What is a Real Estate Loan?

Malcolm Tatum
Malcolm Tatum

A real estate loan is a type of secured loan arrangement in which some type of real estate is used as the collateral or security for the loan balance. Loans of this type are different from mortgage loans, in that the funds received from the loan may be used for some purpose other than purchasing the property that serves as the collateral. While the concept of a real estate loan is often associated with the use of residential properties as security, businesses can also make use of commercial real estate to secure business loans for various purposes.

Real estate loans may be used on commercial or residential properties.
Real estate loans may be used on commercial or residential properties.

One example of the real estate loan is the home loan. In this scenario, a homeowner wishes to take out a loan in order to finance some type of activity, such as paying for a year of college tuition. The lender will consider the amount of equity that the homeowner currently holds in the property, and compare that equity to the amount requested on the loan application, making sure the total amount required by the borrower is no more than a certain percentage of that equity. Assuming that the homeowner has acceptable credit and a steady source of income that is sufficient to manage the installment payments, the lender will likely approve the loan. For the duration of that real estate loan, the lender has a secondary claim on the property that is only surpassed by the primary claim of the mortgage holder.

Down payment and credit worthiness often determine the terms of a home loan.
Down payment and credit worthiness often determine the terms of a home loan.

With a commercial real estate loan, a company may choose to utilize one or more of its real estate holdings as security on a lending arrangement. This is often the case when a company wishes to enter some sort of expansion phase but does not wish to seek the support of additional investors. Instead, a business loan is secured using one if its commercial property holdings as the collateral. As with home loans, commercial real estate loans are usually granted for a portion of whatever equity the business has in the property.

Typically, any type of real estate loan will carry a mortgage rate that reflects the lender’s assessment of the degree of risk involved with approving the loan. For this reason, it is often a good idea to talk with several lenders and identify the ones who are willing to offer the best possible rates as well as the most favorable terms. Thanks to the Internet, it is now possible to apply for loans of this type online, often receiving a response in as little as 24 business hours.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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