GLOSSARY

GLOSSARY

Part 1 - Types of Financial Institutions & Mortgage Brokers
 
Mortgage and Finance Companies - At the outset, it must be noted that these companies generally require that the buyer furnish 30 to 40 or even 45 percent of the total price as a down payment. Note that most of these specialized companies charge interest rates somewhat higher than local banks lending to US persons. Also, they ask for extensive information from the buyer regarding credit worthiness: bank references, financial statements, recommendations,etc. 
 
Banks and Savings & Loan Institutions – There is a distinction between Savings & Loan Association (S & L) and commercial banks, the two main types of banks that make real estate loans. Generally, it may prove somewhat more difficult for a foreign purchaser to obtain financing from an S & L., even in cities such as Miami where many such financial institutions have a “foreign” department. The reason for this reluctance on the part of S & L's to make loans to foreigners is often the perceived difficulty in properly verifying the creditworthiness of the potential buyer and in recovering an deficiency in a foreign country if the borrower defaults on the loan. Having said this, many Miami commercial band and banks in other large cities can and do make real estate loans to foreigners.
 
 
Part 3 - Miscellaneous Closing Cost Due to Financing by Lenders 
 
Points - Lenders often charge a certain percentage ( 1 percent, 1.5 percent ) of the loan amount as a “loan origination fee”,i.e.,the cost  of the loan. The actual amount of this fee is subject to negotiation and its reasonableness should be considered in relation to the interest rate being charged. The term “points” also refers to discount points that lenders use to bring the yield on their loan as close as possible to prevailing market conditions. For the buyer, this is simply another charge to be paid.
 
Appraisal fee – Mortgage lenders require an appraisal of the property performed by a qualified professional. The cost of the appraisal, several hundred dollars generally, is often charged to the borrower, although this is subject to negotiation. 
 
Escrow payments for taxes and casualty insurance premiums – Mortgagees (lenders) do not want to run the risk that the borrower, as new owner of the property,will not pay the property taxes or casualty insurance premiums when due. Lenders thus require that the buyer pay part of those charges in advance, into escrow, for use at the proper time to pay these taxes and premiums.
 
Inspections and insurance – A mortgage lender often requires that the purchaser have the property inspected, in particular for termites, at least in Florida, and also will require that the Buyer insure the property. Cost involved for these items are generally charged to the borrower. Of course, a buyer paying cash also will want to keep the property full insured.
 
Lender's attorney fees - It is quite common for the borrower to have to pat the attorneys' fees incurred by the mortgage lender. Mortgagee's title insurance – The buyer generally must pay the premium for the mortgagee's title insurance. Title insurance provides greater certainty to the owner and other parties such as the mortgage lender having an interest in the property that their interests are as they should be. The State of Florida has published minimum premium rates for title insurance. The agent of a title insurance company, often the attorney for the lender, may charge more than the minimum rate, although some charge the strict minimum. Such agent collects part of the premium as a commission. 
 
Part 4 - Legal Documentation for Financing - Note and Mortgage
 
Legal descriptions - Any error in the legal description harms the lender more than the buyer, bit it nevertheless is important that this description be correct at the outset.
 
Loan amount – Check to be sure the description of the debt being secured by the mortgage is complete and correct, including interest rate and default rates, if any.
 
Special requirements – If the lender requires that the buyer insure the encumbered property, for example, or fulfill other requirements (keep the property in condition, etc.), these requirements will figure in the mortgage agreement and should be reviewed by the borrower. 
 
Second (junior) mortgages – Some lenders permit the borrower as owner of the property to contract for subsequent loans from other lenders and to secure such later loans by a second mortgage on the property. Others strictly prohibit an “junior” mortgages or encumbrances. 
 
Events of default and acceleration clauses – The borrower will want to review the so-called “Events of Default” and the remedies provided for the lender in the event of a default (acceleration of the outstanding debt, foreclosure, etc.). Grace periods for payment of installments should be verified, and if non are provided, should be requested.

Part 1 - Types of Financial Institutions & Mortgage Brokers 

Mortgage and Finance Companies - At the outset, it must be noted that these companies generally require that the buyer furnish 30 to 40 or even 45 percent of the total price as a down payment. Note that most of these specialized companies charge interest rates somewhat higher than local banks lending to US persons. Also, they ask for extensive information from the buyer regarding credit worthiness: bank references, financial statements, recommendations,etc.  

Banks and Savings & Loan Institutions – There is a distinction between Savings & Loan Association (S & L) and commercial banks, the two main types of banks that make real estate loans. Generally, it may prove somewhat more difficult for a foreign purchaser to obtain financing from an S & L., even in cities such as Miami where many such financial institutions have a “foreign” department. The reason for this reluctance on the part of S & L's to make loans to foreigners is often the perceived difficulty in properly verifying the creditworthiness of the potential buyer and in recovering an deficiency in a foreign country if the borrower defaults on the loan. Having said this, many Miami commercial band and banks in other large cities can and do make real estate loans to foreigners.  

Part 3 - Miscellaneous Closing Cost Due to Financing by Lenders  

Points - Lenders often charge a certain percentage ( 1 percent, 1.5 percent ) of the loan amount as a “loan origination fee”,i.e.,the cost  of the loan. The actual amount of this fee is subject to negotiation and its reasonableness should be considered in relation to the interest rate being charged. The term “points” also refers to discount points that lenders use to bring the yield on their loan as close as possible to prevailing market conditions. For the buyer, this is simply another charge to be paid. 

Appraisal fee – Mortgage lenders require an appraisal of the property performed by a qualified professional. The cost of the appraisal, several hundred dollars generally, is often charged to the borrower, although this is subject to negotiation.  

Escrow payments for taxes and casualty insurance premiums – Mortgagees (lenders) do not want to run the risk that the borrower, as new owner of the property,will not pay the property taxes or casualty insurance premiums when due. Lenders thus require that the buyer pay part of those charges in advance, into escrow, for use at the proper time to pay these taxes and premiums. 

Inspections and insurance – A mortgage lender often requires that the purchaser have the property inspected, in particular for termites, at least in Florida, and also will require that the Buyer insure the property. Cost involved for these items are generally charged to the borrower. Of course, a buyer paying cash also will want to keep the property full insured. 

Lender's attorney fees - It is quite common for the borrower to have to pat the attorneys' fees incurred by the mortgage lender. Mortgagee's title insurance – The buyer generally must pay the premium for the mortgagee's title insurance. Title insurance provides greater certainty to the owner and other parties such as the mortgage lender having an interest in the property that their interests are as they should be. The State of Florida has published minimum premium rates for title insurance. The agent of a title insurance company, often the attorney for the lender, may charge more than the minimum rate, although some charge the strict minimum. Such agent collects part of the premium as a commission.  

Part 4 - Legal Documentation for Financing - Note and Mortgage 

Legal descriptions - Any error in the legal description harms the lender more than the buyer, bit it nevertheless is important that this description be correct at the outset. 

Loan amount – Check to be sure the description of the debt being secured by the mortgage is complete and correct, including interest rate and default rates, if any. 

Special requirements – If the lender requires that the buyer insure the encumbered property, for example, or fulfill other requirements (keep the property in condition, etc.), these requirements will figure in the mortgage agreement and should be reviewed by the borrower.  

Second (junior) mortgages – Some lenders permit the borrower as owner of the property to contract for subsequent loans from other lenders and to secure such later loans by a second mortgage on the property. Others strictly prohibit an “junior” mortgages or encumbrances.  

Events of default and acceleration clauses – The borrower will want to review the so-called “Events of Default” and the remedies provided for the lender in the event of a default (acceleration of the outstanding debt, foreclosure, etc.). Grace periods for payment of installments should be verified, and if non are provided, should be requested.


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