When embarking on the purchase of a home, do we know everything involved in making such a decision? Can we meet with surprises and expenses that we did not expect? Before making such an important decision it is best to be informed and take into account all those expenses associated to be able to calculate a real budget. Among these additional expenses are elements we often hear heard of as commissions, related products, insurance, interest rate or floor clause? But do we really know what they are?

Expenses and taxes

The first thing to think about is that banks grant up to 80% of the appraised value of the property that we want to acquire. The rest we have to pay as initial payment, to which we must add the expenses derived from the processing of the mortgage and the purchase of the house (commissions, taxes, etc.). Between notary expenses, taxes, and other efforts we can pay up to 10% more.

In addition, it is important to know that there are a series of procedures that must be paid when applying for a mortgage regardless of whether or not we are granted. For example, the appraisal is mandatory, which has a validity of 6 months. It is also necessary to ask for verification of ownership of the property and if it is free of charges such as unpaid taxes.

The 5 things to keep in mind before you apply for a mortgage The 5 things to keep in mind before you apply for a mortgage

The purchase of a home also generates taxes, and these vary greatly depending on factors. For example, what is paid for a new home is not the same as for a second-hand home. VAT is only paid when it is new and purchased directly from the developer (10% or 4% if it is an Official Protection Housing or VPO). If it is a used home then we will have to pay the Transfer Tax. It assumes between 5 and 8% of the price, depending on the autonomous community, if you are a large family, you can prove a handicap or if you are under 32, among other factors.

To complete the purchase must be signed before a notary and register both the mortgage and the deed of the house in the Registry. After that, it is mandatory to pay the Tax of Documented Legal Acts, which is between 0.1 and 1.5% of the total mortgage liability (that is, the sum of the total loan, plus expenses, interest, etc.) depending Of the conditions and the autonomous community. These procedures are usually entrusted to a manager. If we are interested in a VPO we are in luck, since they have a reduced price for this type of expenses.

Finally, we will usually have to pay the manager, who is responsible for the registration of the property and the tax settlement. This expense depends on the manager himself, so it is convenient to ask and compare different options. Generally, these services cost between $150 and 300.

Now that we have located the expenses that can appear and thus avoid surprises, we will inquire about different concepts of the product itself.

Energy certification

It is a document that makes it possible to assess and compare the energy efficiency of housing as an added factor for purchasing and / or rental decisions. In this certificate is specified by means of a scale that goes from A to G, the emission level of C0 2 in comparison with the dimensions of the building. From 2013, the homes for sale or rent in Spain must have this certificate.

There are special cases, such as the Triodes Mortgage, in which the interest rate is guided by the Euribor, but the percentage added (differential) is linked to the energy certification of the home. The more energy-efficient the property, the better conditions are obtained. The improvement of energy efficiency also entails great economic savings in domestic economies: the difference in expenditure on heating, cooling and hot water between a dwelling of about 100 m² of energy category A and another category G can be up to $2011.63 a year. Among the improvement recommendations to increase the energy efficiency of the building are measures as simple as improving the sealing of windows or installing awnings.

Related products

Normally when we ask for a mortgage we will have to contract different additional products. These products are usually the contracting of life or multi-risk insurance, credit cards or domicile payroll in the bank, among others. In this sense, we must assess the cost of each of these products that we are offered and that can sometimes make a mortgage that seems to have the best conditions a priori and we end up getting more expensive.

In short, when buying a home we not only have to take into account the amount of the loan and the installments to pay. It is very important to take into account all the other associated expenses that we are going to find ourselves and also to remember the energy certification and its implication in the care of the environment and also in the economic saving that can mean. Making a budget with all these data and including possible contingencies can help us a lot.

After analyzing the major types of mortgage loans according to the appraisal and the duration and the classification according to the interest rate, we will take a look at other types of mortgages that can also be found in the market. These other variants are used to cover special situations in which it is necessary to apply specific conditions to adapt to certain characteristics.

Mortgage multi-currency

This is a variant of variable rate mortgage loans. In this case one or more foreign currencies are used as reference index. Normally, stable currencies are chosen with low rates that allow savings relative to the national currency. The problem is that if the currency or currencies we have chosen as a reference undergo a revaluation, we may be more expensive, but not the usual.

Flexible mortgage

Its use has spread over the last few years, due to the increasing problems of the users to be able to face the payments. These credits are adapted to the needs, with mixed interest rates, possibility of grace periods, extensions and other advantages.

Mortgage refinanced or surrogate

Subrogation occurs when the loan is exchanged with another financial institution, usually to obtain better terms.

Mortgage bridge

Its official name is bridge credit, and it is a temporary loan for housing change. The property is used as collateral in order to obtain a loan with which to pay the entrance of the new house and some expenses more. Meanwhile, there is a time to sell the old house. Once sold a new normal mortgage is contracted with which the bridge credit is canceled.

Qualified mortgages

It is a type of special mortgage loan intended for the payment of official housing. Its conditions are much more advantageous than normal, with lower interests, no commissions and fixed fees. The characteristics of these credits are agreed between the Ministry of Housing and financial institutions.

Before applying for a mortgage loan it is necessary:

Deciding how much to ask. In addition to the price of purchase, expenditure mentioned in the box above and expenses of the mortgage loan, such as pricing, the origination fee (if any), the agency, taxes, etc. must be taken into account It is recommended that the monthly payments do not exceed 35% of the income of those applying for the loan, it must be taken into account that income may change over the years and that quotas of variable loans may rise.

Compare offers from different financial institutions studying the generic information of its prospectus (Precontractual Information Sheets), which are delivered free of charge to anyone who requests it. It is important to look at the APR, which is the annual interest rate actually paid in a year, and includes the fees charged by the financial institution and payment deadlines.

Analyze Personalized Information Sheet. Once you have chosen the bank, and before committing to it, this will give no charge Personalized Information Sheet on the financial conditions of the loan offer will be detailed.

Request a binding offer. Requested the loan and made ​​the appraisal, you should ask the financial institution a binding offer with all financial terms of the contract. The binding offer will be valid no less than fourteen calendar days from date of delivery. If while Personalized Information Sheet and agree its content is made, both can be delivered in a single document.

Writing mortgage loan

Accepted the binding offer, the financial institution shall forward the documents to the notary chosen by the buyer to prepare the deed and mortgage loan deed. Remember that the buyer has the right to choose the notary.

It is important to remember that the buyer has the notary three working days before the signing of the deeds to examine them thoroughly with notary’s advice and seek clarification and changes to the financial institution if necessary.

Loan delivery usually occurs simultaneously with the signing of the deed of sale.

After the signing, the notary sends the registration of the property an authentic electronic authorized copy of the deeds of sale and the mortgage loan.

When the loan is paid off, it would be one last step: the deed of cancellation of the mortgage. The sign only the representatives of the financial institution at the request of the debtor, who have the right to choose the notary who authorizes and to advise on the costs, which are borne by their own. Once signed, he enrolled in the Registry of Property.

Interests and clauses

Interest:  This is the price paid for the loan. It is the result of applying a percentage to the money owed ​​at all times. The interest rate can be fixed or variable. If something little usual fixed is usually higher than variable. The advantage is that you always know what you pay because it will not affect possible declines or increases in reference rates during the term of the loan.

However, most people prefer a variable interest at a rate (which is usually the Euribor) to which a differential, which is the minimum interest rate applicable to the loan if the rate agreed reference down to is added zero.

Clauses:  As important as the reference rate and the differential are the clauses that some entities include in their contracts, which limit the variation in the interest rate applicable to the loan. These clauses indicate a maximum (ceiling) and a minimum (floor). It is in the so – called “floor “where you have to pay special attention because when it is reached, the interest rate drops reference not translated into a reduction in quotas.

The notary:

• It will check whether limits have been established to changes in the interest rate, collect that circumstance in writing, and explain expressly and detailed its effects.
• It will inform you of any relevant increase arising in their quotas, and the effects of grace periods, if any, in the amount thereof.
• You will see that non-financial clauses in writing does not involve fees or expenses that should be on the financial clauses.

Unfair terms:  Only judges can declare an unfair term. When you have done so, the judgment is final, and is registered in the Register of General Contract Conditions, notaries must remove them from public documents. To help in this task, the General Council of Notaries has created the Body Control unfair terms (OCCA). In this way the legal certainty increases in hiring and helps prevent legal challenges.

The Euribor is the reference rate most used in constituting mortgages to variable interest, specifically in 88.9% of new contracts. These are the latest data provided by the National Statistics Institute (INE), in which it is revealed that the European benchmark is the favorite among Spanish users to formalize their mortgages. With respect to the change in interest rate conditions, it is also the one most linked to variable rate mortgages, both before the change (71.5%) and after (82.2%).

But this trend in the reference models may change during the year before the possibility it looks replaced by the Euribor Plus. Although not be implemented immediately, but must wait, predictably, a few months before landing in the domestic housing market. And all as a result of the decision of the European Commission to introduce a new benchmark to provide greater transparency to the operations carried out by users.

And there is no doubt, as they still remain many uncertainties about its implementation, if it will be cheaper for their users, what will happen to those who have contracted other reference, and of course, the exact date that definitely hit the interbank market. Not surprisingly, one of the reasons given by the Community authorities is to avoid unpleasant cases where rates were manipulated by some banks and negatively affecting much of consumers.

Your expenses will be formed by adding the differential bank

You must know that you have more options to link this operation to other benchmarks. Believe it or not there is life beyond the Euribor, and all of them are official and published by the Bank selected without any restriction if you think you will improve the conditions of the contract. But that if they are clearly minority as is clear from the latest official data as a whole do not represent more than 7% of the transactions executed in late 2014.

Do not forget that variable rate mortgages are revised based on these benchmarks, which are what ultimately determine the price of the mortgage. Although this assessment will not have to pay the customer, but will be established by adding the differential to apply the bank. And this is precisely the part of the operation where you can save more money in monthly installments, to collect the latest offers that are developing credit institutions, which offer the best proposals to 1.50%.

What kind of references you can link the mortgage?

Although, as already noted, the Euribor is still the kind of majority reference between individuals who choose to hire a credit for the purchase of your home, the fact remains that there are other visible references in the market, although few operations they intersect in contracts. All are official and regulated, although depending on the election expensive or can reduce the cost of your mortgage.

Are mainly the MIBOR (Madrid Interbank Offered Rate), an interbank rate applied in the capital market of Madrid and is only officer for operations contracted before 2000, and to some extent has been replaced by Euribor, with which keeps a very similar evolution in the interest applies. With the advent of the new century, its operations have virtually disappeared and only previously contracted loans are still linked to this reference.

Another linkage that support markets comes from the IRS (Interest Rate Swap), an alternative index you can also link the mortgage. Although -and keeping some similarity to the Euribor Plus- in this case reflects the evolution of interest rates to five years. To do this, it calculates the average of the futures market on the deadline. It reflects a more transparent interest rates that apply on your mortgage. This is its main contribution with respect to other contracts, but are also very few transactions formalized with this index.

And finally, another type of reference that you can access to finance your home is the IRPH entities (Benchmark Mortgage Loan), which is used by almost 8% of mortgages contracted in the Spanish state. Configured as the strongest European benchmark index above the previous models alternative. However, it is more expensive and generates greater problems in its execution to be based on a monthly average for all credit institutions.

A foreclosure is a business transaction by which a bank becomes a property owner after being the holder of the mortgage on the property. All business transactions are recorded accordingly in the accounting books, and a foreclosure requires certain seats accounting to reflect the change in ownership of assets of a bank from lending to the property. A foreclosure also involves other accounting entries to account for any deterioration in foreclosure, while a bank has assets of execution and sale of goods executed last.

Acquisition

When a bank forecloses on a property that is the guarantee of your loan, effectively acquires awarded good and frees the borrower from the obligation to pay for the cancellation of the loan in default. In general, the accounts would record a charge to property foreclosed and a credit to the outstanding loan.

If the fair market value of foreclosed assets is higher or lower than the amount of outstanding loans at the time of foreclosure, the foreclosure generates a gain or loss recorded as a credit or debit card, respectively. Otherwise, the foreclosure fully satisfies the loan without any gain or loss.

Disability

In a well could have been awarded impaired during his arrest and should be re-evaluated in any decrease in the value of the foreclosed fair market over time. An impairment charge is the loss that goes to the income statement. The accounts debited loss on impairment and credit related foreclosed. The fair value of an asset awarded later can also increase, and therefore, a gain must register as a credit. However, the basis of a foreclosed property should never exceed the base acquisition.

Provision

The provision refers foreclosure sale of a foreclosed property. After the sale, the bank that owns the foreclosed property removed from its balance sheet and record the proceeds from the sale as well as gains and losses. Entries shall be debited cash and credit any losses and foreclosed property and any related gain. However, to be considered as a sale, the buyer’s investment must be adequate to demonstrate a commitment to pay for the property.

Financing

The sale of goods awarded may also involve seller financing in which the buyer provides only a certain amount of down payment at the time of the transaction. With seller financing, a bank sells foreclosed property would record a charge to loan receivable as an asset on its balance sheet. Any initial payment is also due, but gains or losses cannot be fully recognized at the time of sale. The bank will only recognize a gain or partial loss in proportion to the money received so far and records the balance of the gain or loss is deferred as.

A first foreclosure is simple and there are few surprises, if no other mortgage liens against the property. When another creditor is added, that makes the foreclosure process more complicated. There are many things that can happen with a second mortgage in foreclosure, depending on the borrower’s circumstances.

Background: lien position

When a property has mortgage encumbrances placed upon each charge has a certain position, depending on the order in which mortgages are presented. For example, the mortgage is filed first in first position. The next creditor is in second position, and commonly called second mortgage. If the first mortgage is paid off, the second mortgage is moved to the first position and a third mortgage, if any, moves to the second. The position indicates the order in which mortgages are paid when you sell the house.

Running first mortgage

If you are behind on payments of the first mortgage company, eventually will start foreclosure. As the foreclosure process near the end, the property is sold. When the first mortgage holder sells the property receives the proceeds of the sale, leaving any excess of the balance due of the first hands of the second mortgagee. Once all mortgages have been paid for selling any product that has been going to the borrower, but that is rare. If the property is worth less than the value of the first mortgage, Second Mortgage Company receives nothing.

Running second mortgage

The holder of the second mortgage can foreclose on a house as the holder of the first mortgage. If there is enough capital, both the first and the second mortgage is paid. Even if it is not enough to pay off the second mortgage, many holders of the second mortgage can still foreclose because they can get some money in the sale.

If the value of the property is less than the balance of the first mortgage, there is no reason that the holder of the second mortgage foreclosure do. It would receive nothing and, in this case, the holder of the second mortgage is essentially no collateral.

Chapter 13 Bankruptcy

If your home is in foreclosure, and want to try to keep, you can use Chapter 13 bankruptcy. Chapter 13 stops the activity proceeds immediately, stopping the foreclosure until you can reach a payment agreement with the mortgage company. If you have a second mortgage that is fully guaranteed by the value of the house will have to pay the mortgage as well, although part of the payment can be modified in bankruptcy. If your second mortgage is partially guaranteed, the bankruptcy judge may reduce the second mortgage balance to the amount that is guaranteed by the house. If the house is on the level, and even the first mortgage is not fully guaranteed, the bankruptcy judge may completely eliminate the second lien.

Pay your mortgage as quickly as possible can save you thousands of dollars of interest. Besides that, pay your mortgage relieves a lot of stress without the big bill taking you each month. But paying your mortgage in advance needs careful planning so you can do wisely and more efficient ways to cost.

Biweekly payments

Many homeowners are choosing to pay your mortgage bi – weekly payments instead of the standard monthly payments. Even if you’re almost paying the same amount each month, the difference is that you are saving on interest of the increase. Besides that, pay every two weeks means you’re paying the equivalent of 13 payments each year (52 weeks) instead of the standard 12 payments you would be doing if you paid every month. Based on a 30 year mortgage of $ 100,000 with an interest rate of 7%, you can save almost $ 35,000 over the course of the mortgage and pay your house six years ago compared to monthly payments.

Use bonus money

Before making any payment of large sums on your mortgage, make sure your contract allows. Some may prohibit large payments or may have financial penalties for them. However, if allowed to do large payments regularly, use your bonus money or any other large amount of money you get periodically to apply to your mortgage. Christmas bonuses, tax refunds and birthday money from your grandmother can help you pay your mortgage several years earlier than you planned.

Make larger payments

Your financial situation usually improves in the course of a mortgage. Most people get in your business, get promotions or just get better jobs over the years. When this happens, discuss the possibility of increasing your payments with your mortgage lender. Even increase them for $ 50 or $ 100 each time you can afford will your mortgage sooner than you had thought.

Refinance at a lower interest rate

Refinancing is an ideal way to pay your mortgage faster way. If you have better credit than you had when financier first home, you are probably eligible for an interest rate lower. This means a lower total on the mortgage. However, when you do this, consider a shorter term for your mortgage. For example, if you have a 30 year mortgage now considered one of 15 or 20 years. Your payments are likely to be slightly higher, but you will save thousands of interest in the years ahead and pay your mortgage much faster than with a 30-year plan.

When searching for a new home, you can get pre – approved for credit bank mortgage. A pre – approval is a promise to the lender to grant you the credit based on the information you provide them on request. However, this pre – approval is subject to certain requirements you must meet to obtain the loan.

Verification of income

When you complete the application for a new loan, you need to publicize your annual income. Some lenders will ask you to verify your income before pre-approved offer. However, other lenders can provide pre-approval that is subject to income verification. If you lose income or cannot provide satisfactory documentation of your income before closing, the lender will deny your mortgage application. If you are self-employed, the lender may deny your request if you find that your tax returns show less income you reported.

Employment Verification

You must provide the evidence lender employment when you apply for a loan. Most lenders verify that you meet employee before offering pre – approved and 30 days before closing. If you lose your job before the second employment verification, the lender will deny your request. If you are self – employed, the lender may deny your request if you find that your business has failed since preapproval.

Evaluation and inspection

Most pre approvals are subject to an assessment of the home you want to purchase. The house can also be inspected. If a lender pre-approves the purchase of a given household and home does not pass inspection, the lender will deny you the mortgage. You can also deny the mortgage if the house is valued at less than the purchase price.

Unshared or inaccurate information

Lenders offer pre approvals based on information that you submit in your application. If the lender later discovers that have liabilities or debts that you did not give to know, you can deny your mortgage application. If you promised an endorsement, but were not able to provide one, the lender often denied the loan. You can also reject the application if found to have lied about your income, employment, down payment or credit history.

When ordering a mortgage bank can give us some leeway to choose the term, but what is cheaper? And safer? How do you know which is the best period in our case?

In 2015, the maximum period that banks often offer to hire a mortgage is 30 years. But that does not mean that everyone agrees will extend your payment three decades. The best time for us depend on factors such as our income and savings capacity, among others. if the bank gives us options, we have to consider these points before choosing.

Do not accept a share of over 35% of our revenues

The first thing that will mark what must be our deadline is our payroll, as the Bank of Spain advised not to accept fees that may involve more than one third of our income. Thus, in the case of a mortgage of 200,000 dollars to Euribor + 1%, but could be paid in 20 years in installments of 926 dollars, if the holders have an income of 2,000 dollars per month is convenient pay in 30 years at odds of 650 dollars for them remaining 1,350 dollars a month (not just 1,074 dollars) for the rest of family and household expenses.

Keep in mind that the Euribor may rise

Continuing the above example, currently a mortgage of 200,000 dollars to 30 years pay a fee of 650 dollars per month. But that’s because the Euribor is trading at a record low of 0.08%. What if in the coming years the index to rise to 3%? We would pay 955 dollars a month, which we would be very fair in the month. That’s why, if we are farsighted, not we will take a mortgage of 200,000 dollars having income of 2,000 dollars. We could ask, for example, 150,000 to 30 years with a fee of 716 dollars.

Remember that to ‘cut’ there’s always time

It is true that the fewer years let’s paying us, less interest the bank charged us. For example, if we asked for 100,000 dollars to Euribor + 1%, if we return in 30 years pay 117,118 dollars to the bank, while if we can return it in 20 years only pay 111,233 dollars. But it is also true that, if we are not very high and stable income, it is best ” to ensure the shot”, i.e., mortgage hire 25 or 30 years whose share are sure we can afford. So, if we can later pay more per month, it is always possible to make prepayments, ie make refunds for example, $10,000 blow over will not pay interest.

However, remember that this operation leaves us to account, it is best to have negotiated a redemption advance 0%. You have to think about negotiating this commission before signing the loan because if not, by default, banks typically charge between 0.25% and 0.50% of the redemption amount. Note that in the market already exist mortgages as mortgage Santander to Euribor + 1.25% , the Mortgage Mari Carmen de Abaca to Euribor + 1.25% , the ING Orange Mortgage Euribor + 0.99% which allow amortization early at any time without charging any fee for it.

In conclusion

In the end, it will be necessary to find a balance between paying in the shortest possible time (not to rise interest) and leave us some ease in the month, as well as some cushion for contingencies. The shorter terms are restricted as to the highest and stable income. For other families and stakeholders, best mortgages to sign 25 or 30 years to allow free prepayments. Recall that if we hire a mortgage to 20 years and then need to last until 25, nothing assures us that the bank will accept the deal. It is best to sign a big term that we can always trim.

If you need to quickly exit a current mortgage, you may not have time to put your home on the market and wait for it to sell. However, if you transfer your debt to another individual, that person can take over your mortgage payments, giving you the freedom to move in or buy another house elsewhere. The person you are transferring the mortgage loan has the benefit of being able to get your interest rate. If your home has warranty, you can even receive a transfer benefit.

1. Check your original loan papers to see if there is a sunset clause for sale. If your mortgage loan contract contains a clause of this nature and try to transfer ownership of the property without notifying the lender, this may demand immediate repayment of the loan.
2. Contact the lender and explain that you want to transfer your mortgage to another person. Each mortgage lender transfers handled differently, but it is likely that yours will mail a packet of information along with papers that need signing.
3. Ask the new owner to call your lender and ask you a package of assumption. It contains information and instructions for the person who wants to take responsibility for your mortgage loan.
4. Full and sends back the papers from your mortgage company. The new owner must do the same.
5. Negotiates with the buyer to pay a portion of the security of your home. If you do not have collateral, that is not a problem. However, if your home is worth more than you owe your lender, a common and reasonable is to ask the seller to pay you a portion of your collateral in exchange for the transfer.
6. Wait for the company to process the transfer request and perform a credit check on the new owner. The person who receives your mortgage loan must meet credit requirements and income from your lender.
7. Visit a lawyer and prepares a document disclaimer. This document frees you from the responsibility to repay the mortgage after the transfer. Therefore, in case of default of mortgage payment by the buyer, the lender cannot ask you for such payment.
8. Pay the transfer fee the lender. The transfer fee may vary depending on the lender. FHA loans, for example, have a transfer fee of US $ 500. You or the person assuming the mortgage must pay the fee, or they can split the cost between the two.
9. Signing the writings of your house to belong to the new owner.

Tips & Warnings

• Mortgages backed by the government, such as FHA and VA mortgages, often can be transferred.
• Even if your credit is transferable mortgage, your lender may refuse to allow you to transfer the debt if you are behind on your mortgage payments.