Financing your Florida Villa

If you are looking to buy a property in Florida you have two main choices:

1) Arrange finance against a UK property and purchase a property in Florida for cash. Provided you have sufficient equity in your UK property this is an easy route as you will be used to dealing with UK lenders. Potential issues that you should consider are:

   A) Lenders in the UK will be reluctant to lend much more than 60% if the purpose of the capital raise is to buy a property abroad.
   B) If you are buying a property and you intend to rent the property out you will be earning in dollars and paying a mortgage in sterling, so you will have to be aware that currency fluctuations will have an impact on the income you are receiving.
   C) After raising the capital on your UK property, you will need to transfer the funds and the prevailing exchange rate at that time may not be favourable.
   D) The interest rate on your additional UK lending may be higher than the 'main' mortgage.

2) Arrange finance against the property you are buying in Florida. Given the recent turmoil in the financial markets many believe that obtaining finance is extremely difficult to obtain at the present time. However, whilst there are fewer lenders who will lend to 'International' clients, there are still enough lenders to make the terms and underwriting attractive. There is also a hint that more lenders are now considering re-entering the market, which should make the products available more competitive.

The main benefits of borrowing against the house you are buying are:

   A) This is that the debt is secured against the property you are buying, not a UK property.
   B) Furthermore if you rent the property out, the rent you earn and the interest you will pay on the mortgage will both be in the same currency, thus avoiding any exchange rate risks.

You will also need to consider the following potential issues:

   A) Many lenders in Florida won't lend on Apartments or Apartotels, however some resorts provide there own 'inhouse' lending…usually at a slightly higher rate.
   B) You will need a deposit of at least 30%
   C) Interest rates will be in line with UK buy to let rates, but are likely to me marginally higher than UK residential borrowing rates.
   D) It is currently difficult to secure finance for individuals who have been self employed for less than two years.

Basic Criteria for borrowing in Florida is as Follows:

  • 30% deposit: - You will normally be required to have at least 60 days banks statements with the deposit in or be able to show the origin of the cash if less than 60 days bank statements are available.
  • Proof of 2 years income: You will be required to provide last two years P60's or a letter from your employer confirming occupation, length of service and income for the last two years. Self Employed clients would need a letter from their accountant confirming self employed for at least two years, occupation and income for the last two years.
  • Credit Reference: A letter from your existing UK mortgage company confirming balance, mortgage payments and that you have no arrears. If you do not have a UK mortgage, you will need to supply three separate letters from different companies…eg landlord, credit card or loan company, council tax office, mobile phone company if your are tied to a contract.
  • ID: copy of passport.

Fees: The lender fees are usually around $750 to $1200 and this includes the cost of a survey. If you use a US mortgage broker ask what their fees are and establish if there is a 'back end yield spread'. Basically, this means that if you ask your broker to find the best 30 year fixed rate and they find a rate of 5.7%....if they sell you 5.95% instead of 5.7%, the lender will pay the broker 2% for every 0.25% extra they sell you. They may also charge you around 2% on top of this. Let the broker know you are aware of the yield spread and that you want to avoid it. This will mean that you get the best rates and the broker gets paid a much more reasonable 2%.

Process: The process is fairly similar to the UK, but there is no exchange of contracts. Instead you will receive a 'Good Faith Estimate' (GFE), which outlines the whole financial transaction, including all fees, taxes and insurances. Once you are happy with the GFE and the mortgage is approved, a pack of information will go to the lenders closing department. They will liaise with the title company (similar to conveyancing solicitors in the UK). The title company will prepare all of the paperwork for the purchase including the mortgage documentation. These are the papers you will be required to sign in order to complete the transaction. You can either fly to Florida to sign these or have them posted to you in the UK. I would recommend that where possible you fly over to complete the purchase as the title company and Realtor will be present to answer any queries you have. Alternatively with a 'mail away' you will need to make an appointment with a 'public notary' who will need to witness all of your signatures. The problem with this is that the notary will not be able to answer any queries you may have, he is there to witness your signature only.

Key tips

  • Assess whether you want to borrow in the UK or in Florida
  • It will be difficult for you to source your own mortgage in Florida as it is a specialist market with only a handful of lenders at the present time
  • When looking for a mortgage broker, ask them to explain how their fee structure works and about the 'back end yield spread'
  • When completing your transaction try to fly over to sign documentation as you will get guidance from your Realtor and the Title company officer, who can answer any questions you may have.

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