Mortgage (Bank) Financing

Traditional, mortgage, and loan financing are commonly used terms for money that people borrow through a bank or lending company in order to buy a home or real estate. Most banks and credit unions offer home mortgages. There are also companies that specialize in mortgages, but are not banks, such as Rocket Mortgage and a lot of regional mortgage providers around the country and world.

With a mortgage, you’ll make a down payment, you may pay “points” (which means you pay additional money up front to get a lower interest rate), and you’ll make monthly mortgage payments.

A title company will oversee the transaction. The seller receives their money from the lender, the property’s deed will be transferred to the buyer’s name, and lien paperwork will be filed against the property. This means the lender is registered with the County as being owed money for the purchase of the property. If you don’t pay them, they can foreclose on the property and sell or auction it to someone else to get their money back.

Most people get a mortgage that lasts for 30 years, but 15 and 20 year mortgages are also available. We recommend buyers look into 15-year mortgages. These typically give buyers a lower interest rate and the monthly payment isn’t too much more than a 30-year mortgage payment.

The monthly payment on a mortgage includes, at a minimum the principal and interest. Principal is the amount you owe and interest is the fee you pay to borrow this money. Interest rates vary based on a variety of factors. A buyer’s monthly payment may also include amounts for the mortgage insurance premiums, property insurance premiums, and property taxes.

Mortgages have many flavors:

• Government-Insured under the acronyms “FHA”, “VA”, and “USDA”: The buyer pays for mortgage insurance, which these taxpayer-funded agencies administer. If the buyer becomes financially distressed, but will eventually be able to pay again, this insurance helps them stay in their home.
• Conventional: A loan with no government insurance component as described above. However, lenders usually require private mortgage insurance until the loan amount owed is less than 80% of the property’s value. Conventional loans may be either Non-Conforming (also called Jumbo) or Conforming.

Property Masters also recommends that you use a mortgage broker to find a mortgage company. Mortgage brokers are companies that have relationships with all sorts of mortgage providers – banks and non-banks. You complete an application with them and then they work on your behalf to find the best deal.

Although we haven’t worked with many brokers (because we don’t mortgages) we’re sure there are a lot of great ones. The mortgage broker that our team is most familiar with and respects is Churchill Mortgage. Please note that we have no affiliation with them nor do we receive any compensation for recommending them. Our recommendation comes from personal experience: We found Churchill staff to be impeccably honest.

If you choose to use a mortgage to purchase any of our properties, we are happy to work them and simply as that you provide a pre-approval (not pre-qualification) letter with your signed sales offer agreement.

Seller (Owner) Financing

Seller Financing, also called Owner Financing, is when the owner of the property acts as a bank. When working directly with the owners, a buyer will often receive more flexible financing terms – especially when buying vacant land – compared with what you might be able to get through a bank. In fact, many banks will not approve a mortgage for vacant land. So seller financing is the solution for people who do no have enough cash to buy land or a house without borrowing money from a bank. There are two basic forms of owner or seller financing:

Lease Purchase

First and foremost, typical leases are often the worst financial solution. For example, don’t recommend car leases. However, not all leases are the same.

Lease Purchases for real estate are popular because they provide buyers with the lowest cost and sellers the least risk. The lease purchase contract says that the buyer and seller have agreed to a price and that the purchase occur on or before a specific date in future. In the meantime, the buyer’s monthly payments will create “rent credits” that are applied toward the later purchase.

The property doesn’t transfer ownership until the the purchase takes place, so sellers are willing to work with buyers who can’t or don’t want to obtain a loan. The buyer makes a down payment in the beginning. This applies to the future purchase and assures the seller that the buyer is serious. Or if the seller allows a smaller down payment in the beginning, the buyer can expect a large payment due at the end. At the end of the lease, you confirm you still want to own the property and the owner transfers the deed to your name. Our lease purchases commonly apply 100% of your rent as a rent credit to your purchase.

Many lease purchases use a complicated “money factor” versus charging interest. We don’t. Property Masters charges a small flat “additional monthly fee” for this finance solution. There may also be a service charge for our payment processing.

Private Loan/Mortgage

The second type of seller finance is a loan. These types of loans relate most closely to the “non-conforming” loans mentioned in the Mortgage section on this page. Seller financed loans are easier for buyers with bad credit and typically faster. This is because sellers already know the property and so they don’t require things that banks require, such as appraisals. Seller-financed loans also require larger down payments and charge higher interest – just like a non-conforming loan from a bank. For example as of July 2020, Property Masters is typically charging 11%-14% interest. The buyer’s monthly payment may also include the same components as if they were paying a bank: principal, interest, insurance premiums, and taxes.

But seller-financing is easier because it doesn’t have all the corporate and governmental red-tape (except as rightfully required by Fair Housing Laws, of course). For example, a sellers may not require mortgage insurance and may allow for buyers with low credit scores. Some sellers require no credit checks to provide financing, which can also change from one property to the other based on how much the seller might own on the property themselves.

Just like a bank loan, the same type of county paperwork is filed with the property’s county (the deed and lien). Similar to a bank, the former owner can foreclose on the property of you fail to pay them.