How to get a Real Estate Loan
How to get Real Estate Loan
There are many types of real estate loans to consider. The most common real estate loan is the traditional bank loan. A bank loan is getter harder to get and many banks are leaving real estate lending. Other options include owner financing, private party loans, hard money loans, online lenders, and peer to peer lenders.
Banks loans are the traditional loan for land and home purchases. They are still the main type of home and real estate loan but are less common for buying land. Banks are hesitant make land loans after the huge losses suffered during the Great Recession.
Bank loans usually have a lower interest rate than owner financing or hard money loans but have higher closing costs. If you can get approved the bank loan is still an excellent option to buy homes or other real estate.
Owner financing is the best of the real estate loans. In this arrangement the buyer pays a down payment and then makes payments to the seller. The seller acts as the bank. The advantages to sellers are the interest earned and the deferral of income for tax purposes.
There are also advantages to buyers. Although the interest rate may be higher than a bank there are minimal closing costs. (The interest rate is negotiated between buyer and seller.) There are usually no credit checks, helping buyers with lower credit scores.
Like a standard bank loan, owner financing is set up using standard legal documents which protect the seller in the event of a default.
Private Party Loans
A private party loan is money borrowed from an acquaintance or family member. There are two types of private party real estate loans. The first is a personal loan without collateral.
The second uses the land as collateral, similar to a bank loan or owner financing. The loan will be structured similar to a bank loan, or owner financing, allowing the lender (your friend or family member) to foreclose if a default occurs.
In either case you are looking for an acquaintance or family member willing to make you a loan.
Hard Money Loans
Hard money loans should only be used in extreme circumstances. This type of real estate loan is known for high interest, high closing costs and short terms. Realtors, title companies or others involved in the real estate industry may know of people or companies willing to make a hard money loan. You can also search online. I would recommend against a hard money loan. The costs are extremely high, and the terms strict.
If the seller is willing owner financing is the best option. Many sellers understand that cash buyers are rare and seller financing may be the only way to sell at a reasonable price. Owner financing is negotiated in the purchase contract, and setup by the title company.
There are online lenders which are similar to banks. There are more all the time. Quicken Loans is one example and is a large home lender. Unfortunately, they only do home loans.
Peer to Peer Lending
A new option is peer to peer lenders. This is a newer concept, that pools money from investors and lends it out to qualified applicants. Each company is different and has different qualifications. Again these Lenders are concentrating on home loans. Lending Tree is an example of this type of loan. Other are found by searching online.
Owner Financing. Owner Financing, also known as seller financing, is a real estate transaction where the seller is also the lender. Owner financed land can be any real property, although it is more common with land than houses or commercial property.