Real estate loan is what a lot of people utilize to buy their home. Real estate
loans have been very influential in bringing joy to people by making that
unaffordable house affordable. Some real estate investors too make use of real
estate loans for buying properties. However, real estate loan is not free money
and anyone who buys real estate or plans to buy real estate using real estate
loan must understand the concept of real estate loan very clearly.
Real estate loan (also known as mortgage) is the money that you borrow from
someone (a financial institution i.e. a mortgage lender) with the objective of
buying a property. The real estate loan generally covers a part of your purchase
price and the remaining portion has to be paid by you upfront i.e. as down
payment. The amount (i.e. the percentage of total purchase price) that you have
to pay as down payment is dependent on a number of factors and you can generally
reduce it to even 5% by going for mortgage insurance. FHA and VA loans (i.e.
mortgage insurances through FHA and VA) reduce the down payment requirement on
real estate loan even further. Whatever you borrow from the mortgage lender as
real estate loan needs to be paid back to the mortgage lender over a period of
time (and, of course, you will also need to pay appropriate interest on that
real estate loan). The term of your real estate loan and the prevailing market
rate will determine the amount of interest you pay for your real estate loan.
Generally, you are required to pay back the real estate loan in the form of
monthly instalments which are composed of both interest and principal portions
of your real estate loan. Also, there are various types of real estate loans
e.g. fixed interest rate loans and adjustable interest rate loans. So depending
on what type of real estate loan you have gone for, your monthly payments might
either remain constant (fixed rate) for the full tenure of the loan or keep
getting adjusted intermittently (adjustable rate) on the basis of a financial
index. Besides that, some other costs are also associated with real estate loans
e.g. there are closing costs, inspection costs, attorney fee etc. Also, in case
the property needs some repairs, there will be costs associated with that too.
Again, there is stamp duty and other taxes that you need to pay. So, really, you
need to grasp the concept of real estate loans and the related costs clearly
before you actually go for the real estate loan. And understanding these
concepts is really not that tough.
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