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Deciding How You'll Pay for a Home

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Swing Loan

A swing loan is a mortgage loan necessary to tide you over when you need to buy a property while you already own another one. Some cases in which a swing loan comes in handy might be when one spouse gets a new job and goes off to the new location while the rest of the family stays behind. The spouse who's already moved finds a great house, flies the rest of the family out, and they agree to buy it, despite the fact that their original home isn't even up for sale, yet.

Or perhaps you have no intention of moving, but quite by accident, you find the house you've always wanted. You're afraid of losing your dream home, so you make a bid and start looking for a swing loan.

Swing loans are interest-only loans, using the first property as collateral for the second property. They're usually executed as equity loans on first property.

Swing loans require you to sign a mortgage note that collateralizes the first house. You'll pay interest only until the first property is sold. When you sell the property, you repay the loan and satisfy the mortgage.

Construction Loan

Construction loans are available to finance new construction. You can be a first-time homeowner and need a construction loan, or you can already be a homeowner who requires one while you build a second home.

The bank agrees to give you a specified construction mortgage, usually with four equal draws or payments to the contractor. When the contractor requests a draw, an inspector is sent to the property site to verify that the builder has completed everything that's been agreed upon to date.

To request a construction home loan, you'll need to take your building plans and a purchase contract to your lending institution. Although all lending firms are different, most require an initial settlement, which is held in escrow until spent.

A construction mortgage is interest only while the property is being built. Once the construction is completed, the bank has a formal settlement, any overages are accounted for, and a standard mortgage (with principal repayment and interest) begins.



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Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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