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Renting Vs. Buying A Home: Which Is The Best Choice?

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When my wife and I bought our new home in 2006 we were moving from a neighborhood that was undergoing significant changes.  Not only was the neighborhood starting to have more crime and lack of homeowner pride, we also discovered that there was  a new 4 lane highway going in within throwing distance of where our townhouse sat.  It was a scary prospect, and we didn't want to have to put up with the sounds of loud cars rushing by our house every day.  So we decided to pack up and sell our house fast.  The only question now was whether we would buy something right away, or whether we would rent.

In our culture home ownership has almost been deified, to the point where if you don't own your own home, something is wrong.   You might say that some of that cult of home ownership also helped to bring about the recent real estate and economic meltdowns (remember how they were pushing home ownership on a whole lot of people who couldn't really afford it?).  From CNN:

Modern America has long paired the “American Dream” with home ownership. The idea of staying put, paying property taxes and periodically mowing the lawn belonged to citizens who were somehow more American than the poor saps who could only afford to rent the place they called home.The notion isn't accidental. Ownership and the American Dream are deeply linked in government policies that favor mortgages over rent payments, dating back before Herbert Hoover was elected president in 1929.

While I still think that home ownership is in many cases a good thing and can be a blessing, if you're not careful it can also become a curse.  You need to make a careful examination of the facts in your own situation before you jump headlong into purchasing a home.

Questions To Ask Before You Rent Or Buy A House

Some things you might want to consider before making a decision on whether to buy or rent:

  • Do you have a nice emergency cushion saved up?  At our house this meant having at least 3-6 months of expenses saved up – that would not be used for a down payment. That would need to be saved separately.
  • Do you plan on being in the house for more than a few years?  In most cases you would probably need to be in the house for at least 5 years to break even with costs associated with the loan and closing.
  • Are you able to put down a sizable down payment? 20% is a good goal to have because it can help you to avoid paying private mortgage insurance.
  • Do you have any outstanding debts – especially high interest credit card debt? Pay that debt off first!
  • If you were to rent, how much would it cost in your area?  Is it enough less than buying after added ownership costs that it will be worth your while?
  • Do you expect to be downsized or let go any time soon? Is your job stable?
  • Have you put together a zero based budget, and determined what your cash flow plan is?
  • Do you know how much of a home you can afford?  Dave Ramsey suggests not buying a home more than 25% of your income.
  • Do you feel you understand the complete costs of home ownership?  Don't forget all the fees, property taxes, association dues, etc.

Another good resource for helping you to make a decision on whether to rent or buy are rent vs. buy calculators like the one found at dinkytown.net or the New York Times:  Rent Vs. Buy Calculator vs. Rent Vs. Buy Calculator

Conclusion

Buying a new home is a huge decision, it will be one of the biggest purchases you probably ever make.  It will pay to carefully weigh your options and ask yourself all of the important questions before you just jump into something.    If you don't, the homebuying blessing can quickly turn into a curse.  Remember, there is absolutely nothing wrong with renting, and for many people renting is actually the better choice.

What do you think about renting a home instead of buying? Have you ever made the choice to rent instead because it seemed to be the more logical choice?   Have you ever bought a home and regretted it later?  Tell us your thoughts in the comments.

Obama Administration Offers $1.5 Billion In Foreclosure Funding For Hardest Hit States

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These past few years have been tough ones for homeowners, with home prices dropping, people finding that their homes are underwater, and foreclosure filings increasing all  the time.  In fact, there have been almost 2 million foreclosures so far this year!

RealtyTrac®  the leading online marketplace for foreclosure properties, today released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions  — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009

With the real estate and economic crises not having much of an end in site, this past month the Obama administration put together a $1.5 billion dollar fund to help the hardest hit states.

State Housing Finance Agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada  can begin to use $1.5 billion in “Hardest Hit Fund” foreclosure-prevention funding under plans approved today by the Obama Administration. This aid will support innovative local initiatives to assist struggling homeowners in those states, as part of the first round of funding available under this new program.

How The Hardest Hit Foreclosure Prevention Program Will Help

The programs for approved states will help homeowners in the following ways:

  • Assist struggling homeowners with negative equity through principal reduction.
  • Assist the unemployed or under-employed make their mortgage payments.
  • Facilitate the settlement of second liens.
  • Facilitate short sales and/or deeds-in-lieu of foreclosure.
  • Assist in the payment of arrearages.

State Specific Foreclosure Prevention Programs

Of the states that have been hardest hit by foreclosures-  and are a part of the program, here are details of how they will be helping.  From MakingHomeAffordable.gov

Arizona ($125.1 million)

  • Arizona will provide assistance in the form of principal reduction, interest rate reduction, and/or term extension programs with the goal of allowing borrowers to enter into a permanent modification program.
  • In circumstances where a second lien is prohibiting modification of a first lien, the state will provide assistance toward elimination of the second lien.
  • The state will also offer assistance to the under-employed while they seek new employment. This assistance may be used to pay monthly mortgage payments or remove second mortgages where that second lien is prohibiting the modification of a first lien.

California ($699.6 million)

  • California will provide assistance to reduce principal with earned principal forgiveness.
  • The state will also target funds to address delinquent loan arrearages.
  • California will offer a mortgage payment subsidy to unemployed families.
  • Provide funds to assist families that have executed a short sale or deed-in-lieu of foreclosure transition to a stable housing situation.

Florida ($418 million)

  • Florida will offer up mortgage payment assistance to the unemployed and under-employed while they seek re-employment. The state will also offer principal reduction or second lien extinguishment if necessary to achieve a mortgage modification.

Michigan ($154.5 million)

  • Michigan will subsidize an unemployed borrower's mortgage payments while they search for employment.
  • The state will assist with loan arrearages for those who can sustain homeownership and have undergone a financial hardship.
  • The state will assist homeowners with negative equity through earned principal forgiveness.

Nevada ($102.8 million)

  • Nevada will create a mortgage modification program using a combination of forgiveness and forbearance with a goal of reducing principal to less than 115 percent of LTV (loan-to-value) and lowering payments to 31 percent of DTI (debt-to-income).
  • The state will also offer assistance to reduce/eliminate second liens with earned forgiveness over a three-year term.
  • Additionally, the state will provide allowances for appraisal and transaction fees, moving fees, a legal allowance for up to three months, and a combination of incentives for borrowers and servicers to facilitate short sales.

More Funding For Foreclosure Programs A Good Idea?

There are a lot of people that need help, but the question is, are we just throwing good money after bad by continuing these foreclosure programs?  Are the programs really helping – or just prolonging the pain?

In reading up on much of the “Making Home Affordable” program, I read that of the people that got help, a high percentage of them still had problems and went into foreclosure anyway.  So the question is, if we aren't really helping people anyway, just prolonging the pain – why do we keep kicking the can down the road?

What do you think? Should we continue providing foreclosure prevention assistance to homeowners? Are we just prolonging the pain -or is this and other programs actually going to help?  Tell us your thoughts in the comments.

How To Sell Your House Fast In A Tough Real Estate Market

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A few years back my wife and I were selling our townhouse, and the market was at it's height. Sellers were easily getting the asking price for their homes, and some were even getting more than one offer – sometimes above the asking price. Times were good if you were a seller, however, the problem was that if you were selling your home, you are also probably looking to buy a new home. We ended up selling our house for the asking price – and then we turned around and probably overpaid for our new home. If only we had known what the market would do, we could have waited a few years after selling – and bought a new home at a bargain. What's that they say about hindsight?

The market has now been going down for a couple of years, and homesellers are having a tough time selling their homes.   For many homeowners they bought their homes with little or no money down, and they're now finding themselves underwater on their mortgage – they owe more than the house is worth.  From bloomberg.com

Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb, Zillow.com said.

With so many underwater mortgages many people are just walking away from their homes.  When those people walk away the banks end up foreclosing.   That means the market now has a glut of foreclosed homes on the market.    In fact accordingto RealtyTrac.com there has already been 1,654,634 foreclosures so far in 2010!

With all those foreclosures in addition to all the short sales, your competition is stiff.  You need to make sure to give yourself every possible advantage.  Here are some tips that will hopefully help you to sell your house fast.

9 Tips To Help You Sell Your Home

To help you sell your house in a down market, here are some things you can do.

  1. Your pricing is extremely important:  If you want to sell quickly when the market is bad, you might have to make some leeway when it comes to your price.  Many areas (including mine) have been hurt by all the foreclosures and short sales, and prices are depressed.  While you don't have to price your home like a foreclosure, you'll still want to figure out what a reasonable price in your area is, and try to undercut your competition if you can.  The price you give your house is one of the more important pieces – so try not to get emotionally stuck on a certain price you were “hoping to get”.
  2. Make sure it looks nice from the street:  While you can't always beat all the foreclosure and short sale homes on price, you can usually make sure your house has better curb appeal. The foreclosure home may have an un-cut lawn, scraggly plants and garbage in the driveway – while yours should be spotless. Get the home power washed, paint the trim and the doors, put on new exterior lights and/or knockers, and put in some nice new plants.   If the buyers don't like how your house looks on the outside, you might not even get them through the door.  If it does look nice, you'll give them a great first impression!
  3. Put all your junk away!:  When you’re living in a home, you end up having bills on the counters, photos of your family on the wall and all sorts of other personal clutter that has grown over the years.  But when you’re selling a home you want the people walking through the door to picture themselves being at home in your house.  Take down Billy's class photos for the past 10 years off of your living room wall, and replace them with a nice piece of neutral wall art.  Clean off your kitchen counters.  Take extra furniture and put it in storage.  Remove unnecessary items from the house in general and put them in storage to make the house feel bigger.
  4. Fix problems big and small:  If your house has a big problem of some sort that is glaringly obvious, get it fixed.  Broken window?  Put in a replacement.  Dirty carpeting?  Put in some new carpet.  Sometimes you can also have smaller problems that might not be so obvious, but that could still make a bad impression.  For example, when we sold our house we went around and repainted several rooms because of small marks and scratches on the wall. The result was that our house almost looked brand new!
  5. Stage your house to give a better impression:  We staged our home with my mother in law's help when we sold our home.  It made our home feel more spacious, made it feel less cluttered and allowed buyers to picture themselves in the home. We removed several larger pieces of furniture, and put some smaller plusher pieces from our parent’s houses in the living room.   We took our personal photos down and put up framed art pieces.  We removed all the magnets and photos from the fridge, and put some strategic accessories around.  We watched a lot of HGTV and picked up tips from the experts on how to stage our home.
  6. Give a bonus to buyers or agents: You might want to think about offering to pay the closing costs for a homebuyer, or offering a signing bonus for an agent who brings in a full price offer.  Some folks have even thought to offer things like pre-paying homeowner's association fees for a year or two.  Put your thinking cap on to think of bonuses, it doesn't have to cost a ton if you don't want it to.
  7. Use non-traditional means to market your house:  While listing your house with your agent is a good first step, try other online and offline venues to market your house.  Put up a craigslist ad and use sites like zillow.com or trulia.com.  Try buying a domain name using your house's address (1500ParkAve.com), and put up a wordpress site to post pictures and details about your house.   Let people you know that the house is for sale and post it to Twitter, Facebook and other social media outlets.  Put up flyers at the local supermarket!
  8. Find a good agent who will help you sell:  Selling your house is one of the biggest financial transactions you'll have.  It's not a good time to do your crazy uncle Bob who just got his real estate license a favor and let him sell your house, especially if he's not a good agent.   Call some agencies and ask for their top salesperson.  Get a good word of mouth recommendation and interview a few agents and ask them what their marketing plan for your home would be.  Use someone who knows how to market on the internet, the importance of good wide angle interior photos, and someone who understands your particular market.
  9. Keep your house clean for when it shows -and don't be there!:  One of the things I hated doing while we were selling our house was keeping the house clean at all times in case there was a showing.  It stunk, but it paid off.  We also made sure not to be at home when the house was showing, because buyers hate nothing more than feeling like the owners are staring at them as they check out the house.  Finally, consider doing some baking before a showing, or light one of those cinnamon roll candles. Anything you can do to make people feel at home is a plus.

Getting your house sold when the market is this tough isn't going to be an easy prospect – but it can still be done.  Just follow the tips above, have a little bit of patience, and you'll be well on your way to putting that sold sign in your front yard.

Have a tip for something you did that helped your home sell fast?  Tell us about it in the comments!

Do I Qualify For The Making Home Affordable Home Refinance And Modification Program?

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Over the past year and a half millions of people have attempted to refinance or modify their home mortgages in order to help them stay in their home.  Others have just taken advantage of the program in order to be able to refinance their home under better terms than might otherwise have been available. Our family is one of the latter, we were able to refinance our home mortgage and drop over a full point off of the interest rate.  We saved over $200 a month off of our mortgage, and while we did have closing costs, they're already paid back 1 year later.

Since the program is still available, I thought I would briefly cover the details of who is eligible for each program – the refinance and modification programs.

Who Is Eligible For Home Affordable Refinance Program (HARP)

So who is eligible for the Home Affordable Refinance Program?  According to the government site, people who meet these criteria:

  • Own a one- to four-unit home that is your primary residence;
  • Have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac
  • Are current on your mortgage payments and have not been more than 30 days late making a payment within the past 12 months
  • Have a first mortgage not exceeding 125 percent of the current market value of your home;
  • Have income sufficient to support the new mortgage payments; and
  • Can improve the long-term affordability or stability of your loan with the refinance.

Want to figure out if you're eligible? Go through this questionnaire and it will let you know.   Eligible For A Refinance.

Who Is Eligible For Home Affordable Modification Program (HAMP)?

Others may be in more dire straights, and find that they need a loan modification.  So who is eligible?  According to the government site, to qualify for HAMP, you must:

  • Own a one- to four-unit home that is your primary residence
  • Have received your mortgage on or before January 1, 2009;
  • Have a mortgage payment (including taxes, insurance, and homeowners association dues) that is more than 31 percent of your gross (pre-tax) monthly income; and
  • Owe an amount that is less than or equal to $729,750 on your first mortgage for a one-unit property (there are higher limits for two- to four-unit properties).

MakingHomeAffordable.gov expands on the requirements:

Homeowners who qualify must complete a trial period of three or four months to demonstrate that they will be able to make their reduced payments on time before their mortgage will be permanently modified. To create an affordable payment, your mortgage servicer can lower your interest rate to as low as two percent, as well as extend your mortgage term up to 40 years, or forbear (defer) payments on your principal. A portion of the principal can also be forgiven, although that is optional on the part of the servicer.

So if you believe you can make the payments on your reduced and modified mortgage, the program may help you.

Several States Get Extra Help To Avoid Foreclosure

As of June 2010 several states that had greater than normal declines in average housing prices (greater than 20%) will see funding in the new “Hardest Hit Fund” of foreclosure prevention funding.  Details:

State Housing Finance Agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada can begin to use $1.5 billion in “Hardest Hit Fund” foreclosure-prevention funding under plans approved today by the Obama Administration. This aid will support innovative local initiatives to assist struggling homeowners in those states, as part of the first round of funding available under this new program.

“These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure,” said Treasury Assistant Secretary for Financial Stability Herbert M. Allison, Jr. “While we've made important progress stabilizing the housing market and keeping responsible families in their homes, the Obama Administration will continue to do everything it can to help those who are struggling the most during this difficult time. Today marks an important milestone for delivering relief to homeowners through the Hardest Hit Fund program.”

If you live in one of the states above and are interested in the programs they now have available, check out this post for details.

Have you done a refinance or home loan modification under the Making Home Affordable Program?  If so, did it go through, or have you experienced problems?  Tell us about it in the comments!

Deadline To Close On Your Home And Receive Your Homebuyer Tax Credit Extended To September 30th

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Last month I wrote about how congress and the White House were considering extending the $8,000 and $6,500 homebuyer tax credits.  At the time it wasn't a done deal that an extension would be granted because the provision was being included as a rider on a controversial jobs bill that wasn't sure to pass both halls of congress.  Sure enough, the bill didn't pass, and legislators were sent scrambling trying to find a way to pass an extension for the thousands of people thought to be in limbo with their closings on their new homes. If something wasn't done they would lose out on the tax credit.

H.R.5623 Passes And Extends Closing Deadline

Last week congress got the deal done and passed H.R.5623 – Homebuyer Assistance and Improvement Act of 2010.  The bill doesn't allow new homebuyers to get in on the tax credit, but gives people who were under contract by 4/30/2010 a few extra months to get their deals finalized, and still receive the credit.

From BusinessWeek.com

Qualified homebuyers who signed purchase contracts before April 30 will have until Sept. 30 to complete paperwork and settle on the house. The original settlement deadline was June 30.

“They’re cheering out there, they’re really rejoicing,” Lucien Salvant, a spokesman for the National Association of Realtors, said of homebuyers. The group sought the extension.

The House voted 409-5 on June 29 to extend the deadline, and the Senate approved the measure on a voice vote last night. Republicans, including Senator Jim DeMint of South Carolina, had tried to block the extension, calling the tax-credit program flawed.

“We only created a bubble, which will eventually burst,” DeMint said on the Senate floor late yesterday as the deadline was about to expire. “For the people who haven’t closed on their homes by today, it’s not that they won’t get their house, only that they won’t get a taxpayer subsidy for having bought a house now rather than later.”

The bill was signed into law on July 2nd by President Obama.

Extension Of Homebuyer Tax Credit Will Make Some Happy – Others Skeptical

I know the passage of this bill will be a relief to many folks who ended up buying a house this spring simply because of the credit, and were horrified to find out they might not close on their house in time.

Whether or not this is a good idea is another story. Many have said that the tax credit only artificially pumped up the real estate market, and is causing another mini real estate bubble. They say the worst is yet to come. May and June have both shown a significant drop in new contracts on homes, and some experts expect that to continue.

What do you think about the tax credit extension? Is it ok since it isn't extending the credit to new buyers – and only extending the deadline for those under contract by 4/30? Have the tax credits and other stimulus created another mini-bubble only delaying a bottom to the market? Tell us your thoughts in the comments.

Will Congress Extend The June 30th Deadline To Close On Your Home And Receive Your Homebuyer Tax Credit?

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The tax credit deadline has been extended from June 30th, 2010 to September 30th, 2010. Details here.

Over the first few months of this year a lot of people who might not otherwise have been looking for new homes decided to move their timetable up, and purchase the home of their dreams because of the first time homebuyer tax credit.  Why not move things up a bit if you can get $8000 cash?  When the credit was extended to current homeowners as well, things really started to heat up.

April 30th was the hard and fast deadline to be able to get a signed contract and still qualify for the tax credit.  Most people were able to reach that deadline with no problem, however, some are now thinking that they're going to miss the June 30th deadline to complete the sale.  If they do, they'll get no credit.

Tax Credit Closing Deadline Extended?

Now there is an amendment to H.R. 4213, “the American Jobs and Closing Tax Loopholes Act of 2010” bill being offered that would offer extra time for homebuyers to close the sale.

The amendment, which is attached to another bill, is being sponsored by Senate Majority Leader Harry Reid, D-Nev., Sen. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn.   It was passed by the senate this week, and now needs to be passed by the House.

The bill would simply extend the time available to homebuyers to complete the sale on their new homes from June 30th to September 30th.  So will it pass?

Many Sales May Not Complete Without Extension

The National Association of Realtors has been pushing hard for this bill, but many are saying that even with the extension, many of the sales – especially short sales – will still not complete.

Up to 180,000 buyers who were hoping to close by June 30 and get the tax credit are likely to miss the deadline, according to the National Association of Realtors (NAR).

“We are hopeful,” says Paul Bishop, vice president of research with NAR. “We've heard a lot of concern from Realtors out there. There seems to be a sense of fairness. The tax credit was essentially promised” to those buyers.

But some Realtors say even if a three-month extension is granted, that still won't be enough time for buyers pursuing houses through short sales, which can take many months to close.

“How are you going to close a short sale in two months?” says Edward Goldfarb, a Realtor with Keller Williams in Fort Lauderdale. “Hundreds of people are not going to close and are going to lose their tax credit. September is not any better. A short sale can take a year and a half.”

So a lot of people out there are in a holding pattern, hoping to get their credit.  Some of them may get it because of the extension, but it sounds like a lot of folks who are buying short sales still may end up being left out in the cold.

Another concern is that buyers who face losing the tax credit could pull out of pending deals altogether. Any extension must be passed this week, or buyers will start canceling deals next week, before the deadline hits, says Richard Smith, president and CEO of Realogy, parent company of Century 21, ERA, Coldwell Banker and Sotheby's International Realty.

“We're concerned, as many people are, that this will force people to cancel their contracts,” Smith says.

So now it is up to the House to get this bill passed so that some homebuyers can be helped. The question remains – how many will it help?

What do you think – should the deadline be extended past the June 30th deadline? Will it be enough time for most unclosed sales, or will it be a pointless exercise? Tell me your thoughts in the comments!