The financial support offered in the form of loan by the seller of the house to the buyer is termed as purchase money loan. If a buyer, for some reason or the other, is short of funds for the purchase of the home or if the seller is keen on selling the house in a short time and is not able to find any other offer for his house than this particular buyer who is not able to meet the entire cost of the house, purchase money loan can be considered.
How does the loan function?
The property owner can shift the equity in the home to the buyer and the loan is known as carry back loan. The offer is undoubtedly a great opportunity for the buyer. The purchase money which the lender offers with the house as the security is much preferred by the borrower who is the buyer here. However, this loan should not be understood as hard money loan, to obtain which, the house is submitted as collateral. When you apply for purchase money loan, the loan amount is determined according to the value of the property. The lender is benefited by tax exemption and there is increase in the profit for the lenders at http://www.prnewswire.com/news-releases/bad-credit-loans-up-to-5000-launched-via-top-lender-242197291.html .
The buyer can obtain either the entire cost or a portion of the cost of the house as loan. The buyer is required to sign a trust deed while purchasing the property. The loan obtained from the seller of the house is known otherwise as ‘owner financing’. The offer is in favor of both the buyer and the seller of the house. By drafting the loan document wisely, the house is disposed for a good price by the seller. The seller of the house enjoys for a long time a regular income every month. As for the buyer, it becomes possible to purchase a better property than what he would be able to afford with payday loans no credit check from conventional banks or any other lending companies.
Both the parties can negotiate to get better terms. However, the borrower can apply for loans from banks in future and clear the purchase money loan. The only major disadvantage in the purchase money loan is high interest rate which is inevitable. When the offer is comfortable for the borrower, there are certain factors that should be observed by the lender before offering purchase money loan. The owner of the property has to clear his existing home mortgage before thinking of disposing the house offering purchase money loan to the person who intends to buy the house. For most of the sellers of the property, the reason behind is to buy another home.
If the real estate is at its lowest ebb, the purchase money loan can be a good idea for the lender while selling the property. The buyers cannot be always expected to be prompt in their payments towards the loan. If the seller is in need of urgent financial support, the money cannot be demanded from the buyer against the loan agreement. The deal gets affected if the seller faces divorce issue or if the buyer faces some financial crisis due to the loss of job or sudden illness. It is necessary for both the lenders and the buyers to observe the pros and cons of the offer before committing to a purchase money loan.
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