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How to Finance Your Real Estate Investments

April 04, 2012 | Comments: 0 | Views: 99

Real estate investment is a good way for building wealth. There are many advantages of investing in real estate: portfolio diversification, stable cash inflows, and future appreciation. However, you do not want to use cash to buy houses even you have a full bank account. You may want to use other people's money to finance your investment in order to buy as many as properties with limited money. Before you can make a real estate investment, you need to understand the most common mortgage types available in the markets:

Conforming loans: A conforming loan is a mortgage that meets the criteria set by Freddie Mac and Fannie Mae. To ensure the money is available for the consumers, Freddie Mac and Fannie Mae purchase the loans from the lenders, issue securities that are backed by these mortgages and sell the securities to the investors. To qualify a conforming loan, the borrower must have verified income, enough cash for down payment and a good credit history. There is also a limit of a conforming loan. A conforming loan limit is the maximum amount of dollars Freddie Mac and Fannie Mae will pay for a mortgage. Conforming limit is not a fixed value, It is set by the office of Federal Housing Enterprise Oversight (OFHEO) according to the average home prices in different areas.

Nonconforming loans, Jumbo loans and Hard money loans: A nonconforming loan is a mortgage that fails to meet the criteria set by Freddie Mac and Fannie Mae. Reasons include the loan amount is higher than the confirming loan limit, lack of verified income and poor credit history. A Jumbo loan is a loan that its amount is higher than the confirming loan limit. Hare money loans also referred to as Bridge loans, they are typically short-term loans with high interest rates. These kinds of funding enable the borrower to obtain funding in a hurry and to get larger and longer-term financing later. Bride loans are frequently used before construction funding are replaced by permanent funding.

Conventional loans: A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including FHA, VA and USDA. Therefore, conventional loans could be either conforming or nonconforming. Conventional loans usually have fixed-rate terms, large down payments and high interest rates. They also have penalties and clauses that federal lending do not have. The advantages of these loans are the loan fees are negotiable, and you can use collateral for a mortgage rather than the property.

Government loan programs: There are two government loan programs: Federal Housing Authority (FHA) and Veterans Administration (VA) loans. They are loans that the government used to support the industry and are usually available for first-time home buyers. The government also offers loans to borrowers to assist in rehabilitating properties. They give borrowers access to funding that banks, and private sectors do not want to provide.

Financing pays a crucial part in your real estate investment, to learn more about how to get the most out of your real estate investment. Visit

Source: EzineArticles
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