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There are a few things to consider when you're calculating the affordability of a house. The first obviously is your income. How much money you make, or more accurately how much you bring home, will go the greatest distance toward explaining how much you can afford. The next piece of the affordability puzzle is how much of a down payment you can afford to contribute to your purchase. The question of how much down payment you can contribute is actually separate form the question of how much you should contribute. Obviously the greater the down payment, the lower your monthly payment will be.

There are two schools of thought when it comes to a down payment on your house. The first states that you should put as much down as possible, while leaving enough in your emergency fund to cover 3 – 6 months of living expenses. This strategy will reduce your monthly mortgage payment maximize your initial equity. This is the more fiscally conservative position.

The second school of thought on the size of your down payment says that you should be able to generate higher returns on your money by investing it than the interest you're paying on your mortgage, especially when the tax consequences of the mortgage interest deduction are calculated. As an example, if your mortgage interest rate is 5.9%, you would be better served by minimizing your down payment and investing the rest, presumably at a higher rate of return. This can be an extremely powerful strategy to generate wealth.

To illustrate the differences between the two different down payment strategies, consider the following example:

If you were to purchase a $250,000 house (I'm leaving out other costs for ease of calculation) and put 20% down, it would cost you a down payment of $50,000. Your monthly mortgage payments would be approximately $1,186. If you put only 5% down, your down payment would be just $12,500, and your monthly payment would be $1,409.

If you invested the $223 difference in the payments every month and received a 9% ROI, you would have a nest egg of $397,588 at the end of your 30 year mortgage. If you took the difference in the down payments of $37,500 and invested it at the same 9% rate of return, you'd have $497,538. This ignores the tax advantages you'd also receive by using the smaller down payment. Because of the mortgage interest deduction, you would be able to deduct the interest on your mortgage from your income. In the first 15 years of your mortgage that generates a substantial tax savings. However, it also ignores the fact that you'd be paying less interest due to the fact that you financed a smaller amount of money, and that with the small down payment strategy you'll be wasting money on PMI until the LTV ratio is at 80%.

With the larger down payment you would pay approximately $228,000 in interest over the 30 year life of the mortgage. With the smaller down payment, you would pay about $270,000. In purely monetary terms you would come out ahead with the lower down payment strategy, and that is before the tax benefits are included in the calculation, which would swing the calculation even more in favor of the lower down payment strategy. The one big caveat here is that you actually have to invest that lump sum, generate a consistent return, and not withdraw the investment for the 30 years in order for the calculations to be valid. Keep in mind too that there are fewer lenders willing to give you a mortgage with only 5% down these days, while many more are happy to do so with 20% down.

So, once you decide how much of a down payment you are going to use, you can calculate how much house you can afford. One problem faced by borrowers today is that lending guidelines have been changed to the point where you can actually get a house that costs too much for your budget. This condition wasn't as prevalent in the past, although now the pendulum is swinging back the other way. Most lenders allow a figure of 36% of your total gross income be allocated for debt payments, including your mortgage. I'm more comfortable with approximately a 33% debt allocation figure.

Many financial experts suggest that you can calculate how much house you can afford using 25% of 25% your monthly income. That is very fiscally conservative and likely to keep you well within your means. The only problem is that in many metro areas of the US, you just can't get much house at that figure, and in some areas you'd have to have what some would call a really good job in order to buy a house.

For example, according to the NAR's median sales prices for single family homes data (Q1, 2008) the media sales price of a home in Atlanta, GA is $154,000. That pencils out pretty well. If you put 5% down, you payments would be $868 per month. Add some property taxes and you'd be at about $1050 per month. You would need a monthly net income of $4,200 to afford that median Atlanta house. Cities such as Houston, Memphis, Pittsburgh, and St. Louis are even more affordable. The problem with the 25% calculation comes into play in some of the more expensive housing markets in the country. If you live in San Francisco or the surrounding areas, you'll pay about $775,000 for the median house, requiring a monthly income of $17,460 to stay at the 25% level.

This illustrates a point. As your income rises, you can actually afford to spend proportionately more on a house, because your other expenses will not rise to the same extent. For example, if you live in the Bay Area, in the median house, you will probably not need $13,000 a month to cover the BMW payments and your dining expenses. It also illustrates why so few people starting out can afford to buy a house in the more expensive metro areas. I dare say that not too many of you jumped into the job market with offers of $209,520 annual salaries! Other cities where you probably can't afford to buy a home unless you already own one include San Diego (median house $459,000), Los Angeles ($459,000), Honolulu ($620,000), Boston ($357,000), Bridgeport, CT ($439,000), New York City ($445,000), Newark, NJ ($409,000), and Seattle ($372,000).

So, the question of how much home you can afford can be easily answered, but in many areas of the country, the answer is just “NO!”

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Mortgage Terms - Good Faith Estimate
The good faith estimate in your mortgage paperwork was mandated by Congress in 1974 as part of the Real Estate Settlement Procedures Act (RESPA). This was done in part to limit the rampant process of many supposedly impartial third parties in the mortgage process getting kickbacks for such things as title insurance. The good faith estimate give the prospective borrower a complete list of all the fees and rates associated with the loan.

These mortgage fees and charges are categorized according to a number. The number corresponds to the same number on HUD forms and gives an indication as to the type of charge or fee. The classifications are in 100 number increments, and there are many different items you may find within each classification.
800's – payable in connection with the mortgage

900's – must be paid in advance

1,000's – paid into a reserve with the lender

1,100's – title charges

1,200's – government charges for recording and transfer

1,300's – anything else

Keep in mind that it is called an estimate for a reason. Good faith estimates can and do change, often in the 11^th hour. So keep in mind that although you have a good faith estimate in your hands, it may not be the actual mortgage you end up with.

Mortgage Terms – Appraisal
This is a professional opinion of a properties value. Appraisals are performed, appropriately enough, by a real estate appraiser, who takes into account things such as the properties location, the type of structure and the surrounding neighborhood. One of the key elements used to determine the value of your property or one that you are looking to buy, is the recent selling price of similar properties that are close by. These are known as “comps” in the real estate world. In most cases the buyer must pay for the appraisal. The results of the appraisal are typically reported on a Uniform Residential Appraisal Report form.

Mortgage Terms – Annual Percentage Rate (APR)
APR is one of the most misunderstood terms associated with a mortgage. It is actually a number intended to make comparing mortgage rates easier. When comparing a mortgage, an apples to apples comparison is often very difficult due to the plethora of fees and charges that are tacked on. When the effect of these additional moneys are taken into account, the effective interest rate changes because you're financing more than just the home's price.

As with the good faith estimate, the APR is required by law to be disclosed to the borrower. Although it is better than nothing, the APR still fails to give buyers the one, easy to compare number that it was intended to. This is mostly because there isn't a standard for which fees and charges must be included when calculating the APR. It is a good starting point for comparisons though, and better than nothing. Keep in mind that the APR calculations are dependent upon the term of the mortgage so different length mortgages cannot be compared using the APR. For example, the APR of a 15 year mortgage cannot be directly compared to the APR of a 30 year loan.

Mortgage Terms – Acceleration Clause
This is a clause in the mortgage that allows the lender to accelerate the repayment of the loan. In most cases it allows the lender to demand the entire outstanding loan balance. This provision is usually invoked if the applicant defaults on the mortgage or is found to have provided false information in order to get the loan.

Mortgage Terms - Earnest Money -
Earnest money is given by the buyer to the seller to prove they are serious about wanting to buy the property. It is basically a deposit. Earnest money will be delivered to the sellers along with a formal offer to purchase the property. It is usually 1% to 2% of the selling price. Earnest money deposits are helled a trust account and are used as part of the down payment if the trans action goes to fruition. In the event the deal falls through, any cancellation fees are taken out of the deposit before it is returned to the buyer.

Mortgage Terms – Points
Points are equal to 1% of the loans amount and are used to effectively “buy down” the interest rate in the case of discount points, and pad the lender's pockets in the case of origination points. You will often see the term in ads for mortgage rates. In this case they are referring to discount points. If you see an ad the offers a mortgage at 5.75% with 1 point it means that you would be paying an additional 1% of the loan's value in order to receive a lower interest rate. For example, if the mortgage amount was $250,000, 1 point would equal an additional $2,500.

Points are prepaying the lender interest, rather than making them collect it over the term of the loan. So, in exchange for paying the additional $2,500, you would get a lower interest rate, typically about 1/8 of a percentage per point. Points will lower the monthly mortgage payment at the expense of additional up front money. It will take some years to make up the additional money, so you'll have to determine weather or not it makes financial sense for you.

Stay tuned for more mortgage terms soon. Have a great, Debt Free week. Go Cougs, beat NC!!

Posted by debtblog at 02:10 PM | Permalink | Comments (0) | TrackBacks (0)

When I bought my home some years back for instance, my lender informed me that I could afford a home that cost $235,000. At the time, my wife and I thought the better of buying such an expensive house and settled for one that cost $152,000, although we looked at homes that cost up to $195,000. We actually made offers that were up to $189,000. In retrospect, it turned out to be a great decision to avoid a home in the $200,000 plus price range. After having kids the extra cash every month was definitely welcome. Some of the homes in the upper $180,000s would have been nice though, and we would have made up some of the difference in the lower maintenance costs associated with a newer home.

How do you answer the question of how expensive a home to buy? Many experts recommend buying a home that costs no more than 3 times your annual income if you’re putting 20% down. Needless to say (but I will anyway) a 20% down payment can be a stretch for a first time homebuyer, especially in some of the more expensive metro areas throughout the country. The 3 times the annual income isn’t a hard and fast home pricing rule, and can be altered by your expected annual income increase and your debt level.

If you are carrying very little debt or are in a career where you reasonably expect to receiver rapidly growing compensation, you may decide it is worth it to take on a higher priced home. I tend to break on the conservative side of this however, and many homeowners that find themselves in trouble today got that way due to buying a home that was too expensive. When the expected income gains failed to materialize, they couldn’t refinance, or they had an unexpected major expense, their mortgage payments were difficult or impossible to maintain. 

Be a bit conservative when deciding how much home you can afford. Take into account your current, and perhaps more important, your expected future level of debt. If your debt level is greater than 10% of your annual income, ratchet back your expectations a bit and buy a slightly less expensive house, in the range of 2.5 times your annual income.

Also consider the local real estate market, current mortgage interest rates, and your family plans. If you plan on having a large family, for example, it might be better to buy a smaller, lower priced home now. Later you can use your equity to get into a larger home, when you really need the space and your career is more advanced. If mortgage interest rates are quite low, as they are now (5.74% for a 30-year fixed, as I write this) you’ll be able to afford slightly more house, but you’ll also want to take more advantage of the relatively inexpensive money. This increases your ROI as the value of your home appreciates.

Your new home price should not be the total of the largest loan you can qualify for and every last penny worth of cash you have to your name. It’s a difficult decision, because the family home is the best investment for many families, and one of the only ways that many people generate any real wealth. However, if your employer offers a retirement plan with matching contribution, you may be better served to go a bit more conservative on the house and put the remainder into your retirement plan. This will allow you to take advantage of your employer’s matching and leave your less likely to run into problems down the road in the event of an unforeseen financial difficulty.

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According to a report released at the end of last month by RealtyTrac, the nation's leading information source on foreclosures, there were 215,749 foreclosure filings in the month of December. This represents an increase of 97 percent over December of 2006. RealtyTrac reports the total for Q4, 2007 was 642,150 filings. This is 86% above the foreclosure total for Q4, 2006. Nationwide total filings for the year 2007 was 2,203,295. Almost 22% of these, 481, 392, were in California alone, although due to the large number of properties in California, this only equates to 1.9% of households in the state.

The state with the dubious distinction of having the highest property foreclosure rate in number of properties in some stage of foreclosure per population falls to Nevada, at a rather stratospheric 3.4%. Because Nevada is a rather sparsely populated state that only equates to 66,000 foreclosure filings. Another state experiencing foreclosure woes is that peninsula of bluehairs in the Caribbean, Florida. Florida reported 279,325 foreclosure filings in 2007, a foreclosure rate of a little over 2%.

Why are these areas experiencing such high foreclosure rates? Part of the reason may be because they also had major price run ups over the previous 5 years, with some of the highest real estate appreciation rates in history. In some cases properties in areas of California, Nevada and Florida were climbing over 30% per year for a few years in a row. This all started in during the end of the 1990's or early in this decade. By a year or two ago, the trend had reversed itself.

Florida, California, and Nevada were 3 of the states experiencing the highest rates of property appreciation in 2001 and negative or very low appreciation from 2006 - 2007. The top 13 real estate markets ranked by average annual appreciation in 2001-2 were all in California, according to Realtor.com's house price index. They also had number 20, with San Francisco occupying that slot in the survey for 2001. California also grabbed numbers 24 and 35. Florida had 3 of the top slots, numbers 17-19. They also had numbers 26, 31, and 37. So between them Florida and California had over half the top 40 metro areas with the highest property appreciation rates early in this decade.

Looking at real estate appreciation rates between 2006 and 2007 we find that oh, how the mighty have fallen! In fact, many of the same areas that were flying highest in 2001 - 2002 have experienced drastic property depreciation in the last 2 years. Between Q4 2006 and Q4 2007 the state of California as a whole saw property values decline an average of 6.6% according to the U.S. Office of Housing Enterprise Oversight. Some areas in California fared even worse.

The LA Times reported 3 weeks ago that home sales in southern California fell to their lowest levels in over 20 years, with the number of homes sold down over 44% from this time last year. The median home price in the 6 county region has eroded 18% in the last year, and of the homes that did sell, 25% were in some stage of foreclosure. Riverside County experienced the largest decline in home pricing of the 6 at -20.1%, while San Diego homes only lost an average of 9.1% of their value for the 12 month period. In 2001, Riverside had the 35^th highest real estate appreciation rate in the country, at 10.9%, while Orange County was in 42^nd , with a 10.5% appreciation rate.

The National Association of Homebuilders Housing Opportunity Index, which ranks the affordability of housing in metropolitan areas, shows that in Q4, 2007 California cities occupied 24 of the bottom 25 slots in the affordability index. This means that the median home price is higher as a percentage of the region's median income. 23 of the 26 areas had a median income higher than the national MSA average of $59,000. Many of the least affordable areas of California were actually in the Bay area, where real estate values have yet to implode, although incomes there are relatively high. In Florida, the Miami area ranks highest, reaching number 12 nationally on the list of the least affordable housing, with Naples – Marco Island coming in at number 33. Remember, California didn't leave much room for anyone else at the top.

So is the level of foreclosure as bad as it's being reported? In some areas, yes, while in others not so bad. California is dragging the national average way down, with their large number of foreclosures. This is partially due to the continued unaffordability of residential real estate despite declining home values. The lack of relatively affordable housing has led many prospective homeowners to go the unconventional financing route. The dropping home values have left many people with the more aggressive ARMS unable to refinance, and so, here we sit.

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After the home has been transferred, it is sold at auction. You've seen those late night ads and websites that promise to show you how to get government homes at auction. Well, in many cases there's no reason to pay for a website or whatever the late night infomercial is selling. You simply go to HUD's website and choose the state where you want to find a HUD home. You'll get a look at HUD homes for sale in each area. Despite all the stories of getting homes at 10 cents on the dollar, discounts typically run 10% - 15% off normal home retail prices.

One other point of interest for those looking into this avenue of home ownership; you must use a real estate professional that's been through the HUD approval process, and is certified to deal with HUD properties. Ask your real estate agent if this applies to them if you are trying to bid on one of these properties at auction.

Now, about this whole HUD homes at 50% off business; HUD's name actually gives a clue into how you can get these homes at such a tremendous discount. It's in the Urban Development part of their name. Many FHA properties are at the lower to middle end of the scale in terms of price because FHA insured mortgages are usually used by a huge number people to buy a home, and are especially popular with first time home buyers. Their popularity stems from the fact that down payment requirements are very low, normally only 3%, and there are no income requirements. If you have an adequate credit score and have the down payment, you will probably qualify for an FHA mortgage.

Because it's not in anyone's best interest to have blighted urban areas, your friendly Federal Government has come up with a program or two to help spruce things up a bit. Someone figured that one great way to help make ugly areas a bit more beautiful would be to have responsible homeowners live in some of these areas. Even better would be to have police officers, fire fighters and teachers, veritable pillars of the community all, take up residence in such centers of urban blight. After all, there's probably going to be a bit less crime in a area when it's populated by a higher than average percentage of the boys in blue.

So, here's how you can qualify for your 50% discount off HUD homes. First, spend a few months at your local police or fire academy. You can also get a teaching degree, if that's more your style. Here's how the program works. Certain areas with strong support from local and county governments have been designated as “revitalization areas” by HUD. These are areas where a bit of community and economic development would transform them from crime ridden neighborhoods that need help into areas of the city where responsible taxpayers call home and business owners set up shop.

To encourage police officers, EMTs, teachers and fire fighters to take up residence in revitalization areas, HUD has what they call their “Good Neighbor Next Door Program”. If you are one of the aforementioned groups, you are eligible to purchase a HUD home at auction for a 50% discount. If you consider that you're probably getting a 10 – 15% discount anyway, this is a really attractive proposition. On revitalization properties, HUD opens up the auction for a period of 5 days exclusively for those persons who meet the eligibility requirements.

What's the catch? Well, there really isn't one, except the requirement that the home be your only residence for at least 3 years. That's a pretty good deal, especially if you consider that your very presence will likely raise local property values. If you can talk a few of your friends at the department to buy homes close by it will help home values appreciate even more. So, not only can you help revitalize your community, but you can really help revitalize your finances by getting so much home equity in such a short period of time. Remember that you have to use only those real estate agents approved to handle such transactions.

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What are the causes of this dramatic increase in house foreclosures, and house foreclosures in general? Traditionally the top 3 causes of foreclosure for residential mortgage holders have been medical problems, divorce, and unemployment. Has this changed as foreclosure numbers continue to do their Sir Edmund Hillary impersonation? If the causes of foreclosure have changed, does this also change what the average troubled homeowner can do to prevent them? According to statistics released from Countrywide financial in the summer of 2007 the traditional top three causes of foreclosure are still at the top. Interestingly, the Countrywide statistics attribute adjustable rate mortgage payment adjustment as the cause of only 1.4% of foreclosures. Weather or not the increased mortgage payments were contributory in any of the other foreclosures was not revealed.

Countrywide did attribute 6.1% of foreclosures to investors who were unable to sell their properties in a softening real estate market. Presumably such investors would be more likely to let properties fall into foreclosure than would homeowners facing a similar situation with their primary residence. That could possibly account for part of the relatively high percentage of foreclosures experienced by these investors. As an aside, Countrywide indicates they have modified approximately 81,000 mortgages to help prevent mortgage holders from falling into foreclosure, while the Mortgage Bankers Association just reported that 54,000 such modifications took place industry wide in Q3, 2007. Do these numbers add up? Countrywide may be counting some of the 180,000+ mortgage holders who restructured their payment plans with lenders in the same Q3 of last year. The MBA indicated that the difference between a payment adjustment and a modification is that modifications include interest rate adjustments.

If you do need a mortgage however, times have never been better to get one, if you can pry the money from your lender’s clammy fingers, as mortgage interest rates have dropped to near record lows. As this is written, Bankrate.com is reporting the average interest rate on a 30 year, fixed rate mortgage is an attractive 5.31%, while a 15 year loan will reward you with an average 4.82%. This points to the importance of refinancing an ARM, if in fact you still have one. Most people who have an ARM have already been frightened into converting to a fixed rate mortgage by the voluminous press regarding foreclosures and other mortgage problems.

If you have not done so, and you’re not planning on selling your house soon, it would be prudent to take advantage of these low rates. Not to sound like one of those ads we all hate for mortgage lenders, but it really is a good idea. It amazes me that so many people bought well over their heads using one of the plethora of creative mortgage products that were introduced in the first 6 years of this decade. If you were one of these folks, take advantage of the silver lining that our current economic fears have spawned, historically low mortgage interest rates (that we thought would never be back).

If you are facing foreclosure, there are things you can do to help head off the proceedings at the pass, so to speak. I did a post on how to avoid foreclosure a few months ago which you can reference for more information on avoiding or stopping foreclosure proceedings.

Posted by debtblog at 05:24 PM | Permalink | Comments (0) | TrackBacks (0)

If you are looking to make the leap into home ownership, and are a bit savings challenged, here are a few down payment assistance solutions you can look into. It might be just what you need to finally get a house of your own.

For all you home sellers out there, just dying on the vine because your house hasn't sold, especially if you bought a new house before you sold your old one, these could be a tool you can use to help market your house. It might be the one thing that helps you get out from under that old house and all its expenses.

Get Downpayment Assistance From a Charity
No, I don't mean call up the Red Cross or the American Cancer Society and ask them for a handout. It works more like this; a 501(c)(3) non profit organization or charity gets a contribution for the amount of the down payment, which they then transfer to the seller. The contributor gets a tax deduction for the contribution and the charity pockets a service fee. You get your down payment. What a deal! No doubt.

As with anything that seems too good to be true, there are some problems with the arrangement, namely for the IRS, who hates to let some good tax dollars go to waste. In 2006 they published a notice with the intent of removing the tax exempt status of 501 (3)(c)s who's primary activity was to move money from sellers to buyers in order to facilitate real estate transactions. Shortly thereafter HUD followed suit, releasing a proposed rule that would forbid the use of this process for the purchase of FHA properties.

Ah, but not so fast! The HUD rule only states that if you use an FHA loan, you cannot use down payment assistance if seller financed organizations are the source of the money. You can still use this method if you are not using a FHA financing or if you use a non profit, or charity organization who's chief function does not entail financing down payments using money from sellers.

In addition, in October of last year, the DC U.S. District Court denied HUD from prohibiting the seller financed transactions until such time as they can further review HUD's rationale for their decision. The Court basically said they felt HUD didn't do their due diligence before issuing they made the ruling. One important note here. One of the reasons HUD made their ruling in the first place is that in their opinion, such financial sorcery artificially inflates the selling price of the home, costing the buyers money. This is due to the seller passing along the service fee charged by the charity for the transaction.

That may be true, but numerous organizations in the home buying process pass along fees to one or more of the parties involved. At least it allows people to actually buy a house when they could have otherwise not done so. The problems arise when people buy a house they can not afford, because they have no down payment requirement and they get a mortgage based upon shaky financials (probably not going to happen so much anymore).

The National Association of Realtors is pushing for a 0 down FHA program to be implemented. Their reasoning is that eliminating the down payment requirement will remove the incentive for these assistance organizations. That may be true for homes bought using FHA loans, but what about all the rest? As house prices rise, the problem of obtaining sufficient funds for a down payment is only going to be exacerbated. Thankfully for buyers, they are experiencing a temporary reprieve, as real estate values have declined in many markets. In the long term however, this pricing trend will inevitably reverse itself. Even so, the prospect of a recent college graduate, new to the workforce, plunking down the down payment for a new home can be a bit laughable, when you consider the price of homes in many major cities.

Even at 3%, this can add up, depending on where you land your first job. For example, the average home price (preliminary Q3, 2007) in Indianapolis, Houston, and Omaha was between $125K and $155K. The average college graduate or young family may be able to come up with the $6,000 they'd need to get into a home after all was figured in. However, if you find yourself in Seattle, Boston or Washington DC, you'll find the going a bit tougher, with homes fetching around $415K.

If you've come to the sun of SO Cal, forget it. To get the average priced home in Orange County you'll need $700K, one in L.A. will cost an average of $588K(that factors in the many really bad L.A. neighborhoods, so a nice house will cost more than you'd think), and San Diego brings $589K. Not only can you not even get an FHA loan that big, if you could, you'd need to have almost $20Gs stuffed in a bag, an amount few recent college graduates, or any other workers with young families have a prayer of getting.

Get Downpayment Assistance From the Government
Speaking of Southern California, the Golden State is one of the states that has an Austrian born Governor...wait, wrong post, I mean a state guaranteed, no down payment program for home buyers. California's is known appropriately enough, as the California Homebuyer's Downpayment Assistance Program (CHDAP). As with many such assistance programs, they work by combining an FHA loan and a “silent” second mortgage. Given the state's relative dearth of homes that could possibly qualify for FHA financing, especially in the major metro areas, one might ask about the relevance of such a program, but something is better than nothing. If you live in California, or may be relocating there soon, you can find out more about their program at the California Housing Financing Agency's website.

Washington State has a similar program fro down payment assistance if you are disabled or have a disabled person living with you. It is termed the HomeChoice Second Mortgage Program. One wonders how much money states might save if they stopped hiring marketing consultants to come up with catchy names for state programs. In any case, to learn more about Washington states program, visit the Washington State Housing Finance Commission's website.

Arkansas, a state who's had 2 of the current Presidential candidates reside in it's Governor's Mansion (triple-wide) has such a program too. Theirs is targeted at first time home buyers and is offered by the Arkansas State Development Finance Authority in cooperation with a Federal program, the American Dream Downpayment Initiative (In this case, the Feds hired the marketing consultants), which was originally signed into law by President Bush in 2003. Arkansas' down payment assistance program provides downpayment and closing cost assistance for low income families making 80% or less of the area's median income. See it at the Arkansas Development Finance Authority's web page.

To find out more about the Federal DPA program, check out the American Dream Initiative website.

There you'll find about each state's program that ties in with the ADI. However, many other states have other programs that are not affiliated with the federal program, so take the time to visit your state's housing, and/or finance authority or agency website to find out how to qualify.

Posted by debtblog at 02:44 PM | Permalink | Comments (0) | TrackBacks (0)

In many real estate markets these days selling a house is no easy task, never mind selling your own house. Be that as it may, there are times that you may have to do just that, either by choice or circumstance. If you find yourself in the position of having a house on the market, selling it sooner, rather than later is probably your overriding concern. I've seen a few friends watch their house languish on the market for months recently, and believe me, it's not a good position to find oneself in. Any house payments you make while your home is on the market basically come right out of your profit, because the lion's share of that payment goes straight to mortgage interest, not to reducing the principal balance.

If you are selling your own house, here are some tips that can make the task a bit easier.

Tips for Selling Your Own House 1 -
Price the thing realistically. I know it's your own house, and it's full of your memories, but you've got to put yourself in the position of a prospective buyer. They have no such memories of your abode and if you want them to get any, you can't overprice the thing. Remember, the longer your house sits unsold, the lower your profit. Over pricing will cause a property to sit, instead of sell, and in fact is the number 1 cause of a failure to sell, according to a survey of sellers done in 2006 by real estate firm HouseHunt Inc. It is far better to price it a few percentage points low and sell it right away, than to price it a few percentage points too high and have it fail to sell for 3 to 6 months (or longer). One last bit of pricing advice; price it on the low side of $25K increments and it will be seen by more online browsers. For example, you'll get many more views at $349,950 than you will at $354,950, because of the way most real estate websites search for homes (in $25K or $50K increments).

Tips for Selling Your Own House 2 -
Don't buy a new house before your house sells unless you have no choice. Many Realtors say it's much tougher to sell a vacant property than one that looks happy and full. If you must move out, go ahead, but you should be aware that NAR surveys have found that you're about 10% more likely to reduce the price of your home at some point in the selling process if it is vacant. So if you can, a hot tip is not to move out too fast. You can always rent a place to live while you're finding a new home. It is, after all, a target rich environment for buyers these days, not the seller's markets of years past. Finding a new home will be the least of your worries.

Tips for Selling Your Own House 3 -
Make sure it looks good from the street. Reeaal good. As in “I have to live here” good. Curb appeal is one of the largest factors in setting a positive impression in people's minds when they're house hunting. After a day of looking at 8 - 10 houses, you want yours to be the one they remember. Make sure it's clean, and there are no glaring flaws, especially flaws visible from the street. Look at the landscaping. That is one area that can cause the price to appreciate if it is very good, and actually reduce the price of your house if it is not.

A study published in the Journal of Environmental Horticulture in the 1990's found that for some houses, the landscaping can reduce the selling price of a house by a staggering 10%! Even if it's only 5%, or if it causes your house to stay on the market an extra 90 days, mow the freakin' yard, for Christ's sake! Actually make sure the hedges and bushes are well trimmed, the lawn is completely manicured (unless it's covered by snow now) and there a no dead spots. A new layer of beauty bark is very effective as well, especially the kind that's treated to stay looking new for a year.

Tips for Selling Your Own House 3 -
Make sure it's up to date. You could try to sell the house with the drab, old kitchen, but the price you pay to have the kitchen updated will likely be recovered when you sell, and could easily keep the home from sitting unsold for a long while. New homes now are replete with solid surface counters and stainless steel appliances in many neighborhoods. If your home isn't, and competing new homes are, it could be a tough sell.

Cough up the $8,000 - $12,000 to have the kitchen appliances replaced, and the counters resurfaced if that's what the competition has. Not only will you likely recover all, or most of the cost, but it will likely save you costly market time. Refinishing or refacing the cabinets may be a good idea as well, if yours are a bit worn or dated looking. Failing that, you can at least paint them. Recovering or refinishing the floor is another good use of your money.

Another relatively inexpensive area you can address to make your home look up to date is the lighting fixtures. Old lighting fixtures are one of the things you can replace for relatively little money that have a tremendous impact on the appearance of a space. Ditto the front door. It's the gateway to your palace and something that makes the first impression. For $400 - $600 you can replace it with a nice, new one.

Home Tech Information Systems and Remodeling Magazine publish their cost vs value report on the percentage of costs recouped by various remodeling projects. Here are some interesting bits from the 2006 report. The report actually breaks down improvements by region, as well as nationally. Because the house market in general is not as strong as the last few years, some of the percentages are lower. In addition, you should be sure to factor in the content of other homes in your area and price range. There's no sense in completely remodeling your hoe with a new Wolf gas range, Bosch Dishwasher, Sub Zero refrigerator and slab granite counter tops. If that's far above the standard for other homes in your area and price range. You may sell you home faster, but you won't recoup your investment on a dollar cost basis.

Here are some of the highlights of the report:
% returns on remodeling investments -

Vinyl Siding replacement 83.1% (unless you're in New England, where you'll get 94% back!)
Fiber backed siding replacement 88%
Minor Kitchen Remodel – 85%
Bathroom remodel – 85%
Bathroom addition – 75% (reflects the higher costs associated with the addition, but remember, to factor in your neighborhood norms. For example, if all the homes in your neighborhood have 2.5 baths, and yours only has 1.5, you are in a much better position to recoup you investment. You'll also sell your house faster)
Attic bedroom remodel – 80%

The number one tip to revitalize a space and make your house sell faster is repaint the interior. You'll cover a multitude of problems, make it look better and give it that new house smell people love. The best thing is that paint costs very little and even the most handily challenged can do it in a weekend or two.

Tips for Selling Your Own House 4 -
Clean everything like your life depends on it, including windows, screens, tile grout, and inside the cabinets and closets. Cleanliness is next to godliness, except when you're trying to sell your house, then it's sitting on top of it.

These tips can help to sell your own house, and can keep it from sitting on the market while you forlornly watch your bank balance wither away. For more powerful tips and strategies on making sure your house sells for top dollar, in any market, pick up a copy of the Home Staging Course. It's really targeted at those who'd like to start earning money with their own home staging business (would that be such a bad idea?), but it is full of powerful strategies to help you sell your house as well.

Posted by debtblog at 04:54 PM | Permalink | Comments (0) | TrackBacks (0)

How these rent to own, also called lease to own plans typically work is that you pay rent plus a small additional surcharge that goes toward your future down payment. You’ll usually pay an option fee for the privilege of participating in the whole shebang. In most cases you’re actually not renting to own, but renting with an option to buy. You will have to exercise the purchase option by the expiration of the option period.

What to Watch Out For in a Rent to Own House 1 – Contract stipulations - As with any other legal arrangement or real estate purchase, look over the contract very carefully. It should stipulate the price of the house, the length of the option period, the option fee, the rent payments, and the rent premium the potential buyer has to pay. In addition as a buyer you should be very aware of any other stipulations and clauses that could have you out in the street. In most rent to own housing arrangements, you will forfeit the fees and premiums if you are evicted, fail to make payments or decide not to exercise your rent-to-own option. Make sure the former isn’t too easy.

What to Watch Out For in a Rent to Own House 2 – Fairness - Make sure that the renal contract isn’t too one sided. In a few instances, sellers know they have a buyer with few options due to poor credit and/or few available funds. They can use the buyer’s desire to own a home, coupled with their relative lack of ability to do so, to put them into a one side contract. Don’t let that happen to you.

What to Watch Out For in a Rent to Own House 3 – Home Price. Make sure that the premium you pay isn’t too high. One of the goals is to be able to exercise your purchase option. You’ll have a much better chance of doing so if the house appreciated by the end of the option period. Similar purchase options on stocks, purchase options on homes state that you can purchase the house for an agreed upon price at some point in the future. You are gaining equity in the house as it appreciates above your option price. The goal is to accumulate sufficient equity such that securing financing is relatively easy, even with bad credit. Obviously the lower the home’s price, the greater you’ll benefit from appreciation.

What to Watch Out For in a Rent to Own House 4– The Real Estate market - In many areas home values are down. The question is how long they will stay depressed. If values stay low throughout your option period, you may not have enough equity in the home to purchase it. Evaluate the market in your area thoroughly before committing to such an agreement.

What to Watch Out For in a Rent to Own House 5 – Problems and repairs. Another section of the contract should determine who is responsible for any needed repairs to the property. It should state which party pays for different types of repairs. You don’t want to get stuck paying for a new roof, for instance, only to either decide not to exercise your option or be forced to leave.

The bottom line is that rent to own can be a great strategy to purchase a home, if you have few other options. It beats losing money on rent and can also be a great way to try out a neighborhood or home before you buy it. Just watch out for those details that can make your life a bit rough.

Posted by debtblog at 01:37 AM | Permalink | Comments (0) | TrackBacks (0)

Thing to Check Before You Buy a House 1 -
This first thing to check before you sign the papers are the papers themselves. Have your mortgage contract looked over by a real estate attorney. In addition to that, you should peruse them yourself, even if you think it's all a bunch of legal mumbo-jumbo. Every day there are sob stories in the media about someone who claims to have been sold a bad loan by this or that lender or mortgage broker. Guess what? In many cases they got the loan due to their own greed and / or ignorance. Outright fraud or misrepresentation is one thing, but many times this never occured.

It's true that you should be able to trust your lender or broker, but far too many people were so eager to get their house or loan that they failed to even perform some basic due diligence. Come on, people! You are about to sign what is, for the majority of people, the largest contract of their lives. Before you do so, you owe it to yourself to have at least a basic knowledge about mortgages. If you don't know what an ARM is, at least find out before you agree to one! You should not only find out what it is, but you should be aware the financial implications of it.

Thing to Check Before You Buy a House 2 -
Take a look at the neighborhood schools. Even if you will never avail yourself of their services, it is important to know about them for a couple reasons before you purchase your house. First of all, even if they are not important to you, they are to many people, and thus the quality of the schools in your neighborhood can have a major impact on the resale value of your house. Secondly, look at how they are financed. With many schools today, it seems to be all about the money. Where do think all that money comes from? That's right, the property taxes on your house. Some of the school's budget will come from federal and state grants, but much of it will come from your property taxes. You need to check on how they are paying for the schools, along with their levy and tax history.

Thing to Check Before You Buy a House 3 -
Does your house have a propensity for flooding? Look at the FEMA flood hazard index and check the local news archives. This is vital if you think there's a chance of flooding. All houses are in a FEMA flood zone, it's just a question of the severity. If your house is in an area that has a flood history, you may get the short end of the stick when it comes to rebuilding after a flood. You can look up FEMA's flood zone info on your prospective house here:
https://hazards.fema.gov/femaportal/wps/portal

After every flood there are plenty of people who lose everything who should have known better. If you build or buy a house in an area with a known flood history, you have no one to blame but yourself when the inevitable happens, and it floods again. Sadly many of these people look to the government (our tax dollars at work) for a bailout in this situation. I have absolutely no problem spending tax dollars to help rebuild a community in the event of a rare, serious flood. I do, on the other hand, object strenuously to spending our tax dollars to help someone rebuild their house, again, because they built on a lot only 5 feet above the level of river that floods every 5 – 10 years, like clockwork.

One note on FEMA flood zone data, it is being revised in some areas. Find out if your area is affected by the revision before using the data. In most cases flooding will not be covered by your homeowners insurance, so if you do sustain flood damage, the repair and property replacement will come out of your pocket. In addition, you don't want to buy a lot for your dream home, only to find out later that a home is un-insurable due to flood hazard. If this is the case, you'll probably have difficulty getting a construction loan to get the house built as well.

Thing to Check Before You Buy a House 4 -
Look carefully at the CC&Rs. Many communities have CC&Rs (Covenants, Conditions, and Restrictions) dictating many things about how you can use, and what you can (and must) do with your house and property. This is legal contract you enter in to with your neighborhood's home owner's association. CC&Rs are just what some people want, because it mandates things such as lawn condition, and house color for example. They can keep you from parking your boat in the street, or limit how long vehicles are parked in front of your house.

You want to be aware of all the provisions contained therein however, because you do not want to buy a house with the intention of using it a certain way, only to discover that you desires are prohibited by the CC&Rs. This is serious stuff, so don't underestimate the importance of it. People have actually lost their homes fighting the home owner's association over CC&R provisions. It pays to be informed before you buy your prospective house.

These are just 4 of the myriad things you should be aware of before you buy a house, there are countless others, but many people never consider these 4 items.

Posted by debtblog at 02:09 PM | Permalink | Comments (0) | TrackBacks (0)

You can try to console yourself with all the money you saved by not hiring a lawyer to draw up or examine your contract while you’re grieving aver how you got taken to the cleaners. You may think you can just take this stuff lightly, and far too many people do, despite the advice of experts. However, failure to take this simple precaution can be fraught with peril. I have a neighbor who is selling their home and an adjoining vacant lot. They had listed their home and the lot as a package deal, with the lot at a $20,000 discount over its price if purchased separately.

A prospective buyer made an offer on both, but subsequently had their financing on the home denied. The financing on the lot however, was approved. The way the two properties were listed, and the way the contract was written, the purchaser was able to purchase the property for the discounted price, although they didn’t buy the home along with the lot. Needless to say (although I will anyway) my neighbor is a bit miffed over the whole situation, being out $20,000.

Paying a lawyer a few hundred or a thousand dollars to draw up the contract could have avoided this unfortunate situation, and my neighbor would have an extra $19,000 in the bank today because of it. Think about it the next time you’re tempted to bypass the important step of having your real estate lawyer examine a contract when you’re a buyer, or draw up a contract if you’re the seller. The money you save will be your own.

There’s nothing wrong with using a stock form for some things, or having one of those discount, on-line legal form services create your documents for you. They work well, and can save you substantial money for certain things. Real estate transactions are not one of them however. For that, you need the real thing. There’s nothing like witnessing something like that up close to drive the point home. If you do need a lawyer, here's a free service that is much better than just guessing your way through the yellow pages. Attorney Referrals

Posted by debtblog at 01:35 PM | Permalink | Comments (0) | TrackBacks (0)

I just had the house down the street from me go on the market for about 5-7% higher than many predicted it would list for. It's a 40yr old, 3 bed / 1.75 bath rambler at about 1,300 sq feet. It has a nice large yard with entertainment deck and kid's play set, some quality improvements inside, such as tile kitchen counters, nice baseboards and freshly refinished hardwood floors. The asking price is $344,777. If they sell for anything close to that figure it would sure help the property values for the rest of us on our little street. They did many of the things that experts advise when trying to sell for top dollar. These are all the standard things you should try. After that we'll get to some of the more unconventional items.

Curb appeal -
Good first impressions are vital when you're trying to sell your house. I've posted on the importance of this before, and it bears mentioning again. You want to ensure that prospective buyers at least get out of their real estate agent's RX350 and take a look inside. Remember, in many cases their agent has never seen your house before either. You want to clean everything until it's spotless, make the front yard look great (even if it means spending a few dollars on landscaping) and make sure the porch area is inviting. The front door, the door hardware and all sidelights and windows around the front door should be in great shape, with no cracks or peeling paint. Ditto the porch and sidewalk. Unless you're going after the investor or the sweat equity buyer (not a very large chunk of the market), those areas can be a major turn off for buyers if they are in a state of disrepair.

Inside the house -
There's a reason so many new homes have soaring entries and dramatic staircases, even if the size of the home doesn't seem to warrant it. Home builders know how to market their homes, and they've found that the impression it creates on prospective buyers helps the home sell. You may not be able to create such a space if your house doesn't already have it (trust me, that's an expensive remodel and you won't get the money back), but you can use the same principle on your house. As with the front exterior, you want to be sure the interior first impression is favorable. Refinish the entry hardwoods, install new tile, and/or paint. If you've got a ratty, old light fixture in the entry, replace it. The $50 you spend at Home Depot will be well spent.

Clear out as much of your furniture as possible, especially if it doesn't match ( I know you prefer to term it an “eclectic collection”, but everybody else will see it as a junky mess), get the pictures off the walls and paint them (the walls, not the pictures) to hide the fade marks where those images of Uncle Harry, Aunt Jean and the kids were hanging for the last 10 years. You want people to take mental ownership of your home as soon as they walk inside and pictures of someone else's family don't help them to make that leap. If you have any colors that are too far removed from the norm, cover them with a fresh coat of Benjamin Moore in a more subdued hue . You're trying to appeal to the widest number of buyers there, Ace. Mazda's marketing plan of making products that a few people really like, as opposed to the broad market liking a little bit, doesn't translate well to the real estate industry.

Your real (estate) selling plan -
Now that you've handled the basics, you may have to get a bit more creative. Hopefully your home will sell quickly. If not, you may have to resort to some more creative selling tactics. One thing many people want to do if their home doesn't sell quickly is lower the price. While that may do the trick, it may just create the perception that the house was too expensive, and may not be worth what you're asking, even now. You need to find and overcome the buyer's objections. In many cases, it's not so much the price itself, especially if you priced it fairly from the start.

More often the problem either the monthly payment or the amount of cash they buyer must come up with in order to make the purchase. Here's where you can help. You can drop the price, but that doesn't really help the buyer with either the monthly payment or the down payment unless you give away the farm, something you'll not be well served doing. To help the buyer and avoid giving a steep discount that takes much of the profit out of your pocket you can try various strategies.

One would be to pay for all or part of the buyer's closing costs. That will set you back a few thousand dollars, but it helps the buyer avoid coming up with so much cash out of pocket. With the evaporation of no down payment financing and other creative mortgage products, this is a strategy that can pay nice dividends for you.

Something else that can help the buyer in their hour of need is to take a page out of the builder's marketing handbook by offering a buyer bonus. Rather than dropping the price $15,000, try using the cash as an incentive to help the buyer into your home. Give them a $10,000 buyer bonus instead. You'll spend less and they'll gain more. Remember, dropping the price on your home doesn't really give a commensurate drop in the buyer's monthly mortgage payment. For example, the monthly principle and interest payment on a $300,000 mortgage at 6% is $1,798. If you drop the price on your house $20,000, it lowers the payment by about $120 a month. That's not an inconsequential amount of money, but it probably won't make a huge difference in the monthly budget of most home buyers. Most people would rather have $15,000 cash in their pockets.

If you want to help the buyer lower their monthly mortgage payment, you could use what's called a buy down to lower the interest rate. That will be a more effective way to lower the monthly payment, and cost you less money at the same time. You'll pay points to lower the interest rate of their loan. You can either make a buy down for the entire term of their mortgage, or for only the first few years. A buy down for the first few years is usually termed a 3-2-1, 2-1 or some variation of that. With a 3-2-1 buy down, the buyer's interest rate is 3% lower the first year, 2% lower the second, and 1% lower the third. After that, it reverts to a standard, fixed rate mortgage, at the standard 30-year rate, for the remaining 27 years.

It is also more cost effective for you than simply lowering the price of your house by $15,000 - $25,000. For example, in the $300,000 / 6% scenario above, you would give the buyer a 3% loan for the first year, a 4% for the second and a 5% for the final year of the buy down. In year one, rather than a monthly P&I payment of $1,798, the new home owner would pay only $1,265, a monthly savings of over $500. You'll pay a hair over $13,000 for the buy down. It's obviously cheaper for you to pursue this strategy than to chop $15,000 - $20,000 off the price.

Lastly, don't forget to use all the Internet resources available to you when it comes time to sell your house. Social networking sites myspace, digg, redditt, stumbbleupon and the like can all be used to help spread the word about your abode. Don't neglect YouTube, either. In many cases, you'll be better positioned than your realtor to market in these unconventional ways. Happy selling!

Posted by debtblog at 02:28 PM | Permalink | Comments (0) | TrackBacks (0)

If you guessed vacation homes, you’re right on the money. Second homes in the U.S. have never been more popular. In fact, according to a NAR survey in 2005, they now represent an amazing 35% of all home purchases. Some are purchased purely for fun and peace of mind, while others do double duty as a weekend destination and a family investment. Nothing like an investment you can spend the weekend in with some friends. Just try to ski from a mutual fund. As with any other investment, you'd better do your homework first, or you could end up deep in the hole.

If you’d like to get a second home for vacation purposes that’ll work as an investment too, how should you go about it? After all, the country is replete with locations that have, as noted, experienced some pretty severe real estate depreciation. If you’re looking for an investment however, there are plenty of areas in this country where that hasn’t happened, and most likely won’t, even with the sub-prime mortgage mess we seem to be sinking deeper into by the day. Some of these are well under the radar of most investors, but may not remain so forever.

How to find these hidden real estate gems? If you’re looking for affordable recreation in addition to a good investment, you’ll want to look at the amenities offered by the region in question. Is it close to ski areas, boating, golf, fishing, hunting, beaches, horseback riding, or other outdoor recreation opportunities? Another amenity that’ll help is great weather. Finding property with a view will cost you more now, but any appreciation will be commensurately higher as well, not to mention the enjoyment you’ll derive from it while you own the property.

How about existing resort towns? Often, communities that are in close proximity to established resorts are far more affordable, yet are an easy drive when you want to do some recreating of your own. In addition, they are often the next areas to show a nice gain in home prices, as locals and not-so-rich vacationers get priced out of the main resort market. If you can stand a short drive to the primary draws of the main resort, you’ll often receive great value, and nice future appreciation in return.

Another fantastic place to discover hidden real estate gems is to look at small communities within an hour or two of major metro areas, especially those metro locations with expanding economies. Examples would be Phoenix AZ, Seattle / Tacoma WA, and Portland OR. Most people looking for second homes tend to look for something they can easily get to for weekend getaways. A few hours travel by car or train is about the limit for this type of use. Some of these locations sit for years with relatively little gains in value, then get tapped for growth by developers or discovered by vacationers. If your main concern is recreation it really doesn’t matter if growth ever happens, in fact you may prefer if it never does. If you’re looking for some appreciation along with your recreation however, you’ll need to swallow some growth along with your recreation.

For real bargains, you’ll have to really do some research. Look to planned developments or those in the permit stage. This is a bit more risky, as some planned projects never come to fruition, but if they do, they can generate some spectacular returns, in addition to fantastic recreational opportunities for you. Many popular vacation destinations were once almost abandoned mining, logging or fishing towns. Find the one where big money investment dollars are about to be flowing, and make sure yours are going there too. A little publicity in national publications never hurts either. Many areas have experienced nice gains in real estate value following a few positive articles extolling their virtues.

Some examples of once stagnant or declining areas include Kellogg ID, and Sandpoint ID. Both are now home to nice ski areas. Kellogg was also home to a huge silver mine until 1981, when it was closed down. The mine closure and the loss of the region’s primary employment source caused property values to plummet. Soon, development plans for a new ski resort, technically a modernization and expansion of the existing Silverhorn area (18,000 skier visits in 1983) are announced. In the late 1980’s a gondola is planned from the town to the ski area. In 1990 the improved resort is renamed Silver Mountain, the gondola is finished and skiers begin to come from around the region.

Needless to say, if you’d bought a vacation home in Kellogg in the late 1980’s or early 1990’s, you’d have dome rather well. A new condo project at the base area that was begun in 2004 has had a phase opened in each of the last 3 years withy around 100 units in each. The last two phases have sold out in 1 day, to give you an idea of the demand that now exists in the area.

Sandpoint had a decent sized and well regarded regional ski area, Schweitzer Basin, that had served the region since 1963. It had an existing base area with a few small condo developments and single family homes. At the end of 1998, the resort was purchased by real estate development firm and resort operator Harbor Properties. Harbor immediately poured in capital to expand the base lodge, covert some existing lodging into condos, and improve on-mountain facilities. A year later they announced a 10-year improvement plan for the ski area. The new capital invested in the ski area and the region’s other recreational opportunities, including large Lake Pend Oreille, has caused Sandpoint’s real estate values to trend nicely upward. This is coupled with it’s relative proximity to an interstate highway and Spokane, WA with it’s population base and full service airport.

How should you make sure your prospective property has the maximum investment potential? There are a few things to look for. The first is in the area itself. Does it have the amenities and investment necessary to ensure long term popularity? What about other industries and projected regional employment growth? These are important keys to ensuring long term appreciation of your property.

If you can find a second home in an area with other industries besides recreation to support it, you’ll have the principle of diversification working to protect your investment. Areas that are experiencing an expansion of industry or new industries moving to the area are even more desirable from an investment perspective. Have the local governments invested in infrastructure and favorable tax and development policies in order to attract new businesses? So much the better. The only caveat here is that too much growth, with too little structure, at some point can destroy that “back to nature” atmosphere you purchased your home for.

Get an extra bedroom if you plan on subsidizing your expenses with some rental income. Vacation homes with more bedrooms will rent for more, and usually be easier to rent due to increased demand. If you do plan on renting out your home, check with you accountant and/or tax advisor for the tax implications of the extra income and deductions you’ll be eligible for. Another bonus of the extra bedroom is that it will help the home sell for proportionately more when you decide to divest yourself of the place, as will the additional rental income.

Look for a home that has relatively low maintenance. Every dime you spend on upkeep is one less dollar you have to spend for other investments, you kid’s college fund, or that fine dining experience to maintain your sanity. If you’re part of a condo complex, you’ll have dues and assessments to contend with as well. Old appliances and construction, can lead to notoriously high heating bills in the winter, so be aware of such things.

Now obviously a vacation, or second home isn’t always a great investment, and isn’t the best investment choice for everyone (when you find that, be sure and let me know), but it definitely beats most other choices for sheer investment enjoyment. The keys to success, as with most investments, are research and timing. The difference is the amount of enjoyment that can be had in the interim.

Some more information on vacation home investing can be found in the following places:

http://www.forbes.com/2007/08/08/places-vacation-property-forbeslife-cx_mw_0809realestate.html

 
http://www.realestatejournal.com/secondhomes/

Posted by debtblog at 03:55 PM | Permalink | Comments (0) | TrackBacks (0)

Your house - Unless you’ve got a really sweet Ferrari, your house is probably your largest investment and expense. How can you save money when buying your next house? Here are a few strategies you can use to either get more home on your budget or lower your house budget and still get the same size and quality home.

Home Money Saving Strategy #1
Buy a home in foreclosure or pre-foreclosure. When the bank owns a property they want to unload it ASAP. Real estate isn’t their business and holding the property costs them money. You can find a realtor that works with foreclosures or search for pre-foreclosures on your own.

Another great place to find foreclosures is through HUD. The Department of Housing and Urban Development sells foreclosed FHA homes at auction. Don’t get all excited about buying your dream 5 bedroom home on the lake for $150,000.

It doesn’t work that way. Homes are auctioned at market value. There are times however, where you can save money by purchasing your home that way. HUD home auctions are sealed bid affairs. Your real estate agent can submit a bid for you if you find a property that fits your needs. You can also check RealtyTrac. They're the nation's largest foreclosure service. They are the providers for the foreclosure data you see on the Wall Stree Journal Online, Yahoo Finance and MSN Money. They have a free trial, so you can sign up and check for foreclosures in your area.

Home Money Saving Strategy #2
Build it yourself. You can save money this way, but be aware that building a house isn’t like building those Revel model cars you built when you were 12. Even if you use one of the services that walk you through the process, there are never ending decisions that must be made. On a larger home design and project meetings are almost a full time job you need to be prepared for.

In addition, you may not save as much money as you think. Established contractors, especially the very good ones, will use their expertise and relationships to save you money. You will pay a premium for their services, but that may be offset in a large part by the money savings they can get you from their preferred vendors and the great speed with which they complete your project. Watch out for how they do their billing, however. Some builders bill you a fairly small fee for their services, but nail you with high markups for any upgrades or additions. Be aware of any of this going in.

Home Money Saving Strategy #3
Negotiate! – Don’t forget to ask. In many cases you can get the lender or broker to waive or reduce some of your closing costs. You should also try to find out as much as you can about why the home is being sold. In most cases this won’t be easy, but it can pay big dividends. In any negotiation information is vital. The more you have, the better position you’ll be in to make yourself a great