Types of Financing in Real Estate

When it comes to real estate, financing is one of the most important aspects to consider. Whether you’re a buyer or an investor, it’s essential to understand the different types of financing available to you. In this blog post, we’ll be discussing some common types of financing in real estate, including conventional financing, FHA, USDA, owner financing, and subject-to financing.

Conventional Financing

Conventional financing is the most common type of financing in real estate. This type of financing is offered by banks and other lending institutions and is not backed by the government. With conventional financing, the borrower typically puts down 20% of the purchase price as a down payment, but can put down as little as 5% of the purchase price. Putting down less than 20% will result in additional fees. The interest rate and terms of the loan will depend on the borrower’s credit score and other factors.

FHA Financing

FHA financing is another popular type of financing in real estate. This type of financing is backed by the Federal Housing Administration (FHA), which allows borrowers to qualify for a loan with a lower down payment and lower credit score requirements. With an FHA loan, the borrower typically puts down 3.5% of the purchase price as a down payment. The interest rate and terms of the loan will depend on the borrower’s credit score and other factors.

USDA Financing

USDA financing is a type of financing that is available for rural properties. This type of financing is backed by the United States Department of Agriculture (USDA) and is designed to help low- to moderate-income families purchase homes in rural areas. With a USDA loan, the borrower typically puts down 0% of the purchase price as a down payment. The interest rate and terms of the loan will depend on the borrower’s credit score and other factors.

Owner Financing

Owner financing is a type of financing that is offered by the seller of the property. With owner financing, the seller acts as the lender and allows the buyer to make payments directly to them. This type of financing is typically used when the buyer is unable to qualify for traditional financing. The terms of the loan will be negotiated between the buyer and the seller.

Subject-To Financing

Subject-to financing is a type of financing where the buyer takes over the seller’s existing mortgage. With subject-to financing, the buyer is not required to obtain traditional financing. Instead, they take over the existing mortgage and make payments directly to the lender. This type of financing is typically used when the seller has equity in the property and the buyer is unable to obtain traditional financing.  This type of financing is becoming more popular due to the current interest rates being double that of the previous years.

In conclusion, there are many different types of financing available in real estate. Whether you’re a buyer or an investor, it’s important to understand the different types of financing available to you. By understanding the pros and cons of each type of financing, you can make an informed decision that will help you achieve your real estate goals.