Smart Shopping: Top Tips for First-Time Homebuyers

Buying a home for the first time can be incredibly nerve wracking. With a few tips in mind, however, you can navigate this tricky experience to land a home that’s ideal for you and your needs. When shopping for your first home, be sure to reflect on the following advice.

Sweat Equity

Sweat equity is the amount of labour you are willing to put into a home to make it your ideal. Making improvements to you new home, especially if it’s an older home, is a great way to increase the home’s value as you improve your enjoyment of it. To find a new house, you can tell your property agent you are interested in a home you can fix up. Only, be sure that the required fixes are ones you have the know-how to tackle.

Know the Deal Breakers

When shopping for a house, you’ve got to understand innately what properties will have a poor return on your investment. Many prospective homebuyers will turn their back on properties that have a history of flooding or that have serious foundation and structural issues. Some people don’t even want to deal with the headache of old windows or a worn-out roof. When shopping, consider what elements of a home you don’t want and be sure to let your real estate agent know.

Choose a Knowledgeable Real Estate Agent

When you want to go house hunting in a particular area, it can be important to select a realtor who has experience and expertise in the area you’re interested in. Agents that know the communities can provide homebuyers with the information they need to know such as the nature of the schools, the types of healthcare centres in the area, and the types of shops that are in the vicinity too. Make sure that your agent understands your wants; if they continually show you properties that are outside your interests, you may need to find a different agent who is willing to work for you.

Get Pre-Approved

These days, pre-approval is a must. When you get pre-approved for a mortgage, you’ll know exactly how much money you have to play with. You may not want to purchase a home at your price cap, but at least you can avoid looking at homes that are well out of your price range. It can be quite disappointing to fall in love with your dream house only to realize that the bank won’t agree to approve a home loan for it.

Down Payment and Credit

Having good credit is essential for purchasing a home. You’ll also want to save for a decent down payment. However, don’t put off purchasing those new winter boots or jacket you need. Put them on your credit card. Lenders want to see that you have active credit. Just be sure to pay on your credit cards to keep your credit rating up. On the other hand, saving for a down payment is no time for spending frivolously either. You may want to avoid making pricey purchases on items that are not essential.

Explore the Community

When you buy a new house, you are also buying into a new neighbourhood. If you wind up thinking it’s absolutely boring, it might not be the best location for you. Be sure to explore the neighbourhood carefully when selecting your home. When trying to choose between two homes, you should definitely consider the impact of the location. Choosing the home that’s closer to your work place or public transportation might be a wise choice for you.

Have a Professional Inspection

Before purchasing your home, you’ll want your own inspector, someone working for you, to carefully inspect the house in question. You don’t want to move into your new dream house to find that the electrical wiring isn’t up to code or the furnace is ready to fail at the sign of the first frost. Once you have your inspection in hand, you can use it as a powerful negotiating tool. If, for instance, the home does need a new heating or air conditioning system, you naturally want to offer a lower price or request that the seller make the upgrade. They may not be open to the idea, but it’s definitely worth negotiating over.

With these tips in mind, you can begin your hunt for a new house. With a bit of patience and careful assessment of the properties in question, you’ll eventually find a wonderful place to hang your hat.

Sienna Walsh helps to arrange property funding options and is always willing to share her tips and ideas with an online audience. She is a frequent contributor for a number of relevant websites.

Making the Downsizing Decision: Reasons It May Not Be for Everyone

The bulk of money and real estate experts laud downsizing as a fabulous way to get ahead, not just financially, but also socially, physically and mentally. The common advice to declutter and move to a smaller space is not as one size fits all as you might believe, however. In fact, some pretty compelling facts support the concept of staying right where you are with what you have.

Saving Money Might Be a Pipe Dream

Most homeowners who downsize do so in hopes that the move will cut their expenses. For example, they rationalize that they’ll come out ahead with a lower mortgage, reduced heating and cooling expenses and a trimmed-down insurance package. Unfortunately, other costs can negate what you might save. Taxes might be higher in your new neighborhood, for instance, or you could have new homeowners’ association fees to cover. You also need to consider the expenses related to the move, such as truck rental, closing fees, buying new furnishings, making necessary modifications or repairs, closing and opening utility accounts and travelling back to see friends and family members after you’re settled.

Even if you end up saving money when your downsizing process is complete, you still might lose out if you aren’t smart with the funds the move generates. If you are tempted to throw the extra cash into “dead” purchases like cars or vacations, which don’t provide a continuing stream of income, you might end up on less stable financial ground than if you had stayed put.

Stress

Reputable estate agents and other professional companies work hard to make your move as seamless as possible. Even so, downsizing is work–as in, a lot of work. It can be stressful to go through everything simply because of the physical energy it takes, but there are other emotional components, too. What you have likely has memories attached, and letting go of your stuff might feel like you have to let go of who you are. You also might disagree with your family members about what to keep and what to toss, which can mean big conflicts. Downsizing also can mean going to an entirely new neighborhood, which might widen the gap between you and your loved ones. Although that offers a great opportunity to make new friends, you might struggle as you distance yourself from those you care about.

Loss of Status

To many people, having a lot of possessions or a large house stands makes a statement. It shows that they have worked hard, played by the rules and earned some luxury. When you downsize, you have to distance yourself from this ideology. Your sense of accomplishment cannot have a material measure anymore, so you might feel a stark loss of prestige or embarrassment, even though you know that the downsizing process makes logical sense. Others might make this problem worse by asking you why you’re giving up what you have or prodding to find out if you’re in financial need.

No Centralization

Somefind that, after many years of living in a community or raising their children, their home has become a sort of Mecca.  In other words, it’s  a centralizing point where loved ones know they can come for support and company. If this is the case for you, you might need to consider how disruptive it really would be if you transferred to a new place.  What if you couldn’t entertain?  Moving to a new place wouldn’t necessarily be bad in terms of encouraging independence in others. However, it might not be worth it if the downsize would completely unravel critical links within your family and friend network.

Privacy

Downsizing can be good in that being in closer quarters can encourage better and more frequent communication. Nevertheless, in a smaller property, you’ll likely have less privacy than if you had more room to spread out. If you’re more of an introvert, then a smaller space might do nothing but grate on your nerves.

Clutter

Smaller properties usually mean less cleaning, but they also can become cluttered very quickly. That can lead to functionality issues and feelings of anxiety. You probably will need to be much more critical about what and how much you buy after you get into your new property.  This could make you feel like it’s hard to be spontaneous and enjoy yourself.

Conclusion

Downsizing indisputably is the right choice for many individuals and families. Still, it’s not appropriate for everybody. In some cases, it might be more trouble than it’s worth. Before moving forward, weigh these disadvantages against the potential benefits carefully.

Nicholas Moore has carved out a career in property and understands the pros and cons of downsizing. He enjoys sharing his insights with an online audience and writes for a variety of property and lifestyle websites.

Real Estate Investing: Avoiding the Most Common and Lethal Mistakes

Many investors get into the real estate game because they believe they can get rich quickly.  They buy property, collect great amounts of rent for a couple of years, and then sell when prices appreciate. This is not how real estate investing works, however.

It takes time, even decades, to see significant returns. It also takes care, learning, and a willingness to put in years of effort to make the most of such an investment. When one is willing to invest all this in a real estate venture, returns can be far better than can be realized in the stock market. However, investors who believe they only need to throw money at a property and do little else usually do not do well. This is only one of several cardinal rules of successful real estate investment.

If you’re interested in real estate investing, you need to make sure you understand the way the world of property investment works. Here are the mistakes that you should stay clear of.

Taking on more than you can manage

A number of things go wrong when you take on far more property management than you have time for. You can take in tenants to fill up your rental units, but you aren’t able to pay attention to them to make sure they comply with the rules.

It also can be hard for you to comply with your end of the bargain too. Keeping up with calls for maintenance, and finding the cash to deal with maintenance needs, can take work. You can even find it hard to find new tenants when people move out.

The answer to some of these problems is to sign on with a qualified lettings agent to manage your properties. This will free you to do what you do best — find the resources to manage and maintain your investment. Specific tasks are usually best done by dedicated professionals.

The problem of inadequate management comes about when people get into real estate investment without giving adequate thought to the responsibilities involved.

Not creating a proper accounting system

Whether an investor owns one property or several, it’s a business, and it needs to be treated as such. Investors need accounting, record-keeping, and management systems. Without these in place, there’s likely to be much trouble during tax time; money will be lost to missed potential deductions and penalties for underpayment.

Not understanding cash flow

Many people believe that all they need to succeed at business is a great product. They think  that “if you build it, they will come,”. This is hardly true, though. Dozens of businesses with successful products and full order books file for bankruptcy each year.  This happens because owners are unable to understand the distinction between ensuring income and ensuring cash flow.

A full order book and plenty of sales will ensure that there is enough money coming into the business when income is averaged over a period of time. General accounting deals in averages. Cash flow accounting, on the other hand, deals with the availability of cash to pay bills and other obligations at specific moments when those obligations come due. If a businessman is unable to pay a supplier because he had been looking only at average cash inflow and not at whether he would have cash at a given time, he will be sued or will at least lose his reputation.

This is the problem that many inexperienced real estate investors face. If they have a couple of empty rental units in a given month, they may not have enough cash for maintenance or property tax when such needs come up. Any investor who hasn’t budgeted for enough savings to manage such lean periods can get into serious trouble.

Refusing to get advice

Many first-time investors get into real estate hoping to be the strong, silent, and independent type, who doesn’t need help. But no matter what appearances may suggest, it isn’t possible to do well in any kind of business, let alone real estate, without the help and intervention of advisers who have had success in the business. Advisers are needed for the business aspects of investment and property management.  They also provide valuable information on how the physical work of maintaining property is done. The more advice you get, and the more you pay heed to it, the more successful you will be.

The best way to avoid serious mistakes in real estate investment is to do your homework. Not only do you need to read up, you need to work in a successful real estate investment firm to see how they deal with things. It’s hard to go wrong when you observe those who are successful.

Lauren Khan works as part of a property investment team.  She enjoys sharing her experiences and suggestions with an online audience. She writes for a variety of investment and property websites on a regular basis.

Is Our Mortgage Payoff Too Aggressive?

Four years ago, we made the decision to refinance our mortgage.  We hit the time when rates were about the lowest they’ve ever been, and decided to get into a 15-year mortgage.  This would increase our payments but lower our total interest.  It would also move forward our mortgage payoff date.

From a financial perspective, the move has been a big win so far.

The Benefits Of Our 15 Year Mortgage

  • Low rate – We got a 3.375% rate, if memory serves, so we are paying very little in interest and more toward principle.
  • Modestly higher payments – Our payments went up a bit from our previous 30-year mortgage
  • Getting in line my payoff date objective – I’ve always said that in an ideal situation, the mortgage would be paid off before our kids started college.  This timing would actually have the payoff occur during senior year of high school for our oldest.  I’d be 52 which is a pretty good target age to be mortgage free, all things considered!

However, with everything positive, there is a downside.  It’s only one item, but it’s definitely a noticeable one.

The Drawbacks

The payment takes a big percentage of our take-home pay.  Between the mortgage payment, and our tax and insurance payments, the payments take away about 33% of our take home pay.  I learned by example (from my parents) the benefits that a 15-year payoff can have and have applied it via re-finances for my condo (back in my single days) and our current home.

I’ve read that the ideal number is around 25%, with the target range that most would suggest going no higher than 35%.

So, we’re on the upper end and we definitely can feel the pinch at times.  As I look back at the application of the lesson I learned from my parents, I realize that in principle, applying the practice is a no brainer, but from a situational standpoint, we have one big difference: Right now, we’re a single income family.  We made the choice for my wife to stay at home  when we had kids, and we have no regrets on that, but we always knew there would be tradeoffs involved from a financial perspective. We’re fine with that, but it does mean that we have to approach things from different angles.

Home Vs. Car

The reason I’m noticing this is that I’m starting to pay close attention toward our New Car Savings Fund.  We save what we can toward new cars, and as our cars are 8 and 9 years old, the time is coming faster and faster that we’ll need to address this.  Over the years, the amount we’ve added toward this fund hasn’t kept up with the combined cost of depreciation on our current cars plus the overall rise in cost as prices have gone up.

This means that if we were to buy a new car today, we wouldn’t be able to meet the objective of being able to do so without taking on a new loan.  And if we look at both cars, then we’re definitely nowhere close.

Will The Mortgage Payoff Be Worth It?

So, I guess the question to ask is has it been worth it over the last four years, and will it be worth it over the next eleven years to have this situation?  Some of the variables to consider:

  • Income – We counted on our income to go up.  This would lower our percentage of payment vs. income.  With the recent economic slowdown, this hasn’t happened to my projections.mb-2015-11-checkbook
  • Other costs – In truth, the squeeze has been felt not so much from the mortgage, but simply because of the rise in other costs.  Grocery bills have gone up as a lot of food costs have risen, plus our kids are getting older and eating more.
  • Side income– My wife has a nice side gig that she’s dedicated toward paying for a Disney World trip that we’ll soon be taking, that is definitely a luxury.  However, it’s a trip that is a once-in-a-few year type thing, and now that the costs will largely be done, her income could help supplement other things….like bolstering the car fund!
  • Money chunks – Tax refunds are always a good way to address big ticket items.  They’ve helped us fund a new roof, landscaping, and other things we’ve looked to do.  We need a new furnace.  Plus, we’ll have new cars to pay for eventually. The current ones won’t last forever!
  • Another refinance – One option would could certainly consider is refinancing again to another 15-year mortgage.  The rates are higher and we’d be adding years back onto the end, but it would free up cash flow, and we could always pay the same amount as we were anyway.

Staying The Course (For Now)

As of right now, we’re staying the course and I’m not looking into refinance options.  I like the rate at which we’re paying things down.  I’d certainly love the flexibility in our cash flow.  However, I want to make sure to look at all of our available options.   Our family does a good job of balancing present needs with saving for the future.

Even though we do things like plan trips to Disney and camp frequently, we’re not living on Easy Street.  We aren’t rolling in the dough, and with only one full-time income, we don’t make decisions without careful consideration.  Every decision we make includes a lot of potential trade-offs and variables that come into play.

Readers, how do you approach housing costs as a percentage of your take home pay?  How does this play into other decisions on big-cost items like travel and automobiles?  

It’s Been Two Years Since Our Refinance

Two years ago we completed the re-finance of our house.  I thought I would go through some of the numbers and things that have happened.

Original Loan: 30 year mortgage, 5.875%, closed July 2007
New Loan: 15 year mortgage, 3.375%, closed November 2011

Increase in monthly payment: $157.69

Reduction in total term: 10 years, 8 months

Principal paid on new loan in the first 24 payments: 10.67%
Principal paid on old loan in prior 24 payments: 4.97%

Amount ‘extra’ paid on new loan over last 24 months: $0Amount ‘extra’ paid on old loan over the prior 24 payments: $4,144

Number of months before euphoria of making double the impact wore off: 2

Number of times I’ve regretted not taking a longer term re-finance so that I could have extra cash each month: ~5Average amount of time (in seconds) for me to completely dismiss that idea as ‘the crazy talking’: 4

Happiness on a scale of 1 to 10 when my tax preparer followed up to make sure that the reduced interest amount for 2012 was correct: 10

My calculated age at end of original 30 year term: 62My calculated age at end of new 15 year term: 52

My kids ages at end of original 30 year term: 28 and 26My kids ages at end of new 15 year term: 17 and 15

So, some things to take away from the above numbers:

  • mb-201311contractIf we stay in our home and don’t make any adjustments to the mortgage, we will have it completely paid off prior to the kids starting college, which has always been a goal of mine.
  • We would also have at least 10 years of being mortgage free while still being in the workforce.  This would definitely help set the table for a more successful retirement.
  • When I was still paying on the old mortgage but working through the details of the re-fi, the numbers were incredible to me.  By paying essentially what I was paying anyways every month, I’d be making almost double the impact.  That was awesome for the first couple of months.  Luckily, I anticipated this.
  • Paying the mortgage off early is not a priority right now.  Any extra money goes toward savings goals such as saving for a new car, home improvements, travel, or retirement.
  • If I were to pay the mortgage early, I would likely do so when I could pay off the entire balance at once.  So, if I made a boatload in the stock market and my trading account balance (after taxes) exceeded my mortgage balance, it would be then that I might consider a payoff.
  • We are nowhere near that possibility in our current state.
  • But I’m OK with that.
  • I think we chose the perfect term length.  It doesn’t crimp our lifestyle and keeps us honest to our savings goals.  The truth is that extra cash flow would be nice, but wouldn’t be worth it at all.

 I know many of you must have taken advantage of the low rates back around the time they hit thier low point.  I’d love to hear from those who have had their re-fi’s and how you’ve fared, emotionally and financially, in the subsequent months.

A Rule Of Thumb Estimate For Extra Mortgage Payments

There are thousands of articles available which discuss the pros and cons of paying extra on your mortgage.  Some argue that it’s a great idea, some argue against it, and others discuss various elements regarding the practice.

One thing I haven’t seen is a way to easily show the impact on the end result, specifically, how will paying extra on your mortgage change things for you down the line.

mb-checkbook201308For the sake of argument, let’s say your mortgage payment is $1,000 per month.  That alone is a good start, but for the rule of thumb, you’ll also need to know what your principle payment was for your most recent payment.

With these two pieces of information, you’ll be able to easily estimate what the impact is of paying extra, whether it be a little extra or a whole lot of extra.

Here’s how.

Say your most recent payment of $1,000 had you paying off $400 toward your principle, with the rest going toward interest.   The $400 is the key part here, which leads to the easy rule of thumb:

For estimating the impact of an extra payment, all you need to know is that paying roughly the most recent amount toward principle will shave one month off the end of your mortgage.

This means that if you apply an extra $400, you’ll shave a month off the end of your mortgage.  Because, what you’re doing is making the next payment, and since all of your extra payment goes toward principle, all you have to worry about to knock a month off is roughly what you’d be paying on your next payment, which is still going to be around $400.

It works for fractions, too.

Say you want to pay extra, but you only have $100 per month that you want to apply.  No problem. With the rule of thumb, you still need roughly $400 to make an ‘extra’ payment, so you’ll just need four ‘extra’ payments of $100 to knock a month off.  Over a twelve month period, you’d knock roughly three payments off the end of your mortgage.

Pretty cool stuff, huh?

There are some catches

As the title suggests, the tip is merely a rule of thumb.  There are a few things that will change.

First, is that this estimate is only good for a short period of time.  See, as your pay your mortgage, whether it be just regular payments or with extra payments, every month you’ll end up paying more toward principle.  This means that as time goes on, you’ll need more ‘extra’ to shave off that month.

In the example above, you’ll find that you hit a point where your principle payment is $450 per month, in which case it’ll take four and a half months to shave a month off.  When you get to where you apply $500 a month toward principle, it’ll take five extra $100 payments, not four.

Think of what that means

The big takeaway here is that you’ll get the biggest benefit from extra payments at the beginning of your mortgage.  The $100 you can apply in the first year will shave more payments off the end than it will if you start in year five or year ten.

But, if you want to hit a specific target of when you want to pay off your mortgage, all you have to do is adjust your payments on a regular basis, re-caclulating the rule of thumb.  So, say you want to make three extra payments a year for the life of your mortgage.  All you have to do is re-calculate the rule of thumb and adjust your ‘extra’ payment accordingly.

Again, it likely won’t be exact, but the rule of thumb is so easy that it’ll give you a really good idea of what the impact is of an extra payment.  I honestly think many people don’t make extra payments because they don’t truly see how it fits into the bigger picture.  This is a pretty quick and easy way, don’t you think?

Readers, do you make extra payments on your mortgage?  If so, do you do it with a specific goal in mind or just as you have the available funds?