Real Estate Archives

Planning to buy a home when you’re in debt – Is this a feasible idea?

Are you planning to buy a house of your own? If answered yes, you have to go through a nerve-wracking experience as the entire process is not a simple one. Buying a house is a huge investment as the money involved is also a large amount. You need to be watchful before taking the ultimate plunge as there are many small details that can lead you to a mess. Did you incur a huge amount of unsecured debt on all your credit cards and your student loans? If answered yes, you have to think twice about taking the plunge as a homeowner. Taking out a home loan with unsecured debt is a huge risk. Here are some points that you should take into account while taking out a home loan despite owning a huge amount of unsecured debt.

Can you afford a home loan after making the high interest debt payments?

Calculating your mortgage loan affordability is the most important factor when it comes to being a homeowner. Unless you calculate your affordability, you’ll never know what amount of loan you can afford according to your budget. Apart from this, if you already owe debt on your credit cards, can you afford to repay the secured loan on time? As your home is pledged as collateral, you have to be sure that you don’t miss the payments lest you lose your home to a forced foreclosure. Therefore, considering your mortgage loan affordability before taking the loan out should be the first job of a prospective homeowner.

Can you afford to pay down the required amount after paying your credit card debt?

You must be aware of the fact that you have to pay down at least 20% of the loan amount as down payment so as to lower the interest rates on the loan. But if you have enough credit card debt, will you be able to manage paying down the required amount as the down payment? You should think twice before taking this decision as you may be subject to PMI or Private Mortgage Insurance that can unnecessarily increase your monthly payments. PMI only benefits the lender and not the borrower. Therefore, consider your choices about repaying your credit card debt or taking out a home mortgage loan so that you don’t fall in a mess in the long run.

Can you maintain your home loan payments while repaying your credit card debt?

When you’ve taken out a home mortgage loan, you have to maintain the payments throughout the term of the loan so that you don’t lose your home to a forced foreclosure. However, if you have too much credit card debt and if you don’t change the financial habits that have lead to debt, you may dig deeper into the financial mess. Therefore ask yourself whether you can manage to change your financial habits so that you can save enough money for making the monthly payments on your home mortgage loan.

Whenever you ask any financial expert about the possibilities of taking out a mortgage loan despite having credit card debt, they will advise you against it. You just have to make sure that you repay the debt so that you can lower the DTI ratio and improve your credit score before grabbing the loan. This way you can secure a mortgage loan at an affordable rate and save enough money while repaying the loan throughout the repayment term of the loan.

About the author : Ryan is a contributory writer associated with the and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.

Small House Living and Why You Should Do it

The Tiny House BlogSmall House Living is not a new concept, but with the recent global recession small housing is getting a lot more attention. There are many reasons to live in a small house, but why live in a small house? Here are some reasons to consider living in a small house.

1. It’s Cheap

It goes without saying that most likely, your small house is going to be cheaper. Who doesn’t like having a small payment each month.

2. Can open you up to opportunity

Owning a smaller house produces a lower commitment than a larger home, and with this lower commitment, there is more flexibility when it comes to relocating for potential opportunities. Imagine you are offered a career of a lifetime, but you are forced to relocate. Now imagine how much easier it would be to relocate if you had a $50k home versus a $200k home.  Let’s also not forget that you have to pay an estimated 6 to 7% to get out of most homes, which means it will cost you about 400% more in fees to sell your 200k home. If you aren’t able to sell right away, you also have much lower carrying costs in the smaller home.

3. Helps you Escape “Consumer Treadmill”

A lot of people can most likely relate to the idea of a “consumer treadmill.” By actively living below your means, you will much less likely to allow your lifestyle to creep up to a point where it consumes the majority of your income. Living in a small house will most likely give you better perspective of what is important when it comes to spending your money.

4. It Forces you to Downsize Possessions

If you have a 700 square foot apartment full of crap, there is a good chance you will have a 2500 square foot home full of crap. The idea of furnishing a large space can be daunting and expensive. Also with more storage room, usually comes more stored items that you don’t really need.

5. Less Hassle and More Time

Less time messing with a giant yard and home maintenance and more time for loved ones and activities that you enjoy.

6. Living more “Green”

Small house living also promotes smaller energy bills and less maintenance that results in waste.

For more information on small house living, check out “The Tiny House Blog” (one of my favorite blogs.)


Reasons to Stay Out of The Housing Market in 2012

Housing Market 2012The media has been fairly upbeat about housing market for the start of 2012, so is now a good time buy? I for one am optimistic that the housing market may stabilize a bit more in 2012, but I am not sold on a true housing recovery.

If you take a look at the S&P/Case-Shiller Home Price Index, both the Composite 10-city and Composite 20-city are both down considerably in December from the previous year. Honestly, no real indices or indicators are showing any housing recovery at all. So far it appears to be all speculation that the housing market is going to recover in 2012.

I for one am seeing some activity in my local real estate market, but it appears it is mainly people buying up cheaper homes and condos. Overall I would say things are bleak. Here are a few things to consider before buying your first home or real estate investment in the 2012 housing market.

1. Interest Rates

Interest rates are appealing because they make your payment smaller, but realize that if (and most likely when) interest rates go up, buying power goes down. If you buy a $200k home on a 30 year mortgage @ 4%, your payment will be  $954.83 a month for your mortgage. If interest increase to 6% and you go to sell your home, the buyer would have to get your home for a purchase price of around $159,200 to have the same payment that you had at 4%. That is a potential $40,800 loss on your home. This maybe mitigated by the fact that the economy is getting better (implied by rising interest rates), but there is a good chance you are taking an equity hit.

2. Brokerage Fees

You purchase your home for $200,000 and later decide you need to sell the home, be ready to pay 6-7% to get out of your home. If you got the same price that you paid, be ready to take a potential $12,000 to $14,000 cash loss.

3. Location

The “place to be” might quickly become the “place not to be”, especially in this economy riddled with foreclosures. Even nice neighborhoods can turn quickly.

4. Career

You might be locking yourself into a job or career path when you commit yourself to a home. Potential career opportunities may be missed simply because you aren’t able to relocate. If you are committing to a home for 5+years, you should also be committing to your job or the area for employment for that timeframe.

5. Neighbors

While renting you can easily pick up and leave, but with owning you are stuck unless willing to endure the potential pain of selling and moving away.

6. Hassle

Yard maintenance, redecorating, repair, and all of the hassles that come with a home are expensive and time consuming. Are you ready to give up weekends?

7. Taxes

You might be happy with your monthly payment until you realize that it will increase every single year, similar to rent. Local levies may pass and potentially cost you $100’s a year in additional taxes. You will also hear the expression “You don’t really own your home… stop paying your taxes and see if you own your home.” Even if you pay off your mortgage entirely,  sadly you will never be payment free.

8. Depreciation

Let’s not forget that many experts are estimating the housing market will continue to go down in 2012 and even beyond.

9. Inflation

If the housing market goes up 0.3% in 2012 and inflation was 3.3%, you effectively lost 3% that year. Your 200k home is now worth $200,600 but adjusted for inflation it is only $194,191. The housing market requires appreciation equal to inflation to make any sense investment wise.

10. Leverage

Owning a home is a highly leveraged position, especially for those who purchase with less than 20% down. A small % downturn can potentially put you underwater very quickly. With only 3.5% down on that 200k home, if the housing did decrease by another 8.5% you would be $10,000 underwater on your home. Leverage can destroy people, especially people very little cash reserves.

11. Equity

People tend to drastically overestimate how much they are building when it comes to equity. I personally earn about $168 a month or $2016  in equity on my $117k mortgage. The amount of each payment that goes towards principle will increase, but not as much as you might think (mine is increasing at about only $.60 a month!). In ten years I will owe $91,925.91 ($25,075 of equity built) if I make standard payments. That might sound like a lot, but realize that is over a decade of your life.

12. Opportunity Cost

If you make payments on your home for 30-years, you are locking your cash into equity into your home. If you would have taken that money instead and put it into another investment, there is a good chance you could have outperformed your mortgage. Remember that a 4% is approximately 3% effective rate if itemizing.

This isn’t to discourage you entirely from owning a home. People will argue that owning a home isn’t an investment, but it is important to  understand the real world financial consequences of getting involved with the housing market in 2012


Housing Market 2012The Housing Market in 2012 is recovering, or so the National Association of Realtors said today in a report that stated home resale numbers are through the roof and available inventory is at a seven year low.  But how heavily should you weigh this report in your decision making? I would argue that is is about 99% complete propaganda.

Now of course when the National Association of Realtors is advising that housing is strong, you probably realize there is a strong conflict of interest. Are there signs that the housing market are getting better, I would argue nothing is concrete.

Taking a look at the numbers in the report released, the claim is that existing home sales increased 4.3% to an annual rate of 4.57 million for last month (which would be the highest since May 2010). But if you keep reading, you will find out that there is a major revision. In December this same association reported an annual rate of 4.61 million (which would have been higher than last month’s numbers), but they are revising this number down. If that 4.61 million would have been correct for December, it would have been an increase of 5%. The revision this month put December down all the way to 4.38 million units, which is a loss of .5%.

That’s right, from +5.0% to –.5%, which is a 5.5% swing! Don’t forget this month they are saying it is up 4.3%.
Look I understand people make mistakes, but if you are going to make headlines with a 4.3% increase and then say you made a 5.5% mistake you are a joke.Housing Market 2012

The only thing this report really has done is make a headline and discounted what little believability the National Association of Realtors had left.  The headline should have gone to the revision and not to the propaganda for this month.

So what should we use as an indicator of a housing market in 2012 and onwards? That’s a tricky question, but it most likely is going to be a combination of both sales volume, sales price, and interest rate macro trends. If you think about it, interest rates might be the only un-biased indicator we truly have.

If money is cheaper to borrow and people are not taking advantage of it, most likely it’s a fairly weak market. If people start borrowing and purchasing homes, the interest rates are likely to increase.

Anyone else feeling confident in a true housing recovery in 2012? Because I certainly am not.

Reference: Housing Market 2012

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