FISCUS MORTGAGES - INFORMATION AND ADVICE

American Mortgages & Property

There has always been a lot of attention paid to property in America, most notably in sunnier parts of the country such as California and Florida. There has recently been an upsurge in interest in USA property because of favourable exchange rates.

The currencies fluctuated around the $1.4 - $1.6 bracket for £1 for a sustained period of time, however the ongoing devaluation of the ‘greenback’ has seen an English pound purchase $1.84 (25 March 2004). This means that a $500,000 house bought two years ago that would have cost £350,211 (25 March 2002) would now cost £272,753, a saving of £77,458.

PURCHASING AMERICAN PROPERTY

This section looks at the act of purchasing property, rather than searching for a house, an estate agent etc.

Assuming you have a bid accepted for your ideal American property, you will be asked to sign a sales contract. When you sign the sales contract you will have to put down a deposit, typically 10% of the agreed purchase price. In the case of a new construction, the construction company may ask for a different level of deposit, depending on the stage of the building process.

The Title of the property will then be checked by a specialist Title Company that will also confirm that all other documentation relation to the property is in order. The relevant contracts are then signed in the presence of a Notary Public, who acts as an independent witness.

If all of the paperwork is in order your mortgage provider will transfer the loan funds to the Title Company, who will then conclude the purchase of the house by distributing the funds accordingly.

It should be noted that as part of the mortgage agreement you will have to insure the property for the full ‘re-instatement value’, which is the expected total cost of totally rebuilding your property should it be destroyed.

AMERICAN MORTGAGES

Both full-status and self-certification mortgages are available for purchasing US property, however the borrower should be a UK resident that owns their own home.

The borrower needs to have an excellent credit score, in which case it is usually possible to borrower around 3½ times your income. Your income will need to be confirmed, so ensure that you can produce documentary evidence. It should be noted, however, that some lenders may be prepared to factor in future rental income of the property, if you plan to buy-to-let the property.

The type of mortgage can be repayment or interest-only and the mortgage term available is the typical 5 - 25 years range. The loan-to-value (LTV) ratio is usually no more than 80%, although it is likely to be lower if you opt for a self-certification mortgage.

The mortgage itself can be of US dollar denomination or UK sterling.

TAX IMPLICATIONS OF PURCHASING AMERICAN PROPERTY

If you are a US resident, then you are liable to pay capital gains tax of between 8% - 15%. However if you are non-resident be prepared to pay a capital gains levy of 30%.

In America, there are numerous taxes that vary from state to state which makes it difficult to provide an across-the-board explanation of US property taxation. As a popular option for many considering American property, we shall have a look at Florida when considering regional tax implications:

Value added Property Tax (Ad Valorem Tax) is charged annually on all Florida property and is calculated by the county property appraiser using the value of the property. This tax is collected each year by the Florida Tax Office. There are some exemptions available to certain categories of owners, providing benefits of up to $25,000. In addition to this exemption, there is tax relief for blind residents and those with other physical disabilities.

There is also Estate Tax (this is Inheritance Tax and is known as pick-up tax in Florida). The American states benefit in part from Inheritance Tax as part of a deal with the US federal government. This system of tax means that Estate Tax is due if a tax return has been filed with the federal tax authority. You are exempt from having to file with the federal authority if your total assets do not exceed $1,500,000 – this figure is set for 2004 and 2005. There are, however, Federal reforms that should see the elimination of Florida’s estate tax over time.

For more information on Florida’s Taxation system, we suggest you take a look at the State of Florida’s official website, which contains information on a range of taxes.