Everybody thought real estate ownership was a part of the American Dream. It’s kind of interesting because the original premise was that a person could would work and save and when they had enough money for a down payment and could prove their income, a bank would give them a loan. Then came the new home.
Well without getting into the fray, it seems that lots of people gave and received loans (up and down the socio-economic strata) where there wasn’t the proper amount of money or documentation to prove that people had the ability to actually repay those loans. Everybody thought that values would keep going up forever, never stop, never slow down and that increased equity would be the security for the loans, totally ignoring the fact that little or no down payment provides no security or equity in the event that the loan goes bad. Add to that the adjustable rate mortgages. This was the makings of a perfect storm for real estate.
You’ve probably heard all this in one form or another. Why am I going through this? We all think buying a home or piece of real estate is fool proof. In truth, it depends upon the amount of cash, equity, and income applied to the deal and whether you are operating on sound financial principles. We need to take some responsibility for our actions. We need to be operating on intelligence, not on emotions or desire alone.
At this point, the banks are pretty much scared stiff about doing anything that is not financially sound.
I came to these conclusions after watching some folks trying anyway they could to get a loan for a project or property. If a bank won’t lend you money, better yet if a bunch of banks won’t lend you money for a project or property, it probably isn’t:
A) A good idea
B) Something you are qualified to do
C) Something you have enough financial solidity to do.
Sure, get an Angel investor. It still doesn’t make it a good idea or a viable project. It just gives them something to take from you in the event of a bust.
Sound financial practice is essential. It doesn’t mean things are hopeless. Since most of the payment money at the beginning of either a fixed or adjustable mortgage is applied only to interest, it really doesn’t cost you anything to rent or rent with an option to buy a property if you can find such a situation.
Here’s what happens. First you get to live where and how you want. If you can strike up a deal with an owner landlord or a seller you may be able to show steady payments, good faith, build up some equity and get what you want without risking doing it too early and jeopardizing your credit.
There are lots of things you can do as alternatives to buying with large down payments and still come out on top. Considering renting to own.
Thomas Fazio does Equity Marketing, Real Estate Consulting and is a Licensed Realtor in the state of Colorado. He also consults on Denver condos, Littleton Co homes for sale, and 0 interest credit cards
[tags]poor credit, buying a home, rent to own, home ownership[/tags]
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