Real Estate Investing

It’s that time of year for the annual convention of the National Association of Realtors.  This year Orlando, Florida is crawling with extraordinary agents from the industry - I would give my eyetooth to be there with them! This morning, NAR released findings that 41 percent of homes in 2007 were sold to first-time buyers.  MSNBC reports, 

According to the study, the median age of first-time buyers was 30, down from 31 in 2007.  The median income for a first-time buyer was $60,600 and typical first-time buyers bought homes costing $165,000.

This is an historic time to jump in the market, but first-time homebuyers do need to educate themselves about the process of buying a home.  Look before you leap! 

• Talk to your bank, credit union, or a lender in advance to see if your credit score, income, and debt will allow you to buy a home and how much.

• When you hear “how much” remember that just because you’re qualified for X amount, it doesn’t mean you can afford it!  Write out a realistic budget and stick to it. 

• Save, save, save for a down payment.  There are still 100 percent loans available, but if you can save 20 percent, you won’t have to pay MIP, an insurance policy that insures the lender against loss if the homeowner defaults on a mortgage.

• Don’t be afraid to interview your agent.  See that your personalities match, that the agent has experience, and they know the area.  Don’t expect them to provide information that will be in violation of fair housing laws.  To find an agent who has completed special courses in buyer representation, find someone who has an Accredited Buyer Representative designation.

• Don’t buy the first home you walk into - or at least look at several before you decide that the first one is THE one.

• Be sure to get a home inspection.  In addition, a termite or wood destroying organism inspection should be completed, along with a septic health inspection if the home is not connected to public sewer.

There are a hundred other first-time homebuyer tips available online.  Go to your favorite search engine and do your homework!

Not everyone believes in haunted houses, ghosts, or other paranormal activity.  In college, I once rented a home with two of my friends.  It was an older home on the edge of campus.  We weren’t allowed in the upstairs because the owner still had some belongings there.  The house next door was occupied by an elderly woman who tinkered around her backyard garden a lot.

We had heard someone had died in the house and that it was haunted. We also heard that sometimes you could see a face in the upstairs window.  I never saw the face although I did crack open the door at the top of the stairs once to take a peek.  There were boxes, some lamps, a chair … nothing of great interest.

I went to bed after my roommates one night and as usual the room wasn’t quite dark because of the streetlight outside.  My eyes were growing heavy but I wasn’t yet asleep when I saw my door swing open.  Though I couldn’t see anyone, I heard footsteps walking toward me.  They stopped at my bed, but I couldn’t see anyone.  My heart was pounding when I heard the “person” turn and walk back toward the door.  I watched as the door slowly swung closed and then leaped out of bed.  I ran to the rooms next to mine and both roommates were sleeping soundly.  Eventually I dozed off, but it was an eerie night.

Several weeks later I saw our neighbor in her garden.  I went out to say hello and asked her if it was true that someone died in the home.  What the long-time resident said scared me, “Yes.  A woman was killed by her husband after he came home from drinking.”  “Oh no!  How sad!” I replied.  She added, “In fact, she died in that corner” and she pointed.

I followed her finger and it was aimed directly to where my bed was located.  When I went back inside, I rearranged my room and never had any more night time visitors.

I don’t think I’d want to own a haunted house, but if you’re someone who would like one, there are many to be found online.  In Meaford, near Toronto, Ontario, here’s a house for sale that should be of great interest to people who love ghost-hunting.

The boys were ill at ease and refused to enter certain rooms. One said he woke to a feeling that he was being choked.

“We chalked it up to the children having vivid imaginations and talked to them at length about the inappropriate nature of their stories,” she says.

Things began to escalate: appliances and lights turned themselves on and off, things went missing and turned up in strange places. While they slept, a plaster column in the kitchen smashed as if hit by a baseball bat, and also while they slept, their phones called people.

May the buyer beware.

Former Secretary of the Treasury Paul O’Neill has said Congress should drop it’s latest economic stimulus package in favor of changing mortgage rules to the point that no loan is given without a 20 percent down payment.  According to MSNBC O’Neill said,

In 2006, he says, 30 percent of mortgages had no down payment and a larger number of those buyers defaulted on their first payment.

“That was a strong enough signal we should have shut down this … flagrant abuse of the principles of home finance,” O’Neill said. “It was bound to crater. It was absolutely bound to come down around our ears, which it has.”

If every mortgage was backed by a 20 percent down payment, O’Neill said, the financial system would be protected long-term, even if some individual investments or businesses failed.

This would definitely protect the U.S. financial system in the long run because NO ONE would be able to get a mortgage to buy a house.  If there are no home loans made, there is nothing to lose.  My first house in 1992 cost $88,500.  Although $7,000 doesn’t sound like a lot (5 percent down payment plus 3 percent for closing costs), our gross income as two working parents was about $33,000 per year at the time.  That made finding $7,000 hard to come up with.   

But we had scrimped and saved for six years and finally managed to do it.  However, if it was $17,700 we would’ve had to pay - along with $2655 for closing costs - it would’ve taken 15 years to get into a home.   My point is, there is nothing wrong with asking people to put money down when buying a house, but I believe 5 percent is more reasonable.

My husband and I have never missed a house payment, we’ve never been late on a house payment.  Therefore not every person who puts no money (or as little as 5 percent) down is in default - ready for foreclosure.

However, on the flip side, the benefits of coming up with a big downpayment are tremendous.  Mike Adams of Somerset 08873 writes,

The risk of putting down too little: If the home falls in value and you sell at a loss, you’ll owe more to the lender than you receive from the buyer. In addition, many mortgages require buyers who put down less than 20 percent to get private mortgage insurance, which can add $80 to $100 to your monthly bill. And the less you put down, the higher your loan balance and therefore your monthly payment will be.

I think there should be a happy medium.  I agree that Zero Down programs should accept a large part of the blame for the level of foreclosures we have today.  However, if I had to wait 15 years to buy a house, I would’ve gone bonkers.  The solid compromise, in my opinion, is to go back to the 5 to 10 percent down payment level.

Start saving!

Photo from Lifestyle Options 55.