Understanding Your Options By Paul Pratt At Isnare.com Ezine Articles

The financing world can be intimidating for most. By understanding the different types of loans available, you will not only have more confidence going into the deal, but more importantly you will get the loan that is perfectly suited to your needs.

FINANCING OPTIONS

There are numerous financing options available. The following are loan programs most commonly used by investors:

Unsecured loans: Unsecured loans do not require collateral (for example, credit cards).

Conventional loans: These are loans given by conventional lenders that require no government guarantees or insurances. These loans include your common fixed-rate mortgages, ARMs, and fully amortized and interest-only loans.

Government loans: Government loans such as FHA, VA, and FSA provide financing more easily for first-time home buyers with smaller down payments and lower income requirements. Lenders are able to provide these loan programs due to the insurance that the government provides. The government guarantees a certain amount of payment to the lender of these loans if the borrower were to default.

Seller financing: Seller financing is when a seller allows the buyer to make payments to him for the purchase of a property rather than requiring the buyer to obtain bank financing to pay him in full at close.

"Subject to" loan: When a seller sells his property without paying off his existing financing, the buyer purchases the property “subject to” the existing financing. The buyer makes his payment to the seller, and the seller continues to make his to the lender.

Construction loan: Construction loans provide the financing the borrower needs to build a property.

Home Improvement Loan: Home improvement loans are equity loans that the lender grants for the purpose of home repair or remodeling.

Commercial Loans: These loans provide financing for commercial property. Commercial properties are properties used for places of business that are zoned for commercial use or residential properties with five or more units.

Lease Option: A lease option is when a seller leases his property to a prospective buyer with the right to purchase it at a later date for a predetermined price.

HELOCs: Home Equity Lines of Credit are revolving loans that are secured by the equity in the borrower’s property. A revolving loan allows the borrower to re-borrow the funds that he has paid off.

Home Equity Loan: A home equity loan is secured by the equity in a borrower’s home. Home equity loans, with regards to lien priority, can be in first position, second position, third position and so on.

80/20: An 80/20 loan is where the buyer obtains two loans at the same time to finance one property: an 80-percent first mortgage and a 20-percent second mortgage.

Hard Money: Hard money lenders don’t usually have the same strict qualification guidelines that traditional lenders do. However, they charge enormous fees and interest rates.

Assumable: Assumable loans are loans that permit the borrower to take over the existing financing on a property rather than taking out a new loan. There are two types of assumable loans: freely assumable and qualified assumable. Freely assumable loans are very rare. They do not require that the buyer go through any qualification screening to take over the loan. However, the seller, or original borrower of the loan, is responsible if the buyer who assumes the loan defaults. A qualified assumable loan requires that the buyer go through the same qualification requirements that he would have to in acquiring new financing. Once qualified, the loan is put in the buyer’s name, and the seller is removed from any further obligation to it.

Private Money: Private money lenders are individuals who are willing to lend their own personal money.

Portfolio Loan: These are loans that do not meet the purchase requirements of the secondary market. Lenders who are willing to create these loans are a jewel for an investor. Because the lender isn’t going to sell the loan, he doesn’t have to abide by secondary market criteria. Often the lender will custom tailor the loan to fit the investor’s needs.

Simultaneous Closing: A simultaneous closing is when a buyer closes on a property he has agreed to purchase and then closes on the resale of that property to another buyer for a profit, all in the same sitting.

Assigning Contracts: When a contract lists the buyer's name or Assignee as the purchaser, this gives the buyer the right to assign the contract to another buyer. Investors can turn profits assigning contracts to other investors for a profit.

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