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Nakamura · Guest

One thing that I gather from participating in this wonderful forum is the importance of being very careful in interpreting the real estate terminology. I have been loking for explanation of the home mortgage types. The "Small Business Mortgage": is this a loan for homebased business? is it Interest Only mortgage? or Broker's mortgage?...etc.. I really do not know what is that ??

what lind of housing finance is "small busines mortgage"
Who are the likely home buyers applying for "small business mortgage?" Who are the" small business mortgage" lenders
when can such mortgage be an excellent option for buyer and for a lender?

Also I want to ask the same questions about "Purchase Money Mortgage".

Thank you so much.

Nakamura

nemmar · Site Admin

Nakamura,

Each lender may have different interpretations of the category name used for loans they offer to the public and investors. Generally they will be similar in most aspects except for interest rates, amortization terms, and types of security for the loan to be granted. Here is a pretty good standard explanation used by Bank of America for their "Small Business Mortgage" loans:

Acquire property and facilities for business expansion
The Small Business Mortgage offers you:
• Long-term financing, up to 20 years
• Personalized approach to match your needs
• Competitive rates
Bank of America can help you acquire the land or buildings you need for your business. Our innovative mortgage solutions include long-term financing up to 20 years. Bank of America will work closely with you to develop a financial strategy that adheres to your specific concerns and objectives, making the process of selecting the appropriate financing swift and easy.

With that explanation you can see that it's a business expansion type of loan. So in answer to your questions:
1) What lind of housing finance is "small busines mortgage"? It's a mortgage loan to buy buildings and/or vacant land to expand a business. It's not designed as a home mortgage type of loan to be used for residential real estate. Rather it's for commercial real estate.
2) Who are the likely home buyers applying for "small business mortgage?" Businesses and companies that are not large corporations that need a loan to buy commercial real estate to expand their business operations.
3) Who are the" small business mortgage" lenders? Probably most banks and lenders that deal with commerical loans will offer a Small Business Mortgage type of program to their clients. You just need to check with your local banks to find out what their terms and options are.
4) When can such mortgage be an excellent option for buyer and for a lender? If a business/company needs to expand due to increasing growth of their revenues, then it's an excellent option if the loan terms fit the business model and are not too costly. However, you have to be careful since sometimes businesses OVER expand and try to grow too rapidly and they over extend themselves with debt. This happens with homeowners that buy homes that are at the maximum amount of mortgage loan they can get approved for. Then when the economy slows or their income/business makes less revenues, they end up going into foreclosure since they can't make the monthly loan payments.

5) Also I want to ask the same questions about "Purchase Money Mortgage"? A PMM is a good option to use when the mortgage loan terms offered by conventional lenders (banks and mortgage lending institutions) have high interest rates or loan fees. If a seller of real estate is willing to, you can have them hold part or all of the mortgage loan amount that you need to purchase their property. Basically, the seller will act as the bank/mortgage lender and you make monthly payments to the seller as opposed to a bank/mortgage lending institution. Your payments will include the interest and any fees you agreed to with the seller when the Purchase Money Mortgage was originated and the loan contract signed by both parties.

Here is the definition from my web site online Real Estate Library Glossary pages at http://www.nemmar.com/real-estate-Real-Estate-Glossary-PR.html :

PURCHASE MONEY MORTGAGE OR TRUST DEED - A trust deed or mortgage given as part or all of the purchase consideration for real property. In some states the purchase money mortgage or trust deed loan can be made by a seller who extends credit to the buyer of property or by a third party lender (typically a financial institution) that makes a loan to the buyer of real property for a portion of the purchase price to be paid for the property. In many states there are legal limitations upon mortgagees and trust deed beneficiaries collecting deficiency judgments against the purchase money borrower after the collateral hypothecated under such security instruments has been sold through the foreclosure process. Generally no deficiency judgment is allowed if the collateral property under the mortgage or trust deed is residential property of four units or less with the debtor occupying the property as a place of residence.

Guest

So, can I gather from your reply that "Small Business Mortgage" is not for residential home buying?

Also, can purchase money mortgage be a 1sr mortgage, or it is more often a 2nd mortgage?

nemmar · Site Admin

Yes, the Small Business Mortgage loan is normally for commercial properties and not residential real estate.

A Purchase Money Mortgage can be a 1st, 2nd, 3rd, 4th, etc. Whatever terms you agree to with the seller is fine. For example, you can get a bank mortgage loan for part of the purchase price and the bank will want a 1st mortgage position since it's more secure. Then you can get a 2nd mortgage PMM from the seller for part of the remaining balance to buy the house.