This week’s lesson covered real estate and mortgages. There is only one more lesson and then I’ll be back to “regular scheduled blogging”. I think the first topic I’ll cover might be about car buying, or deal web sites, or another mobile phone carrier. Who knows?!?!? The possibilities are endless! Anyhow, let’s dig in.
Renting is not a dirty word. Despite what your friends, family, and the guy behind you at the grocery store tells you, it is perfectly okay to rent. This is especially true while you’re paying off debt, building your emergency fund, and saving up a down payment. It may appear that renting is more expensive, but it removes a lot of the risk that home ownership has. When there is a roof leak, the water heater breaks, or the stove stops working, you don’t have to worry about coming up with the cash to fix it.
Owning a home has some advantages that Dave covers. First, you are building equity as you make payments which technically forces you to save money. It also helps protect you against inflation (assuming your home value goes up over time). Finally, any money you make when you sell your house is usually tax free.
What kind of homes should you be looking at when you’re ready to buy? Buy a house that is in the middle to bottom price range of the neighborhood. It’s easier for it to go up in value that way than to try to sell the most expensive house in the neighborhood. Always consider the location that you’re buying in. You can’t move your house to a better location. If you want to find a deal, you need to be able to look over some of the ugly things you might find in the houses you’re looking at. It’s relatively easy and cheap to paint walls and replace carpet and other flooring. It’s not quite so easy to rearrange the floor plan or make it look better on the outside if it’s just plain ugly.
Some of the more important tips that I think many people may overlook when buying a home: You need to get an inspection, even if you’re buying from someone you know really well. The same is true when getting an appraisal, even though it is only an opinion. Finally, get title insurance. We always did, but I never realized how much it can potentially save you if you run into a situation where the title isn’t clean.
Dave had Chris Hogan, one of the people on his speaker team, come out to talk about mortgages. It’s important when considering your mortgage to remember that the goal is to be debt free, so you don’t want to buy the most expensive house you can afford. If possible, save up 100% and pay cash for the house. If you’re going to get a mortgage, Dave’s rule has always been to not get a payment that is more than 25% of your take home pay, on a 15 year mortgage, and put at least 10% down. Twenty percent will make sure that you don’t have to pay PMI, or private mortgage insurance.
I can sum up the next section by saying “only get conventional mortgages”. Stay away from adjustable rate, interest only, reverse mortgages, and other gimmicks out there. If you don’t have a credit score when shopping for a mortgage, you will need to look for someone who does manual underwriting and doesn’t rely on FICO. A local credit union or small bank might be your best bet.
The final thing that Dave covers is selling your home. You need to think about what other people will be looking at when they come through your house. You know how when you are in an environment for so long that you don’t notice certain things like smells? It might be a good idea to invite some friends over who can be honest with you so you can get a clear picture as to how other people will see (or smell) your house when they come through it for a viewing. You need to get your house listed on the internet, with good pictures, and in the multiple listing service or MLS. That will get you the most exposure. Dave highly recommends using a realtor because they can usually take care of these things and reach more people. We had a great experience with the realtor we had when buying our home, but when we had tried to sell it once, I really wish we didn’t use one. I guess everyone has a different experience.
That’s a rough summary of the real estate and mortgage lesson. Next week will be the final lesson!
Featured Image courtesy of luigi diamanti / FreeDigitalPhotos.net