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Property Mortgage and Financing

Chapter 11

How To Get Financing For Your Property

Whether you are buying a new home or is investing in a property, having the right financing strategy is important. In this chapter, we will share with the basics of the financing process as well the conventional financing methods in real estate.

Here are some points to remember:

  • If you are buying an investment property, usually you will need to have a bigger down payment and assume a higher interest rate. This is because the bank sees the property at a higher risk, so they charge bigger. But when a property is owner-occupied, the bank will find it much easier to check for the owner’s credit and history and income. As a result, the bank will give the owner more “friendly” financing terms.
  • Having a good idea as to how long you will own a property is helpful in selecting the type of loan that you will need. So make sure that you know exactly from and until when you will own the property.
  • If you do not have perfect credit or have a little amount for down payment, government loans can be a huge help. There are housing loans that allow down payments as low as 3% of the entire property cost.
  • If you are buying a home that is a fixer-upper, then there are a lot of great loans available. However, you need to be very careful in finding a loan.

After you have considered all the things mentioned above, finding the appropriate loan for your needs will be much easier. Now, let us discuss the different types of mortgages.

Fixed Rate Mortgages – the traditional loan available is a 30-year fixed rate mortgage. This means that your monthly payment will remain the same for the entire duration of the loan. This type of mortgage is great for people who like to hold a property for a very long time.

Interest-Only Mortgages – the options in this type of mortgage are offered like borrowed money without increasing the monthly payment. Since no principal is paid during the interest period, your payments will be smaller compared to the typical mortgage.

Balloon Loans – balloon loans are short-term loans. For example, you borrow money for three years and the loan is then amortized as if it was a 30-year loan. At the end of the deadline, you will owe the bank the remaining principal in one lump some – like a big balloon. This is ideal for people plans on staying in a house for only a short period of time.

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