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Many people dream of owning a home or business but lack the savings for a cash purchase. Real estate loans help you purchase the property you want, whether you buy a new home for your family or take out a commercial property loan. Our detailed guide will help you learn the ins and outs concerning real estate loans, whether you have questions about current conventional mortgage rates or are curious if a home equity loan is right for you, we can help.
Let’s dive right in and learn the essentials about real estate loans for every budget, regardless of whether you need a traditional home or a commercial property.
A real estate loan is how most people finance the purchase of a house. It’s commonly called a mortgage. The loan uses the home as collateral, meaning if you default on the loan, the ownership of the house or piece of real estate reverts back to the lender.
There are three main types of residential real estate loans: conventional, government-backed and no-doc real estate loans. Real estate loans vary greatly in terms of required credit scores, down payment amounts, interest rates, private mortgage insurance and the length of the loan or term.
These rates may change over the course of a week or month. Keep an eye on financial news and information from the Federal Reserve. If the Federal Reserve drops its benchmark rate, then conventional loan rates may drop, too.
There are three main types of residential real estate loans: conventional, government-backed and no-doc real estate loans.
Conventional real estate loans are available as fixed-rate loans or adjustable-rate loans. A fixed-rate loan is one where the mortgage’s interest rate will remain the same throughout its life. So, if you take out a loan with 10% interest, you’ll be paying 10% on that mortgage for its full term.
Comparatively, an adjustable-rate interest loan, also known as an ARM loan, has an interest rate that is fixed for a set period of time. It’s usually fixed for two years, and then the rate adjusts. While the interest rate may increase or decrease over time, it’s not an arbitrary decision. ARMs are usually tied to an index, like LIBOR, and increase or decrease at the same rate as the index..
In most cases, an ARM will start with a lower interest rate, which is great if you want to pay off a loan early or save with low interest prior to refinancing later on. Keep in mind that the introductory rate is likely to change, so your payment and interest rate may increase in the future. ARMs typically adjust annually, but every bank is different. Be sure to read the fine print. Your ARM could change every six months or even quarterly
Neither is better or worse than the other, but studies have shown that borrowers are generally going to pay less over time with an adjustable-rate loan. An adjustable-rate loan isn’t perfect for everyone, though. If you’re in an economy where the interest rates are rising and lenders are pickier about giving out loans, you’ll likely want to get a fixed-rate loan that protects you against rising rates in the future.
On the other hand, if the economy is such that the interest rates are dropping and continuing to decline, then an ARM loan is a better choice, since you’ll save money on the interest rate over time. An ARM is also a good option for buyers who do not expect to live in the home for very long.
Be careful when choosing which one you want, because though refinancing is an option, it can be costly and difficult depending on how much equity you have in your home. If you do want to try an adjustable-rate loan, the 5/1 ARM is a popular choice. It gives you the chance to have a fixed rate for five years. After that, the rate will begin adjusting up or down annually. If you plan to sell your home in only a few years, an ARM loan could be a great opportunity. Just keep in mind that longer-term ARMs are higher risk, since the rates could rise higher than they are for those on fixed-rate loans.
To decide which one is right for you at the moment, plug in the different rates and see how much your mortgage payments will be. Your mortgage payment could be substantially different depending on the loan you take out and the interest rate that you have to pay.
Government-backed loans are not real estate loans that you receive from the government; instead, they’re guaranteed by a government agency. You apply for a government-backed loan at a regular bank or credit union. If you default at a later date, the government guarantees the bank that they will cover a percentage of the funds. It’s like an insurance policy for the bank, and it helps make the opportunity for homeownership available to borrowers that may not otherwise qualify for conventional loans.
There are three types of government-backed real estate home loans, FHA (Federal Housing Administration), VA (Veteran’s Administration) and the lesser-known USDA (United States Department of Agriculture). This is also referred to as an RD loan or rural development.
An FHA home loan is a loan that’s secured by the federal government. An FHA loan is a great mortgage product for anyone with less-than-perfect credit, bruised credit or even no credit at all yet. In fact, while conventional loans require credit scores of 620 or higher, FHA loans can be obtained with a credit score of 580. Please realize, however, that individual lenders may set a higher standard. They may only underwrite FHA loans where the borrowers have a minimum of a 600 credit score, for example.
FHA loans do not require hefty 20% down payments. In fact, with an FHA loan, you can put down as little as 3.5% on your new home. Furthermore, interest rates on FHA loans are competitive with those on conventional loans. They may even be lower.
It’s important to note that an FHA mortgage is often thought to be only for first-time buyers. You can, however, use this program if you have purchased a new home in the past, An FHA home loan is for anyone with damaged credit or little down payment savings.
There is a drawback to FHA loans and other government-backed home loans, however. Borrowers are charged PMI, or private mortgage insurance, if they have less than 20% down. While it may only add $100 or so to the monthly payment, the borrower is stuck with this monthly fee for the life of the loan. It does not disappear once the homeowner has 20% equity in the property. This is a key factor for buyers with good credit choosing a conventional loan instead.
Expect your lender to request a long list of documents for your FHA loan. In addition to the loan application, your required documents may include:
You should also expect to provide a driver’s license, Social Security card or green card that verifies your identity.
A VA home loan is designed as a benefit for veterans that have served with the United States military, whether active duty or not. It's a loan guaranteed by the Veterans Administration. A VA home loan is available to anyone currently serving or honorably discharged. All branches of the military may qualify for VA home loans.
Like an FHA loan, VA loans are available to help home buyers get into the home of their dreams. VA home loans do not have a minimum credit score, but like FHA loans, banks offering VA loans may have their own internal requirements. If your credit score is low, it may be best to call several banks and see who has the lowest requirement for credit scores on VA home loans.
VA home loans also have a zero down payment option. If saving up for a down payment is hard for you, a VA home loan may be the right choice. It's important to note, however, that the VA reduces its fees on the loan for borrowers that are willing to come up with just 5% down.
Interest rates on VA loans are also impressive, often being the lowest interest rates available on real estate home loans. Again, each bank or lender sets its own interest rates. The VA does not control this aspect of the loan. It's best to shop around for the best rate you can find on a VA home loan.
Be aware that the VA program has strict rules on the quality of the home. They do not want military families or veterans living in unsafe conditions.
There are often fewer documents required for VA home loans than FHA home loans. When applying for a VA loan, expect to provide the following documents:
You may also need to show proof of debts or your payment history for rent and utilities.
A USDA home loan is often the least well-known of the government-backed loan options. In fact, many lenders do not offer USDA or RD (Rural Development) loan products. You may have to contact a few banks before you find one that is familiar with the program. The knowledgeable Lendzi team can help you explore USDA home loan options.
Many home buyers assume that this loan product is for rural areas — and it is — but you may be surprised at what areas are considered rural by the Department of Agriculture. Almost the entire state of Minnesota, for example, qualifies for a USDA loan. The requirements are that any community with fewer than 10,000 residents qualifies for an RD loan as well as any community that had 10,000 people in the 1990, 2000 or 2010 census, but still has less than 35,000. You can look up the specifics for your area.
Like other government-backed programs, RD home loans are forgiving with credit scores, accepting scores as low as 580. The loans also require only a 3.5% down payment, which makes home ownership much more affordable.
Interest rates on USDA or RD home loans are comparable to that of FHA home loans. They are slightly lower than conventional mortgage rates.
USDA loans require many of the same documents as FHA and VA loans. During the application process, your lender may request:
If conventional and government-backed home loans do not work for your personal circumstances, you still have options. No-doc, low-doc and stated income programs are available for borrowers who need more flexibility.
With traditional loan products, borrowers are required to submit both paycheck stubs and tax returns. For some people that doesn't always work. Perhaps they have income that fluctuates from month-to-month or year-to-year, or maybe they accept a large amount of cash tips. No-doc, low-doc and stated income loans do not require paperwork or any documentation as proof of income. They may not even check your credit score.
Are you wondering what the catch is? While no-doc loans are a good solution for a subset of the population that needs more leeway, they do charge a much higher interest rate than a typical loan. Sometimes the rate could be 3% to 4% higher than a conventional loan. If you are self-employed, however, it may be easier to pay the higher rate now — and, in turn, the higher monthly mortgage payment — and refinance later when it's more convenient.
There are minimal document requirements for no-doc loans. However, you will likely still need a driver’s license and Social Security card. You may also need bank statements, records showing your assets and a large down payment.
Still deciding which real estate loan you should get? Compare your options in this helpful chart:
|Loan Type||Credit Profile||Amount||Disbursement||Payment Schedule|
|FHA Home Loan||Minimum 500 FICO, but many lenders prefer a 580 or higher||$331,760 to $765,600, depending on your location||30 to 60 days||Must be repaid in 30 years or less|
|VA Home Loan||No mandatory credit requirements, though many lenders prefer a 620 FICO or higher||$510,400 to $765,600, depending on your county||Loans typically close in 40 to 50 days||Maximum term of 30 years and 32 days|
|USDA Home Loan||FICO score of 580 or higher preferred||No set limits, but loans typically do not exceed the $300,000 to $400,000 range||30 to 45 days||15- or 30-year fixed-rate mortgage|
|No-Doc Loans||No mandatory credit requirements for many lenders||Varies based on your credit history||Varies||Varies|
As a first-time home buyer, there are many things you need to know about getting a loan and the right home. You'll want to start saving for the home you want as soon as you can. It's common to put down 20%, but if you can't, get as much as you can for the down payment.
The more you have to spend, the more likely it is that you'll be able to qualify for the loan you want. For example, if you want to buy a home that's $100,000, try to have $20,000 ready as a down payment. If you can only get $10,000 or $8,500, you may still be able to get a loan, but be prepared to pay more over time.
You should also be aware of the different kinds of loans that are available. Conventional mortgages, government-backed loans and no-doc loans all have their own benefits and downsides. If you are having trouble getting your 20% down payment, other options may still be open to you.
If you're looking to have a low mortgage payment, then try to get a 30-year fixed mortgage. If you want to pay more and pay off your home faster, then a 15- or 20-year fixed loan can be a great option. Similarly, if you plan to stay in the home for only a few years, an ARM loan might work out better for you, since interest rates will be lower while you live in the home.
You should also know that it's important to get a prequalification letter for a mortgage before you start looking at homes. This gives you an idea about how much a lender is willing to give you based on your debt and income. A prequalification is not the same as a preapproval letter, though. A preapproval is better once you find a home or two that you may be interested in buying because it's more thorough and confirms what the lender is willing to lend to you. You'll also be given the terms for borrowing so you get the opportunity to review them.
When you have a preapproval letter with you, you look like a more serious buyer. Additionally, you may have an advantage over potential buyers who have not yet received a prequalification or preapproval letter from a lender.
1. Do not make any large cash purchases. The underwriting department at the bank will be examining your bank records. They will want to know where the money went and, while you may think a new motorcycle is a valid purchase decision, the bank may not agree with you.
2. Do not make any large purchases on your credit cards. Your goal is to have your credit report as clean as possible with little debt. When you make credit card purchases, it shows up on your credit report and could throw off your debt-to-income ratio, commonly referred to as DTI.
3. Do not make any late payments. Late payments negatively affect your credit score. Any changes to your score could disqualify you from the bank’s program.
4. Do not change jobs. No matter how big of a jerk your boss may be, do not quit. Banks want to see stability. While they prefer two years, the longer you have been on the job the better. Banks do not want to lend to someone who just started a job two months prior.
It’s important to get a prequalification letter for a mortgage before you start looking at homes.
When you start looking at homes, stop using your credit.
Most people believe that you need 20% of the home’s value as a down payment, but that’s not always true. The National Association of Realtors found that the average down payment was just 11% in 2016. People 35 years of age or younger paid an average of 8% down.
Conventional mortgages, such as a 30-year traditional fixed-rate mortgage may require only 5% down. On the other hand, an FHA loan, which is backed by the government, may require a down payment of 3.5%. VA loans generally offer loans with zero money down upon approval for veterans and current U.S. military members.
In any case, when you are buying a home, having a larger down payment is better. Putting 20%, 30% or even 40% down is going to cut years off your loan and help you have a lower monthly payment. Additionally, you’ll pay less in interest over the life of your loan.
If you’re looking at your credit score and are worried about qualifying for a real estate loan, you’re not alone. A low credit score can significantly impact your ability to get a loan, with some completely disqualifying you from buying. That doesn’t mean you’re out of luck, though.
Every loan is different. Conventional loans generally require a FICO score of 620, while an FHA loan with a 3.5% down payment may require a base score of 580. FHA loans that require 10% down generally require a minimum score of 500, but that will vary based on the lender.
Veterans may be able to get a loan regardless of their credit history. However, most lenders do like to see a credit score of at least 620. VA loans don’t technically have a minimum score requirement, but a higher score will give you a better chance at receiving an approval for the loan.r:
If your credit score is too low based on these averages, then there are a few things you can do to improve them quickly. For example, improving your payment history by making payments on time, reducing your debt and having different kinds of credit can all play a role in improving your credit score. Your debt-to-credit ratio also matters, so try to minimize the debt you have while increasing your overall available credit.
Lenders don’t just consider your credit score when they decide to grant you a loan. They will also look at your:
The more you can show that you are a reliable borrower, the better your chances will be of obtaining a loan.
Overall, understand that it’s possible to get a home loan with poor credit, but your interest rate and terms may not be as agreeable as they would be if you had a better credit score. It’s sometimes difficult to qualify for a mortgage with a low credit score, since each lender will determine if they want to give you a loan based on various factors in your application.
If you have a low credit score, you may also have to have a larger down payment. This can be hard to obtain, though many homeowners borrow funds from friends or family members.
Veterans may be able to get a loan regardless of their credit history.
There is much more than down payment to consider when saving up for a new house. Banks like to see additional savings. It can be in the form of a savings account, retirement funds, or even stocks and bonds. They just want to know that you have access to cash reserves should you have financial difficulty in the future. Talk to your mortgage contact about the specific requirements of your lender. Some may insist on cash reserves equal to as much as six months of mortgage payments.
It’s advisable for buyers to have a home inspection and, specifically for FHA loans, a pest inspection prior to purchasing a home. Additionally, buyers also have to pay prorated taxes and homeowner’s association dues when they purchase a home as well as one year of homeowner’s insurance. While minor expenses, they can add up to several thousand dollars. This can be quite a last-minute surprise for some buyers. Plan accordingly.
Many home buyers, perhaps inspired by HGTV and Youtube, want to buy a home that needs work. They look forward to making repairs and adding their own sense of style to the home. This can be difficult, however, if you are cash-strapped. Luckily, there are real estate loan options for this scenario as well.
The FHA realizes that not every available house is perfect. There are plenty that need work. The FHA 203(k) loan has been around a long time and enables buyers to roll the cost of repairs into the original home loan.
There are two versions of this program. The traditional version requires that all repairs, including structural changes, be made in six months by a licensed contractor and cost $5,000 to $35,000. The streamlined version, FHA 203(k) Limited or FHA 203(k) Streamlined, is for cosmetic changes to the home, such as new appliances or basement waterproofing.
The Homestyle Renovation loan is underwritten by Fannie Mae, but it pairs with a conventional loan. This real estate loan allows home buyers to borrow both the money to buy the house and the money to make the repairs in one convenient loan transaction. A key difference to the FHA’s 203(k) loan, however, is that while the FHA only permits owner-occupied homes, the Fannie Mae program can be used on vacation properties, rental properties and multifamily homes.
While VA loans have strict requirements about the condition of the home, they do have a solution. VA Renovation loans allow military and veteran home buyers to make minor repairs to the home and lend the money to do it. If the home you want needs major work, a VA Renovation loan is not the right program. For minor repairs, such as a new carpet or a new furnace, however, it could be the ticket to your dream home.
Like other government-backed loan programs, the USDA also offers to pair a mortgage loan with a product that finds the renovation. The USDA Renovation loan can be used to make minor repairs. For major repairs, an RD loan can be paired with an FHA 203(k) loan.
Building a new house from scratch can be an exciting project. There are several ways to arrange for financing the project.
If you are buying in a master-planned community or larger development, you will often purchase directly from a builder. You can bring your own financing or you can use the builder’s in-house financing, if available. The process is fairly simple. The builder has hundreds, if not thousands, of similar homes in that community, and the bank know s exactly what to do. Building a home on your own, however, is a very different process.
Building a house can be an overwhelming process, but it doesn’t have to be. The financing is a little more complicated than a traditional mortgage, but it does not have to be scary or confusing.
Like applying for a regular mortgage, you get preapproved for a specific dollar amount from the lender. As you progress in the build, the bank gives you a percentage of the loan amount to pay the builder, general contractor, and any subcontractors. Each payment you receive is called a ‘draw,’ and the number of draws is often limited to five or six. Once the house is finished, passes all inspections and receives a certificate of occupancy, you attend a second closing where all the draws are rolled into a final mortgage loan.
Most people use a conventional loan for a construction loan, but you can also use government-backed programs to build. Both the USDA and the FHA loan programs have construction loan portions, but they are not well known. You may have to do some research to find a lender in your area familiar with the product.
There are many different types of real estate home loans to help with the undertaking you have in mind. Home equity loans and reverse mortgages are a couple of popular options for homeowners.
A home equity loan is a mortgage you can take out based on the difference between what your home could sell for in the future and what you still owe on the mortgage. You can use this equity as a loan or as a line of credit, depending on your preferences. Home equity loan rates vary based on your credit history and financing needs.
If you decide to take out a home equity loan, it will be for a fixed amount of money. To repay what you borrow, you’ll pay a specific amount each month over a fixed period of time. Generally, the amount you’re allowed to borrow will be around 85% of the equity in your home. So, if you have $10,000 in equity, you may be able to borrow up to $8,500.
When you use a home equity loan, your home serves as security. If you are unable to pay back the equity you borrow for any reason, then the lender may be able to force you to sell your home to get that money back.
Some people find that the best home equity loans offer guaranteed rates for cash out refinances. Consider a cash out loan if you’re okay with taking out a loan for more than you owe on your home. You are able to receive the excess funds via a cash payment. You can use your cash payment for debt consolidation, renovations for your home or other approved purchases.
Interestingly, your home equity loan can be used for anything you want to pay. Some of the common debts that people cover with home equity loans include home improvements to increase the value of their homes, student loan costs and emergency expenses. Some people use home equity loans as a way to consolidate their debts and pay them back over time at a lower interest rate.
Interestingly, your home equity loan can be used for anything you want to pay. Some of the common debts that people cover with home equity loans include home improvements to increase the value of their homes, student loan costs and emergency expenses. Some people use home equity loans as a way to consolidate their debts and pay them back over time at a lower interest rate.
In some situations, people have even used their home equity to invest in real estate or the stock market, taking the risk that the rewards will be worth more than the cost of using the equity.
With home equity, you have money that you can use, but be cautious. Your home’s value could decline over time, and if you can’t pay back what you owe, you could end up losing your home or even having a mortgage that is underwater and difficult, or impossible, to pay back.
A reverse mortgage is a way to supplement your income, pay for health care expenses or pay off your mortgage once you are 62 years of age or older. A reverse mortgage lets you take part of the equity in your home out in cash. You will not need to pay additional bills to pay that money back or sell your home to make up the difference.
Reverse mortgages can be a little bit complicated. With a typical mortgage, you pay your lender. With a reverse mortgage, your lender pays you. It’s similar to an advance payment on your home equity. Generally, you can get this money without paying taxes and don’t have to pay the money back. Your home’s value, as well as your age and the HECM FHA mortgage limit, determines how much you’ll receive in a lump-sum payout or in monthly payments.
Many people choose reverse mortgages as a way to get out of mortgage payments and get extra money for retirement. They may plan to remain in their homes until they pass away. However, some people do move sooner, which will affect the mortgage.
When your home is sold, you die or you move out, the loan has to be repaid. This can be done with the cash from the proceeds of a home sale. It can also be paid for by assets from your estate. You don’t necessarily have to sell your home to repay what is owed, but if the loan can’t be covered upon death without selling, then your executor may need to sell the home.
You should also know that most reverse mortgages have non-recourse clauses that prevent you or your estate from owing more than your home is worth.
There are multiple types of reverse mortgages. Some that you may come across include Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages and single-purpose reverse mortgages.
No. Homeowners who own their homes outright can get a reverse mortgage, but those who have substantial equity in their homes may do so as well. While you have this mortgage, you do need to stay current on your property taxes and homeowner’s insurance. Your home also has to be a single-family unit, a manufactured home from June 1976 or later or a multi-unit property with up to four individual units to qualify.
While some homeowners keep the same mortgage for thirty years until they pay it off in full, others refinance their loan when the interest rate drops. There are pros and cons to both options.
It’s not always a good idea to consider refinancing your home, but there are times when it could be beneficial:
Investing in real estate is a great way to build wealth, increase your net worth and add a potential, passive income stream from rentals. Getting started can be the hardest part, but there are real estate loans available for investors.
Whether you want to fix and flip or buy and hold, there are plenty of different loans available to people who want to become real estate investors.
Conventional loans are readily available for both owner-occupied and investment properties. Their approval is based more on your credit score, down payment and the value of the home. The bank does not care if you want to live there. They may ask for rental agreements or a business plan as documentation of your plans. They may also ask to see proof of previous rental success, your business tax returns or even your Articles of Incorporation.
Government-backed loans are available to real estate investors, but with a catch. FHA, VA and USDA home loans all require owner occupancy. In other words, they require you to live in the home. At first glance, this may make using a government-backed product for real estate investment purposes impossible, but that is not true. You can purchase a duplex, triplex, or fourplex with a government-backed loan. As long as you live in one of the units, you can use the program.
Another avenue available to real estate investors is hard money loans. Hard money loans are simply real estate loans from a private company or individual. They generally do not care about your credit or net worth. They care about the numbers in the deal. In other words, they want to see at least 30% equity (or more) in the home after repairs and an exit plan. Hard money lenders typically charge 3% to 5% points higher than a conventional loan.
Lastly, you could take a home equity loan out on your current home and primary residence to purchase investment real estate. While it’s not the best use of those funds, sometimes it’s necessary to get started in real estate investing.
The B.R.R.R.R. method is a plan that many real estate investors use when buying property. It stands for Buy, Repair, Rent, Refinance and Repeat. For example, an investor could buy a run-down home with a high interest, hard money loan. After repairing it and renting it to a tenant, he takes the rental agreement to a bank and refinances into a conventional loan at a much lower interest rate.
In theory, there is no limit to how many mortgages an individual can have. In practice, however, most banks only lend to people with five or fewer mortgages. Many real estate investors get around this by forming an LLC or an LLP to run their business through. There is no limit to how many loans a real estate investment company can have. This move also protects your personal assets in the case of a lawsuit. Talk to a lawyer for specifics on how this could help you and your real estate investing.
Conventional and hard money loans have no requirements regarding multifamily housing. If you want a government-backed loan, you need to live on one of the units. Government-backed products — FHA, VA and USDA — are not meant for investment purposes.
All types of residential real estate loans are limited to a fourplex, however. Buying multifamily housing with five or more units is no longer considered residential real estate. Five units or more is commercial real estate and, as such, requires different financing. In fact, many real estate investors stick to duplexes, triplexes, and fourplexes for this very reason.
Commercial real estate loans are loans for anything other than houses, including multifamily housing, office buildings, retail strip malls and hotels. Buying commercial property requires not only a different loan product but also a real estate agent that is licensed to sell commercial property. You must also meet credit requirements and other guidelines before requesting a commercial property loan.
Commercial property loans and residential real estate loans are very different. Not only is the borrower typically an entity as opposed to a person but the terms of the loan are much shorter. A typical residential loan is 30 years, but a commercial loan generally has terms of 20 years or less. Commercial real estate financing rates are also different than other mortgage interest rates today. You can find current commercial mortgage rates by using a commercial real estate loan calculator.
Commercial loans require a much higher down payment than home loans for personal use. While a government-backed VA loan may be zero down on a house, a commercial loan may require up to 30% or more as a down payment on an office building.
Another way commercial and residential loans are different is in the amortization schedule. With a residential loan, the amount is typically amortized over 30 years. In other words, the amount you owe is divided out into 360 equal payments, or 12 months per year for 30 years.
A commercial loan, on the other hand, may have a term of 15 years but be amortized over 30 years. This gives you a smaller payment each month but would result in a balance at the end of your 15 year term. This balance is often called a balloon payment. Many commercial real estate owners decide to refinance the balance at the end of the loan.
There are also government-backed products for commercial real estate. The SBA, Small Business Administration, offers the SBA 504 Loan program. Like government-backed loans for residential real estate, it’s designed to help people secure financing for real estate purchases where there may not have been a way to get financed previously.
The SBA 504 Loan program allows small business owners to secure long-term financing at a fixed rate. Like other programs, the SBA does not physically loan the money but, rather, guarantees the loan. The loan proceeds may be used to buy existing buildings, buy land, fund new construction and buy long-term use machinery.
The program is designed for businesses with net earnings of $5 million or less and requires that the owners put up 20% collateral in the purchase or construction project.
The SBA 7(a) loan program is similar to the SBA 504 loan program, but it’s for projects on a smaller scale. The SBA 7(a) loan is designed for projects running from $25,000 to $350,000 and has a 10-year term.
A solid credit history is required for this loan, so you may want to hold off on applying if your score falls below the mid 600s.
After reading this detailed guide, you may still have plenty of questions about real estate loans. We’ve compiled a list of questions our Lendzi team hears often:
Your closing time varies depending on which loan you choose. Many home buyers close on their loans within 30 to 60 days. This is also true for folks who take out commercial mortgages.
Escrow accounts are commonly used for real estate loans. They are special accounts that contain the funds for mortgage insurance, personal property taxes and other essential expenses. When these fees are due, your payments are deducted from your escrow account.
We listed some of the common documents above, but generally, you'll need a driver's license, Social Security card, bank statements and income taxes if you're applying for a mortgage. Self-employed applicants may also need 1099 forms or other documents that verify self-employment income.
No, these are different documents. A mortgage is a lien for real estate, and it's secured by your lender. A deed of trust shows who owes the debt for a property.
It depends on several factors, including your credit, budget and desired housing type. A USDA loan is great for low-to-moderate income applicants interested in rural areas, while conventional FHA loans are ideal for many other applicants. Consider a commercial property loan if you are a business owner expanding your practice.
An estoppel certificate is a signed document that certifies the information provided is factual. You can often find this type of document in leases between tenants and landlords, as it helps reduce confusion regarding guidelines and expectations.
No, these terms have different meanings. A prequalification shows how much a potential home or business owner can borrow from a lender. A preapproval is a written commitment from a lender. It basically means the lender is willing to finance your preferred property as long as the closing process goes smoothly.
Some lenders take advantage of first time home buyers or new business owners. Make sure you're paying a fair price for your property by comparing it with other homes or businesses in the area. Request information about all relevant fees before you sign any loan documents, and make sure you understand your financing terms. Don't buy more than you can afford, and make sure you know what condition your property is in before you purchase it.
It depends on whether you choose a fixed-rate or adjustable-rate mortgage. Choose a fixed-rate mortgage if you want your interest rate to remain consistent over the years. USDA home loans offer fixed-rate terms.
Mortgage points refer to origination points and discount points. One mortgage point typically equals 1% of the total mortgaged amount. These points help lower your interest rate by as much as .25% , which is beneficial for property owners with long-term repayment plans.
You can buy a home without a down payment, but it isn't always easy. It helps if you're a first time home buyer who is taking advantage of programs for new homeowners. It's also helpful if you have a solid credit history.
Some lenders are okay with home owners who borrow their down payment from friends, family or a bank. However, this may disqualify you from getting a home loan. Check your lender's requirements before you borrow funds for a down payment.
A bank appraisal occurs before someone buys or refinances a home. The appraisal is supposed to be a neutral, unbiased opinion regarding the value of your property. This helps ensure that buyers pay a fair price.
Yes, but it's difficult to find rent-to-own homes in many areas. You may have luck talking to an owner who is selling and financing their home rather than considering a home listing managed by a Realtor.
It depends on your financial situation. Can you afford to pay for two properties if sales are delayed for your current home? What will you do if nobody buys it?
You may also find it hard to qualify for a high-dollar mortgage loan if you have an existing loan for your property. Give Lendzi a call to explore your options if you are a current homeowner who is planning a move in the near future.
A survey shows boundary lines, encroachments and property improvements. It's a good idea to get a survey done of your home for certification requirements. A survey basically shows that your property is the same property you were promised by a seller.
Unfortunately, yes, denials are possible after mortgage preapproval. This may happen if something changes after you complete your initial application. You might lose or gain a job, experience appraisal issues or incur new debts. If this happens, don't get discouraged. You can reapply for a loan again in the future.
A foreclosure occurs when a homeowner defaults on their loan. When this happens, the bank or lender can take or regain possession of the property. You will have numerous opportunities to catch up on your mortgage payments before a foreclosure occurs.
Many buyers find they can qualify for a mortgage that is 2.5 times their annual income. However, your credit history and interest rates play a role in your mortgage amount. You may also be capped at certain amounts if you have a loan with funding restrictions.
Many buyers find it helpful to work with a Realtor during the home buying process. However, keep in mind that you may incur additional fees if you go this route.
When you find a home you love, consider the condition of the home and the area where your home is located. Will the value of your home likely go up or down over time? You may also want to consider the quality of public schools in your area and learn about average utility rates.
Ready to learn more about purchasing a home or commercial property with a real estate loan? Reach out to our helpful team at Lendzi. We’re here to help you with every step of the loan process, from completing your initial paperwork to understanding what it means to close on a property. Learn about mortgage interest rates, required documents for conventional loans, refinancing secrets and more by contacting our team today.
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