Posts tagged Real Estate
What Does Being Rich Mean to You Anyway?
Sep 2nd
Money Magazine had an interesting article in the September 2010 issue titled "Do You Have What It Takes To Be Wealthy?" The article comprised of 15 questions aimed to tell you if, indeed, you have a good chance to be rich. I aced it (if you consider having a solid chance of being rich a good thing, that is), but what is the definition of being wealthy anyway? Is it just a number we call net worth? Or is it something else all together?
I was given a tour the other day of a $6 million dollar home. Apparently, the owner bought the piece of land for $4 million and spent $10 million building the custom house on the site. The property was gorgeous (duh!), but the owner couldn’t have lived in it for more than three years and he lost $10 million in the process after considering not getting his asking price, agent fees, etc. when it’s all said and done.
When you have that kind of money to lose, are you considered rich? (By the way, for those concerned, the owner moved to an even more expensive neighborhood, so this is not one of those overextended home borrower stories.) Miranda started an interesting discussion asking whether you are rich. She claims that your location and personal situation matters a great deal when it comes to the financial portion of the definition of being rich, but I believe it’s more than that. I’d argue that being wealthy is much more than having, or earning a specific dollar amount.
Not Worrying About Money
This is much more than having a ton of money. Not worrying about money is more about the ratio of your spending and expectations versus your assets. Some people don’t have enough with $12 million, but others can retire comfortably with much, much less. However much money you have, you cannot be wealthy when the worry of money is always on the forefront of your mind.
Having Loving Family and Friends
You might have money, but you aren’t rich if you don’t have anyone to spend it with. Being rich is also having someone to share your joy and sorrows, and it’s having someone to have spend time with too. When you need a shoulder to cry on, can you actually buy one?
Having a Sense of Direction
You can have all the money in the world, but it’s very difficult to enjoy life if you don’t have a sense of purpose. We talk about finding a passion all the time, but to be quite honest with you, most people never listen. Some are simply too afraid to change their depressing jobs, they are too lazy to repair broken relationships, and they are too proud to admit their mistakes so they can start over. First of all, I don’t think these people will be able to maximize their earnings power this way. Even if they could, how does having a bunch of money with a miserable life make them wealthy?
Being rich requires money. There is no doubt about it. But it's much more than that — so much more.
Low Interest Rates Do Not Make Homes Affordable
Aug 4th
Does the sales price of your home matter if the mortgage rate is low enough?
If you ever thought about buying a home, the recent all-time low mortgage rates must be enticing. And this is exactly how the government wants everybody to feel, by the way. In an effort to keep homes affordable (as they claim), the federal reserve is driving down interest rates to record lows. But is what they are doing helping? Let’s take a look.
Just a short couple of years ago, interest rates were at 6 percent. For a $300,000 mortgage, the payment would have been $1798.65 a month. With the interest rate at 4.5 percent, the monthly payment drops to $1520.06. So far so good, because it costs us less to own our home.
But wait a minute.
Most people don’t just refinance and lower their payment. These days, with rates at 4.5 percent, roughly the same monthly payment ($1798.73, to be exact) could get you a $355,000 mortgage. So what do people do? Instead of buying a $350,000 home with their down payment and loan approval letter, they shop for a $400,000 home. And who can blame them? An extra $50,000 almost always gets them a nicer place. Sometimes, it would actually allow them to pay more for a house than they otherwise would.
For example, they might have been able to get the house for $350,000 if they tell the seller that the offer is all they are approved for, but if a buyer can muster up $400,000, he might end up offering $360,000. Same house, higher transaction price. Having a lower interest rate also allows more people to qualify for a home. This is a good thing for someone who couldn’t afford the payment before, but it drives prices higher because of more demand, ultimately lowering affordability for everybody.
In other words, lowering interest rates gets more people thinking about buying a home and drives up demand. Most of the time, that’s a noble and worthwhile goal, since home ownership is still a dream of many. But as you’ve witnessed in the last decade, allowing more people to own homes mindlessly is just reckless. What we really need to do is make homes affordable so financially responsible people can actually afford the payments, which is only achievable through lower home prices.
I’m a homeowner too, so the selfish side of me is thinking that high-priced homes are good. But for the economy to grow and our country to be a place people want to be in the future, nice homes need to be affordable without government intervention. Unaffordable home prices will never get us there. Please allow homes to be affordable again for the hard-working American.
Related articles from MoneyNing:
6 Great Reasons for Paying off the Mortgage on Your Home
Jul 29th
Should you pay off the mortgage on the home you are living in? Mortgage interest rates are at historic lows and a fixed rate mortgage seems to be a deal of a lifetime right now, so why would anyone pay it off? Here are six reasons why paying off your mortgage is still worthwhile in the current economic climate.
A Mortgage Is a Cost
Even with a tax deduction, the interest you pay on a mortgage is still a cost. I don’t think it makes sense to continue to sending the banks interest just so that the government returns a little portion of it back to you. It is really only a great deal for the bank if you keep your mortgage for its full term.
Cash Flow
One reason many people do not pay off their mortgage is that the extra money you put into your house isn’t as liquid as cash sitting in an account. However, once the mortgage is completely paid off, you will free up the amount of money you used to send to the bank. That money can be saved or spent on other things as you wish.
High Investment Returns Are Rarely Guaranteed
I know that many folks would argue that today’s low interest rate mortgages mean that you can use the money to invest and earn a yield higher than the mortgage. However, it is fairly impossible to find a guaranteed investment that pays more than the average mortgage rate right now. Money markets are yielding near 0%, and the stock market is quite volatile and has long periods of stagnant or negative return as we have seen in the past decade. Basically, there is no guarantee that you will beat your mortgage rate with your investments.
Security Against Income Loss
If you have a paid off home, then you are much better insulated against income or job loss because you do not have that liability every month. Many people take 30 year mortgages these days, but how many people actually have a job guarantee for 30 years? My guess is that most of us will go through a period of reduced income in three decades. The sad thing is that if the mortgage isn’t paid off then the bank could take back the home after three or four missed payments even if the homeowner has been paying on time for years.
Home Equity Is Accessible
One argument against paying off the mortgage is that money put into a home is illiquid. This is true to an extent. There are ways to release the home equity as long as you have equity in the home. Home equity lines of credit are relatively cheap compared to credit cards, and seniors can opt to take a reverse mortgage. It usually costs some money to release the equity in your home, but it is possible to still live in the home if you really needed to tap your home equity. For some people, the fact that home equity is less liquid is actually a good thing because they would be less likely to spend it. I think of home equity as an emergency fund, and it should only be tapped when absolutely necessary.
Debt Is Bad During Deflation
Although mortgage rates are near historic lows right now, I think that deflation is a possibility in the near term. In the face of deflation any type of debt is getting greater in real terms. Basically, your wages will probably decrease in the current economy while your debt is just as large or grows even larger. It is better to retire the mortgage or be a renter in the face of deflation.
Although I completely understand that it is possible to keep a mortgage on your home and then make a profit on investing, I feel that it is a gamble on your residence. The stock market has had long terms of zero or negative growth so unless you have a guaranteed investment that pays more than your mortgage rate, then it is probably best to retire that debt once and for all. Once you are free from a mortgage you will actually be a homeowner, and no longer a homedebtor.
Book Review – Buying a Home: The Missing Manual
May 21st
Housing prices have dropped all across America in the past couple years, and more people are looking into buying a property instead of renting. If you are an eager house hunter and do not know where to start then Buying a Home: The Missing Manual by Nancy Conner(affliliate link) is the book for you.
The book is separated into four sections. The first is Preparing for Home Ownership. This section discusses the pros and cons of buying a home, and the financial implications of being a homeowner. In this section the author also gives some good tips on improving your credit and lowering debt so that it would be more likely that you will get a loan.
The second is Finding Your Home. This section zeroes into the house hunting portion of the home search. It included a good chart of common euphemisms real estate agents use to make properties sound better than they are. For example, "jewel box" and "cozy" both mean that the house is very small. This section also talks about finding a real estate agent and other professionals that would help with the home search.
The third section is Financing Your Home. This section is important to any home buyer because it discusses the different types of mortgages and closing costs with real numbers and examples. If you could fully absorb this section of the book then you would have a good idea of what to expect on your loan and closing documents. This section may be a little overwhelming to read for those who do not regularly deal with numbers, but it is very important to understand the loan you are getting into before signing the dotted line. The book also goes over the HUD statement so that a potential home buyer knows what the fees are.
The final section is Negotiating and Closing the Deal. This portion discusses what to offer for a home, and how buyers can negotiate with sellers on issues beyond price. For example, buyers could ask sellers to cover a part of closing costs. The book also discusses how inspections work and what happens if things go wrong.
I really liked this book for its straightforward and informative writing style. I also liked that the book was very comprehensive and covers the entire home buying process from beginning to end. When my husband and I purchased his parents’ house I did a lot of research on my own and it took a lot of time to gather all the information that was covered in this book. I could have saved a lot of time if I had this book. One word of warning is that this book is definitely targeted towards American home buyers because the laws and procedures mentioned do not necessarily apply to other countries. However, the general advice on preparing for home ownership and negotiation are useful for any house hunter.
Finally, the book also has a companion website where readers can get updates to the book. Another book in the Missing Manual series called Your Money: The Missing Manual" was recently reviewed by Philip Brewer.
Disclosure: I received a free review copy of this book and the post contains an affiliate link.
How to Afford Payments on Your Adjustable Rate Mortgage
May 19th
So you’ve managed to keep your house, your job, and even your credit report clean during the economic meltdown. But, the storm’s not over just yet. The second wave of foreclosures and economic instability is gearing up to wreak havoc. And what’s worse, you’ve just realized that you are in the middle. Your adjustable rate mortgage is getting ready to adjust and you might not be able to afford the payment.
So what can you do?
There are several things you can do that can help you survive your adjustable rate mortgage. You can achieve this without having to resort to a second or third job or without having to start a home business, although if it’s practical, earning extra income sure can go a long way as well. The options available to you will depend on your current situation, but in most cases you can avoid foreclosure and ultimately get a mortgage with better terms.
Step One: Batten down the hatches and save money!
1. Evaluate new car payments vs old car maintenance costs.
I often wonder why people choose to get new cars as often as they do. If you already own a gas guzzling SUV, it may still be a better move to keep it under certain circumstances: while driving such a car may not seem like the politically correct thing to do right now, paying a little more at the pump at each fill up is still way less than a new car payment. Of course, you may have to weather a few condescending looks from those smart car drivers, but at least you know that you won’t have to call a taxi the next time the ball team needs a ride to the field. Here's more on how to cut car ownership costs.
2. Cut down on credit card use.
This one is a no-brainer. Stop using credit cards unless you can pay them off completely every month. But for many, the temptation to let one’s balance roll over into next month is simply too great. You need to keep a credit card around for emergency purposes, but it should take an act of Congress to get to it.
3. Pay your bills on time and stay out of the red.
Do you have any idea how much money you pay out in late fees? Probably not. I know I didn’t until I started adding them up on my bank statement. On average, we pay $350 or more in combined late fees, bank fees and other “stupid tax” that could instead be chucked away into a high interest savings account. So create a workable budget and stick to it.
Step Two: Get better terms on your loans and mortgage.
1. Consolidate your debts.
People often forget that they may have some leeway with the loans they carry. If you’ve got good credit and have been managing your debt load well, you can possibly negotiate better terms for your existing loans. Using balance transfer credit cards to get lower card interest rates has worked for me. You can also also consider joining a peer to peer lending network to secure better interest rates. You may also want to explore the possibility of debt consolidation as an option.
2. Refinance.
Now it's time to take a look at your adjustable rate mortgage. The best case scenario is to refinance it into a fixed rate mortgage as soon as possible. With an FRM, you'll know what your payment is going to be each month and if you choose to leave any equity you’ve built up in your home, you might actually be able to reduce your payback period from 30 years to 15 or less, saving you a ton in interest. Depending on the amount of equity you have in your house, you may also be able to draw out some cash to place into a savings account or pay off more expensive debt as well (e.g. credit cards and auto loans), although this is something you'd want to weigh carefully. The drawbacks are that not everyone will qualify for refinancing. If you’ve had some hits on your credit, if your house value has significantly decreased or if you lack sufficient funds to cover a down payment and closing costs, then odds are that you won’t qualify.
3. Modify your existing loan.
While not quite as desirable as refinancing your loan, you may qualify for a loan modification. In a loan modification scenario, your lender will adjust the terms of your mortgage — usually by reducing fees and interest — so that the payment remains affordable for you. In exchange for this consideration, the lender will receive a cash incentive from the government and avoid a costly foreclosure. The drawbacks for this process are that not everyone will qualify for a loan modification. In most cases, the borrower has to already be severely delinquent and the reduced interest/fees/principal may be due as a balloon payment at the end of the mortgage.
4. Sell your home.
As a last resort, you may have to consider unloading your house. This is probably the least desirable outcome, but selling your home is much better for your financial standing and credit, than going through a foreclosure. This way, you keep your credit intact and will increase your chances of being able to obtain financing in the future. In certain situations, it may be advisable to sell the house for what you owe (if the balance of your mortgage is less than the value of the home) in order to sell it quickly. The drawback is that this process won’t help if you owe more than your home is worth.
If you find that you are at the verge of getting into financial trouble with your mortgage or you're already in a tight situation and don’t know what to do, call your lender. Do it now because every minute you wait may mean fewer options you have for getting back on course. You may be surprised that there are still many lenders who are willing to work with you and help you get on a path that will keep you in your home and out of foreclosure.
Trulia’s Data-Rich Maps Now Include Apartments [Real Estate]
Apr 7th
Trulia, the real estate search app that’s all about the Google Maps mashups, has added rental properties to its listings, giving the five best apartment search tools a run for their money. More »
How Long Can You Stay in Your Home After You Stop Paying the Mortgage?
Apr 6th
By Xin Lu
Even though the economy seems to be getting better, the number of mortgage delinquencies is still rising. Some homeowners are choosing to walk away because their debts are much higher than what their houses are worth, and many others just cannot afford their mortgages any longer. Although I am not thinking of walking away from a mortgage, I wondered how long those who stop paying their mortgages can live in their homes before the lenders kick them out. Here are some real life examples of people who lived in their homes for months or even years after stopping payment.
Martha Shickley
According to this recent Wall Street Journal report, the Shickleys decided to stop paying their mortgage in August, 2009 and have not even received a default notice as of March 2010. That is a whole eight months of free housing and it is not over yet. This family stopped paying because they have an interest only mortgage and is now using their money to pay off other debts.
Ron Nash
This man was featured in the CNN Life After Foreclosure slideshow and he vacated his home after not paying for the mortgage for 18 months. He feels that he "landed on his feet in just about every way." His mortgage was $5,600 a month and he moved his family into a $1,900 a month rental..
Shawn Aaron
This Florida homeowner stopped paying for the mortgage on his 5,800 square foot home more than two years ago. He says that since his loan was sold to a new lender he doesn’t have a contract with the new lender and does not have to pay the mortgage. He even started a company to help homeowners fight banks.
Louis Tondu
This airline mechanic stopped paying in June 2009, and was still living in his residence in February 2010. He said his bank has not filed a notice of sale and expects to live there until May 2010.
These are just a few of the many homeowners who decided to stop their mortgage payments. Although these few cases are by no means conclusive, the general political and corporate policies of the present are stretching out the length of time people get to stay in their houses after stopping payments. Some homeowners are even finding that they were not foreclosed on after they moved out because banks deemed their properties to be too costly to take back.
Recently Paul Michael of Wise Bread wrote about his thoughts on walking away from his mortgage, and if he really does it I would be interested to read about how long it takes the bank to actually get to the stage of eviction. Are you more likely to walk away from your underwater mortgage knowing that you could possibly live in the home for another two years?
Permalink | 13 comments | Xin Lu's blog | Channel: Real Estate and Housing
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- Mortgage bailout redux: new incentives for modifying second mortgages in the Second Lien Program
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This article is from Wise Bread.
Ask the Readers: Save Money on Rent? (Chance to win $20!)
Mar 16th
By Linsey Knerl
We get a lot of email asking us about apartment-hunting, rental properties, and finding cheap (but lovely) places to rent. As a farmgirl with only a couple of years' experiences in the "rental market," I'm pleased to say I haven't really had to deal with it much. I know that our readers, do, however. What are your tips for finding cheap rent? Do you have stellar solutions for making the most of each square foot? Or maybe you have some advice for getting back your deposit?
We'd love to hear what you have to say. You are the experts! Share your thoughts, either below in the comments or on Twitter, and you could be entered to win one of two Amazon gift cards!
Win a $20 Amazon Gift Certificate
We're doing two giveaways — one for random comments, and another one for a random tweets.
How to Enter:
- Post your answer in the comments below, or
- Tweet your answer. Include both "@wisebread" and "#WBAsk" in your tweet so we'll see it and count it.
If you’re inspired to write a whole blog post, please link to it in the comments or tweet it.
At the end of the drawing, we’ll update this post to include (and link to) all of your helpful responses.
Giveaway Rules:
- Contest ends Friday, March 19th at 11:59 am CST. Winners will be announced after March 19th on the original post and via Twitter. Winners will also be contacted via email and Twitter Direct Message.
- You can enter both drawings — once by leaving a comment and once by tweeting.
- Only tweets that contain both "@wisebread" and "#WBAsk" will be entered. (Otherwise, we won't see it.)
Good luck!
Permalink | 36 comments | Linsey Knerl's blog | Channel: Giveaways
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This article is from Wise Bread.
How to Invest in Real Estate With No Money or Unlimited Money
Feb 8th
One of the greatest things about real estate investing is that anyone can do it. People think they need money or credit to become a real estate investor, but that is simply not the case.
No matter where you are financially: broke or bulging pocketbo…