If you are like most Americans looking to invest in real estate, whether that be for your family’s dream home or an investment project, you will need the assistance of a mortgage. With so much information about interest rates and types of loans, it can be hard to know where to start. That’s why we’ve made an essential guide of what you need to know to understand real estate mortgages.
Types of real estate mortgages
When it comes to getting financing for a real estate purchase, there is not a one size fits all kind of mortgage. There are several factors to consider as a borrower such as loan terms, who the loan is coming from, and any special qualifiers. Here are a few of your mortgage loan options:
1. Conventional 30 or 15 year fixed rate loans
- Traditional conventional loans can be paid back in 30 or 15 years. The shorter the loan term, the less you will pay on the mortgage in the long run.
2. Jumbo loans
- Jumbo loans are non-conforming mortgage loans that are much bigger than average loans. These are often used for large investment projects, vacation homes, or even primary residences that exceed the local conforming loan limit.
3. Special government-backed loans such as VA / FHA loans
- Veterans, active military and military spouses are eligible for VA loans. These do not require a down payment and come with many benefits. First time home buyers can take advantage of government-backed FHA loans, which are popular for their lenient qualification requirements.
4. Down payment assistance loans
- DPA loans provide immediate funds to homebuyers to partially or fully reduce the down payment and closing costs. These can sometimes be fully forgiven.
5. Hard money loans from private lenders
- An alternative to conventional loans, hard money loans come from private lenders and can be used for commercial investment properties or primary residences. There are typically looser requirements and higher interest rates.
Which loan is right for you?
Say you qualify for several different kinds of loans; how do you know which is the best for you? The first step to answering this question is to identify your end goal. Identify what you can afford and what exactly you are looking for with this financing so you can get to know your options. Are you after the lowest interest rate? Larger loan amount? The most straightforward qualifying process? Talk with several lenders about different loan programs so you can compare deals. Establishing your needs will help you narrow down your options.
How to get a real estate mortgage
After deciding what kind of mortgage loan you will go with, you will need to begin the application process. This will involve several steps and lots of paperwork. You will need to disclose your debts and assets, provide bank statements, submit pay stubs, and supply many other requested documents. The bottom line is that your lender wants to know you are a safe person for them to lend money. Be sure to answer requests and correspondence promptly to avoid slowing down the process.
Do’s and Don’ts of real estate mortgages
Many changes to your finances could hold up the qualification process or even disqualify you for the loan deal you’re after. Here are some basic tips for what to do and avoid when looking to qualify for a mortgage.
- Pay your bills on time
- Save for closing costs
- Increase credit score
- Pay off debt
- Change jobs
- Make large purchases
- Close/open bank accounts
- Take on new debt
Real estate education
Now you have a general idea of real estate mortgage loans, but what next? The decision to begin investing in real estate can change your life for the better. It can provide the financial freedom and personal fulfilment that your 9-5 could never give you. But the path to success requires hard work and preparation.
The right investment in your education is an investment in your future. In our real estate education courses, our expert instructors will walk you through real-life investing scenarios to prepare you with the skills you need to succeed in real estate investing. No matter your learning style or level of knowledge coming in, our courses are customized for you. Are you ready to take the leap? Contact Us and we will be happy to help you along your journey.