No finance contingency clause in the purchase contract
Without a finance contingency clause in your purchase contract you are obligated as the buyer to fulfill the requirements of the contract terms (for purchase) – even, if you cannot provide the required funds. This clause allows you as the buyer to resign from the contract on or before the contingency date without any damages in cases in which financing is not feasible as well as to have all deposits which have been paid to date returned to you.
Our tip: This clause is already standard in pre-formulated contracts and needs to be filled out correctly. We would be glad to check whether the clause has been filled out appropriately for you and that the right deadlines are given before you sign your contract.
The wrong property as a security
With the current growth in value, investors are likely to buy additional properties. When it comes to loans, often times the wrong property is mortgaged.
Our tip: If you would like to do financing, ALWAYS finance the first property and ALWAYS directly while buying (see below). US banks generally consider the first-bought house as the second residence. You can get the best interest and the highest mortgaging on a second home. Every additional property is considered an "investment" and will receive lower mortgaging and a higher interest rate.
Wrong timing
Those who do not apply for financing until after the purchase of the property are often surprised when they find out that they cannot choose between all available loan programs, since many banks provide purchasing, but no refinancing.
Our tip: If possible, finance right when buying. The product range is a lot wider when buying property than for a subsequent financing. Interest and closing costs can be higher, while the lending limit will be lower.
Corporation instead of private property
If you have bought through your company then your financing also has to be done through it. Most lenders will only allow title to be taken in a personal name, but we do have a small number of lenders which will allow for corporate title. Their guidelines for this are very specific, so please check with us or your attorney before signing the contract.
Our tip: If you should choose to register your property through the company regardless, you should do so only after you have already applied for financing, and considered all options.
Insufficient credit amount
Again and again foreign buyers of US properties make calculations that are not sufficient and apply for a loan amount that is too small. But what happens when additional furniture or a boat has to be added or if renovations are needed? An additional financing or additional mortgage is always possible, but again this is linked to the current value of the home which changes constantly.
Our tip: Most financing done in the USA does not include prepayment penalties. Therefore: It is better to be generous with your calculations and to factor in possible additional costs which may come up! The down payment that you do not use can always be paid back - without incurring penalties directly to the principle of the loan.
Cash payment instead of financing
A lot of times foreign investors think that financing is considered to be borrowing only and therefore pay in cash.
Our tip: There are several reasons aside from the liquidity question to prefer financing to the payment in cash. To mention the three most important ones: tax comparison of loan cost, interest and rental income / maximize control through the bank / building of credit history in the USA (only possible with liabilities!!) You may want to speak to your accountant, a US accountant or an attorney before you make your decision.
Application of a mortgage after construction started
Those who do not apply for a mortgage until after construction started will be confronted with an immense time – and cost commitment: for every service provider and delivery so-called “Lien Waivers” have to be obtained. This can take several weeks. In the meantime, construction has to be stopped. In the worst case scenario the construction costs and interest will rise through the roof in the meantime.
Our tip: Even if the smallest possibility exists that construction financing will be needed, it should definitely be applied for prior to the commencement of construction.
