How to Be a Real Estate Statistic – The Good Kind
January 11, 2009
2007 was a year of record-breaking real estate statistics in the United States. Unfortunately, most of those stats were bad. Just ask the hundreds of thousands of homeowners who faced foreclosure last year!
On the up side, there is a lot you can do to prevent this kind of real estate misery, and to avoid becoming a negative real estate statistic. Education goes a long way in this regard, and that’s why I continue to publish articles like this.
So with that said, here are five ways to be a good real estate statistic in 2008, instead of a negative one:
1. Understand and Guard Your Credit
Good credit has always been important for home buyers who are shopping for a mortgage loan. But it will be even more important this year, and for the foreseeable future. Last year’s subprime mortgage crisis has led to tougher regulation of the lending industry. As a result, most lenders (those that are regulated anyway) will be paying closer attention to the credit scores of borrowers.
So your first step is to understand the importance of credit in the real estate world. Your next step should be ordering a copy of your credit report so you’ll know where you stand, compared to the average consumer in this country. You should also check your credit reports for errors and work to get them corrected if need be.
You are entitled to one free credit report per year, from all three of the credit-reporting companies. There are several websites you can use (including my own) to request all three reports at once, which is certainly the convenient way to do things.
Also, if your credit score is low — lower than average, this is — you should work on improving it. You can do this by paying down your debt, paying all of you bills on time, and being financially responsible in general.
2. Don’t Buy Over Your Head
Many of the negative real estate statistics from 2007 were people who bought more home than they could rightfully afford. Of course, some of the lenders were to blame as well, mainly for offering ARM loans with low teaser rates during the introductory period, and glossing over the potential rise in monthly payments that would ensue.
Here’s the bottom line. If you can’t afford a home, you just can’t afford a home. Instead of pursuing dangerously “creative” financing methods to purchase that new home, focus on improving your financial situation first. Reduce your debt. Save up some cash. Try to increase your income, if at all possible. You might even relocate to an area where the housing costs are more within your reach. Heck, that’s the main reason I moved from San Diego to Austin!
Avoid buying beyond your financial means. It never ends well, and you will likely end up as a bad real estate statistic instead of a good one!
3. Choose Your Mortgage Type Carefully
In the previous point, I talked about the perils of the adjustable rate mortgage (ARM) loan, for people who don’t truly understand the ARM.
Don’t get me wrong … an adjustable-rate mortgage can be a good idea, mainly if you have plans to sell or refinance the home within a few years. In that case, you could save yourself some money by paying lower interest rates in the short term.
Here’s the key to success when choosing a type of mortgage loan. First of all, you have to understand the pros and cons of the different mortgage types. Secondly, you have to be realistic about your future plans. If you’ll be staying in the home for many years, you might be better off with a fixed-rate mortgage that can weather the financial storms of the future without being affected by them.
Research the different types of mortgage loans, and then match your loan to your home-buying situation and future plans.
4. Don’t Trust Lenders … Or the Government
Here’s a real “shocker.” Mortgage lenders are in the business of lending money to people, and making a profit while doing so. Surprised by this? I told you it was a revelation! Mortgage lenders will do everything they can to get somebody to borrow from them, as long as they don’t get burned in the short term.
So you really can’t trust a lender to tell you what you can and cannot afford to pay each month. The only thing a lender can tell you with certainty is whether or not you’re qualified for the mortgage … not whether or not you can realistically afford it. And if they sell the loan to the secondary market after granting it to you, then they don’t really have to worry about your financial woes down the road.
But what about the government? Surely they are looking out for home buyers, right? Well, not always. You see, there are these people called lobbyists, and many of them represent the lending industry. They make big contributions to certain political campaigns (like Schwarzenegger and Bush, to name only two) in order to influence regulations — or the lack of regulations — on the lending industry as a whole.
So don’t expect the government to come riding to your rescue if you get in over your head with a mortgage loan. You must be a smart consumer, an educated consumer, and a self-reliant consumer.
5. Be Proactive in Times of Trouble
Even if you adhere to the other four guidelines on this list, but you still find yourself in trouble, you should be proactive about finding a solution. In other words, don’t procrastinate.
Here’s an example of what I mean.
Let’s say you buy a new home and take on a mortgage loan to pay for it. Everything is fine for the first two or three years, but then you run into some unexpected hospital bills and other expenses. So you get behind on your mortgage payments. But you fully expect to be back on track in a few months.
Here’s where it pays to be proactive. If you contact your mortgage lender and explain that your financial problems are only temporary, they probably have ways to help you out.
Generally speaking, mortgage lenders want to avoid foreclosure as much as the homeowner does. After all, they are in the business of loaning money, not managing and selling properties. That’s why most lenders will work with homeowners to come up with a solution to temporary setbacks. Some lenders have tools at their disposal to help in such cases, such as repayment plans and lump-sum reinstatements. But you won’t know about them unless you’re proactive about it.
About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com