Many people dream of one day owning a house, and real estate loans can help realize those dreams. Real estate loans help finance a house when the buyers do not have enough money to it all directly. However, the loan will have to be paid back with interest to the finance institution. For first time home buyers this process can be a little intimidating, so some basic terms are listed below to help buyers.
Mortgage – A mortgage is the result of the loan from the bank. It is a legal document that states that the lender, which in most cases is the bank, owns the property until the homeowner has repaid the loan in full. There are different kinds of mortgages, such as 15 year, 30 year and fixed rate mortgages. These mortgages are classified by the time it will take to pay them back as well as the interest rate.
Refinance – For lending institutions this is similar to a second mortgage, though refinancing can be used for anything. It involves paying off the original loan, the mortgage, by getting another loan using the same property, the house, as collateral.
Equity – The amount a home is worth. Home buyers will not be able to get loans for more than the total equity of their home, especially in a bad housing market where housing prices are irregular.
Short Sale – A transaction where the final total amount will be short of the amount of money that the lending institution originally paid for the house. Home buyers can usually get great deals on short sales.
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Banks loan money to those looking to purchase a commercial, farm property or piece real estate. It's unlikely that a person or private investor can immediately pay cash for a land and building. Lenders provide the finances to help you buy or refinance the property.
Different lending procedures apply to different purchases. For instance, if you're purchasing a mobile home that sits on leased land, the loan terms will be different for those purchasing a new house. Construction lending involves payments split up during the construction of the house. Money is drawn upon as needed. Repayment begins after the construction is finished and you move in. Farm lending usually covers the cost of the property, animals, equipment and even the feed.
Refinancing is done after you've already bought real estate. After purchasing a home or business, you make monthly payments. Those payments cover the interest and a small portion of the principal. The more principal you've paid, the lower your mortgage amount. The money that's paid off becomes equity.
Sub-prime lending is performed when a purchaser's credit history is limited or poor. It is established as a means to helping couples with little credit history or no money. Loans are given for down payments so that more can become homeowners. Carefully discuss the risks. Often, interest rates end up being much higher, especially if you take out an adjustable mortgage. Some states offer grants to new homeowners. These grants can help reduce the amount of money you must initially borrow for a purchase.
Rates and terms vary between private and commercial lenders. Call a real estate loan professional to ask about current interest rates and restrictions.