Where to next?

The right neighborhood? The right city? The right part of the World?

Mrs. PT (my wife) and I struggled with this question recently.

As you know we’re in the process of moving. Our recent offer was accepted and we close on the loan for our new home at the end of this month.

This may sound crazy, but our primary motivation for moving (right now) was so we could have a yard. We live in a townhome now. We don’t have a yard. That fact stinks now that we have little kids.

You may be going through a similar experience (needing to move). You may have recently retired, become unemployed, graduated from school, or just grown tired of where you’re at. Maybe you too are ready for a yard.

So how do you decide where to live?

Our Decision

Ultimately, we chose to stay in the same suburban town here in North Dallas. We are just changing neighborhoods.

This decision (to stay close) wasn’t an automatic one. There were some factors that made it a tough call for us:

• The Employment Situation – I’m self-employed and my entire business is virtual. I can literally work anywhere there is an Internet connection. Seeing so many other blogging friends move and live anywhere they wanted has definitely made me think about doing something similar. Mrs. PT is a stay at home mom, so her job would make the move easy as well.
• The Kids Ages – Our kids are ages three and one. Therefore, we don’t have their school(s) to consider. In fact, we have a solid two years before we need to be settled down for Kindergarden for our oldest.
• The Extended Family – Finally, this isn’t our hometown. We don’t really have any immediate family here. We live here because this is where Mrs. PT and I were able to find jobs after college. I finished my college in Louisiana, and my wife in East Texas, both just a few hours away.

Given all of that, it would make sense that we would at least give some place else a look before settling down for good, right?

Well, we did.

Factors to Consider When Deciding Where to Live

Here are some of the factors we looked at when considering a move to other places.

Where the Jobs Are – Even though I’m self-employed and doing okay, I’m pretty conservative when it comes to the income. So I never want to be too far away from a metro area where plenty of jobs are available and plenty of local contacts.

Forbes recently published their Best Cities for Jobs list, where they tout many Texas metro areas, including where I live, in their top 10. Lists like these aren’t the end-all, be-all though. Consider your particular industry or skill set.

Good Schools – Even if you don’t have kids yet, school quality might be a big factor for you one day. Mrs. PT and I are big fans of the public schools system. So, location matters for us.

Those interested in homeschooling or private school can worry less about this. But don’t ignore it completely, as good schools can be an indication of other positives in the area.

Thankfully, we live in one of the best areas for schools. The Nation’s Report Card seems to be a good place to compare school performance.

Proximity to Family – As I noted above, we don’t live near family. But we happen to be ‘in the middle’, where we are within a day’s drive of the majority of our close family. There are, of course, positives and negatives to living right next to your family.

For us, we’d like our kids to grow up knowing their grandparents and we’d selfishly enjoy some free baby sitting. So while that’s a big draw for us, we’d be picking one set of grandparents over the other as it stands. Which leaves us liking the middle.

Culture – When deciding where to live, you need to consider the culture. What do the people there believe? What do they care about? Every place has a different vibe because of the culture. Some places have homogenous culture, while other places are more diverse.

I love the people here in North Texas. I was born in Louisiana, and I miss many things about that rich culture, but this place has definitely adopted me. The people here are hard-working, entrepreneurial, independent, faith-oriented, mostly nice and respectful towards each other, and they have strong family values.

These are the qualities I want in the people I live amongst and these are the qualities that I want my kids adopting. Beyond that, Mrs. PT and I have our short history here. We met here, had our first date here, and got married here. We like the idea of raising our kids here and developing that history.

Cost of Living – Before you move, you need to make sure you’re comfortable with the new lifestyle you can afford in your new place. Moving to Hawaii, but love spending time with your extended family here in the continuous U.S.? Hopefully you earn enough to afford regular trips back to the mainland.

Another big cost to consider is real estate. It wouldn’t surprise me if you could find a 3,000 square foot house priced $500k higher in one area of the country vs another. Do you want to remain a renter for a lot longer? Check out this cost of living calculator by PayScale.com

Community – While we don’t have family nearby, we do have a close community of friends that make this place feel like home. We spend most of our time with friends from our local Church. This has definitely been the glue that’s helped to hold our life together here in the big city.

From experience I can tell you that even surrounded by millions of people it’s easy to be lonely if you don’t have a community. Do you have a great community of people where you currently live? Could you easily plug into a new set of friends wherever you go?

The thought of not having good community after a move to a new place has been a big factor in keeping us here. It’s slightly irrational, but it is a factor.

Weather and Activities – Do you want all four seasons? Are you comfortable with extended heat or cold? The weather obviously has an affect on what you can do outside as well. Are you an outdoors person?

Don’t expect to enjoy being outdoors in this part of the country from July to October unless you have your swimsuit on. Thank goodness I work inside and we have great air conditioners.

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So those are some of the factors that we considered and you should as well. Places that ended up being high on our list (mainly due to that last factor) were San Diego and Denver. We have family/friends there and the weather and activities would be drastically different than here.

Like I said above though, this place has a lot of good things going for it and our history and friends are here. Even though our girls aren’t in school yet, we have a great community of friends and Church family that make this place feel like home.

Additionally, Mrs. PT and I decided that we’re more interested in being settled than we are in a permanent adventure right now. Besides we can take the money that we save by living in a cheap area and do a lot more traveling before the girls hit school age. Luckily, we’re in the middle of the country and live in a hub city where airfare is cheap.

Which Neighborhood to Live In?

Don’t forget about deciding which particular neighborhood to live in. The most important factor for me when considering this used to be proximity to my job. I hate a long commute, especially when it involves any traffic at all. It makes me a miserable person. So, I chose to live very close to my job.

Now that I have kids I can see why people choose to live further out from the city center: the neighborhoods are usually safer and quieter, and the schools are often better.

If you are new to an area, it may be hard to get a good gauge on which are the best neighborhoods. Check out any local message boards or forums to see opinions. Drive around the neighborhoods on Saturday mornings. Consider renting in the area first and then buy a place when you find the specific spot you like.

For us, it came down to proximity to schools (our new home is within walking distance), the vibe of the neighborhood (ours is very active and self-contained), and the fact that many of our good friends live there.

Ultimately I think you can be pretty happy anywhere you are. At a certain point, a place is just a place. It’s more important to surround yourself with the right people, I think. And if there aren’t enough people, just have a bunch of kids and start your own little community.

If you recently moved, why did you choose that particular location? I’d love a good cross-country move story. If you’re thinking of moving soon, what factors come into play for you?

Image by wisdomlight

How to Decide Where to Live and Why We Chose to Stay Put is a post from: PT Money: Personal Finance by PT.
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Are you ready to make an offer?

We just made a successful offer on a new home purchase.

Before we made the offer, however, we made sure to consider a few final details.

If you are about to make an offer yourself, here are to things to do before you get going.

This article assumes you are ready to buy a house based on your stage in life and financial status.

It also assumes you’ve properly narrowed down your choice of house based on your needs, wants, and understanding of the available homes and neighborhoods.

Double check the school situation. Don’t assume your new home will always be in the school district or specific school that you are looking to get into. Double check with the district that they aren’t about to re-zone or open a new school close by.

Ensure the price is right. Before you started your home search you hopefully got a pre-approval letter showing how much mortgage you could take on. You also hopefully ran the new mortgage payment, taxes, hoa dues, and insurance through your monthly budget to ensure you are not buying too much house. The question to ask now is, does the house you are making an offer on fit within your initial financial guidelines?

Take one more walk-though. You’ve seen the house at least once. Before you get official with your offer take one last look through the house to make sure it’s exactly what you want, and to also check for anything you may have missed in your initial casual walk-through. Look behind doors and under furniture. Notice the details. When you know you may own a house soon, you view it differently.

Review the seller’s disclosure. Here in Texas we are given a seller’s disclosure that we must review before making an offer. It contains all of the upgrades and repairs done on the house by the previous owner. This information is key for making estimates of what kinds of repairs you may need to do in the next year or two.

Review the utility bills. You may be able to afford the new mortgage payment, but can you afford the new electric bill? Most sellers these days will prepare a utility estimate for you to review prior to making an offer. Study this carefully and make sure it fits well into your budget.

Talk to the neighbors. The house might be your dream home, but the neighbors might be questionable. Make an effort to ask around about the neighborhood. Drive through the neighborhood at different times of the day. See who’s out and about. Stop and talk to them and see if they are the type of people you want to be living next to.

Research your “comps”. Your real estate agent should be able to pull real estate comparables. These are recent sale prices in the area for houses with similar square footage. This will give you confidence that you are making a good offer.

Google the address. Spend some time online researching your property’s address. Simply perform a basic search in Google and click the “news” results link to look for any troubling news about your future house. Do the same for your neighborhood.

Understand how the rest of the process works. Once you make the offer you’ll typically have just a few days to get an inspection and get estimates on remodeling, repairs, etc. Talk to your agent about what other steps you’ll need to take once your offer is accepted.

One final note about making the offer itself. They say you make your money on a home when you buy it, but don’t let that rule your thinking when it comes to making an offer. A home is mostly just a nice, big expense. If you luck up and make some money on appreciation that’s great, but don’t sweat it too bad if you feel like you have to offer what the seller is listing the house for.

If it’s just come on the market and you’d feel really bad if you lost the home to another buyer, then make a high offer and be happy with your new home.

What advice do you have for anyone considering an offer on a new home?

10 Things to Do Before You Make an Offer on a House is a post from: PT Money: Personal Finance by PT.
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Just yesterday I received the exciting news that we’re finally pre-approved for a new home purchase.

After a little bump in the road with the guys at Quicken Loans (who did a great job with our refinance), I was able to escalate my case and received an almost instant approval for a new home loan.

They were satisfied with the income showing on our two years of self-employed tax returns, our credit scores, our proposed down-payment of 20%, and our current savings and debt levels.

Be clear about what you want from the lender. Make sure you are getting an actual mortgage pre-approval letter vs a pre-qualification, which doesn’t carry as much weight.

Importance of a Mortgage Pre-Approval Letter

I now have a pre-approval letter in hand. This letter is evidence that a lender is prepared to work with me and it gives all parties involved in the pre-sales process confidence that we’re ready to move forward.

Before you search for a new home it’s wise to go after a pre-approval letter. Your real estate agent might even require you to have one before dealing with you.

Same goes for the selling party. They may not consider offers from people without a pre-approval letter. Or they may be willing to work with someone with a pre-approval letter even though they came in with a lower bid.

Our pre-approval letter is good for 90 days. It’s also subject to a full, formal underwriting review once we get a home under sales contract. So, we’re not completely out of the water but from my understanding it’s the best foot forward at this point other than having 100% cash.

I was surprised they didn’t need me to have a rental contract on our current place to get the letter. The fine print on the letter states that they might require that. But verbally, the lender told me I didn’t need it.

Increase Your Chances of Pre-Approval

We weren’t in the best financial shape possible, but we made some moves over the last year that helped our chances of getting this pre-approval letter.

To increase your chances of pre-approval: save up a big down payment, improve your credit score (check your score now), and improve your debt-to-income ratio by paying down debt, refinancing debt, and increasing your income.

I should also mention that because I’m self-employed, I don’t have a W-2 or paycheck to show the lender. They needed to see two years of tax returns as evidence of my business’s ability to support us.

Further, some people choose to pay themselves a big salary from their business. These folks seems to have an easier job getting past the underwriters to get a loan. If you are self-employed, consider setting yourself up on a salary and receive a W-2.

Our Next Steps

We can now start the process of searching for the right home, as well as preparing our current place to rent out.

It feels a little weird to be excited about being able to go into a massive amount of debt though. But this is definitely a part of our life plan:

• We rented our first year of marriage
• Purchased a townhome in year two
• Refinanced the townhome mortgage in year four
• Now we’re turning it into a rental and buying a new home

I’m really looking forward to this move. In part because it will be a better fit for our family. A single family home neighborhood comes with schools and parks within walking distance, also a yard. Call me crazy, but I’m so ready to mow some grass.

Have any tips about home mortgage pre-approval?

We Received Our New Home Mortgage Pre-Approval Letter is a post from: PT Money: Personal Finance by PT.
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This is an interview with Judy Minister of Minister Realty, who provides services for the neighborhoods in central Columbus, Ohio. Not only has she been in real estate since 1984—becoming a top agent in the local office of a national brokerage within a decade—she has run her own small specialty office since 1995.

But her insights into the housing market are not limited to those in the Columbus area. Judy’s experience through three decades of market fluctuations give her special understanding of the current housing slump. I recently interviewed Judy to find out more about what we can expect from this housing market:

How has the most recent housing slump compared to others you have seen?

I started my real estate career in 1984, with mortgage interest rates at 13.5%. The market was definitely in a slump when I started my career, but it was recovering from several years of interest rates in the 15-18% range.

That slump, which grew to an end in 1986, was the only precarious time I experienced in the housing market until the 2007 subprime loan crises snowballed us into the crisis we now have.

That 1980s slump was fueled by high interest rates, while the current slump is a product of two major factors: the huge number of foreclosed and neglected homes being marketed at below market “as-is” prices, and the poor economy. [Emphasis Judy’s]. Lenient lending standards, no down payment loans, and cash out re-finances all contributed to the huge number of foreclosures.

Have we seen the worst with foreclosures?

Fast forward to 2011, and foreclosed or lender-mitigated homes (homes where the bank has worked out a deal with the homeowner to avoid foreclosure) comprised 35% of the real estate market in central Ohio. Yes, 35%. [Emphasis Judy’s].

Fortunately, the fourth quarter of 2011 shows an active lender mitigated inventory down to under 2400 homes, which is about the 2007 levels. It’s still much too high, but it’s below the foreclosure peak in 2010. We hope this downward trend of foreclosure inventory will continue.

What advice would you give to buyers or sellers in 2012?

For sellers: The last half of 2011 showed five consecutive months of sales growth over 2010 sales. Prices in many markets are not ready to go up, but properties are going into contract even during the traditionally slow winter market.

Sellers who can sell with a gain should do so, and those who would sell for a loss and can afford to wait for a recovery should just sit tight until that time. If you do need to sell this year, start in the spring, which is peak buying season.

For buyers: Interest rates are at the lowest point in 60 years. If you buy a home or an investment property, buy for the long term. 10 years from now, you’ll likely be happy that you did.

What are some indicators that a particular market is starting to recover?

Two indicators will help you know if your market is recovering. First, seeing lender mitigated inventory declining in a given market is a good sign. This will vary from market to market, but it will be helped as lenders nationally work on creating repayment plans for distressed homeowners who wish to stay in their homes.

The other indicator is the unemployment numbers for your state. As statewide unemployment decreases, fewer owners will fall into distress.

What trends in real estate do you see emerging in 2012 and beyond?

The economy: As the economy improves, home sales will improve, foreclosures will lessen, and property values will begin to rise again.

Lending practices: Lenders should and likely will continue the return to the more cautious lending standards they exercised pre-1998. Cautious lending includes requiring a down payment, verifying stable employment, and restoring the requirement for a history of good credit from the buyer.

Fewer foreclosures: With low interest rates, a down payment stake in a property, and affordable mortgage payments, fewer new homeowners will experience distress, meaning fewer new homeowners will abandon their homes and mortgages.

Return to stability: From 1984 to 2007, I had no home sellers who sold their homes for less than their purchase price. In addition to the rising property values, these homeowners benefited from the opportunity to be a part of a neighborhood, from the tax advantage of home ownership, and from the tangible pride of ownership.

I hope that we can experience that stability again with a return to normalcy.

Image by JefferyTurner

Current Real Estate Market Trends, Analysis, and Forecast for 2012 is a post from: PT Money: Personal Finance by PT.
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Could you afford to live off the grid?

Once thought to be a lifestyle reserved just for the tinfoil hat crowd or the Amish, “living off the grid” is becoming more mainstream, as each year, thousands of Americans opt for energy independence.

Off-grid living, or homesteading as it is sometimes called, has come to mean different things depending on the motivation of the people who pursue it. The vast majority of these people are simply choosing to live a life of self-sustainability for environmental reasons, financial reasons, or to seek the protection of a solitary life.

But then, there are those who believe that black helicopters are swooping in on American citizens and that anarchy will prevail once the citizenry catches on.

How to Live Off the Grid

For all of these homesteaders, their first priority is to get off the electric grid and create their own renewable supply of energy. That is followed by the creation of a renewable water source and sustainable food source for total self reliance.

And, for the doomsday preppers and conspiracy enthusiasts who want to get totally off the grid, the ultimate step is to remove any and all links with identifying institutions including bank accounts, credit accounts, DMV, and even Social Security.

For now, we’ll limit this discussion to those who still feel the need to have access to an ATM or a valid driver’s license.

Across America, you can find millions of people who are attempting to reduce their exposure to the grid by reducing their energy consumption, planting gardens, and generally trying to live simpler and greener lives.

Living Off the Grid Isn’t Cheap

But, if you really want to get off the grid, it does require an almost uncommon commitment and the willingness to invest a good amount of money, which raises some questions that most people have about off-the-grid living: Is it financially viable?

What if you aren’t as wealthy as some well-know homesteaders, like Daryl Hannah (off the grid in Colorado) or Johnny Depp (off the grid on his own island in the Bahamas)? Does living off the grid also mean living watt-to-watt or radish-to-radish? Or can it pay off in the end?

Johnny Depp on his Island: “Theoretically, this place can add years to your life. Money doesn’t buy you happiness. But it buys you a big enough yacht to sail right up to it.”

Here’s the skinny on setting yourself up with a completely self-sufficient, self-sustaining life in the boonies:

That’s not a small amount for anyone, but assuming the cost of housing (land, development, and building) is factored into everyone’s budget anyway, we’re really looking at an additional investment of $90,000 for renewable energy, food, and water that must recovered.

In comparison, it would only cost the same household to pay around $10,000 to tie into the commercial grid.

The key to the investment return is the “sustainability and renew-ability” of these resources, because once the investment is made, there should be no further payments made towards those resources.

So, it comes down to the cost savings realized by not having to pay gas and electric bills, water bills, and grocery bills for as long as you remain in your homestead off the grid. What’s that for a family of four? $1000 to $1500 a month? That’s better than a 15 percent annual return.

Just with the electricity, if you consider the savings realized with no monthly bills, no power lines or grid link, and the federal tax credits available, the net cost or investment is close to zero. For the people who invest their heart and soul into self-sustained living, the psychic return is incalculable.

Written by Monica Clark. Monica is an editor and webmaster for directbanc.com, a credit card information website.

Image by Pink Dispatcher

The Cost of Living Off the Grid is a post from: PT Money: Personal Finance by PT.
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Is it time to stop?

We’re going to be trying to get pre-approved for a new mortgage soon.

As a self-employed family, we need our credit score, and debt-to-income ratio to be as rock-solid as possible.

Therefore, for the next three months we’re using only our debit card to make purchases.

This stinks because we usually do all of our spending on our Chase Freedom credit card. The card pays at least 1% cash back on all our spending. So we stand to make over $100 each quarter.

That’s $100 we won’t be earning this year. But if it means getting a great mortgage rate then it’s worth it, right?

Why are we doing this?

Like I said, we need our credit score and debt ratio to be optimized. Ironically, using our credit cards like we do helps us to maintain a good score, but in this instance, reporting a big balance is hurting us. Let me explain.

How Big Credit Card Balances Are Reported

Financial institutions report your information to the credit bureaus in a variety of ways. I believe at their choosing. This is something out of our control. So even though we pay off our credit card balance in full each month, our latest period-ending balance is reported. Here’s more from creditcards.com on the issue:

Banks pass your account information, including balances and limits, along to the credit bureaus, which in turn list that information on your credit report. When you (or a lender) request to see your credit score, the current information on your report gets plugged into a credit scoring formula. The issue for heavy-charging — but otherwise responsible — cardholders is exactly when various lenders report information to the bureaus.

To anyone looking to lend us money, it appears as if we have a hefty amount of credit card debt. Remember, we do all of our spending (except our current mortgage payment) with our credit card, netting us close to $500 each year in rewards.

How This Affected Our Refinance

This whole thing came into play last Summer when we were refinancing our current place. Even after telling the lender how we paid the credit card off every month, and even showing them our statements, the lender asked us to close down the account completely so that we could complete the loan and meet the needed income-to-debt ratio.

I laughed at them and then realized they were serious. To avoid having to do this, we paid off our low-interest car loan. Then all was right in the underwriter’s eyes.

Now, there’s no more debt for us to eliminate. So this time around I’m not taking any chances. We’re stopping the credit card use a month before asking to be pre-approved for a mortgage. To be honest, I’m hoping we didn’t wait too late to start this, with reporting delays and all.

Additionally, (and I’m making an assumption here based on my understanding of credit utilization) our credit score is affected by this reported credit card balance. So, it’s just best to be safe and eliminate the revolving debt.

More Important Things to Do Before You Apply for a Mortgage

Other, might I add, more relevant, things we’re doing to improve our chances of getting a mortgage include: making sure it fits for our budget, saving up a big down payment, getting our current place under a rental agreement, and getting my small business finances and taxes in order.

Hopefully, we’ll overwhelm the lender in these areas and the “phantom” debt won’t be an issue like last time.

Update: Two readers have chimed in with potential solutions to my problem.

1. I could talk with the credit card company and find out exactly when they report to the credit bureaus. Then simply start paying my bill off in full before that date each month.
2. I could “prepay” my credit card usage (i.e. make a pre-payment to the credit card, forcing a positive balance).

In both situations, we can continue spending on the card like we normally would and still earn the points. You guys are smart. I’m so glad I posted about this. I’ll update you again once I try one of these methods.

Image by Uwe Hermann

I’m Done with Credit Cards is a post from: PT Money: Personal Finance by PT.
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Could you live in a small(er) home?

In addition to the lowered mortgage payment and taxes, you’ll also spend less on utilities and maintenance.

But living in a smaller house isn’t just a smart financial decision.

Deciding to downsize can also improve your quality of life.

Here are five ways that living in a small house has made my life better:

1. You have less to clean. I’m not known for my housekeeping abilities, but living in a 1,400 square foot house means my lack of a clean gene doesn’t show so much.

I grew up in a 2,500 square foot house, and cleaning was an all-day, all-family affair. It was exhausting even just thinking about it and we didn’t do it as often as my mother would have liked.

Now, I do my cleaning in 15-minute bursts throughout the day, and cleaning the house rarely becomes an overwhelming horror that I avoid. If we had more house, that would mean more rooms to clean and more places for clutter to gather.

2. You have more family time. One of the selling points for big houses is that everyone gets to have his own space. And while I would never want to give up my me-time, I don’t think I need an enormous separate room to have it.

Families in very large houses don’t have to spend time together, because each person has a space to retreat to. When everyone is all thrown together into a small living area, that allows for more fun family time. (It also allows for more squabbles, but isn’t that what family is also about—learning how to handle conflicts?)

3. You’re more likely to know your neighbors. Big houses are often on big lots. You can easily wave at your neighbor while you’re both getting in the car in the morning, but it takes a little more effort to actually spend time with them.

Small houses are often set closer together. Spend an afternoon sitting on your porch, and you’ll have the chance to see children playing on the sidewalk, neighbors doing yard work, and the nice couple down the street walking their dog.

It really is easy to be a good neighbor when you don’t have to walk a quarter mile to get there.

4. You become less focused on stuff. Just as a goldfish will grow to fill the size of a bowl it lives in, a regular family’s need for stuff will grow to fit the space it has to fill.

Average Square Feet of Homes in the U.S. - Source: Journalstar.com

Small living changes how you view making new purchases. In a large house, there’s always room for more, so you might as well indulge.

5. You’re reducing your environmental footprint. Small houses consume less energy and use less materials in the building process.

But in addition to these environmental benefits, small houses are also generally built in more walkable areas, which means you don’t have to jump in the car just to get a gallon of milk. And since buying a small house will often mean buying an older home, you will be preserving the environment by not building new—which is the ultimate in recycling.

Downsizing isn’t just for empty-nesters or those who bought more house than they can afford. If you live in a big house, think about how downsizing to a small one could improve your life, your relationships, and your bottom line.

Do you ever have the desire to live in a smaller (or bigger) home? Why?

Image by mrkumm

5 Big Benefits of a Smaller Home is a post from: PT Money: Personal Finance by PT.
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There’s not much worse than a scammer. Except maybe one that takes advantage of older people who are already having financial difficulty. As a warning to others, Samantha Savory was kind enough to share her Mom’s story about being defrauded when trying to refinance her house. Here’s her story…

Don't fall for this refinance scam.

I always thought to myself ‘What a bunch of dummies!’

Right away I was overly judgmental and never fully understood how someone could be so stupid to fork over money to a stranger.

That was, until it happened to my mother.

My Mom’s House and Mortgage

My mom has lived in the same home in South Florida for nearly 25 years. She has always paid her mortgage on time and never asked for a handout. Five years ago, when the economy was thriving and no one, other than perhaps lending and banking insiders, knew the housing bubble was about to burst my mom refinanced her mortgage to get a temporary lower interest rate.

In laymen’s terms, the refinance offered a low fixed interest rate for the first 5 years and the remaining 25 years of interest would be at an adjustable rate and could go as high as 14.5%. Anyone who knows anything about mortgages should know that an interest rate in this market that is above 7% is a complete rip off.

Unknowingly she signed a contract that stated if paid to as agreed would force her to pay over $500,000 in interest for a $300,000 loan. In 2005, my mother’s home was estimated to be worth nearly $500,000, but in today’s market, it isn’t even worth $300,000.

A Reason to Think Twice About Adjustable Rate Mortgages

One year before my mom’s mortgage payment would jump from $1,500 to $2,300, she went to Bank of America and tried to refinance. They wouldn’t talk to her because technically she and her husband made enough money to pay the monthly mortgage amount, and the bank would not reap any benefits from trying to help my mom. Also, a person needs an almost perfect credit score to be able to refinance, which my mom does not have.

Enter the Low Life Scammers

Two weeks went by and my mother started getting calls from telemarketers claiming they work at mortgage refinance companies and that they could help her. For some strange reason, my mom ended up believing a person who claimed he worked at “The Hardship Center” which according to the email signature was a debt settlement association approved company.

Quick side note: The problem is no matter how many degrees my mom has and how educated I assumed she was, she did not know that debt settlement firms are usually scams and are BAD. She also did not know that getting a mortgage modification or refinance has absolutely NOTHING to do with debt settlement. People who don’t work in the debt or finance arena don’t understand the differences between legitimate companies that help people save their homes or pay off debt and scam artists.

Back to the story — the telemarketer from “The Hardship Center” told my mother that in order to get her home refinanced she needed to pay an upfront fee of $2,500.

You probably already guessed that my mother transferred funds from an online account to this guy. Ironically she transferred the money from her Bank of America checking account, the same bank that rejected her from a legitimate refinance.

Uncovering the Scam

Nearly 3 weeks later, the salesperson’s email stopped working, the “Hardship Center” website URL was gone and no one was answering the phone. My mom then realized that someone took advantage of her and scammed her for thousands of dollars.

My mother was so desperate not to lose her home or pay an outrageous monthly mortgage payment; she thought there was a quick fix and fell for a slimy salesman’s tricks. Shortly after, my mom did some investigating with her best friend, known as Google, and read on the Better Business Bureau’s site that there were complaints about this company scamming other homeowners.

Think you’ve been scammed? Be sure to check out these 6 essential resources for fighting back.

Needless to say, my mom has learned many lessons. Two of the biggest:

1. Don’t ever refinance or buy a piece of property without a lawyer present to read the contract and the fine print.
2. Don’t trust any company that wants you to give them thousands of dollars for a quick fix because 99% of the time, it’s a rip off.

Have you had a similar situation? What are some of your tips for avoiding scams like this?

Samantha Savory is a regular blogger for MissMoneyBee.com whose mission is to provide expert money management advice, promote financial literacy, and keep readers in the know about the best ways to save and spend their money.

Image by OlgerFallasPainting

My Mom Got Scammed Trying to Refinance Her Mortgage is a post from: PT Money: Personal Finance by PT.
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I recently received this email from a reader:

“I was roaming the internet when I came across houses listed as “take over payment” properties. I did a quick google search and got another term for the – “subject to” properties. Do you know anything about this? An investor agrees to make the payments on your house, they find a renter, and then ultimately sell or refinance your house. You remain responsible for the payments but they pay them. The bank doesn’t know anything about it. Apparently it’s legit, or can be, but also seems shady. Thoughts?”

I’m going to take a stab at a basic definition and share my thoughts, but I encourage you real estate financing gurus to chime in with your knowledge.

What is “Subject To” Real Estate?

When a piece of real estate is sold “subject to”, ownership (deed) is transferred, but the underlying loan remains in place, instead of getting paid off. The seller’s mortgage remains in place. The buyer simply takes over payment. Therefore, the real estate property is “subject to” the seller’s mortgage.

From what I gather, most mortgage loans these days include a due on sale clause, which gives the lender the right to call the loan due after learning of this transfer of ownership. Whether they actually exercise this right is a different story. Supposedly, lenders rarely go this route.

I’ve also read that the lender doesn’t really ever have to know about the transfer. So, then they would never have a reason to call the loan due immediately. From what I gather, this isn’t illegal (of course, every State is going to vary), but it definitely is not normal practice.

Due on sale clause issues aside, should someone sell their house “subject to”? When you sell your house subject to, you are not removing yourself from the obligation of your mortgage. Additionally, you are letting someone else do whatever they want with the asset that is collateral for your mortgage. I see two negative things happening to the seller:

1. The buyer stops making the mortgage payment and your credit is destroyed.
2. The buyer moves in a tennant who destroys the home, ruining the value of the collateral of your loan. I’m not sure how insurance would work in this situation, so that’s an unexplored factor here.

For someone facing a current foreclosure, the risks above might be acceptable. But for someone just looking to get out of an underwater house, this probably isn’t a smart move.

For buyers, I’m assuming “subject to” houses are attractive because you don’t have to put any money down or qualify for the purchase.

I’d be interested to hear from anyone who’s either purchased or sold a “subject to” house.

Help a Reader: What is “Subject To” Real Estate? is a post from: PT Money: Personal Finance by PT.
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As it stands right now, in less than six months’ time, we plan to buy a new home and at the same time become the landlord of the town home we currently live in. Here’s our plan:

Step One – Refinance Our Mortgage

We’ve already completed this step. By refinancing our mortgage, we reduced our mortgage payment by enough to allow us to rent out the property by at least a hundred more per month than all of our expenses: mortgage, property taxes, insurance, home owners association dues, repairs, and property management fees. Here’s what our rental investment should look like per month:

• Rent – $1,700
• Mortgage – (850)
• Property Taxes – (350)
• HOA* – (175)
• Insurance (25)
• Management (100)
• Misc. (0-100)
• Cash Flow – $100-$200 a Month

Step Two – Save Up a New Down Payment

We are in the process of saving up for a down payment on a new home. We should be able to reach our goal of a 20% down payment by next February. The big x-factor is 2011 self-employment taxes. This will be our first full year with only self-employment income, and so I’m not exactly sure where our taxes will land. I plan to sit down with my father (who’s CPA firm is now managing my accounting) and get an estimate going. One radical thing we are planning to do to get the down payment quicker is to sell our second vehicle. More on that in a future post.

Step Three – Find a Property Management Company

I’m not interested in going this alone, especially my first time out. I’m sure I *could* do it, but I want the hand-holding, and our expenses should be low enough to afford this and still “cash-flow” the property.

Step Four – Get a Rental Agreement

I’ve been told by several people that have successfully pulled this off (two mortgages) that we will help our chances of getting a loan for our new house by getting a rental agreement in place prior to applying for the mortgage. This makes sense. A bank needs to know that you are capable of paying both mortgages, one with your business/employment income, and the other with rental income. I’m confident we can do this quickly. Rents are strong right now and getting a tenant should not be a problem, especially using a property management company.

One thing to consider before converting your home into a rental property is the change in tax treatment. You have to pay taxes on any gain from the sale of a rental property. You don’t if it’s your residence.

Step Five – Get New Financing and Find a Home

This is where it gets tricky. Once we get a rental agreement with a tenant, we will need to move out of the home to make way for them. We want our next house to be the one we are in for a long time (i.e. till the kids graduate). So, I don’t want to rush this process. I’m mentally preparing that we may need to rent an apartment or do an extended stay hotel until we can find the right home, close the loan, and move in.

Why We Are Doing This

1. For starters, we bought this town home with the idea that it could possibly become a rental property for us in the future.
2. Second, we want a new home with a yard and more space.
3. Third, selling isn’t an option because we cannot stomach the idea of losing money to sell our home. We bought this home at the top of the market in December of 2006 with a 20% down payment. It’s now worth $10,000 less than what we paid for it. Neither Mrs. PT or I feel good about selling this home and losing the hard-earned money we put into it. We’d rather take our chances on becoming land lords.

What are your thoughts on our plan? Are we missing anything? Will this be a slam dunk, or will it be harder than we think?

Buying a New Home and Converting Your Current Home Into a Rental Property is a post from: PT Money: Personal Finance by PT.
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