HOW TO PROTECT YOURSELF FROM A REAL ESTATE BUBBLE BY BUYING
FORECLOSURES
It's not really a matter of "if" it's really a matter of "when"
this run-up in housing prices will stop. It's difficult to
exactly time any market but as home sales continue to climb
prices should follow. When supply exceeds demand, well, you get
the picture. There are some areas of the country where home
prices are more outrageous than others, so some areas may be
harder hit than others. With that said, let's look at some ways
of protecting ourselves from this inevitable misfortune: For
home-owners who plan on living in their homes, first and
foremost, you need to get over thinking of your home as an
investment. Unless you have substantial equity built up, any
downturn in home prices could make you upside down on your loan,
making you owe more than your home is worth, which would mean
you have a balance due on your loan if you tried to sell it. If
you plan on living in you home for the long term, this wouldn't
be so bad. If you only plan on living in a home for a few years
you may want to consider renting for a while. Building up equity
in your home is easier than you think. For one, stay away from
adjustable rate mortgages. As interest rates climb, so will your
payments. This isn't a fun thing to see while your home value is
decreasing. Next, get a copy of your amortization chart from
your lender, which shows how much of each payment is interest
and how much is principle. The principle is usually a very small
amount compared to the interest, in the earlier years. Take next
months' principle and add it to this months' payment and it will
actually knock one months' payment off the life of your loan!
You will have to request a new amortization chart when you make
your next payment because your loan will be re-amortized. If you
are a first time homebuyer, put down as big of a down payment as
you can. Buying an overpriced home with a small down payment
leaves you vulnerable to a downturn in housing prices. Without a
big down payment you should consider renting for a while, unless
you can get a house at a steep discount. The best way I know of
to buy a house at a steep discount is to buy foreclosures.
Foreclosures offer the best chance of buying a house at a steep
discount and therefore protect yourself from any downfall in
price.