Many Americans dream of owning a home. But homes are expensive and for most people, financing is the most reasonable way of getting their own homes. This is where deeds of trust come in. Unlike the traditional concept of mortgages that involve a buyer and a seller, deeds of trust involve a third and often neutral party. Financing your home through a deed of trust offers some advantages, as we are going to see. Here is what you need to know about a deed of trust and how this financial instrument can make it easier for you to get your dream home.
What Is A Deed Of Trust?
A deed of trust may be referred to as a trust deed and acts as an alternative way of financing a home. Here, the process involves the traditional two parties that would be involved in a mortgage setup. The first of these is the borrower, which refers to the person seeking to borrow money to purchase or build the home they desire. The second party involved in this process is the lender. This is the entity that puts up the money that is needed. It could be a bank or any other kind of financial institution that offers loans.
For trust deeds, however, there is an extra party involved. This is the trustees. These entities act as a neutral party that arbitrates between the lender and the borrower. Once the deal is finalized, the trustee will hold the deed in their custody until all the terms of the agreement are met. This means holding the deed in custody until the money borrowed has been repaid and other terms of the agreement have been met.
Components Of A Trust Deed
A trust features several components, which we are going to break down for you. The critical thing to understand is that the deed serves as a blueprint for the entire agreement. It stipulates the terms and conditions in which the money is borrowed, as well as the details of the property in question. Here are some sections of a trust deed:
- Property: The deed will describe the property in question. This includes the address, dimensions, and other descriptive elements of the property that is being purchased.
- Loan terms: This describes the terms and conditions by which the loan is offered. This section will include elements such as interest, repayment schedules as well as the total amount that has been borrowed.
- Responsibilities: The deed will stipulate the rights and responsibilities of the parties involved. These may include who is responsible for maintaining the property, insurance obligations, and so on. The deed will stipulate what would happen if the borrower is unable to continue servicing the loan and how the foreclosure process would be handled. It also stipulates the process of transferring the property to the borrower when they finish making the expected payments.
How Is A Deed Of Trust Used?
Deeds of trust play a crucial role in helping to protect the interests of both the borrower and the lender when it comes to real estate loans. Although they are commonly used by private lenders such as banks and mortgage companies, deeds of trust can also be used by other types of lenders. These include:
- FHA Loans: These are loans that are offered by the federal government. FHA stands for Federal Housing Administration and is significantly less complex than most commercial loans. For this reason, FHA loans are a favorite of first-time home buyers.
- VA Loans: These are loans that are proffered to military veterans by the Department of Veteran Affairs. These tend to have friendly interest rates and typically do not require any down payments.
- United States Department of Agriculture Loans: These loans aim to help homeowners in rural areas of the United States purchase homes. These loans typically specify the locations where prospective home buyers can purchase homes with these loans.
The key thing to understand here is that you can use deeds of trust to purchase your home, even if you are not going for commercial mortgages from banks and similar financial institutions. In some rare cases, deeds of trust can be used to refinance existing mortgages, although this varies depending on the state and the financial institutions involved.
Why Trust Deeds Make Sense
There are several reasons why you should consider deeds of trust if you are thinking of financing your next home. While the term that governs trust deeds varies from state to state, some general benefits apply in all cases.
- A more efficient process: Getting financing for a home can be a complex affair that typically involves a lot of paperwork Trust deeds offer borrowers a more streamlined process, ensuring that you don’t waste time and money going through a ton of paperwork. This in turn means that as a borrower, you are more likely to get your home finance approved a lot faster than would be the case with traditional mortgages.
- Lower interest rates: Trust deeds offer a safer way for lenders to lend money to people looking to purchase or build homes. This is because the neutral trustee in the agreement ensures that all terms of the agreement are met, which in turn lowers the risk that the lender faces. In many cases, this leads to lenders offering loans at reduced interest rates. This is because interest on loans is typically an indication of the risk that the lender is taking. The less the risk, the less the interest rate that is likely to be charged. This ultimately leads to cheaper loans for the borrower, allowing them to get their dream home at significantly less cost than would be for a typical mortgage.
- Negotiation leverage: Since trust deeds offer a lot more security for the lenders, financial companies are typically more willing to negotiate friendlier terms with the borrowers. Even though creditworthiness is still a major factor in the process, the fact that the lender faces reduced risks means that they may be more flexible when it comes to repayment schedules
- Transparent process: The fact that the process involves three parties as opposed to the traditional two in commercial mortgages means that there is a greater chance that the process will be a lot more transparent. This is because more parties are scrutinizing the documents, which ensures that any issues with the agreement are more likely to be caught.
Trust deeds offer a load of benefits to Americans looking to finance their homes. With Nevada Trust Company, you have a solid partner who will guide you through this process. Our company was founded in 1995 and over the years, we have built a solid reputation as one of the leading trust companies. Nevada Trust Company is acknowledged as a premier provider of professional trustee and custody services, catering to Nevada asset protection trusts, self-directed retirement services, and wealth management solutions for both U.S. and international clientele.
