At some point during the search for Real Estate most Buyers will look into the options for financing their purchase. Many of us have been through this process before, but few know all of the available options or the differences between them. In addition, in 2012 there were major changes to the lending industry which greatly affect the process of obtaining a mortgage. Being informed on these matters will put Buyers in a better position to purchase and Sellers in a better position to understand the details of an offer.
Real Estate lending is comprised of two main categories of financing; mortgages and land contracts. Mortgages are now mainly processed through banks and credit unions. A loan officer working with one of these institutions will originate the loan with the customer, then typically those loans are sold and serviced by a larger institution. There are several types of mortgages and the differences between the loan products vary greatly. It is suggested that a consumer consult with several lenders to explore the options that are offered and which will work best for them. The type of property in question is also an important factor as some loan products will not apply to certain types of Real Estate. Getting the basic information ahead of time can help negotiations and prevent issues during the purchasing or selling process.
Land contracts, also referred to as Seller financing, are used as an alternative to traditional lender financing. In many cases, this is necessary when the property type and/or the Buyer does not qualify for lender financing. There can be many reasons why this is necessary, but it is certain that land contracts are becoming more widely used as lending requirements have tightened in recent years. Land contract terms are typically more flexible than a standard mortgage. There are no set criteria for land contract terms and the terms are negotiated along with the price of the property.
With either financing type, both Buyers and Sellers are best suited to consult a professional before entering into a contract using financing. Real Estate Agents have experience with all financing types, however it is best to consult a loan officer to discuss specific details of mortgages. As mentioned, it is recommended to consult several lenders when looking for financing to determine the best product for a particular situation.