Purchase Loans from Your Trusted Home Loan Lender in El Paso, TX
If you’re currently seeking a mortgage after being denied other loans, we can assist you with a purchase loan. At My Home Loans, we realize not everyone has the perfect credit score or is in the position to be approved for a home loan through a major bank. Our role is to match customers with a loan that makes sense for their particular situation. A purchase loan may be right for you.
What Are Purchase Loans?
Commonly referred to as ‘purchase money mortgage’, a purchase loan is completed at the time the home buyer purchases the home. This mortgage is issued to the borrower by the seller of the home as a purchase transaction. Typically, this is done in situations where a potential home buyer cannot qualify for a mortgage through traditional lending channels and thus seeks owner financing. The mortgage can be used to allow the buyer to assume the seller’s mortgage and the difference will be assumed through the sale of the home by financing the property.
Unlike traditional mortgages, a purchase money mortgage is obtained through the buyer, who provides the seller with a down payment and uses a ‘financing instrument’ as proof of the loan. This should be done as a public record to protect both parties. There are various ways the sale can be completed. One way is if the seller has a clear title, then the buyer and seller can agree on an interest rate, monthly payment amount, and the terms of the loan. Additionally, a buyer will pay the seller equity in installments.
Types of Purchase Money Mortgages
- Land contracts. The buyer does not gain the title until the final payment is received for the full selling price. The seller will then pass the legal title over and the home is granted to its new owner.
- Lease purchase agreement. Through a lease purchase agreement, the seller grants the buyer an equitable title and leases the property to the buyer. Once the lease agreement is completed, the buyer will get a title and credit for the rental payments of the purchase price. The buyer will also usually get a loan to pay the seller.
What Are Purchase Loans Used For?
The primary use of a purchase money mortgage is for those who are wanting to seek a loan without the need to go through a bank. If you as a potential home buyer don’t have enough money or the right qualifications that traditional loans require, you can seek a purchase loan as an alternative. Most commonly, this type of loan will be considered once other loans are no longer feasible.
Disadvantages — Risks Associated With Purchase Money Mortgages
While there are substantial advantages of a purchase money mortgage, it’s also wise to consider the risks and how this route may not be for you. Buyers and sellers are advised to acknowledge how it will affect their respective situations. The repayment plan and terms of the sale should be outlined in writing. Since the seller holds the note, it ensures that repayment will be made and if something does go wrong, the seller is less at risk of losing out. On the buyer’s end, if they fail to make payments, they run the risk of losing the home.
Benefits of Purchase Money Mortgages
For sellers, there are numerous benefits that they can take advantage of through a purchase loan. They essentially set the criteria for the buyer. Down payments are often negotiable and sellers can decide on closing costs as well. Sellers will be able to take advantage of paying less tax on the installment sale and have additional income as a result. Other benefits include:
- Flexible underwriting guidelines. As a seller, you have the flexibility to set the guidelines of the deal and as a buyer, you have the choice of accepting the terms or rejecting the deal.
- High loan-to-value (LTV) limits. This means that the mortgage can be more than what the property is worth.
- Lowest credit score requirements. Typically the lowest credit score required to buy a home is a 580, but this can vary.
- Low-interest rates Interest rates are lower than that of refinance loans but can vary depending on the seller’s terms.
Learn More About Purchase Loans Today
Connect with us today to learn more about our purchase loans. If you’re in need of assistance buying or selling a home, we’d be more than happy to offer you a free one-on-one consultation. At My Home Loans, our goal is to help all types of buyers and sellers with the tools necessary to reach their financial ambitions.