“It is as safe as houses”. We have all heard the expression or at least the concept that investing in houses is the safest way to making a fortune. We can all think of an entrepreneur that has made unbelievable amounts of money investing wisely in Real Estate. So, the question of if investing in Real Estate makes sense might seem unnecessary. Or is it?

The Wall Street Journal came up recently with a study that analyzed the performance of the Real Estate by having a look at the Case-Schiller index of 10 major cities since 1987. How did Real Estate perform? Not very well. The study shows that Real Estate provided only a 4.1% a year return. If you (as you must) factor in inflation (the rise in the cost ofthings and therefore an index of the loss of purchasing power) which rose by 3% a year, you are left with a real yearly return of 1.15%. Not very good for a supposedly good investment.

You might say this is not a good analysis of the data because it starts at the peak of a Real  Estate boom in the late eighty’s and finishes in the current slump. That is a good point, let’s have a look at performance from the mid 90’s when the price of housing hit record low prices. The yearly return is not evern 5% at 4.7% with an inflation of 2.5% to take into account.

As investments go this is not something you want to settle for. You might say that, ok it is not very exciting form of investment but at least it is safe. But is it really? Most of us can’t choose exactly when to buy or sell and you can be locked in a buyer’s market for years while your money is trapped in a property when it could be making a nice profit elsewhere.
You want safe? Why not think of inflation protected Government bonds. They do a lot  better than 2.2% real return. What is worse, that is not the whole story, home ownership comes at a cost. Some calculate these costs at around 2% (according to the same Wall Street Journal study) a year, which completely destroys your profit margin. The only real return most people receive from their home is the saving in rent money during the time they own and live in the house.

What does this study foretell for the future from analyzing past trends. Well despite the deep crisis the Real Estate is immersed in it is by no means the worst it has been. In fact if past crisis are anything to go by it has to get a whole lot worse before it starts to get better.

The best advice if you are set to invest in a house is to buy a home you like living in. The intrinsic value of enjoying living somewhere can be priceless and it will guarantee your will stay there longer maximizing the savings on not having to move from rental to rental and the costs that includes.

Buying a home includes making so many decisions in so many different areas of expertise it is no surprise it is a daunting task for the vast majority of us. You must decide where to buy? How much to pay, how large, which bank? What interest rate? Is it a good investment and ah, yes, you must like the idea of living in it also. A pretty big decision with way too many variable for the average blog.

Well, I’m afraid we can’t simplify it too much for you. Except with this advice, don’t invest in homes or houses, they are a ludicrously volatile sector which is best left to professionals. If you have money to invest, invest it in a medium risk stock fund and let time and compound interest do its job for the next 20 years. Buy a house; because you want to live in it, then it will always have value to you no matter what the nuts at Wall Street do to the economy.
Having said that, there is no reason not to make sure the home you buy is as good an investment as you can. In fact there is every reason to do so, for most people their homes is their largest investment and most expensive material possession.

A good way to see how good an investment your home is, is to look into the future and see how much it will be worth in say… three years. I can see you smiling, or rolling your eyes and cringing in pain. If only we could look into the future and see with detail how much our house will be worth or the stock price of any given company for that matter, making money would be easy. We can’t obviously give a detailed prediction of how things will look tomorrow never mind three years from tomorrow.
However, BusinessWeek has done its best to provide a likely prediction of the prices of homes in 2012. How can that be done? Well even though it is practically impossible to predict the price of homes, just like it is impossible to predict the exact location and speed of an electron or who will be the most valuable player in the NBA, you can provide an educated guess based on past trades and current conditions.

What has to be understood first though is that there is not an average American, French or Indian house price in predictions. That is an artificial factor that does not take into account one of the most important forces in Real Estate, location. The price of your property will strongly depend on where it is located. The above mentioned study by Business Week acknowledges this fact and provides predictions for various different locations in America to make the prediction more realistically and locally adapted. For instance if you are buying a house in California, which is currently experiencing Real Estate freefall it is going to fare far worse than if you buy a house in Alaska which enjoys a much more stable economy based on oil, tourism and military bases.
So if you are planning to make the most important financial investment of your life you are probably well advised to have a look at how your end of the country is doing and if prices are dropping are rising, it is a question of not only how much your house and home loan is worth now but how much it will cost in 3 years.

If you have been watching the home loan and mortgage rates for the last months you will have witnessed how volatile interest rates can be. However the overall trend has been for them to drop. The reasons for this are no secret. Nearly every government with a budget worth looking at has been offering securities for bank loans and doing everything in their hand to promote spending and borrowing for the Real Estate and Construction industries’ sake.

However in the last weeks a slight spike in the interest rates may have led some to believe that mortgage rates are not set to rise and that they have missed a great opportunity of refinancing or buying at a super low rate.

If you are one of those who are in a home buying frame of mind and think you have missed the boat, fret not, last Tuesday the average 30 year fixed rate mortgage was at 5.53% and there are signs that it might continue to drop. This is small solace for those who have seen interest rates for the same 30 year fixed rate mortgage of under 4.25%
Why the recent spike and what are the signs that the interest rates may well drop below 5% again. Well like everything in this world, nothing is for sure, except taxes and death and I could find you some exceptions there also. In fact predicting the interest rate is very much like predicting who is going to win the NBA, easy to do, plenty are willing to have a go but not so easy to get right.

Some experts like Guy Cecala, publisher of the Inside Mortgage Finance feels this rise in mortgage rates “is an aberration” and that there has been no change in the economy to justify it. One explanation is that the economic blight that has been expected has not hit as hard as expected. Fears of runaway inflation and trillion dollar deficits have not panned out and the inflation panic has eased off.

Inflation is a prime force when dealing with interest rates. The reason for this is plain to see when you think it out. An interest rate is after all (once you take away the Banks cut and expenses) the profit a saver should make for allowing others to use his money. However if inflation, or the cost of things, goes up then money in five or ten years is worth much less than the same amount today. This has to be worked into the interest rate to make sure savers don’t lose out and are discouraged from saving. This is actually happening anyway because of how low the interest rates and many “savers” are looking elsewhere for investment opportunities. Nevertheless because of Government incentives and other factors mortgage rates remain low.

Inflation is not set to spike, and previous inflation fears have proven unfounded which may cause mortgage rates to drop again. Having said that mortgage rates will probably not remain low for long so if you are seriously interested in refinancing or buying a home now or very soon from now might be the time for you.

Buying a home is considered by many as the goal to reach for if you want stability and security in life. It is not surprising that owning something you can call your own is a basic when you are talking about home, a place to rest, sleep, eat and live. There are few more basic necessities that we treasure more.
Unfortunately buying a home is not always easy for people with average to low incomes. Even workers with substantial incomes can struggle if they do not have the credit score, down payment money or live in an expensive area.

Home construction is a key part of the economy feeding a whole plethora of auxiliary and secondary business that depend on the construction industry. For this reason if the government can incentivize, simplify and in some cases open the road to home ownership it does not only help the families that can own their home but boosts many businesses and subsidiaries in the Construction industry and the economy as a whole.

The Australian government (and many other countries) have implemented the First Home Owners Grant. What is this grant, how do you apply and are you eligible? This article will attempt to provide a clear overview of the matter.

The first issue we must explain what it involves. If you are granted a First Home Owners Grant you may receive $14,000 if you are purchasing an existing home upto $21,000 if you are building or buying a new house.

To be eligible you must be 18 years of age, be an Australian citizen or permanent resident, never have received a First Home Owners Grant or have bought a house before or even have a spouse that has.

The Grants cash can be used to buy a house of any value. There is one rather big snag though, time. You must act fast if you want to apply for a New Home Owners Grant because the cut off period for this grant ends the 30th of June 2009, you will qualify if you buy an existing home or an “off the plan” home.
In fact with the low interest rates we now enjoy and this grant, now might be the time to take advantage of this excellent opportunity. Of course you must take a hard look at your finances, your job security and responsibilities first and if the numbers add up you may very well be on the road to a new home for you and your family.

Nobody loves a monopoly except the obvious beneficiary and customers never do well by them. For this reason free market economies strive to regulate the market to avoid monopolies that encourage hubris and stagnant economies. This is true for single company monopolies as with issues with Microsoft and Explorer (although I feel this is a bad example of monopoly, I never understood why someone could think that Microsoft was doing anything bad when it did not include a Netscape browser in their operating system) but with group monopolies where a specific type of business or group of business have a hold on the economy.

This is the case of Australia and Bank home lenders. Banks have according to Australian Consulting company Infochoice more than 92 per cent of the mortgage market, a marked increase from 2 years ago when it had only 79 per cent of the market.
For this reason the federal government is considering extra support for other home loan finance providers other than banks.
Smaller (and often more efficient) finance providing companies are still struggling with the current economic crisis. As we have mentioned in other articles, this desire to choose household bank names over other finance providers when looking for a loan is completely irrational. One can understand choosing a well established/known bank to place your savings or investments on the basis that they may be less likely to go bankrupt and lose your money (not a failsafe tactic as some of the latest big business flops has shown) but when talking about loans any provider is as good as the next as long as the interest rate and lending conditions are the same. Non-bank home loan providers are nearly always cheaper, however this does not stop borrowers from going to the big banks.

In order to fight monopoly the Australian government is considering providing support for non bank lenders to widen the options for customers. These plans also present a response to banks threatening to increase interest rates due to high demand of home loans and low saving levels. Banks claim that because people are saving less and buying more homes on credit they are finding it hard to supply the cash that is demanded and that they must curve this demand with higher interest rates.

Providing financing and guarantees to mortgages for non-bank financing companies will help other finance providers to get a slice of the cake while making it better for the rest of the consumers (that is us). This comes at a time that banks profit margins are increasing and the government wants to share the dependence of borrowers to more than the top ten brand banks.

As the current financial crisis spreads throughout the country and the world more and more people are losing their jobs, businesses and income. This means they can’t pay for their home loan and mortgage with their monthly income. The question is if they, I, you (it could be anyone of us) should pay my home loan with my savings or I should default on payments until I find a new job. This question is a loaded gun ready to misfire because there are a number of levels on which it can be answered and because it has strong moral connotations to take into account.

This question is not only hypothetical, as the crisis increases governments throughout the world have offered financial help to home loan borrowers that are struggling to pay for their monthly payments. These handouts and tax breaks are dependent on the liquid assets the home loan borrower has at his or her disposal. This brings interesting situations, if you were a sensible consumer, saved as much as you can and you have some cash in your bank you will not be eligible for financial aid condemned to use your hard earned savings until you are left with nothing (and begin to qualify for help) on the other hand if you always spent more than you earned and you are struggling because you never saved a dime you could spend then you qualify for all the help you want.

These scenarios are hard because they don’t seem fair, people who save should be helped not punished, after all it is thanks to savers that loans can be provided in the first place. However few of us would on the on the other hand agree with millionaires getting tax breaks on their mortgage by playing the system.

From the standpoint of investors, borrowers have a legal and moral obligation to the lender and should pay the monthly payments until they have money to do so. This argument is rather compelling, after all, few of us signed our mortgage contract with a gun to our head, we decided to take on the loan, it is our responsibility to honor our word.
On the other hand a man or women is accountable to more than to the Government or Financial Industry, we must also take into account our family. However if you decide to default on your payments your credit score will suffer drastically and you will not only have difficulties finding another loan but also risk losing your home.

However if the choice is to default on your payments this month or spend all your cash on this month’s payment leaving you with nothing then you might consider keeping the cash. Having said that, that is an illegal procedure that we should avoid at all costs.
It is also illegal to lie about your savings and income when filling in a home loan aid questionnaire, which is one of the reasons we should be so careful about getting involved in loans.

When searching for a good deal we often look at two main variables, quality and price. Depending on our budget or on our personality we will lean towards one or the other. This is especially the case when we deal with items that are important for us. Buying a home is as basic as it comes when talking about life’s necessities, somewhere to live. Admittedly you can always rent, but if you have decided to buy there are few things more important for you financially speaking  than to choose a good house at a good price with a competitive interest rate and conditions.

The problem arrives when we take a lot of care in choosing a home loan but we do not understand how the home loan industry works. What we tend to do then is to extrapolate principles that have worked well for us in other industries and assume that the same applies to home loans and the credit industry. For instance we might think that choosing a home loans is like choosing a car. If you want to get a decent car you must choose a good brand, better to get a Toyota than a  Lada. And if you are buying second hand better choose a reliable dealer, even though he is a little more expensive it doesn’t matter if you know he is honest and won’t take you for a ride.

These principles apply well to many industries. If you are buying clothes it also often worth paying a little more (or a lot more) to get better quality. This kind of reasoning makes many people overspend, nay, waste money on their home loans. When it comes to cash, all providers are the same. If a bank, a credit union or your parents are willing to lend you money it doesn’t matter who it is, what matters is the rate of interest and the conditions they demand from you. Granted it might not be best to borrow from a shark loan even if his interest rates are low because bankruptcy might be the least of your worries if you can’t repay your local shark loan. But barring that exception it really doesn’t matter who you borrow from. They can’t be a more reliable, better quality provider of loans, a dollar is a dollar no matter who gives it to you. The important point is how expensive the loan is.

Nevertheless most of us look to big banks in search of loans, looking for the “security” we feel they can provide. This makes many ignore other sources of loans like credit unions and other loan providers.

According to Shaun Cornelius Chief Executive of Australian firm Infochoice over  60 finance providers in Austalia alone undercut the big banks. This has a very significant effect on the everyday borrower’s budget. For instance according to Mr. Cornelius the average standard variable home loan rate on offer from a big bank is over 0.5% higher than the their most expensive non-bank rival.

This makes a big difference in our mortgage. The difference between a big bank and an alternative provider of home loans could mean up to 3 years more of mortgage repayments according to Infochoice’s CEO.

But with the recession all around, many homes are going for foreclosure. The reason being non payment of EMI (equated monthly installment) on the mortgaged amount due to shortage of credit and finances. But it should not deter you to go for a home loan. Now there can be two kinds of situations.

• One is where you already have taken a home loan but not able to pay the earlier calculated EMI due to any financial reason.
• The second situation is when you are going for the loan for the first time.

You can calculate your home loan EMI yourself so that you can give proposal to the lender and come out with a solution where you are able to get a home loan at an EMI that will be easy on your pocket. There are few ways by which you can get a better deal:

• Many people will advice you to have a shorter duration of the loan tenure so that your loan is repaid quickly and you need not drag it for long. They argue that if you can re pay the loan quickly then you have to pay less interest. This will mean a higher EMI but a shorter duration. This may be alright for people who can afford the higher EMI without much difficulty but it may not be suitable for some people.
• Then there are others who would like to keep the EMI manageable and thus have a longer tenure. Though the monthly liability is less but if you calculate, you will find that you end up paying a lot higher than what you though due to the high interest.

The solution can be to get the best for both. Pre-payment of loan can be the answer to your question. You take a loan tenure which is comfortable for you and the EMI which is manageable. Once you have some king of excess finance such as year end bonus, you can make a lump- some payment. This lump some payment will substantially reduce your amount due and thus your loan liability will decrease. This will bring down the tenure of loan without creating any dent in your pocket.

The only hitch is the pre-payment fee that is charged by the banks. In some banks, up to two prepayment in a financial year are allowed. Most of the lenders charge anything between 1 to 3 percent of the outstanding amount if the pre-payment is more than that is specified and allowed by the bank.

You can calculate whatever EMI you can afford to give, without much strain on your finances and start the EMI. But it is important to continue on making pre-payment, whenever possible to pay off the loan easily and at the earliest.

Loan modification is a process when the original terms of the loan are modified by the lending company to make the loan more suitable for the borrower so that they can re-pay the loan. It reduces the rate of interest, increases the duration of loan or makes the monthly payment according to the paying capacity of the borrower.

But there are times when people make some mistakes before going for a loan modification which may turn down their application for loan modification. Some of the common mistakes are:

1. The forms for loan modification should be filled properly. The form has to be filled correctly without any error. All the financial information should be accurate and complete. These are thoroughly checked by the lenders and cross checked with your bank statement.
2. Get all the details mentioned for the loan modification before you go for it. Unless you are aware of your commitment, you can be in the same situation again.
3. Your credit cards also decide your loan modification. If you have too many credit cards with a lot of unpaid balance can decrease your chances of loan modification. The credit cards should be few with all the balance paid off.
4. Keep your fact clear and disclose them. Be very emphatic in your language to let the lender know that you are extremely keen to pay off the loan but your financial condition is not allowing you to do it. Also insist that if loan modification is done, then you will pay the whole loan at the earliest.
5. Try to pay all your bills in time. Even when your finances are down, try to pay the bills as much as you can. A bad and late payment record can deny you the loan modification.
6. There are many crooks that are there to grab your hard earned money. They pretend to help you out in getting a loan modification but in actuality they don’t do anything except wasting your time or money. You should not make any upfront huge payment to the so called loan modification companies as their fees. Find out the right person who can get you the loan modification and help you.
7. Don’t waste time talking and meeting employees of the loan modification department. Go according to the proper channel and process. Find out all the details of the requirement for the loan modification and check whether you are eligible or not.
8. If you are eligible for the loan modification, then provide the lender with the loan workout proposal for quick and positive reply. Be very communicative as the lender may have many people requesting for loan modification and unless your case is strong, your application may not be considered only.

There are several fees which have to be taken under consideration while closing a FHA loan. The below mentioned points will assist you to calculate the closing costs of a home loan:

- Origination fee is a fee which covers the administrative and clerical costs incurred on the lender’s side for processing the loan documents. This could not be more than 1% of the total value of the loan, which is generally paid by the loan borrower if it is not negotiated with the lender.

- A loan commission is a one time charge (which can also vary) levied by the lender or the broker, on the borrower either to lower the interest rate or to confine the rate of interest for an extended period of time.

- The appraisal fee is imposed by the FHA authority, after preparing the evaluation report. Normally it does not exceed $ 500 which can further be negotiated.

- Inspection fee is basically charged for inspecting and evaluating the value of the property whether it is worth the loan value which has been applied for.

- Credit report fee considers the cost of a credit report which shows your creditability for the last two years as this is one of the most essential report without which a lender will not approve or decide your loan amount. Only a nominal fee is charged for preparing this report.

- Mortgage Insurance fee is covered for the processing of an application for the insurance of the mortgage.

- Brokers fee which fee can be of two types - when you are dealing directly through the mortgage brokers or when you are applying online for a home loan through various mortgage brokers. This consists of the fees of the listings of the online brokers.

- Processing Fee is imposed by the lender on the borrower for processing the file through various inspection and paperwork.

- Wire fee is charged by the bank for online transfer of the funds to your account, which is known as wire transfer.

- Underwriting fee is imposed by the lender while underwriting all the paperwork of the submitted loan file.

- Flood Certification Fee is charges for flood certification which means that the property for which the loan has been approved is not in a flood zone. If so, the owner is asked to produce a flood insurance copy. It is under the rules and regulations of FHA.