8 Ways To Keep Your Home Insurance Costs Low

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All homeowners are looking for ways to reduce our home insurance costs.  Costs continue to rise and budgets get tighter and tighter with each passing year.  Here are 8 tips to reduce your home insurance costs.


1. Increased Home Security
Most homes are fitted with some sort of security device. To make the most of your Home Security Discount make sure that you home is fitted with: dead bolt locks, smoke detectors, fire extinguishers and a burglar and fire alarm that are monitored. You do not have to have all of these to receive a discount on your home insurance so even if you only have one or two make sure that you ask for the savings.

2. Keep your credit score as high as possible.
While it would seem that a good credit score would have nothing to do with insurance rates, it is a fact that they do. Home Insurance companies are using your credit score as an indicator of responsibility. The theory is the more responsible the individual the less claims they will have. So, insurance companies are giving lower rates to those individuals with a better credit score.

3. Consolidate your policies.
Most, if not all companies that sell home insurance, offer discounts for insuring your autos with them. These discounts can sometimes save you up to 30% off of your total insurance bill. Plus, you get the added convenience of having one agent for both your home and auto insurances.

4. Protect your home with updates.
Discuss with your agent about the possibilities of receiving home insurance discounts for keeping your home in good repair. Some home insurance companies will offer savings for a anew roof, electrical, HVAC, plumbing updates. The discounts are generally not enough to warrant the replacement but if you needed it anyway, be sure to get the discounts if applicable.

5. Make sure you are not over insured.
Your home insurance coverage should not necessarily be what you paid for them home. Land values are calculated into the final sales price and should be considered when insuring the structure. In others words you cannot hurt the dirt. A good idea is to call local builders and ask them what new home construction cost per square foot is going for. Take that number, multiply that times your square footage and that is the amount that your home should be insured for. Companies will not pay more than what it is going to cost to rebuild the home anyway, so make sure you are insured correctly.

6. Stay away from low deductibles.
The deductible is your portion of the claim that must be paid before the insurance company pays for the claim. The lower your deductible, the higher your premium will be. Deductibles can range anywhere from $100-$5000 or more. The majority of homeowners will carry a $500 deductible, but the savings one can receive by raising your deductible to $1000 can be significant, up to 20%. It doesn’t take too many claim free years to make up the difference between the two deductibles, but remember you should never raise your deductible to a level that you could not afford to pay.

7. Ask your home insurance agent.
Most of the time, an agent will make sure that you are receiving 100% of the home insurance discounts that you qualify for, but it doesn’t hurt to ask. Some insurance companies have discounts that others do not. Some offer discounts that most would never dream as being a discount such as 55 and retired, non smoking, military service, law enforcement, single parent discounts, etc.

8. Don’t be afraid to shop around.
Home insurance shopping is easy. Insurance shopping online is even easier. Companies like ours at HometownQuotes.com (yes, I am biased) have given you the ability to get multiple home insurance quotes by filling out a form that takes about five minutes to complete. Also be aware that not all insurance companies are created equal. There are some bad ones out there but most, at worst, are pretty good. Getting the best price is great, but check up on the company offering you that price at reputable insurance rating sites like Moodys.com or AMBest.com.

About the Author: Matt McWilliams is one of the co-founders of HometownQuotes.Com, an online insurance quotes web site. He is originally from Pinebluff, NC and attended Middle Tennessee State University. He is considered an expert in the field of online insurance shopping and finding new ways to help consumers save money on their insurance. For more information visit

Sunday, February 20, 2011 by Toolib · 0 komentar

Is Homeowners Insurance Enough in the Toughest of Times?

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Homeowners Insurance is supposed to protect us in case of disasters. That is what we have come to expect from our homeowners insurance over the years. But what if the disaster is the costliest in U.S. History? What if your insurance agent’s home and office were destroyed in the disaster also?
That is what happened to many customers and homeowners insurance agents and companies after Katrina hit the Gulf coast. Many agents' homes, offices and insurance Companies' claims centers were in the same situation as their clients due to the storms. So what did they do? They set up “office” in tents and mobile trailers. Then Hurricane Rita blew away these temporary offices and the agents and companies set them up again. These temporary shelters acted as a communications center for all people in the surrounding areas. Local people would come by to ask questions, meet with their claims adjustors and just catch up on the news with their neighbors.

Extreme circumstances dictated unconventional responses: some agents even filed claims for their clients without even talking to the clients just so they could get the claim “in the queue.” Allstate allowed customers to submit claims through any agent in the country and set up a priority line to assist. They sent email to agents in the areas surrounding the disaster areas to act as messengers by “word of mouth” to their fellow agents in the effected areas. The larger companies such as State Farm & Allstate that service claims for the national flood Insurance Program even used satellite imagery to determine damage in some neighborhoods that were entirely flooded.

Lessons Learned: Those of us not effected by these disasters can learn a few lessons about coping with future disasters from the thousands of policyholders that are still waiting to get their claims paid. As soon as possible, take steps to prevent further damage to your home if possible: such as covering the roof with a tarp if possible. You can hire a contractor if you can find one, as that would be safer for most of us than climbing on our roofs. Hold off making any repairs until you see or talk to an adjuster first. Plus, keep your receipts, as you’ll need them to prove expenses that can be re-imbursed later.

What Does Homeowners Insurance Cover?

You can generally expect your homeowners insurance to help pay for additional living expenses for up to 12-24 months while your home is being repaired. But, homeowners insurance usually pays only after they verify you have a legitimate claim. After Katrina, many insurers made an exception, automatically distributing enough to cover two weeks’ worth of additional living expense to anyone in an area subject to mandatory evacuation. Some companies even gave small advances on contents under the personal property part of their homeowners insurance policies.

If you have to wait to get your check, it helps to have cash that is easily accessible in a bank account or money market fund. Stashing cash at home isn’t a great idea because if your home burns down and you weren’t able to get to your cash, most homeowners insurance policies only cover $100-$200 in cash whether it is stolen or burned up in a fire. Your goal should be to have an emergency fund available to take care of your family for 2-4 weeks (minimum)if possible. In a disaster it might be hard to even find a local bank to get cash. Debit/credit cards with a statewide or national bank would perhaps be better.

Your biggest problem in getting your claim handled may be in either not having the proper homeowners insurance coverage or not having enough coverage. Most good homeowners insurance policies today cover up to 120% of your dwelling coverage limit. It is important that you review the dwelling limit with your agent every couple of year’s at a minimum. Homeowners insurance policies do not cover Flooding, but you should again see your agent for this coverage.

If your homeowners insurance falls short, you may qualify for money from the Federal Emergency Management Agency (FEMA) or a disaster-assistance loan from the Small Business Administration (SBA). Homeowners can borrow up to $200,000 for rebuilding and $40,000 to replace personal property at very low interest rates for up to 30 years.

by Toolib · 0 komentar

Homeowners Insurance & Keeping Track of Your Goods

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Homeowner’s insurance is an invaluable investment for every homeowner. If your house went up in flames and you lost everything, would you be able to recall everything you owned, including the items’ values? If you came home from work to find someone burglarized your home, would you be able to account for everything that had been taken or destroyed? While some items are priceless and/or likely have sentimental value, memories unfortunately are not sufficient for filing a homeowner’s insurance claim in the wake of a disaster.
In times of distress, you shouldn’t have to worry about whether your possessions are covered or not. If you purchase homeowner’s insurance, it is important to know what your policy covers. Not sure what’s in your homeowner’s policy? That topic will be covered in a future article.
Your homeowner’s insurance, ideally, will replace the cost of what you lose in a disaster. More importantly, however, is the fact that you will only be compensated for what you can account for. In other words, fond memories are heartwarming, but they will not reimburse your losses in a catastrophe.

“But how will I account for everything I lose in such an event?”
Well, the most accurate way to keep track of your items would be to take an inventory of everything you own. While this is a process that could take months to complete, it is your most worthwhile strategy should you experience misfortune.

“What do I need to put in this inventory?”
Put simply. EVERYTHING. The more you can account for in your homeowner’s insurance claim, the more likely you will be reimbursed. The list should be as detailed as possible and should include appliances, carpets, jewelry, furniture, linens, antiques, furniture, and the list goes on. To get your money’s worth, go from room to room and be sure you are as descriptive and detailed as possible. Include:

1. a description of the item (including the quantity)
2. the manufacturer or brand
3. any model or serial numbers
4. a description of where or how the item was attained
5. the date of purchase or age of the item
6. receipt or other proof of purchase that shows the cost
7. the current value
8. the replacement cost
9. photocopies of appraisals

“I’ll never complete this process!”
Keep in mind that while this documentation process may be time-consuming, it is certainly easier than remembering everything you own. Don’t let this task discourage you. Take photos. Even better, make a night out of it. Grab your video camera and go from room to room to create a visual and verbal description of your items. It might take you an hour to document your entire house. Regardless of how you complete your inventory, remember that your compensation rests on the quality of your documentation.

“I’ve made the inventory, now what?”
It is likely you invested a good amount of time to document your items. Whatever you do, keep that homeowner’s insurance inventory safe! If an unfortunate event comes your way, you certainly do not want your hard work to go to waste. Store it in a relative’s home, in a lockbox, a safety deposit box or keep it tucked away in your office desk. While memories and keepsakes can rarely be replaced, it’s comforting to know your homeowner’s insurance will keep you financially secure should you properly document your items.

by Toolib · 0 komentar

Premises Liability

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Everyone may laugh at the slapstick comic who slips and falls on a banana peel, but if you own property where an injury occurs or happen to be the one who slips and falls... it's no joke.
Premises liability law most commonly involves a plaintiff in court seeking monetary or compensatory damages for any injury sustained on someone else's property.
The law assumes the landlord invited the injured party and the 'invitee' was injured. If the injury occurred because of a condition that the landlord could have prevented by normal maintenance that just wasn't done, then the injury was preventable.
The property owner is responsible for someone falling on a flight of stairs with a broken banister, poor lighting, or loose carpet — in just the same way as if they had pushed the injured person down the stairs.
There is not usually a criminal complaint involved, but the financial damage to the property owner can be severe. The purpose of these laws are to make sure that landlords make sure that they maintain their property in a safe condition.
Commercial owners are most prone to lawsuits simply by the fact that the sheer number of their visitors will increase the odds that someone may sustain an injury while on their property.
However, homeowners are also subject to paying damages if they are proven to have been negligent, or have failed to provide a safe environment for their guests. Most homeowners insurance policies cover liability in these instances, however (with extra protection, if necessary, provided by umbrella liability insurance.)
Typically, premises liability cases come to court for injuries involving a common slip and fall. Yet more serious or even life threatening accidents may occur depending on the circumstances:

• slick or icy surfaces
• uneven pavement or roadways
• falling tree branches
• broken handrails or stairs
• faulty elevators or escalators
• inadequate lighting
• lack of security in a high crime area

The onus of responsibility always falls to the owner or holder of the property for a person who is injured on that property. Further, premises liability law distinguishes the relationship between the person owning or holding the property and the injured person.
Depending on the U.S. state, courts are sometimes more lenient with homeowners than with commercial properties wherein "invitees" or customers are injured due to negligence.
Perhaps not surprisingly, criminal trespassers are also covered under premises liability law, although only in circumstances where they are not alerted to extreme danger - such as attack dogs used for security, or an electrical fence that provides a lethal shock.
In contrast, employees who are injured at the same property are not covered by premises liability law, but rather protections provided under worker's compensation law.

Tuesday, February 15, 2011 by Toolib · 0 komentar

New Homeowner Insurance Basics

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The lowest mortgage rates in more than three decades have fueled America's appetite for buying housing and refinancing driving new home sales to record levels. Buying a home can be an intimidating process, especially for first time homeowners Housing may feel overwhelmed by the number of decisions they face, including choosing the right insurance coverage to protect their property. Find out what need to know to protect one of their most important assets.
A home is often the greatest asset of a person and to protect adequately can be difficult. The unexpected can endanger people's homes or property and commit financially, making sure that owners of an important consideration.
HDA Brokerage Insurance developed the following guidelines to facilitate the process of choosing the right insurance for new home buyers.
First time homebuyers do not realize that homeowners insurance covers only the structure of a house. It also protects the homeowner and generally anyone named on the policy, including a spouse, resident, household employee, guest or visitor. Most policies offer three types of protection:
1. Structures – A policy protecting Homeowners of any person for damages due to common threats like fire and smoke, lightning, theft and extreme weather conditions. Unless that is among the exclusions of the policy, everything that relates to a lost cause or property owner. To cover the exclusions, homeowners can often pay to add endorsements to your policy, though some exclusions, like flood damage and earthquake damage, may require the purchase of an independent policy.
Amount of Coverage – When choosing coverage amounts, people should remember that they are protecting the house (the house), not only the balance of the mortgage or heritage in the building.
2. Personal Property – Family possessions and personal belongings are also covered by homeowners insurance. In most cases, a policyholder will be reimbursed for damage or theft of personal property, if the loss occurs in the protected spaces or elsewhere. Recalling every item in every room can be difficult, however, so policyholders are encouraged to take an inventory of their possessions – recording the serial numbers, furniture and dates and costs of purchases of goods such as jewelry, artwork, and appliances. Personal inventories should always be stored in a safe or out premises, such as videotape or a computer that is not in the house.
Amount of coverage – typically, the insurer sets the total value of the property to the half of what the house is insured. But there are limits for certain items and the amount is not sufficient to cover the replacement of property, so owners may want to purchase additional coverage for your possessions. Review of a homeowner personal inventory is the best way to determine if your coverage is sufficient.
3. Liability – Homeowners insurance also provides compensation for liability claims and medical expenses and other actions that result from property damage and personal injury suffered by others. This coverage applies whether an accident occurs on the insured's property or while away from home.
Coverage Amounts – The total amount of liability coverage is $ 100,000 in a typical policy for homeowners. If the owner of a home feel than the standard amount may be insufficient, you should consult an insurance professional about the availability of a higher level of coverage.
After establishing a policy, homeowners should periodically review your current coverage to make sure they keep pace with major purchases or improvements make to their homes. Ensure adequate insurance policy at the right price is an important step in the purchasing process, so homebuyers should shop around for a policy that best suits your needs and protects their most valuable asset properly.
Note that this description / explanation is intended only as a guide.

by Toolib · 0 komentar

homeowners insurance tutorial

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By now every Joe Schmoe knows about potential property market. There have been enough TV programs, books and stories about flipping houses that the market has become overrun by money hungry people looking to get rich quick. But nothing has really changed?
The idea of investing in real estate and properties is nothing new. The potential has always existed, as always. The problem is that the actual process of house flipping is much more difficult for programs understand television. Sure, on paper, the concept of buying a hidden gem at a great price, slapping on a coat of paint, and resale of thousands of dollars more sounds good. If only it were that simple.
It's complicated! The home buying process is a lengthy and complicated, which may collapse due to numerous factors. Think about it, most people buy a house during his life and spend the next 30 years to pay. That means that most people who are not versed in housing contracts, mortgages, broker fees, etc. You really need to know what you're doing. If you misread a contract or understand the fine print, you could end up handing out thousands of dollars!
It takes a long time! Most people do not have the luxury of starting with a large volume of investment capital. Most of the jobs full time job just to pay for daily expenses. This means they must hunt for houses on breaks, then work and on weekends to find a good deal. Once you find that much has to be able to act quickly. Some homes only stay on the market for a day. Heck, some houses do not even get to the market and real estate agents give to their friends DIB first. So if you're lucky enough to find a good deal, you will have to contact contractors, realtors, insurance companies and all businesses need.
It's expensive! So you think can understand the process and you have the time, but has no money? For a large mortgage you need proof of income or proof that you will be able to pay the bank. If you want to buy $ 200,000 home, have $ 20,000 for the down payment. If you can scrounge up that much together, you also need money for the renovation and the money to pay the mortgage until the house is resold. One more thing – you need credit. So if to come into some money, you still need to have good credit, to obtain the loan.
If you're still interested then go for it. I the image of the industry only can exist for long before the reward is not worth it. There is also a key aspect that makes this job so risky – the market. You can not control the market. You can not control when and how many homeowners will sell their homes. What if a natural disaster? I live in San Diego, and I'm sure recent wildfires have affected the value of many properties. The houses probably will rise again, but in the meantime people not to feel they are at risk.
So where will the market go? Who knows? Maybe people will start to flip trailers.

by Toolib · 0 komentar

Resolutions for Home Sellers in 2011

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If your New Year's resolution involves selling a home in 2011, you've got some work to do: There's lots of inventory out there and in a buyer's market like this one, getting an offer on a home can be challenging.

Still, for the committed seller willing to do some prep work and come to terms with the current value of his or her home, locking in a buyer isn't impossible.

By listing in early January, you might be able to catch some of those early birds who start browsing in the winter so that they can find a new home before school starts in the fall, said Louis Cammarosano, general manager of HomeGain.com, a real-estate website. In fact, many buyers tend to start their searches online right after Christmas, and continue throughout January and February, he said.

"If you hit the ground running and you're a fresh listing that has done everything right, you've got the best shot," said Cammarosano.
Consider the following tips to give your home the best chance to get noticed -- and sold -- in 2011.

Price It Right from the Start
Many sellers suffer from attachment bias, said Tara-Nicholle Nelson, consumer educator for real-estate website Trulia.com. They believe that their home is worth more than they'd pay for it in another context. While it's always a bad idea to overprice a home, it's especially dangerous in times like this because there is so much competing inventory in many local markets.
Nelson's advice: Give yourself a reality check by looking inside comparable homes during open houses. That can help you get a clearer idea of your home's value.

You might even consider interviewing a few real-estate agents to get more than one take on how the home should be priced, Cammarosano said.
The longer something sits on the market, the more price reductions you might have to make and the more potential buyers will assume that there's something wrong with the home, he said. So more often than not, it's best not to try testing the waters with a higher price, he adds.
Don't be afraid to advertise in the listing and marketing materials that it's not a foreclosure or short sale, Nelson said. In markets where distressed sales are plentiful, there are buyers who simply don't want to deal with the extra hassle and uncertainty of a short sale or bank-owned property, she said.

Get the House Ready
Most sellers know they need to declutter, paint in neutral colors and generally stage the home as best as they can to help buyers envision themselves in the home. Often, this is done on the advice of a real-estate agent or professional stager.
The closer you can get your home looking like a photo from a Pottery Barn catalog, the better off you will be, said Beth Jaworski, a real-estate agent in the Milwaukee area.
And make sure that your cabinets and refrigerators are cleaned out and decluttered, too. "You want to have a minimum of 'stuff' in the house. The less stuff you have, the larger the closets, basement and garage will look," she said.
Jaworski also recommends having a home inspection done a month before putting the home on the market to identify any major defects that need to be corrected.

Provide as Much Information as Possible
Have energy bills and a list of updates available for buyers to see, Jaworski said.
"Buyers are always curious what the utility bills are, how old the roof is, how many layers it has, how old the major mechanicals are and when that addition was added," she said. "The more information you can provide on the house, the better."
Consider providing a floor plan with listings as well, Cammarosano said. That way the prospective buyers don't have to keep making return visits to determine how their furniture will fit in the space -- they'll have the dimensions in hand.

Make It Easy to Show
The more available you can make your home for showings, the better, said David Welch, a broker/associate in Orlando, Fla.
Make it easy for your real-estate agent to access the property and keep the place clean.
"You want your home to be easy to show because you don't know if you will get a second chance," Welch said. "Trust me, the buyer wants to like your house. Keep it in show-ready condition," he said, so they aren't turned off by a first impression.

Be Flexible
Buyers are in the driver's seat these days, and they know they can make all sorts of unusual requests without risking the deal. Be ready.
"Buyer wants to see the house at 7 a.m. on Tuesday, OK," Jaworski said. "Buyer wants to bring 10 family members and an inspector to check out the house for three hours this weekend, OK. Buyer wants you to include the kitchen table and chairs, the painting over the fireplace and your snow blower, OK."
"The more flexible you are," she said, "the better off you will be."

Sunday, February 13, 2011 by Toolib · 0 komentar

In Defense of Home Ownership

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It's hard to read the headlines and not conclude that becoming a homeowner is a terrible idea.
Last week, the National Association of Realtors announced that existing-home sales in July had fallen an astounding 25.5 percent from the previous year. Sure, there was a federal tax credit in place last summer. But with single-family home sales at their lowest level since 1995 and unemployment still stubbornly high, home prices may fall further.

In the meantime, millions of homeowners are still far underwater, and government programs to help them have fallen well short of their goals. More foreclosures are coming, casting a deeper shadow over home prices. So it's hardly surprising that the conventional wisdom says that home values will never again rise faster than inflation.
But as with stocks and the weather, it is dangerous to assume any certainty in the housing market. And by wallowing too much in the misery of others, people looking for a new place to live run the risk of thinking every home purchase will end in regret, at least financially.
Many still could, if they buy in hard-hit areas where prices could fall further.

But a mortgage is still a form of long-term forced savings, after all. This is more important than ever, since fewer people have access to generous pensions than they did during the last big housing slump. A 401(k) or similar plan is no bargain, either, with its erratic returns and employer matches that come and go as the economic winds shift. Social Security is also likely to be less generous, and Medicare will probably cost more.
Besides, owning a home isn't just about what shows up on a net worth statement — something that bears repeating after all the "investing" that people thought they were doing when buying homes over the last 10 or 15 years. Many of these more qualitative factors, from living free of a landlord's whim to having access to a good school district or retirement community, haven't changed and probably never will.
It is possible, as a homeowner, to make very little money but still buy plenty of happiness. So before you swear off real estate, reconsider a few of the basics.
Worst Cases
Some buyers may rue the day in 2010 they bought their homes. They may end up like those who bought in 2006 and have lost their jobs. Now those people face the difficulty of moving to pursue employment elsewhere because they owe much more than their homes are worth.
Marke Hallowell and Allison Firmat, who are getting married next month, are well aware of the history. Yet they plan to put 5 percent or less down, using a fixed-rate mortgage backed by the Federal Housing Administration, once they find a condominium in southern Orange County, Calif. (They've already been outbid a few times.)

Ms. Firmat is not working, and Mr. Hallowell is a Web developer. Does he worry about mobility problems or making the payments in the event of a job loss, given that he's the sole breadwinner? "We're getting such a good deal on interest rates that we could rent our place out," he said.
Mr. Hallowell and Ms. Firmat say they believe their approach is conservative, at least compared to what they might have done five years ago.
"Nothing is going to change the rate we will have," Mr. Hallowell said. "Condos like the ones we're looking at now were unobtainable in the past, unless we went into something with a total balloon payment. There were times I was tempted, but never seriously."
Indeed, many people who are buying at the moment are locking in mortgage rates of about 4.5 percent. A year ago, they might have paid 5.25 percent on a $300,000 loan for a monthly payment of about $1,657. Today, you could lock in a lower monthly payment of around $1,520 on a mortgage that size, or you might not need to borrow that much, given that prices have fallen in many areas.
Forced Savings
You may make nothing at all beyond inflation over time on a home, but the part of your mortgage payment that goes toward principal is a form of forced savings.
Sure, you might do better by renting and investing the difference between the rent and the total costs of ownership. But at least three things need to go right.
First, you need to actually save the money. Americans have trouble with that sort of plan. Then, you need an after-tax return that's better than whatever a home would deliver. That's a task that might not have gone so well over the last 10 or 12 years, and it involves its own future risk, given how little safer investments are returning now. Finally, you must not raid the savings along the way.
Difficult Landlords
A bank can kick you out only if you don't pay your mortgage. But landlords can drive you away in any number of ways.
Laura Mapp and her husband, Carl Berg, rented from a relative, but it didn't go particularly well. They found another landlord they liked, but came back from a holiday trip one year to a note saying he wanted to move in himself. They had a month to scram. (The note came with a bottle of wine, at least.)
In yet another rental, they let their landlord know they were looking to buy and inquired about a month-to-month lease. No problem, their landlord said, as long as they used his boyfriend as their real estate agent.
Earlier this year, the couple gave up on landlords and bought a house in the Highland Park neighborhood in Seattle.
The Nice Part of Town
No matter how pretty the neighborhood, prices may still fall further in places like greater Detroit, Cleveland and Las Vegas; outlying areas of Los Angeles, San Francisco and Phoenix; and much of Florida.
But if you want to live in the Fox Hill Farm development in Glen Mills, Pa., you'll have to buy because renters are not allowed, said Bob Kuhn, who lives there. The same may be true of other communities for older people.
And there may not be many family-size rentals — or at least any financial edge to be gained by renting — in suburbs or urban neighborhoods with excellent public schools.
After many years of building their down-payment fund and a couple of years of watching the listings in the Eagle Rock and Mount Washington areas of Los Angeles, Garret and Alison Williams realized that prices simply were not falling much there.
By the time they were ready to pounce this year, they had a big enough down payment and interest rates had fallen so far that renting didn't make much financial sense, even if they could have found a rental big enough for them and their two small children.
"Had we rented, we would be paying more than we're paying for a mortgage," said Ms. Williams, who had lived in the same two-bedroom rental for 12 years before she and her family moved into their new house in Eagle Rock earlier this month. "I don't see how we could really regret having made the move when it's so much better for us on so many levels."

by Toolib · 0 komentar

Where to Buy a Retirement Home for Under $600 a Month

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For Americans looking to buy retirement property, the historic real estate crash has created all sorts of opportunities. Home prices in 20 major metropolitan areas have declined roughly 28 percent from their 2006 peaks. Meanwhile, government efforts to ramp up demand for homes have significantly reduced mortgage costs for borrowers. Thirty-year fixed mortgage rates stood at 4.37 percent for the week ending September 16, only slightly above the 39-year lows reached two weeks earlier.

Taken together, lower home prices and cheap mortgage rates have made home buying much more affordable than just a few years ago. And given that real estate values in many traditional retirement spots--like Florida and Arizona--have fallen even harder than the national average, Americans who are ready to embark on the second half of their lives are in a particularly favorable position. To that end, U.S. News has compiled a list of 10 places where retirement home buyers can purchase property for less than $600 a month.
[See Why Homeownership Can Still Pay Off]
In putting together our list, we obtained median home price data from the National Association of Realtors for 159 metropolitan statistical areas throughout the country. After subtracting a 20 percent down payment, we plugged the remaining figure into a mortgage calculator using a 4.37 percent rate on a 30-year fixed mortgage. We then looked for places that would make desirable retirement destinations and whose monthly mortgage payments totaled less than $600. Please note that these monthly payments only reflect costs for mortgage principal and interest, which will represent the majority of a homeowner's monthly housing expenses. It does not, however, take into account expenses for taxes, insurance, and utilities, which can vary significantly from one place to another.
1. Phoenix
With more than 200 golf courses, many miles of outdoor trails, and all sorts of museums and art galleries, the Phoenix area has long been an attractive retirement destination. Home prices in Phoenix doubled from 2002 to 2006, but dropped 51 percent as the real estate bubble deflated. The bust, however, has helped make the area's real estate market more affordable for would-be retirement home buyers. The median home price in the Phoenix area stood at $145,000 in the second quarter of 2010, up 11 percent from a year earlier. Buyers that put 20 percent down--or $29,000--on a median-priced Phoenix home will have monthly payments of roughly $579 for mortgage principal and interest.
2. Las Vegas
Few American cities have seen home prices swing as wildly as they did in Las Vegas over the past 10 years. After nearly doubling from 2002 to 2006, real estate values in Sin City have since plummeted by 57 percent. But the area's glitzy casinos, abundant golf courses, and 320 days of sunshine a year continue to make life enjoyable for retirees. The median home price in the Las Vegas area was $142,000 in the second quarter of 2010, a slight increase from a year earlier. After making a 20 percent down payment--of $28,400--buyers will have monthly payments of $567 on a median priced home in the Las Vegas area.
3. San Antonio
This city has 300 days of sunshine a year, more than 50 golf courses, 21 distinct parks, and a calendar packed with festivals and events. History buffs can check out the Alamo, where Mexican and Texan troops staged their legendary battle in 1836, while art enthusiasts can visit one of the 63 local galleries. The median home price in San Antonio was $148,000 in the second quarter of 2010, a decline of roughly 3 percent from a year earlier. Buyers who put 20 percent down--or $29,600--on a median-priced San Antonio home will have monthly payments of roughly $591.
4. Greenville, S.C.
Greenville is tucked into the foothills of South Carolina's lovely Blue Ridge Mountains. Its 39 parks, minor league baseball team, and 14-acre zoo make this city of 62,000 an attractive spot for active retirees. The median home price in Greenville increased 7 percent, to $150,000, from the second quarter of 2009 to the same period this year. After making a 20 percent down payment--of $30,000--buyers will have monthly payments of $599 for principal and interest on a median-priced home in Greenville.
5. Boise, Idaho
With a population of 206,000, Boise, Idaho is a wonderful retirement spot for art lovers and outdoor enthusiasts alike. Residents can explore the 25-mile Greenbelt river path in the fall and head to the nearby mountains for skiing come winter. Boise State University offers continuing education programs and plenty of sporting events. Meanwhile, the city has a full menu of museums, theater groups, and other performing arts offerings. The median home price in the Boise area was $140,000 in the second quarter of 2010, a decline of roughly 13 percent from a year earlier. Buyers who put 20 percent down--or $28,000--on a median-priced home in the Boise area will have monthly payments of around $559.
6. Corpus Christi, Texas
Along the Gulf of Mexico in the Southeastern portion of Texas lies Corpus Christi. The community of 287,000 residents is located just outside the Padre Island National Seashore, an undeveloped, 130,000-acre playground of sand dunes and beaches. Visitors are permitted to drive along its shoreline or toss a fishing line in the water in the hopes of landing a saltwater catfish. The median home price in Corpus Christi increased slightly, to $136,000, from the second quarter of 2009 to the same period of 2010. After making a down payment of 20 percent--or $27,200--buyers will have monthly payments of around $543 for a median-priced home in Corpus Christi.
7. Tampa, Fla.
Whether it's boating on the bay, bass fishing in the Hillsborough River, or scanning for dolphin from its white-sand shorelines, the Tampa area has plenty of activities to offer retirees. Like many other markets in Florida, real estate values in Tampa have tanked in recent years, plummeting 42 percent since July 2006. The median home price in the Tampa area was $141,000 in the second quarter of 2010, a slight increase from a year earlier. Buyers who put 20 percent down--or $28,200--on a median-priced, Tampa-area home can expect to make payments for mortgage principal and interest of about $563 each month.
8. Columbia, Mo.
With 102,000 residents, Columbia, Mo., is the home of the University of Missouri. On account of Columbia's affiliation with the university, area residents can enroll in continuing education programs and cheer on the Tigers at football or basketball games. The median home price in the area was $147,000 in the second quarter of 2010, a slight increase from a year earlier. Buyers who make a down payment of 20 percent--or $29,400--on a median-priced, Columbia-area home will have monthly payments of about $587.
9. Tucson, Ariz.
With 350 days of sunshine a year, Tucson residents don't have any excuses for staying indoors. Retirees can hike through the five surrounding mountain ranges, explore a nearby cave, visit a Native American archaeological dig, or check out the Center for Creative Photography. The median home price in Tucson declined 14 percent, to $150,000, from the second quarter of 2009 to the same period of 2010. Buyers that put 20 percent--or $30,000--down on a median-priced Tucson home will pay roughly $599 a month in mortgage principal and interest payments.
10. Ft. Myers, Fla.
Located along the southwest coast of Florida, Ft. Myers is another affordable spot for retirement property in the Sunshine State. The median home price in Ft. Myers has increased 12 percent, to $94,000, from the second quarter of 2009 to the same period of 2010. After making a down payment of 20 percent-- or $18,800--buyers will have monthly payments of about $375 on a median-priced home in Ft. Myers.

by Toolib · 0 komentar

Mortgage Basics

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Adjustable or floating rate, 15-year or 30? How much mortgage can you afford? These are just a few of the many questions home buyers will find information on in this report.

Before You Start

• Take a fresh look at your household budget to determine how much you can spend on a mortgage each month.
• Request free copies of your credit report. (You're entitled to receive a free one annually from each of the nation's main credit reporting agencies.)
• Familiarize yourself with all of the variables generally associated with financing a home, such as interest rate policies, terms, points, fees, etc.

Financing the American Dream

Buying a home is the biggest financial investment most of us will ever make. As with any large project or goal, it requires dealing with a variety of complex issues. The best approach is to divide the process into manageable tasks. The following deals with the first steps of gathering your records, determining what you can afford, and understanding mortgage options.

Put Your Own Financial House in Order

Before you go looking for a home, you should determine how much home you can afford. Most lenders will prequalify you to borrow up to a certain amount. Prequalification allows you to focus in on a realistic price range and makes you a more attractive buyer. Whether or not you want to prequalify, eventually you'll need to complete a loan application and it may take some time to gather and assemble the required information.
It's also a good idea to review your credit report. Contact local lenders to determine which credit bureaus they use. Then contact the credit bureaus and request a copy of your credit report (in most states, credit bureaus are required to provide individuals with a free copy of their report). Review your report to ensure that all information is correct. If you have past credit problems, don't lose hope. Be prepared to present a rationale for each slipup, and demonstrate an improvement in your ability to pay bills on time.

How Much Mortgage Can You Afford?

The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.

Mortgage Rates and Minimum Incomes Needed to Qualify
Interest Rate	Monthly Payment	Minimum Annual Income
4%	$454	$21,770
5%	$510	$24,479
6%	$570	$27,340
7%	$632	$30,338
8%	$697	$33,460
9%	$764	$36,691
10%	$834	$40,017
11%	$905	$43,426
12%	$977	$46,905
Mortgage companies use ratios to analyze your mortgage payment. The above example shows the monthly payments of principal and interest, and income needed to qualify for a $95,000 mortgage at various interest rates, amortized on a 30-year schedule, assuming a payment ratio of 25%. Source: National Association of Home Builders, Economics Division.

Types of Mortgages

How much house you can buy also depends on your mortgage's term and interest rate. The term is the length of time (usually 15 or 30 years) over which payments will be paid. The rate can be fixed (meaning it doesn't change over the loan's term) or adjustable (it fluctuates with market conditions). Thirty-year fixed-rate mortgages remain the most popular. The longer term lowers the monthly payment, while the fixed rate provides stability over the life of the loan. Given relatively low interest rates, these mortgages are attractive to buyers planning to stay at least six or seven years in their new home. The drawbacks are low principal payments in the early years, and the risk that market rates will decline over the term. However, if your credit history is sound and you have sufficient income, you can usually refinance your mortgage when rates decline.
A 15-year term lowers the interest rate, reduces total interest payments, and increases principal payments. But it also increases monthly payments. If you can't afford the higher payments now, you might opt for a 30-year mortgage. If there are no prepayment penalties, you can make additional principal payments as your income increases. Making just one extra monthly payment a year will pay off a 30-year mortgage in less than 22 years and can save tens of thousands of dollars in interest costs. If you plan to stay in a home no more than three years, you might want an adjustable-rate mortgage (ARM). ARMs offer initial rates that are lower than fixed mortgages. At some point, usually after the first year, rates are tied to market conditions and are subject to potential rate increases. Most ARMs include a cap on rate increases in any given year, as well as over the life of the loan. Some ARMs offer initial rates at least 2% below fixed rates and limit increases to 1% annually and 5% to 6% over the life of the loan. Many home buyers are attracted by the affordability of an ARM during the initial period. However, you should be confident that your future income will be sufficient if both interest rates and your monthly payments increase.
Another popular mortgage involves a balloon payment. A balloon is a lump-sum payment that pays off the loan in full after a fixed period of time. Generally the rates on balloon mortgages are 1/4% to 3/4% less than on 30-year fixed mortgages, but during an initial period of between 3 and 15 years, payments are similar. After this period, the remaining outstanding principal balance is either due in full or subject to refinancing. This is a good option for home buyers who plan to sell before the final payment is due. But because property values fluctuate, you may not be able to sell when you want. You may also face higher payments if you are forced to refinance at a higher rate, and there is also a risk that you may not be in a position to refinance when the balloon becomes due.

Three Steps to Finding the Right Mortgage

Estimate how long you expect to live in the house. If the answer is less than three to five years, consider an Adjustable Rate Mortgage (ARM), which typically starts out with a lower rate. If you plan to live in your new home longer than five years, a fixed-rate mortgage offers protection against rising interest rates. Shop around for mortgage rates. Banks, credit unions, and mortgage companies all offer mortgages. Compare at least six lenders in your area. Add up all the costs for each lender. Include fees, points, closing costs, etc., to arrive at the total mortgage cost for each lender.

Interest Rate Points

Points are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.

Other Alternatives

If you cannot afford a conventional mortgage, there are a variety of alternatives. An anxious seller will sometimes offer owner financing. Federal Housing Administration (FHA) loans offer down payments as low as 3%, but may require the buyer to purchase mortgage insurance. (The FHA is a government agency responsible for insuring affordable housing mortgages.) The Veterans Administration (VA) offers no-money-down mortgages to qualified veterans of the U.S. military. Finally, there are local affordable housing advocates that offer low-cost, low down-payment loan alternatives. For further information, contact the FHA, VA, Fannie Mae, or your local mortgage lender or real estate broker.

Summary

• The first step in acquiring a home mortgage is to gather the information you'll need to include in a mortgage application.
• Review your credit report by ordering a copy from the credit bureaus used by local mortgage lenders.
• Prequalifying for a mortgage lets you know how much you can afford and makes you a more attractive buyer.
• Conventional mortgages limit housing costs to 28% of gross income and total debt payments to 36% of gross income.
• Mortgage terms are usually 15 or 30 years. The longer the term, the lower your monthly payment, but the higher your overall interest costs.
• Thirty-year loans often permit additional principal payments. One additional monthly payment per year will reduce a 30-year loan to 22 years.
• Interest rates are fixed or variable over the term of the loan. Variable rates may be best for buyers who plan to sell within three years.
• Generally speaking, one point is worth 1/8 of 1% off the loan rate.
• A balloon payment is a lump sum payable at the end of a specified term.
• Points and interest on mortgages or home equity debt are usually tax deductible.

by Toolib · 0 komentar

Your Home and Your Retirement

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Many retirees are planning to access home equity, hoping it may make the difference between a comfortable retirement and just getting by. This article considers some of the strategies for tapping home equity, such as moving to a more affordable residence or obtaining a reverse mortgage.

Before You Start

• Talk with your spouse or partner about using your home to help finance retirement. Are you in agreement?
• Consider whether your plans are realistic. For example, ask yourself whether you could really downsize to a smaller home.
• Begin looking into the cost-of-living implications that would be associated with moving to a different part of the country.
• Check your most recent retirement account statement to determine whether you're already contributing the maximum amount.

Your Home and Your Retirement

Unlike earlier generations of retirees, who paid off first mortgages and retired at the family homestead, today's Baby Boomers are looking to capitalize on home equity to enhance their retirement savings. Popular strategies for tapping home equity include downsizing to a smaller house or condominium, relocating to an area where the cost of living is more affordable, and taking out a reverse mortgage.

Regardless of which strategy you choose, it's important to be realistic about what your house may be worth when you retire. Although housing prices have escalated considerably during the past few years, a variety of factors may cause them to level off or decline at some point in the future. Home equity may add value to a diversified portfolio, but relying too much on your house to fund your retirement could work against you if the real estate market in your area cools considerably.

Making a Move

Selling your existing home and relocating to a more affordable house or condominium may be a reasonable option if you have considerable home equity and the shift won't negatively affect your lifestyle. As part of your research, remember to investigate the overall housing costs in your desired area. For example, real estate values and property taxes typically vary considerably by locale, sometimes even within the same state. Additionally, before relocating to a new area, you might want to spend significant time there to make sure it is compatible with your lifestyle and interests.

When calculating your home's sale price as part of the retirement income equation, be sure to use realistic assumptions. Real estate prices have risen at above-average rates in recent years (see table on average annual rise in home prices, below), and there is always the potential that they may level off or even decline in the future. When planning your retirement income, remember the importance of diversification -- owning a portfolio of stocks, bonds, and cash investments in addition to home equity -- to help guard against market swings in any one area, including real estate. Of course, there are no guarantees that a diversified portfolio will protect against overall financial losses, but a diversified portfolio can position you to potentially take advantage of gains in several financial sectors.

Finally, when selling your home, consider that the first $250,000 in capital gains ($500,000 if you sell jointly with a spouse) is not subject to federal taxation if you lived in the house for two years or more.

A Reverse Mortgage: A Tool for Staying Put

Tapping home equity doesn't necessarily require relocating. A reverse mortgage may be a solution if you have significant home equity and a desire to stay in your existing home. With a reverse mortgage, you receive a source of income by borrowing against your home's equity. Payouts are tax free and may be taken as a lump sum, a line of credit, or an annuity-like payment schedule.

To qualify, you and other owners (such as a spouse or partner) must be at least 62 years of age. You must own your home outright or be able to retire an existing mortgage with the money you receive from the reverse mortgage. As long as the reverse mortgage is in effect, you are responsible for maintaining your home, and for paying taxes and insurance. The loan plus accrued interest is due when you die or sell the house.

When evaluating a reverse mortgage, be sure to consider the fees, which may be substantial. You may have to pay a loan origination fee of between 6% and 8% of the value of your home, in addition to servicing fees assessed over the term of the mortgage. Because of the relatively high fees, many experts recommend a reverse mortgage only if you plan to remain in your home for the long term. Also keep in mind that the amount you owe tends to grow over time, as interest (which is usually based on a variable, rather than fixed, rate) accrues on amounts that are gradually paid out. Over time, a reverse mortgage can completely exhaust the value of your home, leaving little if any assets left over for your heirs.

Payout Alternatives

Study payout options associated with a reverse mortgage carefully to determine whether one may work for you.

Payout Option	Advantages	Drawbacks
Lump sum	You receive a considerable sum.	Interest accrues on the entire amount.
Line of credit	You have the flexibility to draw only as much as you need.	Fees may outweigh the benefit if you draw only a small amount.
Annuity-like schedule	You may receive a source of income for as long as you remain in your home.	Payments are not indexed to inflation.

The recent boom in the national housing market may have lulled many Baby Boomers into believing their home equity will be enough to see them through a comfortable retirement. If you're among those who intend to rely on a home's value -- either through downsizing, relocating, or obtaining a reverse mortgage -- make sure that your plans include realistic projections. And remember that maintaining a diversified portfolio of other types of investments can potentially help balance out your overall pool of financial assets.

The Average Annual Rise in Home Prices: Compare Recent Years with Historical Averages
	2000-2004	1975-2004
New York	10.65	6.81
Ohio	4.28	4.81
Texas	4.39	4.15
California	14.46	8.51
U.S. Average	8.17	5.78
Source: Office of Federal Housing Oversight, OFHEO House Price Index, 2004 data as of September 30 (most recent available).

Summary

• Strategies for accessing home equity may include selling your house and moving to a smaller residence, relocating to a community where the cost of living is more affordable, or obtaining a reverse mortgage.
• Because real estate values may potentially level off or even decline, it's important not to rely too much on the value of your home to finance your later years. Consider using home equity to supplement a diversified portfolio that includes stocks, bonds, and cash investments.
• Accessing home equity by selling your house may have the greatest appeal if you are able to find alternate housing without significantly compromising your lifestyle.
• A reverse mortgage may work for homeowners who have considerable home equity and want to remain in their current residence. Payout options typically include a lump sum, a line of credit, or an annuity-type schedule of payments.
• When evaluating reverse mortgages, review the fees and overall cost of borrowing (total interest paid over time), which may be considerable.

by Toolib · 0 komentar

Remodeling Your Home

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Quite often, it is necessary or desirable to remodel your home. This article provides an overview of some of the economic and stylistic issues that you should consider when undertaking this endeavor.

Before You Start

• Consider whether the renovations you have in mind will justify the cost.
• Ask for advice from people who have recently remodeled their homes.
• Be realistic about your ability to do home improvements on your own. If you're not qualified, you could make expensive mistakes.
• Review your budget and financing options to determine how you'll pay for the work.

Remodeling Your Home

Renovating an existing home can be a significant undertaking. There are budget issues to resolve, permits to obtain, contractors to interview, and legal factors to consider. This article provides an overview of issues you may want to consider when updating the look or structure of your home.

Budgeting Basics

Establishing a budget is an important first step for many homeowners. Costs vary widely, depending on whether you pursue a standard renovation project with materials purchased from a national chain store vs. a high-end remodel with elements designed to your specifications. For example, REMODELING Online has estimated that the cost of a kitchen renovation can range from $17,928 to more than $54,241, depending on the scope of the work done. An upscale makeover with elements custom-designed for a homeowner may cost significantly more.

REMODELING Online's 2006 Cost vs. Value Report presented the following national averages for mid-range renovations frequently undertaken by homeowners:

• Vinyl siding replacement: $9,134
• Vinyl window replacement: $10,160
• Bathroom remodel: $12,918
• Roof replacement: $14,276
• Deck addition: $14,728
• Bathroom addition: $28,918
• Basement remodel: $56,724

Keep in mind these numbers are averages, which means you may be able to spend less. If you are just beginning to think about a renovation project, visit several home improvement stores to get prices for the types of materials that appeal to you. Ask representatives to help you develop a list of items you are likely to need for a given project. Larger stores may employ personnel who can develop rough drawings of kitchens or other rooms to help you determine your options for placement of appliances, lighting and other issues.

Bang for Your Buck

Many homeowners want to select renovation projects that are likely to yield the highest return on their investment when they ultimately sell their home. The following renovations are those most likely to result in a payback for homeowners:

	Average Cost	Return on Investment
Vinyl Siding Replacement	$9,134	87.2%
Minor Kitchen Remodel	$17,928	85.2%
Window Replacement (Wood / Vinyl)	$11,040 / $10,160	85.3% / 83.7%
Bathroom Remodel	$12,918	84.9%
Two-Story Addition	$105,297	83.2%
Attic Bedroom Remodel	$44,073	79.9%

Although return on investment is important, also consider your lifestyle. If your family is growing, an extra bathroom or bedroom may be your most immediate need, even if a kitchen remodel would result in a higher return on investment. In contrast, empty nesters may be more inclined to take on renovations that reduce ongoing maintenance, such as vinyl siding, instead of adding space to their home.

Planning for Permits

In most instances, a building permit is required when the living area of a home is changed or when structural work is undertaken. For instance, transforming an unfinished attic into a master bedroom suite typically requires a permit. The types of permits mandated by different jurisdictions vary considerably. If you are undertaking a project that encompasses structural, plumbing and electrical work -- such as a new bathroom or kitchen -- you may need separate building, plumbing and electrical permits.
The National Association of the Remodeling Industry (NARI) recommends that homeowners not take out their own permits but instead leave this task to their contractor, who typically is familiar with the permitting process in a given locale. Typically, the individual who obtains a permit is considered to be the contractor and is legally responsible if work does not adhere to local building codes. Requiring your contractor to obtain permits protects you legally and is part of the job you are paying a contractor to do. Because it can take weeks or months to obtain permits, be sure to leave time in your schedule for the permitting process.

A Written Contract

A contract defines the scope of a job and provides a degree of legal protection for both the contractor and the homeowner. Although contracts vary in length, they frequently include the following provisions:

• Details about what the contractor will and will not do
• A list of materials specifying size, color, model and other particulars
• Approximate start and completion dates
• Design plans that you approve before work begins
• Right of Recision, a federal law that requires a contractor to inform a homeowner of the right to cancel a contract without penalty within three days of signing it
• Financial terms, including total price, payment schedule and cancellation penalty
• Warranty covering materials and workmanship for a minimum of one year

You may want to ask your attorney to review the contract before you sign it.
Paying attention to your budget, potential return on investment, permits and a written contract may help ensure that your renovation project is a success. Even if problems do emerge, you will have a framework for dealing with them and potentially moving on to a satisfactory completion.

Summary

• Remodeling demand is driving new product technology and costs.
• Kitchen remodeling ranks first in popularity and resale value.
• Retain a reputable contractor through references and estimates.
• Do not proceed without a written contract.
• Project financing is available through home equity loans, mortgage refinancing, and home improvement loans from banks, credit unions, and insurance and finance companies.

by Toolib · 0 komentar

Buying Your First Home

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Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you'll need to consider before investing in what may be your biggest asset.

Before You Start

• Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments.
• Ask family and friends if they can recommend experts, like a lawyer and an inspector, who can help with the home buying process.
• Think about your lifestyle and how it might affect your choice of home and neighborhood.
• Do a little research on current home prices in the neighborhoods you plan to target.

Buying Your First Home

Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment.

Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits.

Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.


How Much Mortgage Can You Afford?

Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.

The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.

The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.

Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing.

In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate. Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but also increases monthly payments.

How Much Home Can You Afford?

Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28% yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).

Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from the $1,500 permitted leaves $1,000 in monthly housing payments.

Costs of Buying a Home

Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.

Ongoing Costs

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.

Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.

Choosing a Neighborhood

Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.

Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.

Finding a Broker

If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller.

Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is eager to sell you their own listing since they would then earn the entire commission.

Home Buying Costs

Down Payment 0% - 20% of purchase price
Home Inspection $200 - $500
Points $1,000 and up for 1% - 3%
Adjustments 3% - 8% of purchase price


Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you.

Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.

Summary
Buying a home can mean building significant value through the years.
Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by Fannie Mae.
Prequalifying with your lender is a good way to determine how much house you can afford.
You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the lower the interest rate and monthly mortgage payment.
In addition to your mortgage payments, you will also need to consider the other costs of home ownership.
Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a neighborhood.
Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.
Remember to consider resalability when buying your home.

Checklist
Update your household budget so you can begin to realistically assess how much home you can afford. Be sure to factor in all your monthly income and all the expenses that may come with a home.
Add up any savings you could use toward a down payment, and decide whether you need to save more before you start house shopping.
Start talking to lenders about your options for prequalification and preapproval.

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