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With the economy heading downhill, more and more people are hearing about real estate short sales. The concept of real estate short sales is not new to most experienced real estate investors but for a homeowner it is an eye opening concept worth knowing about.

There are no need for real estate short sales if homeowners do not have mortgages larger than the worth of their homes. You can say that real estate short sales are invented to help homeowners get out of the upside down mortgage situations. When a homeowner is upside down, he or she owes the bank more than he or she can sell the home for. If a home is worth only $100,000, for example, then the homeowner cannot afford to pay off a mortgage that is more than that amount. He or she is basically “upside down.”

Homeowners with upside down mortgages have one solution left to them; Real estate short sales. For a home that is upside down, even if the homeowner were to sell it on the market, he or she wouldn’t make enough money to pay off the mortgage balance and will still owe the bank even when the home is gone. This can be a real financial burden on the homeowner. Many people in this situation end up filing bankruptcy.

With real estate short sales, the lenders are willing to accept the amounts less than the actual amounts owed by the homeowners. For example, if Bob owes $200,000 in his mortgage payments and Bob cannot afford to pay them ongoing. Even worse, Bob’s house is valued at only $150,000. Bob has no choice but to do a real estate short sale or he would end up in a foreclosure or have to file bankruptcy. If the bank accepts a real estate short sale on Bob’s home, Bob walks away from the debt free and clear.

One problem is that Bob cannot stay in his home after the bank accepts the real estate short sale. In other words, Bob cannot do the short sale himself. This is because if Bob shows that he could afford some payments then the bank is less likely to want to forgive the debt. Too many people tried to con the banks into accepting less than what they owe even when they are not in financial trouble at all.

For a real estate short sales to be accepted, there must be a buyer who is not the homeowner. The buyer must be convincing enough to show the bank that it is in their best interest to accept the real estate short sale. For example, if the homeowner has lost his or her job, just gone through a divorce, has piles and piles of medical bills, then the bank is likely to see that if they did not accept the real estate short sale, they may end up having to foreclose on the home.

Homeowners in the middle of real estate short sale deals should not rest assured because not all real estate short sales are accepted by the lenders. Some real estate short sales are rejected because the buyers are not experienced enough to do them right. Some times, banks feel that the real estate short sale offers are too low and prefer to foreclose and sell the homes in auctions instead of accepting the real estate short sales.

Do you have jitters about putting your money towards real estate? After-all, the media LOVES to talk about what tumultuous times we’re in right now. Home prices falling! Buyers beware! Protect yourself!

Smart investors put a premium on complete and accurate information. Start questioning anybody’s credibility who claims that an investment is 100 percent secure or wise because whatever you do with your money certainly involves some form of threat. In this sense, it is advisable to KNOW what you must know in the business. Let us say your apprehension leads you to decide to do “nothing” with your money but instead keep it in the safety of your home. It still would not guarantee defense against other forms of destruction like fire, flood, even theft.

Here is another scenario: what if you opted to put your money in a bank safety deposit box? Would it be safer that way? Probably yes but only concerning its physical property. Remember that its buying power changes over time and that the bills you have are only worth the currency’s present value.

In the US, the annual rate of inflation is about 3 percent that translates to commodities increasing by almost 3 percent every year. In other words, your money is worth 3 percent less if it is being kept inside a safety box. Would you still perceive of it as “saving” when obviously your money’s purchasing power is gradually vanishing?

What about a savings account? These accounts are almost always protected by the FDIC (Federal Deposit Insurance Corporation) so there’s not much risk of your bank going under and you losing your money, but again you’re swimming upstream against the current of inflation. Even the best savings accounts out there barely give you enough interest to counteract inflation and often times inflation is outpacing your savings account interest earnings; but at least you’re not losing AS much!

Another remarkable area to look into is stocks. Would it be best to invest in something when there is no tangible item you can hold claim to? Investing in stocks can be compared to investing in an “idea” and whether you like it or not – the only thing you can claim yours is the fact that you put in funds so that the entity you place your money into will add value to itself, which eventually increase yours.

The danger here is that you wouldn’t surely know how much control you have over such an “idea”. In real sense, you actually have almost none. Most people remedy this by doing extensive research on the company or entity’s track record as well as the people around it (to predict if the “idea” will work for all of you). Unfortunately, it’s hard to tell especially if you are unaware of all the factors involved. Unless you have the desired technical preparation (i.e. its your profession, or you devote your time on research), investing in stocks would save you from much greater risk. This leads us now to the best possible option, the real estate.

Real estate is really a great field to invest in. Because it is “tangible” –real estate lends itself to seeing, touching, and improving. The risk involved is minimal as far as losing the investment is concerned. Suppose that you are faced with such a situation, insurance is there to protect you. That would be very unlikely if you opt for stocks! Another great news about real estate is that your property increases its value with inflation contrary to what happens in the case of paper currency where it loses its purchasing power over a period of time.

Another great thing about real estate is that money is made in multiple ways (these are too numerous to detail for the purpose of this article, but the benefits include huge tax breaks, gained equity through renter-paid debt reduction, equity gained through improvements, and appreciation). As stated in the beginning of the article, no investment is 100% safe, but it is my strong opinion that if done with some foresight, real estate is where you’ll find the most bang for your buck as well as the most security for your money.

Selecting the right mortgage package as a first time home buyer can be a confusing process, and working with a mortgage loan officer isn’t always the best way to get the mortgage loan that you can afford. One of the biggest mistakes that first time is to sign on the loan that they qualify for, instead of taking a smaller loan that they can actually afford.

This can be achieved when the basis set to qualify you is not your income ration and not exactly how much you are prepared to pay monthly. Borrowing the entire loan amount you qualified for can most probably exhaust your monthly resources which nobody would want to happen.

Setting your own limits for the loan will help you resist the temptation to just borrow up to the limit that your loan officers offer s and help you stay within a comfortable housing expense range based on your income level. Here are some more tips for selecting the mortgage for your new home purchase:

1. Know your tax benefits. When selecting the right mortgage for your home, you can ask about the tax benefits. Some loans are ‘interest only’ loans that allows you to subtract the entire cost on your taxes intended for that year. But loans with negative amortization scale won’t permit deduction of interest on the monthly payment.

2. Plan intelligently. A fixed interest rate loan is a good choice especially if you intend to stay in your home for 30 years and more. Compared to ARM loans and other loan products, FIR loan can help you withstand changing market conditions, although it may be a higher in interest. A fixed interest loan can also have its disadvantages. The author of ‘Smart Consumer’s Guide to Home Buying’, Barron, suggests that fixed interest loan may increase your loans because of the demands of ecrow account associated with it.

3. Ask about other home payment options. Flexibility in your mortgage loan’s payment can help you maximize your funds. For instance, there are mortgage loans that allow making extra payments toward the principal balance without worrying about a penalty. You may inquire about this type of loan so that you would not be problematic of your debts in the future.

4. Discover some other techniques to pay affordably. Keeping your loan payments manageable means making necessary adjustments on the loan amount such as when the lender offers you a huge loan. An example of this is keeping your payments only within your budget level through a low interest rate, longer payment terms for the loan, and a good plan to make interest only payments.

5. Apply for mortgage insurance. Most first time home buyers do not have a lot of money available for the down payment, which can make a big difference to the loan amount and monthly payments. Mortgage insurance can provide for your down payment, or in some cases, allow you to apply for an attractive loan product without having to make any type of down payment.

You want to invest in real estate. What’s the best way to use your money? The use of leverage and OPM (other people’s money) is what makes real estate such a powerful investment tool. Different people have distinct viewpoints regarding how much leverage and OPM is good.

Many who engage in this business have distinct goals, so you must always keep in mind that your team of experts needs a well-trained mortgage professional. For one, the examples below may or may not address your ultimate concern. People’s aim may vary from receiving monthly cash flows as additional incomes to preferring investment appreciation in some others.

To vitalize your financial goal, look closely into your options. What’s amazing in the real estate market is the assurance that you are in control. For instance, you have $20,000 to start with. With this amount, you can have either a 10 percent down payment on a $20,000 worth of property or a 20 percent down payment on a $10,000 property. Of course, you will be the one to decide which is better.

Maybe you want to ask: what is the difference between these two options? Considering you decided to put in a larger down payment, chances are, you will pay your mortgage at a much lower price and you do not need mortgage insurance at the 20 percent mark. Larger down payments can provide you cashflow if that is what you like.

Assuming that for the $100,000 and $200,000 properties, the appreciation is set at 6 percent (Please note that the appreciation rate actually varies depending on their locations, type of property, etc..but for this article, you can well disregard these differences). That translates to these figures: the $100,000 will be worth $106,000 after a year of appreciation and the $200,000 becomes $212,000.

You will have made double the amount of appreciation with the 10% down payment on $200K option, but you didn’t have to spend one penny more! This effect will compound year after year and after awhile the difference will staggering.

In a relatively shorter time, your gain will be sufficient to obtain equity and purchase another PROPERTY so you actually have doubled your properties and compounded their appreciation. On another hand, the cashflow might not be present in the $200,000 property and perhaps there will be times when you have to expend for maintenance costs but look at the greater appreciation and long-term benefits.

Moreover, you get more advantage since debt payments and maintenance costs are tax deductions (using leverage or OPM and getting less monthly cashflow) unlike cashflow that is taxable. In the case of some people who needed monthly cashflow – the solution is simple, your approach can be modified to get what you really wanted. Besides, most people would agree that extra payment every month realizes wealth building benefits in the future!

Your choice to effectively use your money is important. Start now by building your team of experts and hit your mark!