Buying a property completely out of pocket is very uncommon, and most buyers need to take out some kind of loan to be able to afford it. If you’ve ever taken out a loan, be it on a home or car, you’ve likely heard the term APR but may not know what it means. If you aren’t sure what an APR is and why it’s important in real estate, you’ve come to the right place! After you read this article, you’ll be an APR expert.
What Is an APR?
APR stands for annual percentage rate and is the rate at which a loan will accumulate interest over a year. A loan’s APR can include the base interest, document preparation fees, underwriting fees, origination fees, and closing costs. You may notice that some of the interest rates that lenders advertise seem quite low in comparison to other lenders. If a lender’s advertised rates seem too good to be true, this is likely because they’re not disclosing the full APR. When you know the APR of a loan, you can make better, more informed credit decisions.
What’s the Difference Between APR and Interest Rate?
The definition of APR may seem confusing to some people, as it initially sounds a lot like an interest rate. The term interest rate simply refers to how much you will pay per year to borrow the money and is expressed as a percentage. However, the percentage given does not include the fees and charges that an annual percentage rate does. Simply put, APR gives you a much clearer picture of what you’ll be spending per year to pay off a loan.
How Does APR Affect Real Estate?
Currently, base interest rates are higher in the US than they have been since the 1980s, making it harder and more expensive for real estate investors and shoppers to afford property. The higher the base interest rate is, the higher the APR will be. And the harder it is for home buyers to afford property, the more likely they are to turn to rentals.
Depending on the conditions of your local real estate market and if you have a property at the ready, this may or may not benefit you regarding asking price. However, people looking to break into the world of real estate investing may have trouble finding a loan with interest rates that fit within their budgets.
Now knowing what an APR is and why it’s important in real estate, you can make more educated credit and buying choices over the course of your investment career! If you’re struggling to find quality properties that fit within your budget, contact Excalibur Homes today. We’re a rental management company in Tampa, Florida, that can help you find and manage the rental property of your dreams.
