Did you know that there’s a name for the market where loans for new home purchases are particularly handled? It is known as the purchase mortgage market.
If you are about to take a step towards purchasing a new mortgage, it will be worth your time to get familiar with the details of what the whole deal entails. More importantly, you will need to understand the differences between concepts used in the field, as confusing some terms for others could set you off track. Both concepts could be confused, but luckily, we are here to help.
A purchase mortgage
A new purchase mortgage simply refers to mortgages taken out on a new home.
A mortgage, otherwise known as a mortgage loan, is the type of loan obtainable from mortgage lenders, or the purchase mortgage market, from which you can buy a house, an estate, or any of such immovable properties, using the same property as collateral in case you are unable to pay back later on. Conventionally, you are often required to make a 20% down payment alongside other requirements that must have been considered if and after your loan application is approved.
Steps and details to note in a purchase mortgage
Below are some things you should adequately prepare for and familiarize yourself with.
>Your financial capabilities and the down payment
Securing a purchase mortgage involves making financial commitments and payments that you just have to be prepared for. As stated earlier, the down payment often required for conventional mortgage loans is usually twenty percent (20%), but you could also get some others with as low as three percent down payment on the total amount. The key is finding that which is most suitable for your financial capabilities and understanding the terms.
>A good credit score
One of the things that conventional lenders check while considering the mortgage application submitted is your credit history to rate your credit score. Credit scores are calculated based on information obtained from your credit reports. It is usually within the ranges of 300 minimum and a maximum of 850 points, respectively. While there are no same specifications on one’s credit score level required by every lender, you should keep this in mind — the higher, the better.
The final stages of the mortgage payment process include taking care of costs incurred for the period that it lasted. The closing costs can include paying escrow and other third-party agents that played a role in getting some things involving the loan done.
Understanding a Purchase Money Mortgage
This type of mortgage is mostly financed by the seller from the onset based on the agreement reached with the buyer. As the buyer, you make a lesser down payment and obtain the balance of the total amount from the same seller to pay for the house. The deal is often offered by the seller with more flexible terms than conventional mortgages to help ease the transaction, but watch out, that does not make it a better deal for you.
The drawbacks of getting a purchase money mortgage
It should be noted that the purchase-money mortgage deals are usually taken by people whose chances of securing a conventional mortgage loan are really low, either due to bad credit scores, or some other requirement that they may be sure to fall short of. So while it may be another option to try if you fall into that category, you should know about the pitfalls as well.
● High-interest rates
The risk associated with selling a property based on a purchase-money mortgage, on the whole, is a lot higher than that of the more common types of mortgage loans. As a result, sellers have been known to charge much higher interest rates, presumably as an additional indemnification against loss, than is common with traditional mortgage loans.
● High sale price
Most of the time, sellers who offer the purchase-money mortgage deals do so with an increased amount for a house that may well cost lesser if gotten from other traditional lenders.
● Higher monthly payments
We could just add higher to every one of the drawbacks of a purchase money mortgage, and it will convey the message clearly. If you intend to go for this kind of loan, expect the prices and rates to be higher than the standard rates, and that includes the monthly payments you’ll be making gradually until the debt is settled.
● The risk of losing the house through no fault of yours
Some of these purchase money mortgage sellers offer houses for sale, which they are still paying the standard mortgage on. If some default in payments from them leads to a foreclosure, you’re in danger of losing the house too.
● Less leniency on missed payments
The terms found in some purchase money mortgage contracts specify that you do not get up to three months grace(like most standard mortgages would offer) after your first missed monthly payment before foreclosure begins.
It is both possible and probable, but not in all cases.
If you are considering taking out a mortgage anytime soon, we hope briefly distinguishing between a purchase mortgage and a purchase-money mortgage helps you to make some informed decisions.