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Basic mortgage questions, confused, help please?
Hi, I'm 17 and trying to understand how mortgages work because recently we moved. I have some exact questions I need answers to, please help:
1) If I owned 100% of a $100K home and sold it to people who needed a mortgage, would the lenders pay me the full amount for the house and then the borrowers who bought my house pay back the lenders with interest? Is that how that would work?
2) If I own 6% of a house and have a mortgage and want to sell the house, how would that work out? Can I even sell a house when I only own 6%? Would the mortgage transfer over to the new buyers? Wouldnt there be obvious complications? Would the mortgage be canceled?
3) If I'm selling my house, can I sell it for whatever I want? If so, why do people say not to hire an appraiser when you have a potential house in mind? Wouldn't you want to know if you're paying too much?
4) Does the bank appraise the house before giving you a loan? If so, why?
5) Would the bank consider a loan for someone who is unemployed if they: make a large down payment, have spouses, guardians or sibling that can 100% pay the mortgage payments?
6) If I don't get a pre-approved mortgage how can I buy a house before even consulting a bank for a loan? How would the person selling the home know I could pay? Would my word be enough for them to take it off the market until closing?
7) If you have a 25 year fixed interest mortgage, would your rate be higher than variable? Would it be worth the risk of having a variable mortgage rate because it wouldnt be as high? What's the point of a 5 year fixed, then variable for the rest, type of mortgage, just a marketing strategy?
8) What is "putting a house into escrow" mean? Why can you do this before the house is closed?
9) Can I pay lump sums off a mortgage (after the initial down payment)?
10) If I can only get a loan after I own 35% of a house, does that mean I can only get 35% loan to value worth of money from it?
Thanks a lot for any help, it's much appreciated!
5 Answers
- Wizened wizardLv 78 years agoFavorite Answer
All of my answers apply to a person of legal age who is not otherwise disqualified from entering into contracts. They may not apply to you at age 17.
1. The new owners would pay you the selling price of the house. From that you would pay the real estate agent who arranged the sale, and some other small costs of selling the house. Where do the new owners get the money to pay you? If they haven't saved it up, or received it from the sale of their previous house, they would have to borrow it from a bank. That becomes their mortgage, and their responsibility to their lender. All this is done across a table at "closing" with all parties present.
2. This question confuses me. Do you mean that you own 100% of the house but your equity is only 6% of its value (the mortgage balance being the remaining 94%)? Or do you mean you have a 6% interest in the house and other owners have the remaining 94%?
If your equity is only 6%, then you will realize only 6% of the selling price, less commissions and expenses. Your mortgage company will pay themselves the 94% first.
In the other case, it is very difficult to sell an undivided interest in a piece of real estate. The primary obstacle is finding a willing buyer for something that cannot be subdivided physically, but it can be done. If you are selling the entire interest in the house, then you would receive 6% of the proceeds after expenses.
If you are selling only your 6%, and if the current owners (including you) have taken out a mortgage together, and if the agreement with the lender specifies the various percentages, you may not be able to sell your portion without written approval from the lender (who has an obvious stake in the credit-worthiness of the new buyer).
3. The right price is the price a willing buyer and a willing seller agree on. Sometimes either party is not well-informed and may agree to something that he wouldn't if he had better information. This is why an appraiser is valuable in some cases. But buyers usually don't hire an appraiser, preferring instead to shop around to gain an understanding of prices generally, and then put their energies into negotiating.
4. The bank almost always does its own appraisal so that they become confident that they are lending an amount that bears a close relationship to the value of the property. If they are lending 80% of the value of the house, then they want to know what that upper limit is. They will charge you, the buyer, for the cost of the appraisal.
5. Some banks (more likely, mortgage brokers) will lend to unemployed people based on the strength of their assets. Most asset rich people derive income from their investments, whether it is dividends, interest, rents, royalty payments, or the like. A lender will not lend to anyone based on family ability to pay. Anyone you are counting on to make mortgage payments will have to be approved by the lender and sign the mortgage.
6. Most sales contracts have a clause in them making them contingent on your being approved for a loan sufficient to pay for the house. You don't need pre-approval. In fact, I consider pre-approval to be a trick to cause the buyer to pay more. You know how much you can afford, yourself, based on your income and assets. Keep the mortgage payments at no more than 25% of your monthly income and you will be safe. There are a gazillion mortgage payment calculators on the Internet.
7. Yes, fixed rate mortgages carry a higher rate than variable rate mortgages. A variable rate mortgage that promises to remain frozen for five years and then float can induce some buyers to take that mortgage. This is not a bad deal if the buyer does not expect to be in the house more than a few years.
8. Escrow is a status like Limbo. Properties, assets, and other things can be put into escrow to preserve their fragile status for the time it takes to complete a transaction. Once a deal is agreed upon between buyer and seller, neither wants the other to change the agreement, shop around for a better offer, or run off a lender. Placing the house (or the deal) in escrow preserves it until closing.
9. Mortgagee's can pay into a mortgage in any amount from time to time as long as they make the monthly payments on schedule (usually true--read the fine print). You typically cannot pay ahead and then make no payments for the equivalent number of months. You have to keep paying monthly too.
10. I do not understand the situation. Do you own an undivided interest equal to 35% of the value of a house? Are you buying a house and you have a 35% down payment? Are you forming a partnership with another buyer and your capital contribution is 35%? Please clarify.
- A HunchLv 78 years ago
1. yes.
2. you sell the house. The new buyer gets a mortgage in their name. Your mortgage does not transfer. The new mortgage company pays off your existing mortgage. If there is any extra (6%) you get the a check from the new mortgage company for the money.
3. Yes. The buyer is the one that hires the appraiser. You only want to hire an appraiser for a house that you have an accepted offer from, otherwise you are just wasting your money. If the house does not appraise for the sale value, you can re-negotiate your offer or withdraw your offer.
4. No. The appraiser is selected by the buyer. The appraiser is registered with the state so they are an authorized appraiser. They provide the report to the lender.
5. The bank will only lend to you if you have enough income (earned income or investment income) or enough saving to pay the mortgage. If you can get a joint mortgage with someone else, if you don't qualify on your own.
6. Your word is not enough. That is why every legitimate buyer would have a pre-approval. Only a desperate seller would accept an offer from someone who has not been pre-approved.
7. Different types of mortgages are for different transactions. There is no one size fits all answer.
8. Escrow is a way to transfer funds security and confirm that all the sales process is completed accurately. This type of escrow is only valid from when the offer is accepted until the closing is complete.
9. You can anytime. It reduces the principle on the loan.
10. You can get a loan with 0% down depending on the situation. Different down payment amounts are used for different types of loans.
- Anonymous7 years ago
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- Anonymous8 years ago
Since you are still a minor (under 18), you can not sign any contracts.
Source(s): Retired bill collector 35 years - How do you think about the answers? You can sign in to vote the answer.