Financing

Financing a real estate transaction has never been easier. Today, real estate loans are simple to secure — especially from banks and savings institutions — as well as from mortgage brokers and mortgage bankers. Recently, numerous innovative financing devices were introduced nationwide in order to provide borrowers with an opportunity to secure affordable financing and competitive home equity loans. And with interest rates still close to historic lows, it has never been a better time for borrowers to get favorable financing.

Because most buyers are unable or unwilling to pay cash for real property, long-term financing in the form of a mortgage (or trust deed) loan is necessary. Lenders are generally divided into two groups: institutional lenders and non-institutional lenders. There are three major types of institutional lenders: commercial banks, savings associations and life insurance companies. Non-institutional lenders that make real estate loans include pension funds, credit unions, private individuals and real estate investment trusts.

Real estate financing has increased significantly in the past few years. While most single family homes are financed by conventional financing, there are a wide variety of loan programs available to home buyers. A conventional loan is any loan that is not backed by the government. In addition to conventional loans there are also government-backed loans, including FHA-insured loans and VA-guaranteed loans.

A loan processor will analyze a borrower’s credit report to determine how likely a borrower is to pay off a debt. Past payment history, types of credit cards used, outstanding debt are evaluated and scored.

Banks are either federally chartered or state charted and are regulated by federal and state laws, respectively. Borrowers who are unable to put at least 20 percent down will likely be required to pay private mortgage insurance (PMI). Unlike banks, mortgage companies — also known as mortgage bankers — make loans using their own money.

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