HOW TO PROTECT YOURSELF FROM A REAL ESTATE BUBBLE BY BUYING FORECLOSURES

by Tony Lorenzo

Its not really a matter of "if" its really a matter of "when" this run-up in housing prices will stop. Its difficult to exactly time any market but as home sales continue to climb prices should follow. When supply exceeds demand, well, you get the picture. There are some areas of the country where home prices are more outrageous than others, so some areas may be harder hit than others. With that said, lets look at some ways of protecting ourselves from this inevitable misfortune: For home-owners who plan on living in their homes, first and foremost, you need to get over thinking of your home as an investment. Unless you have substantial equity built up, any downturn in home prices could make you upside down on your loan, making you owe more than your home is worth, which would mean you have a balance due on your loan if you tried to sell it. If you plan on living in you home for the long term, this wouldnt be so bad. If you only plan on living in a home for a few years you may want to consider renting for a while. Building up equity in your home is easier than you think. For one, stay away from adjustable rate mortgages. As interest rates climb, so will your payments. This isnt a fun thing to see while your home value is decreasing. Next, get a copy of your amortization chart from your lender, which shows how much of each payment is interest and how much is principle. The principle is usually a very small amount compared to the interest, in the earlier years. Take next months principle and add it to this months payment and it will actually knock one months payment off the life of your loan! You will have to request a new amortization chart when you make your next payment because your loan will be re-amortized. If you are a first time homebuyer, put down as big of a down payment as you can. Buying an overpriced home with a small down payment leaves you vulnerable to a downturn in housing prices. Without a big down payment you should consider renting for a while, unless you can get a house at a steep discount. The best way I know of to buy a house at a steep discount is to buy foreclosures. Foreclosures offer the best chance of buying a house at a steep discount and therefore protect yourself from any downfall in price.

Tony Lorenzo has written sveral articles on a variety of subjects. This article on the REAL ESTATE BUBBLE compliments his website that helps people gain valuble information about FORECLOSURES