Over the last two years we have all seen the devestation in the housing market.  In fact some people reading this have likley been foreclosed on and driven from what is now the banks home. So what can you do now to profit from the housing crisis?

Well lucky for you the crisis is far from free and clear.  Although it is slowing down foreclosures are still on the rise and recently hit a new all time high.  On top of al the problems with residential real estate we have the newly started commercial real estate crash which is just getting going but is predicted to be really bad over the next few years.  Bascially real estate is still a minefield or a battlezone if you will but like any great crisis there are plenty of opportunities to profit from it all if you know where to look.

One of the first things you leanr when researching real estate is that location is first second and third in order of importance, the saying actually goes “location, location, location.”  If you are looking for area to invest your hard earned money one of the best tools is that of the Case Shiller housing indexes.  They cover 20 different cities and allow you to find the strong and the weak markets.  Most real estate speculators should probably shy away from the middle of the road performers as they dont have the stability of the top performers, nor the potential of the bottom performers.  By only looking at the strongest and the weakest markets you will have a better chance at coming out ahead.

Your next step after finding an area is to go to a good real estate broker and find the good neighborhoods that are getting whacked by foreclosures.  Many of these homes are in relatively new and nice areas, exactly the areas where you likley will want to own a home ten years from now.  Now look at interest rates and what type of rate you qualify for.  Personally we think you should try multiple lenders and even look at some alternate financing vehicles in order to ensure that you are finding the best possible rate and financing package.

Right now (mid 2009) rates are still realtively low on a historical basis but are all but guarenteed to go up over the next few years as we are still near historic lows.  Because of this it is important to lock in a good rate now and not wait until later.  After all if before you buy yoru house rates drop like a rock you can just get a new loan.  Anyways once you have studied the interest rate trends and gotten a financing package it is now time to buy your home.

If you are buying a few homes it maks sense to spread them out geographically in a few different markets so that you aren’t wacked too hard if one of the markets does not recover.  Yes, managing the properties is a bit harder but the oveall risk is lowered substantially.  Another option is to find a good residential REIT and invest in it. You won’t get the same bang for your buck but the process is simple as you only need a stock brokerage account.  All the same principles apply in a REIT.  You want their portfolio to be robust and purely in residential real estate.

Hopefully this has been helpful and you now have the beginnings of a plan for getting into real estate.  You don’t need to buy only in your area but instead can take a macro trader view of things and go where the best risk to reward opportunities are.  Markets like Vegas, Phoenix, Denver are all likley good markets over the next ten years or so and most people will do well that are buying right now.

Let’s First Look How It Affects Your Credit Score

When money gets tight and you are going to be forced to be late on your bills first consider what items report to your credit report each month. Your phone bill, electric bill, gas, cell phone, water and other similar bills do not report on your credit report.

A late payment for your mortgage will hurt your credit score more than a late payment for a car loan or credit card. Late mortgage payments are one of the most harmful delinquent accounts that can be found on a credit report.

Once a mortgage becomes 60, 90 and then 120 days past due, it is often very difficult to catch up the arrears. Extra interest, attorney fees and collection fees can be added to the amount. It becomes more and more difficult to obtain a refinance loan also.

On a first trust deed or mortgage, the borrower must pay a penalty if the payment is made more than fifteen days after the due date. So, not just the 60, 90 and 120 days, but also just fifteen days can harm your credit score and can eat up your budget quickly.

The Three Basic Choices

If you’re two months behind on paying your mortgage, you’re still safe. You should act soon, however. Make sure you continue to keep the lines of communication open with your current lender. They would rather work with you than have you give them back the keys to your home.

You have three choices:

• If you go one more month without paying your mortgage, your current lender will issue you a notice of default. Then, the foreclosure process will begin.

• Your lender will usually offer you the option to make up the back payments over a period of time. This is called forbearance.

• Call a professional mortgage broker. There may be a better loan product out there that will help you make timely payments in the future.

Let’s Find Some Good News

There are specific lenders called “sub-prime” lenders that have a multitude of options available that can help you straighten things out. Although the interest rates will be higher, depending on the lender and your specific situation. they will work with you.

Another great piece of information is that lenders only look at the last 12 months of mortgage history. If you can wait out the 12 months (after your negative mortgage payments) then your late payments will not affect your credit once you are back on track.

You can even refinance which may be very helpful to you at this time no matter how good or bad your credit is, no matter how far behind you are on your mortgage. The type of financing though that you may qualify for with a poor mortgage history will probably be less than favorable.

The key to all of this is the amount of equity you have in your home. The more you have the more opportunities you will be afforded. What your lender wants is the money from the home. Therefore, they are more than willing to work with you as long as they can see you are also trying to work things out.

If you’re a homeowner with an adjustable rate mortgage that’s close to resetting to a higher and variable rate, I hope you’re ready to make the payment. If you can’t afford the new payment, you may not have anywhere to go for help. Specifically, don’t expect your lender to cut you any slack.

Does that mean no one in the financial world is concerned about the billions of dollars in mortgage resets coming in the next few years? No. The financial world is concerned….about themselves. Right now some of the major players are negotiating an $80 Billion fund to bail themselves out of trouble as their customers are unable to make their new, higher payments.

Jim Jubak of msn.com reports that all of this will lead to the inevitable – a massive flood of foreclosures and delinquent loans. Tens of thousands of homeowners will lose their homes or at least see their personal credit destroyed.

So who’s to blame? A lot of people want to blame the lenders for acting irresponsibly when they extended all this credit to questionable borrowers. I guess that’s one angle you can take, but I only agree to a certain extent. On one hand, the lenders are the experts and they should have advised the borrowers the real risks of such unorthodox loan packages. On the other hand, buyer beware. If you got caught up in the hype and bought way too much house for your budget, then shame on you. Foreclosure, and potentially bankruptcy, will be your reward. I’m sorry.

What can borrowers do? Well, the first thing you need to do is ring your bank’s phone off the hook. It will be tough, because they don’t want to hear from you, and they definitely don’t want to cut you a break on your payments or interest rate. But it’s worth a shot. Just a day or two ago we posted here about how Countrywide is helping over 50,000 of its borrowers so they can stay compliant with the terms of their loans.