Monthly Archive: May 2013

May 27

Glossary of Mortgage Terms

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

Amortization
Literally to “kill off” (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.

Annual Percentage Rate (APR)
The interest rate which reflects the cost of a mortgage as a yearly rate. This rate is usually higher than the stated loan rate for the mortgage, because it takes into account points and other charges.

Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.

Appraisal
The determination of property value based on recent sales information of similar properties.

Assumable Loan
These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.

Balloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Caps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.

Loans like the 3/1 and 5/1 adjustable which have an initial fixed period are quoted with 3 numbers as in 2/6/3 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%.

Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.

Closing Costs
Fees paid by the borrower when property is purchased or refinanced. These typically include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges.

Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

Conforming Loan
A mortgage loan for $322,700 or lower.

Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Conventional Loan
A mortgage neither insured by the FHA nor guaranteed by the VA.

Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan. The Conversion Option column on Microsurf balloon tables indicates the right of a borrower to convert this balloon loan.

Credit Rating
Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower.
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.

Deed
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.

Default
The failure to make payments on a loan.

Down Payment
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Equity
The difference between the current market value of a property and the principal balance of all outstanding loans.

Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Fixed-Rate Mortgage
A mortgage where the interest rate does not change for the life of the loan.

Float
Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower’s responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.

Foreclosure
A legal procedure in which real estate is sold by the lender to pay a defaulting borrower’s debt .

Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing.

Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Hazard Insurance
A form of insurance in which the insurance company protects the insured from certain losses such as: fire, vandalism, storms and certain other natural causes.

Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

Index
A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Jumbo Loan
A loan above $322,700. These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lender
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only “originate” loans and then resell the obligation to third parties.

Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25% (7.25+6.0).

Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an assessment.

Lock noun
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.

Lock verb
The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of float

Margin
The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Minimum Credit
This field on the Microsurf tables refers to the minimum credit rating a borrower must have in order to qualify for the listed loan.

Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Mortgagee
The lender.

Mortgagor
The borrower.

Net Effective Income
Gross income less federal income tax.

Origination Fee
The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually 1% of the amount loaned. Please refer to the Points definition.

Points
Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1 percent of the loan amount (e.g. 1.5 points on a $100,000 mortgage would cost the borrower $1,500). Generally, by paying more points at closing, the borrower reduces the interest rate of his loan and thus future monthly payments.

Prepaids
Expenses such as taxes, insurance and assessments which are paid in advance of their due date and which must be paid by the buyer on a prorated basis at closing.

Prepayment
The ability to pay off the remaining balance of a loan.

Prepayment Penalty
Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the regular schedule.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

Qualifying Ratio
The ratio of the borrower’s fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio.

The Front-End Ratio is the percentage of a borrower’s gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower’s gross monthly income.

The Back-End Ratio is the percentage of a borrower’s gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt.

Please note that qualifying ratios are only a rough guideline in determining a potential borrower’s credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan.

Settlement Costs
See Closing Costs.

Tax Lien
A claim against real estate for the amount of its unpaid taxes.

Title
A document that gives evidence of an individual’s ownership of property.

Title Insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real estate.

Title Search
An examination of city, town, or county records to determine the legal ownership of real estate.

Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

May 19

Seven Steps to a Mortgage

Pre-qualification
“Pre qualification” occurs before the loan process actually begins, and is usually the first step after initial contact is made. In a pre qualification, the lender gathers information about the income and debts of the borrower and makes a financial determination about how much house the borrower may be able to afford. Different loan programs may lead to different values, depending on whether you are qualified for them, so be sure to get a prequalification for each type of program you are suited for.

Application
The “application” is actually the beginning of the loan process and usually occurs between days one and five of the loan. The buyer, now referred to as a “borrower”, completes a mortgage application with the loan officer and supplies all of the required documentation for processing. Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) which itemizes the rates and associated costs for obtaining the loan.

Pre-Approval
Once you have made application, your lender will submit your file for automated underwriting. The automated underwriting systems will review your income, assets, liabilities, credit scores, loan-to-value ratios, and your proposed loan details. This system will then give an approval or denial within 1-3 days of submission.

Processing
Processing occurs between days 3 and 15 of the loan. At this time the lender orders a property appraisal, orders title insurance mails out requests for verifications, if necessary, for employment (VOE) and bank deposits (VOD) and any other documents needed for processing of the loan. All information supplied by the borrower is reviewed at this time and a list of items not yet received is compiled. The “processor” reviews the credit reports and verifies the borrower’s debts and payment histories as the VODs and VOEs are returned. If there are unacceptable late payments, collections for judgement, etc., a written explanation is required from the borrower. The processor also reviews the appraisal and survey and checks for property issues that may require further discernment.

The processor’s job is to put together an entire package that may be underwritten by the lender.

Underwriting
“Lender underwriting” occurs between days 15 and 25. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan. If more information is needed, the loan is put into “suspense” and the borrower is contacted to supply more documentation.

“Mortgage insurance underwriting” occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default. As above, if more information is needed the loan goes into suspense. Otherwise it is usually returned back to the mortgage company within 48 hours.

Closing
Closing usually occurs between days 25 and 45 of the loan. At the closing, the lender “funds” the loan with a cashier’s check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and actually buys the house.

Closings occur at different places in different states. For instance, some states require that the closing take place at a closing attorney’s office while others use a title or escrow company.

May 16

Real Estate In Costa Rica

Home Finders

Finding a home in Costa Rica when you are not even sure where you want to be is daunting. You see a photo of a home you like, the price is right, but what about the neighborhood, the streets, the crime level? Are shopping centers, restaurants and schools nearby? Is it near to a hospital? What’s the weather like? How about the weather, too much rain in the rainy season, windy in the dry season? The house looks great; freshly painted walls, natural wood work with new varnish, doors close nicely, kitchen and bathrooms have good water pressure, drains work, no sparks from the electrical outlets, but what about the structure, the roof? How can you be sure there no liens on the property? Who is selling, the owner or someone who claims to be the owner? Buy in your name or have a corporation you own buy? And the property taxes, how much are they, and will they go up when you buy?

Should I buy house or a condo? You want your own yard and pool; don’t like sharing with the other condo owners? A house is for you, but be prepared to find your own gardener and security. No, too much hassle, besides, you want the freedom to pick up and go when you feel like, or you’re not going to spend that much time in Costa Rica, and don’t want to worry about trusting the gardener or the guard while you are gone, then a loft is for you.

Not ready to buy yet? Want to look around more? Then renting is the sensible step. How do I know where, and how much to pay? What are the deposits? Can you get out of a long term lease?

All those questions -and you’re not sure you asked them all- needs answers, and how are you going to get them when you are a newcomer, and don’t speak the language? That’s why you turn to Costa Rica Home Finders – we answer your questions, and help you find the home you are looking for. Contact us- there’s no obligation, you’ll be glad you did, like so many satisfied people before you. Over 25 years of experience with real estate solutions helping people like you satisfy their home finding needs in Costa Rica.

May 05

Qualifying for a Mortgage with Credit Problems

Q. I have had credit problems in the past. Will this affect my ability to obtain a mortgage loan?

 

A. In evaluating an application for a mortgage loan, an applicant’s credit history will be considered as one element in determining the applicant’s qualification for the requested loan. Negative credit histories or a lack of previous credit experience can adversely affect an applicant’s ability to obtain a requested loan. More recent credit information will be weighed more heavily than older information. Also, some types of credit histories may be given greater weight than others. Generally, the applicant’s previous payment history on a mortgage loan is given the greatest weight, followed by major installment accounts (such as auto loans), followed then by major credit card accounts (such as MasterCard and VISA accounts), and finally followed by minor revolving charge accounts such as departments stores and finance companies.

 

Q. My credit problems occured more than three years ago. Will this affect my ability to obtain a mortgage loan?

 

A. In evaluating a loan application, we will look closely at information occurring in the past two years. Generally, a few late payments occurring on installment loans or credit-card accounts more than two years ago will not affect an applicant’s ability to obtain maximum financing (with minimum equity or downpayment) as long as the late payments were isolated and an adequate statement has been provided explaining why the credit problems occurred.

 

Q. I recently filed bankruptcy. Will this affect my ability to obtain a mortgage loan?

 

A. An applicant may be able to qualify for maximum financing with a previous bankruptcy provided that the discharge date is more than two years ago, the applicant has re-established and maintained a positive credit history on at least three accounts since the date of the bankruptcy discharge, and the applicant provides an acceptable explanation for the reason the bankruptcy was filed. Chapter 13 bankruptcy plans (which provide for a restructuring of debt and repayment of all or a portion of the debt over a 3 to 5 year period) must have been fully completed for a two year period to obtain maximum financing at the best available interest rates. However, we offer special loan programs at higher interest rates which allow more recent bankruptcies. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the bankruptcy.

 

Q. I have very recent late payments on a prior mortgage. Will this affect my ability to obtain a mortgage loan?

 

A. As previously stated, mortgage payment histories are given greater weight than other types of credit information. Thus, late payments occurring on a mortgage within the past two years will typically preclude an applicant from obtaining maximum financing at the best interest rates. However, we offer special loan programs at higher interest rates which allow recent late payments on mortgages. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the late payments occurred. We even have loan programs for applicants which are currently in default on a mortgage loan or which have experienced foreclosures; however, these programs typically require higher equity positions of between 20% and 35% and have interest rates which are much higher than those offered on other loan programs.

 

Q. How is the amount of the downpayment I will be required to pay determined on these special loan programs allowing derogatory credit?

 

A. The amount of the downpayment required for an applicant with recent derogatory credit is determined on a case-by-case basis. Generally, the more negative and more recent the derogatory information, the higher the downpayment or equity position that will be required. For example, we offer a program which allows a 5% downpayment which permits late payments on a mortgage occurring more than 12 months prior to the application date, and up to three 30-day late payments on other types of accounts during the preceding 24 months. With 10% down, several late payments on a mortgage occurring within the preceding 12 months and a few 30-day and 60-day late payments on other types of accounts will be permitted on these special programs with higher interest rates. Most of these programs also allow higher debt ratios than those programs at more favorable interest rates