Owning a home is part of the American dream. Because few people have the financial resources required to pay for the purchase of a home in cash, real estate transactions typically require a residential loan.
There are many different types of residential loans that help potential homeowners access the financing needed to purchase the property of their dreams.
1. Investment Property Loan
Some of the residential properties that are purchased are not intended to be an individual's primary residence. These properties, often referred to as investment properties, require a special type of financing.
An investment property loan is extended to investors looking to purchase homes that they will rent out to others. Homeowners who want to purchase a second home or a vacation property should also use an investment property loan.
2. Home Equity Loan
As homeowners pay off the mortgage on their property, the build equity in their home. This equity can be tapped into when home improvements are needed. Home equity loans are designed to help homeowners turn the equity they have built in their home into cash that can be used to meet the immediate needs of their families.
Major remodels, repairs after a flood or fire, and plumbing or electrical upgrades are all valid reasons for homeowners to take out a home equity loan. The difference between the market value of a home and the amount owed on the initial mortgage is the amount a homeowner can request when applying for a home equity loan.
3. Construction Loans
Some potential homeowners want to construct their own home so they ensure the property meets all of their needs. Custom homes are financed differently than residential properties that have already been built.
A construction loan is essential two loans that function as one. The lender extends a homeowner a loan for the cost of building materials and labor. Once the construction has been completed, a second loan is issued to pay off the first loan and finance the value of the home. Construction loans issued in two stages protect lenders from letting borrowers access too much money without collateral to protect the lender's investment.
Identifying the many types of residential loans available on the market today will help you determine which loan product is best suited to meet your financial needs. Consider an investment property loan, a home equity loan, or a construction loan when completing a real estate transaction in the future. Contact a lender, like Unison Bank, for more help.