Brought to you by: Breez DeGuzman

In the best of times, foreclosures happen. When the economy tanks, they happen much more frequently. This is devastating to those who lose their homes, but it presents an opportunity for real estate investors and those who want to get a great deal on a home for themselves.

It’s no secret that foreclosed properties are sold at much lower prices than your average home. But are they really worth it? Here are some pros and cons to think about before you spend your money on a foreclosure.

Pros

* You can get a great deal on a home that is under foreclosure. These properties are often sold at auction, going to the winning bidder. So instead of talking the seller into coming down on the asking price, you simply have to beat the prices that others are willing to pay.

* Properties that are held by the bank and not sold by auction are often easy to finance. The bank may offer favorable financing terms since it is in their best interest to sell quickly.

* If you can catch a home in pre-foreclosure (the time between the issuance of a Notice of Default and actual foreclosure), you might be able to negotiate a good deal with the owner. He will likely want to prevent foreclosure so that he can salvage his credit rating, so if you can offer him a deal that the lender will accept, he will probably be willing to consider it.

* The previous owner will often be out of the property by the time the foreclosure sale takes place. That means that you can move in or start renting it out immediately after the sale is complete.

Cons

* Foreclosure properties are often in poor repair. If a homeowner can’t afford to pay his mortgage, there’s a good chance he hasn’t been able to afford to maintain his home properly, either. That’s why it’s so important to inspect before you even think about buying.

* If the former homeowner was evicted (or worse, you have to evict him after purchasing the property), he may retaliate by trashing the home. He may also remove fixtures to sell or use.

* Properties purchased at auction must be paid for immediately. If you don’t have cash or a line of credit to work with, you won’t be able to participate.

* If the property is sold at auction, there’s the chance that the price may be driven up too high. To avoid overpaying, learn as much as possible as you can about the property. Decide what a reasonable price would be, and don’t go over that figure.

The foreclosure game is one that can get you properties for less. But if you’re not careful, it’s easy to get burned. Doing your homework is essential if you want to come out a winner.

Brought to you by: Breez DeGuzman

Owning a home has long been a major component of the so-called “American Dream.” It’s true that home ownership is fulfilling and liberating. But as anyone who is making mortgage payments can tell you, it doesn’t come cheap.

During the good economic times, banks practically handed mortgages out like candy. This made owning a home accessible to more people, but it also led to an alarming number of foreclosures. Today, more consumers than ever before are aware of the pitfalls of buying more home than they can afford.

The amount of home an individual, couple or family can afford depends on a number of factors. These include:

* Income – Most prospective home buyers are aware that their income plays a significant role in how much home they can afford. Simply put, if you don’t make enough to pay your mortgage payment each month, you can’t afford the house. If it were as cut and dried as that, settling on a price range would be relatively easy. But there are more things to consider.

* Down payment – A key factor in how much home you can afford is how much of a down payment you can make. Most conventional loans require a down payment of 20% of the purchase price. That’s not an amount that most people can save up in a few months’ time. Some types of loans allow for a lower down payment, or even none at all. But in exchange for that concession, you’ll have to pay private mortgage insurance (PMI) and possibly a higher interest rate.

* Other debts – All other things equal, two borrowers who have different amounts of debt will need housing in different price ranges. Most experts agree that your total amount of debt should not exceed 36% of your income. So while someone with no other debts could afford to spend the entire 36% on housing (although that’s not recommended), someone with a 15% debt-to-income ratio could only afford a mortgage equal to 21% of his income.

* Interest rate – When interest rates are low, one can afford a larger mortgage than when they are high. This is something over which we have no control. But if you are considering buying a home and interest rates are lower than the norm, moving forward now instead of waiting could be to your advantage.

The 36% debt rule is known as your back end ratio. Your front end ratio is also worth considering. This rule dictates that your mortgage payment and other housing expenses, including homeowners’ insurance and real estate taxes, should add up to no more than 28% of your gross income. This makes for a quick way to estimate how much of a mortgage you can afford. Simply multiply your monthly income by .28 and you’ll have a rough idea of how large of a payment you can afford each month.

Living within one’s means is always important, and that’s especially true during uncertain economic times. Taking the time to carefully consider how much you can afford to spend on a home could save you a great deal of anguish in the future.

Brought to you by: Breez DeGuzman

Home prices skyrocketed during the last decade; sadly, to the point where the distance between what people earned and how much a property cost was grossly out of proportion, when compared to any other period of time in recent history. With the crash of the market, this bubble burst and tons of houses were foreclosed and thousands of others were put up for sale in a desperate attempt by homeowners to cut their losses before it was too late. As the market continued to spiral downward, fewer people were interested in buying something with a value that was dropping, and this caused the market to continue falling.

One way that homeowners are taking back control of the situation is through home exchanges. This is a process of searching through a list of homes that are potential trades, finding one that you would like, and hoping that the homeowner will feel the same way about your property. When it works, paperwork is drawn up, loans are paid off and financing obtained, and the home trade is made. Because the homes are typically around the same price, there is little loss with the home swap and you can eliminate other expenses that tend to come with the purchase of a new home.

One major difference when you have a home for sale versus one for trade is the cost. You save money by not having to pay a commission to a real estate agent. Instead, the two homeowners will do all the work and search out a situation where both parties want to swap houses. Once an agreement to trade homes looks imminent, a real estate lawyer should be called in to ensure that the homes exchange transaction goes smoothly and that neither party will suffer any losses.

On the website, www.craigslist.com, there has been an explosive growth in people who are interested in trying to exchange homes. Either their houses are for sale yet have had no interested buyers, or they want out of the whole real estate market. This increase on craigslist is about thirty percent, which is a sizeable jump upwards and really shows that there are many people out there with homes they can’t afford, or who want to make a change but can’t in the current situation, or are not happy with the traditional way of doing things. It is very likely that home swapping will become even more popular over the next few years as people come to realize that the market can be controlled by them, and not the other way around.

Brought to you by: Breez DeGuzman

While the value of real estate may drop in times of economic downturn, over time they usually increase. That means that if you’ve had your home for a few years and gained some equity, you should turn a profit when you sell. You may even be able to turn a profit in a short period of time if you get a good deal on a home and fix it up. But it’s important to remember that there are a number of costs that you will incur when selling.

While the costs to the seller are usually far less than the costs to the buyer, they are nothing to sneeze at. Here are some of the things that the seller usually pays for.

* Improvements – It may seem illogical to make improvements on a property you plan to sell, but in some cases it makes sense. Certain improvements can increase the selling price of a home beyond what the improvement cost. And some make the seller eligible for tax deductions that make them worthwhile.

* Repairs – If you want to sell your home at market value, it needs to be in good repair. People will sometimes buy homes that need work, but they expect to pay much less for them than they would otherwise. It’s usually far more cost-effective to make the repairs yourself than it is to accept a reduced offer in consideration for the buyer making them.

* Commission – If you’re working with a real estate agent, you’ll have to pay his or her commission. The amount varies, but it averages around 6% of the selling price. If the buyer has his own agent, the commission is usually split between the two agents.

* Appraisal – You’re not required to get an appraisal as the seller, but it can be beneficial to you. By having your home appraised, you can get the basis for setting a reasonable asking price.

* Cleaning – If you clean your own home for open houses and showings, you’ll only have to pay for cleaning supplies, although it will take up some of your time. If you hire someone to clean your home for you, it will cost a bit more.

* Penalties – Upon selling your home, you will have to pay off your mortgage. Some lenders instate a prepayment penalty if you pay it off early. Check your mortgage agreement or ask your lender to find out.

* Moving costs – If you’re living in the home you’re selling, you’ll have to move out prior to closing. Costs you may incur include packing supplies, storage fees, a van rental, gas, and/or hiring a professional moving service.

Selling a house isn’t cheap. But in most cases, you’ll make enough profit to cover all of your expenses and have some left over. And in the case of repairs, improvements and appraisals, the amount they add to the selling price makes up for the cost.