Although you will, in all likelihood, not be directly involved
in the financing when you sell your home, it is a good idea to familiarize yourself with the different options
available so that you are prepared should questions or problems arise regarding your buyer's financing.
To be unsure in these matters could cost you money when a contract is presented
with specific financing contingencies. You need to become familiar with current rates and what the current discount
points and origination fees associated with those rates are. Although you are probably fairly well acquainted with
mortgage financing (assuming you have a mortgage on your home now), it is always a good idea to review and keep
up to date on the current situation.
Types of Mortgages
Fixed: A fixed term
(for example, 15 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start
of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of
Often referred to as an ARM (Adjustable Rate Mortgage). The interest rate on your mortgage will be adjusted up
or down according to current interest rate levels. The monthly amount for your principal and interest payment will
go up or down with these rate changes.
Conventional, FHA (Federal Housing Authority) and VA (Veteran's Administration) loans are all available in both
fixed and adjustable forms.
Depending on your equity position, it is possible that you may get an offer for your home with a seller financing
contingency. This type of offer may or may not be to your advantage. Due to the many variances (and possible pitfalls)
involved in such transactions, it is highly recommended that you review any contract with a seller financing contingency
with your attorney and financial advisor.
Although the vast majority of conventional loans have a "due on sale" clause (meaning the loan must be
paid off if you sell your house), certain FHA and VA loans are assumable by the buyer. For example, FHA loans originated
prior to December 14, 1989 and VA loans originated prior to March 1, 1988 are freely assumable, meaning that the
buyer does not need to go through a qualification process. FHA and VA loans originated after those dates are assumable
only to qualified buyers, with conditions. In any offer that contains a mortgage assumption clause, it is advisable
to consult your attorney, since there are situations (e.g. on non-qualifying loans) where you as seller may still
be held responsible for the timely repayment of the loan by your buyers.
Pre-qualified, pre-approved, commitment. What does
it all mean?
These are terms you will hear very frequently as a seller, so it is crucial
that you understand the difference in what each of the different terms mean.
|The buyer has made application for pre-approval only. Income and debt figures
have not been verified. A pre-qualification only says that a buyer can afford a specific payment (and therefore
a mortgage amount) based on figures they have supplied. A credit check has been run on the buyers.
||The buyer has made a formal application for a loan. Income and debt figures
have usually been verified. A complete credit check has been run on the buyers. A pre-approval will be subject
to a satisfactory appraisal on the property in which the buyers are interested.
||There is final loan approval. All needed documents are usually in hand by
the lender. An appraisal has been done on the property. All income, debt, and credit information has been completed
to the satisfaction of the lender. Commitment is the last step before closing. It signals that the loan is complete.