Inflation may be cooling, but the cost of housing is still creeping up. The median price of homes sold in November 2023 was $387,600, a 4% increase over the previous year. With these challenges, home buyers need to make strategic real estate financing choices.
Are you curious about what kind of real estate loans you should look into? We can help you get started. Read on for an introduction to the most common real estate financing options!
Conventional Mortgage
Conventional mortgages are the way most buyers are going right now. Mortgage rates jumped up following the pandemic, and have fallen a bit recently, but not back to pre-2020 levels.
That said, mortgage rates aren't the same for every single buyer. The rate you get depends on several factors, including:
- Your credit score
- The location of the home
- The price of the home
- Your down payment
- The term of your loan
- The type of interest rate you choose
- Your loan type
Most buyers opt for fixed-rate loans when exploring mortgage options, which are higher than the initial rates of adjustable-rate mortgages (ARMs). If you're considering an ARM for the initial low rate, it's important to note that the rate can and will go up and down based on the housing market.
Hard Money Loan
A hard money loan is a tool used primarily by people who want to finance a new home before they sell their old one. Borrowers utilize an existing asset, like a piece of real estate, to secure the loan. You cannot get a bridge loan from a traditional lender, you'll have to tap into private investors or companies.
Hard money loans aren't ideal for everyone. For example, if you're looking at new construction homes to buy as your first home, you'd want to stick with a conventional mortgage.
Home Equity Line of Credit
If you're looking to upgrade from your current home, you should know that the rules of the down payment game have changed. While most first-time homebuyers put down an average of 6 to 7%, repeat buyers put down an average of 17% on their new homes.
If you don't have that much cash to put down, don't stress. Many people utilize home equity lines of credit, which are based on the equity in their current home. You can typically borrow between 80 and 90% of your equity and sink that into a down payment for your new home.
Which Real Estate Financing Option Will You Choose?
When you buy a home, your real estate financing choices determine whether your purchase is affordable long-term or will make you house poor. If you want to make sure your investment strategies pay off, avoid making impulsive decisions. Taking the time to make a fully informed decision will save you a ton of money and stress in the long run.
Do you need help finding the perfect piece of real estate to add to your portfolio? Let the experts at PMI Capital District help you out. Contact us today to learn more about our services and our available inventory!
