he last thing a new At the end of June, the president
homeowner thinks about when of the National Association of
making that first real Realtors (NAR), Pat Combs,
estate transaction is testified before the United
foreclosure. Typically, they States Senate on the subject of
focus on those facts that imposing more reasonable lending
“everybody knows”: real estate is guidelines for both the real
a great investment, it makes more estate lenders and the borrowers.
sense to own than rent, and the Here’s the tricky part.
mortgage company approved the Countrywide Financial reported in
loan so it must be OK. April that foreclosures were
double from last year. That rate
While the first two statements of foreclosure increased from .44
are true in many circumstances; to .83 percent. Recent attempts
real estate can be a great to more closely regulate lending
investment and it often makes standards have resulted in fewer
more sense to own than rent- the low-income borrowers being able
last one about mortgage approval to qualify for real estate
is a myth. In fact, the purchases. While this measure
assumption that being approved protects consumers to a certain
for a mortgage loan means you can degree, it also makes it much
afford a home has landed so many harder for low-income families to
homeowners in foreclosure, that obtain loans at reasonable
the real estate industry and the interest rates.
United States Senate are tackling
the subject. This has resulted in an increased
number of real estate borrowers
US Senate Tackles Real Estate taking out non-traditional loans
Lending like ARMs and interest-only loans
for the lower interest rates. The
problem is that when the interest If your credit is in poor shape,
rates rise with inflation, or the take sometime to improve it
loan amount comes due, these before applying for any type of a
families are unable to refinance real estate loan. A slightly
or handle the change in payment. higher FICO score can make a huge
That’s how they end up in difference in the interest you
foreclosure. will pay over the life of your
loan.
This is a concern for both
individual families and the Also, pay very close attention to
national economy. Real estate the real estate loans available
sales in March were reported down to you. An ARM (Adjustable Rate
by 8.4%, and the new housing Mortgage) might be appealing for
starts were reported down by 2.1% the lower interest rate and lower
in May. What does this mean for monthly payment, but will you be
the first-time real estate buyer? able to handle the payment if
interest rates rise? An ARM can
Steps to Avoid Foreclosure be a great tool in the right
circumstances, but if you are
The good news is that the over unsure of your ability to handle
saturated real estate market can the increase in monthly payment,
be great for buyers. Sellers you are better off to avoid it.
compete for your business, so you
are likely to get great real Many first-time real estate
estate investments. buyers obtained ARM loans
assuming that they could
But you need to pay close refinance when the rate was
attention to your finances and raised. Stricter lending
your future commitments as you guidelines have prevented many
shop for a real estate mortgage. from doing so- and these are some
of the people who end up in and closing costs. Long
foreclosure. term-costs like home and yard
maintenance, and homeowner’s
Finally, make sure you are aware insurance. These will all impact
of all the costs associated with your financial ability to afford
owning real estate and a home. your home and avoid foreclosure.
Upfront costs like taxes, PMI,
About the Author:
John Harris is a researcher and writer on real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more information please visit Carlsbad Homes for Sale.
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J Harris
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