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Buying a property in Florida: Costs & Process
The
Floridian system of property purchase is quite different from the European’s
and has several pitfalls for those unfamiliar with it, so appropriate
professional guidance is essential.
In Florida, nearly every property for sale is listed on a central
database available to all estate agents (known as realtors in the US),
so there is no need to visit individual agents. Agents tend to work as
seller’s agents or buyer’s agents. It is wise to consult FloridaForSale.eu - experienced in working with European purchasers.
Costs
To cover legal, title insurer and notary fees, title insurance
premiums, transfer taxes, property taxes and mortgage fees (if
applicable), you should allow around five per cent of the purchase
price.
The purchase process
Once a price is agreed, the purchaser pays a small goodwill deposit
before making a formal offer in the form of a purchase contract. When
signed, this is binding, though contingency clauses allow either side
to withdraw in defined circumstances.
A 10 per cent deposit is then paid into an escrow account. A title
insurance company scrutinises the public records and insures the
property against any third party claims. Completion, including the
transfer of the balance of the purchase price into the escrow account,
can then take place.
Time is a crucial element of the US home-buying system. If you fail to
observe dates stipulated in the contract, you risk losing your deposit.
Florida Property: Mortgages
When
working out how to finance your property purchase, consider all the
options. Paying cash, if you can afford to, is often recommended, but
you may not want to tie up a relatively large sum in this way. If this
is an option for you, be sure to consult one of the specialist currency
exchange companies in the market, as you can get far better exchange
rates and potentially save thousands in the process.
The other options are remortgaging your home or arranging a mortgage
on your Florida property through your homeland or US lender. Remortgaging offers
the easiest solution. Releasing equity in your current home means that the
second home can be purchased for cash, without the need for another
mortgage. However, this may only be feasible for those who own their
first home outright.
Several European mortgage providers will lend funds of up to 80 per cent of
the purchase price for second home purchase over, typically, a 15-year
term.
Getting a mortgage in Florida
If you decide to obtain finance in the US, bear in mind that most
mortgages available to foreign nationals require a minimum 20 per cent
down payment. Some even stipulate 30 or 35 per cent.
At the beginning of the process, make sure you obtain what is known as
a Good Faith Estimate. This is a standardised document used to detail
all the costs of obtaining your mortgage, including both monthly and
one-off payments.
If possible, try to secure a self-certified mortgage. This kind of mortgage does not necessarily carry a higher interest rate
than a fully documented mortgage, and it could save you a lot of time
and trouble spent assembling documents.
Taxation
The US taxation
system is a complex one, and may involve payments to at least four
different levels of government: local, regional, state and federal. A
Double Taxation Treaty between the US and the Europe prevents double
payment of taxes.
Income tax, a progressive tax ranging from zero to 35 per cent of
taxable income, forms the bulk of taxes collected by the US government.
Florida ranks lower than many other US states in terms of the tax
burden it imposes. It is one of only nine states that do not levy a
personal income tax. More than half of its non-federal revenue is
collected at local level, mostly through property taxes, which, for
homeowners, amount to approximately 1.5 per cent of their property’s
value per annum.
All rental income in Florida is subject to tax, which is charged on a
sliding scale (currently 15 to 34 per cent), depending on the amount.
‘Intangible personal property’ (that is, stocks, bonds, mutual funds
and so on) is also taxed.
Florida’s sales and use taxes provide over half of state revenue. Sales
tax applies to most retail items (excluding groceries, medicines and
certain other items), as well as to car and hotel room rentals and
theatre tickets. The rate is currently 6 per cent. Local governments
may levy an additional local sales tax of up to 1.5 per cent.
The use tax is levied on wholesale items brought into Florida for sale.
Passports, visas and residency
Passports and visas
Most of Europeans may visit the US for business or pleasure without a
visa for up to 90 days per year. A passport is required. The
traditional Visa Waiver programme in operation for most European
nationals allowing them to stay in the US for up to 90 days is set to
change in January 2009. From this point, all travelers wishing to use
the Visa Waiver will be required to register themselves online before
departure for the US.
This should preferably be done at least 72 hours in advance, and is
intended to afford an extra layer of security for the US authorities.
The online registration will be valid for up to two years; will be
named the Electronic System for Travel Authorization; and will be
similar to Australia’s Electronic Travel Authority in operation. The
ESTA is also valid for multiple entries into the US, so for property
owners it is possible to fill out the online registration once and then
travel for two years under the normal Visa Waiver Programme.
Those wishing to stay between 90 days and six months must hold a B2
visa. To be successful, applicants must prove they have sufficient
funds to support themselves during their stay.
Residency
Florida’s immigration laws are strictly enforced. Those seeking a
Florida Green Card, which entitles them to live and work in the state,
face close scrutiny by the Immigration and Naturalization Service,
particularly if they wish to start a business.
Those not planning to work, including retirees, must be able to
demonstrate substantial means. This can be an obstacle to many people’s
dream of retiring to Florida.
Healthcare
Hospitals in the US provide some of the most advanced healthcare in the world. Most are private.
The US spends around 13 per cent of its gross domestic product on
healthcare, much of it through insurance schemes provided by employers
and the two federal schemes, Medicare and Medicaid. There is no
national health service as such. Approximately 14 per cent of the
population is estimated to be without any form of health insurance.
For visitors, private medical insurance or travel insurance is
essential. If you are seriously injured, the emergency services will
treat you and charge you later. If the injury is not serious and you
need to consult a doctor, a basic consultation will cost approximately
$100. There are a variety of policies available for
overseas travelers and those intending to live overseas, and they do
not have to cost huge sums.
Florida Property: Investment potential
The
recent economic slowdown in the US has caused many people to be nervous
about investing in property in America, but for long-term investors
there are still great opportunities and potential to be found.
Developers are having trouble selling projects right across the
country, so they are keen to offer deals on projects that are nearing
completion so that they can release more funds and begin to move on to
new projects.
In some cases there have been stories of developers offering discounts
of up to 40 per cent and anecdotally, it is said that new apartments in
Miami can be found for as little as $200,000. This means
that there are developments available where you can buy with as little
as $20,000 down and developers are offering extensive guaranteed
rentals and generous terms. The trick here is to remain detached enough
not to get overawed by the prices on offer, and plan carefully for your
needs and wants. Spending less on a property is ideal if you are able
to, and it is worth shopping around for the best deal on the type of
property you are looking for, but there is little value in buying
somewhere just because it is cheap.
The issue for US buyers, and for anyone from the Europe seeking finance in
their homeland, has been the sub-prime lending fiasco. This is making it very
hard for buyers to get finance in the US as lenders are nervous about
granting approvals, so cash buyers or those with finance already
arranged are being welcomed with open arms.
Should you prefer to try to raise finance locally in the US, there is
the advantage of the current low interest rates that the US Federal
Reserve has introduced to stimulate the markets.
And finally...
Despite
the fact that the US in enduring an economic slowdown, buyers who want
to get their own property in Florida should not be discouraged. The
reasons for buying in the Sunshine State remain the same, whether it is
for the weather, the theme parks or the rental potential. The US
economy is having a tough time, but this will not stop people going
there for holidays – in fact, the favourable exchange rates at the
moment may encourage more visitors to the region.
Buying property abroad is a major decision and one that should not be
taken lightly. It is vital to ensure you have researched all aspects
thoroughly and are in possession of all the relevant facts.
Individual circumstances will vary widely, so it is essential to obtain
professional advice and guidance tailored to your particular situation,
especially in areas such as property purchase, potential rental
returns, taxation and mortgages.
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