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Your Own Bank!

ADVICE Author: Kam Brar

Your own bank!

You need to know what you haven't been told: the right move will make you wealthy, the wrong move will give you warts, figuratively speaking. Why didn't anyone tell you? Because: (a) there isn't any money in it to tell you, (b) your parents probably didn't know, and (c) if they did know, you probably wouldn't have listened anyway.  Investing in real estate, much like the stock market or the commodity market or buying antique cars, is an art not a science.

The first point I will make is one that I’ve heard said and it really hits the point home. “That’s your house is your bank.” It is a great point, because if managed correctly, your house can and will become the "Bank of First Choice" for you.  And guess what? You are always welcome there.

In your quest to buy your first house, do not skip any of the steps that will lead you to the right place, as it will be the foundation of your financial plan and will help shape your financial future you owe it to yourself to get it right! Begin by getting pre-qualified. If you talk with any real estate agent or broker, they will tell you the need for a pre-qualification when you go out shopping for a new home.  Remember that being pre-qualified is not for the seller’s benefit (knowing you are capable to buy the house), nor the realtor's benefit (knowing you can get the financing). It’s for YOUR benefit. You will learn what you can afford, the different types of programs available, and when I do a pre-qualification, I also tell you what you can't afford. I do that to help you defeat "the kid in the candy store syndrome". Believe me, it's real after all if I was to place to items side by side but one was slightly nicer for whatever reason that’s the one you would be attracted to.  So it’s only natural that when you go out looking for homes it’s the nicer and unfortunately more expensive one’s that have a greater tendency to catch your eye!

Next, those of you who think that you can do it without the help of a realtor, think again!  A good Realtor will show you as many places as you need to see, tell you not only the pros and cons of each one but also the area, and really won't push you into a house above your means. Why? Because by being pre-qualified, you already know the limits!

An excellent rule when it comes to buying a house is to remember that the worst thing you can do is buy above your means and try to tailor a loan that will help you get there. You might be able to swing things in the short run but unfortunately in the long run that house of cards is surely bound to come tumbling down!

DECISION TIME

Once you’ve found "the house", one of the most important decisions you will ever make needs to be made. What type of loan to go with? Keep in mind that your decision will be one you are likely to repeat every time you are in the position to buy any other piece of real estate. It will determine how big your bank will be in the short run, and most likely in the long run. So it is time to weigh the pros and cons of the two types of approaches; lowest possible payment or shortest possible amortization.

Those who opt for the lowest possible payment do so for generally one of two reasons: it is all they can afford comfortably for the house of their dreams, or they choose to invest their money into investment vehicles other than their house. I can certainly understand the latter reason and therefore will focus on the first reason. The difference in payments between a 40-year amortization and a 20 year one is usually about 25% to 33%, with a 25 year one only about 15% to 20% higher than a 40 year one. Those of you, who know me, know I’m simply not a fan of a 40 year amortization.  The main reason you shouldn't take a 40 year amortization is that if rates never changed in other words, you’re entire loan ran for either 40 or 20 years then when a when a loan amortized over 20 years was finished, you would still owe 75%+ on your 40 year. Even when a loan amortized over 25 year was finished (again assuming that rates never changed throughout the whole period) you would still owe 60%+ on your 40 year amortization. I have an excellent chart and article on this click here to take a look.

The shortest possible amortization is chosen by people who are willing to sacrifice a little on their "dream house" to build a strong financial future. They take a 20 or 25 year amortization loan knowing that their friends might have a better or bigger house to start because they took a different approach, but in the long run, the 20 or 25 year loan will amortize quicker (reduce the balance of the mortgage), and they will end up with more equity in their house to use as they see fit in a shorter time. These are the folks whose bank will be growing.

So what does all of this mean? Simply that when you enter the real estate arena it’s a valuable first step towards the rest of your financial future! So be wise, take your time to understand each step and the ramifications of it, and feel free to write and ask questions. It is the easiest way to obtain wealth without winning a lottery. And unlike the lottery everyone who both buys right and gets the right loan for their situation, wins!

 Kam Brar

Contact Information | Auxilium Mortgage Corporation
Name:	Kam Brar
Company:	Auxilium Mortgage Corporation
City:	Victoria
Province:	British Columbia
Country:	Canada
Phone:	250-590-6520
Email:	Email
Website:	http://www.kamthemortgageman.com