There are various kinds of first mortgages now being used to assist in financing the purchase of a country home. One of the oldest is the purchase money type. This is given the seller as part of the total price paid by the buyer. Formerly such mortgages were for a short term, three or five years, and payable in full at the end of that period. Now some of them are for longer periods and provide for monthly amortization charges by which the mortgage is paid in full by the end of the time specified.
The Federal Housing Administration mortgages, which are a recent New Deal endeavor to make funds for home buying or building safe and stable, are issued by local banks with the payment of interest and principle guaranteed to the bank through the operation of this government controlled agency. These mortgages are amortized over periods of ten, fifteen, and twenty years and the borrower must make specified monthly payments that include taxes, interest charges, and amortization. They are not available in all sections because some local banks hold that they conflict in details with other banking regulations. So far as the borrower is concerned, these mortgages are no different from any other similar method of financing. If payments are not made regularly and promptly, foreclosure proceedings will be started.
Large insurance companies or savings and loan associations also issue fifteen to twenty year first mortgages, amortized over the period by monthly, quarterly, or semi-annual payments. The interest rate varies from five to five and a half per cent. If such a mortgage is arranged for a new house, architect's plans and specifications must be submitted with the application for loan. The site must be free and clear of all mortgages or other obligations. Your own financial rating is looked up by the lender and, if satisfactory, the company issues a commitment that you can take to your local bank where definite amounts are paid as the work progresses; so much when exterior walls are complete; such a proportion when rough piping for plumbing has been installed; another amount when all lath and plaster has been finished; and so on until the final payment when the house is finished. Then the formal mortgage is executed and recorded. There are brokers who specialize in negotiating such mortgages. Their fee is about two per cent.
So much for the usual channels of financing. In addition, the buyer can still make his own mortgage arrangements with some investor who has money to loan if he knows such a person. Further, although second mortgages should be avoided if possible, they are sometimes issued where a buyer is considered a good risk but lacks sufficient capital to meet the fifty per cent cash requirement that prevails today. Such loans are not usually made for over twenty per cent of the appraised value and generally call for a higher rate of interest, six per cent. They are also apt to be for a short term, two or three years, when they must be paid in full.
With both first and second mortgages, the lenders will inquire carefully into the financial responsibility of the would-be borrower. They will want to know exactly how much of his own ready money he plans to use in the transaction. This is to be sure that he has a substantial equity in the property and will not be struggling under too great a financial burden.
Having perfected the method for financing your purchase, now comes the formal contract to buy. This is an agreement whereby you undertake to consummate the purchase at a future date, generally thirty to sixty days, at the agreed price. On executing such a contract, which should be reviewed by your lawyer before you, as buyer, sign it, expect to pay the seller through the broker ten per cent of the total purchase price. This is done on signing the contract. The time between signing this contract and the date set for the title closing is employed for title search and insurance, land survey and similar details. If the title proves imperfect so that you cannot complete the purchase, your check is returned to you. As for the cost of title insurance, the corporations issuing such policies have an established scale of prices. These vary slightly in different parts of the country. Title policies have generally replaced the old independent title search by lawyers that had no elements of insurance. Where a company has already searched and insured the title, reissue of the policy is made to you at about half the original fee.
The cost of surveying property is based on the amount of work involved. For surveying five acres of what was formerly farm land and that has never had its borders so measured and defined, the average charge today is from one hundred to one hundred and twenty-five dollars. Special conditions may raise or lower this. An established surveyor who knows the locality is, of course, the best person to undertake such work. His previous surveys of other adjacent properties can often enable him to locate and identify old boundary marks that some one not conversant with the locality might find baffling. Much country property is very vaguely described by old deeds. "Fifty acres more or less bounded on the east by the highway, northerly by land owned by Jones, westerly to that of or recently owned by Smith, and southerly by that of Brown," illustrates roughly an old title description. You may get forty-five or fifty-five acres, and it is up to you to establish just what fences and so forth are your actual boundaries.
A surveyor reduces all this to exact measurements and puts definite markers at the corners and wherever else the party lines change direction. When finished, he provides you with a certified copy of his survey in map form, giving distances and indicating location of his monuments. These are usually either iron stakes driven two or three feet into the ground or concrete posts about two inches square set in the ground and plainly visible. It is illegal to move such marks.
With title clear and the survey completed, everything is ready for the title closing, as lawyers call the time when title to the property passes from seller to buyer. The latter's lawyer should have investigated and passed on all steps prior to this and adjusted any minor details with the seller's lawyer. The buyer and his lawyer and the seller and his lawyer should all be present at a title closing. The paid tax bills for the current year are first presented and any minor adjustments made. Then the buyer presents a certified check or actual cash for the amount he has agreed to pay. He also has a small amount of money on hand to meet any adjustments such as taxes, insurance, and the like. Lastly, the deed, which has been carefully reviewed by the buyer's lawyer, is signed by the seller and, for better or worse, you have become a country property owner.