Most people in Florida give a mortgage as security to finance the purchase of their new single family home or condominium. It’s a relatively simple process: the buyer finds a conventional mortgage lender; applies for the loan; furnishes the necessary documentation to the bank (tax returns, proof of employment, credit report, etc.); the home is appraised; the buyer/borrower provides proof of insurance; escrows are calculated and collected; and the transaction closes.
3 Types Of Unconventional Residential Mortgages
Sometimes, buyers can’t or don’t want to obtain a conventional home loan to finance their purchase. They may have bad credit, no credit, or they may just want to purchase a home with the intent of moving out and selling long before a 15 year or 30 year conventional mortgage is paid in full. They may see their home as an investment, just like other kinds of assets that are bought and sold, like stocks, bonds, or gold coins.
No matter the reasoning, there are plenty of closings where the seller comes to the closing table with an unconventional mortgage to help finance the transaction.
1. Balloon Mortgages
A balloon mortgage is a mortgage in which the final payment or the principal balance due and payable upon maturity is greater than twice the amount of the regular monthly or periodic payment of the mortgage. An important element of balloon mortgages is regular monthly or regular periodic payments. Every balloon mortgage is required to have printed or stamped legend on it stating the principal balance due upon maturity. That statement is to appear at the top of the first page or face sheet of the mortgage and it also must appear immediately above the place for the borrower’s signature. See Florida Statute 697.05 (which includes a sample of what the legend should look like).
2. Purchase Money Mortgages
A purchase money mortgage is a mortgage used to secure a transaction where the seller of the property provides financing to the buyer. The mortgage is executed by the buyer at the same time as the the acquisition of the legal title to the property so that they form one transaction. A purchase money mortgage is used a lot of times where the buyer has bad credit or no credit at all or where the buyer has been a tenant of the seller.
3. Assumption Of The Seller’s Mortgage
Sometimes, a home loan can be assumed or transferred from borrower to borrower. Here, the seller transfers the responsibility of paying off their mortgage to the buyer.
Why do this? This may give the buyer a better financial deal than he or she could get otherwise. However, the lender (or the party holding or servicing the loan) must agree to this assumption or transfer and it must be allowed in the original mortgage documentation that the seller signed long ago.
Unfortunately, these transfers aren’t usually free. A lender may impose a transfer fee, and some banks may treat this as a new loan application and charge an amount akin to refinancing the home loan.
Additionally, the seller’s bank may decline to approve the transfer of the mortgage unless the buyer agrees to new terms, like a higher interest rate or to pay a significant amount of money to pay down the balance due on the mortgage.
It’s not often that existing mortgages are transferred (even though a lot of older FHA loans allow for assumptions), particularly with today’s low interest rates, but it does happen — and years back, when interests rates were more volatile, it was much more commonplace here in South Florida.
Mortgages And Florida Real Estate Lawyers
Deciding issues like whether to go ahead with owner financing or whether to try and transfer or assume an existing mortgage are all things where an experienced Florida real estate lawyer can help. Often, questions can be answered quickly and issues resolved inexpensively.
A good piece of advice when purchasing a home is to at least talk with a Florida real estate lawyer. Getting someone to help, including reviewing all of the paperwork, isn’t as costly as most of us think it is. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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