Pros and Cons of Mortgages in the USA
Pros:
Mortgages are usually cheaper than renting the same house. I do not want to go into details for how much exactly I bought the house. We have paid about 20% down payment and the monthly payment including mortgage, home insurance and property taxes is about $850 per month. If we rented the same house in our area, it would cost us 1200-1300 dollars a month. I want to make a reservation that we bought our house when prices were low enough. At the moment, the price of our house has almost doubled, respectively, and a loan for housing would be much more expensive. Of course, you need to follow the housing market and buy property at the right time.
The following plus follows from the previous point. Own real estate is not just a place to live, but also an investment. The price of our house is growing, as well as, in principle, the price of any real estate in America. If you bought from the right place then the price will most likely go up over time. Therefore, sometimes it is worth buying your home here in the states, if only for the sake of investment.
Well, probably the last point, which applies more specifically to private houses, is the ability to do whatever you want with the house and around it. For example, if you rent an apartment in the states, then you will have a lot of restrictions from the inability to have pets until the end of the night at 10 pm. If you are buying an apartment or condominium, then there are often rules there too, which may be weaker, but still limit something. Since we have our own house, we set up a small garden, made a patio in the backyard, got chickens, our dog runs around the yard as much as he wants. If we want, we can install a swimming pool, expand the area of the house by adding rooms or a garage, and so on.
Minuses:
Probably the biggest disadvantage in buying your home in the US, as in any other country, is the risk of a collapse in the real estate market. This rarely happens in the US, but I know families who bought their houses for $300,000 in 2007-2009 and a few years later when they wanted to sell them, the house was only worth $200,000. As a result, many were forced to file for bankruptcy or lost a lot of money. Of course, in such times it is better to sit out and just not sell the house, but sometimes people do not have a choice due to personal circumstances.
The second disadvantage is that you become tied to some territory and state. I know a lot of emigrants who came to one state and then lived in 2-3 different states for five years. Sometimes you have to live in different places in order to understand where you like the most. Of course, it is better to buy housing when you have already decided in which part of the country you want to live. Although if the market is in good shape, then housing is worth buying and if you need to move, you can easily rent it out and most likely you will still earn money on it.
The third disadvantage, which may be a plus for some, is that you have to take care of your private house in the USA. Yes, it is a must. The house cannot look like an abandoned vampire lair, the owners will simply receive a fine. Housekeeping usually includes mowing the lawn, cleaning leaves and snow, repairing external problems (if the paint has come off or the cladding is too old). So your house is troublesome.
Many people think that a mortgage is a kind of loan, but from a legal point of view, this is wrong. A mortgage is not a loan itself, but a security measure provided by US law.
When a person takes a loan from a bank to purchase a house, this house becomes the subject of collateral so that in case of default by the buyer, the bank can obtain rights to this real estate. If the entire loan is repaid, the collateral obligation is terminated, and the house becomes the full property of the buyer.
Today, both US citizens and those who do not have a mortgage can take out a loan for a house and with it a mortgage, but the conditions will differ markedly. In addition, there are simplified and full procedures for granting a loan.
Another feature is the opportunity to get a loan to buy not only a new house, but also real estate on the secondary market, as well as housing that has not yet been built, and the interest rates will not differ much in this case. In many countries (for example, in Russia) this is not possible.
Types of mortgage
A loan to purchase real estate in the US is called a mortgage. At the same time, loans are of two types: with a fixed interest rate (Fixed-Rate Mortgage) and floating (Adjustable-Rate Mortgage).
The vast majority of borrowers prefer the first type, since the rate cannot change here: for the entire period of lending, the one specified in the loan agreement will be applied.
The peculiarity of the floating rate is that it is usually 1-2 percent lower here, but the bank has the right to raise it, although in principle it can leave it unchanged. Usually in practice it happens like this: within 5-10 years, the bank undertakes to lend at a fixed rate, but after this period it has the right to change it (lower or increase).
Thus, the second type is associated with a certain risk, it is more profitable mainly for those who are going to sell the house later.
Mortgages for US citizens
An American citizen applicant for mortgage approval must:
Be at least 25 years old, but not older than 75.
Be officially employed in America.
Be able to make a down payment on the loan (from 10% to 50% of the total amount).
This is where the basic requirements end, although individual banks may have their own requirements, but not so significant.
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Mortgages are a type of loan that is used to purchase property. Mortgages are often secured by the value of the property and can be either repaid over time or repaid all at once.
The most common type of mortgages in the United States are fixed-rate mortgages, which have a fixed interest rate for a set period of time, usually fifteen or thirty years. The borrower pays back the same amount each month until it is paid off.
There are also adjustable-rate mortgages, which have an interest rate that changes periodically with market conditions. These loans typically offer lower initial interest rates than fixed-rate mortgages and allow borrowers to make smaller monthly payments if rates go down but require much higher monthly payments if rates increase.