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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
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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.
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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
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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).
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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).
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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.
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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.
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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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