Are you a first time Home Buyer or thinking of selling your house? Do you have an idea on how it all started? Do you know what are the important things you must remember before entering any transactions?
Here's a little background you might want to know bout Real Estate.
History of RealEstate
It is impossible to know when the
first real estate transaction ever took place. Perhaps someone offered
his seat to someone else in exchange
for a morsel of food. There have been several ideas and
technologies that have advanced the
practice of real estate throughout the years. Complex tools like
mortgage securitization now
have a huge influence on our economy.
A title, in modern terms, is a
document that shows proof of ownership of a piece of real property. It gives to the owner a set of rights and
responsibilities regarding the property. When you buy a house and the deal closes, the previous owner
gives you the title. In the distant past, kings owned entire countries
by divine right. They conferred titles,
such as lord or duke, on favored nobles in exchange for their allegiance and military aid. These titles came
with hereditary holdings of real property, land, manors, and the peasant labor that occurred therein. Titles
have since transformed into legal documents, but the idea
behind a title remains the same. Deeds
are similar to titles, but may confer less than full ownership to its holder. These terms (title,
deed) are thousands of years old. When you buy a piece of property, you become lord of the manor in more than
just a manner of speaking.
A mortgage is a unique loan
product, designed specifically for real estate. The loan is based on collateral represented by a
piece of property.
A mortgage is essentially a loan that must be paid back in a
set number of payments in
a set amount of time.
For example, a 30-year mortgage might have 360 monthly payments, each one the same
amount, from the first to the last. As each month passes, the amount of interest paid
decreases while the amount of principal paid increases. There are adjustable
rate mortgages and pre-payment
plans, but the idea of the mortgage as a fixed agreement remains.
Failure to meet even one of the agreed upon
payments can give the lender the right to evict the borrower and foreclose on the property.
Nowadays, it is the rare individual who can afford such a large investment without a mortgage.
Mortgages have been around
since at least the 15th century, when the word was coined. The idea probably predates the word. Mortgages
used to be reserved for nobility who would use the proceeds from their land to keep the land in their
family. Mortgage lending began on a much wider scale in the middle of the 19th century, after the Industrial
Revolution democratized wealth to a great degree. Lenders began offering mortgages, making land
ownership much more widely available to the average person. In the United States, government guaranteed
loans, and developers such as William Levitt made home
ownership synonymous with prosperity
following the Great Depression.
Securitization is the process by
which lenders collect many loans into a single financial product. They then sell off percentages of this
product to different buyers. This aggregation of risk (a single homeowner might default on a
loan, but the other loans in the product support its value) seemed to insure against the possibility that loans
were risky investments. The opposite has proven to be the case. When low interest rates and loosened
regulation led to a housing bubble in recent years, these securitized pools
of loans threatened the world economy.
Although securitization continues, increased regulation could decrease the possibility of bubbles in
real estate markets in the future. What remains clear is that real estate continues to be the preferred investment for
families to hold and increase their wealth.
