Real Estate Financing Options

When it comes to real estate matters, the financing options vary depending on the situation. Financing can be obtained for the purchase of an existing home or property, building a new home, and refinancing of an existing property.

Purchase Financing

While it is possible to pay cash for a home purchase, the vast majority of people make a down payment on a home and take out a mortgage to cover off the balance of the purchase price. Before going house hunting, it's a good idea to get pre-approved for a mortgage.

Pre-approval is different from pre-qualified in that being pre-qualified for a mortgage loan indicates how much you would likely be able to borrow. Being pre-approved for a mortgage means you have provided detailed financial information to a lender, who has agreed to provide mortgage financing up to a certain dollar amount.

In the United States, the Federal Housing Administration (FHA) insures a home loan against default. This means that the down payment required to purchase a home is lower. As a result, people with lower incomes are able to buy their own home.

Construction Loan

If you are having a custom home built, you will likely need to take out a construction loan. Construction loans require more paperwork than a standard mortgage. A builder's package must be provided to the lender.

The builder's package includes a resume from the builder, credit information, a detailed cost breakdown, a list of materials, and a signed construction contract.

Some construction loans have interest reserves built in; the borrower is not required to make payments on the loan until after the house is completed. This is not the same thing as free money; the lender calculates the amount of 12 months' worth of interest on the loan and adds it to the amount being borrowed so that the customer is not making two mortgage payments during the construction phase.

A bank may offer construction loans (be sure to speak with a construction loan specialist) or a construction loan broker may be consulted to get the best possible interest rate and terms.

Refinancing

A person who has been in his or her home for a few years has built up some equity in the property. This equity (the difference between what is owed on the property and its value) can be used to refinance the property. Being able to take other debt and consolidate it into a single (lower) payment will provide better cash flow.

One way to refinance a home is to take out a home equity loan. In this case, the homeowner is borrowing funds and using his or her home as collateral to secure the loan. The lending institution puts a lien against the property until the loan is paid off in full.

Another real estate financing option is to increase the amount of the mortgage and use the funds to pay off other debts. The amortization period of the mortgage may be increased; as a result, the monthly payments are lower. It may be possible for the homeowner to get some cash back under this type of arrangement.

Depending on the consumer's needs, there are a number of real estate financing options available. Talk to your bank or mortgage broker to find out which option would work best in your particular situation.

About The Author-- David Burch specializes in articles about the Clovis, NM Real Estate market. For more articles on Clovis, NM Real Estate, please visit his websites: http://ClovisHomeTours.com and http://SouthernNewMexico.com .

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