Real estate financing is a large pool of information and options. While it is often be thought of in terms of “cash” versus “mortgage” there is far more to it than that. On the mortgage side there is a plethora of possibilities, depending on the amount of money available for a down payment, the number of properties desired, as well as the type of payment preferred.
Cash
“Cash is king” or so the saying goes. Cash payments are quickest way to purchase real estate However, when someone is paying “cash” for a property, they aren’t doing so with briefcases of money. They are instead, getting certified bank checks and paying for the property free and clear. Paying cash is a great option as it is complication free and ownership is transferred quickly.
See: New York Real Estate Goes Underground
Conventional Mortgage
This is the most standard of mortgages. It requires cash down payment which is usually around 20%. The funds from conventional mortgages are most commonly from a larger lending institution. That is to say that the banks are both lenders and borrowers. Therefore they are subject to the regulations of those from whom they receive money. The conventional mortgage is for borrowers who have the funds for the 20%-25% down payment.
FHA Loan
The FHA, or the Federal Housing Administration, is a program offered by the federal government that insures the mortgages for the banks. This program offers a low down payment, usually less than 5%.. However, the stipulations are that the property acquired must be inhabited by the borrower. Simply put, this is for residential properties alone, of which, the buyer must reside. There is a loophole, however. The residence can have multiple units, thereby allowing the buyer to remain there, while renting out the other units. Another constraint on the loan is the additional payment known as Private Mortgage Insurance. It protects the lender when the down payment is very low.
Portfolio Lenders
As previously mentioned, conventional mortgages generally lend from money borrowed from other sources. For portfolio lenders, the money they are providing is their own- and they don’t resell to other banks or credit unions. This means portfolio lenders have more generous criteria. Portfolio lenders are most commonly banks and credit unions.
There are quite a few other options for borrowing. For more information log on to sites like Investopedia and Forbes or contact your nearest lending institution for details.
