How To Protect Yourself From A Real Estate Bubble By Buying
By Tony Lorenzo, Fri Dec 9th
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 toexactly time any market but as home sales continue to climbprices should follow. When supply exceeds demand, well, you getthe picture. There are some areas of the country where homeprices are more outrageous than others, so some areas may beharder hit than others. With that said, let's look at some waysof protecting ourselves from this inevitable misfortune: Forhome-owners who plan on living in their homes, first andforemost, you need to get over thinking of your home as aninvestment. Unless you have substantial equity built up, anydownturn in home prices could make you upside down on your loan,making you owe more than your home is worth, which would meanyou have a balance due on your loan if you tried to sell it. Ifyou plan on living in you home for the long term, this wouldn'tbe so bad. If you only plan on living in a home for a few yearsyou may want to consider renting for a while. Building up equityin your home is easier than you think. For one, stay away fromadjustable rate mortgages. As interest rates climb, so will yourpayments. This isn't a fun thing to see while your home value isdecreasing. Next, get a copy of your amortization chart fromyour lender, which shows how much of each payment
how much is principle. The principle is usually a very smallamount
compared to the interest, in the earlier years. Take nextmonths' principle
and add it to this months' payment and it willactually knock one months'
payment off the life of your loan!You will have to request a new amortization
chart when you makeyour next payment because your loan will be re-amortized.
If youare a first time homebuyer, put down as big of a down payment
asyou can. Buying an overpriced home with a small down paymentleaves
you vulnerable to a downturn in housing prices. Without abig down payment
you should consider renting for a while, unlessyou can get a house
at a steep discount. The best way I know ofto buy a house at a steep
discount is to buy foreclosures.Foreclosures offer the best chance
of buying a house at a steepdiscount and therefore protect yourself
from any downfall inprice.