When it comes to renting an apartment or home, you don’t have to be at a loss.  Renting has its benefits and can be a positive experience for people saving money to buy homes of their own. Renting a place rather than buying can be a very sound financial decision when you are starting out. Even most millionaires start out renting.  When it comes to selecting the right rental space for you, there are some things to consider.  Making a hasty decision won’t save you money.  It will end up costing you more in the long run.  That’s why it’s important to do your research to make sure you’re getting the most bang from your rental buck.

Here’s how to find and benefit from your rental apartment or home:

1.     Use a website like DoNotRent.com to get honest feedback about the apartment rentals you’re interested in.  People love to share their experiences with others.  Take advantage of this communication by educating yourself about the options available in your city.  For example, if you need a Chicago apartment finder, you enter the location you’re interested in to find reviews about the different dwellings available for rent there.  This will allow you to find the best rated apartments and homes in the city.

2.     Do not spend more than 30% of your total income on rent.  If you can spend less than that guideline on rent, you can save the remaining money in a bank account where you can earn interest on it.  FirstApartmentGuide.com offers a handy rent calculator for you to use on their site.  Access it here.

 3.     Compare floor plans and amenities with other rentals in your price range.  If you can get more space and other luxuries like a washer and dryer hook up, onsite gyms, and a swimming pool, by all means choose the apartment or home that’s the most enticing.  Think about it for a second.  A gym membership costs money.  Going to the public pool costs money.  Frequenting the Laundromat costs time and money.  Amenities help you save.  Check out this About.com article, 10 Amenities Tenants Look for in a Property, and create a wish list of your own.

 4.     Pick the right location.  If your perfect rental is miles away from your workplace or children’s school, you might want to reconsider leasing it.  Commuting costs money.  You may be saving on a rental apartment or home but you won’t save a dime on gas and upkeep as well as time.  Realtor.com offers the following advice when choosing a rental.

“When evaluating a neighborhood you should investigate local conditions. Depending on your own particular needs and tastes, some of the following factors may be more important considerations than others:

• quality of schools
• property value
• traffic
• crime rate
• future construction
• proximity to schools, employment, hospitals, shops, public transportation, prisons, freeways, airports, beaches, parks, stadiums and cultural activities such as museums, concerts and theaters.”

Apply the aforementioned tips to your apartment or home search and get the best rental space money can buy.  You don’t have to forgo comfort to save money.  You just need to know what things you won’t compromise on when selecting a place to dwell.

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Deciding If Refinancing is Right For You

Before even calling banks and getting quotes, you first should take some time to look at your situation to see if refinancing is even the right thing to do right now. First, how much equity do you have in your home? This is important because to do a traditional refinance, the lender will likely want the LTV ratio to be no more than 80 percent. With the fall in home values in recent years this makes it tougher for many people to qualify for a traditional refinance.

If you don’t have much equity in the home, or may even be upside down, then you’ll want to explore HARP. This program was put in place to help homeowners who may have been hit with the declining real estate market and wouldn’t otherwise qualify to refinance into a lower interest rate loan. The problem is, not all banks participate, and even those that do may place their own restrictions on the loans they will refinance. And finally, not all mortgages even qualify for HARP. So, before moving forward, check to see if you qualify at the HARP website.

Finally, even if you’ve discovered that you can refinance, you’ll want to make sure it’s worth it to refinance. A lot of it depends on the rate on your current loan and how long you expect to live in the house. Remember, when you refinance a mortgage you’ll have closing costs. These include loan origination fees, credit checks, title insurance, and possibly even prepaid escrow. This could mean a few thousand dollars out of your pocket at closing, so you must look to your monthly savings to see how long the breakeven point is. If refinancing saves you $100 a month on your mortgage payment but you end up paying $2,500 in closing costs, it will take you two years and one month to break even. If you think you may not live in the house for much more than a couple of years, then you may want to reconsider doing the refinance.

Before Contacting Lenders

Once you’ve decided that you actually do want to go through with a refinance the next logical step Is to start contacting lenders, right? Almost. You will need to get in touch with lenders to get quotes and to see who will qualify you, but you can do one more thing first that will save you a ton of time during this process. The banks will require financial information from you, so rather than waiting for them to demand documents, get everything ready to go and at your fingertips before you even start to make the calls.

For instance, you’ll likely need recent pay stubs, at least one, maybe two years of tax returns, proof of homeowners insurance, bank statements, and so on. So, gather these documents ahead of time and make copies of necessary. You’ll be doing a lot of faxing, scanning and emailing, or dropping off the documents at an actual branch. Instead of scrambling to find the documents as they are needed, you’ll be able to turn these items around in a matter of minutes instead of hours or days.

Working With Lenders

One of the best things you can do once it’s time to start getting quotes is to go into the discussion with an idea of what you want already. If you know what term loan you want, and what the typical rates are for that type of loan, you can spot a good deal instantly. You can also save a lot of time when they come back with a higher rate and then try to sell you on it by adding points, stretching the term, and so on. Don’t let them sell you a loan, but let them tell you what they can offer, and if it stinks, move on to the next lender.

After settling on a lender the ball is in their court for the most part. You may still have to provide a document or two, but it will be up to them to push it through underwriting to get it done. Even though this process can take upwards of a month, be sure that if they call you, email you, or request any information from you that you get it back to them in a timely manner. You don’t want the rate lock period to expire or come across any other setbacks.

So, if you take the time to understand first if you even qualify for a refinance, prepare all of your documents in advance, and know exactly what loan you want, you can take a lot of the headaches out of the process and you’ll feel confident in knowing you made the right decision.

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Although many of the costs are associated with financing, others are independent of the mortgage and the lender. Some charges are normally associated with either the buyer or the seller, but anything is negotiable. It also depends on the current real estate market. In a buyer’s market, the buyer has more leverage and can often get the seller to foot some or all of the closing costs. On the contrary, in a seller’s market they may be entertaining many offers and are less likely to make concessions on closing costs.

Some costs are clearly the responsibility of the seller. For example, the seller typically pays the total real estate commission to their agent/broker. The amount is generally deducted from the proceeds of the sale. If the buyer is also using an agent, there are typically agreements in place for splitting the commission and it not a fee paid by the buyer. Likewise, the seller pays for his own real estate attorney, if he has retained one. If the seller has not yet paid the annual property taxes, the seller credits the buyer for the number of days the seller owned the home that year. This credit reduces the amount of money the buyer needs at closing.

The buyer usually pays for the mortgage-related fees: application, origination points, discount points, private mortgage insurance, credit report, mortgage broker fee, and so on. These fees will vary from lender to lender. An origination point compensates the lender or mortgage broker for their work; a discount point lowers the interest rate. Each point costs one percent of the loan amount. Speak to your loan officer about the possibility of amortizing some of these fees into the loan. It isn’t always a good idea to roll fees into the loan as it can end up costing more money in the long run, but if money is tight it can help so that these fees aren’t out of pocket.

Title insurance protects against past defects in title such as forged documents, undiscovered heirs, or undisclosed liens. There are two different policies usually issued at the same time. One is a lender’s policy that’s mandatory if you’re receiving a mortgage. The second is the optional, but highly recommended, homeowner’s policy. Local customs affect who pays, but buyers and sellers often negotiate title insurance payment.

Document recording fees are charged for the deed and are typically paid to a local municipality or the county. The state may also assess transfer fees or taxes on new and assumed mortgages – typically paid by the borrower – and on the deed, paid by the seller.

Lenders require homeowner’s insurance. Additional flood, wind, or earthquake coverage may also be mandatory, depending on the location of the property. These annual policies are effective on the day of closing, but the homeowner may pay for them ahead of time. Costs vary widely among providers, so shop around for the best pricing that meets your needs. The full year’s premium is due by closing and may be a part of the closing fee package.

Lenders require a property appraisal that the buyer normally pays at the time of the inspection or loan application. Costs vary depending on the size of the home, and FHA appraisals may cost more than conventional appraisals. If you are doing a cash sale, an appraisal isn’t required, but it is still in a buyer’s best interest to get their own appraisal to make sure the purchase price of the property is fair.

Lenders also generally collect a two-month payment cushion for escrowed items. That means you pay 2 months of hazard insurance and property tax at closing, and going forward part of your mortgage payment will be allocated to escrow to cover these recurring charges.

The Real Estate Settlement Procedures Act requires that loan officers send applicants a Good Faith Estimate (GFE) of expected closing costs within three business days of signing the loan application. These estimates will be very close to the final charges and typically arrive about 30 days before closing. If you need more time to prepare, ask a loan officer to pre-qualify you for a loan before you start looking at homes. Request a GFE of estimated charges. FHA loans allow closing costs to be paid with gift money, and your state or city may have First Time Homebuyer programs available that assist with closing cost funds. Discuss the possibilities with a local loan officer or real estate broker.

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Late payments—Most rental agreements have payment terms that require rent to be paid within a certain amount of time from the due date before it’s considered late. Typically it’s 3-5 days. Anything beyond that is a late payment and repeated instances of this can be grounds for eviction. For your protection, make sure tenants are aware of the conditions of the rental policy and know where to turn in rent.

It’s also important to address late payments immediately. The first time a tenant is late, be proactive and contact them to find out what is going on. Honest mistakes happen, but more often than not, one late payment will lead to further late payments. Stay on top of it and don’t fall for the excuses.

Security deposit mishaps—Tenants often believe they can pay their last month’s rent with the security deposit, hoping to save money for moving containers or other relocation fees. But landlords have a legal right to withhold the security deposit until tenants have moved out and the property has been inspected for damage. Any use of a deposit to cover rent is purely within the landlord’s discretion, so make that clear in your lease from the start so there is no confusion later on.

Disorderly conduct—Excessive noise, loud parties, risky behavior, or sloppy upkeep can diminish the value of a property and irritate other tenants who may then want to move. The tenant has a responsibility to address disorderly conduct, which can lead to an awkward and sometimes contentious encounter. The important thing to remember is to document any and all possible infractions and keep it on record. Without proper documentation, you will have no grounds for eviction in the future.

Violation of rules—Some rules are relatively trivial: leaving your garage door open unattended, taking out the recycling cans before a certain time, leaving a mailbox unattended for too long, keeping a pet when pets aren’t allowed, etc. Other violations are more serious, and can endanger property or the well-being of other tenants. If a tenant is frequently in violation of property rules, the landlord should send the tenant a new copy of the rules highlighting which ones he or she is in violation of.

Again, be a proactive landlord. If you sense a problem, investigate and address the tenant immediately. Don’t wait for the problems to escalate. If you stay on top of potential issues and keep good documentation you’ll find the eviction process will go much more smoothly if it comes to that.

Managing a property can be a tough job. It is made exponentially harder by bad tenants who blatantly violate rules, make late payments, and behave inappropriately. A landlord should prepare for the possibility of needing to evict a tenant by documenting any and all infractions that occur on the property.

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Roll Them Into the Loan

In some cases, closing costs can be rolled into the balance of the mortgage loan. If you are taking out a loan on a piece of property that has some equity left over, the mortgage lender may allow you to roll the closing costs into the balance of the loan. By doing this, you will essentially be paying your closing costs over the full life of the loan. This is not necessarily the best way to pay closing costs because when you take the few thousand dollars and add it to the loan, you’re paying interest on this amount over the course of many years which means you end up paying much more in closing costs in the end.

Use Savings

Hopefully before deciding to buy a home you started saving money in a high-yield savings account for the down payment. Having a down payment is important in today’s lending environment, and it’s just a good idea to get some instant equity and avoid PMI if possible. While you may have been saving for the down payment, you may not have considered the thousands of dollars that typically come in the way of closing costs. So, when you have your target down payment number decided upon, play it safe and tack on an additional $3,000-$5,000 for closing costs. You may still be able to negotiate out of some of the costs, but having that extra money on hand to cover it is a nice safety net. If you have money left over that’s just a bonus and you can apply it to the down payment or put it into a home maintenance fund, which you will undoubtedly need.

0% Interest Credit Card

One strategy you might be able to employ is the use of a zero-percent credit card offer. By paying closing costs with a credit card that may not charge interest for 12 or 18 months, you can spread the repayment out instead of coming up with all the money up front. In addition, if it’s a cash back or rewards credit card you may even be able to benefit from that as well. As always, you must exercise caution when using credit cards. Be sure you know the exact terms and set up a payment plan to have the balance paid off before the interest starts kicking in. If you fall behind you will end up being stuck with paying high interest on the remaining balance.

Negotiate the Closing Costs With the Seller

One of the most common ways to manage closing costs is to negotiate with the seller. If the seller of the property wants to sell his property badly enough, he may be willing to pay some or all of your closing costs for you. When negotiating this deal, you need to make sure that the right closing costs are included. The seller often splits the closing costs associated with transferring the property ownership. However, you’ll likely need help with the closing costs on the mortgage as well. Using closing costs when making an offer is a powerful negotiation tool and your real estate agent will help guide you.

Considerations

If you have to pay for the closing costs out of pocket, make sure that you take full advantage of the tax benefits that they can provide. If you pay any points as part of your closing costs or prepaid interest, you can typically deduct those costs from your taxable income when you file your taxes. As always, keep good records and double check all of the loan documentation to be sure you’re only paying your fair share.

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I like to look back at our first home purchase and see all the things we did wrong. In hindsight, we probably never should have bought a house, especially since it was back in 2005 at the top of the real estate bubble, but what’s done is done. Now, it’s best to learn from our mistakes so that history doesn’t repeat itself.   So, here are three of the biggest mistakes most first-time homebuyers make, myself included. If you can avoid these on your first purchase you’ll have few regrets and have a better chance of coming out ahead.

1.  Rushing Into Buying a Home

For young adults likely coming out of college and landing their first real job, it’s not uncommon to consider settling down and stop throwing money away on rent and find a nice piece of real estate. After all, owning a home is part of the American Dream, right? While it’s true that buying a home and building equity can help you build wealth compared to renting, there’s a lot that can change early on in someone’s life. Buying a home is a long-term commitment, and if you run out to buy something too soon, your situation may change make that home purchase an anchor, or worse, result in a substantial loss of money.

Succumbing to the temptation of becoming homeowners, we fell into this trap. My wife and I were in our mid-20s and she just received her first real job offer, but it meant relocating. This was exciting and we knew that we were both sick of renting and constantly hopping around from apartment to apartment over the years. We wanted to find a place to call our own and settle down a bit. This ended up costing us dearly.

Almost as soon as the papers were signed at her job we were on the hunt for a house hundreds of miles away. So, it meant doing a lot of looking online and then planning day trips to the new location and spending hours upon hours with a real estate agent looking at houses. Feeling under the gun to get moved in sooner rather than later so my wife didn’t have to commute halfway across the state, we closed on our first house in under 30 days from the moment we started looking. Seemed amazing at the time, but how foolish it seems now.

The house was actually pretty nice after coming from living in somewhat dumpy apartments all through college and the few years after. It was small, almost like a cottage, and had a view overlooking a lake. It was in an extremely quiet and rural area and sat on a nice chunk of land. The problem is since we rushed into it we really didn’t take into account some important amenities or think about our future which might one day include children. It only took a few years in the house to realize we overlooked some things we really wanted in a house, and a few years later upon learning we’d be having our first child, we immediately knew this house wouldn’t cut it for kids. The home layout was terrible if you had a small child, and the home was literally in the middle of nowhere in a school district we wouldn’t really want our kids. Even worse, by now we’re in the midst of the real estate market collapse and we’re underwater on the house. We still desperately needed to find someplace better, so the search for a new home began and we planned on just keeping the other house and hopefully rent it out.

As you can see, rushing into buying a home burned us in more ways than one. So if I were you, I’d seriously take a moment to slow down and make your decision very carefully and take everything into account. If things change in just five short years you could find yourself in a lot of trouble.

2. Buying More House Than You Can Afford

If rushing into that home purchase is bad news, then spending more on a house than you can truly afford is even worse. When it comes to calculating how much home you should reasonably afford there are a lot of rules of thumb and various debt to income ratios that banks use, but this has little to do with what you can truly afford.

Before even stepping foot in a bank, you need to sit down and run the numbers to see what you can afford. This may mean creating a budget for the first time to see where your money is going and understand how much you have to work with, but trust me, this extra step will be worth it and it could potentially save you from a financial hardship down the road.

The key to doing this is to take into consideration all of the new costs associated with a home. If you’ve been renting your whole life you’re going to encounter a bunch of new expenses that you never had to worry about before. Sure, the mortgage payment, which includes principal and interest is going to be the biggest and most important payment, but don’t stop there, which is what most banks do when calculating the maximum loan amount. Instead, you’ll want to also consider:

• Property taxes
• Homeowners insurance
• Possible Private Mortgage Insurance
• Utilities
• Maintenance

Let’s go through a quick example to see how these costs can add up. Let’s say you find a house for around $170,000. You can’t afford a full 20 percent down, but you do manage to make a 10 percent down payment. After all said and done, you end up taking a $150,000 mortgage at 4 percent. Your principal and interest mortgage payment will be just a tad over $700/month. That seems like a good deal and an affordable payment. But, that mortgage payment isn’t the end of the story.

First, you have property taxes. These will vary greatly depending on location, but you can almost certainly count on a home at this price point costing anywhere from $1,500-$3,000 a year in property taxes. (although there will clearly be exceptions to this rule) Either way, that comes out to another couple hundred bucks a month on average.

Then there is homeowners insurance. Again, rates will vary, but insuring a home like this will probably cost $700-$1,500 a year, or another $50-$100/month.

Since you weren’t able to put a full 20 percent down you’ll likely be subject to PMI if you carry a traditional mortgage. This will run between about $60-$100 a month.

Utilities are a bit of a wildcard. If you’ve been renting, it may be that some utilities were included. Even if they were not included, the hidden cost of moving into a (usually larger) house is that it costs more to run the home. A larger home means more electricity, more rooms to heat and cool, and possibly some new utility bills entirely such as sewer, water, trash disposal, propane fuel, etc. It’s hard to know exactly how much more utilities will cost you in the new home, but you should budget about $100/month to be safe.

Maintenance is another mixed bag. In a perfect world you’d move into a house and not have any issues for years, but that’s not how it usually works. I know the first few years in our new house we had things like a furnace repair, a dishwasher went bad, the well had to be serviced, I needed to buy a lawn mower now that I had a lawn to care for, and so on. I’d say in the first year we had close to $1,000 in miscellaneous expenses and repairs.

So, in the end, what does this do to the initial $716/month mortgage? After you tack on taxes, insurance, PMI, and the varying utility and maintenance budget, it will actually cost closer to $1,300 a month after all is said and done. Think about that for a moment. You may have had your heart set on buying a home in the $165,000 range because the mortgage payment looks affordable at today’s low rates, but in reality, your monthly cost could actually be closer to double that amount. If you didn’t budget for these expenses and just went to the bank and thought the $716/month mortgage sounded good, you could be in a tough spot when reality sinks in with all the other costs.

3. Choosing The Wrong Loan or Lender

Shop around. Finding the best mortgage and talking with a bunch of lenders, submitting mountains of paperwork like tax returns and pay stubs is a hassle, but this is one area you can’t be too careful with. Lenders vary greatly so at a minimum you’ll probably want to talk with five lenders at a minimum. It’s not the most enjoyable aspect of buying a home, but trust me, getting tricked into paying points or working out some unconventional loan just to get the deal done could literally cost you tens of thousands of dollars.

Thankfully, the real estate crisis has curbed many of the loose lending requirements and shady unconventional loans, but that doesn’t mean the banks are on your side and they will simply present you with the loan that’s right for you. Be sure you ask questions and understand what you’re getting into. Be cautious whenever the interest rate looks too good to be true or if they say they can structure the loan in a way to get you out of paying PMI, and so on. While there are legitimate ways to make these things happen, if you aren’t being presented with a traditional 30-year fixed mortgage, be sure to ask questions.

Seriously, ask questions at every step of the process. You could be stuck with this loan for many, many years, so making sure you understand every detail about the loan, the rates, the points, the total costs, will ensure you know what you’re getting into. There’s no such thing as a stupid question, so if you honestly don’t understand something, simply ask.

Ask me how I know. We rushed into buying our first home, so that also meant rushing into getting a mortgage. We should have shopped around more because we still own that old house and now that it’s classified as a rental with little to no equity, refinancing has been impossible, and we’re STILL stuck with the old mortgage to this day, at a whopping 7.5%. A simple decision is still haunting us eight years later.

Wrapping Things Up

As you can probably see, there’s a lot to think about when it comes to buying your first home, and it isn’t a decision to be taken lightly. Rushing into it is a bad idea. Even today when the market appears to be at or near the bottom and there might be an urge to strike while the iron is hot, you can’t just run into buying a home. Even if you find something that looks perfect, if the numbers don’t add up, there’s no reason to buy it thinking somebody else will snag it and you’ll never realize your dream house. There are plenty of homes for sale and who knows, you may miss out on that one, and another one even better will list a month or two later.

In the end, don’t underestimate the true costs in owning a home. It’s great that mortgage rates are so low since that makes the overall cost low, but the things like insurance, taxes, and maintenance are not trivial additions. They really will add hundreds of dollars a month to your overall home expenses. Factor those in to the best of your knowledge before even looking for homes so you know exactly what you can truly afford.

And finally, buying a home is a long-term commitment no matter how you look at it. It’s virtually impossible, especially in this market, to buy a home and then suddenly have to sell a few years later and come out breaking even, let alone ahead. And even if you do plan on staying in the home for a while, choosing the right loan will probably stick with you for a long time, and if it isn’t the best loan available to you, you’re literally throwing money away.

If you can avoid these three biggest mistakes, you’ll find that buying your first home is a rewarding experience. And if you’re lucky and you do things the right way, you really will be building wealth through equity in real estate and put yourself in a better financial position in the future.

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Let’s look at a $200,000 30-year fixed-rate mortgage. A few years ago your 7% mortgage would mean your monthly payment would be about $1,330 a month, less any PMI, escrow, etc. Now, take the same loan at 4% and the monthly payment drops to around $955. That’s nearly $375 less each month. I don’t know about you, but I wouldn’t mind having an extra $375 in my pocket each month. And when you look at the total savings over the life of the loan, the 4% rate will save you over $136,000 in interest. It’s no wonder people are looking to buy a house or trying to refinance right now, but is it worth it?

Tighter Lending Limiting Loans

Even though rates are low, it’s more difficult to get a loan or to refinance today. Banks have changed their lending standards and it takes very good credit to get the best rates. A few years ago almost anyone could get a decent rate. If you bought a home with good, but not great credit a few years ago, you may actually find that the rate you can get today is not much better than your current rate. In some cases, you may be unable to get a loan or refinance at all, especially with dropping home valus.

There are also new fees being introduced to help lenders deal with risk. New risk-based pricing from Freddie Mac and Fannie Mae adds fees to mortgages based on a borrower’s credit score. In order to avoid the extra fees, borrowers need to have a FICO score of 740 or higher. While a score in the 700s is historically pretty good, you can now find yourself on the hook for added fees even with a less than perfect score.

Thinking About Points

A lot of people think about paying mortgage points as a bad thing, but that isn’t always the case. The trend has been for lenders to require higher points for rates these days than a few years ago as they are looking for more money up front. Since points are essentially prepaid interest, this puts more money in the bank’s pocket early on. In some cases, paying points can result in a better deal, while some situations may end up costing the borrower  more money. Generally, the longer you plan on staying in the home, the more attractive it would be to pay points.

Julian Hebron, vice president and mortgage consultant at RPM Mortgage in San Francisco says  that paying points gets borrowers a bigger discount these days:

Historically, one point in fee gets borrower a rate that’s about 0.25% to 0.375% lower. Now one point gets the rate about 0.625% to 0.875% lower.

Recently, you could get a $417,000, 30-year fixed-rate mortgage at a rate of 5.625%, paying zero points. By paying one point (or $4,170) on the same loan, the rate went down to 4.875%, saving the borrower $261 per month in interest cost.

At this monthly savings rate, it takes 16 months to pay back the $4,170 and everything from that point forward is a benefit. Traditional breakeven periods are double this.

Other Fees and Costs

Aside from paying points and possibly paying a higher rate because of your credit score, you still have all the other costs to contend with. It costs money to prepare a loan, and the underwriting and origination costs can easily be a few hundred dollars. You’ll also need an appraisal, which can again cost a few hundred dollars.

When you factor in all the costs associated with closing on a new mortgage or even a refinance, you can often expect to pay at least 3% of the loan amount in fees. This is especially important when you’re thinking about a refinance as the costs may outweigh the benefit of a lower rate in some cases. When you consider a $200,000 laon may end up costing $5,000 or $6,000 in total to refinance, what’s the breakeven point? If you’re saving $200/month by refinancing, it may take you nearly three years to make it worthwhile financially. So, if you aren’t sure if you’ll be in the house for more than a few years it could end up costing you in the long run to refinance and pay the closing costs. Of course, closing costs and fees vary by lender and your specific home, so you’ll want to calculate what’s best for you.

A Lot of Things to Consider

As you can see, just because we keep hearing about how low the mortgage ratesare these days, it isn’t always as easy as going to your bank and getting a 4% or better loan. With banks limiting these rates to those with the highest credit, regular people with average credit may not be able to find a loan or refinance for anything near what’s being discussed in the news.

In addition, if your future is uncertain and you may need to move in the next few years, the added points required to get the low rate or the fees associated with a refinance may actually cost you more money if you ended up not staying in the house as long as you expected.

So, if you’re considering the purchase of a new home or refinancing your existing mortgage, it’s certainly worth checking around to see what kind of rates you qualify for. But you want to make sure you’re actually going to save money and you’re not just jumping into a decision because the rates are at historical low levels. There are deals to be had out there, but it may be harder to qualify for them, and there may be other strings attached that make the lower rate not as attractive as it seems.

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I don’t know many people who enjoy moving. It usually involves a lot of heavy lifting, cleaning, costly transportation or moving services, and small things to take care of which can lead to a lot of stress. It doesn’t have to be this way and if you spend a little time planning ahead you can save money and take a lot of the stress out of your move.

Fortunately, most of us have a some time to plan for a move since we don’t usually have to pick up and move at the drop of a hat. At the same time, if you’re busy trying to buy or sell a house the thought of moving is probably not the first thing on your mind. But don’t let that stop you from planning. You should really start preparing for your move at least a month or so in advance. Here’s a checklist that can help you start preparing.

One or Two Months Before the Move

Gather important documents. Start rounding up your important documents a month or two before the move. This includes tax returns, insurance documents, financial records, and any other documents you think are important. This will help you accomplish two things. First, you’ll have a list of important companies that you need to submit a change of address to. Not only that, but things can and do get lost in a move and you don’t want your important documents to be one of them. If you gather them ahead of time and keep them somewhere safe they are less likely to get lost in the shuffle on moving day.

Notify the IRS. If you file a change of address form at the post office they will automatically update your records with the IRS. Even so, it’s a good idea to make sure you get things updated properly in case there is a delay or something happens and your address doesn’t get updated. All you have to do is fill out IRS Form 8822 and that will take care of it.

Contact your doctors. If you’re moving out of the area and will be using different medical providers it’s a good idea to let your current doctors know. It’s even better if you already know who your new doctor will be so that they can assist in transferring your records. In any case, you’ll want to make sure they know that you will be leaving and where you will be going. This can make things easier upon going to your new doctor for the first time.

Gather moving supplies. Use this time to start stocking up on moving supplies. Buying boxes can be expensive, so consider checking with friends and family for used boxes or even stop by your local supermarket or other retail store to see if they have any boxes to give you. There’s no need to pay for boxes if you can get them for free.

Start packing. It may seem like a month or two before the move is too early to begin packing things up, but start with items that you know you won’t need. You know what these things are, so if you won’t be using them before the move, get them packed up and ready to go now. The less you have to pack right up to moving day, the easier your job is going to be.

Throw stuff away. As you begin to start packing things up you’re going to encounter a lot of stuff that you just don’t need anymore. This is a good time to start throwing out what you don’t need or create a pile of stuff to donate to Goodwill or the Salvation Army. If you’ve been meaning to declutter your life, a move is your best opportunity. Start fresh in your new house by getting rid of all the excess. Not only is it less stuff to move, but you’ll have less clutter in your new house.

Two Weeks Before Moving Day

Notify utilities. If you’re leaving your old place for good it’s a good idea to give your utility companies a few weeks notice so that you can have your services shut off or taken out of your name at the right time so that you aren’t charged for what you aren’t using. Make sure you check to see who services your new location because it could be as simple as having them transfer service to your new address.

Notify cable and/or internet provider. If you’re like me, being without internet access is not much of an option. So, make sure you plan ahead a few weeks to get service transferred to or set up at your new location. Sometimes they may not have any available appointments for a week or two as it is so it’s best to call early and make sure you can schedule a hookup as soon as possible once you’re into your new house.

File change of address forms. Now that you’re just a few weeks away you should begin filing a change of address with the rest of the places you do business. Make sure to change it with your employer, bank, investment companies, insurance policies, cell phone company, credit cards, and any other place that might send you statements or otherwise need to contact you. While you can set up mail forwarding at the post office, eventually you’ll need to update your address with these companies anyway, so get it out of the way early.

Keep track of moving costs. Did you know that you might be able to deduct some or all of your moving expenses on your taxes? If you qualify you’ll want to keep track of everything. All the boxes, bubble wrap, and tape could be a deduction. Not only that, but so could truck rentals or moving company expenses or even mileage if you use your own vehicles. So, keep track of everything.

Five Days Before Moving

Change address with the post office. With just a few days left before the move it’s time to file your change of address form with the U.S. Postal Service. The easiest way is by stopping at any post office and doing it in person. You can also do it online, but I believe there is a $1.00 processing fee so just keep that in mind.

Finish packing. Don’t wait until moving day to try and box everything up. Start packing the rest of the stuff you won’t need before the move in the days leading up to the move. By now you should have everything but your essentials packed so that come moving day you’re more or less just loading up boxes on to a truck or in a car. When you pack in a rush that is when things get broken or misplaced, so plan ahead and pack at your leisure in the days leading up to the move.

Parting with the neighbors. You’ve probably made friends and met some great neighbors at your old place, but it’s time to say goodbye. Again, you don’t want to surprise the neighborhood on moving day when the moving trucks show up because you’ll spend most of the day talking with neighbors. If your neighbors already know you’re moving, you won’t be spending so much time on moving day catching up with everyone and can focus on getting the job done. Oh, and don’t forget to get the spare keys you may have given out. The new owners may not appreciate half the neighborhood having spare keys to their new house.

Moving Day

Pack smart. Use some common sense when packing and you will save yourself a lot of aggravation and possibly avoid breaking anything. Don’t stuff boxes until they can’t hold any more. You’re sure to break something or have the box come apart during the move. Also pack items by room for easy unloading when you arrive in your new place. You can eliminate extra moving if you have just what you need for that room in the same box. And finally, label your boxes. You just need a marker or ink pen but labeling the box with some of the contents will come in handy.

Get help. If you can, round up some friends or family to help with the move. The more help you have, the less work you ultimately have to do, and the faster you can get everything done. Having help can also eliminate injuries from trying to lift heavy objects yourself. Make sure you show your thanks by taking your help out to dinner or something once the work is done.

Take one last look. As you load everything up on the truck and your old place is empty, be sure to give it one last good look. Check all of the cabinets and make sure nothing has been left behind. Also, it’s a good idea to check for damage that may have occurred during the move. If you’re renting, that could come back to bite you if you have a security deposit. If you’re selling your house, that could cause trouble for the new buyers.

After the Move

Check contents for damage. If you moved yourself and you find damaged items, well, you don’t have anyone to blame but yourself. But if you used a professional moving company, you need to spot the damage and file a claim as soon as possible. So, this might mean unpacking everything in a day or two after the move, but if wait too long you may not be able to file a claim if you do later find something.

Confirm utility hookups. Just because you arrive at your new house and the power is on doesn’t mean you’re all set. There could have been a mixup where the old owners are still on the account at that address and you could be in for a rude awakening in a few weeks when they come and cut the power off unexpectedly. So, take a few minutes to call your electric, gas, trash, cable, or any other utility you use and make sure that they correctly have the new service for that address under your name.

Become familiar with the area. Even if you only moved across town it’s a good idea to scope out the neighborhood and find out where everything is. Where is the closest emergency after hours clinic? Pharmacy? Police station? Grocery store? As you become familiar with your surroundings you’ll be able to save time as you adjust to your new location. And don’t forget to introduce yourself to the neighbors if you haven’t already. They are the ones who will keep a watchful eye out for suspicious activity and may even become good friends.

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For those of you who currently own, or have owned a home in the past, I’m sure you remember the first few months after getting the keys to your new home. The sense of pride and accomplishment fuels excitement and you’re quickly on your way to making your house a home with little improvements and personal touches. I also don’t need to remind current or past homeowners about the maintenance and repair expenses that nobody told you about when you signed your life away on the mortgage documents.

When it comes to owning a home there are three big expenses that everybody factors in: mortgage payments, homeowners insurance, and property taxes. Obviously, these expenses make up the bulk of home ownership expenses, but for new homeowners there are usually some ugly, hidden, and unexpected expenses that can really put a hurt on your budget if they aren’t accounted for.

Home Maintenance Costs

As a renter, maintenance costs typically never even cross your mind. When it snows, your sidewalk and parking lot gets cleared and salted. In the summer, the common areas and landscaping get watered and taken care of. And when the building needs a new coat of paint or updates to keep it current, the landlord takes care of it. When you own your own home these responsibilities suddenly fall on your shoulders.

New homeowners often underestimate how much it actually costs to maintain a home. For example, take someone who finally moves out of an apartment and buys a nice little ranch out in the suburbs. Chances are this house has a lawn and probably even some landscaping around the house. Coming from an apartment where lawn maintenance wasn’t even a distant thought, suddenly you’d need to come up with a lawn mower, rakes, a trimmer, and various garden tools just to keep things looking nice (or be prepared to fork over a lot of money to a lawn care company).

Depending on the size of the lawn you may even want or need a riding mower. That means you could be looking to spend anywhere from a couple hundred dollars for a push mower to upwards of a few thousand for a riding mower. And remember, these things require gasoline, and at four buck a gallon that can add up. And all of those yard and gardening tools? A rake here, a snow shovel there, and a weed trimmer and such will add up. You may not realize it, but as you begin to accumulate tools you’ll slowly spend hundreds of dollars just on basic landscape maintenance tools.

Did you happen to buy a home with an irrigation system? Say hello to additional unexpected costs. In cool climates you’ll typically need to have the system winterized each fall to keep the pipes from freezing. That’s easily $50-$100 a year. And when your new lawn mower hacks up a sprinkler head, get ready to shell out some money to fix it. And if you’re on city water, be prepared for an increased water bill as well.

This is just the tip of the home maintenance iceberg. Sure, maintaining the outside of your home can obviously become costly, but as you know there is always work to be done to keep your home in proper working order. We haven’t even stepped through the front door yet and you could be on the hook for hundreds of extra dollars a year, not to mention plenty of hours of your free time spent keeping up good appearances from the curb.

Home Repair Costs

While maintaining a home can prove to be a costly added expense, where you really get hit is with repairs or replacing broken items. Most people assume that it’s mainly older homes that are subject to frequent repairs, but that’s not necessarily true. Appliances break and accidents happen even in new homes. I can attest to this because we bought a home just a couple of years ago, and the home itself is only about six years old now, but we’ve had plenty of things that needed to be fixed. Let me run down a list of what we’ve had to do in less than three years.

• Sewage ejector pump went bad. Luckily I caught it, but the ejector pump in the basement stopped working and waste water started coming back up through the drains. It happened at about one in the morning and luckily I was awake to notice it and was able to siphon the water away temporarily, otherwise it could have caused thousands of dollars in damage to the wood flooring and drywall. In the end, it cost over $300 to have it all taken care of.
• Siding repair. After a pretty nasty storm a few pieces of siding got ripped off one of the peaks near the roof of the house. A $150 repair with materials and labor.
• Microwave replacement. The microwave, which was also the hood vent over the range, just decided to stop working one day. A local appliance repair shop wanted a $100 service fee just to come look at it, and any repairs to fix it would be extra. So, we just bought another one. There’s another $300.
• Dishwasher replacement. Same sort of deal here and the dishwasher crapped out. After searching and reading about the problem online, it looked like we could either spend about $300 trying to repair it, or get a brand new one for about $500. Either way, we’re out another few hundred bucks.
• Oven/stove replacement. Yes, this is the third kitchen appliance in just two years to go out. Granted, whoever built this house put in the cheapest possible stove imaginable, so the repair costs would have been as much as the thing was worth, so we opted to upgrade and splurge a bit since we cook virtually every meal at home. There goes another $1,500.
• Irrigation backflow preventer. We had a really early and hard freeze about a year ago and the exterior pipes froze and busted the backflow valve. This is by design to prevent even worse damage to other items, but it still resulted in a service call and about $100 in repairs.
• Hot water heater. Nothing like waking up in the morning to a cold shower. The hot water heater wasn’t lighting. I spent an hour or two troubleshooting and was able to fix it myself, but not after wasting the better part of a Saturday afternoon running back and forth from the hardware store and spending at least $50 in tools and parts.
• Garage door repair. Most recently, I came home and hit the garage door opener in my car so I could get in, and to my surprise the garage door wasn’t opening. Low and behold, I walk around into the garage and find one of the springs snapped. $180 and two days later, I can park in the garage again.

In less than three years in a home that’s less than ten years old, we’ve spent over $3,000 on relatively expensive repairs or replacements. And these are just the large items off the top of my head. Obviously, there are plenty of little day to day type repairs that don’t cost much at the time, but certainly add up.

Clearly, everybody’s home will be different. You may go years without a single repair needed, or you might get hit with a bunch in a short amount of time. Either way, these expenses almost always seem to come at the worst possible time, and if you haven’t budgeted for them, guess what? They usually get put on a credit card, and if that isn’t paid off right away, becomes even more costly with interest.

Creating a Home Maintenance and Repair Fund

Since there’s usually little warning when something is about to break or if a repair will be needed, your best bet is to prepare and set money aside before it happens. You don’t want to come home to broken plumbing flooding your basement only to be further stressed because the only way you can afford to fix it is to throw it on a high-interest credit card. If you’ve got a little emergency reserve set aside just to cover these types of situations you can rest much easier.

The next big question is how much should you set aside. With anything about savings, more is always better, but here’s a good rule of thumb to follow. Take 10 percent of your monthly mortgage payment, (just the principal and interest) and divert that into a high-yield savings account. For example, if your mortgage payment is $1,000, aim to put $100 a month into a special home maintenance and repair fund.

Chances are you won’t need to dip into this fund all that often, but the idea is to essentially tack on 10% to your base mortgage payment and use that to cover the costs that aren’t advertised when you buy a home. Then when something does break, needs to be repaired, or you simply need to buy another lawn tool, the money will be there for you and it won’t siphon money away from the rest of your budget.

And guess what? Worst case scenario is you’re lucky and you can go a few years without needing to spend money on costly repairs and your home maintenance fund builds up nicely and is earning interest the entire time. That will help make the next home-improvement project go even smoother.

So before you’re ready to become a homeowner, make sure you’re thinking beyond the mortgage, insurance, and property taxes. Those items certainly make up the bulk of what it costs to own a home, but don’t get caught off guard and set aside 10 percent to create a cushion to cover those inevitable maintenance and repair costs.

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Financial Advantages of Making a Down Payment

While it is easy to see the historical 20% down payment as a major impediment to acquiring a new home, there are significant advantages to having this money when you buy your house. In addition to having an instant equity stake in one’s home, there are certain cost savings that are associated with the 20% level. Most lenders require Private Mortgage Insurance (PMI) for borrowers who have less than 20% equity in their homes. This is an additional level of insurance coverage that provides the lender with some protection in the case of a default. The charges for the premiums, however, are passed on directly to the borrower. If a borrower makes a 20% down payment, this charge is avoided. Additionally, even if the borrower is unable to hit the 20% mark right from the outset, getting to this of equity in the home can still yield the same savings.

The other significant cost savings that occurs when a home buyer makes a down payment is a dramatic reduction in the amount of interest paid over the life of the loan. Despite the fact that rates have remained low, the interest one must pay on each additional dollar that is borrowed adds up over the life of a typical thirty year mortgage. Over the course of a thirty year mortgage you may pay just as much in interest as you did for the house.

Here is a quick example. Let’s say you find a house that you like and really want to buy it to take advantage of low mortgage rates. The house is going for $175,000. Unfortunately, you don’t have $35,000 set aside for a traditional 20 percent down payment, but you find a lender that can work out a mortgage with just 2 percent down, or $3,500. It sounds great, but guess what? That loan would end up costing you about $120,000 in interest. But that’s not all. It would take roughly 11 years to get to the point where you have enough equity to eliminate PMI. If you assume about $150 a month for PMI on a loan of this amount, that ends up costing you nearly $20,000. Total cost to buy this home without the standard down payment: $140,000.

Let’s take the same house, same mortgage rate, and instead put the full 20 percent down. In this case you’ll only pay about $100,000 in interest over the life of the loan. In addition, you avoid PMI which saves another $20,000. All said and done you save $40,000 by coming to the table with a 20 percent down payment.

Is That Really a Savings?

I know what some of you are thinking. Why save up and dump $35,000 into a down payment today when you could basically finance that over the life of the loan? We haven’t discussed monthly payments yet. The terms of the loan in the first example would put the principal plus interest payment at around $820. Then when you tack on PMI your total monthly payment clocks in at about $970. With the full down payment and avoiding PMI, the monthly payment is just $670. A difference of $300 a month. That’s a nice boost to your cash flow and could go a long way toward making IRA contributions, adding to a college fund, or whatever the case may be.

Even so, people will crunch the numbers and play the “what if” game. What if I used the down payment funds to invest in something that earned more than what the mortgage was costing, what if I was able to get a piggyback loan to avoid PMI, what if…? There are a dozen possibilities, but that’s not the real reason behind striving for a large down payment.

It’s all about equity. Here’s the thing. Most people don’t live in their homes for the life of the mortgage. In fact, only about half of all homeowners stay in a particular home for more than 10 years. Because of the way mortgages work it takes a long time before you start to see the equity build up when making regular payments. So people who need to sell in the first half of the mortgage often end up with little equity without that down payment. And remember, even if you do have a little equity, there are costs to buying and selling a home. Things like real estate broker commissions and concessions to buyers can cut into your “profit” by tens of thousands of dollars, meaning you could end up walking away from the sale with almost nothing in your pocket. Or in the worst case scenario, you end up having to shell out money to get out of the house.

Sources of Funds

Saving to make the down payment on a new home can often be a daunting task given how much money it might take to reach a comfortable down payment. While personal savings is the most common source of down payment funds, there are other options that can be considered. Furthermore, properly managing that savings can make a real difference in shortening the time required to reach the needed amount.

There are several government agencies that provide help to first-time and low income home buyers. These include the Federal Housing Administration, the Veteran’s Administration and state housing authorities. Each of these offers different programs that are designed to assist individuals in meeting down payment requirements and securing home loans. Before committing to any particular method, it is worth checking with each of these departments to ascertain if a program is available that may be utilized.

An alternate source of funds that may be used for the down payment on a home loan is one’s retirement account. Under provisions of certain retirement plans, it may be possible to borrow from these accounts or make penalty-free distributions in order to purchase a new home. For example, some 401k plans offer a 401k loan for a home purchase, up to $50,000. In addition, IRAs have a provision where you can withdraw up to $10,000, without penalty, for the purchase of a home.

Keep in mind that tapping into retirement funds may not be the best way to go about coming up with the down payment. After all, you’re just robbing Peter to pay Paul. But you at least want to know what options are available to you.

Maximizing Your Savings

Under the current financial landscape, there are limited options to maximize savings while keeping risk low. Savings accounts these days are obviously safe, but with that safety comes limited interest. Here are some current high-yield savings options. Another option may be CDs. If you’re specifically saving for a down payment on a house that will be a year or two down the road, then CDs may be a better option in order to earn a little more interest. Finally, if you don’t mind a slight element of risk and your home purchase is at least a few years out, you could invest conservatively in bonds or a bond fund.

No matter how you slice it, coming up with that down payment is an important aspect of buying a home. You will save money, build equity, and provide yourself with a little flexibility. Since coming up with a significant down payment usually doesn’t happen overnight it is equally important to begin planning for that future home purchase early and put your money to work the best you can.

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