Glossary of the Types Mortgages & Explanation of Mortgage Language
VA Loans - 100% Financing and No PMI (Private Mortgae Insurance) with Seller prepaid closing cost.
Seller prepaid closing costs are also known as a Seller Concession - it can allow you to purchase the home for very little money.
**The Seller Concession takes care of most of your closing cost. In some cases it may take care of all of the closing cost.
For example: A Seller Concession is the left over equiqity in a home that a Seller allows the Buyer to use for their closing costs. In New York State, the Maximum that we can ask for is 6%.
Equity is the value a home has. So, if you were buying a home for $150,00.00 and the home is worth $200,000.00, there is $50,000.00 of equity that we can tap into. Keep in mind that all you are only allowed is 6%. That is 6% of the sold price of $150,000.00. That would give us a Seller concession of $9,000.00.
A Seller may not allow a Seller Concession - it is a Seller's right to allow or not allow for it.
A Seller may only offer a partial concession. For example 1% of the sale price of the home. That would equal in the example above $1,500.00.
Closing Costs are the cost associated with purchasing a home (This is not the downpayment).
These are some of the costs: Taxes paid upfront for a whole year, your Bank Attorney's fee, your Attorney's fee, your home inspection, your appraisal, your boundary survey, your title insurance, your filing fees, etc. So you see how your closing costs can add up and 6% might not be enough to cover the whole amount.
This is not to discourage you, this is just to make you aware and give you a good understanding as to why your closing cost may not be covered by the Seller concession.
This means that the Buyer will need to come out of pocket for their closing cost. Gift money is allowed, retirement and pensions are permissible.
The key to making it all work, is to have a good understanding of how it works from the begining and having a Realtor that understands and that can guide you accordingly, in the process of searching for your new home.
**PLEASE DO NOT BE SWAYED BY OTHER COMPAINIES THAT WILL TELL YOU THAT YOU DON'T NEED ANY MONEY DOWN OR CLOSING COSTS TO PURCHASE A HOME, or be dazzeled by their incentives that promise you a percentage back for closing cost**
IT DOESN'T WORK THAT WAY.... You also need to put real hard money down on a contract - Seller's like to see at least 2% of the purchase price on a contract. Money down, is what makes it a contract. A Seller is not taking their home off the market with no money down.
I do have my PurchasePower Bonus that is real, that my associates in lending give back to my clients, and that's where my PurchasePower Bonus comes in to help you. Sometimes it is over $500.
VA loans, FHA loans, USDA loans and the like, have simular guidelines that involve: Health, Safety & Structure. What this means is that an Appraiser reports back to the bank on what they see about the home that you would like to purchase. They are the eyes of the Bank and they establish a value for the home and let the bank know if they are issues with safety, health and anything that is not structually sound, and of course, value.
An example of each of this issues are as follows:
Health - any peeling paint is considered a heath hazzard - even the smallest amount.
Safety - missing cover plates for outlets or even a missing hand rail.
Structural - can be simply a deck that is not too secure.
All of these examples can stop the sale of a home. It is a very good idea to look for homes that an Appraiser can report back to the bank that no issues were found. More importantly, have a Realtor that understands that these possible items need to be addressed, before the Appraiser is asked to do the appraisal. A good Realtor will guide you accordingly, so that you will not pay for an appraisal, twice. If the Appraiser finds issues and the the issues are then resolved, the Appraiser needs to come back to verify it for the bank, and this cost is past onto the buyer for the second time.
The USDA loan is also a terrific loan. It is 100% financing and lower PMI. It is however, territorial. That means that it can be only used in certain locations that are considered, rural.
FHA loans are still a loan that is dominant in our market place and that is 96.5% financing. (3.5% down)
Conventional Mortgages are also an option - Depending on your credit score, you can go convention for as little as 3% down. This what we mean when we are talking about a Downpayment.
Your downpayment is what the bank wants you to put down on the home and your closing cost, are what it cost you to close.
So you see, this is a bit to understand, especially if you are a first time home buyer.
This is where I come in, and make this a smooth process and as easy as possible for my client to understand. And... a little bit of help from my partners to aid in your closing cost, comes in very handy when money is going out in every direction.
I welcome you call or email me anytime to discuss me helping you get qualified for a VA Loan, FHA Loan, USDA Loan, or Conventional Loan.
We are proud to help you, and give you something back for servicing our great country.