1. Shop around: This may sound like a particularly easy suggestion, but you’d be surprised how many people just sign up for the first home insurance policy they find. Try both online providers and companies in your area to find the best deal. Of course, you aren’t shopping just for the lowest price you can find — you need a policy that will cover your house well, and it’s okay to pay a litle more in order to go with the insurance company with great customer service.
2. Raise your deductible: If you want to drop the cost of your home insurance in a hurry, your best bet is to raise your deductible. Most policies have a deductible of at least $500, but if you can raise that to $1,000, you can save up to 25 percent. If you do choose to raise your deductible, it’s generally worth your while to set aside an amount equivalent to your deductible in a rainy day fund.
3. Don’t insure your land: It’s common to take the value of the land your house sits on into account when deciding how much coverage you need — but it isn’t necessary. A windstorm or a fire isn’t about to damage your land, so there’s no need to insure it.
4. Group your policies together: You can often get a discount on one of your insurance policies if you buy multiple policies from the same company. Take a look at your auto policy — can you buy from the same company for a lower rate? You may need to move one of your policies to qualify for such a discount.
5. Ask your agent for tips: Many insurance agents will offer you tips on how to decrease your costs with a particular company. For instance, many insurance companies will cut your costs if you make your home more disaster-resistant — especially if you have an older home that can use some retrofitting. Home security systems can also be a way to drop your rates.
6. Keep your credit clean: The number of insurance companies that take credit scores into account when deciding on your coverage and price are growing. In some cases, there can be a direct correlation between higher rates and lower credit scores. The cleaner your credit, the better.
7. Stay loyal: If you’ve been with one insurer for several years, you may be eligible for a loyalty discount. Such discounts are typically available after five or ten years — an insurer may reduce your premium by five to ten percent as a reward.

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Keep Your Home Insurance Costs Down: 7 Tips

A Real Estate Agent’s Perspective

Real estate agents are taking steps to point out the tax credit to all of their potential clients. In part, they want to help their clients as much as possible. But there’s more to the tax credit’s popularity with real estate agents. Business is down in the real estate sector — and agents only make money when a client buys a house. Furthermore, the amount of money an agent earns is based on the cost of the house in question. It’s in every agent’s interest to promote more clients to buy, especially if those clients can afford more expensive homes. The tax credit adds a little more to the ability of the average first time home buyer to purchase.

I’m not saying that it’s a bad thing that real estate agents are promoting this tax credit. But it’s worth remembering that they aren’t disinterested parties.

The Home Buyer’s Perspective

In the grand scheme of things, the tax credit won’t really determine whether or not you’ll buy a house. It doesn’t affect the amount of money you have available for a down payment or to make payments toward your mortgage. Heck, you won’t even see that money until after you file your 2009 tax returns and get your refund. At best, you can use it towards making larger payments on your mortgage. That’s assuming you get the money at all. There are plenty of restrictions on who’s actually eligible for the tax credit — and Uncle Sam actually has first dibs towards the money. If you owe taxes for 2009, your tax credit will be applied to that bill before you even see a cent.

If you’re looking for a house in 2009, it’s worthwhile to ignore the tax credit. If you can’t make the down payment comfortably without getting a check for $8,000 some time in 2010, you shouldn’t be making the down payment at all. There’s a reason the housing industry is so desperate to make sales right now: the credit that was extended to people who couldn’t really afford it allowed people to rely on money they didn’t have, but only for a little while.

2009 does have some opportunities for home buyers. It’s good to take those opportunities into consideration during the buying process. But the tax credit, along with other opportunities, shouldn’t be your motivation or your method for buying a house. It’s crucial to make sure your finances are stable enough to manage such a purchase — without $8,000 somewhere down the line.

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Buying A House in 2009 — Just For the Tax Credit

Who Buys Mortgages?

A mortgage can change hands in several ways: it can be sold, your lender can be bought up by another company or your lender may hand over the rights to administer your loan to a mortgage servicer. A mortgage servicer is typically a company that specializes in processing and administering mortgages. Among other duties, a mortgage servicer collects monthly payments, pays your property tax and insurance from your escrow account and handle any delinquencies.

Your Rights When Your Mortgage Changes Hands

Because there are more than a few opportunities for something to go wrong when your lender hands over your mortgage to someone else, it’s important to know your rights.

• Notification in Writing: In the event that that your mortgage is sold, or even transferred to a new servicer, both the original servicer and the new one are required by law to notify you — including giving you full contact information for the new servicer, as well as the date of the changeover. These notifications are typically mailed, making it even more important that you open any correspondence you receive from your lender. Unopened mail still qualifies as proper notification by your mortgage servicer.
• The Terms of Your Loan: Any mortgage servicer who purchases your loan is required by law to adhere to the terms and conditions of your original mortgage agreement. The only exception are any terms directly relevant to how your mortgage is administered.
• Grace Period: When your mortgage servicer changes, you have a 60-day grace period. During that time, you will not be charged a late fee if you accidentally send a payment to your previous servicer.
• Dispute in Writing: If you have any questions or disputes with your new mortgage servicer, you must continue to make payments while you settle the dispute. However, put your dispute in writing — mortgage servicers are required to investigate such disputes and resolve them within 60 business days according to law.

Adjusting to a New Servicer

You’ll typically receive new information on submitting your payments, including a new address for mailing checks. It’s important to make sure that your payment is going to the correct recipient as soon as possible — if you rely on any sort of online bill payment system, make sure that you make necessary changes so that any automatic payments are handled correctly.

It’s also crucial to go over your mortgage statements with a little extra care in the months after your mortgage changes hands. Have all payments been recorded correctly? Have insurance premiums and taxes been paid on time? It’s possible for something to fall through the cracks, especially when you consider the fact that hundreds or even thousands of mortgages were probably sold as a package deal, including your own.

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Do You Know Where Your Mortgage Is Right Now?

• Major Delays on Property Assessments: As housing prices have dropped, home owners have been scrambling to arrange for property assessments appeals in hopes of reducing their property tax bill. Many counties are experiencing delays — and may not catch up before the next bill comes due. Making matters more complicated is the fact that not all homeowners who expect their new assessments to be lower are actally correct. While some properties’ values have dropped significantly, others have remained flat or even increased slightly — especially if the last assessment was more than two years ago.
• Property Tax Legislation Starts Catching Up: In the past, many states passed laws meant to prevent huge increases in property tax bills. Some used tax credits, some used assessment caps — but these laws all amount to spreading out increases over several years. That means a lot of homeowners will still be facing rising tax bills because their actual property taxes haven’t caught up to their current assessment yet.
• State Budget Shortfalls: Just about every state in the U.S. is facing a major budget shortfall this year. In order to keep operating at all, most states must consider a combination of cutting services and increasing tax rates (including property taxes). Many states are reporting that they will not be able to cover shortfalls just by cutting costs — raising property taxes to the point that states are receiving at least as much income as they did when property values were higher is looking more and more likely in most places.

You may normally ignore property tax news in favor of something more interesting, but you probably ought to take a look at your local news if you own a home. Many cities have already hiked property taxes, such as Reading, Pennsylvania — which has enacted a 5 percent property hike. On top of that, Dec. 31 is a common deadline for getting your current tax bill paid. There are plenty of penalties associated with missing that deadline, no matter why a bill didn’t get paid on time.

If you need more information about your property taxes, your best bet is to contact your county government. Property taxes are administered locally, usually by either the municipality or the county you live in. In most areas, you can find property tax information online at the website of the county you live in, but if the information online does not appear to be up to date, go ahead and call their office. If you own multiple properties in multiple counties, don’t forget to check each county’s website.

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Property Taxes Troubles To Watch For

The question that every family member gets — even the ones who are already proud home owners — is when are you going to buy a house? Occasionally, we get asked about investment properties, but generally the family wants to know if anyone’s found a real steal.

Real Estate Always Has Value

My grandfather immigrated from Europe. He was brought up with the idea that land ownership truly represents wealth and over the years, he’s managed to get most of the family thinking the same thing. To my grandfather, there really is no wrong time to buy real estate. He helped my cousin get a mortgage on his home even as the housing market is dropping because he’s confident that it will rebound.

In the same vein, my grandfather didn’t put his retirement savings in stocks or other investments that run even the slightest risk of being worth only the paper they’re printed on. Instead, he picked a few income-producing properties and worked hard to minimize expenses. I like to think of his strategy as successful conservative: real estate really can be one of the most conservative investments because, in general, real estate prices don’t surge upwards but it’s also one of the least liquid assets you can have. If you go about investing in real estate the right way, though, you really can make a bundle.

The House: Real Estate’s Starting Point

Moving into a house of your own really is real estate investment at its most basic. While I’ve seen plenty of breakdowns arguing that apartment-living is actually cheaper than home ownership, the general idea that you’re building equity rather than paying for the pleasure of a residence does make sense.

But when should you actually plop down the cash for a house? When is the right time to commit yourself to a mortgage? Is it, as my family seems to think, right this very instant?

While I don’t think that buying in a down market is a bad idea, I really don’t agree with the philosophy that any time is a good time to buy real estate. I say that not because I think it’s a good idea to buy when prices are sky high, but because I think that just buying can lead to picking mortgages you can’t afford or raiding your 401(k) for a down payment.

If you have good credit and a good down payment, though, I don’t think you should refuse to buy a house right now. I’m not saying that you have to buy a house, but I’m also not telling you that you absolutely shouldn’t buy a house until the market stabilizes. It has to come down to whether you can get a mortgage you’re comfortable in times that are uncomfortable, economically speaking.

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When Should You Buy A House? The Family Edition

1. Set up an automatic saving plan. — An automatic savings plan is a great suggestion. Almost every bank makes it easy to set up an automatic withdrawal from your checking to your savings. It’s just a matter of doing it.
2. Get a gift from your parents, grandparents, other relatives or friends. — Personally, I don’t think that gifts are the best way to come up with a down payment. There’s a lot of potential for family problems down the road. That said, some families are more than happy to help out.
3. Sell a car, boat, motorcycle, collectibles or other assets. — I’d like to see a show of hands: how many first-time home buyers have a boat lying around that they can sell? Sure, if you have assets you can sell, go for it. Not very many people have that option, though.
4. Liquidate stocks, mutual funds, savings bonds or other investments. — This is another ‘you can do it, but I don’t recommend it’ idea. A lot of investments will provide you far more income in the future than a house will. If there’s no pressing reason to move into a house, it’s much better to wait and save.
5. Allocate your income tax refund. — Your savings account is a great place for your income tax refund. And yes, I do think it’s more than reasonable to use it for your down payment. But be careful about relying on your income tax refund — it’s not always as big as you expect.
6. Take a loan from your 401(k) retirement plan and repay yourself with interest. — This is the worst idea ever, second only to the next one on this list.
7. Withdraw funds from your 401(k) plan, subject to taxes and penalties. — Withdrawing money from your 401(k) is essentially robbing your future self: that investment balloons due to compound interest. The later money is added, the less money you get. Furthermore, there are significant monetary penalties for withdrawing money from your 401(k) plan.
8. Collect on a loan that you made to someone else. — It’s nice to be able to collect on a loan, but very few people have outstanding loans significant enough to help them make a down payment. Furthermore, if the loan is to a friend or family member, it’s entirely possible the lender will never see a cent of repayment.
9. Get a bonus from your employer. — I’d suggest expanding on this idea: make more money in general. Open a side business, take on more hours, etc. A bonus is kind of like winning the lottery, though. I wouldn’t suggest counting on it.
10. Explore homebuyer programs for public servants, if you qualify. — There are programs meant to help public servants buy homes. There are also other programs, often through trade associations that provide some level of support for non-public servants as well.
11. Apply for a state or local government homebuyer down payment program. — You should take advantage of any home buyer program you qualify for. There may be a little added paperwork, but the financial help is more than worth it.
12. Use a private down-payment assistance program. — My only objection to private assistance is that there are a few scammers out there who will take advantage of you. If you need the assistance and just can’t wait and save, be very careful and do your homework on whoever you decide to work with.

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Getting A Down Payment: Be Realistic

The deal sounds pretty good on the surface. Sure, the money is really a loan, rather than a tax credit. But you get a whole 15 years to pay it off and there’s no interest. But is that free money really a good choice?

The National Association of Home Builders certainly thinks you should take the credit. If you look at their home page, you’ll see that they’re describing the temporary tax credit as “the opportunity of a lifetime.” The government did create the tax credit, after all, to boost sales of both existing and new homes. NAHB’s membership has had a rough year, too.

But just because a loan is interest-free doesn’t mean that you should take it. If you can’t afford to pay back a loan, you shouldn’t take it. It doesn’t matter how good the terms are. After all, you’ll be making mortgage payments as you try to pay back your ‘tax credit.’ If you miss a payment or don’t repay the loan, you’ll get hit with the IRS’ standard penalties and fees for outstanding tax debt. That’s 0.5 percent each month just for the penalty, and there is no maximum penalty. On top of that, the IRS charges another 5 percent per year on unpaid taxes. It just gets scarier and scarier.

There’s another catch that comes with the tax credit: if you sell your new house, the balance becomes due immediately. If you buy a house now, do you really think you’ll be in the same house 15 years from now? You may think so, but statistics say no. You’ll probably be moving in the next six years or so.

You can’t just move what you owe on your tax ‘credit’ over to a new home. The IRS expects you to pay off the balance out of your profits from the sale. If your sale isn’t profitable enough to cover it, the money comes out of your pocket.

Now that I’ve scared you with all the details of the the temporary tax credit, though, I’d like to say that it’s not necessarily a bad deal. If you really do need the money, this loan has much better terms than adding to the debt on your credit card. If you wound up in a mortgage that is less affordable than you thought and you qualify for the tax credit, I’m all in favor of taking it. Pay down your mortgage with the money. Yes, you’ll still owe that $7,500, but there won’t be any interest accruing on it.

It’s really a question of whether you need the money — not want it. Don’t take the credit if you plan to use the money for anything that loses value. But if you plan to use it for paying down debt or something similar, go for it.

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Free Money For A New Home Isn’t Exactly Free

According to the survey, 62 percent of US homeowners believe that their home’s value has increased or stayed the same in the past year. That’s a phenomenal number, especially when you consider that 77 percent of US homes have declined in value in the last 12 months. Homeowners realize that house prices have dropped, but the majority of the same set of homeowners just don’t think it could happen to them.

This can cause some problems when these homeowners decide to sell. It seems like every seller thinks that they can get at least what they paid for their home — and they’re willing to hold out for it, at least for a little while. For buyers, it’s an added complication in the process. It’s not a good idea to be the first person to put in an offer these days.

There is also a problem for homeowners themselves: many are counting on their home value to help when they take out a second mortgage, home equity line of credit or refinance their mortgage in an effort to handle other financial issues. Zillow’s survey also showed that over half of homeowners are planning home improvements — ranging from minor projects like repainting to major projects like installing a new roof.

The same perceptional problem is reflected in where most homeowners think the market is going, as well. Zillow reports that 75 percent of homeowners expect their home’s value will increase or stablize in the next six months — but 42 percent think that home values in their area will decrease. It will happen to the neighbor’s house — not mine.

Whether or not you currently own a home, these numbers are worth considering. Plenty of people think that right now is a great time to buy a house, due to the lowered prices. But these same people seem to believe that there will be a fairly immediate rebound in the housing market.

If you’re shopping for a new home, it’s worth focusing on a long-term plan rather than thinking about the current low prices. You don’t want to wind up in that 62 percent of homeowners that really don’t know what’s going on with their home’s value (and don’t want to know). You want to make a solid financial decision and make a plan that will allow you to ride out the bumps in the housing market with minimal worries. That means doing some research before buying a house.

You don’t need to be a real estate expert, but it’s worth your while to learn some of the factors that contribute to a house’s value — including the fact that if there is a downward trend among housing prices in a certain neighborhood, it applies to all the houses in that area. Your home-to-be will not be an exception, unfortunately. But there are also other factors that contribute to the value of a home.

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Homeowners Assume the Best About Home Values

Despite my belief that now probably isn’t the best time to be buying in our real estate market, the man does have a point. The housing market in New York City has some major differences from the housing market in Albuquerque. Not all housing markets are struggling, and not all housing markets are going to have the same rate of recovery.

How do you know when your housing market will recover?

Being able to time a home purchase is crucial — you want to get the best deal, but you also want to make sure that your situation will be comfortable after you buy the house. The same is even more true if you’re trying to sell a house. It may be difficult to sell your house at what you consider a reasonable price right away. If you know a little more about your local housing market, you can decide whether it’s worthwhile to wait to sell your house.

While there is plenty of data that you can use to try to decide on what your local housing market is going to do next, there is one statistic that makes it simple: the number of for-sale homes. This number is usually measured in months — the number of months it would take to sell all the homes on the market at the current sales rate. As a rule, a larger number — more than a few months — means that the housing market in your area is weaker. Usually, it means that sales are slow. It can also mean that a large number of houses are going on sale, but that occurs less often.

If you want to do a back of the napkin calculation to determine if your area is starting to recover, just compare the last several months’ numbers. You can get those numbers from your local realtors’ association. Try searching Realtor.org if you aren’t sure where to start.

Looking over the numbers and checking for an upward trend isn’t a great statistical analysis, admittedly. If you have the time, taking a close look at some of the other numbers you can get from your local realtors’ associations, as well as the more professional statistics. The purchase or sale of a house is a big deal — you want to have as much information as possible. The number of for-sales homes is really only a starting point — a general idea of whether it’s time to start doing that more in-depth research or if you will want to wait a few more months before moving forward on your real estate plans.

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The Secret to Understanding Your Local Housing Market

But flipped houses aren’t necessarily good buys for homeowners that plan to stick around. If you’re shopping for a new home, there are a few reasons to skip the flip.

1. Flippers limit costs when fixing up houses. Not all flippers go for the cheapest building materials, but they do try to minimize costs wherever possible. To bring a house up to your standards, you might wind up tearing out some of a flipper’s work and paying for an additional remodel.
2. Flippers focus on the visible. Most flipped houses have awesome fixtures, beautiful paint jobs and other accents that convince buyers that the house is a beautiful piece of work. But slapping a fresh paint of coat on a wall doesn’t repair cracks or bring wiring up to code. And it’s the non-visible problems that can mean expensive repair work down the road.
3. Flippers do as much themselves as possible. Most flippers aren’t professional electricians or plumbers, but odds are they’ll try their hand at some wiring or plumbing, just to keep from having to call in a professional. That doesn’t mean that their work is bad but there won’t be any sort of guarantee.

If you’ve got your heart set on a house that was flipped, there are a few things you can do to protect your investment. The first is to check with the local permit office. If a permit hasn’t been closed, walk away. That means that the inspector doesn’t think the house is ready to sell. In some locations you can even get a copy of the inspector’s notes. You might also find that no permit was taken out. Maybe the flipper did only cosmetic work — maybe the house only needed some touch ups. But it’s more likely that the flipper went without a permit, which is illegal. That also means the work isn’t up to code and could be dangerous.

You can also ask your real estate agent to help you check out this particular house flipper. What other houses has he or she sold? Are the new owners happy with their purchase? A house flipper’s reputation is a good indicator of the work you can expect. Make the effort to learn about the house flipper in question. If necessary, ask them to show you around the house and give a detailed explanation of what work was done. Give them a chance to prove that their work really is worth an extra $50,000 or however much on top of the previous sale price.

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The Dangers of Buying a Flipped House

As a general rule, one-third of your income is a good number to use when you’re shopping for a house or an apartment. But it may be a bit over-simplified. There are a few facts you should keep in mind when planning your housing budget.

Are you calculating that one-third before taxes?

When you are calculating just what one-third of your income is, don’t use the number that your boss told you when she hired you. That’s your gross income. You want to spend one-third of your net income on housing — that’s after taxes, benefits and everything else that both your employer and Uncle Sam take out of each paycheck.

Furthermore, your mortgage payment or your rent shouldn’t precisely equal one-third of your income — even if it’s one-third of your net income. You need to budget in maintenance, insurance and all of the other costs of owning a home. It can add up surprisingly fast, too. People who assume that they can handle a mortgage payment of one-third of their gross income can face some nasty financial surprises down the road — much worse than the surprise that you can’t afford quite as much house as you previously thought.

Feel free to ignore me, though.

In some real estate markets, spending one-third of your net income on housing is a pipe dream. Much of the East Coast suffers from this situation: housing that is affordable if you stick to the one-third rule has far worse problems than small size. And it is possible to comfortable pay a higher portion of your income for housing, if you’re willing to bit the bullet and budget carefully. Living frugally is an absolute must — if you’re paying more for your home, there’s less in your bank account for food, utilities and entertainment.

In contrast, some people can afford to spend less than one-third of their income on housing. I’ve noticed that many people in this group, though, chose to spend that full third anyhow — partially as a lifestyle choice, partially out of the habit of keeping up with the Jonses. If you’re in the sort of tax bracket where you can get a perfectly comfortable house for less than one-third of your income, I fully encourage you to live beneath your means. You will wind up ahead of the game if you can put that money into savings. The wonders of compound interest can translate a smaller house into early retirement surprisingly quickly.

No matter your income and location, you do have an element of choice when it comes to housing. Take a long look at your housing budget before you make a choice and go for the best option for your lifestyle. I just recommend making every effort you can to keep your housing costs below that one-third mark.

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The One-Third Rule For Housing

It used to be that the only easy way out of dealing with these fees was to buy and sell through your cousin the real estate agent. But this week, the U.S. Department of Justice informed the National Association of Realtors that they need to change a few of their policies. Specifically, the judgment requires that the NAR offer online real estate brokers the same consideration as other real estate agents.

Up until now, real estate agents listing a house with the various services that help agents connect buyers and sellers could choose to exclude online brokers. They did so because online brokers, such as ZipRealty, have reduced commissions. The DoJ decision found that refusing to work with online brokers prevents consumers from saving money. Essentially, the NAR must give online brokers access to over 800 multiple listing services on the grounds of anti-trust concerns.

There are plenty of ramifications for both buyers and sellers after this decision. Sellers using online brokers may be willing to accept lower prices, as long as they don’t have to put a full 6 percent of the price towards commissions. And since the number of people using the internet to find new homes continues to rise, buyers may find more homes available on their favorite real estate brokerage site. The immediate effects will be limited, I think. There are a few other reasons that houses are staying on the market in most areas and online brokers won’t change that. Overall, however, I think that consumers will get a much better deal on both ends of real estate sales from here on out. They even have a better opportunity to find the perfect piece of real estate, considering that online brokers have innovated new real estate search techniques that the average agent just can’t compete with.

What about real estate agents? I think that there might be some changes in how they do business. Buying agents, especially, might need to consider selling their services for something other than a commission. Xin Lu on Wisebread has a great post that points out the flaws in the commission arrangement, and she has me convinced that changing the compensation scheme might make buying agents offer better service. Real estate agents are looking at a new world. They’ve managed to avoid changing their way of doing business for years, but the DoJ’s ruling has introduced a whole new level of competition into the industry.

Photo — Chesnutt

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Can You Avoid A 6% Real Estate Commission?

More Than Just Rent

Looking to move beyond renting? This is without a doubt an excellent time to buy. With interest rates so low and home prices finally coming back down to earth, the time is now. Before you go diving in headfirst however, sit down with your local lending officer or financial advisor and really plan out your next step.

Always remember that you’re going to be paying a lot more than just your mortgage when you buy a home, and those payments can fluctuate. Depending on your financial situation, a steady rent might be better than an adjustable loan with taxes, utilities, maintenance costs, insurance, etc. In order to see if your income can support a mortgage, calculate your Debt to Income Ratio.

Debt to Income (D/I), is calculated (to a point) by your lender, but you can do a more accurate one yourself. Obviously you take your monthly income (I suggest the net amount, after taxes), then subtract the bills you have to pay each month. These include your car payments, any credit cards, utilities, etc. What is left is how much you are able to put towards your mortgage payment, and hopefully your own savings and use. By doing this you can work backwards to see what price range you can afford.

While your credit score and report are important parts of getting a home loan, your D/I is just as important. When the bank looks at your credit score, they are looking to see if you have a history of paying back your loans. If your history is good, they are more likely to approve you. But however good your credit is, if your income can’t support the monthly payments (which, if you’re a first time homebuyer are probably adjustable) you still won’t be approved. By paying down your credit cards and other debt you not only increase your credit score, but you also lower your D/I. The lower your D/I, the more cash you have on hand to put towards the mortgage, and therefore the banks feel better about writing you a check for several hundred thousand dollars.

While this all sounds a little scary for first timers, sitting down and getting your expenses on paper will help take a lot of the guesswork out of buying a home. Many don’t realize exactly how in debt they are until they list every expense they have during a month. If you calculate your D/I, you’ll know whether you need to get a higher paying job, pay down credit cards, or simply skip the mocha latte every morning in order to achieve your goal of buying a home.

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Homebuying Newbies

But there are some housing options that might be a better fit for you. Consider these four ideas.

1. Consider a multi-unit property. Most of us aren’t in the financial situation where we can afford to make payments on an entire apartment complex, but you may be able to find a duplex or other building with just a few apartments in it in your area. Then, while you live in one unit, you can rent out the others. In most areas, rent from another unit may be enough to cover your monthly mortgage payment. And depending on the size of homes in your area, you may even be able to convert a large single family home into multiple units. The house I grew up in was actually divided this way: the basement was a separate apartment from the main level.
2. Combine living space and office space. If you run your own business — depending on the type of business, of course — you may be able to use one property as both your home and office. Doing so even gets you an extra write off on your taxes. Having worked out of my home for several years, though, I do have one piece of advice: maintaining boundaries between ‘home space’ and ‘office space’ is crucial. Ideally, you shouldn’t even need to walk clients through your ‘home space’ to get to your office space.
3. Look at non-traditional living spaces. While most people seem to look for the largest house they can get for their money, it’s worth considering going for an unusually small home or even a space that wasn’t originally built as a house. A small house, for instance, is cheaper to maintain, heat and power. And if you were to choose a building with multiple purposes (a friend of mine lives in a converted garage, for example), you may have an easier time selling the property later on.
4. Join forces on a home. Rather than limiting your home to you, your spouse and your children, you have the option of sharing space with a few other people. In the past, it was perfectly normal for Grandpa or Grandma or Auntie to move in, and it’s still an option today. You may choose to make financial arrangements or agree on services, like childcare, that your new roomie might take on. But don’t limit your house to just you.

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4 Ways to Think Outside the Homeowner’s Box

Even I am guilty of wanting to start at the top. I’d love to find a house that will hold the family I plan to build, rather than just me and my significant other. I’d love to build a house with little nooks and crannies that will be perfect for our hobbies and get a place with enough land to grow my ideal garden. But, even if we could get the requisite mortgage for such a lovely spread, we couldn’t afford it and we know it.

Instead, we’re starting small. Today, we don’t need rooms for kids or space for a big garden. We want to go a bit better than my grandparents’ original four rooms — I need a fifth room for a home office. But we’re following the new trend of smaller homes: we don’t need extra rooms, or to pay for them.

So think long and hard about what you need now and what you’ll need in your immediate future. In the next five years, do you really need to plan for separate rooms for your planned three children, especially if you aren’t planning to have them for another three years? Or can you count on the fact that, assuming nature conforms to your schedule, your children won’t quite require rooms of their own yet?

There is a lot to be said about planning for the long-term, for picking a home that you will spend the rest of your life in. But the fact is that, today, the average family spends perhaps four years in a house before moving. So plan for those next four years when selecting a new home rather than the next twenty. While you might not get into your perfect home quite as quickly as you would like, you will be able to find something a little kinder to your budget.

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House Hunting: Starting With What You Can Afford

1. Bank of America: Guide. Website.
2. Chase: Guide. Website.
3. Citigroup: Guide. Website.
4. Countrywide: Guide. Website.
5. IndyMac: Guide. Website.
6. National City: Guide. Website.
7. Wachovia: Guide. Website.
8. Washington Mutual (WaMu): Guide. Website.
9. Wells Fargo: Guide. Website.

Beyond these guides, there is one simple rule of thumb that you should keep in mind when thinking about your mortgage: stay in touch with your lender. If you’re worried about your ability to make payments or about interest rates, or really anything at all, give your lender a call. Keeping in close contact will let your lender see that you really are making an effort, and, in general, that makes your lender more willing to exhibit a little flexibility if you have a problem. Many foreclosures are preventable in early stages, but borrowers might avoid contact with lenders because of embarrassment or other concerns. But avoidance is pretty much the worst approach one can take when trying to handle a problem with a mortgage or other loan.

If your bank or lender isn’t listed, you might want to consider reading through the information from at least one or two lenders. While your lender’s procedures will probably differ, everyone has at least a few similar steps. Then, start making phone calls. It’s a matter of getting in touch with someone in your lender’s office — preferably an individual with the authority to set up a repayment or forbearance plan, or otherwise able to help you make modifications to your current mortgage.

And, even if you are comfortable making your mortgage payments, you should look over this information. Consider it a preventative measure. I’ve actually printed out the information for my bank and tucked it into the file folder I keep for that institution — not because I expect trouble but because I want to be prepared for any eventuality.

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9 Guides to Preventing Foreclosure

But, as I have to remind myself, there are plenty of ways that scenario can go very wrong. There are plenty of opportunities for a renovation to suck up your time and money — and still leave you with a less-than-great house.

Just what are the hidden costs, though? While every house is different, each time I talk to someone who’s done their own renovations, certain similar themes pop up:

• Plumbing. In many states, homeowners aren’t even legally allowed to work on their own plumbing — they have to call a professional. And, honestly, that’s not a bad idea. While I don’t like the idea of the government telling what I can and can’t do, plumbing is problematic. When something goes wrong with a house’s plumbing, it generally goes bad in a big way: even a small leak can mean that a wall rots and needs replacement, not a cheap proposition.
• Time. For many homeowners, the amount of time necessary to do home renovations on their own is prohibitively costly. There are a certain number of hours that have to go into doing renovations, no matter how you do them. There’s also the question of the value of your time: can you make more money working an hour than it costs a contractor to work on your house? If so, financially, it may just not make sense to do a lot of the work yourself.
• Paperwork. You’re just doing some rewiring on your house, or maybe building on an addition, right? There’s no paperwork involved, right? Wrong! Depending on just what renovations you’re doing and where your home is, you may need a building permit, an inspection, or some other bureaucratic paperwork. Taking care of permits and fees can add up quickly in terms of both time and money, especially if we’re talking about a big renovation project. And if you don’t take care of all the necessary paperwork, you may have to worry about a fine.

If you’re considering doing home renovations on your own — especially if you’re buying a house expecting to do some work on it — take the added costs into account. You should be thinking about more than the cost of materials and work: what happens if something goes wrong? That ‘if’ may very easily turn into a ‘when’ if you don’t have much experience with renovations, especially with more skilled work like plumbing.

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The Cost of Doing Things Yourself

My friends decided that now was the ideal time to buy, because home prices have dropped significantly in our area. Their logic is easy to follow: no one really knows just how low the market is going to go, so why take the risk that prices might begin to rise before they lock in that low home price? Sure, they might miss out on a significantly lower price, but then again they might not.

But, despite the low price they’ve found, my friends aren’t in a good position to buy. They didn’t save up a down payment before buying, which is usually a red flag. The mortgage crisis has guaranteed that they couldn’t get a zero-down mortgage, but they’ve managed to find the next best thing. 401(k) programs (along with some other retirement savings programs) allow you to borrow money from your account for little things like major medical expenses and purchasing a home. There are a few catches, though:

• you have to repay that money, and fast! You may have only five years to get that money back in your account or face major tax penalties.
• you lose out on any interest your retirement savings was earning.
• you often have to pay taxes or penalties on your withdrawal.

Many homeowners used their 401(k) savings to help them make a down payment, but as a general rule, it’s not a good idea. Doing so puts a person on pretty shaky financial ground: not only would you need to make your mortgage payments but you’d be making another large payment to get that money back into your retirement account. Essentially you could be putting both your new home and your retirement at risk.

Even if you’re sure that you can handle double payments, you’ll probably be better off saving up money for a down payment. Yes, you won’t get into your dream house right now, but you’ll increase your ability to keep that perfect house. And with a little effort, you may be able to surprise yourself with how fast you can save up for a down payment. You’ll have less debt overall, as well: while money withdrawn from your 401(k) is yours, the need to repay it or face penalties can turn your retirement savings from an asset into straight out debt.

My friends decided to take the risk, and that’s their — and your — choice. But piling that risk on top of a problematic real estate market seems to be asking for trouble.

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Risking 401(k) Savings To Buy A Home

As you look at homes, think long and hard about whether you’ll be able to sell it later on. For instance, is the design dated? There are plenty of homes that just scream “1970s” when you walk in — you might like that aesthetic, but it’s going to be harder to sell, without significant changes. (The current seller may be finding out just that, as well.)

A key question is whether you’ll need to do significant work on the house after you’ve lived in it for five years, or so. If the kitchen is brand new right now, it probably won’t need much effort to get it ready in a few years. But if the kitchen is already starting to seem a bit dated — older appliances, cabinets showing some wear — you may need to prepare yourself to spend some money down the road. You may be planning for such a remodel anyhow, for your own use of the kitchen, but a fairly new kitchen is practically a requirement when you plan to sell.

There are certain amenities that may be a must have today, but will make a house harder to sell down the road, as well. Consider the bathtub: there have been plenty of trends, such as whirlpool tubs, when it comes to bathtubs. And there’s plenty to be said for whirlpool tubs — they can be a nice luxury. But it’s much harder to sell a home with a whirlpool tub these days. Parents worry about their children’s safety, efficiency-minded buyers worry about the amount of water need to fill the tub, etc. You can always change out a tub down the road, but these sorts of amenities cost money, both to install and to remove.

Selling your future home shouldn’t be your primary concern when you are house hunting. However, it is a factor that you should take into account, just as you consider your wish list of amenities
in your new home: you may be willing to make significant changes to a house to make sure it meets your needs. Are you willing to make that level on investment in order to make sure that it also meets the needs of prospective buyers down the road?

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Buy, With an Intent to Sell