Real Estate Financing

There are many different types of loans available to consumers with various terms dependent upon what type of property you are financing and for how long. Some of these different loans include a Conventional Mortgage, an Adjustable-Rate Mortgage (ARM), an Assumable Mortgage, a Balloon Mortgage, and a Veteran Affairs Mortgage. A Conventional Mortgage has a fixed interest rate and are generally financed over a period of 10, 15 or 30 years. In an Adjustable-Rate Mortgage, also known as a Variable or Floating-Rate Mortgage, the initial interest rate is normally fixed for a period of time, then adjusts periodically to a specific benchmark. An Assumable Mortgage is a financing arrangement where the outstanding mortgage on a property can be transferred from the current owner to the buyer, which prevents the buyer from having to obtain his or her own mortgage. A Balloon Mortgage is a short term mortgage that requires borrowers to make regular payments for a specific time period, then payoff the remaining balance. Veteran Affairs Mortgages provide benefits to veterans and active duty military, such as requiring no down payment on loans up to $200,000. Specifics regarding VA Loans can be found by clicking on the following link:

http://www.freddiemac.com/sell/factsheets/va_morts.htm

Capital for real estate can be obtained from many different sources. These include individual investors, Pension Funds, Life Insurance Companies, Real Estate Investment Trusts (REITs), and most commonly Commercial Banks. Each of these obtain capital for their real estate investments using various methods. For example, life insurance companies use premiums from their policies to invest in real estate, while REITs sell shares of stock to smaller investors and use the capital gained for their investments. There are many ways to get creative with real estate financing. One such creative concept, known as Free and Clear Real Estate Investing, proposes making only prinipal payments and avoiding interest payments. This is attractive to both the borrower and the lender, because the borrower is buying equity with each payment and every payment received by the lender is pocketed rather than having to pay tax on interest. This concept is explained in the following YouTube clip:

http://www.youtube.com/watch?v=ROzo5xjW2GI