There are many people who are looking to get a good house so they go house hunting for one. So what happens when you finally spot the house of your dream? It is not as simple as taking that checkbook and buying the house. There are some details involved when it comes to buying real estate.
Getting finances for real estate is one of the most important aspects of acquiring real estate and it is not that easy. This is something you need to really put some deep thinking into. When it comes to getting finance for real estate there are different ways that one can go about it. Here are ten options that one can pick from:
This is indeed one of the options that people looking to own real estate have at their disposal. Studies that have been conducted in the US show that up to 24% of the investors basically do all their deals using cash. In reality, these investors do not come with the cash when looking to transact. Most of them write a check to to the title company which then writes a check to the seller. Cash is the least complicated mode of transacting for most investors though it is not viable for most people.
2) Conventional Mortgages
This is another option available for people looking to acquire real estate. There are many investors who usually choose to start off the financing by depositing almost 50% of the buying price. Most of the conventional mortgages ask for a minimum of 20% down payment though this figure may be revised upwards for some. This is basically the most popular type of mortgage used by people seeking to get their hands on real estate.
3) Homepath Mortgages
This is a mortgage program which is offered by Fannie Mae which is a mortgage company owned by the government. People who decide to take up this option do not need to make any big down payments and neither do they need any mortgage insurance. They only get to make small down payments. This option allows financial repairs while at the same time it is an option which is open to investors. The only major requirement that needs to be fulfilled by people looking to get these loans is that they should seek to get them from banks owned by Fannie Mae.
4) Commercial Loans
This is also a good option to go for especially when the property one is looking to own has more than 5 units. The other thing about these loans is that they have shorter terms, higher interest rates and fees. The lenders of commercial loans can also extend this option to other investments which the borrower feels like they would need to invest in.
5) FHA Loans
This is also known as the Federal Housing Association. It is a program owned by the US government and it usually insures mortgages for the banks who lend them out. They basically work in the same way that hospital insurance does but this time round they help in catering for the risk involved when getting mortgages. They usually target home owners who intend to live in the property they are purchasing. It can be used by people who are looking to get their hands on property which contains up to 4 units. They are allowed to get property with a down payment of as little as 3.5%. The only disadvantage is that the small down payments are usually accompanied by another payment referred to as PMI and this usually ends up making the payment a bit higher.
6) Hard Money
This refers to money that is gotten from other individuals or businesses for investment in real estate. The reasons why people use these options include the fact that it does not require credit references or income verification, you can get it even if the property is in bad condition. It usually has a shorter term, high interest and requires one to have high points for them to obtain it. This option is good for people who require short term loans though it can be a bit tricky especially when that time runs out before one has completed that payment. It is thus essential for them to assess well before choosing this option.
7) 203K Loans
This can be viewed as a type of FHA loan which allows an individual to buy property which still needs to be repaired and the repair work is catered for by the loan. They also offer low down payments in the same way that the FHA. The issue with this type of loan is that it may actually take a long time to process seeing as one has to go through a lot of paper work. This may also mean that the repair work will take a longer time to complete.
8) Home Equity Loans and Lines of Credit
This is mainly used by investors who are willing to use the equity of their own residence to acquire property. This option can be done through some banks or lending institutions. One can simply choose to use the mortgage of their own home to pay for any particular property they are interested in so long as the amounts are almost equal.
Most of the options we have discussed so far excluding the ones backed by the government can all be done in partnership. These can be done in different ways from using the money from the partner to make a down payment to financing the entire property with the money from the partner. Such deals may not require any strict rules but at the same time having structure is important. You need to come up with a criteria for decision making and how to share the profits.
10) Private Money
This is almost the same as hard money but the difference is that the lender this time round is someone who is looking for a profitable investment rather than a professional. Most of the times the lender is someone who has existing friendship or relationship with the borrower even before the deal and this means it is mostly not seriously business oriented. It is easier to negotiate because of the fact that both friends want a deal that benefits all of them. It thus has lesser fees and the terms are not that strict.