Real Estate Finance Strategy that Few People Consider

If you are considering a new home loan anytime soon, and you do not want to get an adjustable rate mortgage (remember, ARMs are very strong loans), you should consider a 2/1 buydown.

This is a great mortgage program for people who require a smaller payment now, knowing that they will have more money in the following years.

Here's how it works.

You pay an additional premium on your loan amount to get a 2 percent improvement on the rate. So, if the 30-year fixed rate mortgage is 6 percent, you will get a rate of 4 percent in the first year of your loan. In the second year, your rate will go up one percent to 5 percent, and in the third year, your rate will increase to the rate it was when you locked in your loan, the 6 percent in this example.

Then, it will remain fixed at that rate, until you pay it off, sell or refinance.

For people afraid of adjustable rate mortgages, this is a very powerful loan. It's also great for people buying their first home or for newlyweds, who think they have to rent, before buying. Remember, there are many ways to get into a home. This program is one of them.

America is the land of second chances. If you have financial problems, you might be wondering which the better option for you - bankruptcy or foreclosure?

Bankruptcy has been around for a long time. It was the answer to the question of what happens to someone with immense debts. Whereas people were previously imprisoned in debtors' prisons, bankruptcy was based on the idea of modifying or eliminating debts to give people a new start.

Foreclosures, in contrast, have long been viewed as a remedy for a lender, not homeowner. A foreclosure is not about giving a person a second chance. It is about a lender taking back a home that a person has failed to make loan payments on. There is no redeeming element to the foreclosure for the person in question. It is just a disaster.

So, which is route should you go with real estate problems? Well, both are damaging to you. That being said, bankruptcy is probably going to be viewed in a worse light. Why? Bankruptcies typically are filed where you've made a complete habberdash of your finances, not just run into problems with paying a mortgage. Thus, it is seen as a more comprehensive failure on your part and lenders are going to be very hesitant to loan money to you.

There is a second reason foreclosure is more favorable than bankruptcy. It is no secret great swaths of homeowners are in dire financial situations. Millions will end up in foreclosure. These millions, however, are also future homeowners. Once the current mortgage mess and credit crunch cleans up, it is believed that a solution will be created for these foreclosed individuals to borrow again in the future.

If you are facing foreclosure, you have a better option than bankruptcy. Contact your lender and see if they will allow you to do a short sale. Lenders really do not want to own homes, so they will give out forbearance and short sale options like candy. A short sale can hurt your credit, but nothing like a bankruptcy or foreclosure.