Real Estate Financing

Real Estate financing and Creative financing Knowledge of real estate financing is of prime importance to your success as a real estate investor. I recommend that you read a few books on the subject.

I will cover here the basic concepts of some of the different ways of financing a deal. It is not unusual to find more than one method used to finance a property. Each state is governed by laws covering deeds of trust, and mortgages. You should familiarize yourself with the laws of your state by reading a text book such as modern real estate practices (for your state) Most college book stores will have this. Regardless of your state's individual laws on title and lien theory of mortgages, the security interest of the mortgage (the lender) is legally considered personal property. This property interest can only be transferred with a transfer of the debt, which the mortgage secures. To put it plain English, the liens (all debts owed) on the property follow along with any title transfers, or change in ownership.

Mortgage loans consist of two parts, the debt, and the security for the debt. The note is the promise to pay a debt with interest. The mortgagor (borrower) executes a promissory note, or notes in the amount of the debt. The deed of trust is the document that conveys the property (creates the lien) to the mortgagee (lender) as security for the debt. A properly executed mortgage is a negotiable instrument. The payee, or holder, may transfer his or her right to payment to a third party. Because the notes are secured by the property, lenders can control the risk of lending on real estate. This security allows for flexibility in payment plans, length of loan pay backs, interest rates, and other provisions of the note.

This flexibility allows for creativity in financing your properties. The information provided here is not definitive; rather, it is to get you thinking. Before using any method or type of financing, you should be sure you have researched it, and have a full understanding of the benefits, cost, and any disadvantages of using that method or type of financing.