SavvySugar

7 Guidelines For First-Time Home Buyers

SavvySugar — Tue, 15 Sep 2009 04:30:22 -0700

Just about a year ago, our financial system as we knew it was collapsing - Wall Street was in shambles. Things kept getting worse in pretty much every corner of the economy, and we're still trying to figure out whether or not the country has reached a state of recovery. The housing market has been particularly tumultuous, but many new buyers are taking advantage of lower home prices and finding themselves in escrow for the first time.

Home-buying is a different game than it used to be, so The New York Times' Ron Lieber gathered a list of seven suggestions for navigating the new housing economy.

Start with the basics. Lieber lays the foundation for conservatively getting into the market and says, "Put 20 percent down, so you have less of a chance of owing more than your home is worth if prices fall again. Get a fixed-rate mortgage, so the biggest part of your monthly housing bill remains stable." On top of that, he recommends spending no more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments.
Consider your income. Income overconfidence may have had something to do with the mortgage mess, but Princeton economics professor Harvey S. Rosen thinks “People can, on average, make reasonably good predictions of their future incomes and act on them in sensible ways by buying bigger houses."
Bow to unknowns. Financial planner Bobbie D. Munroe encourages her clients, especially the younger ones, to model their budget in three ways: with both spouses working full time, one working part time, and one staying at home for a few years (and maybe even practicing living on one income).

See the four more guidelines when you read more.

Map out expenses. Financial planner Dennis G. Stearns "estimates that owners of a newer home that do some work for themselves but contract major work out to others will pay 3.6 percent of the original purchase price annually for maintenance and 4.5 percent if it’s an older home."
Buy best (or cheapest). Financial planner Michael Kalscheur "suggests buying the dream house you covet (if you can afford it) or an inexpensive starter house but not anything in the middle." He reasons that buying the entry-level home instead of the second place home will allow you to save enough money to buy what you really want down the road.
Stretch the house. Stretching out your tenure in a home by making periodic upgrades might be more sensible than ever moving from that first home.
The eight-hour rule. Lieber advises, "If an impending loan has you stretching for the Ambien, it’s a pretty good sign that the loan is a bit of a stretch as well." In other words, sleep on it before making any decisions.

Three Lessons to Learn From the Housing Fiasco

SavvySugar — Fri, 24 Jul 2009 08:30:14 -0700

The deflated housing bubble has had widespread effects that continue to poison the lives of many Americans and the greater economy. As much as we are faced with stories of foreclosure after foreclosure, the results of a recent survey by real estate website Zillow suggest that many aren't taking away important lessons from the housing debacle. ABC News Consumer Correspondent Elisabeth Leamy is discouraged by this and offers a few key takeaways from the popped bubble.

17 percent of people say they plan to buy a house with zero percent down. Leamy says: "Zero-down loans are not available anymore . . . A 20 percent down payment makes a lot more sense. Time to start saving up."
55 percent of people say the reason they want to buy a new home is so they can get a bigger one than they have now. Leamy's reaction: "Hey, if your family can afford a bigger house in this economy buy it . . . But for those who can't afford it, it's time to get comfortable with more modest living."
30 percent of home buyers told Zillow they plan to own their next home for five years or less. Leamy's response: "Experts are horrified. Most real estate watchers are saying you should not bother buying a home these days unless you plan to stay for at least seven years. Why? Because the market is volatile."

NJ Woman Bakes Her Way Out of Foreclosure

SavvySugar — Thu, 23 Jul 2009 04:30:40 -0700

Mortgage apple cakes are the tastiest thing on the menu for one New Jersey homeowner. Angela Logan must make a $2,559.54 payment on July 26 if she wants to keep her home of 20 years out of foreclosure, and because of a successful bake sale it looks like she'll meet the deadline.

Logan cooked up the idea to sell apple cakes for $40 each in order to pay her mortgage, and as of Tuesday, she had more than 500 orders, including one from Hong Kong. A health official warned her that it's illegal to use her house as a commercial kitchen, but Hilton Hasbrouck Heights is allowing Logan to use its kitchen, where she's able to bake 10 cakes at a time.

The actress/stand-up comedian blames her financial troubles on a home improvement project that went wrong, and the fact that several of her paychecks were frozen when one of her talent agencies shut down. Logan is now studying to become a nurse to have a more secure career, and says she "won't stop baking until people stop ordering."

Guess How Much: Jon and Kate Gosselin's Homes

SavvySugar — Tue, 09 Jun 2009 12:15:52 -0700

A family of 10 demands a lot of space, so parents of eight Jon and Kate Gosselin moved their brood this Fall from a 5-bedroom, 2½-bath house to a larger 6,000-square-foot 5-bedroom, 5½-bath home.

The controversial family is settled into their new, more private home in Wernersville, PA, but their Cape Cod-style home in Elizabethtown has been on the market for 89 days and counting. Can you guess how much the family paid for each of the homes?

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Maxed Out: Couple Spends Three Times Their Monthly Income

SavvySugar — Mon, 01 Jun 2009 12:00:29 -0700

This episode of Maxed Out features Julia, 28, and Mike, 30, a couple on the fast track to losing everything. All the big financial moments arrived at once for Mike and Julia - they have two mortgages and a baby, plus a ton of unmanageable debt. They're living in the townhouse they purchased before their condo sold, on the assumption that the condo would sell immediately.

It has been on the market for almost three months, and they're depleting their savings by covering both mortgages. Mike and Julia only have another month before they run out of savings and face foreclosure. Find out more about their messy financial situation when you read more.

Julia and Mike currently bring in about $50,000 a year - she has a sales job that's 100 percent commission, so Mike took paternity leave and is earning a reduced salary during his time at home. Mike's dad took out a $65,000 credit line to help them, but they're still in deep trouble, and financial guru Allison Griffiths takes a deeper look at their story.

The couple is shocked when Allison announces they're spending three times their monthly income. Their monthly expenditures average $15,400 a month, which means they're ending with a $10,000 shortfall every month. After going through their paperwork and learning more about their habits, Allison finds that it's not the condo that got them into trouble; it's their spending. The condo is just digging a deeper hole.

If Allison can't knock some spending sense into them, Mike and Julia's $90,000 debt (without their mortgages) will balloon into $160,000 within one year. With her guidance, the couple is able to knock out their shortfall (not too unmanageable when you see they were spending $1,500 a month on entertainment) and they're finally able to pay back Mike's dad with the sale of their condo. Mike and Julia are on the road to a more stable future, with only one mortgage and a realistic approach to spending.

Would You Take In a Roommate to Cover Your Costs?

SavvySugar — Wed, 25 Mar 2009 09:30:55 -0700

Having roommates has its financial and social benefits when you're in college or a young professional, but most of us expect the time will come when we live alone or just with our nuclear family. The recession seems to be changing that. According to CNN more and more professionals (often homeowners) are taking in roomies to help cover the cost of a mortgage and make up for frozen salaries and unexpected health care cost increases.

One of the men interviewed is a 44-year-old homeowner who said he used to travel yearly, eat almost every meal out and splurge on fancy phones and gym memberships, but has been forced to cut back. He told CNN: "I'm a little bit leery - actually a lot leery. But I don't really have a choice."

Source

20 Percent of Homeowners Owe More Than Their Homes' Value

SavvySugar — Thu, 05 Mar 2009 04:30:58 -0800

Chances are, if you know several homeowners, at least one of them owes more on her home than it's actually worth. This situation is commonly described as being underwater, because the home cannot be sold to pay off the mortgage. New results from a study composed by First American CoreLogic show that one in five homeowners were in this awful situation as of the end of 2008. Here's more:

The value of residential properties was $19.1 trillion at the end of 2008, versus $21.5 trillion at the close of 2007.
While the study included 43 states and Washington, D.C, it found that half the decline in overall home values occurred in California.
Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio remained the most stressed states - those seven states alone are home to 62 percent of underwater borrowers.
Increasing signs of stress and deterioration appeared in places that had been relatively healthy, like Connecticut and Washington, D.C.

Source

Maxed Out: Quitting More Than 50 Jobs Lends Itself to Debt

SavvySugar — Tue, 27 Jan 2009 11:30:16 -0800

This episode of Maxed Out is about Ron and Jennifer, a couple living on a single income and unsure of how they'll pay next month's mortgage. Ron has been unemployed for three months due to injury, but their financial problems began 10 years ago, mainly because of his inability to retain a job - Ron admits that he has quit between 50 and 100 jobs in just one decade. They have six credit cards, two mortgages, and an emergency line of credit they used to pay the past month's mortgage. Find out more about their situation when you read more.

Financial guru Allison Griffiths says their finances are about as bad as it gets. Ron has thrown a lot of money toward trying to become a self-employed supplement salesman and personal trainer, but without success. Both Ron and Jennifer habitually buy lottery tickets in hopes they will be able to pay their bills with the winnings. But there is no lucky pot in their foreseeable future, and Allison informs them that they have a monthly shortfall of $5,507!

A whopping 96.5 percent of Jennifer's monthly take-home pay goes to their first and second mortgage payments, leaving them only $127 for the remainder of the month. Their total debt, not counting their first mortgage, is $113,000, and at the rate they are going they'll owe $256,000 in just two years.

Allison gives them tools to form better financial habits, but this couple's situation is beyond her usual advice. She gives them an ultimatum: Ron must find a job with steady income, or they must sell their home. With such limited time, they make the decision to sell their house and use the money to pay down their debt.

Credit Scores Are Important, but They're Not Everything

SavvySugar — Mon, 12 Jan 2009 13:30:20 -0800

When it comes to our financial resumes, consensus is that credit scores are the number one factor that lenders rely on to determine the credit-worthiness of a borrower. After a year of one home foreclosure after another, some mortgage lenders have begun investigating financial habits that tell a bigger story than what the credit score can offer. Find out what has changed in the lending world when you read more.

While credit scores are far from obsolete, some lenders believe the scores alone don't do a good job of distinguishing credit-worthiness of those with average scores. Time points out that a few years ago, Fair Issac predicted a borrower with a 680 FICO score had 0.7 percent chance of ever defaulting on the loan, and someone with a 700 score had a 0.3 percent chance. However, 1.5 percent of year-old mortgages belonging to borrowers with credit scores between 660 and 720 have had their homes foreclosed or are in the process of foreclosure.

Phone payment records and other alternative credit information, like rent payment histories, are now being used more frequently to determine a borrower's ability to repay a loan. What do you think of this practice? Do you think whether or not someone consistently pays their phone bill on time should be weighed along with your credit score?

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Ask Savvy: Should I Split the Mortgage With My Boyfriend Who Earns More?

SavvySugar — Mon, 01 Dec 2008 13:00:54 -0800

Dear Savvy,

My boyfriend and I are looking to buy our first home together. He makes about $25,000 more than me per year and we both have similar expenses when it comes to our loans (I make about $56k and he makes about $81k). We're very realistic that relationships don't always work out in the end, but right now, we're very happy and believe we will get married and have children in the future.

Because I cannot afford as much of a monthly payment on a mortgage as he can, he has told me he wouldn't mind paying more than me. I told him that, realistically, the smart way to think about this is as a business transaction, and in the end, if we do split up, I will still get 50 percent of our house, but he will have paid more into it. He really appreciated my honesty on this point, but hadn't thought about it himself.

He then said he could pay the bills or food or something else to ensure I wasn't broke at the end of every month, if we did choose to buy a nicer house than we could if using only my salary. What's your opinion on this? Do you think we should split the mortgage payment in half no matter what? When you add our salaries together, we are doing pretty well, but I alone couldn't get my own mortgage. Please give me as much advice as you can before I buy my first home!

To see my answer, read more.

Savvy says: It's awesome that you and your boyfriend communicate so well and that is certainly one big key to a lasting, successful relationship. You both understand that right now doesn't always translate into forever, and that's so important when making big decisions like buying a home together.

Whether you are splitting the mortgage down the middle and your boyfriend is paying more toward other bills, or he's paying more of the mortgage while the rest of the bills are split down the middle, your boyfriend is still paying more than you are in total. Either way you cut it, it's all about whether or not you are comfortable with him contributing more than you to your household expenses.

Your boyfriend seems totally content paying a larger share, and I know many couples who divide most of their bills including rent (in your case a mortgage payment) as a percentage of how much they each bring home. It's all about what makes you feel comfortable - the last thing you want is for money issues to come between you two.

Savvy gals, how would you handle this situation?

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