Why is it a good idea to entertain a variety of financing options from buyers when selling a home? You’ve many options to consider. Once you begin the procedures involved with selling your home, you need to start thinking as a businessperson, rather than a home owner. Many sellers are reluctant nowadays to underwrite a mortgage because they feel the buyer will not make the loan payments, it’s important to explore all your financial options when selling a home, so you find a financial option that suits your needs. Read on and look at some of the different financing options available to you.
- Conventional Mortgage Loans
- FHA Loans
- VA Loans
- Dept. of Agriculture Loans
- Owner Financing
- When Does One Use This Option?
- How Does Owner Financing Work?
- What Types of Property Are Good for Seller Financing?
- Things to Always Remember as a Seller
- Which mortgage type do you need?
- Fixed or adjustable
Conventional Mortgage Loans
Typically, these are fixed rate loans that aren’t insured by the government. Though they are traditional, they may not be an option for some buyers due to the serious check done in order to qualify, for instance, the mortgage loan company runs a credit check, requires a down payment, and requires proof of your current income status. However, this type of mortgage has its benefits, private insurance for these mortgages can be lower, compared to other guaranteed loans.
Conventional loans are normally referred to as conforming loans, these are loans that comply with guidelines that meet the funding criteria by Fannie Mae and Freddie Mac. When buying a Fannie Mae property, a pre-approval letter is critical to getting the home that you want. A pre-approval letter basically assures your prospective lender that you and your financial data have been thoroughly examined by financial consultants and that you have been assessed to be qualified for certain amounts of loan. It strongly backs your financial records and ultimately, increases your chance of being approved by Fannie Mae. Take note that some Fannie Mae owned properties can be bought through gaining the correct finance. So, if you are looking to buy one of these properties, you should be able to secure a pre-approved loan from any of the participating lenders. Conventional mortgages nowadays represent around two-thirds of homeowners in the U.S today. The interest rate with a conventional mortgage depends on several factors, it’s length and size, plus if it’s a fixed rate mortgage or an adjustable rate.
These are great mortgage loans for Veterans to acquire, because they are guaranteed favorable terms, usually without a down payment, and in most cases, they are easier to qualify for than a number of other loans. They are also great to consider for first time buyers, because they allow either no down payment, or a low down payment of 3.5%. The main requirements for acquiring an FHA loan are, a steady income, a valid security number, property appraisal that’s FHA-approved and a credit score of 500-579.
Remember an FHA loan nowadays is one of the easiest types of mortgages you can qualify for, because you can have an average credit score, people who have gone through a bankruptcy may even still qualify for a FHA loan. However, you’ve always a negative to getting any mortgage and with an FHA loan you are required to pay two insurance premiums, the first you up front, or can be added onto your repayments and the other is paid in monthly installments.
Don’t forget, both types of mortgage programs, FHA and Conventional, have their pros and cons and they both provide a quality mortgage product for qualified consumers. Some situations will call for an FHA loan and with the recent sub-prime meltdown and the topsy-turvy mortgage market right now, FHA loans are becoming more and more popular. However, I would still recommend contacting a conventional mortgage lender first to obtain your mortgage from and if you do not qualify there, then try the FHA route. Neither type of mortgage is a bad decision and whichever option can get you into a home at a payment you can afford.
The VA (The U.S. Department of Veterans Affairs) doesn’t actually hand out loans themselves, but they do guarantee you a mortgage by a top lender. These also allow Veterans the chance of a loan at favorable terms. It’s faster if you first request an eligibility from the VA. Once accepted you will receive a certificate to be used in applying for your loan.
Nowadays the VA loan program has become more popular than ever before, because in recent years lenders are nowadays tightening their requirements and have become touchier as to who they lend too, due to the collapse in the market, many today are faced with difficulty finding down payments.
Dept. of Agriculture Loans
One of the advantages of one of these types of loans is it’s the only loan program which offers the general public a chance to finance 100% of their home’s total value, which allows for zero down payments. Plus, they are set with fixed interest rates, which means your payments will not increase each month. They also offer a 30-year repayment package, which is perfect if you are a first-time home owner or not. The main catch with one of these loans is if you make more than your area’s median income, you won’t be eligible. You are required to purchase medium sized housing that’s not high in cost.
These types of loans used to be considered “farmer’s loan.” However, that’s not the case, this loan isn’t just for farmers. This is a Loan you can take out only for homes purchased in rural areas. Understand however, some homes are still considered to be in a rural area even when it has a population of 10,000 or less. In some cases, home cities with a population of 10,000 to 25,000 are also eligible.
This simply involves the prospective person purchasing the house, where he or she gets a complete home mortgage from the home owner selling the home and not the local bank. The home owner selling the property takes the position of the lender (the bank) and then the buyer will now pay the home seller every month for the life of the loan.
When Does One Use This Option?
Home Seller – When the home owner has run into problems selling the house and just cannot wait any longer to sell the house.
Buyer – great if the buyer cannot get finance from a city bank or other homeowner loan.
Lender Loan Restrictions – The bank will not finance a particular type of property for whatever reason.
How Does Owner Financing Work?
It is quite simple – The home owner (you) eliminates the bank from providing a home loan to your prospective buyer. You as the home seller take some form of advanced payment from the buyer to secure the property & provide the home loan instead of the bank.
The terms of this loan are all in a contract drawn by your attorney, it is a written promise to pay which requires the buyer to make monthly payments to you as the home seller for the agreed time in the contract.
The house buyer with a trust note in his possession, has a binding contract as the buyer of this property legally, all without any red tape from a local bank. An additional legal piece of document lays out the right to take the property back if the buyer does not make his payments as agreed upon.
What Types of Property Are Good for Seller Financing?
If the home owner is in some form of distressed situation and needs to sell the house quick, or the property is in pretty poor shape, or the just sitting there and not rented out, then he or she may consider seller financing.
Things to be considered is when the property has some form of tax lien or mortgage attached to it. This option is most suitable when the house is free and clear of any existing loans on the property
Things to Always Remember as a Seller
Home mortgage financing has several types which come with advantages and disadvantages. Here I will provide you an overview of the general mortgage and how it works so that you know what to expect about mortgage financing. You must be aware that the lien holder of your home financing has the legal right to change any fees for any reason. If in case you are not able to fulfill your payment obligations, the property will be foreclosed, and this will be a big hassle. Apart from that, you already lost the chance to have a house of your own. This is the reason why you should be careful in choosing the type of mortgage that can match your capabilities of paying so that you will not be faced with foreclosure problems. You have to expect that getting a mortgage financing is not that easy because interest and payments may change as often as it needs to.
Which mortgage type do you need?
For you to be able to choose the mortgage type that is right for your needs and perfect for your financial capabilities, you have to be prepared before going through any mortgage financing application. It is better to have more options so that you will be able to compare which is more beneficial. Keep in mind that even if there is only a small difference between the terms, in the long run this could actually be equal to more savings.
Most companies give you two loan financing options. The first is fixed rate which is better because you get to pay an unchangeable payment until the balance is paid off. The second option is adjustable rate mortgage which also has its own advantages and drawbacks. Before you jump into a transaction even if it is the best sounding deal that you have heard, you have to get your mortgage calculator ready so that you can compute whether or not you are able to take on the responsibility. Of course, you would not want to be included with people who already have their own unfortunate foreclosure stories.
Everyone who wants to get a mortgage must know what to expect so as to complete the payments on the loan. Working on a budget is the best way to know if you can pay the mortgage. You should calculate how much of your earnings are allocated for your everyday needs, plus your other monthly obligations. What is left of the budget is what you can use for your mortgage. Knowing this figure would somehow tell you what part of your salary could be used for your housing loan.
Fixed or adjustable
When one takes a fixed – rate mortgage, he/she pays the same interest rate, throughout the term of the loan. On the other hand, adjustable or variable loans, usually have a fixed rate for an introductory period, which changes, based on specific indexes, at preset intervals. When interest rates have been high, variable loans are usually popular, because, often, they involve a significantly lower monthly expenditure.
We generally consider 20% down, to be the norm, when it comes to the amount, to be paid, by the homeowner, where the rest is mortgaged. However, some loans, such as for non – owner – occupied multi – family homes, or commercial properties, usually require a higher down-payment.
Different loans come with differing percentage rates. This will determine the amount of one’s monthly payment.
For a number of people, your home is your single – biggest financial asset, so it makes sense, that you better understand your options and costs. The more you know, the better you will be prepared, and ready! Depending on the time limit a person intends to reside in the property, personal finances and other things, the perfect home loan option differs widely from consumer to consumer.