Forms of Real Estate loans

Since many years, real estate is considered as a good investment option to hedge risk against inflation.

Thus, demand for real estate loans is also on rise, but do you know that there are different categories of real estate loans. 

Let’s check out which loan is applicable for particular purpose.

1. Construction loan: This is a type of loan extended to people who is willing to construct commercial or residential buildings. The loan term is less in this category as it is provided up to the period of construction. The loan is extended on the floating interest rates, which fluctuates with respect to the market conditions. The full loan repayment has to be done only after the borrower earns profit from selling his project. One can also take help from some long term investors to pay off loan of previous lender.
2. Acquisition loan: This loan is extended to an individual willing to buy land or plot, where construction may or may not occur. Lending bank considered it as very risky investment, because there is no guarantee of cash flow in future. So most of the time, this loan is granted along with the construction or development loan. The term of this type of loan is around 15 years.
3. Business loans: This loan is given to finance the purchase of some industrial property, shopping complex, office, retail stores, hotels, etc. Before extending loan for industrial property, banks has to look for the location, machinery and technology used and background of borrower.
4. Residential loans: It is quite different from the commercial loans. Residential loan is limited to the building of only 1-4 house units. If one wants to build more big building, then one will be eligible for commercial loan. In this type of loan, you need to give details of your income, which is not required in commercial loan.
5. Housing loan: The demand for housing loan is on the top. This loan is granted to people willing to purchase a new house. There is huge competition among banks for providing home loan that competes by offering loan at less interest rate. This loan is extended for long duration. If a person is willing to own another new house, selling the present house, then one can also opt for bridge loan, which is available on old house and all loan amount should be paid off once the old house is sold.

Thus, depending on the type of investment in real estate, one has to apply for different loans, which has varied terms and conditions.