Don't Get In Over Your Head

A large percentage of this real estate craze that has gone on is just fear of a bigger problem. The problem that is causing this mix-up in the market is a real problem that is very basic. There are people who are in over their head. Let's not worry about who is to blame for the actual problem that we have. The focus here is how to avoid getting in over your head.

Regardless of race, income, or status there is a danger for anyone to get in too deep. Investor, speculator, first-time owner, or status purchase...it doesn't matter where you are. You can get in too deep. In order to avoid this pitfall, consider my 3.3 steps to avoid getting in too deep:

1. Watch Your Loan
The first piece to watch carefully is the loan that you plan on taking out on a home. What has caused so many issues are the ARM or Adjustable Rate Mortgages. The danger of these loans is the risk you run in the future. What is causing issue with people is the fact that loans are adjusting and they can no longer afford the payments. I will share a personal story about my experience with this. The first home I lived in had a 2-year ARM. The introductory rate was 7%--the adjusted rate was just under 10%. My payment went from $700 to over $1,100 in one adjustment of the loan. This type of adjustment is the type of thing happening to thousands of people on a weekly basis. Most people lived on relatively fixed income and are being killed by changes like this.

2. Save for Rain
Once you have a fixed rate mortgage, I advise people to put 3-4 months of mortgage payments into savings. Why? Injury, termination of employment, or demotion or realities in today's society and can happen to most anyone. Regardless of how you plan on advancing your career, put money away for the rainy day. You never know when it could happen.

3. Invest in You
Sounds like a strange thing to say about real estate. Spending time continuously educating yourself and adding knowledge helps you secure your future. The popular mindset is that education ended at college or grad school. In a world that is constantly evolving, it is important to work daily at increasing your knowledge base to be a more competent professional in whatever field you specialize. When you are working to advance yourself in your career, you are providing a more stable future for yourself and for your real estate investments.

3.3 Don't bit off more than you can chew
Be realistic about what you can afford. You know what your income looks like. You know how much of that you can put towards your home. Purchasing a home you can't afford is a sure way to land upside down and regret it.