Understanding Real Estate Finance - The Key to Your Success
Understanding real estate finance is the key to your success. Finance is the life blood of real estate. Without finance there is no real estate.
It is critical for you to understand how to finance investment property if you are to be successful with your real estate investment business. A generation ago, the only viable option for most people was to get a loan from a bank. Today, you can get mortgage finance from myriads of banks, financial institutions, lawyers’ client funds, real estate companies, building societies, insurance companies, credit unions, contributory mortgage companies or even the vendors.
Contrary to what people might have told you banks want to loan you money. It is their business to loan money to make money. In real estate investment it your business to use Other People’s Money to leverage and make money for yourself.
Banks and financial institutions who provide real estate finance look at your cash flow, equity position, credit rating and soundness of your real estate or property that you wish to buy.
Banks can be conservative with their money. This is because banks risk is greater than yours as they loan you anywhere from 60% to 100% on the market value of the property. They don’t even have direct control over the asset once the loan is given. They try to protect themselves with various clauses in the mortgage document. You have to understand these clauses in the loan agreement before you sign it.
You have to be sensitive to banks advice and concerns. They are your partners in business. You have to prepare to meet their lending criteria rather than attempt to fool them by hiding or furnishing wrong information. You will damage your long term interest if you try and take short cuts. No bank will provide you with real estate finance if your credit rating or the reputation in the market suffers.
You have to organize your personal finances, improve your credit rating, prepare your financial information and that of the property that you wish to buy before approaching the bank for real estate finance. If you do not do your home work, lack confidence and don’t present your self properly then no bank or financial institution will give the loan.
It is important to understand that lending criteria’s of the banks change from time to time . They may reject your application for a loan even if your finances are in great shape. This is because the lending criteria for a particular type of property you wish to buy may not match the lending criteria of the bank for that property. In such a situation it is wiser to approach another bank for a loan. It is better to utilize the services of a competent mortgage broker who is well informed regarding the lending policies of various banks and will guide you to the most suitable lender.
You should shop around for the best interest rates and check out the mortgage fees that banks charge. Believe it or not, mortgage loans and interest rates are negotiable. It is a good idea to compare the interest rates of various lenders so you can negotiate with a lender of your choice. At times interest rates can differ between different branches of the same bank. You can save from tens to hundreds of thousands of dollars during the life time of a loan by simply doing some research and negotiating hard. There will be times when you will need to refinance your mortgage to improve your financial position.
Your profits and success will increase when you get better grasp of various real estate finance strategies such as using revolving credit, vendor finance option, credit cards, private investor funding, using second mortgages, partnerships and joint ventures, refinancing and recycling your deposit.
You have to also understand the various types of mortgages available in the market to make use of them to your advantage. These include fixed and floating rates, interest only loans, capital repayment loans, reverse mortgages, split loans, redraw facilities, Lo doc and no doc loans and investment property mortgages.
Understanding real estate finance is the key to your success. You have to understand how to get high on OPM or Other Peoples Money. The secret is to find the best and cheapest source of funding of your property with least strings attached.
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