The search for a new home begins with great enthusiasm and optimism. But along with it come a puzzling array of questions and concerns. To ensure the search for your dream home ends with a smile of satisfaction, Surendra Hiranandani, Managing Director and Founder of the Hiranandani Group of Companies answers common questions that may arise as you make this big decision.
1. How big a house do I need?
If you are buying your second home for the family or preparing to move into an owned apartment from a rented one, the best way to answer this is to look at your present home and see what needs are met in your present home. Discussing with other family members can provide great insights into what makes them comfortable and serves your needs best.
If you are buying your very first home as a couple, do you feel you need just a home for your cozy twosome, or have you wisely kept in mind what may be your future needs when you start or expand your family tomorrow?
Be a good judge and draw up a vision for your new home. At the same time, jot down your budget estimating the area you are getting in terms of built-up and carpet area (the ratio can be as low as 15 percent for an old construction and as high as 28 % for new constructions.) Some developers also offer the concept of super built up ratio including as much as 40 % area, and this is something a buyer should be alert of and verify duly the reasons for including a greater percentage area.
2. Where do I choose my new abode to be?
Generally, the norm is to have a residence that is not too far away from one’s work place, keeping the traffic and transport systems in mind. Rates of property vary hugely between the various areas of the Mumbai Metropolitan Region, with some areas commanding around Rs.20, 000 per sq ft and some others are below Rs 1,000 per sq ft.
Hot Property buys for 2005
Suburbs like Thane, Powai, Ghatkopar, Mulund, Malad and Kandivali are fast transforming into attractive destinations with malls, multiplexes and myriad options for larger and more luxurious homes. With fast development happening in full swing, one is assured of better space and value for money along with the expectation of a good value appreciation of one’s home in the future. Mix-user townships, with commercial and residential facilities are an ideal situation for many families as it does provide a great relief amidst the hectic and fast lifestyle in Mumbai. A sea-facing or lake-facing house or a house in a natural green area can be promising when one visualizes a clean environment away from congestion, the rush of traffic and pollution.
3. Does it live up to my lifestyle requirements?
Aesthetic interiors and exteriors are primary to the attractiveness of any house. Flooring, tiling, classy fittings and fixtures can make a home a pleasure to live in. Jacuzzi, fancy lighting, french windows, swimming pool, gymnasiums, clubhouses, jogging tracks and many such lifestyle features are becoming a standard norm in high quality projects. Some developers also offer the option of complete interior solutions to the customers. While these certainly add to the luxury, one must thoroughly verify the quality of construction and benchmark the new home with existing projects of the builder to ensure that what you see in the sample apartments will be actually what you get.
4. What about the Basic Amenities?
In the process of ensuring hi-end lifestyle amenities, one must also clearly check that the basic amenities are up to the mark. Water supply and power supply, good roads and parking space, children’s play areas, doctors and clinics, basic shopping and public transport stations are very crucial to ensure a hassle free living and one should never underestimate the importance of the same. Well connected both by road and rail, while the international Airport and flyovers should also be in proximity as per the needs of the buyer. One thing that is sometimes overlooked is the security systems and safety of the complex and locality. One must pay due attention to this also. In addition to basic infrastructure, maintenance of the complex should also be given due importance such as cleaning of roads, streets and drains, garbage disposal and organic waste composing, rodent and mosquito control.
5. What value additions do I get along with the home?
Wide, open spaces, lush green gardens, and tree lined concrete roads are all available in the best of the housing complexes in Mumbai. Staying in a landscaped property gives the area an elegant feel and also keeps the air fresh. Rainwater harvesting and sewage treatment plants are some of the eco-friendly ways by which the builders are able to provide a healthy environment in harmony with nature. Not only this, the modern homebuyer also checks the availability of entertainment and recreational options near or within the complex such as bowling alleys, game centers, sports facilities, vibrant shopping malls, food courts, restaurants, to add excitement and color to the place.
http://news.moneycontrol.com/india/news/property/null/8thingstoaskbeforebuyingyourhome/14/27/article/175554
Thursday, May 31, 2007
Indians buying homes abroad
In February, chartered accountant Archana and husband Prabhakar, an engineer in Dubai, planned to buy a flat in Mumbai where they want to shift jobs in two years. They were aghast that all they could get for their budget of Rs 2 crore was a one bedroom flat in south Mumbai. For the same price they settled for a two-bedroom villa a few minutes’ drive from Dubai.
Property in Dubai appreciates (thirty per cent last year) less than in Mumbai but rents are nearly double at twelve per cent,” says Prabhakar. Like Archana and Prabhakar, who have an ancestral home in Bangalore, an increasing number of Indians are queuing up to buy real estate in places like Dubai, London, Malaysia and Bangkok. Some want to flaunt a second home with a foreign address, others for holidaying or returns on investment. Some find that property is as expensive or even cheaper in some foreign locations. Some are encouraged by the Reserve Bank’s doubling of the amount an Indian can invest abroad to $100,000, which means a couple can invest $200,000 or Rs82 lakh every year.
“Many are buying property in Dubai because it has no taxes and it’s only two and a half hours from Mumbai,” says Syed Miraj, the India agent in Mumbai for Dubai’s real estate firm Better Homes. “I get 15 inquiries a month and four or five of them end up buying.” The availability of easy bank loans and residence visas in UAE for property buyers are additional attractions. Many brokers are armed with CDs on “hot properties” in UK and UAE.
“Demand (from Indians for property in London) is particularly high in the mid-range price sector 400,000-700,000 pounds (Rs 3.2 crore to Rs 5.7 crore) which means that relatively more affordable locations such as St John’s Wood and Kensington are being considered,” says a study by Knight Frank, the global property consultancy firm. It estimates that this demand from Indians (along with the Chinese) will go up by seven per cent annually for some time.
“Many buyers see a snob value in a London address,”’ says Gulam Zia, Knight Frank’s National Director in Mumbai, pointing out that property in London is still more expensive than in Mumbai. “You can get a top of the line property for Rs5 to 8 crore in Mumbai but not in London.” It’s not just the mid-range properties that the Indians are eyeing. They are even lapping up top-end real estate, says Daily Express (London) in a report last month with the headline: “Wealthy Indians buying their own British Empire.” This, it said, has resulted in spiralling property prices there. It said that Northwood in West London has now become “the most expensive place in the world, thanks to Indian investment.” Knight Frank as well as Hamptons and Savills, UK’s top-end estate agencies, have despatched staff to India to sell London property.
“Malaysia has one of the highest standards and the lowest costs of living with all the modern facilities in place,” is how the Malaysian government is promoting its “Malaysia My Second Home” project to lure the wealthy from across the world. All you need to be eligible for the programme is to deposit in a local bank 300,000 Malaysia Ringgits (Rs36 lakh) from which up to Rs29 lakh could be withdrawn after one year for purchase of a house there. A Malayasian tourism department official has been quoted by the local media as saying that some 700 Indians have registered for the programme.
“Realty markets abroad are stabilised and offer steady returns,” points out Gautam Vohra, Senior Manager (Capital Markets) in Mumbai of Jones Lang Lasalle, a global real estate consultancy.
http://www.dnaindia.com/report.asp?newsid=1096472
Property in Dubai appreciates (thirty per cent last year) less than in Mumbai but rents are nearly double at twelve per cent,” says Prabhakar. Like Archana and Prabhakar, who have an ancestral home in Bangalore, an increasing number of Indians are queuing up to buy real estate in places like Dubai, London, Malaysia and Bangkok. Some want to flaunt a second home with a foreign address, others for holidaying or returns on investment. Some find that property is as expensive or even cheaper in some foreign locations. Some are encouraged by the Reserve Bank’s doubling of the amount an Indian can invest abroad to $100,000, which means a couple can invest $200,000 or Rs82 lakh every year.
“Many are buying property in Dubai because it has no taxes and it’s only two and a half hours from Mumbai,” says Syed Miraj, the India agent in Mumbai for Dubai’s real estate firm Better Homes. “I get 15 inquiries a month and four or five of them end up buying.” The availability of easy bank loans and residence visas in UAE for property buyers are additional attractions. Many brokers are armed with CDs on “hot properties” in UK and UAE.
“Demand (from Indians for property in London) is particularly high in the mid-range price sector 400,000-700,000 pounds (Rs 3.2 crore to Rs 5.7 crore) which means that relatively more affordable locations such as St John’s Wood and Kensington are being considered,” says a study by Knight Frank, the global property consultancy firm. It estimates that this demand from Indians (along with the Chinese) will go up by seven per cent annually for some time.
“Many buyers see a snob value in a London address,”’ says Gulam Zia, Knight Frank’s National Director in Mumbai, pointing out that property in London is still more expensive than in Mumbai. “You can get a top of the line property for Rs5 to 8 crore in Mumbai but not in London.” It’s not just the mid-range properties that the Indians are eyeing. They are even lapping up top-end real estate, says Daily Express (London) in a report last month with the headline: “Wealthy Indians buying their own British Empire.” This, it said, has resulted in spiralling property prices there. It said that Northwood in West London has now become “the most expensive place in the world, thanks to Indian investment.” Knight Frank as well as Hamptons and Savills, UK’s top-end estate agencies, have despatched staff to India to sell London property.
“Malaysia has one of the highest standards and the lowest costs of living with all the modern facilities in place,” is how the Malaysian government is promoting its “Malaysia My Second Home” project to lure the wealthy from across the world. All you need to be eligible for the programme is to deposit in a local bank 300,000 Malaysia Ringgits (Rs36 lakh) from which up to Rs29 lakh could be withdrawn after one year for purchase of a house there. A Malayasian tourism department official has been quoted by the local media as saying that some 700 Indians have registered for the programme.
“Realty markets abroad are stabilised and offer steady returns,” points out Gautam Vohra, Senior Manager (Capital Markets) in Mumbai of Jones Lang Lasalle, a global real estate consultancy.
http://www.dnaindia.com/report.asp?newsid=1096472
Wednesday, May 30, 2007
Preventing Lawsuits - Homeowners Warranty
When a seller inks a deal with a buyer, the buyer expects the utilities and major household appliances to work.
So if the home is sold during the heat of summer, next winter when the thermostat is switched over to heat and nothing comes out of the vent but cold air...
...you can imagine the reaction.
It is the seller's fault. Or the agent's fault. Or somebody's fault.
So the buyer calls his agent who calls the listing agent who tracks the seller down to their new home.
"The heater is broken and the buyer is demanding you replace it," says the agent.
Of course, the heater worked perfectly well last winter, so the seller replies that it will be a cold day in... (well, in the house) before he pays for something that isn't his problem any more.
The listing agent passes that message back to the buyer's agent who passes it back to the buyer and the buyer doesn't believe a word of it.
Obviously, the heater didn't work last year and the seller did not disclose it. The buyer has a brother-in-law who is an attorney and now lawyers are involved.
This actually happens.
Anyone can sue anyone, even when it isn't "fair." Since it costs money to defend against lawsuits, the seller generally gives in and replaces the heater, even when it was in perfect working order last winter. Or the dishwasher, or whatever else has gone wrong.
All of which can be easily avoided through the purchase of a Homeowners Warranty or Home Protection Plan, which is basically
is basically a different kind of insurance.
If the electricity, plumbing, heating, air conditioning, water heater or major appliances break down, the insurance company fixes it.
No muss, no fuss, no lawyers, no wasted time on repetitive phone calls filled with mutual distrust, flaring tempers and bruised egos.
The cost?
For houses under 5000 square feet (which covers most houses) the cost is usually less than $300.
Sellers should price this insurance into their cost expectations when pricing their home. It is not much to pay for peace of mind and the knowledge that when your house is sold, you really will be done with it. Even when the buyer doesn't ask for the warranty, sellers should provide it.
As for buyers, after the first year is up, most warranty plans allow for extensions. In the "olden days," this was considered a waste of money, but things are more expensive now.
The key ingredient in all this is that the seller must warrant that everything is in good working order when the house is sold. So if the buyers insist on a Home Warranty and the seller refuses...
...the buyer is going to wonder, "What's broken?"
http://www.realestateabc.com/insights/warranty.htm
So if the home is sold during the heat of summer, next winter when the thermostat is switched over to heat and nothing comes out of the vent but cold air...
...you can imagine the reaction.
It is the seller's fault. Or the agent's fault. Or somebody's fault.
So the buyer calls his agent who calls the listing agent who tracks the seller down to their new home.
"The heater is broken and the buyer is demanding you replace it," says the agent.
Of course, the heater worked perfectly well last winter, so the seller replies that it will be a cold day in... (well, in the house) before he pays for something that isn't his problem any more.
The listing agent passes that message back to the buyer's agent who passes it back to the buyer and the buyer doesn't believe a word of it.
Obviously, the heater didn't work last year and the seller did not disclose it. The buyer has a brother-in-law who is an attorney and now lawyers are involved.
This actually happens.
Anyone can sue anyone, even when it isn't "fair." Since it costs money to defend against lawsuits, the seller generally gives in and replaces the heater, even when it was in perfect working order last winter. Or the dishwasher, or whatever else has gone wrong.
All of which can be easily avoided through the purchase of a Homeowners Warranty or Home Protection Plan, which is basically
is basically a different kind of insurance.
If the electricity, plumbing, heating, air conditioning, water heater or major appliances break down, the insurance company fixes it.
No muss, no fuss, no lawyers, no wasted time on repetitive phone calls filled with mutual distrust, flaring tempers and bruised egos.
The cost?
For houses under 5000 square feet (which covers most houses) the cost is usually less than $300.
Sellers should price this insurance into their cost expectations when pricing their home. It is not much to pay for peace of mind and the knowledge that when your house is sold, you really will be done with it. Even when the buyer doesn't ask for the warranty, sellers should provide it.
As for buyers, after the first year is up, most warranty plans allow for extensions. In the "olden days," this was considered a waste of money, but things are more expensive now.
The key ingredient in all this is that the seller must warrant that everything is in good working order when the house is sold. So if the buyers insist on a Home Warranty and the seller refuses...
...the buyer is going to wonder, "What's broken?"
http://www.realestateabc.com/insights/warranty.htm
Who Can Claim Moving Expenses with the IRS?
Who Can Claim Moving Expenses with the IRS?
Not everyone who moves can deduct moving expenses when they file their income tax returns. Your move has to be work-related, meaning you changed job locations, started a new job, or moved to seek a new job and were successful in obtaining one.
There are exceptions for retirees and survivors who are moving back to the U.S. from oversees.
And there are (of course) conditions.
The IRS calls these conditions “tests.” The “time” test, the “distance" test and the “work-related” test.
The Work Related Test
Say you pick up all your stuff and move. It isn’t actually necessary that you already have a job in the new location. If your moving expenses occurred within one year of the date you first report on the job in the new location, your move is “work-related.”
So… what happens if you delay moving your family and household until 18 months after you start work because you want your son or daughter to finish high school at their old school?
Well, the IRS isn’t entirely heartless. They make exceptions if you have a good reason.
The Distance Test
Your new job location has to be at least 50 miles further from your home than your old job location.
For example, say you used to drive 15 miles to work from your previous home. That means you new job must be at least 65 miles away from where you used to live. Otherwise, you don’t meet the “distance” test.
This doesn’t mean that you have to move 50 miles. All it means is that your new job must be 50 miles further from your former home than your old job.
The Time Test
The time test varies depending on whether you are classified as an employee or whether you are self-employed.
If you are an employee, then after you move to your new area you must work full-time for at least 39 weeks out of the next twelve months. You don’t have to work for the same employer and you don’t have to work 39 weeks in a row, but…
…basically, you have to work 9 out of the next twelve months in your new commuting area.
If you’re away from work temporarily, like a vacation, or sick, or can’t work because your union is on strike or your employer has locked you out…
…that counts as work.
See? The IRS does have a heart!
What if you’re a teacher who normally works only nine months out of the year? If you spend six months working during the school year…that counts. It is a similar situation for other seasonal workers.
If you’re self-employed, the “time test” is essentially the same, but doubled. You have to work 78 weeks out of the next 24 months after the move. You have to work full-time. Being semi-retired and goofing off on the internet for a couple hours a day on one of those late night television “get-rich-quick” schemes doesn’t count.
You really have to work full-time.
Conclusion
You're probably wondering what you can deduct.
Umm...(furtively looking to the left and right)...
We're out of space.
And you really should ask an income tax accountant to handle that one for you.
http://www.realestateabc.com/insights/movingexpenses.htm
Not everyone who moves can deduct moving expenses when they file their income tax returns. Your move has to be work-related, meaning you changed job locations, started a new job, or moved to seek a new job and were successful in obtaining one.
There are exceptions for retirees and survivors who are moving back to the U.S. from oversees.
And there are (of course) conditions.
The IRS calls these conditions “tests.” The “time” test, the “distance" test and the “work-related” test.
The Work Related Test
Say you pick up all your stuff and move. It isn’t actually necessary that you already have a job in the new location. If your moving expenses occurred within one year of the date you first report on the job in the new location, your move is “work-related.”
So… what happens if you delay moving your family and household until 18 months after you start work because you want your son or daughter to finish high school at their old school?
Well, the IRS isn’t entirely heartless. They make exceptions if you have a good reason.
The Distance Test
Your new job location has to be at least 50 miles further from your home than your old job location.
For example, say you used to drive 15 miles to work from your previous home. That means you new job must be at least 65 miles away from where you used to live. Otherwise, you don’t meet the “distance” test.
This doesn’t mean that you have to move 50 miles. All it means is that your new job must be 50 miles further from your former home than your old job.
The Time Test
The time test varies depending on whether you are classified as an employee or whether you are self-employed.
If you are an employee, then after you move to your new area you must work full-time for at least 39 weeks out of the next twelve months. You don’t have to work for the same employer and you don’t have to work 39 weeks in a row, but…
…basically, you have to work 9 out of the next twelve months in your new commuting area.
If you’re away from work temporarily, like a vacation, or sick, or can’t work because your union is on strike or your employer has locked you out…
…that counts as work.
See? The IRS does have a heart!
What if you’re a teacher who normally works only nine months out of the year? If you spend six months working during the school year…that counts. It is a similar situation for other seasonal workers.
If you’re self-employed, the “time test” is essentially the same, but doubled. You have to work 78 weeks out of the next 24 months after the move. You have to work full-time. Being semi-retired and goofing off on the internet for a couple hours a day on one of those late night television “get-rich-quick” schemes doesn’t count.
You really have to work full-time.
Conclusion
You're probably wondering what you can deduct.
Umm...(furtively looking to the left and right)...
We're out of space.
And you really should ask an income tax accountant to handle that one for you.
http://www.realestateabc.com/insights/movingexpenses.htm
Tuesday, May 29, 2007
Reasons to Delay Buying a Home
Assuming you have the financial resources and the desire to eventually own your own home, there are very few good reasons to put off the purchase. You can miss out on years of appreciation if you do.
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://www.realestateabc.com/homebuying/delay.htm
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://www.realestateabc.com/homebuying/delay.htm
Things Not to Do Before Purchasing a Home
No Major Purchase of Any Kind
Review the article titled, "Don’t Buy a Car," and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…
…and automobiles, of course.
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.
So leave your money where it is until you talk to a loan officer.
Oh…don’t change banks, either.
Should You Change Jobs?
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.
http://www.realestateabc.com/homebuying/donts.htm
Review the article titled, "Don’t Buy a Car," and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…
…and automobiles, of course.
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.
So leave your money where it is until you talk to a loan officer.
Oh…don’t change banks, either.
Should You Change Jobs?
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.
http://www.realestateabc.com/homebuying/donts.htm
Why You Should Not Buy a Car
When you get a raise or accumulate some savings, you may find yourself confronted by an innate instinct of modern civilized men and women.
The desire to spend money.
It begins simply, by going out to restaurants, then accelerates to purchasing clothing, electronic gadgets, and since North Americans have a special fondness for the automobile, you may even buy a "brand new car."
If you're married or ambitious, a few months later your thoughts eventually turn toward buying your own home. Or a move-up home, if you are already a homeowner.
Next, you contact a loan officer to get prequalified for a mortgage loan. You state your desired price and how much you can put down. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).
"If only you didn't have this car payment..."
http://www.realestateabc.com/homebuying/car.htm
The desire to spend money.
It begins simply, by going out to restaurants, then accelerates to purchasing clothing, electronic gadgets, and since North Americans have a special fondness for the automobile, you may even buy a "brand new car."
If you're married or ambitious, a few months later your thoughts eventually turn toward buying your own home. Or a move-up home, if you are already a homeowner.
Next, you contact a loan officer to get prequalified for a mortgage loan. You state your desired price and how much you can put down. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).
"If only you didn't have this car payment..."
http://www.realestateabc.com/homebuying/car.htm
Monday, May 28, 2007
The Business Cycle and Buying a Home
Recession and Expansion
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and….
…They buy houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets...and some markets in between. It is all based on supply and/or demand.
http://www.realestateabc.com/homebuying/cycle.htm
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and….
…They buy houses.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
In the business cycle of real estate, there are buyers' markets and sellers' markets...and some markets in between. It is all based on supply and/or demand.
http://www.realestateabc.com/homebuying/cycle.htm
Reasons to Delay Buying a Home
Assuming you have the financial resources and the desire to eventually own your own home, there are very few good reasons to put off the purchase. You can miss out on years of appreciation if you do.
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://www.realestateabc.com/homebuying/delay.htm
The main thing you want to avoid when buying a home is being put in a position where you will have to sell it too soon. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a financial bind. This is especially true for those who buy a home with a down payment of ten percent or less.
Real Estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally come to about one and a half percent. You can see how this can easily exceed the first year’s appreciation. If you made a minimal down payment, you could actually have to come up with cash out of pocket to sell your home.
New to the Area
A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly where you want to live. Often when people buy a home immediately they find that they might have made a better decision if they had waited awhile.
Uncertain Job Future
You could be right out of college or expecting a promotion and a transfer. Or your company has announced an impending "restructuring." If any of these apply, it might be best to wait to buy a home. When you have a more accurate picture of what your next few years will be like, that will be the time to buy.
Marital Problems
Real estate agents see a lot of life unfold before their eyes. One of the saddest occurs when former clients divorce and are forced to sell a recently purchased house. It happens all too often when a family in turmoil decides that buying a new home may help resolve their problems. Perhaps it is inevitable that such problems occur, but selling a home before it appreciates can create an additional financial burden in an already difficult situation.
http://www.realestateabc.com/homebuying/delay.htm
Sunday, May 27, 2007
Buying a Home With Resale Value - the House
Buying a Home With a View
Homes with a pleasant view of the horizon often sell at a premium above similar homes without the view. However, if a view is important to you, buy it mostly for your own pleasure and not as an investment. Though you may place a considerable dollar value on the view, future buyers may not be so like-minded. It may take you longer to find a buyer when it comes time to resell the house. Or you may end up dropping your price to more nearly match other sales prices in the neighborhood.
In short, if you are buying a house with a view, try to pay as little extra as possible. Otherwise, you might not get your money back.
Lot and Landscaping
Even though most real estate value is usually concentrated in the building, the lot is important, too. Obviously, it should be as level as possible. Assuming the property is in a typical neighborhood, the lot should be rectangular – no odd shaped lots or oddly situated lots.
Yard sizes are smaller in modern homes than in older homes, but there should still be a decently sized front and back yard. Do not buy a house where the entire back yard is taken up by a swimming pool, for example.
Do not purchase an over-landscaped property, either. You would normally pay a premium for that, which you may not be able to recover when you sell. You will get your best value if the house is moderately landscaped or under-landscaped for the area. You can always improve the landscaping during your ownership by improving the grass and adding bushes and trees. Just do not spend too much.
House Size
In each residential neighborhood, houses will vary in size and rooms, but they should not be too different. If resale value is an important consideration, you should not buy the largest model in the neighborhood. When determining market value, the homes nearest to yours are most important. If most of the nearby houses are smaller than your house, they can act as a drag on appreciation.
On the other hand, if you buy a small or medium house for the neighborhood, the larger homes can help pull up your value. This is one of those times where determining your "wants" versus your "needs" can be extremely important. Buying what you need in a more prestigious neighborhood may provide more financial reward than getting what you want in a less desirable neighborhood.
Bedrooms and Bathrooms
Three and four bedroom houses are the most popular among homebuyers, so if you can stick in that range you will have more potential buyers when it comes time to resell. Five is okay, too, as long as you do not have to pay too much extra for the additional bedroom.
There should always be at least two bathrooms in a house, preferably at least two and a half. One bathroom with a place to wash up for day-to-day visitors, one for the master bedroom, and at least one to be shared by the other bedrooms.
Closets, Garages and Laundry
Walk-in closets are extremely desirable for the master bedroom. For the rest of the house, just be sure there is plenty of closet space. Don’t forget space for linens and towels.
Garages add to the resale value and you should always make sure to get at least a two-car garage. Lately, three-car garages have become desirable in some areas of the country.
The laundry facilities should be located somewhere convenient on the main floor of the house, but not in a place it will create an eyesore. Think about whether you want to walk up and down stairs when carrying loads of laundry.
The Kitchen
Family activity centers around the kitchen, so this is the most important room of the house. Larger kitchens are better, and they should be provided with modern appliances. Obviously, the dining room and breakfast nook should be located adjacent to the kitchen. In newer houses, the family room should also be extremely close to the kitchen.
There should be easy access to the back yard, as there will be occasions for barbecues and outdoor entertaining. In addition, it should be a short trek between the garage to the kitchen so hauling groceries in from the car does not become a horrendous chore.
Fireplaces
The only room where you absolutely have to have a fireplace is the family room. A fireplace in the living room may be nice, but you pay extra for it and will probably rarely use it. At best, it serves as a focal point of the living room, but does not add much in real value.
Swimming Pools
Swimming pools do not provide as much added value as they once did. Safety issues about families with younger children have become more publicized than in the past, so families with small children tend to avoid homes with pools. As a result, having a pool may actually reduce the number of potential homebuyers when you try to resell the home.
Buy a home with a pool for your own enjoyment, not as an investment.
Since we are on the subject of swimming pools, here is a word of advice: If you want a pool, buy a home that already has a pool. Paying a contractor to install one for you is like throwing money away. You will never get a dollar-for-dollar return on your investment
http://www.realestateabc.com/homebuying/house.htm
Homes with a pleasant view of the horizon often sell at a premium above similar homes without the view. However, if a view is important to you, buy it mostly for your own pleasure and not as an investment. Though you may place a considerable dollar value on the view, future buyers may not be so like-minded. It may take you longer to find a buyer when it comes time to resell the house. Or you may end up dropping your price to more nearly match other sales prices in the neighborhood.
In short, if you are buying a house with a view, try to pay as little extra as possible. Otherwise, you might not get your money back.
Lot and Landscaping
Even though most real estate value is usually concentrated in the building, the lot is important, too. Obviously, it should be as level as possible. Assuming the property is in a typical neighborhood, the lot should be rectangular – no odd shaped lots or oddly situated lots.
Yard sizes are smaller in modern homes than in older homes, but there should still be a decently sized front and back yard. Do not buy a house where the entire back yard is taken up by a swimming pool, for example.
Do not purchase an over-landscaped property, either. You would normally pay a premium for that, which you may not be able to recover when you sell. You will get your best value if the house is moderately landscaped or under-landscaped for the area. You can always improve the landscaping during your ownership by improving the grass and adding bushes and trees. Just do not spend too much.
House Size
In each residential neighborhood, houses will vary in size and rooms, but they should not be too different. If resale value is an important consideration, you should not buy the largest model in the neighborhood. When determining market value, the homes nearest to yours are most important. If most of the nearby houses are smaller than your house, they can act as a drag on appreciation.
On the other hand, if you buy a small or medium house for the neighborhood, the larger homes can help pull up your value. This is one of those times where determining your "wants" versus your "needs" can be extremely important. Buying what you need in a more prestigious neighborhood may provide more financial reward than getting what you want in a less desirable neighborhood.
Bedrooms and Bathrooms
Three and four bedroom houses are the most popular among homebuyers, so if you can stick in that range you will have more potential buyers when it comes time to resell. Five is okay, too, as long as you do not have to pay too much extra for the additional bedroom.
There should always be at least two bathrooms in a house, preferably at least two and a half. One bathroom with a place to wash up for day-to-day visitors, one for the master bedroom, and at least one to be shared by the other bedrooms.
Closets, Garages and Laundry
Walk-in closets are extremely desirable for the master bedroom. For the rest of the house, just be sure there is plenty of closet space. Don’t forget space for linens and towels.
Garages add to the resale value and you should always make sure to get at least a two-car garage. Lately, three-car garages have become desirable in some areas of the country.
The laundry facilities should be located somewhere convenient on the main floor of the house, but not in a place it will create an eyesore. Think about whether you want to walk up and down stairs when carrying loads of laundry.
The Kitchen
Family activity centers around the kitchen, so this is the most important room of the house. Larger kitchens are better, and they should be provided with modern appliances. Obviously, the dining room and breakfast nook should be located adjacent to the kitchen. In newer houses, the family room should also be extremely close to the kitchen.
There should be easy access to the back yard, as there will be occasions for barbecues and outdoor entertaining. In addition, it should be a short trek between the garage to the kitchen so hauling groceries in from the car does not become a horrendous chore.
Fireplaces
The only room where you absolutely have to have a fireplace is the family room. A fireplace in the living room may be nice, but you pay extra for it and will probably rarely use it. At best, it serves as a focal point of the living room, but does not add much in real value.
Swimming Pools
Swimming pools do not provide as much added value as they once did. Safety issues about families with younger children have become more publicized than in the past, so families with small children tend to avoid homes with pools. As a result, having a pool may actually reduce the number of potential homebuyers when you try to resell the home.
Buy a home with a pool for your own enjoyment, not as an investment.
Since we are on the subject of swimming pools, here is a word of advice: If you want a pool, buy a home that already has a pool. Paying a contractor to install one for you is like throwing money away. You will never get a dollar-for-dollar return on your investment
http://www.realestateabc.com/homebuying/house.htm
Saturday, May 26, 2007
How FHA and VA Loans Affect Your Offer
If you are obtaining a VA or FHA loan in order to finance your purchase, you must include that information in your offer. This is because government loans place additional financial and performance obligations on the seller.
Non-Allowable Fees
First, VA and FHA loans prohibit buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies. They are called "non-allowable" fees. They still get charged anyway, but as the buyer, you are "not allowed" to pay them. The result is that the seller ends up paying them instead of you.
Most of these "non-allowable" fees come from your lender. By the time you are making an offer you should have already been pre-qualified by a loan officer, so you or your real estate agent can ask how much the lender’s non-allowable fees will be. Experienced agents should also have an idea of what non-allowable fees will be charged by the escrow or settlement agent and the title insurance company.
Since these are fees the seller would not pay on an offer with conventional financing, this information must be included in your offer. You should also realize that since the seller will be paying these additional fees, they may be a little less negotiable on the price.
VA and FHA Appraisals
Home appraisal inspections on FHA and VA loans are a little more detailed than on conventional loans (and more expensive). The appraisers are required to perform certain minimum inspections as well as evaluate the market value of the property. Although these inspections are not as detailed as a professional home inspection and should not be considered a substitute, sometimes repairs are required.
These are additional costs the seller would not be obligated to pay for someone obtaining conventional financing, so your offer should include a maximum figure for these repairs. Otherwise the seller is signing the equivalent of a blank check, and they do not want to do that.
At the same time, whatever figure you put in will most likely affect the seller’s willingness to negotiate on price. If you put $500 as an estimate, the seller may be $500 less negotiable on their price. If no repairs are required, you may have been able to get the house for $500 less than what you and the seller agreed on as the price. The solution is to add a clause to your offer that goes something like this. "If required repairs cost less than the maximum amount allowed, the excess will be credited toward buyer’s closing costs."
http://www.realestateabc.com/homebuying/FHAVA.htm
Non-Allowable Fees
First, VA and FHA loans prohibit buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies. They are called "non-allowable" fees. They still get charged anyway, but as the buyer, you are "not allowed" to pay them. The result is that the seller ends up paying them instead of you.
Most of these "non-allowable" fees come from your lender. By the time you are making an offer you should have already been pre-qualified by a loan officer, so you or your real estate agent can ask how much the lender’s non-allowable fees will be. Experienced agents should also have an idea of what non-allowable fees will be charged by the escrow or settlement agent and the title insurance company.
Since these are fees the seller would not pay on an offer with conventional financing, this information must be included in your offer. You should also realize that since the seller will be paying these additional fees, they may be a little less negotiable on the price.
VA and FHA Appraisals
Home appraisal inspections on FHA and VA loans are a little more detailed than on conventional loans (and more expensive). The appraisers are required to perform certain minimum inspections as well as evaluate the market value of the property. Although these inspections are not as detailed as a professional home inspection and should not be considered a substitute, sometimes repairs are required.
These are additional costs the seller would not be obligated to pay for someone obtaining conventional financing, so your offer should include a maximum figure for these repairs. Otherwise the seller is signing the equivalent of a blank check, and they do not want to do that.
At the same time, whatever figure you put in will most likely affect the seller’s willingness to negotiate on price. If you put $500 as an estimate, the seller may be $500 less negotiable on their price. If no repairs are required, you may have been able to get the house for $500 less than what you and the seller agreed on as the price. The solution is to add a clause to your offer that goes something like this. "If required repairs cost less than the maximum amount allowed, the excess will be credited toward buyer’s closing costs."
http://www.realestateabc.com/homebuying/FHAVA.htm
Service Providers When Buying a Home
You and the Seller Must Agree
Buying a home does not occur in a vacuum, involving only you and the seller. There are all kinds of people and services involved behind the scenes to make it happen. Since some of these services affect both you and the seller, there will have to be be agreement on which companies you will use for them. When you make your offer, you should request your favorites for these services. If you are unfamiliar with these service providers, you can get recommendations from your agent.
Escrow and Settlement
For example, you are going to need an escrow or settlement company to act as an "independent third party" between you and the seller. Without having a third party involved, how do you know that when you fork over the money, you are going to get the deed? This is the type of service provided by escrow and settlement. They will hold your deposit and coordinate much of the activity that goes on during the escrow period.
Since this third party is very important to both you and the seller and both of you will pay fees to this company, it is important to agree on which service to use. Therefore, your choice should be part of the offer. Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service. Your agent will make a recommendation. You have the authority to accept this recommendation and include it in your offer, or make your own choice.
Keep in mind that the seller will also have a preference and this may be a point of negotiation in a counter-offer. It has become customary that one side will choose the escrow/settlement agent and one side chooses the title insurance company. Even so, everything in real estate is negotiable.
Title Insurance Company
Title insurance is important because, by providing you with an Owners Policy, they insure that you have clear title to the property. If there are any problems later, you can always go back to the title insurance company and have them clear it up. Since it is customary for the seller to pay for the owner’s policy, they have an interest in which company is used.
However, you are going to pay a fee to the title insurance company, too. This is for the Lender’s Policy. The lender’s policy insures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position. In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property.
The lender’s policy is less expensive than the owner’s policy.
Termite and Pest Inspection
As part of your offer, you may require a termite and pest inspection. This company not only inspects for termite damage and pest infestations, but also inspects for dry rot and water damage, among other things. The company that performs the inspection is important to you as a buyer, because you want to be sure they do a good job. It is important to the seller because it is customary that they pay for the inspection and some types of repairs that may be required.
You should determine which company you want to perform this inspection and make it a part of your offer. Otherwise the seller will choose. If you do not know which company to hire, your agent will make a recommendation.
http://www.realestateabc.com/homebuying/services.htm
Buying a home does not occur in a vacuum, involving only you and the seller. There are all kinds of people and services involved behind the scenes to make it happen. Since some of these services affect both you and the seller, there will have to be be agreement on which companies you will use for them. When you make your offer, you should request your favorites for these services. If you are unfamiliar with these service providers, you can get recommendations from your agent.
Escrow and Settlement
For example, you are going to need an escrow or settlement company to act as an "independent third party" between you and the seller. Without having a third party involved, how do you know that when you fork over the money, you are going to get the deed? This is the type of service provided by escrow and settlement. They will hold your deposit and coordinate much of the activity that goes on during the escrow period.
Since this third party is very important to both you and the seller and both of you will pay fees to this company, it is important to agree on which service to use. Therefore, your choice should be part of the offer. Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service. Your agent will make a recommendation. You have the authority to accept this recommendation and include it in your offer, or make your own choice.
Keep in mind that the seller will also have a preference and this may be a point of negotiation in a counter-offer. It has become customary that one side will choose the escrow/settlement agent and one side chooses the title insurance company. Even so, everything in real estate is negotiable.
Title Insurance Company
Title insurance is important because, by providing you with an Owners Policy, they insure that you have clear title to the property. If there are any problems later, you can always go back to the title insurance company and have them clear it up. Since it is customary for the seller to pay for the owner’s policy, they have an interest in which company is used.
However, you are going to pay a fee to the title insurance company, too. This is for the Lender’s Policy. The lender’s policy insures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position. In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property.
The lender’s policy is less expensive than the owner’s policy.
Termite and Pest Inspection
As part of your offer, you may require a termite and pest inspection. This company not only inspects for termite damage and pest infestations, but also inspects for dry rot and water damage, among other things. The company that performs the inspection is important to you as a buyer, because you want to be sure they do a good job. It is important to the seller because it is customary that they pay for the inspection and some types of repairs that may be required.
You should determine which company you want to perform this inspection and make it a part of your offer. Otherwise the seller will choose. If you do not know which company to hire, your agent will make a recommendation.
http://www.realestateabc.com/homebuying/services.htm
Friday, May 25, 2007
Home Equity or Debt Trap?
Are you using the equity from your home to purchase everyday things? This is a
dangerous trend growing more popular every month as millions of Americans tap into
the value of their home to fund a lifestyle.
How many times have you heard the saying “Your home is the best investment you’ll
ever make”? How many times have you also heard that your home will be the most
valuable asset you will ever own?
Both of these are as true, if not truer, today than at any time in the past. Unfortunately,
spend happy Americans are looking at their home as just another type of ATM, and
they are visiting it way to often. These homeowners are using money borrowed against
their house to finance expensive vacations, new vehicles, even daily visits to the corner
coffee shop.
Our parents wouldn’t think of buying furniture with money borrowed against their home.
So why is this form of borrowing becoming so popular? Three events have converged
to create this dangerous trend.
1. Cheap interest. The past two or three years have seen interest rates unheard of
since the 1950’s. These low rates encourage people to think they have basically free
money to spend however they want to.
2. Real estate value increases. The Office of Federal Housing Enterprise Oversight
(OFHEO) reports that their data shows market value of the average home increased
nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw
the value of homes double in less than 5 years. This increase in value is perceived by
some people as being a bonus – they didn’t have to work for the money, so it doesn’t
cost them anything. They are right about it not costing them anything, except they
forgot that when they borrow money it has to be paid back. That is when the true cost
of the debt appears!
The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in
outstanding mortgage debt was in new mortgage originations. This doesn’t mean home
equity loans are necessarily bad ideas. Using equity in your home to remodel and make
additions can result in solid returns. Even debt consolidation can be a good choice,
provided you have solved the problem that caused the debt in the first place.
3. Ease of borrowing. Twenty years ago, lenders wouldn’t think of giving you a loan,
even against your home, if it would cause your equity to become less than 20%. Some
insisted in a percentage closer to 50% equity. Those days are long over.
Today you can go online and find a lender willing to give you a loan equal to 125% the
value of your house! If you have a credit of repayment, hold a job, and are still
breathing you can probably find a lender willing to let you borrow against your home
equity.
The risk created by the convergence of these three factors is the loss of your safety
net. As people buy homes at the top end of their range and base mortgages on two
incomes something has to give.
This “something” has been their savings. Putting aside part of each paycheck has
become the low priority in the pile of demands barraging a family’s income.
Data released by the Employee Benefit Research Institute reports nearly 45% of all
workers hold assets of less than $25,000 (excluding their home). Barely 67% of today’s
workers are currently saving money in a 401(k) or some investment program, according
to a Thrivent Financial Survey. Does any of this sound familiar to you? The looming
debt of mortgage, college, and credit card can seem overwhelming. How can you tip
your financial life back into favoring a secure future for yourself and family? Here are
five steps to escape the home equity debt trap.
1. Keep track of expenses. Keep a spending record of everything you spend for one
month. The next month, do it again, and the next month too, until you see areas of
spending you can cut back and use that money to fund your lifestyle goals, i.e.
vacation, college, or a new lawn mower.
2. Create realistic debt reduction goals. List all of your debts with interest rates,
outstanding balances and minimum payments. Create a plan to pay down the debt,
preferably pay the same set amount each month no matter what the minimums are.
Anything extra you pay should go to the smallest debt first. When a credit card is paid
off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will
help keep you motivated.
3. Preserve your home equity. Having home equity untapped in your house can provide
a level of reassurance. Making wise uses of this equity will help you to not exhaust it.
When you do tap into your home equity, make sure it is not used to pay for daily living.
4. Pay as little debt interest as possible. Consolidation of debts into low, or no interest
loans i.e. credit cards, is acceptable as long as you refrain from incurring new debt and
you are paying down the debts you do have each month.
5. Start saving regularly. A fund of money for emergencies will help avoid debt when life
throws you a problem. If you consider saving a “non-optional” bill each month, you will
develop the find habit of saving. The result is a growing asset base.
The end result of taking these five steps? A minimal-debt life spent living in an
affordable home of your own.
Roger Sorensen is America’s Financial Guide. Learn more at his website
http://www.Slave2Work.com – ask and receive answers to your personal finance
questions, read his writings, or join the newsletter Money Basics. “How-To Be Debt
Free!” is now for sale, read about it today at http://www.Slave2Work.com/debtfree.htm
http://www.homesolutionssandiego.com/homeequity.html
dangerous trend growing more popular every month as millions of Americans tap into
the value of their home to fund a lifestyle.
How many times have you heard the saying “Your home is the best investment you’ll
ever make”? How many times have you also heard that your home will be the most
valuable asset you will ever own?
Both of these are as true, if not truer, today than at any time in the past. Unfortunately,
spend happy Americans are looking at their home as just another type of ATM, and
they are visiting it way to often. These homeowners are using money borrowed against
their house to finance expensive vacations, new vehicles, even daily visits to the corner
coffee shop.
Our parents wouldn’t think of buying furniture with money borrowed against their home.
So why is this form of borrowing becoming so popular? Three events have converged
to create this dangerous trend.
1. Cheap interest. The past two or three years have seen interest rates unheard of
since the 1950’s. These low rates encourage people to think they have basically free
money to spend however they want to.
2. Real estate value increases. The Office of Federal Housing Enterprise Oversight
(OFHEO) reports that their data shows market value of the average home increased
nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw
the value of homes double in less than 5 years. This increase in value is perceived by
some people as being a bonus – they didn’t have to work for the money, so it doesn’t
cost them anything. They are right about it not costing them anything, except they
forgot that when they borrow money it has to be paid back. That is when the true cost
of the debt appears!
The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in
outstanding mortgage debt was in new mortgage originations. This doesn’t mean home
equity loans are necessarily bad ideas. Using equity in your home to remodel and make
additions can result in solid returns. Even debt consolidation can be a good choice,
provided you have solved the problem that caused the debt in the first place.
3. Ease of borrowing. Twenty years ago, lenders wouldn’t think of giving you a loan,
even against your home, if it would cause your equity to become less than 20%. Some
insisted in a percentage closer to 50% equity. Those days are long over.
Today you can go online and find a lender willing to give you a loan equal to 125% the
value of your house! If you have a credit of repayment, hold a job, and are still
breathing you can probably find a lender willing to let you borrow against your home
equity.
The risk created by the convergence of these three factors is the loss of your safety
net. As people buy homes at the top end of their range and base mortgages on two
incomes something has to give.
This “something” has been their savings. Putting aside part of each paycheck has
become the low priority in the pile of demands barraging a family’s income.
Data released by the Employee Benefit Research Institute reports nearly 45% of all
workers hold assets of less than $25,000 (excluding their home). Barely 67% of today’s
workers are currently saving money in a 401(k) or some investment program, according
to a Thrivent Financial Survey. Does any of this sound familiar to you? The looming
debt of mortgage, college, and credit card can seem overwhelming. How can you tip
your financial life back into favoring a secure future for yourself and family? Here are
five steps to escape the home equity debt trap.
1. Keep track of expenses. Keep a spending record of everything you spend for one
month. The next month, do it again, and the next month too, until you see areas of
spending you can cut back and use that money to fund your lifestyle goals, i.e.
vacation, college, or a new lawn mower.
2. Create realistic debt reduction goals. List all of your debts with interest rates,
outstanding balances and minimum payments. Create a plan to pay down the debt,
preferably pay the same set amount each month no matter what the minimums are.
Anything extra you pay should go to the smallest debt first. When a credit card is paid
off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will
help keep you motivated.
3. Preserve your home equity. Having home equity untapped in your house can provide
a level of reassurance. Making wise uses of this equity will help you to not exhaust it.
When you do tap into your home equity, make sure it is not used to pay for daily living.
4. Pay as little debt interest as possible. Consolidation of debts into low, or no interest
loans i.e. credit cards, is acceptable as long as you refrain from incurring new debt and
you are paying down the debts you do have each month.
5. Start saving regularly. A fund of money for emergencies will help avoid debt when life
throws you a problem. If you consider saving a “non-optional” bill each month, you will
develop the find habit of saving. The result is a growing asset base.
The end result of taking these five steps? A minimal-debt life spent living in an
affordable home of your own.
Roger Sorensen is America’s Financial Guide. Learn more at his website
http://www.Slave2Work.com – ask and receive answers to your personal finance
questions, read his writings, or join the newsletter Money Basics. “How-To Be Debt
Free!” is now for sale, read about it today at http://www.Slave2Work.com/debtfree.htm
http://www.homesolutionssandiego.com/homeequity.html
Fixing Houses for Resale:
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
http://www.homesolutionssandiego.com/fixinghouses.html
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
http://www.homesolutionssandiego.com/fixinghouses.html
Becoming a Second Home Buyer May Be Easier Than You Think
Many people have the desire to own a second home, and yet feel this may be out of their reach. Fact is, it could be easier than you think. Second homes aren't only for the rich. For many, they have become mainstream. Whether they're used for vacations or for rental income more than 9 million dwellings in this country are second or third homes, accounting for about 6% of residential sales. 3/4 are considered vacation homes and the rest are investment properties or undeveloped land, according to a 2002 survey by the National
Association of Realtors.
Where Do You Find the Money for a Down? You don't have to have a pile of cash on hand to buy that second house. You can use the equity in your primary residence to help pay for a second (or third) home. Prior to moving forward be sure you explain to your lender what you're doing. You will also want to consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you have in your current home. You want to be armed with information on what the benefits of pulling out equity in your existing home vs.borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of borrowing. That's why communication is so important. The lender needs to know which house will be your primary residence and which will be secondary. In most cases, you will find that the interest rate on an owner-occupied home will be about 3/8 of a percentage point lower than for a non-owner occupied house. This reason alone gives you more motivation to get as large of a loan as possible on your primary residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance Many borrowers resist this line of reasoning because they want to build equity in the home they live in. Although it seems instinctually like the smart thing to do equity is equity. It doesn't matter which house it's in. If you have a lot of equity in your primary residence and you want to buy a vacation home, it might make sense to refinance the mortgage on the primary home for more than the current loan balance. This is called a 'cash out refi'. How it works is you borrow more than the current balance, pay off the current loan and get the remainder in cash. You can use the cash extracted from your primary homes equity to make a down payment on your second home, or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
Debbie Dahmen is a member of the Distinctive Properties team, a unique personalized real estate agency serving the south end of the Salt Lake valley including Draper, Riverton and Sandy. Family owned and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled their 60 years of experience to offer their clients flexibility and individualized attention. All three women have achieved the coveted designation of Certified Real Estate Specialists, a designation held by only 3% of real estate agents. Offering services including buying, selling, and relocation, Distinctive Properties offers relocation services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
Association of Realtors.
Where Do You Find the Money for a Down? You don't have to have a pile of cash on hand to buy that second house. You can use the equity in your primary residence to help pay for a second (or third) home. Prior to moving forward be sure you explain to your lender what you're doing. You will also want to consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you have in your current home. You want to be armed with information on what the benefits of pulling out equity in your existing home vs.borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of borrowing. That's why communication is so important. The lender needs to know which house will be your primary residence and which will be secondary. In most cases, you will find that the interest rate on an owner-occupied home will be about 3/8 of a percentage point lower than for a non-owner occupied house. This reason alone gives you more motivation to get as large of a loan as possible on your primary residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance Many borrowers resist this line of reasoning because they want to build equity in the home they live in. Although it seems instinctually like the smart thing to do equity is equity. It doesn't matter which house it's in. If you have a lot of equity in your primary residence and you want to buy a vacation home, it might make sense to refinance the mortgage on the primary home for more than the current loan balance. This is called a 'cash out refi'. How it works is you borrow more than the current balance, pay off the current loan and get the remainder in cash. You can use the cash extracted from your primary homes equity to make a down payment on your second home, or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
Debbie Dahmen is a member of the Distinctive Properties team, a unique personalized real estate agency serving the south end of the Salt Lake valley including Draper, Riverton and Sandy. Family owned and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled their 60 years of experience to offer their clients flexibility and individualized attention. All three women have achieved the coveted designation of Certified Real Estate Specialists, a designation held by only 3% of real estate agents. Offering services including buying, selling, and relocation, Distinctive Properties offers relocation services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
Save Thousands on Your Mortgage
Interest on the average home mortgage will cost the homeowner nearly TWO TIMES the cost of the home.
If you were to purchase a $150,000 home with a $120,000 mortgage (80%), and you paid an interest rate of 9% for 30 years, you will have paid over $227,500 just in interest (inaddition to the original $120,000). That's nearly two times the cost of the home!
A credit card debt of $7000 (now the average) at 18% being paid at the rate of $20 principal plus interest each month will take over 29 YEARS to pay off, almost as long as a home mortgage. Interest charged on this credit card debt will top $18,400, more than 2.6 TIMES the original debt!
If you work for a living, you know that when you are not working, you are not getting paid. But interest never gets sick, never takes a vacation and never sleeps. It is working against you 24 hours a day, seven days a week, each and every day of the year.
So what can you do?
You may not be able to pay off your debts or mortgage now. You may not have enough equity in your home for a loan. You may not be able to afford the refinancing costs or home equity loan costs. You may not be able to lower your credit card interest rates.
But you can make additional or extra payments.
So how does making an extra payment help lower your interest charges? Is it going to make next month's bill smaller? You can't scrape together too much for an extra payment so how is just $10 going to help when you owe tens of
thousands?
The secret is in making early and consistent extra payments.For example, on the home mortgage shown above, if you pay an additional $100 each month you will save over $82,000 in interest payments. Not only that, but you will also have your home paid off nine years and two months earlier. You
knock nearly 10 years off your mortgage just by paying an extra $100 a month.
How does that work?
Well, that $100 extra you pay the first month would have cost you about $270 in interest to borrow for 30 years.Since you have paid it already, you can reduce your last mortgage payment by $270. The next month's extra payment
will reduce your last mortgage payment by $268. Each monthas you pay that extra $100, your final mortgage payment will be reduced until you won't need to make a final payment, then the second to last payment, then third to last and so forth. Soon you will have shaved years and thousands of
dollars in interest charges off your mortgage.
That's great, but maybe you can't spare $100 each month. How about $50, $25, or even $10? An additional payment of $50 each month will save you five years and seven months and about $52,000 dollars. $25 each month will cut your time by three years and three months saving you about $30,000. Just
$10 a month will reduce your time by one year and three months and save you over $13,500.
Every little bit helps. Some months you may only be able to add $10 to your payment; some months you may be able to add $200. And this applies to interest on credit card payments or any other kind of debt repayment. Paying down as much of the principal (or amount you owe) each month will help
reduce the interest you are charged and the length of time it takes to pay off the debt.
So why don't the credit card companies charge you more of the principal each month?
How would you like to be making 18% on an investment? Wouldn't you want this investment to last as long as possible? Of course! So do the credit card companies. They are happy for you to pay off your balance, but even
more excited for you to keep paying them that 18% interest.
There are some other interest tips and tricks.
- One trick your mortgage company may have played on you is to include a prepayment penalty in your mortgage. If you try to pay off your mortgage early they may actually charge you for doing so. Or they may only apply part of your payment to the principal and take the rest as a "service
charge."
- Make sure when you make an additional payment that you send a check separate from your monthly mortgage payment with instructions that the amount is to be applied toward the principal of your loan. Otherwise they may just apply it towards next month's payment and still charge you the
interest.
- Generally you will not have this problem with credit card companies. But watch out for late payments or going over your credit limit. They may then use these "rule infractions" as cause to raise your rate to over 25%!
- If you are looking to refinance your mortgage, look for a mortgage that lets you pay on a bi-weekly basis. Since many people receive a bi-weekly paycheck this also makes it easier to budget your money. If you are paying every two weeks you will make an additional monthly payment each year
(26 bi-weekly payments vs. 12 monthly payments). Also, because you are paying the principal down every two weeks rather than every month your interest charges will be reduced.
You CAN take control of your interest charges. Make those extra monthly payments. The feeling of being debt-free will far outweigh the temporary pleasure of that burger, movie or new DVD-player.
David Berky is president of Simple Joe, Inc. which sells the Simple Joe's
Debt Eraser. Debt Eraser can help anyone get out of debt by creating
a
Rapid Debt Reduction Plan. For more info, visit:
http://www.simplejoe.com/debteraser/index.htm
http://www.homesolutionssandiego.com/savethousands.html
If you were to purchase a $150,000 home with a $120,000 mortgage (80%), and you paid an interest rate of 9% for 30 years, you will have paid over $227,500 just in interest (inaddition to the original $120,000). That's nearly two times the cost of the home!
A credit card debt of $7000 (now the average) at 18% being paid at the rate of $20 principal plus interest each month will take over 29 YEARS to pay off, almost as long as a home mortgage. Interest charged on this credit card debt will top $18,400, more than 2.6 TIMES the original debt!
If you work for a living, you know that when you are not working, you are not getting paid. But interest never gets sick, never takes a vacation and never sleeps. It is working against you 24 hours a day, seven days a week, each and every day of the year.
So what can you do?
You may not be able to pay off your debts or mortgage now. You may not have enough equity in your home for a loan. You may not be able to afford the refinancing costs or home equity loan costs. You may not be able to lower your credit card interest rates.
But you can make additional or extra payments.
So how does making an extra payment help lower your interest charges? Is it going to make next month's bill smaller? You can't scrape together too much for an extra payment so how is just $10 going to help when you owe tens of
thousands?
The secret is in making early and consistent extra payments.For example, on the home mortgage shown above, if you pay an additional $100 each month you will save over $82,000 in interest payments. Not only that, but you will also have your home paid off nine years and two months earlier. You
knock nearly 10 years off your mortgage just by paying an extra $100 a month.
How does that work?
Well, that $100 extra you pay the first month would have cost you about $270 in interest to borrow for 30 years.Since you have paid it already, you can reduce your last mortgage payment by $270. The next month's extra payment
will reduce your last mortgage payment by $268. Each monthas you pay that extra $100, your final mortgage payment will be reduced until you won't need to make a final payment, then the second to last payment, then third to last and so forth. Soon you will have shaved years and thousands of
dollars in interest charges off your mortgage.
That's great, but maybe you can't spare $100 each month. How about $50, $25, or even $10? An additional payment of $50 each month will save you five years and seven months and about $52,000 dollars. $25 each month will cut your time by three years and three months saving you about $30,000. Just
$10 a month will reduce your time by one year and three months and save you over $13,500.
Every little bit helps. Some months you may only be able to add $10 to your payment; some months you may be able to add $200. And this applies to interest on credit card payments or any other kind of debt repayment. Paying down as much of the principal (or amount you owe) each month will help
reduce the interest you are charged and the length of time it takes to pay off the debt.
So why don't the credit card companies charge you more of the principal each month?
How would you like to be making 18% on an investment? Wouldn't you want this investment to last as long as possible? Of course! So do the credit card companies. They are happy for you to pay off your balance, but even
more excited for you to keep paying them that 18% interest.
There are some other interest tips and tricks.
- One trick your mortgage company may have played on you is to include a prepayment penalty in your mortgage. If you try to pay off your mortgage early they may actually charge you for doing so. Or they may only apply part of your payment to the principal and take the rest as a "service
charge."
- Make sure when you make an additional payment that you send a check separate from your monthly mortgage payment with instructions that the amount is to be applied toward the principal of your loan. Otherwise they may just apply it towards next month's payment and still charge you the
interest.
- Generally you will not have this problem with credit card companies. But watch out for late payments or going over your credit limit. They may then use these "rule infractions" as cause to raise your rate to over 25%!
- If you are looking to refinance your mortgage, look for a mortgage that lets you pay on a bi-weekly basis. Since many people receive a bi-weekly paycheck this also makes it easier to budget your money. If you are paying every two weeks you will make an additional monthly payment each year
(26 bi-weekly payments vs. 12 monthly payments). Also, because you are paying the principal down every two weeks rather than every month your interest charges will be reduced.
You CAN take control of your interest charges. Make those extra monthly payments. The feeling of being debt-free will far outweigh the temporary pleasure of that burger, movie or new DVD-player.
David Berky is president of Simple Joe, Inc. which sells the Simple Joe's
Debt Eraser. Debt Eraser can help anyone get out of debt by creating
a
Rapid Debt Reduction Plan. For more info, visit:
http://www.simplejoe.com/debteraser/index.htm
http://www.homesolutionssandiego.com/savethousands.html
Thursday, May 24, 2007
Fall for Outdoor Entertaining This Autumn
Aaaah, autumn! It's the perfect time to entertain outdoors -- most of
the bugs are gone, the sun isn't scorching even though it's warm
enough to enjoy an afternoon or evening al fresco, and there's a
bounty of good things to serve for an outdoor meal.
Because the days are shorter in the autumn, outdoor entertaining in
the fall calls for special attention to lighting and temperature.
Lighting
The earlier sunset will afford you an ideal opportunity to bathe your
outdoor space in evening lights. Use soft light, but use plenty of it.
Try dozens of votive candles in jars and glasses to protect the flame
from the wind, hurricane lamps, or kerosene lanterns set on low.
Create cozy seating areas and equip each with a glowing light source.
Heating
The method you'll use to chase the chill from the night will vary
depending on your climate and your outdoor space. If you have a yard
(and community by-laws allow), a campfire is a wonderful informal
party setting. In smaller gardens, consider self-contained fire pits
or a chimenea.
For a more formal affair, you can install a propane-powered heater.
These units are available in a range of heating powers and prices. Or,
drape attractive throws or quilts on each chair for your guests to
wrap around their shoulders to ward off the night air.
Of course, you'll want to take advantage of the wonderful colors and
textures of autumn in your decorating scheme and table settings.
Color
Autumn's colors are deep and rich -- russet, crimson, burnt orange,
gold, dark green, and the color of hay. Use these hues repeatedly in
tablecloths and settings, flowers, centerpieces, and even the food.
Scoop out pumpkins and other squash and fit them with containers of
water to make vases. Mass potted mums in vivid colors. Use orange
Chinese lanterns, bright rosehips, stems of red or orange berries, or
chilies. Wrap vibrant maple or sumac leaves around votive
candleholders or napkin rings. Sunflower heads can be strewn on the
tabletop, or left on the flower stalks in a container.
Texture
The textures of fall are earthy and rustic. Especially play these up
if your gathering is informal -- a corn roast, a bonfire, a jeans and
sweater evening. Use burlap or rough cotton to cover your buffet
table, and dish towels as napkins. Weigh down your tablecloth with
apples or pears hung on rough twine. Or use rattan placemats and
wicker baskets. Terracotta pot saucers make great paper plate holders.
If you're hosting a fancy sit-down outdoor dinner, use the subtler
textures of hydrangea blossoms and colored leaves on a linen
tablecloth. Try bringing your indoor dining table outdoors for the
evening-it will add unexpected elegance to your setting. Paint gold
lettering on small gourds to use as place cards. Grace your table with
late-blooming roses in crystal vases.
Whether you hold a harvest hoedown or a stylish sit-down dinner party
for eight, fall for outside entertaining this autumn!
http://www.homesolutionssandiego.com/outdoorentertaining.html
the bugs are gone, the sun isn't scorching even though it's warm
enough to enjoy an afternoon or evening al fresco, and there's a
bounty of good things to serve for an outdoor meal.
Because the days are shorter in the autumn, outdoor entertaining in
the fall calls for special attention to lighting and temperature.
Lighting
The earlier sunset will afford you an ideal opportunity to bathe your
outdoor space in evening lights. Use soft light, but use plenty of it.
Try dozens of votive candles in jars and glasses to protect the flame
from the wind, hurricane lamps, or kerosene lanterns set on low.
Create cozy seating areas and equip each with a glowing light source.
Heating
The method you'll use to chase the chill from the night will vary
depending on your climate and your outdoor space. If you have a yard
(and community by-laws allow), a campfire is a wonderful informal
party setting. In smaller gardens, consider self-contained fire pits
or a chimenea.
For a more formal affair, you can install a propane-powered heater.
These units are available in a range of heating powers and prices. Or,
drape attractive throws or quilts on each chair for your guests to
wrap around their shoulders to ward off the night air.
Of course, you'll want to take advantage of the wonderful colors and
textures of autumn in your decorating scheme and table settings.
Color
Autumn's colors are deep and rich -- russet, crimson, burnt orange,
gold, dark green, and the color of hay. Use these hues repeatedly in
tablecloths and settings, flowers, centerpieces, and even the food.
Scoop out pumpkins and other squash and fit them with containers of
water to make vases. Mass potted mums in vivid colors. Use orange
Chinese lanterns, bright rosehips, stems of red or orange berries, or
chilies. Wrap vibrant maple or sumac leaves around votive
candleholders or napkin rings. Sunflower heads can be strewn on the
tabletop, or left on the flower stalks in a container.
Texture
The textures of fall are earthy and rustic. Especially play these up
if your gathering is informal -- a corn roast, a bonfire, a jeans and
sweater evening. Use burlap or rough cotton to cover your buffet
table, and dish towels as napkins. Weigh down your tablecloth with
apples or pears hung on rough twine. Or use rattan placemats and
wicker baskets. Terracotta pot saucers make great paper plate holders.
If you're hosting a fancy sit-down outdoor dinner, use the subtler
textures of hydrangea blossoms and colored leaves on a linen
tablecloth. Try bringing your indoor dining table outdoors for the
evening-it will add unexpected elegance to your setting. Paint gold
lettering on small gourds to use as place cards. Grace your table with
late-blooming roses in crystal vases.
Whether you hold a harvest hoedown or a stylish sit-down dinner party
for eight, fall for outside entertaining this autumn!
http://www.homesolutionssandiego.com/outdoorentertaining.html
The Magic of Design
There was a time people thought the world was flat. At another point
in history it was believed that women didn't have the know-how to run
a business or change a tire. Then there was the one about man not
being able to fly. Over time all of these fairytales have proven
untrue.
So it is with interior design. Until recently, many people held the
belief that having their home decorated by an interior designer was
reserved for the rich and famous. Nothing could be further from the
truth.
Fact is, many people of average income who live in a middleclass
neighborhood are frequently surprised to learn they can easily afford
the services of an interior designer. In other cases, many folks
prefer to learn tips about design so they have the flexibility to
redo a room on a whim. Either way, you have more choices today then
ever before.
It is not uncommon to completely redo a room for a one time social
event such as a birthday celebration, a graduation or a wedding. With
some simple tips, even the most inexperienced person can easily
spruce up a room.
Before you begin, think about the style you are interested in. Is it
art deco, traditional, Mediterranean, western, modern, or
contemporary? These are only a few of the multitude of choices you
have. Think through how functional the room will be with what you
have in mind. Avoid rugs and chairs that stain easily if there will
be a lot of traffic in the room.
Be very careful to scale your furniture to the size of the room. If
you have a very large space you can break up the area into little
sitting groups or area groups. You can easily shift the "feel" of a
room with the use of lighting and/or plants. Area rugs are another
tool many designers use to break up large spaces. A variety of paint
colors and wall textures can make even the most mundane room come to
life.
Small space decorating is fast becoming a favorite topic for many
people as real estate prices rise. Think priorities when it comes to
small spaces. Do you need to use an area of the room for more than
one reason? In some cases you can easily convert the kitchen table to
your workspace provided you have cabinet space handy for supplies. A
chest of drawers can easily serve this purpose by holding office
supplies, linens, or even computer components.
If you are considering utilizing the services of a designer, do your
homework. Check their portfolio and references. Find out how they are
to work with, did they deliver on time, were they easy to work with
and did they listen to the homeowner. If you get an affirmative
answer on all of these and their fees are suitable to your budget,
then take the leap. Often, interior designs services are provided at
no additional cost to you, and will give you the extra edge you need
to create exactly the feeling you want for your home.
A great designer can make recommendations you may not have thought
of. Ultimately, their goal is for you to be ecstatic with what you
were able to accomplish together. After all, you are the one that has
to live in the space long after the designer has done their magic.
http://www.homesolutionssandiego.com/cozyhome.html
in history it was believed that women didn't have the know-how to run
a business or change a tire. Then there was the one about man not
being able to fly. Over time all of these fairytales have proven
untrue.
So it is with interior design. Until recently, many people held the
belief that having their home decorated by an interior designer was
reserved for the rich and famous. Nothing could be further from the
truth.
Fact is, many people of average income who live in a middleclass
neighborhood are frequently surprised to learn they can easily afford
the services of an interior designer. In other cases, many folks
prefer to learn tips about design so they have the flexibility to
redo a room on a whim. Either way, you have more choices today then
ever before.
It is not uncommon to completely redo a room for a one time social
event such as a birthday celebration, a graduation or a wedding. With
some simple tips, even the most inexperienced person can easily
spruce up a room.
Before you begin, think about the style you are interested in. Is it
art deco, traditional, Mediterranean, western, modern, or
contemporary? These are only a few of the multitude of choices you
have. Think through how functional the room will be with what you
have in mind. Avoid rugs and chairs that stain easily if there will
be a lot of traffic in the room.
Be very careful to scale your furniture to the size of the room. If
you have a very large space you can break up the area into little
sitting groups or area groups. You can easily shift the "feel" of a
room with the use of lighting and/or plants. Area rugs are another
tool many designers use to break up large spaces. A variety of paint
colors and wall textures can make even the most mundane room come to
life.
Small space decorating is fast becoming a favorite topic for many
people as real estate prices rise. Think priorities when it comes to
small spaces. Do you need to use an area of the room for more than
one reason? In some cases you can easily convert the kitchen table to
your workspace provided you have cabinet space handy for supplies. A
chest of drawers can easily serve this purpose by holding office
supplies, linens, or even computer components.
If you are considering utilizing the services of a designer, do your
homework. Check their portfolio and references. Find out how they are
to work with, did they deliver on time, were they easy to work with
and did they listen to the homeowner. If you get an affirmative
answer on all of these and their fees are suitable to your budget,
then take the leap. Often, interior designs services are provided at
no additional cost to you, and will give you the extra edge you need
to create exactly the feeling you want for your home.
A great designer can make recommendations you may not have thought
of. Ultimately, their goal is for you to be ecstatic with what you
were able to accomplish together. After all, you are the one that has
to live in the space long after the designer has done their magic.
http://www.homesolutionssandiego.com/cozyhome.html
Using Color Tricks in Home Décor
Just as a painter uses color to fool the eye and to create mood
in fine art, so the designer can use color to fool the eye in
home décor. Here are a few tips for the creative DIY designer
(that's YOU!) dealing with problem spaces.
1. Long or large room. Try painting a warm color on one wall in
a predominately white room. The warm wall will appear to
advance, making the room seem smaller or shorter.
2. Short room. Paint one wall a cool color, while leaving the
rest of the walls warm. The cool wall will appear to draw
back, making the room seem longer.
3. High ceilings. If you want a more intimate feel in a room
with high ceilings, paint the ceiling a darker color. You
can also lower it further by painting the top part of the
wall (say, 12" or so) with the same ceiling color.
4. Low ceilings. If you want to make the ceilings appear higher,
paint the ceiling a light color and bring the wall color 6'
or so onto the ceiling.
5. Another trick for making the walls appear higher is to paint
the baseboards the same color as the walls. This makes the
room appear taller (just like in fashion!)
Get the picture? Warm = advancing. Cool = receding. Easy!
Hmmmm... do you think that something cool would help my
advancing weight? Ice cream is cool, right? That's it! I'm
off to fool my eye into thinking I am slim! Tom and Jerry,
here I come!
http://www.homesolutionssandiego.com/colortricks.html
in fine art, so the designer can use color to fool the eye in
home décor. Here are a few tips for the creative DIY designer
(that's YOU!) dealing with problem spaces.
1. Long or large room. Try painting a warm color on one wall in
a predominately white room. The warm wall will appear to
advance, making the room seem smaller or shorter.
2. Short room. Paint one wall a cool color, while leaving the
rest of the walls warm. The cool wall will appear to draw
back, making the room seem longer.
3. High ceilings. If you want a more intimate feel in a room
with high ceilings, paint the ceiling a darker color. You
can also lower it further by painting the top part of the
wall (say, 12" or so) with the same ceiling color.
4. Low ceilings. If you want to make the ceilings appear higher,
paint the ceiling a light color and bring the wall color 6'
or so onto the ceiling.
5. Another trick for making the walls appear higher is to paint
the baseboards the same color as the walls. This makes the
room appear taller (just like in fashion!)
Get the picture? Warm = advancing. Cool = receding. Easy!
Hmmmm... do you think that something cool would help my
advancing weight? Ice cream is cool, right? That's it! I'm
off to fool my eye into thinking I am slim! Tom and Jerry,
here I come!
http://www.homesolutionssandiego.com/colortricks.html
Wednesday, May 23, 2007
Budget Kitchen Makeover Ideas
If your house is like mine, your family spends a lot of time in the kitchen (you
remember the kitchen? The room where you microwave those TV dinners, pop the
popcorn and open soup cans?)
Contrary to what those up-scale style magazines say, you don't need to spend a
fortune to update the look of your kitchen (unless you won the lottery, in which case,
you are more than welcome to come update mine!). Here are a few simple and
inexpensive ways to give your kitchen some pizzazz!
1. If you have solid wood cabinets, strip the color or finish. Then apply a new stain
with a couple of drops (or squeezes!) of yellow or green oil pigment (available at your
local craft store) added. The color will have more depth and more drama!
2. Experiment with molding from your local home improvement store. Use different
types of molding to create interesting effects. Don't confine yourself to the expected -
a rectangle in the center. Try a narrow strip across the top or bottom - or for a
dramatic effect, try a diagonal strip with the handles attached at the same diagonal.
3. Try adding beadboard as a backsplash for a traditional or country kitchen. Be sure
to cover with a quality paint that can be scrubbed!
4. Want a Tuscan look? Mount terracotta or stone pavers as a backsplash! Apply
matching or contrasting mortar to customize the look.
5. For an even more inexpensive look, use vinyl floor tiles in a stone or mosaic pattern
as a backsplash. There are some wonderful vinyl tiles available today! You can create
a whole new look for under $30!
6. Try replacing your conventional doors with window shutters for a plantation look.
7. Try adding color to white cabinets by painting small frames red. Ask your children
to paint flowers or scenes on white paper. Then mount the paintings in the small
frames and attach two or three (depending on the proportions of your cabinets) to the
front of each door. Voila! Your own art
gallery! (And you can change the paintings anytime you want!
8. Glue inexpensive rectangles cut from woven grass placemats to your cabinet
doors. Frame with strips of molding to simulate grass or rattan inserts.
9. Cork squares can also be used as dramatic interest when glued to the front of
bland cabinets. And the cork is useful! You will have message boards on each
cabinet!
See? A dramatic makeover in your kitchen takes just a few inexpensive touches! Now,
if only I could get a cooking makeover that easily, my husband would be a happy man!
http://www.homesolutionssandiego.com/budgetkitchen.html
remember the kitchen? The room where you microwave those TV dinners, pop the
popcorn and open soup cans?)
Contrary to what those up-scale style magazines say, you don't need to spend a
fortune to update the look of your kitchen (unless you won the lottery, in which case,
you are more than welcome to come update mine!). Here are a few simple and
inexpensive ways to give your kitchen some pizzazz!
1. If you have solid wood cabinets, strip the color or finish. Then apply a new stain
with a couple of drops (or squeezes!) of yellow or green oil pigment (available at your
local craft store) added. The color will have more depth and more drama!
2. Experiment with molding from your local home improvement store. Use different
types of molding to create interesting effects. Don't confine yourself to the expected -
a rectangle in the center. Try a narrow strip across the top or bottom - or for a
dramatic effect, try a diagonal strip with the handles attached at the same diagonal.
3. Try adding beadboard as a backsplash for a traditional or country kitchen. Be sure
to cover with a quality paint that can be scrubbed!
4. Want a Tuscan look? Mount terracotta or stone pavers as a backsplash! Apply
matching or contrasting mortar to customize the look.
5. For an even more inexpensive look, use vinyl floor tiles in a stone or mosaic pattern
as a backsplash. There are some wonderful vinyl tiles available today! You can create
a whole new look for under $30!
6. Try replacing your conventional doors with window shutters for a plantation look.
7. Try adding color to white cabinets by painting small frames red. Ask your children
to paint flowers or scenes on white paper. Then mount the paintings in the small
frames and attach two or three (depending on the proportions of your cabinets) to the
front of each door. Voila! Your own art
gallery! (And you can change the paintings anytime you want!
8. Glue inexpensive rectangles cut from woven grass placemats to your cabinet
doors. Frame with strips of molding to simulate grass or rattan inserts.
9. Cork squares can also be used as dramatic interest when glued to the front of
bland cabinets. And the cork is useful! You will have message boards on each
cabinet!
See? A dramatic makeover in your kitchen takes just a few inexpensive touches! Now,
if only I could get a cooking makeover that easily, my husband would be a happy man!
http://www.homesolutionssandiego.com/budgetkitchen.html
Tuesday, May 22, 2007
Top 7 Reasons Why FSBOs Fail To Sell Their Home On Their Own!
n the United States, less than 10% of all For Sale by Owners (FSBOs), are successful in selling their
home by themselves. That's because most people just give up because they don't
realize from the beginning the difficulty and complexity of the job ahead. But that's not the only
reason. Here are the seven most common mistakes FSBOs make when selling their home.
1. Failure to price a property at what market conditions will bear.
The number one reason that most FSBOs don't sell their homes is that they price it too high. Many
start counting the money they're saving on commissions and how much their sale will net.
If your house is priced higher than other comparable houses in your market, you will not get the
offers you need to sell!
2. Underestimating the time, energy, know how, ability and effort needed to sell a house.
One of the keys to selling your home effectively and profitably is complete accessibility. Many homes
sit on the market much longer than necessary because the owner isn't available to show
the property. Realize that a certain amount of time each day is necessary to sell your home.
3. Not being prepared to deal with an onslaught of buyers who perceive FSBOs as targets
for "low balling".
Another challenge of selling a home is screening unqualified prospects and dealing with low-ballers.
It often goes unnoticed that much time, effort and expertise is required to spot these
people quickly. Settling for a low-ball bid is usually worse than paying any type of professional fee or
commission.
4. Lack of knowledge about financing options for the buyer.
Are you prepared to answer questions about financing? One of the keys to selling is having all the
necessary information the prospective buyer needs and to offer the buyer options. Think about the
last time you purchased something of value, did you make a decision before you had all your ducks
in a row? By offering financing options, you give the homebuyer the ability to work on their terms.
You'll open up the possibility of selling your home quicker and more profitably. It's critical that you
locate and establish relationships with a network of financing experts that will help you accomplish
your goal profitably.
5. Not fully understanding the legal ramifications and all the necessary steps required in
selling a home.
Many home sales have been lost due to incomplete paperwork, lack of inspections or not meeting
your state's disclosure laws. Are you completely informed of all the steps necessary to sell real
estate? If not, you may want to consider consulting with a legal or real estate professional.
6. Lack of experience in handling the legal contracts, agreements and any disputes with
buyers before or after the offer is presented.
Are you well versed in legalese? Are you prepared to handle disputes with buyers? It is always wise
to put all negotiations and agreements in writing. Many home sales have been lost due to
misinterpretation of what was negotiated.
7. Not contacting the necessary professionals... title, inspector (home and pest), attorney,
and escrow company.
Are you familiar with top inspectors and escrow companies? Don't randomly select inspectors,
attorneys, and title reps. Like any profession, there are inadequate individuals who will slow,
delay and possibly even cost you the transaction. Be careful!
Selling a home requires an intimate understanding of the real estate market. If the property is priced
too high, it will sit and develop a reputation for being a problem property. If the
property is priced too low, you will cost yourself money. Some FSBOs discovered that they lost
money as a result of poor pricing decisions. In the final outcome, these mistakes far
outweighed the commission they would have paid.
Lawrence Allen has over 15 years experience as a marketing
professional and a successful real estate investor. His
experiences with numerous real estate, marketing and finance
professionals has enabled him to develop a marketing system
and Ebook for people trying to sell their home on their own.
The For Sale By Owner (FSBO) Hassle-Free Home Sale System has
received many praises from real estate professionals and home
owners alike: http://www.fsbosaleshelp.com
http://www.homesolutionssandiego.com/fsbo.html
home by themselves. That's because most people just give up because they don't
realize from the beginning the difficulty and complexity of the job ahead. But that's not the only
reason. Here are the seven most common mistakes FSBOs make when selling their home.
1. Failure to price a property at what market conditions will bear.
The number one reason that most FSBOs don't sell their homes is that they price it too high. Many
start counting the money they're saving on commissions and how much their sale will net.
If your house is priced higher than other comparable houses in your market, you will not get the
offers you need to sell!
2. Underestimating the time, energy, know how, ability and effort needed to sell a house.
One of the keys to selling your home effectively and profitably is complete accessibility. Many homes
sit on the market much longer than necessary because the owner isn't available to show
the property. Realize that a certain amount of time each day is necessary to sell your home.
3. Not being prepared to deal with an onslaught of buyers who perceive FSBOs as targets
for "low balling".
Another challenge of selling a home is screening unqualified prospects and dealing with low-ballers.
It often goes unnoticed that much time, effort and expertise is required to spot these
people quickly. Settling for a low-ball bid is usually worse than paying any type of professional fee or
commission.
4. Lack of knowledge about financing options for the buyer.
Are you prepared to answer questions about financing? One of the keys to selling is having all the
necessary information the prospective buyer needs and to offer the buyer options. Think about the
last time you purchased something of value, did you make a decision before you had all your ducks
in a row? By offering financing options, you give the homebuyer the ability to work on their terms.
You'll open up the possibility of selling your home quicker and more profitably. It's critical that you
locate and establish relationships with a network of financing experts that will help you accomplish
your goal profitably.
5. Not fully understanding the legal ramifications and all the necessary steps required in
selling a home.
Many home sales have been lost due to incomplete paperwork, lack of inspections or not meeting
your state's disclosure laws. Are you completely informed of all the steps necessary to sell real
estate? If not, you may want to consider consulting with a legal or real estate professional.
6. Lack of experience in handling the legal contracts, agreements and any disputes with
buyers before or after the offer is presented.
Are you well versed in legalese? Are you prepared to handle disputes with buyers? It is always wise
to put all negotiations and agreements in writing. Many home sales have been lost due to
misinterpretation of what was negotiated.
7. Not contacting the necessary professionals... title, inspector (home and pest), attorney,
and escrow company.
Are you familiar with top inspectors and escrow companies? Don't randomly select inspectors,
attorneys, and title reps. Like any profession, there are inadequate individuals who will slow,
delay and possibly even cost you the transaction. Be careful!
Selling a home requires an intimate understanding of the real estate market. If the property is priced
too high, it will sit and develop a reputation for being a problem property. If the
property is priced too low, you will cost yourself money. Some FSBOs discovered that they lost
money as a result of poor pricing decisions. In the final outcome, these mistakes far
outweighed the commission they would have paid.
Lawrence Allen has over 15 years experience as a marketing
professional and a successful real estate investor. His
experiences with numerous real estate, marketing and finance
professionals has enabled him to develop a marketing system
and Ebook for people trying to sell their home on their own.
The For Sale By Owner (FSBO) Hassle-Free Home Sale System has
received many praises from real estate professionals and home
owners alike: http://www.fsbosaleshelp.com
http://www.homesolutionssandiego.com/fsbo.html
What To Expect From Your House Appraisal
Having your house appraised can be a scary step in the moving process, especially if you don’t know what to
expect. Will your house pass muster or will they find some hidden defects and problems lurking in the
basement and attic? Should you scrub the house clean?
Don’t worry – this isn’t a test of how clean you keep your house or even if your house has problems (that will
be for the home inspector to find out). The appraiser is there to determine a fair market value for your home.
Whether you are selling the house or refinancing, this is a common part of the process and the inspector is
quite used to traipsing about peoples homes in all kinds of disarray so you need not be embarrassed if your
house is messy and it will not affect the value the appraiser puts on the property.
Determining the market value of your home is necessary so that your lender knows the home is valued at or
above the amount of money you are borrowing. An appraisal is an estimate of worth. It is an opinion but is not
entirely a subjective process. The FNMA, Federal National Mortgage Association sets up the guidelines and
assigns values to certain assets of your home to ensure a fair sale.
The value of your home will be determined by comparing it to similar area properties that have sold in the
past few months. The appraiser looks for properties that have the same number of bedrooms, baths, square
footage and amenities like a fireplace or garage in your neighborhood or town. They start by looking at your
neighborhood to find comparable sales or properties in similar neighborhoods that share similar
characteristics of lifestyles, income level of residents, surroundings, average age and home values. A valid
appraisal can be done when 3 or more properties similar to your own have been found.
Once the appraiser has these homes, there will be some adjustments made to take into consideration
features that your home has the others don’t or features they have that you don’t. These features have nothing
to do with your décor – they are based solely on house size, rooms and amenities so your hot pink kitchen
will not affect the value of your home appraisal!
The process is quite methodical and done to standard practices so you need not worry. If you are moving and
you have hired a realtor, you will find the appraisal will come in right on the button for what they have valued
your home at. Most realtors know the market quite well so you needn’t worry that your buyer won’t be able to
secure funding because of your home appraisal.
Lee Dobbins writes for http://www.moving-and-more.com where you can learn more about moving and
selling your house.
http://www.homesolutionssandiego.com/houseappraisal.html
expect. Will your house pass muster or will they find some hidden defects and problems lurking in the
basement and attic? Should you scrub the house clean?
Don’t worry – this isn’t a test of how clean you keep your house or even if your house has problems (that will
be for the home inspector to find out). The appraiser is there to determine a fair market value for your home.
Whether you are selling the house or refinancing, this is a common part of the process and the inspector is
quite used to traipsing about peoples homes in all kinds of disarray so you need not be embarrassed if your
house is messy and it will not affect the value the appraiser puts on the property.
Determining the market value of your home is necessary so that your lender knows the home is valued at or
above the amount of money you are borrowing. An appraisal is an estimate of worth. It is an opinion but is not
entirely a subjective process. The FNMA, Federal National Mortgage Association sets up the guidelines and
assigns values to certain assets of your home to ensure a fair sale.
The value of your home will be determined by comparing it to similar area properties that have sold in the
past few months. The appraiser looks for properties that have the same number of bedrooms, baths, square
footage and amenities like a fireplace or garage in your neighborhood or town. They start by looking at your
neighborhood to find comparable sales or properties in similar neighborhoods that share similar
characteristics of lifestyles, income level of residents, surroundings, average age and home values. A valid
appraisal can be done when 3 or more properties similar to your own have been found.
Once the appraiser has these homes, there will be some adjustments made to take into consideration
features that your home has the others don’t or features they have that you don’t. These features have nothing
to do with your décor – they are based solely on house size, rooms and amenities so your hot pink kitchen
will not affect the value of your home appraisal!
The process is quite methodical and done to standard practices so you need not worry. If you are moving and
you have hired a realtor, you will find the appraisal will come in right on the button for what they have valued
your home at. Most realtors know the market quite well so you needn’t worry that your buyer won’t be able to
secure funding because of your home appraisal.
Lee Dobbins writes for http://www.moving-and-more.com where you can learn more about moving and
selling your house.
http://www.homesolutionssandiego.com/houseappraisal.html
You Have 15 Seconds to Sell Your Home!
Selling your home? Here are some tips to help you sell yours for more than your
next door neighbor's, and faster! Most buyers will know within 15 SECONDS after
crossing the threshold if they want your home. But first, you need to attract them
inside!
11 home staging steps to take to sell your home for top dollar:
1. Start at the street. The buyer's first glimpse of your home must entice them
inside. Design Psychology goes further than mere curb appeal. Here are some
easy additions you can make to help your home outshine the competition:
Add a couple of BIG plants, either in hanging baskets or pots, to the porch, which
will lead buyers' eyes to the entrance.
The first color our eyes process is yellow, so place yellow flowers near the front
door.
Plant white flowering annuals, since they look clean and show up better at
night--when many home shoppers look.
2. Get rid of brown or dead leaves and bare spots in the yard. Add mulch to cover
bare dirt near the house. Bright flowers hold the eye and "fill" empty areas, but you
don't need to add plants to every space. Just make sure that everything looks neat.
3. Paint your front door a happy color. Yellow-gold (amber), red (blue-based),
sage, apple, or forest green, depending on the other colors of your home, will
attract the eye and create happy feelings. Buyers won't notice the color
psychology you take advantage of, but they'll love the result.
4. Once buyers step inside the front door, they usually make their minds up within
15 SECONDS, so first impressions are vitally important. Focus your attention on
the first wall buyers will see, and then hang a mirror on that wall large enough to
reflect the buyer's image. It will psychologically reinforce the buyer's presence in
the home when they see themselves in the mirror, causing them to imagine living in
your home.
5. Go beyond just clearing clutter, and remove furnishings that don't add to the
setting. Also clear bathroom and kitchen countertops. Under-furnished homes let
the buyer's imagination fill rooms with their own belongings. Once they visualize
their favorite chair in a particular spot, you have a sale.
6. Pack away your personal photographs, trophies, diplomas, and small
accessories and stack them neatly in the garage or a separate storage space.
That will also protect you from having strangers view your personal life.
7. If your home looks too bare, replace your personal treasures with house plants
or cuttings from the garden. Be creative; you don't need to spend money.
- Use tree branches and fresh flowers to bring nature indoors.
- Fill vases and glass jars with fresh cuttings and set them
in baskets.
- Add green house plants in winter, spring, and fall.
- During hot selling seasons, use green, silver and gray foliage to help keep your
home visually cool.
8. Lighting affects your buyers' emotions and is a crucial design element for
happiness, so turn on the lights when showing your home. Day-like light bulbs
enhance happiness. Amber and pink light bulbs warm, while blue light cools.
9. Air the house out. You get used to odors, but buyers shouldn't smell anything
other than natural pleasing scents like wood burning in the fireplace or fresh lemon
in the summer. Cut up a grapefruit and run sections through the garbage disposal.
It's both refreshing and clean smelling.
10. Buyers like temperatures around 70 degrees in the winter and 67 degrees in
the summer, so turn up the thermostat in the winter and turn it down in the summer.
11. Park your car out of the way and encourage buyers to park in a space where
their car won't block the view from the inside.
Remember, you've only got 15 seconds to sell your home, but by using Design
Psychology techniques, you can convert lookers into buyers and get top dollar for
your home.
http://www.homesolutionssandiego.com/stagingtips.html
next door neighbor's, and faster! Most buyers will know within 15 SECONDS after
crossing the threshold if they want your home. But first, you need to attract them
inside!
11 home staging steps to take to sell your home for top dollar:
1. Start at the street. The buyer's first glimpse of your home must entice them
inside. Design Psychology goes further than mere curb appeal. Here are some
easy additions you can make to help your home outshine the competition:
Add a couple of BIG plants, either in hanging baskets or pots, to the porch, which
will lead buyers' eyes to the entrance.
The first color our eyes process is yellow, so place yellow flowers near the front
door.
Plant white flowering annuals, since they look clean and show up better at
night--when many home shoppers look.
2. Get rid of brown or dead leaves and bare spots in the yard. Add mulch to cover
bare dirt near the house. Bright flowers hold the eye and "fill" empty areas, but you
don't need to add plants to every space. Just make sure that everything looks neat.
3. Paint your front door a happy color. Yellow-gold (amber), red (blue-based),
sage, apple, or forest green, depending on the other colors of your home, will
attract the eye and create happy feelings. Buyers won't notice the color
psychology you take advantage of, but they'll love the result.
4. Once buyers step inside the front door, they usually make their minds up within
15 SECONDS, so first impressions are vitally important. Focus your attention on
the first wall buyers will see, and then hang a mirror on that wall large enough to
reflect the buyer's image. It will psychologically reinforce the buyer's presence in
the home when they see themselves in the mirror, causing them to imagine living in
your home.
5. Go beyond just clearing clutter, and remove furnishings that don't add to the
setting. Also clear bathroom and kitchen countertops. Under-furnished homes let
the buyer's imagination fill rooms with their own belongings. Once they visualize
their favorite chair in a particular spot, you have a sale.
6. Pack away your personal photographs, trophies, diplomas, and small
accessories and stack them neatly in the garage or a separate storage space.
That will also protect you from having strangers view your personal life.
7. If your home looks too bare, replace your personal treasures with house plants
or cuttings from the garden. Be creative; you don't need to spend money.
- Use tree branches and fresh flowers to bring nature indoors.
- Fill vases and glass jars with fresh cuttings and set them
in baskets.
- Add green house plants in winter, spring, and fall.
- During hot selling seasons, use green, silver and gray foliage to help keep your
home visually cool.
8. Lighting affects your buyers' emotions and is a crucial design element for
happiness, so turn on the lights when showing your home. Day-like light bulbs
enhance happiness. Amber and pink light bulbs warm, while blue light cools.
9. Air the house out. You get used to odors, but buyers shouldn't smell anything
other than natural pleasing scents like wood burning in the fireplace or fresh lemon
in the summer. Cut up a grapefruit and run sections through the garbage disposal.
It's both refreshing and clean smelling.
10. Buyers like temperatures around 70 degrees in the winter and 67 degrees in
the summer, so turn up the thermostat in the winter and turn it down in the summer.
11. Park your car out of the way and encourage buyers to park in a space where
their car won't block the view from the inside.
Remember, you've only got 15 seconds to sell your home, but by using Design
Psychology techniques, you can convert lookers into buyers and get top dollar for
your home.
http://www.homesolutionssandiego.com/stagingtips.html
Monday, May 21, 2007
Buying Your First Investment Property
"Begin With The End In Mind"
I first heard the phrase "Begin with the end in mind" in a Steven Covey book called "The 7
Habits of Highly Effective People". This expression makes a lot of sense because the fact is,
you can't get where you're going, unless you know where you want to go.
Most new investors understand that real estate is an investment vehicle that makes sense.
We all know that many fortunes have been built with real estate. But when you are first
getting started, all the available information can be very confusing. I often receive emails
asking "what strategies should I use?" or "Where should I look to find deals?"
One reason these issues are so difficult to understand and sort out when you are new to the
investing game is that the answer to the question can be different for every individual.
Seminars tend to package information in a "one-size-fits-all" crash course. But this inevitably
leaves unanswered questions for each individual user. Simply put, each person has their own
individual situation with regard to credit, income, employment, assets, etc. All of these factors
can affect your investing choices and objectives.
Compounding this confusion is the sheer number of strategies. Should I own rental property?
Should I fix up and resell? How about Options? Or, how about buying tax leins? There are so
many choices, how is one to know what to do when just starting out?
I can remember floundering around myself. I spent thousands of dollars on different courses,
trying to put all the pieces together and gain enough understanding to know what I should do
first.
It seemed that no one wanted to tell me anything useful unless I paid them first. I soon found
that no matter how much money I spent, there were many unanswered questions. I felt frozen
by fear, because I simply did not understand what to do first. As a result, it was several years
before I actually felt comfortable enough to get directly involved in buying a property.
Today, after having seen and participated in many deals, I know that step one is decide what
you want real estate investing to do for you. In short, where do you want to go?
Like any trip, you start out by deciding where you want to go. Once the destination has been
chosen, you figure out the best way to get there.
Many of the most successful and wealthy investors I know, built their fortunes with rental
property. Some of them own 40 or more rental houses. Some of them own commercial
properties like gas stations, storage facilities, or office buildings. They each had the same
destination, that of cash flow from rental income, but two drastically different ways of getting
there.
Frankly, most of the really successful investors are very patient men and women who build
their portfolios slowly over a number of years. They are cautious and prudent, buying only
when they know the deal is a good one.
Today, many people are lured into investing because they have heard the stories about how
you can buy property with no money down, and take out enough cash at closing to pay off all
your debts. This is possible, but creating one debt to pay another does have it's risks.
Let's say that your ultimate objective is to achieve $5,000 per month passive income from
rental property. Now, think of that objective as if it were a city on a road map.
Most cities have a number of different roads you can take to get downtown.. It is the same
way with your investing. Different people will arrive at the same destination, each one using a
slightly different route to get there.
Once you decide where you want to go, your route to your destination will be determined by
your financing options. .
If you have great credit, income for which you receive a W-2 statement, and lots of cash for a
down payment, your financing options will allow you to take virtually any road you wish. The
fact is, good credit and cash will get you where you want to go a lot faster. But it's not the only
way.
If you are credit challenged, self-employed, or lack cash for down payments, your ultimate
destination can be the same, but you will need a different route to get there.
Your financing options determine the route you have to take to get to your destination. In
essence, the answer to getting started is find out what kind of financing you can get, and then
find deals that work with your available financing options.
If you can't get any kind of financing at all, you can still buy deals where the seller will agree
to finance the deal, or some scenario where financing is provided without you having to
qualify.
If you have decent credit but no cash, there are investor loans with low down payments, that
may make it easier for you to get in with little cash.
If you have great credit and cash - hop on the expressway. Look for any good deal, since you
can get a loan at excellent rates, in addition to taking advantage of any good seller financing
deals that come your way. You have the most options for getting to your destination.
No matter where you start from, you can still wind up at the same destination, and achieve the
same objective.
Step One: Decide where you want to go. Then, get with a good lender to find out which roads
you will be able to take. Even if you have to start out on the "no cash, no credit" back roads,
remember that sooner or later, if you keep driving, you will find an access ramp to the
expressway.
http://www.homesolutionssandiego.com/firstinvestment.html
I first heard the phrase "Begin with the end in mind" in a Steven Covey book called "The 7
Habits of Highly Effective People". This expression makes a lot of sense because the fact is,
you can't get where you're going, unless you know where you want to go.
Most new investors understand that real estate is an investment vehicle that makes sense.
We all know that many fortunes have been built with real estate. But when you are first
getting started, all the available information can be very confusing. I often receive emails
asking "what strategies should I use?" or "Where should I look to find deals?"
One reason these issues are so difficult to understand and sort out when you are new to the
investing game is that the answer to the question can be different for every individual.
Seminars tend to package information in a "one-size-fits-all" crash course. But this inevitably
leaves unanswered questions for each individual user. Simply put, each person has their own
individual situation with regard to credit, income, employment, assets, etc. All of these factors
can affect your investing choices and objectives.
Compounding this confusion is the sheer number of strategies. Should I own rental property?
Should I fix up and resell? How about Options? Or, how about buying tax leins? There are so
many choices, how is one to know what to do when just starting out?
I can remember floundering around myself. I spent thousands of dollars on different courses,
trying to put all the pieces together and gain enough understanding to know what I should do
first.
It seemed that no one wanted to tell me anything useful unless I paid them first. I soon found
that no matter how much money I spent, there were many unanswered questions. I felt frozen
by fear, because I simply did not understand what to do first. As a result, it was several years
before I actually felt comfortable enough to get directly involved in buying a property.
Today, after having seen and participated in many deals, I know that step one is decide what
you want real estate investing to do for you. In short, where do you want to go?
Like any trip, you start out by deciding where you want to go. Once the destination has been
chosen, you figure out the best way to get there.
Many of the most successful and wealthy investors I know, built their fortunes with rental
property. Some of them own 40 or more rental houses. Some of them own commercial
properties like gas stations, storage facilities, or office buildings. They each had the same
destination, that of cash flow from rental income, but two drastically different ways of getting
there.
Frankly, most of the really successful investors are very patient men and women who build
their portfolios slowly over a number of years. They are cautious and prudent, buying only
when they know the deal is a good one.
Today, many people are lured into investing because they have heard the stories about how
you can buy property with no money down, and take out enough cash at closing to pay off all
your debts. This is possible, but creating one debt to pay another does have it's risks.
Let's say that your ultimate objective is to achieve $5,000 per month passive income from
rental property. Now, think of that objective as if it were a city on a road map.
Most cities have a number of different roads you can take to get downtown.. It is the same
way with your investing. Different people will arrive at the same destination, each one using a
slightly different route to get there.
Once you decide where you want to go, your route to your destination will be determined by
your financing options. .
If you have great credit, income for which you receive a W-2 statement, and lots of cash for a
down payment, your financing options will allow you to take virtually any road you wish. The
fact is, good credit and cash will get you where you want to go a lot faster. But it's not the only
way.
If you are credit challenged, self-employed, or lack cash for down payments, your ultimate
destination can be the same, but you will need a different route to get there.
Your financing options determine the route you have to take to get to your destination. In
essence, the answer to getting started is find out what kind of financing you can get, and then
find deals that work with your available financing options.
If you can't get any kind of financing at all, you can still buy deals where the seller will agree
to finance the deal, or some scenario where financing is provided without you having to
qualify.
If you have decent credit but no cash, there are investor loans with low down payments, that
may make it easier for you to get in with little cash.
If you have great credit and cash - hop on the expressway. Look for any good deal, since you
can get a loan at excellent rates, in addition to taking advantage of any good seller financing
deals that come your way. You have the most options for getting to your destination.
No matter where you start from, you can still wind up at the same destination, and achieve the
same objective.
Step One: Decide where you want to go. Then, get with a good lender to find out which roads
you will be able to take. Even if you have to start out on the "no cash, no credit" back roads,
remember that sooner or later, if you keep driving, you will find an access ramp to the
expressway.
http://www.homesolutionssandiego.com/firstinvestment.html
Saturday, May 19, 2007
Understanding the Mortgage Loan Market
The mortgage business is a complicated and ever-changing industry. It is important that you understand how the mortgage market works and how the lenders make their profit. In doing so, you will gain an appreciation of loan programs and why certain loans are offered by certain lenders.
INSTITUTIONAL LENDERS
The first broad category of distinction is institutional versus private. Institutional lenders include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds, and insurance companies. These lenders generally make loans based on the income and credit of the borrower, and they generally follow standard lending guidelines. Private lenders are individuals or small companies that do not have insured depositors and are generally not regulated by the federal government.
PRIMARY VERSUS SECONDARY MARKET
First, these markets should not be confused with first and second mortgages. Primary mortgage lenders deal directly with the public. They “originate” loans, that is, they lend money directly to the borrower. Often referred to as the “retail” side of the business, lenders make a profit from loan processing fees, not the interest paid on the loan.
Primary mortgage lenders generally lend money to consumers, then sell the mortgage notes (in large packages, not one at a time) to investors on the secondary mortgage market to replenish their cash reserves.
The largest buyers on the secondary market are the Federal National Mortgage Association (FNMA or “Fannie Mae”), the Government National Mortgage Association (GNMA or “Ginnie Mae”) and the Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”). Private financial institutions such as banks, life insurance companies, private investors, and thrift associations also buy notes.
MORTGAGE BROKERS VERSUS MORTGAGE BANKERS
Many consumers assume that “mortgage companies” are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.
A mortgage banker is a direct lender; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as “direct lenders”) sometimes retain servicing rights as well.
A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public (hence the expression, “wholesale lender”).
CONVENTIONAL VS. NON-CONVENTIONAL
“Conventional” financing, by definition, is not insured or guaranteed by the federal government. Conventional loans are generally broken into two categories: “conforming” and “non-conforming.” A conforming loan is one that conforms or adheres to strict Fannie Mae/Freddie Mac loan underwriting guidelines.
Conforming loans are a low risk to the lender, so they offer the lowest interest rates. Conforming loans also have the strictest underwriting guidelines.
Conforming loans have three basic requirements:
1. Borrower Must Have a Minimum of Debt: Lenders look at the ratio of your monthly debt to income. Your regular monthly expenses (including mortgage payments, property taxes, insurance) should total no more than 25 to 28% of gross monthly income (called “front end ratio”). Furthermore, your monthly expenses, plus other long-term debt payments (e.g., student loan, automobile, alimony, child support) should total no more than 36% of your gross monthly income (called “back end ratio”). These ratios can sometimes be increased if the borrower has excellent credit or puts more money down.
2. Good Credit Rating: You must be current on payments. Lenders will also require a certain minimum credit score called a “FICO” (http://www.myfico.com).
3. Funds to Close: You must have the requisite down payment (generally 20% of the purchase price, although lenders often bend this rule), proof of where it came from, and a few months of cash reserves in the bank.
NON-CONFORMING LOANS
Non-conforming loans have no set guidelines and vary widely from lender to lender. In fact, lenders often change their own non-conforming guidelines from month to month.
Non-conforming loans are also known as “sub-prime” loans, because the target customer (borrower) has credit and/or income verification that is less-than-perfect. The sub-prime loans are often rated according to the creditworthiness of the borrower – “A,” “B”, “C” and “D.”
The sub-prime loan business has grown enormously over the past ten years, particularly in the refinance business and with investor loans. Every lender has its own criteria for sub-prime loans, so it is impossible to list every loan program available on the market. Suffice it to say, the guidelines for sub-prime loans are much more lax than they are for conforming loans.
Excerpt from William Bronchick's highly acclaimed book,
"Financing Secrets of a Millionaire Real Estate Investor"
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 700 transactions. He has trained countless people all over the Country to become financially successful.
William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996. He is admitted to practice law before the bars of New York and Colorado.
You may contact Mr. Bronchick for consultation by phone, fax, e-mail or correspondence at:
Bronchick & Associates, P.C.
2821 S. Parker Rd. Suite 405
Aurora, Colorado 80014
Tel 303-398-7032
Fax 303-671-0516
www.legalwiz.com
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=226&typeid=1&winpop=0&nav=1
INSTITUTIONAL LENDERS
The first broad category of distinction is institutional versus private. Institutional lenders include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds, and insurance companies. These lenders generally make loans based on the income and credit of the borrower, and they generally follow standard lending guidelines. Private lenders are individuals or small companies that do not have insured depositors and are generally not regulated by the federal government.
PRIMARY VERSUS SECONDARY MARKET
First, these markets should not be confused with first and second mortgages. Primary mortgage lenders deal directly with the public. They “originate” loans, that is, they lend money directly to the borrower. Often referred to as the “retail” side of the business, lenders make a profit from loan processing fees, not the interest paid on the loan.
Primary mortgage lenders generally lend money to consumers, then sell the mortgage notes (in large packages, not one at a time) to investors on the secondary mortgage market to replenish their cash reserves.
The largest buyers on the secondary market are the Federal National Mortgage Association (FNMA or “Fannie Mae”), the Government National Mortgage Association (GNMA or “Ginnie Mae”) and the Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”). Private financial institutions such as banks, life insurance companies, private investors, and thrift associations also buy notes.
MORTGAGE BROKERS VERSUS MORTGAGE BANKERS
Many consumers assume that “mortgage companies” are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.
A mortgage banker is a direct lender; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as “direct lenders”) sometimes retain servicing rights as well.
A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public (hence the expression, “wholesale lender”).
CONVENTIONAL VS. NON-CONVENTIONAL
“Conventional” financing, by definition, is not insured or guaranteed by the federal government. Conventional loans are generally broken into two categories: “conforming” and “non-conforming.” A conforming loan is one that conforms or adheres to strict Fannie Mae/Freddie Mac loan underwriting guidelines.
Conforming loans are a low risk to the lender, so they offer the lowest interest rates. Conforming loans also have the strictest underwriting guidelines.
Conforming loans have three basic requirements:
1. Borrower Must Have a Minimum of Debt: Lenders look at the ratio of your monthly debt to income. Your regular monthly expenses (including mortgage payments, property taxes, insurance) should total no more than 25 to 28% of gross monthly income (called “front end ratio”). Furthermore, your monthly expenses, plus other long-term debt payments (e.g., student loan, automobile, alimony, child support) should total no more than 36% of your gross monthly income (called “back end ratio”). These ratios can sometimes be increased if the borrower has excellent credit or puts more money down.
2. Good Credit Rating: You must be current on payments. Lenders will also require a certain minimum credit score called a “FICO” (http://www.myfico.com).
3. Funds to Close: You must have the requisite down payment (generally 20% of the purchase price, although lenders often bend this rule), proof of where it came from, and a few months of cash reserves in the bank.
NON-CONFORMING LOANS
Non-conforming loans have no set guidelines and vary widely from lender to lender. In fact, lenders often change their own non-conforming guidelines from month to month.
Non-conforming loans are also known as “sub-prime” loans, because the target customer (borrower) has credit and/or income verification that is less-than-perfect. The sub-prime loans are often rated according to the creditworthiness of the borrower – “A,” “B”, “C” and “D.”
The sub-prime loan business has grown enormously over the past ten years, particularly in the refinance business and with investor loans. Every lender has its own criteria for sub-prime loans, so it is impossible to list every loan program available on the market. Suffice it to say, the guidelines for sub-prime loans are much more lax than they are for conforming loans.
Excerpt from William Bronchick's highly acclaimed book,
"Financing Secrets of a Millionaire Real Estate Investor"
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 700 transactions. He has trained countless people all over the Country to become financially successful.
William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996. He is admitted to practice law before the bars of New York and Colorado.
You may contact Mr. Bronchick for consultation by phone, fax, e-mail or correspondence at:
Bronchick & Associates, P.C.
2821 S. Parker Rd. Suite 405
Aurora, Colorado 80014
Tel 303-398-7032
Fax 303-671-0516
www.legalwiz.com
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=226&typeid=1&winpop=0&nav=1
A Single's Game of Real Estate
This discussion leans toward answering questions asked most often by our youthful men and women in there early twenties. They often begin to ask themselves the question, "Should I consider buying a home, condo/town-home or some other type of real estate that I can call my own?" Due to the fact that housing has up to this point always been provided for or lived in on a rented basis we tend to find that our newest contributing members of society find themselves at a loss for the most beneficial and advantageous way to enter this next phase of self-sufficiency.
Due to the fact that most of us grow up in either a rented apartment or our parent's single family home, it stands to reason that most people, when beginning to ask themselves the question of purchasing their own dwelling, will come to the conclusion that a condo or small house is probably the way to go. That's a result of conditioning and it's a hard mindset to break! After taking the time to talk to or personally guide a respectable number of people in their twenties, I have come to find that firm, direct and accurate information can really adjust the reality of how real estate can be acquired and used to their best advantage starting with property that sets the tone for a much more profitable and rewarding future.
Everyone understands the concept of paying rent, so to begin with a great opening question to our real estate student is, "How would you like to collect that rent as opposed to pay it!" Naturally this question gets their attention and we can begin to open the door of enlightenment. I like to use the duplex example to illustrate the two homes under one roof concept. Some people are unfamiliar with what exactly a duplex is and how it works, so I simply state that quite often you find duplexes composed of one building that has two bedrooms and one bath on each side, all under one roof, some larger, some smaller.
These are as easy to finance as a single family home and in many cases allow you to qualify for a larger loan amount which leads to using leverage and more of other people's money to get ahead faster in life. Using an example lets say you find a duplex for $150,000 (California is higher), your loans interest rate is 6% that would cost $899.33 a month to pay principle and interest back on a 30 year loan. They would have to insure it, so we use an average of $5 per $1000 of home value to average insurance costs. So $5.00 x $150.00 = $750.00 a year for insurance. We divide that by 12 months to get a figure of $62.50 a month for insurance. We also have annual taxes that are based on what the home is worth multiplied by a millage, or mill rate. Let's use a tax rate of $11.00 per $1,000 of the homes assessed value: $11.00 x 150 = $1,650.00 a year. Now divide that by 12 months to get a monthly tax of $137.50 and by adding principle, interest, taxes and insurance (P.I.T.I), we get a total monthly mortgage payment of $1099.33.
Now when you rent one side out for (in many cases, approximately $750.00 a month) you are left to pay only $349.33 out of your own pocket every month. When I get this point firmly affixed to the gray matter of their brain, it becomes clear that this amount is much lower than the amount of rent they are now paying to live under someone else's roof and rules. Now the questions start coming in the following order. Well? How do I buy something like this? The answer most often begins with, "By getting pre-qualified for a loan," and I go on to say you will need to gather and bring the following things to the bank loan officer to get started:
1. Copies of three years of tax returns for first time buyers + schedules and W2 forms
2. Copies of most recent pay stubs within the last 30 days
3. Copies of your most recent three months of bank statements
4. A list of all creditors with name, address and account numbers
With these initial documents the lender can begin to process your application for a loan. They will determine your assets and liabilities (net worth) as well as verify where you live now, your credit history and a host of other information that begins to validate your existence and ability to borrow money now and in the future.
Once they've had a chance to review and verify your information they can pre-approve you for a certain loan amount. Once your approved you can begin your search for a home of your own, typically as a first time home buyer you will find that there are programs that let you put as little as 3-5% percent down in order to buy a home that satisfies the lender's guidelines according to its value and conformity. Now on a $150,000 loan the down payment can be anywhere from $4500.00 - $7500.00.
There are ways to lower these costs and a great place to start is by attending a first time home buyer's class. These classes introduce you to the basics and give you further information on programs that are currently available that may offer you the opportunity to buy with nothing down! So with that said, the next step is to get to a free class and get familiar with the process. Often I recommend going to the class before going to see a lender so you don't appear so green and unprepared upon your initial introduction.
Since I usually find these poor souls wondering and wandering in the land of the lost, the next frown I see come over them is the realization that they just don't have the money required to start. So the question comes up as to where to get it. I usually ask about savings, whether parents or grandparents can help, if they can sell valuable possessions or take second jobs, get grants, gifts, use trust funds, personal loans or co-signers, or a combination of these alternatives with a complimentary loan program usually gets the ball rolling. Options and hard money lenders usually come later as alternative funding and acquisition sources, so I won't confuse any one with those now.
The bottom line is this: If someone wants something bad enough there is always a way! The nice thing about duplexes is that the lender will take into account the fact that 75% of the rental income from the other side of the property can be used to offset your qualifying ratios, so in this case they can use 75% of the rentals $750.00 income to reduce the amount you must earn to qualify for what appears to be an unaffordable loan. Seventy-five percent of $750.00 equals $562.50. Now subtracting that amount from the original mortgage payment of $1099.33 leaves you with a payment of $536.83 which the bank says you must be able to repay every month out of your own pocket. You can do this!
Can you begin to see how with a little information, effort and belief you can actually own something and pay less than what you are currently paying in rent?
Let's continue on with the way things begin to unfold once you begin the journey. Starting with the day you close the deal and become the new owner you will see that you now have just created a passive income stream that gives you an extra $750.00 a month without you having to punch a clock or trade a certain amount of hours to earn the money. Your new asset works for you day in and day out constantly generating income for you while you go and do other things. This is leveraging your time and money in a very beneficial way!
You also will notice that at the closing of your purchase that the old owners who sold you this property had to prorate or give you a share of the rents due and any security deposits that the tenants had given to them. Now add to that the likelihood that your first house payment won't come due until about a month and a half after you move in and you find yourself with, low and behold, extra money, probably for the first time in quite a while!
Let's calculate it using simple math. Assuming you close on the 15th of the month, you will have 45 days before your first payment comes due, you will be credited with 15 days of rent, you will receive all security deposits of the tenant and you will receive another month's rent on the first of the month from your tenant and you yourself will have no rent or house payment of your own to make for another whole month. What does all that add up to? Let's break it down:
1. Fifteen days of rent equal to $375.00
2. A half month's rent as a security deposit equal to $375.00
3. A full month's rent in another 15 days equal to $750.00
4. No payment to the bank for another 30 days and you're not paying rent to anyone any longer, so you keep whatever you normally would have had to give to someone else as rent that month (let's say that was $500.00).
5. Another payment to you for $750.00 from your tenant as well as you having to make your first mortgage payment of $1099.33 on the 1st of the month which comes 45 days later.
Side note: If you decided to rent your second bedroom to a roommate, they would pay $500.00 a month and half your utilities as well, thus your basically living and owning this property for free. Say goodbye to all those student loans as you divert all these freed up funds to pay off loans instead of a landlord!
Adding these up, we get $375.00 + $375.00 + $750.00 + $750.00 + 500.00 not paid to your old landlord. That equals $2,750.00 that you will now have as a result of your first month and a half of ownership. Now subtract your mortgage payment of $1099.33 and you are left with a reserve fund of $1,650.67 in your account. Take your parents out to a steak dinner and celebrate - you've earned it!
Let's review: You decided to buy your own home, you made the choice early to offset expenses by looking at a multiple income property, you went to the homebuyer's class, you went to see a lender and got pre-approved for a loan, you saved or arranged to have the necessary amount required to buy and you hunted, searched and analyzed more than a few properties in order to find a good one that would satisfy your criteria.
Your next phase is to begin to realize that you are now responsible for the welfare of another family or person due to your willingness to become a landlord. Your tenants pay rent and expect you to take care of their housing needs. If you chose a good property by carefully looking at plumbing, heating & A/C, electrical, foundation, structure, roof, location and price, then you should be well positioned to be able to successfully manage these duties. Often, you as the new owner will begin to make improvements to the property such as painting, installing new carpet and doing some inexpensive landscaping and repairs. These are the things that add value to your property and keep your tenants happy while at the same time not breaking the bank!
With $1,650.67 in your bank account, you're not exactly Donald Trump just yet, but you're getting there! Smart landlords establish 6 month reserve accounts and/or contingency funds, which protect them in times of vacancies or when expensive unforeseen repair bills pop up in addition to regular planned-for maintenance items. What I'm saying is don't spend your reserves frivolously. In my case, a steak dinner is a tradition but the major portion of your funds should only be used to build, protect and enhance your asset's ability to produce and sustain income generation.
By taking on responsibility in the housing market at such a young age, you will have some added benefits and opportunities coming to you. Let's look at what starts happening: the first thing is you have overcome fear and lack of understanding by acquiring your first property. In addition, you have begun to offset expenses while saving more money, you are establishing excellent credit while building assets, and you're gaining tax advantages while getting management, home buying and repair education at an early age. These are outstanding life skills that you can employ for the rest of your life and the longer the period of time that you have to use them, the further the compounding effects will help you to go.
This type of initial home-buying strategy can and does lead to further opportunities to grow and achieve further benefits besides those already mentioned. Individuals who learn to accept responsibility early will by nature grow more mature throughout the process and in effect create for themselves a higher status in the minds of others by being looked upon as a current homeowner and landlord. Once established, you will become known for what you can do. If you were single when you undertook these challenges, then you will appear and become more self-sufficient to the opposite sex.
What do I mean by that? What I'm saying is when you meet someone who may become your spouse in the future, they will recognize your ability to provide for their safety and protection and they won't question or complain about your fooling around with wild ideas of becoming educated in real estate now. They will accept that this is something you do and will respect your ability to manage this part of your life.
As time passes on and you find this love of your life and the eventual marriage proposal ensues, the time will come when you're going to want to separate business from pleasure. As a young couple the time will come when you may want to start a family or at least separate yourself from your tenants while moving up to a nicer single family home that suits your changing needs more appropriately. Perfect, because now is the time to consider renting out both sides of the duplex while you begin to investigate your new single family home.
How does this phase work? Hold on, I'm getting there! Okay, let's assume its two years later and you have been living in and improving your duplex all along. Now taking into account that you bought a decent property in a good neighborhood and inflation and appreciation has been adding value in addition to your improvements, your $150,000 duplex should command a new appraised value of $175,000. Let me explain how the value grows: 3% annual inflation multiplied by $150,000 equals $4500.00 the first year. Let's also say that appreciation due to demand also adds 5%, so 5% x $150,000 equals $7500.00. Now $150,000 + $7500 + $4500 = $162,000, which represents the new value for year one. The second year we do the same math on $162,000 and we get $12,960 for year two. Adding that to $162,000 equals $174,960. Okay, I was off by $40.00. Don't forget any improvements and that you may have bought it at a discount because the old owners where motivated and you might find its worth even more.
Now over those two years you have also been paying that old mortgage of $1099.33 each month and the principle amount that you owe on your loan has been reduced by an additional $3,965.96, leaving you with a loan balance of $146,034.04. The difference between the new appraised value of $175,000 and the current amount of $146,034.04 which you owe equals $28,965.96. This number represents the equity, or value, that you currently own in the home. Knowing this, it is entirely possible to apply for and receive a home equity line of credit up to the full value of the new appraisal! If you haven't gone overboard on buying cars, boats and running up other revolving debt while at the same time your significant other or spouse-to-be has a job and good credit with manageable debt, than the bank is going to approve this line of owner-occupied credit.
Now what you have done is set up a line of credit which can be used to buy a $145,000 single family home with a 20% down payment. This allows you to avoid paying private mortgage insurance (PMI), thereby creating a very affordable new mortgage on your new family residence.
NOTE: Do not confuse homeowner's insurance with private mortgage insurance. PMI protects the lender while homeowner's insurance protects you. When you put down 20% of value on a home's purchase in the form of a down payment, you are in effect protecting the lender from yourself because if they foreclosed on you for non-payment, they could sell the home fast for less than full value and still be paid in full.
Don't pay for private mortgage insurance if you can avoid it!
Let's not forget that as the value of your duplex has risen the rents should also be increasing along the same lines. Now instead of $750.00, you should reasonably expect to get $800.00 per month, per side, which now delivers $1600.00 a month to your bank account. Unfortunately you still have to pay for 28 more years on the original loan amount, so you will make that good old $1099.33 payment as usual. That leaves you with $500.67 left over to pay that new equity line back with. Your new $29,000 equity line which you used as a down payment on your new home costs you $336.71 @ 7% for 10 years. Now $500.36 minus $336.71 leaves you with $163.96 left over to maintain a nice little reserve account for vacancies and maintenance/repairs. This is a good example of how to transition to a secure lifestyle while using your existing asset base to buy more.
Review:
1. Break the mold and look at multiple income property to start.
2. Go to a first time home buyer class to get ready.
3. Go to a lender prepared to qualify for an affordable loan amount.
4. Focus your effort on learning how real estate works.
5. Realize the sooner you start, the better off you will be.
6. Offset expenses by renting to others.
7. Manage tenants, deposits and property responsibly.
8. Plan for the future using assets and equity lines to start.
9. Keep reading and learning how to do new things with real estate.
10. Find mentors and use knowledgeable people to help you along the way.
I hope this little plan of entering into homeownership has given you some ideas in your quest for independence. Wishing you all the best! Your investment pal, Dan
Dan Auito is a dual-licensed real estate agent and appraisal assistant. Founder of a non-profit drug prevention corporation, a real estate consulting group and is the author of “Magic Bullets Real Estate.” This 300-page power-packed book (due out in early July 2004 comes with a website that further supports its readers.
Dan may be reached at magicbullets@alaska.com or by visiting www.magicbullets.com
Call 1 907 481-6300 or write
1619 Three Sisters Way
Kodiak AK 99615
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=229&typeid=1&winpop=0&nav=1
Due to the fact that most of us grow up in either a rented apartment or our parent's single family home, it stands to reason that most people, when beginning to ask themselves the question of purchasing their own dwelling, will come to the conclusion that a condo or small house is probably the way to go. That's a result of conditioning and it's a hard mindset to break! After taking the time to talk to or personally guide a respectable number of people in their twenties, I have come to find that firm, direct and accurate information can really adjust the reality of how real estate can be acquired and used to their best advantage starting with property that sets the tone for a much more profitable and rewarding future.
Everyone understands the concept of paying rent, so to begin with a great opening question to our real estate student is, "How would you like to collect that rent as opposed to pay it!" Naturally this question gets their attention and we can begin to open the door of enlightenment. I like to use the duplex example to illustrate the two homes under one roof concept. Some people are unfamiliar with what exactly a duplex is and how it works, so I simply state that quite often you find duplexes composed of one building that has two bedrooms and one bath on each side, all under one roof, some larger, some smaller.
These are as easy to finance as a single family home and in many cases allow you to qualify for a larger loan amount which leads to using leverage and more of other people's money to get ahead faster in life. Using an example lets say you find a duplex for $150,000 (California is higher), your loans interest rate is 6% that would cost $899.33 a month to pay principle and interest back on a 30 year loan. They would have to insure it, so we use an average of $5 per $1000 of home value to average insurance costs. So $5.00 x $150.00 = $750.00 a year for insurance. We divide that by 12 months to get a figure of $62.50 a month for insurance. We also have annual taxes that are based on what the home is worth multiplied by a millage, or mill rate. Let's use a tax rate of $11.00 per $1,000 of the homes assessed value: $11.00 x 150 = $1,650.00 a year. Now divide that by 12 months to get a monthly tax of $137.50 and by adding principle, interest, taxes and insurance (P.I.T.I), we get a total monthly mortgage payment of $1099.33.
Now when you rent one side out for (in many cases, approximately $750.00 a month) you are left to pay only $349.33 out of your own pocket every month. When I get this point firmly affixed to the gray matter of their brain, it becomes clear that this amount is much lower than the amount of rent they are now paying to live under someone else's roof and rules. Now the questions start coming in the following order. Well? How do I buy something like this? The answer most often begins with, "By getting pre-qualified for a loan," and I go on to say you will need to gather and bring the following things to the bank loan officer to get started:
1. Copies of three years of tax returns for first time buyers + schedules and W2 forms
2. Copies of most recent pay stubs within the last 30 days
3. Copies of your most recent three months of bank statements
4. A list of all creditors with name, address and account numbers
With these initial documents the lender can begin to process your application for a loan. They will determine your assets and liabilities (net worth) as well as verify where you live now, your credit history and a host of other information that begins to validate your existence and ability to borrow money now and in the future.
Once they've had a chance to review and verify your information they can pre-approve you for a certain loan amount. Once your approved you can begin your search for a home of your own, typically as a first time home buyer you will find that there are programs that let you put as little as 3-5% percent down in order to buy a home that satisfies the lender's guidelines according to its value and conformity. Now on a $150,000 loan the down payment can be anywhere from $4500.00 - $7500.00.
There are ways to lower these costs and a great place to start is by attending a first time home buyer's class. These classes introduce you to the basics and give you further information on programs that are currently available that may offer you the opportunity to buy with nothing down! So with that said, the next step is to get to a free class and get familiar with the process. Often I recommend going to the class before going to see a lender so you don't appear so green and unprepared upon your initial introduction.
Since I usually find these poor souls wondering and wandering in the land of the lost, the next frown I see come over them is the realization that they just don't have the money required to start. So the question comes up as to where to get it. I usually ask about savings, whether parents or grandparents can help, if they can sell valuable possessions or take second jobs, get grants, gifts, use trust funds, personal loans or co-signers, or a combination of these alternatives with a complimentary loan program usually gets the ball rolling. Options and hard money lenders usually come later as alternative funding and acquisition sources, so I won't confuse any one with those now.
The bottom line is this: If someone wants something bad enough there is always a way! The nice thing about duplexes is that the lender will take into account the fact that 75% of the rental income from the other side of the property can be used to offset your qualifying ratios, so in this case they can use 75% of the rentals $750.00 income to reduce the amount you must earn to qualify for what appears to be an unaffordable loan. Seventy-five percent of $750.00 equals $562.50. Now subtracting that amount from the original mortgage payment of $1099.33 leaves you with a payment of $536.83 which the bank says you must be able to repay every month out of your own pocket. You can do this!
Can you begin to see how with a little information, effort and belief you can actually own something and pay less than what you are currently paying in rent?
Let's continue on with the way things begin to unfold once you begin the journey. Starting with the day you close the deal and become the new owner you will see that you now have just created a passive income stream that gives you an extra $750.00 a month without you having to punch a clock or trade a certain amount of hours to earn the money. Your new asset works for you day in and day out constantly generating income for you while you go and do other things. This is leveraging your time and money in a very beneficial way!
You also will notice that at the closing of your purchase that the old owners who sold you this property had to prorate or give you a share of the rents due and any security deposits that the tenants had given to them. Now add to that the likelihood that your first house payment won't come due until about a month and a half after you move in and you find yourself with, low and behold, extra money, probably for the first time in quite a while!
Let's calculate it using simple math. Assuming you close on the 15th of the month, you will have 45 days before your first payment comes due, you will be credited with 15 days of rent, you will receive all security deposits of the tenant and you will receive another month's rent on the first of the month from your tenant and you yourself will have no rent or house payment of your own to make for another whole month. What does all that add up to? Let's break it down:
1. Fifteen days of rent equal to $375.00
2. A half month's rent as a security deposit equal to $375.00
3. A full month's rent in another 15 days equal to $750.00
4. No payment to the bank for another 30 days and you're not paying rent to anyone any longer, so you keep whatever you normally would have had to give to someone else as rent that month (let's say that was $500.00).
5. Another payment to you for $750.00 from your tenant as well as you having to make your first mortgage payment of $1099.33 on the 1st of the month which comes 45 days later.
Side note: If you decided to rent your second bedroom to a roommate, they would pay $500.00 a month and half your utilities as well, thus your basically living and owning this property for free. Say goodbye to all those student loans as you divert all these freed up funds to pay off loans instead of a landlord!
Adding these up, we get $375.00 + $375.00 + $750.00 + $750.00 + 500.00 not paid to your old landlord. That equals $2,750.00 that you will now have as a result of your first month and a half of ownership. Now subtract your mortgage payment of $1099.33 and you are left with a reserve fund of $1,650.67 in your account. Take your parents out to a steak dinner and celebrate - you've earned it!
Let's review: You decided to buy your own home, you made the choice early to offset expenses by looking at a multiple income property, you went to the homebuyer's class, you went to see a lender and got pre-approved for a loan, you saved or arranged to have the necessary amount required to buy and you hunted, searched and analyzed more than a few properties in order to find a good one that would satisfy your criteria.
Your next phase is to begin to realize that you are now responsible for the welfare of another family or person due to your willingness to become a landlord. Your tenants pay rent and expect you to take care of their housing needs. If you chose a good property by carefully looking at plumbing, heating & A/C, electrical, foundation, structure, roof, location and price, then you should be well positioned to be able to successfully manage these duties. Often, you as the new owner will begin to make improvements to the property such as painting, installing new carpet and doing some inexpensive landscaping and repairs. These are the things that add value to your property and keep your tenants happy while at the same time not breaking the bank!
With $1,650.67 in your bank account, you're not exactly Donald Trump just yet, but you're getting there! Smart landlords establish 6 month reserve accounts and/or contingency funds, which protect them in times of vacancies or when expensive unforeseen repair bills pop up in addition to regular planned-for maintenance items. What I'm saying is don't spend your reserves frivolously. In my case, a steak dinner is a tradition but the major portion of your funds should only be used to build, protect and enhance your asset's ability to produce and sustain income generation.
By taking on responsibility in the housing market at such a young age, you will have some added benefits and opportunities coming to you. Let's look at what starts happening: the first thing is you have overcome fear and lack of understanding by acquiring your first property. In addition, you have begun to offset expenses while saving more money, you are establishing excellent credit while building assets, and you're gaining tax advantages while getting management, home buying and repair education at an early age. These are outstanding life skills that you can employ for the rest of your life and the longer the period of time that you have to use them, the further the compounding effects will help you to go.
This type of initial home-buying strategy can and does lead to further opportunities to grow and achieve further benefits besides those already mentioned. Individuals who learn to accept responsibility early will by nature grow more mature throughout the process and in effect create for themselves a higher status in the minds of others by being looked upon as a current homeowner and landlord. Once established, you will become known for what you can do. If you were single when you undertook these challenges, then you will appear and become more self-sufficient to the opposite sex.
What do I mean by that? What I'm saying is when you meet someone who may become your spouse in the future, they will recognize your ability to provide for their safety and protection and they won't question or complain about your fooling around with wild ideas of becoming educated in real estate now. They will accept that this is something you do and will respect your ability to manage this part of your life.
As time passes on and you find this love of your life and the eventual marriage proposal ensues, the time will come when you're going to want to separate business from pleasure. As a young couple the time will come when you may want to start a family or at least separate yourself from your tenants while moving up to a nicer single family home that suits your changing needs more appropriately. Perfect, because now is the time to consider renting out both sides of the duplex while you begin to investigate your new single family home.
How does this phase work? Hold on, I'm getting there! Okay, let's assume its two years later and you have been living in and improving your duplex all along. Now taking into account that you bought a decent property in a good neighborhood and inflation and appreciation has been adding value in addition to your improvements, your $150,000 duplex should command a new appraised value of $175,000. Let me explain how the value grows: 3% annual inflation multiplied by $150,000 equals $4500.00 the first year. Let's also say that appreciation due to demand also adds 5%, so 5% x $150,000 equals $7500.00. Now $150,000 + $7500 + $4500 = $162,000, which represents the new value for year one. The second year we do the same math on $162,000 and we get $12,960 for year two. Adding that to $162,000 equals $174,960. Okay, I was off by $40.00. Don't forget any improvements and that you may have bought it at a discount because the old owners where motivated and you might find its worth even more.
Now over those two years you have also been paying that old mortgage of $1099.33 each month and the principle amount that you owe on your loan has been reduced by an additional $3,965.96, leaving you with a loan balance of $146,034.04. The difference between the new appraised value of $175,000 and the current amount of $146,034.04 which you owe equals $28,965.96. This number represents the equity, or value, that you currently own in the home. Knowing this, it is entirely possible to apply for and receive a home equity line of credit up to the full value of the new appraisal! If you haven't gone overboard on buying cars, boats and running up other revolving debt while at the same time your significant other or spouse-to-be has a job and good credit with manageable debt, than the bank is going to approve this line of owner-occupied credit.
Now what you have done is set up a line of credit which can be used to buy a $145,000 single family home with a 20% down payment. This allows you to avoid paying private mortgage insurance (PMI), thereby creating a very affordable new mortgage on your new family residence.
NOTE: Do not confuse homeowner's insurance with private mortgage insurance. PMI protects the lender while homeowner's insurance protects you. When you put down 20% of value on a home's purchase in the form of a down payment, you are in effect protecting the lender from yourself because if they foreclosed on you for non-payment, they could sell the home fast for less than full value and still be paid in full.
Don't pay for private mortgage insurance if you can avoid it!
Let's not forget that as the value of your duplex has risen the rents should also be increasing along the same lines. Now instead of $750.00, you should reasonably expect to get $800.00 per month, per side, which now delivers $1600.00 a month to your bank account. Unfortunately you still have to pay for 28 more years on the original loan amount, so you will make that good old $1099.33 payment as usual. That leaves you with $500.67 left over to pay that new equity line back with. Your new $29,000 equity line which you used as a down payment on your new home costs you $336.71 @ 7% for 10 years. Now $500.36 minus $336.71 leaves you with $163.96 left over to maintain a nice little reserve account for vacancies and maintenance/repairs. This is a good example of how to transition to a secure lifestyle while using your existing asset base to buy more.
Review:
1. Break the mold and look at multiple income property to start.
2. Go to a first time home buyer class to get ready.
3. Go to a lender prepared to qualify for an affordable loan amount.
4. Focus your effort on learning how real estate works.
5. Realize the sooner you start, the better off you will be.
6. Offset expenses by renting to others.
7. Manage tenants, deposits and property responsibly.
8. Plan for the future using assets and equity lines to start.
9. Keep reading and learning how to do new things with real estate.
10. Find mentors and use knowledgeable people to help you along the way.
I hope this little plan of entering into homeownership has given you some ideas in your quest for independence. Wishing you all the best! Your investment pal, Dan
Dan Auito is a dual-licensed real estate agent and appraisal assistant. Founder of a non-profit drug prevention corporation, a real estate consulting group and is the author of “Magic Bullets Real Estate.” This 300-page power-packed book (due out in early July 2004 comes with a website that further supports its readers.
Dan may be reached at magicbullets@alaska.com or by visiting www.magicbullets.com
Call 1 907 481-6300 or write
1619 Three Sisters Way
Kodiak AK 99615
http://www.totalrealestatesolutions.com/articles/disp.cfm?aid=229&typeid=1&winpop=0&nav=1
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