Archive for May 27th, 2009

Those who do not learn from history are doomed to repeat it. 

You’ll forgive the melodrama I hope, but you get the point.  We are in the worst housing crisis Seattle has seen in quite a few decades.  If you are reading this I can only assume you are at least considering purchasing a home in the near future, so the question is a fair one.  How do YOU avoid finding yourself in this position in the future?

Human nature is what it is and it is inevitable that there will be ups and downs in the economy and housing market in the future.  But don’t concern yourself with the overall market as much.  Worry about how you can protect yourself and your family from foreclosure, mortgage fraud, and economic collapse in the future.

1.  Never utilize all the equity in your home.   Many people in the past several years have repeatedly taken out home equity lines or refinanced their homes to take vacations, buy cars or pay off credit cards.  If you need to do this, you should be seriously evaluating your financial situation.  The equity in your home is like a safety net.  It is the reason why some people are sleeping well these days and others are not.  Leave as much equity as you can in your home.  Never let it drop below 15% of the value of your home. 

2.  Don’t put anything on a credit card you can’t pay off in the next billing cycle.  We in America have gotten too used to looking at credit cards as free money.  “I’ll just put it on the card.”  has become common place.  The average American has over $8,000 in credit card debt.  This crisis isn’t just about housing.  It is about using money irresponsibly, by institutions and individuals.  Keep those credit cards open because they are good for your credit rating, but don’t overuse them.  Pay them off each month.

3.  Don’t fall for a 3/1 ARM rate.  I hate these things.  I really thing the mortgage industry should outlaw them.  5/1 ARM’s aren’t a lot better but the extra two years is helpful.  I am fine with 7/1 ARM’s.  If I were shopping for a mortgage today I would get a good old fashioned boring conventional 30 year fixed mortgage.  If I didn’t have much of a down payment, I would settle for an FHA loan.  No ARM’s, No balloons, no using some guy who got my attention by screaming some ridiculous rate over the radio or TV, and especially I would never use anyone who doesn’t have a real office where I can go and sit down with them eye ball to eyeball and talk about the terms of my loan. 

4.  Don’t over buy.  In years gone by I have seen many clients stretch themselves to the limit to try to get the biggest house humanly possible.  Does a family of four really need 3500 square feet of living space.  When did we become so obsessed with appearances.  It isn’t a competition.  How about purchasing a reasonable home and putting a decent amount of money away in savings each month. 

5.  Save 10% of what you make.  Grandma was right.  Putting money away for a rainy day is a great idea.  It provides comfort and security.  Save up for a rainy day or plan on being rained on.  Just ask those that are now getting wet. 

6.  Don’t put all your money in the stock market.  The stock market is not a cash machine.  Everything is not guaranteed to go up.  Many people have lost a great deal of money this past few months in the stock market.  Stocks aren’t savings.  They are a gamble.  It is great to max out your contribution to your 401K if your employer has a matching policy, but other then that your “savings” should be in an interest bearing account that is not subject to any kind of market conditions.

7.  Continue to live below your means.  All of the things Americans are doing right now, ie. brown bagging it, using public transportation, cutting down on unnecessary purchases and travel, eating out less, etc. are all great ways to maximize your dollars.  But you can’t do them only in a recession.  the smart money does these things all the time.  Ok reward yourself from time to time, when the money is there, but don’t live like that.  Smarter use of your money is worth a lot more in piece of mind.

It aint sexy, but you know what is sexy?  Sleeping through the night when your neighbors are being foreclosed on. 

So there you have it.  My 7 point plan for keeping yourself out of hot water the next time the economy goes south. 

In the mean time, wanna buy a house?  Give me a call.  I’d love to help.

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Rob Graham, Accredited Buyer’s Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

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