In Western Cultures, almost everyone would like to be rich. This is the nature of a capitalistic society and the line between greed and wealth is often intertwined. One of the most popular ways of making money is investing and Real Estate Investment can be very profitable.
When investing in real estate, there are several different approaches, but the age old adage of “Buy Low and Sell High” is something that has historically worked very well in the real estate industry.
Some people prefer to buy a home, perhaps fixing it up, and then sell it. This is often referred to as Flipping a Home, as the idea is that you buy it and sell it as quickly as possible for a profit.
While many have had tremendous success buying and flipping homes, there is a very high risk associated with it. This is because you are to a large degree at the whim of the current housing market. If house prices begin to fall or there are too many under priced homes in the area, this can mean taking a loss.
The current market of an excellent example of how this can backfire. Starting in the Nineties and continuing until a few short years ago, home prices were almost always increasing. It was common for a home to increase 25%, 50% or even 100% in the course of only a year or two. As a result, real estate investors were making incredible profits. Then, beginning in 2007, the bottom fell out of the credit market, home values began dropping, and people began loosing their homes. Many investors were left holding homes that were no longer increasing in value and were actually depreciating.
The other disadvantage is that most of the time, the investor is fighting the clock. Seldom will they actually purchase the home outright and instead a mortgage is usually used. This means that each month that the house remains unsold, they are loosing money.
Today, home prices are actually much lower than they were, but in the past when flipping a home, it was often necessary to find a home that was in disrepair and fix it up. This works extremely well for those who can preform the work themselves, which is called sweat equity, but for those that must hire contractors this can be very expensive.
Also, as a result of the fluctuating home prices, many investors have lost money after paying to fix up a home that was in disrepair.
Choosing the right mortgage lender is one of the most important steps a home owner will make when purchasing a home. Buying a home is a very big long term investment and you do not want to end up in a bad places, such as by using a subprime lender to finance your mortgage.
One of the most important steps in selecting a lender is to explore all of your options. It is generally not a good idea to jump on the first offer that you receive, but instead you should take this offer and compare it to other lenders. This way, you will have a much better idea of how competitive the mortgage offer is.
Usually, the best place to start looking for a mortgage at your local bank. In most cases, your own bank will be more inclined to work with you if there are discrepancies on your credit report and will be able to give you a fairly quick response. There are several reasons for this, but much of it comes down to the fact that you are their customer and as long as you have a good relationship with your bank, they will want to keep you happy.
Another reason it is a good idea to speak with your bank, or at the very least an actual local brick and mortar bank, is that these types of banks typically have a fairly competitive interest rate, which is indicative of the current market. So, by starting with your own bank, you will have an incredibly solid basis for comparison, when evaluating your options.
Next, it is a good idea to speak with a few mortgage brokers. Your real estate agent may have one they recommend, but remember they do get a commission if you use them, so their suggestion may be biased. However, since you are not obligated to use their broker, there is seldom any harm in investigating what type of deal they can offer. In some cases, they will be able to give you a rate that is considerably lower.
However, mortgage brokers are basically commission based salesmen. They usually have relationships with multiple lenders and will be able to check each of these lenders to find the best deal. Since they are commission based, mortgage brokers will only get paid if you go through them though, so it is very important to understand that not all mortgage brokers will be working in your best interest.
The Internet is a powerful ally when purchasing a home. It can be an excellent tool for finding home values in the area or even using Goolge Street View to take a virtual tour of the neighborhood. It can also be an excellent way to vet prospective lenders.
You can start by checking Google News and searching for the name of the company. By default, Google News will only show you the most recent stories, so make sure you expand your search to at least include the last few years.
By searching for the name of the company, you will be able to find out any important events that have occurred, as well as any legal troubles they may have had.
Next, do some regular searches to see what people are saying about the lender. However, remember that the company may be setting these sites up themselves, so they should be taken with a grain of salt. Also, NEVER give out your personal information when preforming this type of research.
Once you have several offers, both from your bank, a mortgage broker, and perhaps a mortgage bank, which is a bank that is primarily in the business of issuing mortgages, compare the different offers to find out what is the best for your situation.
This stage of the process is fairly straightforward, but it is important to not only take into account the interest rate and monthly payments, but also the companies policies. For example, the mortgage broker might offer you the best deal, but require that you pay a certain percentage of the sales as their commission. This percentage is called the brokers “points” and it could very well be that after you pay the points, you end up worse off than if you paid a slightly higher interest rate. Many of these fees, which are often called “junk fees” can actually be negotiated though.
In addition to looking out for the additional costs of the mortgage offer, it is also important to take into account their policy on late payments and how it affects your interest rate.