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Investing In Real Estate—The Financing Options

You cannot complete any purchase deal without proper financing, and you cannot acquire financing unless you understand the pros and cons of possible options, as well as your own limits.

It comes down to due diligence when unlocking the benefits of financing. Successful financing is synonymous with education—and real estate financing is no exception.

Real estate financing has been the cornerstone of the housing market, given that nothing is more efficient in driving deals than capital. However, financing, while significant in real estate investment has become too pervasive, and hence, too complex.

If you don’t know where to begin your journey, take a look at some effective ways of financing your real estate deal:

Traditional Financing

The foremost way investors consider to finance a real estate purchase is a bank loan. Your cash, that is, your down payment of 20-25%, is part of the investment. The rest of the finances are fulfilled by the bank or credit union. Make sure you have a stable income, complete personal and professional paperwork and a strong credit score before you go for traditional bank financing.

High-ratio Financing

This type of mortgage loan is another option for you if you intend to move into the property you are investing in.

While high-ratio financing has more restrictions than traditional bank financing, it enables you to secure a deal with the advantage of a low-minimum down payment (as low as 5, 10 or 15%). Make sure to consultant a financial exert and consultant to be informed of the current housing market standards.

Hard Money Loan

A hard money loan, or private mortgage, is typically issued by a private lender, investor, or company. These loans cost (percentage-wise) are usually more than an average mortgage. The costs can time up to twice that of a regular mortgage does, along with high origination fees.

Home Equity Loan

Simply put, your home equity is the market value of your owned home or property without any remaining mortgage payments. It’s an accessible option of financing another real estate deal without tying up your cash reserves. You can open a home equity line of credit (HELOC) to have access to your equity as the financing for an investment.

Joint Venture

In case you have insufficient funds for a down payment and cannot qualify for bank financing, a joint venture (JV) deal can be your way to go. This business arrangement, made between two or more parties pooling their resources, is purposed for accomplishing a specific task such as a real estate financing deal. As the venture is its own entity, its remains separate from the involved parties’ other business interests.

You have a number of options to fund your real estate investment, each with its specific upsides and downsides. Take care of your own financial resources and credit score, and get financial consultancy services. As an insurance professional, Gregg Marcus offers comprehensive guidance and assistance regarding real estate financing.

Check out Gregg Marcus’ blog for more information on real estate, insurance and similar subjects.