SOME BUYER'S OPTIONS
WHEN PURCHASING A HOME
Cash
No mortgage is required
for a cash purchase.
Assumption
An assumption is possible when the lending institution will allow
the existing loan to be assumed by the new buyer at either the
existing or an adjusted interest rate. The buyer must have a down
payment equal to the difference between the existing loan balance
and the sales price of the property.
Second Mortgage
Possibilities
-
Assumption
with a second mortgage from seller
The seller may agree to take back a second mortgage for the
amount of down payment the buyer lacks. The seller may also
elect to ask for a lower rate than the lending institutions to
make his property even more marketable. It is also possible to
include private mortgage insurance payable by the buyer and
have a company handle servicing for a small charge to the
seller.
-
Assumption
with a second mortgage by lending institution or investor
When a loan can be assumed but the buyer does not have the
full down payment required, a second mortgage for the balance
of the down payment is a possibility.
Mortgage/Land
Contracts
-
Fixed Rate
Conventional Mortgage
A fixed-rate conventional mortgage is usually written for 30
years. the monthly P&I (Principle and Interest) payment
remains constant for the life of the loan. The loan will
amortize. Mortgage insurance is required if the down payment
is less than 20%. Rates are not set by law and each lender may
quote points wanted (if any).
-
Adjustable-rate
Mortgage
An adjustable-rate conventional mortgage is usually written
for a 30 year term. The principle and interest payments will
remain fixed for short periods during the term (1 year or 3
years or 5 years) but are subject to change at the adjustment
period. The new interest rate will be a combination of the
rate of a specific index (agreed upon by you and the lender)
plus a fixed percent (called a margin or lender's yield). As a
safety feature, most loans will stipulate the percent of
adjustment allowable in the monthly payment (P&I) at any
adjustment period and over the whole life of the loan (called
caps). Mortgage insurance is required if the down payment is
less than 20%. Each lender may set their own interest rate and
quote points wanted (if any).
-
VA
Mortgage
The Veteran's Administration makes federally guaranteed loans
available for eligible veterans and requires no down payment
for loans up to a limit set by law. Higher loans require some
down payment. the maximum interest is set by the VA. The
monthly P&I payments remain constant for the life of the
loan and the loan will amortize (normally 30 years). No
mortgage insurance is required.
-
FHA
Mortgage
The Federal Housing Administration provides mortgage insurance
for lenders who originate loans according to FHA underwriting
standards. The FHA mortgage can be utilized by nearly all
homeowners. There are no income limitations and no previous
homeownership restrictions. The down payment is as low as
3-5%. There are a few different types of FHA mortgages
available. Consult your lender for complete details.
-
Land
Contract
A seller may finance the sale of his property. A balloon
payment after a set period of time could be part of the terms.
The seller can have the buyer purchase mortgage insurance for
protection and can have an independent bank/company service
the loan for a servicing fee. Taxes and insurance can be paid
separately or into an escrow account. All of the terms must be
put in writing so there is no misunderstanding.
Since there
is such a host of financing terms and options available, it is
suggested to contact your lending institution and/or your real
estate agent for complete details.
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