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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Just a couple of years ago, millions of people were living the American Dream, in their own homes. Of course, they had mortgage payments to worry about, but they had gotten the home for 0% down and a reasonable introductory interest rate. Things got so good that people even began borrowing against the equity in their increasingly-valuable homes. Then the housing bubble burst, creating a massive foreclosure crisis that we’re still struggling with to this day.

While things seemed to have stabilized for the time being, many of us still wonder: is there an end in sight to this foreclosure crisis? Many experts say yes, but it will take time for things to actually start improving again. This isn’t the first foreclosure crisis for the United States, nor is it the last. What makes this time different from the rest is the magnitude of the meltdown of the housing market.

Housing Bubble: We all Saw the Burst Coming

Of course, the housing bubble was bound to blow up, eventually. Some experts blame the foreclosure crisis on the poor business practices and pursuance of greed by the lending banks, while others blame it on poor legislation, such as the Community Reinvestment Act of 1995, which required lenders to extend mortgages to lower-income households.

Regardless of the origin of this foreclosure crisis, some things are certain, such as the fact that too many people were taking out huge loans that they simply couldn’t afford (many without any down payment at all). Not to mention the problem with banks looking to capitalize on these sub-prime toxic loans by trading them amongst each other, which caused many economists to fear both a looming foreclosure crisis and systemic risk (the chance of a total collapse of the financial system due to the deep interconnections among the major banks).

Default Nation

All was fine and well for a while, but then some people began drowning in mortgage debt. Then people began defaulting altogether, leading to the foreclosure crisis we saw starting in 2007-2008. Economic conditions have been improving since the initial meltdown, but even with interest rates at an all-time low, people are still restraining from buying homes. Why? For one, legislative measures have been enacted since the beginning of the foreclosure crisis, making it harder for banks to give out these kinds of loans in the future. Also, with the unemployment rate still well above normal, we have many people who simply aren’t in stable financial positions to buy a home.

Lower Unemployment = Good News for Housing

Before we see a relief to the foreclosure crisis, we need to see the unemployment rate closer to 5-6% instead of hovering around 8-9%. With more people in the work force, we’ll definitely see people buying homes because income levels will rise (it’s nearly impossible to buy a home on unemployment insurance). For those who are employed, they’re not buying homes because the threat of losing their jobs still exists. As such, they are socking away money into savings to prepare for the worst. The only way to end this foreclosure crisis, then, is to get people employed and back into steady, regular work.

What Have Americans Learned?

So, now that the housing sales plateau is coming to an end (slowly but surely), what can we take away from this experience? The banks certainly seem to have learned a thing or two, and for the next several years, only the highly-qualified borrowers will be able to get mortgages loans. For consumers, a “smaller is better” mentality has been growing since the beginning of the foreclosure crisis and bank meltdown: from smaller cars to smaller homes (which means smaller loans), less is now the way to go. Our excessive lifestyles got us into this mess; now we’re learning to cut back so we can find prosperity as a nation once more.

This guest post was written by Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

Pushing Through the Foreclosure Crisis is a post from: PT Money: Personal Finance by PT.
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In a recent post, Philip hosted a messenger bag and gift card giveaway. To enter the competition, you had to comment with a money making idea that you want more information about. After reading through the comments, a hot ticket item was real estate investing. This is great timing because it’s been something I have researched quite heavily lately and extremely interested in.

Ready to invest in real estate?

You don’t hear too much about it anymore, but it poses serious income potential.

It’s riskier than stock investing, but the reward is greater!

In this article, I’m going to cover some basics of real estate investing and how any “joe-smo” can get started.

Renting Out a Property

This is the first thing that most people think about when they hear the words “real estate investing.” It’s a pretty simple concept. Say, you, the landlord purchase an investment property and rent it out to a tenant. Your goal is to cover all your maintenance costs, taxes, and mortgage and still turn a profit. This is where your risk lies. If you’re not making money, it becomes a sour investment.

You are the owner of the rental property, so all the typical responsibilities that come with home ownership fall right into your lap. If that gas heater breaks, guess who’s paying for it? You are! If you are comfortable with taking on the risk of home ownership, then physical property investments is the way to go. Once you finish all the required research and hand pick your tenants, owning a couple real estate properties can be quite lucrative.

Spread the Risk: Join a Real Estate Investment Group

If becoming a landlord doesn’t sound like your cup of tea, then joining a real estate investment group might be right up your alley. Typically, a large company will build a brand new apartment or multi-family community then will sell the newly built properties to investors.

The beauty of this is that you can choose to purchase multiple apartments or you can buy a single unit. For a small fee, the company you buy the apartment from will manage all maintenance and interviewing and selecting tenants. This can be a lot of work, so outsourcing to a company is a great option to have. Just like property rentals, research is huge and asking around for references will save you some headaches in the long term.

Go Basic: Invest in REIT’s

If you’re still not interested in the above two options, there is a completely hands off approach to real estate investing. This is where Wall Street comes in.  For the average, “hands-off” investor, Wall Street created an investment vehicle called REIT’s. REIT stands for real estate investment trust. Putting it simply, an REIT is created when a corporation or group of companies use money from investors and invest in real estate properties.

With the investor’s money, these companies purchase and maintain rental properties with the goal of increasing the stock price for shareholders. This is a great option for anyone who wants to place the burden of rental property ownership on someone else. Another cool thing that REIT’s offer is the option of investing in commercial properties, not just residential. This is great for anyone looking to diversify their income.

Sounds Promising

As you can see, there are many ways to invest in real estate. As I wrote this article, I realized that I have great interest in the real estate investment market.  If you’re like me and want to diversify income sources, real estate investments are a no-brainer. With the proper research, networking, and a little bit of patience, real estate investing can be extremely profitable.

Are you currently investing in real estate? How?

Photo by lumaxart

Real Estate Investing for Beginners is a post from: PT Money: Personal Finance by PT.
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Do you know the benefits of the 15 year mortgage?

If we were not changing this home into a rental property within 6 months, I would say they are right.

It’s an excellent time to refinance your home down to a 15 year mortgage. Likewise, if you’re in the market for a new home, you may never find a better time to go with a 15 year mortgage. Take these reasons:

15 Year Mortgages are Popular

Rates are shockingly low. My mortgage rates table is showing rates near 3.5%. That’s low for this year, low for the last ten years, and just flat out historically low. It’s basically rock bottom. With rates this low, many people can move to a 15 year loan and maintain the same mortgage payment amount.

Ed over at The Happy Rock just did this type of refi and kept basically the same monthly mortgage payment. Had we been committed to this place for the long haul, this is what we’d of done.

The perceived risk in the stock market. Justified or not, many people aren’t comfortable with the stock market. They’d rather stick their money in a hard asset. It doesn’t get any harder than the asset you live in, your home.

By moving to a 15 year mortgage, you are betting that the increased investment in your own home (via the slightly higher mortgage payment) will be a safer payoff than stocks. I’m a believer in stock for the long run, so I don’t advise dumping your stock investing for a single investment, your home. Still, I see the appeal.

Nowhere to get a return. If you can’t stomach the market, then where else do you turn for a decent return? There aren’t that many solid places really. Especially none in the traditional channels: savings, CDs, etc.

If you put more money in your home (again, via the increased payment), then at least you are investing in something you can touch and feel; something that is providing security for your family.

Of course, there are some factors you need to consider if you’re considering a 15 year mortgage refinance. Like, “how long will you be in the home?” Or, “are the rest of your finances on track?”. If you just bought the home, then a refinance doesn’t make sense, and if you aren’t making your retirement contributions regularly, then you probably can’t afford a slightly higher mortgage payment.

History of the 30 Year Mortgage

What about when you buy your first home? How do you decide whether to go 15 or 30 years? Most people naturally default to the 30 year mortgage. But this wasn’t always the case. 15 year mortgages used to be the norm, and they still are in most other countries.

The 30 year mortgage came along after the Great Depression, when the housing market collapsed. At the time, 30 year mortgages made sense because people lived in their homes that long and 30 years covered the typical earning years of the average U.S. worker. Nowadays you can’t get people to stay in a home for more that 5-10 years. But the mortgage is still around and still the most popular.

I certainly weighed the 15 year option when we purchased our home. We could have afforded the payment. But, ultimately, we wanted the flexibility that comes with a 30 year mortgage. Hey, if they’ll let us borrow for that long, why not?

Also, we said we’d just pay more in principal each year to effectively end our loan in 15 years. Did we do that? No. We never did. We just worked on our other financial goals (debt, retirement, etc.) and enjoyed our relatively low interest rate (5.375% back in 2007) and tax deduction.

Benefits of the 15 Year Mortgage

If you’re thinking about doing a 15 year mortgage or refinance, here are some of the benefits you’ll enjoy:

Better Rates – Since you’re borrowing money over a shorter period of time, lenders will extend a much lower interest rate on your mortgage. This, of course, results in savings on the amount of interest you are paying compared to a 30 year mortgage. A better rate also means bragging rights with your financially savvy friends. People love comparing mortgage rates for some reason.

Pay Down Principal Faster – With a 15 year mortgage your first mortgage payment will include much more principal than a 30 year mortgage payment would provide. And in 5 years, you’ll actually have paid down a decent amount of principal. As opposed to a 30 year mortgage, where you really only pay interest the first 5 years.

Less Paid in Total Interest – All things being equal, you’ll pay more interest on the longer loan term. By going with a 15 year mortgage, you are shortening your loan term and so over the life of the loan you’ll pay less in interest. Plug your numbers into a 15 year vs 30 year mortgage calculator to see the huge difference.

Gets it Over With – One last benefit that I know of is the emotional satisfaction that comes with owning your home. A 15 year mortgage could leave you without a mortgage before your kids are out of school. Imagine what you could do with that mortgage payment: help your kids with their college education, consider early retirement, travel more, etc.

Did you recently purchase or refinance for 15 years? Why did you make that decision?

Benefits of a 15 Year Mortgage is a post from: PT Money: Personal Finance by PT.
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We recently refinanced our mortgage. Doing so allowed us to lower our payment by $186 a month, and save $22,000 in interest payments across the life of the loan.

I’m certainly pleased with the financial outcome of the refinance, and I certainly encourage you to check mortgage rates which are even better now to see if you can see similar savings on your mortgage. But I’m also pleased with the process of doing the refinance with Quicken Loans.

This is my first refinance.  So I don’t have much to compare it to. But I can tell you about my particular experience and let you decide if working with Quicken Loans on your purchase or refinance is right for you.  I’ll save you the info on Quicken Loans themselves. You already know them as one of the biggest names in home mortgages, with “highest in customer satisfaction for primary mortgage origination” according to J.D. Power and Associates.

What I will focus on is how they did business with me.  Quicken Loans breaks down the mortgage loan process into 7 simple steps. Here’s how each of my steps went:

1. Connection (May 25, 2011) – I used my own mortgage rate table and found a reasonable rate from Quicken Loans. I’ll be honest, I was lured in by the fact that I’m familiar with the Quicken name brand. After clicking “learn more” I was taken to the Quicken Loans site and filled out the contact form. Someone from Quicken Loans reached out to me and I gave permission for my credit to be pulled.

2. Credit Discussion (May 25, 2011) – I received an email from Quicken Loans that my credit had been pulled and they were ready to discuss mortgage options. I called them up and spoke with my Mortgage Banker, Eric Pacifi. I gave Eric more information about my income, employment situation, loan type, and more.

3. Good Faith Estimate and Deposit (May 25, 2011) – Before that conversation ended, I was told that everything looked good and I could now log into my Quicken Loans online account to see my good faith estimate. The rate I was quoted was 4.875% on a 30 year refinance. If I was cool with that then we could then go forward with the actual application, once a deposit of $500 was paid.

Quicken Loans has a non-refundable deposit that you are required to pay. Paying this allows Quicken Loans to lock your rate, set up an appraisal, process your application, and generally get serious about doing business with you. If your application gets denied then you are refunded the deposit less any fees they have incurred.

There is a bit of controversy surrounding this deposit. Many people have come online to complain about losing money due to this deposit. I can’t speak for them, but I can say that Quicken Loans wouldn’t be in business very long if their sole interest were to rob unqualified people of $500.

I felt comfortable moving forward and I paid for the deposit using my Chase Freedom card. Deposits can be from $400 to $700 according to the Quicken Loans website. A more diligent, prudent person might have taken the GFE and then shopped some other lenders. But I was taken in by the fact that Quicken Loans didn’t seem deterred by my self-employment income, or lack their of. They gave me the green light, so it was time to move forward I thought.

4. Appraisal (May 26, 2011) – This was handled quickly and without much fuss. No one came to my house to do an appraisal. I assume the were able to do this online using comps from the area. We purchased this place with 20% initially, so I knew there would not be an issue on the refinance because the loan balance is still well under the value of the property…one of the benefits of living in Texas.

5. Verify Income and Assets (May 26 – July 1, 2011) – This is by far the most tedious part of the process. I sent Quicken Loans several documents to verify my income and assets: personal and business tax returns from 2009 and 2010, bank statements, retirement account statements, proof of insurance, and my last pay stub from my business.

Throughout this phase, my Quicken Loans mortgage banker, Eric, did a good job of updating me on the latest mortgage rates (I was floating for at least half of June), and telling me the progress with the underwriters. He also helped to explain the rates, different term options, and helped to work out a situation to get around the debt-to-income problem I had.

This whole process took a long time because half way through the discussions, I was told I needed to get rid of some debt so that my debt-to-income ratio would be enough for the underwriters to accept. We decided to pay off our one remaining car loan. It was with a local credit union at 3%, so we were slowly paying it off. But if I meant we could refinance our place, then it had to go.

I sent the credit union a check from my ING Direct checking account and it took almost two weeks for them to get it and process it. I then got a letter from the credit union stating that the loan was paid off. Then, the underwriters needed to see where the money to pay off the loan came from. So I needed to re-send the bank statements and such so that they could get confidence I had actually paid off the debt myself.

There were a couple of times where the communication between the mortgage banker and my Quicken Loans customer service representative could have been better. I was telling them both the same things a few times. Additionally, I wasn’t given a good answer as to why they chose to pay off $1,000 more for my old mortgage (held at Bank of America). I can now take the refund check from BOA and payoff my Quicken Loans’ mortgage with it, but it seemed odd that they just didn’t want to pay the exact amount.

6. Process and Underwriting – (May 26 – July 13, 2011) – This was all happening behind the scenes as I was providing information to Quicken Loans.

7. Closing (July 13, 2011) – We were actually out of town when Quicken Loans called to schedule the closing. They said they could do it anywhere and it would take less than an hour, so I suggested we take care of it while at the hotel we were staying at. Someone from Quicken Loans set up the time and an independent closing agent showed up at our hotel to close the loan. She was efficient, knowledgeable, and professional. We signed about 100 pieces of paper and we were on our way. This was the most enjoyable part of the whole process, considering my expectations of loan closings.

• Pros: No physical meetings or faxing required. Competitive rate. Honest answers. Online account management. Quick closing.
• Cons: Occasional communication breakdown. Uncertainty regarding the deposit and loan payoff.

Overall I’m happy with my Quicken Loans experience. They truly are engineered to create a positive refinance or new mortgage experience. I would certainly entertain using them again for my next loan, and I would recommend them to you guys if you think a refinance or purchase is in your future.

My Refinance Experience with Quicken Loans is a post from: PT Money: Personal Finance by PT.
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Related posts:

1. Was it Worth it to Refinance My Mortgage?
2. Should You Refinance Your Mortgage?
3. How to Calculate Your Mortgage Payment for a Refinance or Purchase

Do you know your stuff?

The ideal of a middle class lifestyle, a car, a home, education and a well-paying job, were the foundational principles of public policy for much of the 20th century.

The financial crisis of 2008 and the ongoing real estate crash proved this ideal to be ultimately hollow for some. Renting has, in some pockets, become much more appealing than owning.

Many renters are former owners who suffered from the effects of the crash. From 2006 to 2009, home prices fell 32 percent, according to the Case-Shiller index.

At the same time, renting rose by 10 percent from 2004 to 2009, according to a 2010 study conducted by the Joint Center for Housing Studies of Harvard University. Renting is expected to be more popular than ownership, at least for the time being. Yet there are dangers of renting out a house that are possibly greater than the dangers of owning a home.

The lingering real estate crisis, involving falling prices, mortgage fraud and the incredible documentation debacle, puts owners wishing to sell in the position of renting to wait out the market. Renting out a house is a risky proposition and there are factors to take into account before becoming a landlord.

Breaking Even

The most common reason to rent out a home is to make enough money to cover the monthly mortgage payment. Most landlords in the current real estate environment do not hope to make a profit from their rent, but simply make enough to pay the bills and stay solvent.

Renting helps them do this. Even if they only have enough rent to cover the mortgage payment, the money they save can go to some other expense such as paying down debt. Before renting, check the rental market and see if current rents are enough to cover the mortgage payment. If they are not high enough, covering a portion of the mortgage payment may still be helpful.

Finding A Tenant

No landlord wants to be stuck with a tenant that walks out on their commitment. Some landlords have horror stories of tenants who not only walked out on them but also vandalized their property. Finding a solid tenant is the most risky aspect of renting.

Prospective landlords must check the tenant laws in their state and be wary if they are pro-tenant. Some states make it illegal to evict a tenant without giving them 90 days notice along with the proper documentation. This rule applies even if the tenant has damaged the property or failed to pay rent.

The landlord must protect himself by establishing a legally binding contract with the tenant. This contract should clearly state that all miscellaneous loose items should remain in the home if the tenant departs, such as appliances.

Property Upkeep

The landlord is responsible for taking care of the property. The tenant is merely responsible for not damaging any of it. Landlords may expect to spend about 10 percent of the rent on this expense. They can perform their duties if they do not know about gardening, landscaping or basic repairs by hiring a property management service.

Even if the tenant is responsible for any damages, the landlord is still liable for the necessary repairs. A quality property management service may be able to do a much better job than the landlord can of adequately maintaining the property.

Downsides

Every landlord has to prepare for the worst when considering whether to rent a property. The length of time the landlord can afford to have the property sit vacant is a major factor. The amount of money the landlord can dedicate to litigation costs if the tenant turns out to be less than desirable is another.

Waiting out a market by renting is a strategic decision, but there is an element of chance involved. Multiple elements have to come together for a successful renting relationship to exist. Landlords must be prepared.

Did you know your stuff before renting out your home? Share your experience in the commment section below.

Photo by mandiberg

Know Your Stuff Before Renting Out Your Home is a post from: PT Money: Personal Finance by PT.
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Related posts:

1. Should You Be Renting Your Home?
2. Buying a New Home and Converting Your Current Home Into a Rental Property
3. Can You Afford the Costs of Owning a Home?

Was it worth it to refinance my mortgage?

Tell me if I’m wrong.

We just closed on a refinance of our home mortgage. It was a long, drawn-out process, but it is now over and we have a better rate for our 30 year mortgage (less interest owed) and lower payments (more flexibility with our budget and the property).

Here are the details (numbers rounded and approximated at times):

Previous mortgage: purchased in October 2007; 30 year, fixed mortgage rate at 6.375%; we purchased our home for approximately $207,000; we put $42,000 (20%) down; total mortgage of $165,000; our payment was $1,028; we paid $0 in closing costs after seller credits of $5,000; we paid $39,000 in interest over the last 3 years and 10 months; and we stood to pay $205,000 in interest over the life of the loan.

New mortgage: closed in July 2011; 30 year, fixed mortgage rate at 4.875%; new total mortgage of $159,000; new payment of $842; we paid closing costs of $1,000 after lender credits of $2,000; we stand to pay $144,000 in interest over the life of the loan.

Note: Current market conditions are such that we would “lose money” on the sale of our home if we tried to sell right now. Therefore, even if we leave the home in the next year, we will keep it as a rental unit.

Interest Savings and Payment Info

By refinancing, we reduced the amount of interest we will pay over the life of these loans by $22,000 ($205,000 – $144,000 – $39,000), which is nice. The way I see it, based on this savings in interest, we need 17 months to recoup the $1,000 closing costs on the re-fi. Here’s how I got that number. I spread the interest savings across all of the remain periods: $22,000 / 360 payments = $60. Then, I divide the $1,000 closing costs by $60. That gives me 17. It will take 17 periods (or months) to recoup my $1,000. If I sell the town home prior to December 2012, then this will have been a waste.

I know the typical “break even” rule of thumb on a refinance is to take the difference in payments (in this case $1028 – 842 divided into the closing costs of $1,000), but I don’t think that tells the true story. Do you think my method is right or wrong?

I’m glad we have a lower payment, for two reasons:

1. First, we’ll probably outgrow the house soon. We bought this place with the idea that it might become an investment property in the future. With this new payment, the term “investment” can actually be used. If we rented out our place, we could get $1,500 a month at a minimum. Mortgage payment of $842, property taxes of $350, HOA dues of $175, and insurance of $20, would leave us with a rental unit that cash flows.
2. Second, even if we don’t start renting it out, we have $186 more dollars ($1,028 – $842) in our budget each month. This will give us more flexibility as we continue to navigate self-employment.

The Self-Employment Hurdle

I’m also glad we were able to get a refinance considering my self-employment income. PT Money, LLC hasn’t exactly been reporting a monstrous income for very long. Underwriters like to see tax returns dating back two years from those of us without a W-2s. Getting approved for a mortgage using self-employment income is tough these days. My tax returns aren’t impressive (yet). But somehow, the lender (Quicken Loans) was able to get comfortable with what I reported for 2010.

There was one road block we had to cover though. We needed to pay off our car loan to clear money in our monthly expenses for my measly income to cover us for the loan. I’ll explain more about this when I do the full-on Quicken Loans review, but you get the drift, which is that I’m super stoked that we were even able to get a refinance considering our situation.

Do you think I made a smart move here? Did I get a good rate? Did I pay too much in closing costs? Did I calculate my break-even correctly?

Was it Worth it to Refinance My Mortgage? is a post from: PT Money: Personal Finance by PT.
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Related posts:

1. Should You Refinance Your Mortgage?
2. How to Calculate Your Mortgage Payment for a Refinance or Purchase
3. The Mortgage Process: How We Found the Right Lender for Our New Home Purchase