Learn what a purchase-money mortgage is. We show you a purchase money mortgage example. What it means for real estate and mortgages.
For you to buy a home, you need cash or a bank mortgage. However, most of us are not blessed with enough bank balance to buy a house on cash, which explains why we turn to bank mortgages. What if you don’t qualify for bank mortgages? Does this mean you won’t get your dream home? No, you can always turn to purchase money mortgages?
• What is a Purchase Money Mortgage?
Also known as seller-buyer financing, a purchase money mortgage is a loan given by the seller of the property to the buyer as part of the transaction. In this circumstance, the seller will finance the acquisition of the property by the buyer. In practice, the buyer will pay the seller a down payment, after which the remaining balance will be paid in agreed monthly installments.
• Purchase-Money Mortgage Example
Jane is highly interested in purchasing her dream home this summer, but her dream of owning a home is brought into a hard halt when the bank refuses to approve her financing due to various reasons. However, she persists and finds a home she likes, after which she approaches the owner for a purchase-money mortgage.
The property is valued at $300,000, and Jane agrees to pay a down payment of $30,000 to secure owner financing for the remaining $270,000. She decides to clear the balance in monthly installments. However, Jane is aware that she will have to pay more due to the higher interest rate, especially compared to what she would have paid if she secured a bank mortgage.
• How do Buyers Benefit from Purchase-Money Mortgages?
One of the benefits that buyers enjoy from this form of financing is that they get an opportunity to negotiate on down payments. Typically, the seller may be interested in a larger down payment than what the buyer can afford. However, after negotiations, the buyer is allowed to pay the down payment in periodic payments, which is financially friendly.
The criteria for qualifying for owner financing is flexible, especially when compared to that of conventional lenders. Even with a bad credit report, which prevents buyers from getting bank mortgages, buyers can go ahead and secure purchase-money mortgages without difficulties. This explains why a large number of people are currently paying attention to this mortgage market.
Additionally, closing is faster and cost-friendly because some of the standardized fees and discount points, such as processing fees, administration expenses, and origination, are not charged. Buyers have an opportunity to close the loan faster and receive possession of the property, which is not possible with conventional mortgages.
However, the most significant benefit of them all is that buyers have an opportunity to choose the payment options that fit their financial needs. Some of the financial options available to the buyers include balloon payment, less-than-interest payment, fixed-rate amortization, and interest-only payment options. Besides, interest rates may adjust with time, if the seller agrees, which will favor the buyers during the harsh economic times.
• How do Sellers Benefit from Purchase-Money Mortgages?
The number of home sellers introducing a purchase-money mortgage is increasing each day as they are likely to receive a higher price for their property using this strategy. Any seller who is interested in getting an extra dollar for the sale of their home will consider financing potential buyers. Additional income will be guaranteed from the higher interest rate, which caters to the risk that the market has to face.
Sellers may opt for a purchase-money mortgage when they want to lower the amount of money they will have to pay to the taxman. It is common knowledge that taxes will reduce on an installment sale than a cash sale, which is a significant benefit to anyone who is selling a property. Additionally, this strategy may guarantee the seller monthly cash flow and increased liquidity level, which is a welcome aspect to any business.
• What You Need to Do
Are you struggling to save enough to buy your dream property? Have you been frustrated by every bank when attempting to secure conventional home mortgages? Struggle no more. A purchase-money mortgage has been structured to meet your custom needs. Get to know more about the seller financing industry and secure your dream home with ease.