As this book was being written, newspaper and television stories were rife about mortgage defaults and the problems in the subprime lending business, where loans are awarded — at higher-than-average interest rates — to less-than-creditworthy borrowers.
Why, at this particular point in time, were credit-challenged borrowers golden one day and personas non grata the next? Blame an overheated real estate market, a lukewarm economy, and rising interest rates.
Oh, and one more thing — borrower ignorance.
As the poet Robert Frost once said, “A bank is a place where they lend you an umbrella in fair weather and ask for it back again when it begins to rain.” It's natural to criticize lenders when borrowing conditions turn unfriendly. But in fact, banks and mortgage lenders of all stripes play an essential role in society: They make it possible for people from all walks of life to own their own homes and make investments in other property to help secure their future. The same goes for investors who buy securities based on the mortgages held by a significant number of Americans; such investors keep money flowing into the market that lenders use to make the actual loans.
But these players respond to market forces on a dime. And when the real estate market slows down, they can roll up the welcome mat very quickly.
While some unscrupulous lenders have made it very easy in recent years for certain borrowers to get in over their heads with debt, the biggest culprit may be a general lack of consumer information about how mortgage lending works.
The Everything® Guide to Mortgages is intended to help change that. All potential borrowers — even individuals who don't have the best credit — need to learn how to best position themselves to do business with a lender and get the best deal for their situation. Qualifying and obtaining the best loan requires careful thought and planning, no matter what your financial circumstances. For people with bad credit or bankruptcies, sometimes getting the best deal means waiting until your credit improves.
This book is focused mainly on residential financing because that's where most people take their first steps in real estate ownership. But it does touch on critical issues involving real estate investing — that is, the buying and selling of property for nonresidential use. It's a natural next step for many people looking for vacation or rental property that brings in an income. In the first few years of the twenty-first century, financing for real estate investment was almost as plentiful as money for residential loans in the hot market at that time. But it's important for individuals to know that borrowing for residential or commercial real estate investment has its own standards and risks. A borrower needs to prepare differently for both scenarios.
Many people today think they'll never actually be able to own their own home. But that can change with the right education and planning. To start, read on.