Real Estate Financing Tips

Bank financing, equity, seller financing and leasing – Do you even know what these words mean? If you don’t – don’t worry because that is what this article is for, to help you understand the financing options you can take to own that apartment or home that you always wanted. These words are thrown around too often these days by prospective sellers and bankers and sometimes not even properly explained leading to confusion when buying a property and looking at the different ways to finance it. These financing options are explained in the following paragraphs.

Bank Financing

This is one of the most common ways to finance your purchase of a home. This involves taking out a loan from a financial institution (banks) and then agreeing with them on down payments and interest payment schedules. These loans are also known as mortgages, these are of two kind a fixed rate mortgage 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 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 can end up paying less interest then you were supposed to.

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 which promise 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/she does not have to wait for the mortgage to be approved from a bank. Also the terms tend to be more flexible as there is no middle man in the agreement and buyer and seller are directly in contact with each other.

Equity Sharing

Equity sharing is used when you cannot afford a home on your own and 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 (partners should not be married to each other). In equity sharing partnership it is recommended that you have a good lawyer make up the agreement that cover the details such as maintenance costs, taxes and percentage of ownerships so that you do not experience any difficulties later on.

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 then market price as some of it goes down as down payment for the property.