Today it is impossible for most people to pay out-right cash for a new home. However, your financial institution has available for you long term mortgage loans, which make it possible for you to own a home that will eventually be debt free.
With a variety of mortgages available today, many home buyers and sellers are finding it necessary and beneficial to incorporate one of the following methods of financing in their real estate transactions.
ASSUMPTION OF MORTGAGE
Agreement by the buyer to pay remaining payments on an existing mortgage. The seller remains obligated if the buyer fails to pay, unless the lender agrees to release him.
(ARM) ADJUSTABLE RATE MORTGAGE
Interest rate is adjusted periodically to market rate and is usually lower initially. However, if interest rates increase, your monthly payment will increase. If interest rates decline, your monthly payment will decrease. When considering an adjustable rate mortgage (ARM), the following points should be reviewed.
- The initial interest rate.
- The index that the new rate will be measured by.
- How often the rate will change.
- Whether there is a cap (or a maximum) amount that the rate can vary at each adjustment time.
- Whether there is a cap (or maximum) interest rate to the entire loan.
BUY DOWN MORTGAGE
An arrangement that allows a buyer to put cash up front in return for a lower interest rate than existing rates.
CONTRACT FOR DEED OR LAND CONTRACT
Agreement to purchase real estate on an installment basis with the title remaining in the original owner's name until the buyer completes all payments.
FIXED RATE MORTGAGE
The interest rate and payment of principal will remain the same for the length of your loan. However, if taxes and insurance are included in your house payment, your payment may change from year to year.(GPM) GRADUATED PAYMENT MORTGAGE
Payments start at a lower rate and usually increase for the first five to seven years and remain constant for the remaining term of the mortgage.
GROWING EQUITY MORTGAGE
An agreement where a buyer takes a loan at a fixed rate, but agrees to increase his payments two to three percent annually. These increases are applied directly to the loan principal, allowing the loan to be paid off earlier than normal.
LEASE PURCHASE PLAN
Agreement by a buyer to lease real estate with a future closing date. Usually the lease payments are credited toward the down payment.
Agreement of a seller to carry all or part of the financing for the buyer.
SHARED APPRECIATION MORTGAGE
An agreement by a seller to give a reduced interest loan to a buyer in return for a percentage in any selling price increase when the home is sold.
Mortgage loans made by FHA approved lenders on homes that meet FHA standards. These mortgages require minimum down payments, no prepayment penalties and are assumable.
Only honorably discharged veterans or their widows can qualify for a VA Mortgage. These mortgages have very low or no down payments, no pre-payment penalties, and are assumable.
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