My friend, Angela, and I were at lunch the other day enjoying the late spring weather and talking between bites of crisp lettuce.  The conversation veered a bit when she posed a question.

“Do you think real estate is still a stable investment option?  I mean, with the way the market is looking and everything, is it still a good idea?”  Well, I won’t bore you with the details of my somewhat long-winded response (I get that way when talking about real estate.)  But with phrases like “no such thing as an ideal market” and “you can make turn a profit regardless of the market if you research buy right” I tried to assure Angela that many careful investors are making money in the current market.  Of course, I also cautioned her on how poor planning and inflated market values can turn once hopeful investors into financially desperate and frenzied people.  

“It’s also about finding the right financing to match your investment,” I said before taking a sip of Diet Coke.  “Many investors facing foreclosure are a result of improper mortgage matches, not a result of market shifts.”

“Well, then how do you know which mortgage to get?” Angela asked.

“That depends on the investment type.  On my primary residence I took out a 30 year fixed rate loan, since it’s a long term hold.  You probably have the same kind of mortgage for your home, I bet.”

Angela's cheeks flushed a little as she admitted that she didn’t know which type of loan her and her husband had taken out.  While her answer caught me a little off guard, it didn’t shock me.  I couldn’t possibly judge her, because there are so many borrowers like my friend. 

After a few bites of salad, I explained, “A lot of borrowers don’t know.  The whole lending industry has become incredibly complicated.  But the variety of loans is great if you can wade through them.  You see, the more niches there are, the more tailored the loan for your needs.  But it’s also easy to get matched with a loan that isn’t what you wanted at all.  These are the folks who face foreclosure a couple years down the road.”

And it’s true.  Unless you’ve done your fair share of research, terms like “payment caps,” which potentially can be incredibly harmful, sound great.  Because if this maze of phrases I recommend hiring an attorney or another professional, one who’s getting paid to look out for your interests, to look over things over before you sign.  Make it less complicated by working with professional, reputable mortgage lenders/brokers from the start.  Visit websites, ask around.  Local realtors—who aren’t paid a referral fee--are typically good at steering borrowers to solid brokers/lenders and so are other investors in your area—particularly seasoned investors.

My friend, Angela, left with a bit (or perhaps it’s more accurate to say a lot) of assigned homework.  But, it’s better to research now—however tedious—than to be surprised by unwelcome developments in the future.