4 Real Estate Financing Options for Beginners
This simply means the options one has when investing in real estate for the first time. It is important you understand the financing options you can take to own an apartment or home. These words are thrown around too often these days by prospective sellers and bankers and sometimes not even properly explained leading to confusion. This is when buying a property and looking at the different ways to finance it. When understood and used carefully, they can help you much to achieve your goal. Let us look at the 4 real estate financing options for beginners
The following are the real estate financing options for the investment beginners;
1. Seller Financing
This is a home financing technique in which the buyer borrows from the seller instead of a bank. This is sometimes done when a buyer does not have the necessary credit rating required to take out a loan from a bank or does not want to take a loan from the bank. In this finance method, the seller accepts a down payment and provides a loan to the buyer. The details of this loan are included in a promissory note. This promises the seller monthly payments for a fixed period of time.
The Promissory note is kind of like a deed and with that, in hand, the buyer is the owner of the property. There are several benefits in using this method, for example, a buyer can save time as there is less paperwork involved also he does not have to wait for the mortgage to be approved from a bank.
2. Rent to Own
This is also known as a lease-purchase agreement and in this method part of the rent of the buyer is put down as down payment and when the down payments reach a certain amount then the buyer has the option to buy the property or decline according to his choice. Keep in mind that in this financing method the rent that you pay is usually higher than market price as some of it goes down as down payment for the property.
3. Equity Sharing
Equity sharing is used when you cannot afford a home on your own. Therefore gather finance from other sources to acquire your home. This can be done by arranging partners who then own the property along with you. In equity sharing partnership, it is recommended that you have a good lawyer make up the agreement that covers the details such as maintenance costs, taxes and percentage of ownership so that you do not experience any difficulties later on.
4. Bank financing
This involves taking out a loan from a financial institution (banks) and then agreeing with them on down payments and interest payment schedules. This is one of the most common ways to finance your purchase of a home. These loans are also known as mortgages, these are of two kinds a fixed-rate mortgage. This is one in which you have to pay a fixed amount of interest during the life of the loan. The other type of mortgage is known as an adjustable mortgage rate in which the rate of interest varies during the loan term.
Both of these have their advantages. In a fixed-rate system, you get consistency and know exactly how much you have to repay each month. Whereas, in an adjustable-rate system, you have fluctuating rates which can sometimes work in your favor and you. This means that you can end up paying less interest than you were supposed to pay.