Financing Your Real Estate

 


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You just found this incredible deal in a really good location. The neighborhood is good and the cash flow you will receive from the property is over $1000 per month. The terms aren’t too bad either. The present owner wants to sell the property for $300,000. You want to buy it and are able to come up with $20,000 down payment. Now you need to cover the rest to secure the house. Here is where financing will come in. Financing will allow you to buy the property with the stipulation that you pay a monthly fee to pay it back. This monthly fee will include principal and interest. Because you think it is such a great deal, you want to go for it. The question is where and how do you finance the property?

The first thing you will need to ask yourself above any other question is how much can you afford to spend? You will need to do some calculations here but when you do, you’ll find out between your income and expenses what you can and cannot afford. Also, you’ll have to decide where to get your source of funding. Even if your credit is not good, there are programs that are suited with you in mind. You may pay a higher rate of interest on loans, but at least you’ll get the loan you need.

As for the actual loan programs, the type of loan you can get will depend on many factors. Some of these factors include how long you are going to stay at the house, how much money you are going to put down, and how will you handle the closing costs. As for the first part, even if you are not going to live there, you will need to have a body present at the property. Perhaps you can buy the property and rent it out. As for how much money you’ll put down, since in this example you already put down $20,000, this means you will only need to cover $280,000.

The actual loan programs you may be offered will consist of fixed-rate mortgages. These are loans that the interest rate and principal payments stay the same. Adjustable-rate mortgages are set up so the interest rate changes over the life of the loan. This may be yearly, which is about the average for most loans of this type. Another type of loan program is the seven year balloon mortgage. This is where you start making payments just like a regular loan. The only difference is that after so many months or years, the balance that is left to pay is due.

The loans you may find available include:

  • 40 year fixed-rate mortgage – A 40 year fixed-rate loan provides you with the ability to make monthly payments for the entire 40 years you have the loan. This type of loan is good for it locks you in a low interest rate for the entire loan period.

  • 30 year fixed-rate mortgage- This is the same type of loan program as the 40 year loan, except you are required to pay it off in 30 years instead of 40.

  • 20 year fixed-rate mortgage – This is just like the previous two loans, except because you are paying the loan off in 20 years instead of 30 or 40 years, you are paying less interest over the course of the loan, but your monthly payments will be higher.

  • 15 year fixed-rate mortgage – This is like the 20 year mortgage, where you pay off the loan quicker, and pay less interest on the loan, but your monthly payments will be higher.

  • 10/1 adjustable rate mortgage – With this loan, the rate is fixed for ten years of the loan, but after 10 years, the rate adjusts every year thereafter for the rest of the loan period. This loan is usually amortized for 30 years.

  • 5/1 adjustable rate mortgage – This is like the 10/1 adjustable rate mortgage, with the exception that the length for the fixed rate is five years not 10.

    There are others loan programs out there, but this gives you a general idea as to the kind of financing available. Financing isn’t as hard as you think. You just have to know where to look. Just as with buying a car, you will need to shop around for the best loan you can handle. The best advice for you is to get educated about real estate financing so you’ll be prepared to handle the negotiations, paperwork, and all other parts of the loan process.

    By knowing what to expect ahead of time will help not only prepare you, but it will also help you from getting stuck in something you may not want.

    Rod Khleif is a nationally-recognized authority in residential Real Estate-Investment. He has pioneered strategies that have resulted in the personal holdings of over 1500 properties and the restoration/leasing of over 6000 rental properties during the span of his career. Specializing in creative solutions for acquisition, renovation and leasing management, Khleif is making his knowledge available through a variety of publications and private speaking engagements. His contributions in philanthropy have led to the development of The Tiny Hands Foundation (TinyHandsFoundation.org ) and A Better Choice Foundation (BetterChoiceFoundation.org). Rod Khleif can be reached at RodKhleif@hotmail.com or by visiting his website at WeBuyFlorida.com.

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