payment.
Another difficult but important word to know is escrow. Once the seller has accepted the offer, the buyer deposits the money for the transaction in an escrow account held by a third party, until all inspections are completed. This procedure is meant to assure the seller that the buyer is capable to make the payment. It’s a period of waiting, before you can actually take possession and move into your new home.
Good luck, and happy house hunting!