Real Estate Investing

When the wolves are at the door, it can mean big problems for a cash-strapped homeowner. When there’s too much month left at the end of the money, what does a person do? The following are some tips to ease your pain.

Don’t procrastinate. If you are unable to pay the mortgage even just one month, contact your lender and try to work something out. They will typically need your account number, income tax return, list of household expenses and any benefit statements from disability or Social Security. Lenders want to help you. They don’t want to deal with marketing, fixing up and reselling your house.

Prioritize correctly. Seriously, don’t pay your credit cards before your home loan. While having credit cards may seem most immediate at the present time, it is a thousand times more difficult for a person to recover emotionally, mentally and financially after losing their home. Don’t let this happen to you.

Know your finances. Keep your checkbook balanced (or at least as close to balanced as possible). Stay on top of your bills, know which are current and which are late. Budget your money and plan your cash flows, based on expected future income. Those with unpredictable incomes from sales jobs or self-employment should pay the critical things first - house, food, utilities - and then work their way down the list of expenses from there. Knowing your finances is an essential part of knowing when to contact your lender.

Know your rights. This, along with step 3, is critical in understanding whether you are making a great deal or getting the short end of the stick, so to speak. Get a tax professional or attorney involved to advise you on your options.

Remain level-headed. Weigh all your options, with input from experts. Face up to your circumstances with an honest and realistic, yet solution-oriented, perspective. Be willing to fight for your investment, but also be willing to consider quick outs like a pre-foreclosure sale.

I have been obsessed with the new HGTV series “Property Virgins” ever since I saw the promo with host Sandra Rimonato dramatically exclaiming to novice homebuyers, “I can’t believe you fell for that!” The drama of stepping into the world of homeownership is nothing new to anyone who has already bought their first home (or those who simply live vicariously through the poor innocent souls featured on the real estate reality show). Below are some tips to help ease the process for first-time homebuyers.

Analyze Your Spending Limit: How much house can you afford? It’s a tough question to answer. SmartMoney’s interactive Home Buying Worksheet can assist in this process, with questions about such issues as mortgage ratios and lending limits. SmartMoney lists the general rule of mortgage payment, property taxes and homeowner’s insurance staying at 28 percent or less of gross income. The 25 percent figure has also been batted around by various analysts, and it does seem smarter to base the percentage on your take-home pay instead of gross income.

Pay off debt: This is where I think SmartMoney has it dead right; their advice makes perfect sense to me.

“First, credit card debt is expensive and limits your ability to save… Second, credit card debt will limit how much you can borrow. That’s because lenders often won’t allow your total monthly debt service — which includes payments for credit cards, student loans and car loans, as well as homeowner’s insurance, property taxes and a mortgage — to exceed roughly 40% of your gross income.”

Check Your Credit Report: The importance of checking your credit report before you even begin visiting properties cannot be underestimated. The last thing a nervous first-time homebuyer wants in the final days leading up to closing is a credit report surprise. This can affect the loan amount you can be approved for and could even cause any pending contracts to fall through.

Start Shopping: About 80 percent of home searches start on the Internet with MLS listings posted on sites like Realtor.com. Home shoppers may spend several months or even years browsing and comparing property listings, maybe even doing a few drive-by viewings. This provides a feel for the desired location, square footage, price, number of beds and baths, perks, school district, etc. Once a home shopper is actually ready to put down the computer mouse and hit the streets, it is a good idea to drive by the house at different points during the day. How is the neighborhood in the morning, on weekends and during late afternoons as people start arriving home from school and work?

Rate Inventory: About.com offers some really innovative ideas for property hunting. It involves note-taking and even photography to record your impressions as you go and help you stay organized throughout your search. The site recommends viewing top choices a second time. It also recommends going ahead and buying if you find that perfect home at the perfect price, instead of shopping around and coming back later. It might be gone!

Compare Loan Offers: There are tons of companies out there just waiting to loan you money! How to select the best one? Fannie Mae offers loans with no money down for qualified individuals. A smaller salary can make lenders shy away from approving a loan, but may be compensated for with a larger down payment. SmartMoney also points out that Washington Mutual offers programs with only 10 percent down. Bonus: the mortgage insurance normally tacked on to downpayments of less than 20 percent is done away with in this case. Well, technically it’s figured into the interest rate, which is tax deductible, unlike PMI payments. SmartMoney also points to HUD loans, FHA loans and Fannie Mae’s “expanded approval” program as options for low- to moderate-income families, first-time homebuyers and those with slightly marred credit.

Foreclosure and pre-foreclosure properties are often a great deal for homebuyers and a particularly profitable opportunity for investors. Now more than ever, nicer and nicer properties are being auctioned off as foreclosure rates skyrocket across all economic levels. Any homebuyer considering perusing the foreclosure offerings will want to keep on their toes and look at several sources to find the best deal.

Public Records: The county clerk or county recorder’s office keeps a record of all notices sent to homeowners during the foreclosure process. It is free to visit the office and search the public records for notices of default, Lis Pendens and notices of sale. This route may also help a person stay a step ahead of the foreclosure announcements made to the general public. It is the ideal option for anyone thinking of making a pre-foreclosure offer.

Internet: There are plenty of web sites that list foreclosure offerings. These are typically a vast national or regional database and offer free trials that allow users to determine whether the service is right for them. The information found here usually includes name, address, amount left on the loan, any additional loans outstanding and possibly a contact phone number as well.

Newspapers: Check for notices of foreclosure sales in the newspaper’s classified section. Publication of these notices is required by law.

Asset Management Companies: These companies assist banks in selling property that has been foreclosed upon. Check their web sites for more information on listings and contact details.

Government Agencies: From HUD to the U.S. Army Corps of Engineers, there are plenty of government sites listing foreclosure property and details like any plumbing or pest problems.

For a fairly comprehensive list of government listing web sites, asset management companies’ web sites, etc., click here.