Understand Your Home Loan Documents: Knowing the Terms
by Robert W. from Rock Hall, Maryland
Ask Kate how to understand home loan documents with terms such as partial purchase money mortgage: Robert is trying to make sense of mortgage terms on his final loan documents. He feels something nefarious is at play. Whether it is or not, I do not know. But either way, let's see if some light can be shed on the vague terms that he's unsure about. And what about your mortgage? Do you understand your lender's paperwork?
Ask Kate: I Don't Understand Lender's Mortgage Terms By Robert W. from Rock Hall, Maryland
My wife and I took out a loan in 2006 to buy property and build our modular home.
I got a copy of the file from the closing attorney who is a shareholder and bank attorney. The mortgage information sheet states I was given a construction permanent loan. But the mortgage filed is a Partial Purchase Money Mortgage.
I am unable to locate a Partial Purchase Money Mortgage however, I do see a purchase money mortgage. Is their a difference between the two, as I cannot locate it for research purposes. Also I asked the bank last fall what type of mortgage I have and I was told a balloon mortgage.
Please help in making sense of the information as I am quite confused. My house is underwater, and the bank is pressuring me, and I feel like something nefarious at play or even from the onset.
Kate's Answer: I Don't Understand Lender's Mortgage Terms
I will try to answer your questions as best I can.
But keep in mind, I am trying to shed light on loan documents which, of course, I've never seen. (More on who else might be able to help in a moment.)
Home Loan Document Term: Balloon Payment Mortgage
I'll start with the simplest question, the one about a balloon mortgage. This refers to a home loan that will not pay off in full at the end of the term without a lump sum payment from the borrower. The interest rate could be fixed or an adjustable. Often, a balloon will come due after the first 10 to 20 years.
In the past, many of these loans had a provision that offered the borrower the option of paying off the balance at a higher interest rate in lieu of paying the balloon in one lump sum. You'll need to check your loan documents to see if this option is available to you.
But all in all, homeowners with a balloon payment should prepare to pay a lump sum to avoid threats of foreclosure. Get the full story at Exit Strategy for Mortgage with Balloon Payment
Home Loan Document Term: All-in-One Construction to Permanent Mortgage
Next, let's discuss a construction permanent mortgage, an all-in-one home loan that finances the cost of construction for 6 months then converts to a permanent mortgage for the remaining 29 1/2 years (numbers approximate).
The payment could be based on a fixed or adjustable rate and, I suppose, could even include a balloon payment.
This type of construction financing has its advantages over initially obtaining a temporary construction loan, followed by the separate cost of permanent financing after a home has received its final building permits.
Besides 2 sets of loan fees, another major advantage involves locking in your new home's interest rate
, a crucial aspect of affordable home financing. Go ahead now and read about various types of construction home loans at Residential Construction Loans Explained: Short-Term and All-in-One Financing Options
. Then return for the rest of my answer.
Home Loan Document Term: Partial Purchase Money Mortgage
When a seller finances the sales price for the home buyer, it can be called a purchase money mortgage or plainly put, seller financing. So, I assume a partial purchase money mortgage is often a 2nd mortgage offered by the seller to compliment the bank financing, thereby reducing the down payment for the home buyer. Again, seller financing can (and often does) include a balloon payment.
Read T. Ford's question and my answer about Seller Financing vs Traditional Mortgages
Getting One-on-One Local Help
If you feel you are being pressured by a bank that you do not trust, it would be helpful to have local professional help who can sit down with you to go over the written loan documents that you signed before the home was built, such as a real estate attorney who is well-versed in construction financing.
Besides an attorney, you could access the Department of Housing and Community Development on the Maryland.gov website. It's there that you'll find counseling and mediation options for distressed homeowners as well as ways to file a complaint if you feel you are a victim of fraud or a scam.
Best wishes in saving your home,
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