Buying real estate can be an exciting time in your life. One looks around for the perfect piece of property and they finally found it. Financing real estate isn't as easy as writing a check and being on their way. There are different ways to finance, and here we will take a look at a few of the options available.
Pay with cash
Yes, pay with cash. It is, after all, the easiest and quickest form of financing. Of course, of most of us, paying cash is not a realistic option, but it is there, if that is an option.
Home path mortgages
This is one of a couple of government backed loans. This is offered by Fannie Mae. This will allow for small down payments, no mortgage insurance, and other beneficial options as well. Also, the Home Path program can be used by investors. It even allows the financing of repairs. The catch: These programs are only able to be used on Bank Repossessions owned directly by Fannie Mae.
Most investors will finance with a down payment of almost 50% on the purchase price. Most of your traditional conventional mortgages require at least 20% down. Conventional mortgages are the most common type of mortgage financing.
The Federal Housing Administration (FHA) is a U.S. government program that provides insurance for mortgages for banks. FHA loans are for homeowners to are going to live in the property. One can put a smaller down payment on the purchase, but FHA does ask for an additional payment, so if a persons down payment is low, the monthly payment will be high.
This is a sub-set of the FHA loan. This loan allows individuals to buy a home that needs work done to it, and then the repairs can be rolled into the mortgage itself. It can be a struggle getting the paperwork done quickly to allow for a fast closing.
Hard money is money received from private individuals for the sole purpose of real estate investment. There are many defining characteristics of hard money, such as the loan is based only on the property value, it is short term (6-36 months), has a high interest rate, high loan points (what it will cost to get the loan), no verification of income, no credit references, and a fast ability to fund. Hard money can benefit you if a person is ok with a short term loan, but when the money runs out, things can turn ugly. This should be approached with caution.
Real estate financing does not have to be stressful or difficult, as long as one educates themselves before deciding to make a commitment to purchase.