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Real Estate Financing Options

Omkar Phatak Feb 6, 2019
There are various real estate financing options that one might consider when investing. This is an overview of the various commercial and residential real estate financing alternatives that buyers might consider.
Through the eyes of an optimist the current economic recession offers many opportunities. With the drop in prices, one such opportunity is to invest in residential and commercial real estate. While there is a substantial risk involved, investing in commercial and rental properties, through careful research can be profitable in the long run.
Here, you will be introduced to the prime real estate financing options for the residential and commercial domain. There are a range of options available and you must choose the one which perfectly suits your requirements and repayment ability.

Choosing the Right Real Estate Financing Option

Research is the key to selecting the right financing options for your real estate investment.
Be it a residential or real estate financing, the prime considerations while choosing a credit line, should be the lending rate or interest rate charged for the loan and the repayment period. The lending rate may be fixed or variable.
Consult a financial advisor regarding which among the fixed or variable interest rates will be most conducive to your income generating potential. Besides these two parameters, the down payment conditions, laid down by the lending institution are also important.
Choose the credit line which offers the most conducive interest rate and comfortable repayment period, according to your income generation ability.

Commercial Real Estate Financing Options

Investing in a commercial property like a office space, shop space or warehouse or a rental property can be a profitable venture. There are various ways in which you can raise the money for the purchase of such a property. Here are some of the best commercial property financing options.

Raising Money Through Partnership

One of the ways to raise funds for commercial property is by getting partners who can invest together. By sharing the equity, the combined investment pool of business partners can be used.

Venture Capital

Another way of funding is through venture capitalists. This is a recommended option for investors who plan to buy land and develop a commercial property. For a slice of equity in the real estate, venture capitalists can fund operations on a profit sharing basis.

Conventional Mortgage Loans

A commercial real estate developer may choose a conventional mortgage loan from a financial institution at a fixed or variable rate. Your credit score rating and business plan will be closely scrutinized before a loan is granted. Scan all options and choose what suits you.

Small Business Administration Loans

Through '504 Loan Program' for fixed asset financing, Small Business Administration (SBA) provides loans for commercial real estate purchase and development. While the borrower has to raise up to 10% on his own, the rest price of commercial property along with development costs, are covered by the SBA guaranteed loan. For more details, visit their website.

Residential Real Estate Financing Options

If you are interested in purchasing residential property, there are several financing options, you can take advantage of. Among the alternatives, you will find federal government guaranteed loan options, along with private loans offered by banks. Here are the best home financing options to choose from.

Federal Housing Administration Mortgage Loans

The US Federal Housing Administration (FHA) offers loans by acting as an intermediary between loan applicants and lenders, up till a standard statutory limit.
It provides loans with low down payments after a careful scrutiny of an applicant's financial status. An FHA loan is a good option for first time home owners.

Conventional Private Mortgage Loan

If you have maintained an excellent credit score throughout and have a decent amount of money saved to cover down payments, you can apply for conventional fixed or variable interest rate loans from private banks.
A home owner with a good financial record can end up with a home loan mortgage, with a comfortable repayment period and reasonable interest rate. There are many types of private mortgage loans, which includes balloon mortgage and variable mortgage loans.

Veteran's Affairs (VA) Loans

If you are an ex-defense personnel, you can avail the home loan facility provided by the US Department of Veterans Affairs. If you qualify for a VA home loan, the organization acts as the guarantor, making it easy to obtain flexible loan terms from lenders.

Liquidation of Personal Investments

Instead of opting for high interest loans, people who have a sizable amount of investments in the form of securities like stocks and bonds, IRAs, CDs and 401(k) plans, can liquidate them to fund their residential property investment. This alternative makes sense as paying out of your own pocket is cheaper compared to funding through borrowed capital.
As you can see, there is a wide variety of finance alternatives, that an investor can avail according to his exact requirements. It's essential that you do the math and ensure that you have a repayment plan chalked out, before going for the loan.
As far as possible, try to arrange a substantial part of financing, through your own funds. That way, you reduce the amount of risk involved in the investment. Take advice from a qualified financial advisor, research thoroughly, take calculated risks and go ahead with your real investment plan with confidence.