On 29th October a BBC2 This World documentary highlighted the plight of those affected by the American sub-prime mortgage crisis, in which loans – designed for people with low income or bad credit ratings – have been granted without stringent checks on borrower's credit ratings, leading thousands of homeowners unable to keep up with costly repayments and facing homelessness.  

The programme stated that as many as one in six household in Cleveland, Ohio, had been affect by the American sub-prime mortgage crisis since 2000 and that over two million families were expected to lose their home in the US within the next couple of years.

So what should British buyers take into account when considering taking out an American mortgage?

"At first glance, there are enough similarities in terminology to make Brits obtaining a American mortgage think that the system will be quite easy to find their way round, but this is wrong," says Stephen Parnell from Lynx Banc. "The one thing that every UK citizen buying in America must remember at every single stage of the process is to never make any assumptions about how things work."

He continues: "Avoid working with an inexperienced mortgage loan officer, who quotes US resident criteria (lower rates, lower down payments) to non-residents, leading to disappointment further into the transaction when the true facts are revealed.

"You may also be coerced into committing mortgage fraud and perjury by stating a use for the property that is not the intended use. However, if the lender in this type of situation catches you out, they can ask for the loan to be repaid immediately."

To find the right loan for you, Lizzy McNaney-Juster from First National Mortgage Sources advises that "you need to consider your long-term goals."

"If you plan to sell the house in a few years you may want to consider an adjustable rate loan," she says. "On the other hand, if you plan to keep the house for a longer time, you may want to look at fixed rate loan. Compare different programmes. Shopping for an American mortgage can be difficult, so an experienced loan officer can help you make a decision that's best for you. A reputable loan officer will also not avoid talking about closing costs. My experience has taught me that if they avoid this subject, you will pay a hefty bill at closing."

She adds: "Don't make any major purchases such as a car, furniture or another house until after the loan is closed as this will affect your debt to income ratio and could ultimately kill the deal. And finally, be sure that you can provide a written explanation for any unacceptable late payments, collections for judgment, change of name, location etc. All which can be verified if required."

Heed these key pieces of advice, and you should be able to avoid the fate of those unfortunate ex-property owners who featured on This World.

Search for property in America

Read the latest World Property Bulletin ezine FREE

Article first published 30 October 2007