Real Estate: A Wise Investment or Not?

The most popular and certainly the commonest way for a family to build up its assets over recent decades has been real estate. It has always been seen as a good investment over the medium to long term with mortgage rates generally low and growth almost guaranteed. Almost! The early years of this century saw growth that was with hindsight out of control. The crash inevitably came and property values fell with a surfeit on the market and too few buyers to sustain values. Recent buyers indeed often found themselves in negative equity which was unlikely to disappear in the coming years.

It is something that raises a number of questions in need of answers.

  • Why buy when there is plenty of rental property available?
  • Is it still valid to say that real estate is a good form of investment?
  • If it is, what steps do prospective buyers need to take to buy?
  • What has a good credit score to do with obtaining a mortgage?
  • Is it possible to improve your credit score in order to buy?

Rent or Buy?

Home owners puts a family in control. As long as the mortgage is paid on time then there is no third party going to interfere. Tenants do get security but they are subject to changes that landlords may implement from time to time. It is easy to budget with a mortgage that defines monthly payments and the term of the direct lender . There are tax advantages in paying a mortgage rather than simply handing over rent each month.

A Valid Investment?

Except in unusual circumstances which to be fair existed during the recession real estate should grow over time, creating an asset for the family. It is a favored way to build up an asset that can be used in later life, especially if parents are able to downsize once the children have moved and put money in the bank.

The Process

Buying a property is fairly simple for anyone for anyone with the means to do it. The criteria lenders use today are far stricter than they were a few years ago. The real estate market was on fire before the recession. Every property was growing in value annually. Prospective buyers were welcomed by mortgage lenders who did not foresee problems coming. Their logic was that there was little risk because any property would be worth more than the money advanced if the owners were unable to make their monthly payments.

Nowadays lenders want buyers to stake more into the purchase as a hedge against future problems. Buyers therefore need a deposit and to demonstrate that they can make monthly payments on the money they have borrowed. That involves assessing the applicants and the likelihood of their repaying as agreed. The main indication of that is historical behavior. If they have a good record for making payments that will reflect in their credit history and hence their credit score.

Credit Score

Plenty of people who aspire to buy real estate have struggled in recent years and their credit score has suffered as a result. The level of problem credit card debt in the USA is sufficient to demonstrate that many people are in financial trouble. Even if they are employed and receiving regular income their credit score can still be an obstacle to getting a mortgage. One thing that such people can do is to ensure they have no debt that is causing further credit problems. As an illustration those that have credit card debt are paying significant interest on their balances and may be close to their credit limits. Even if they are paying the minimum required each month they have a problem. They should look to pay off that debt using a consolidation personal loan. It is much cheaper to pay such a loan than to carry credit card debt. If they pay off a balance in full, retain the credit line but never carry forward a balance again that is a positive step.

Improving a Credit Score

Successfully make monthly payments on the new loan will make a positive contribution towards their credit history, and hence score. Entries stay on a credit history for seven years with their importance diminishing in time. Repair does not happen overnight but anyone that gets rids of existing debt that has been a problem and can show they are making positive progress toward financial stability is on the right track.

The recession was caused because buyers and financial institutions saw a way to make profit. There is nothing wrong with that as such but it was an unsustainable environment. It is time for patience and common sense. Real estate should be an excellent way to invest and build up an asset over the medium to long term. If it requires some short term action such as a personal loan to put a family en route towards obtaining a mortgage then so be it.