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Money for a Mortgage - Where Does it Come From?

Who pays cash for a house these days? Well, maybe some lucky lottery winners, or people who have been handed huge inheritances. Someone who's just sold a house that was paid for over a number of years may well have the necessary cash.

However, the vast majority of people thinking of buying a home today will have to take out a mortgage to make it possible.

There are a multitude of players in the mortgage lending business and this is good news for home buyers who can take advantage of all that competition to shop around for the deal that's right for them.

But where to start? Knowledgeable and experienced REALTORS® are familiar with a wide range of financing options and will be able to offer advice that can lead you to the lenders who will best suit your needs - and pocketbook.

The majority of money for mortgages comes from banks and trust companies and from credit unions which lend funds to their members. Insurance companies are in the money lending business, too. Competition among these established lenders can be fierce.

If a bank or trust company you've never done business with offers a better rate than the institution you've invested in for years, then pass that information on to your banker. There is often room for major negotiations when it comes down to a choice between keeping all your financial business or losing it to a competitor for the sake of a percentage point on a mortgage rate.

Mortgage brokers play a "matchmaking" role in that they find an appropriate lender for a qualified buyer. They may deal with conventional lenders such as banks and trust companies but they're also familiar with private lenders, pension funds, foreign banks and real estate syndicates.

Another way of financing a home purchase is to "assume" the mortgage that's already in place on the house you want to buy. This simply means you take over the Sellers mortgage and payments to finance part of the purchase. This can be an attractive option if the assumed mortgage rate is lower than those currently availableon the open market.

Some lenders may stipulate that anyone assuming a mortgage is approved first but you may also be able to assume the mortgage automatically. Always check out the remaining term of the mortgage. When it expires you should have an excellent chance of renewing as long as you've shown you can consistently make the payments on time.

Another way the Seller can help with financing is to "take back" the mortgage. If someone has paid for all, or most, of their mortgage, they can loan you the money from the equity they have in their home. It's an attractive option for Sellers because their investment could produce a higher yield than many other investments. For the Buyer, the advantages are similar to those on an assumed mortgage.

Remember, your REALTOR® knows about mortgage financing and can explain the options available to help you make the right choice.

Multiple Listing Service, MLS®, REALTOR® and REALTORS® are registered trademarks of the Canadian Real Estate Association. REALTOR® identifies a real estate practitioner who is a member of the Association.

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