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Home » pages » Tips for Investing in Real Estate

Tips for Investing in Real Estate

Whether you are considering purchasing a home to live in, a house or apartment for rental income, or a business property, investing in real estate has historically been considered one of the best investments that people can make.  However, before you make the commitment to purchase real estate, you need to assess the situation and see if the purchase makes sense for you.

One of the first steps in the home buying process is to find out how much of a home you can afford.  By looking at the financial aspects of the potential purchase, you will have a target price range you should consider.  In this phase, you would visit with a mortgage lender who will look at your income and current expenses.  Using these amounts as a base, they will look at home purchase prices, monthly payments, taxes and insurance.  Once they are factored in, they will compare the amount of debt (with the new home expenses) to the income.  The resulting debt to income ratio will be a gauge on how much of a mortgage you can afford.  Typically, lenders will go up to a 35% to 40% debt to income ratio to approve the loan.  Other factors considered at that time are the amount of down payment you have available, other monthly expenses, and credit history.

Armed with the price range of a home you can comfortably afford, you can then look at real estate that is available.  In this stage you also have several questions that need to be answered.  Do you want a 1 family home or a 2 family home (to earn additional income)?  What style house do you want?  Do you want to live in a city, the suburbs or a more rural setting?  How close to work do you want to be?  These questions can help narrow down a selection before visiting a realtor to look at available properties.

Once you have your home selected, you need to secure the mortgage financing.  There are several options available with borrowers. You will have the choice of a fixed rate or adjustable rate mortgage. The repayment terms vary, but generally lenders will go up to a 30 year term.

The federal government in recent years has taken steps to make sure that home buyers, especially first time buyers, have the opportunity to get a loan.  The Federal National Mortgage Association (FNMA), known as Fannie Mae, was established by Congress in 1968.  FNMA’s purpose is to purchase and securitize mortgages so that funds are available to the institutions that lend money to home buyers.  In addition to Fannie Mae, other Government Loan Programs such as FHA and VA mortgages are available.

At the onset, homeowners have to repay their mortgage loans at set interest rates.  The market rates for loans adjust with the economy, and the prevailing loan rates could be lower than the original interest rate the borrower is paying.  At that point, the borrower may want to investigate the feasibility of refinancing the mortgage.  However, before completing the transaction, they need to ensure that it is in their best interest to refinance.  Some factors to consider are if they will be charged additional fees, taxes or any other charges.

Purchasing a home is a stressful, but exciting time.  It gives borrowers the opportunity to enjoy a new home.  However, borrowers do need to be alert for predatory lenders.  Some borrowers are so anxious to get the new home that they are willing to agree to conditions that are not advantageous to the borrower.  Some homeowners are finding that they have adjustable mortgages that raise the interest rates to a level that they cannot afford.  Before signing any documentation, know what rate you are paying, what fees you are paying and find out if the rate can increase, and how often.