Financial Trend Blog

Sternberg brings his “buyers first” expertise after 30+ years as a real estate investor. Another must read article for any real estate investor.

Here’s the basic definition of a contingency: it’s a condition or event that must be fulfilled before a real estate contract is binding on all parties involved.

There can be many contingencies in contracts. A typical example involves inspection of the property: “This contract is contingent upon a satisfactory inspection of the home being completed by January 16 that reveals no significant defects. If defects are discovered, the Seller will correct them or provide compensation to correct them.”

As you’ll see later, buyers often have contingencies for mortgage financing, the sale of another property, appraisals and many other items.

Before you apply for a home mortgage, you will want to make sure your FICO score is the best that it can be. However, there are some things about the way that credit is reported that aren’t common knowledge. For instance, creditors actually pay the bureaus more money to upload information that lowers your credit than to add good information. In 2005, the credit bureaus’ revenue from late payments went up from 1.8% to 30%! This means that if there’s a black mark on your report, whether or not it’s a fair one, the credit bureau is not motivated to remove it.

It seems that more and more Americans are falling behind on their debt. This is not just mortgages and subprime borrowers. People are falling behind on credit cards, car loans and overdraft lines of credit. And things do not look like they are going to get better any time soon.

So what is the underlying cause of this increasing delinquency on all different types of debt? You may have already guessed it, it’s the slowing housing market. You see when the housing market was on fire, Americans were using their homes like giant ATM machines.

People would go out, buy themselves anything and everything they could get their hands on and just charge it to the old credit card. When they ran out of room on their credit cards they would call their mortgage loan officer and just refinance all that debt into a nice new low rate mortgage.

Things aren’t looking so good… According to government statistics home foreclosures are at an all time high. Millions of Americans have no choice but to foreclose on their homes because they owe more on their mortgage loan then their house is worth. Is there anyway that you can turn this tragedy around on your tax return?

Everybody is suffering…Normally when you can’t afford to pay back the money you owe the mortgage lender the debt can be discharged. Needless to say this has hit lenders extremely hard. Prior to 2007 any remaining money left on your debt after the foreclosure had to be reported as income on your tax return.

Time to dream

One of the advantages of building a new home is that you can shoot for the stars and then scale back from there. Find an architect and use some out-of-pocket money to get started. When you go for your new home mortgage, you can simply build that cost back into the loan. What you are trying to do here is have a fairly realistic idea of what the new home mortgage will likely be.

As you go about the design process, think a bit about what is going into the home so you can use those features as selling points for the new home mortgage. Will the new home take advantage of tax credits, will it use “off the grid” technologies like solar or are all the mechanicals the most efficient. Each of these ideas will boost the innate value of the home meaning it may resell more easily. Remember, the bank wants it to sell when you are ready, so its money comes back easily.