homeowners

How New Homeowners Can Furnish Their Place on a Budget

Rachel Slifka — Thu, 05 Apr 2018 08:30:10 +0000

Buying a first home is an exciting milestone. You finally have a space to call your own. But if you moved into a new home from a small apartment, you may feel overwhelmed by having to fill all of that space.

Furnishing a home can be downright expensive. You may need new sofas, extra beds, more art for the walls, or even new appliances. While it can be tempting to swipe your credit card at the local furniture store to get everything you need, you should be cautious to ensure that furnishing a home doesn't leave you flat-out broke. Here's how to fill your new home on a budget.

1. Prioritize your list

There's no need to furnish your entire home within a few months of moving in. Likely, there will be rooms that are of higher importance to set up. Take time to go through and rank the urgency of everything you think you need. For instance, it might be necessary to purchase a new appliance before you purchase a guest bed.

This is a great way to prevent yourself from overspending. It also helps to make a list of everything you need so you can keep an eye out for deals and clearance sales for the items of higher importance. (See also: 10 Places to Find Cheap, Good-Looking New Furniture)

2. Bargain shop

Buying new is nice, but it can get very expensive very quickly. Luckily, there are more resources than ever to help you find gently used or antique furnishings.

Craigslist is a reliable place to find steals on home furniture and even some decor. And now, apps like OfferUp, LetGo, and Facebook Marketplace connect you with local sellers. You may be surprised at what other people are willing to sell for cheap. (See also: 8 Things You Should Always Buy Used)

3. Consider hand-me-downs

Chances are, you have family and friends with a lot of extra stuff lying around, and who would love to give it to you. While you may feel obligated to accept their generous gesture and take all that they have available, it's a good idea to proceed carefully. Only say yes to things you actually like. Otherwise, you risk having a mishmash of decor in your home, some of which may not be useful, and it'll be an added source of stress trying to figure out what to do with it.

4. Ask for a cash discount

Big ticket items such as couches and mattresses are likely to get more use than anything else in your home. Since you'll spend so much time on them, it makes sense to purchase a high quality, new item that's built to last. The last thing you want to do is to buy a cheap couch that is uncomfortable or will start falling apart after a year or two.

If you choose to buy new, keep in mind that most stores will allow a little room for negotiation, especially if you show up with cash in hand. Stores love when you pay in cash, because they don't have to go through the process of financing and they're guaranteed to get their money today. Plus, using cash works for you as the buyer because it prevents overspending when you walk in the store. You can sleep even better knowing that your brand-new mattress is paid in full.

5. Do it yourself

Are you a crafty person? If you enjoy making homemade items, then your house is the perfect place to showcase your creative works.

Whether you choose to paint pictures to hang on the wall, build furniture from wood scraps, or sew blankets and drapes, all of these are fantastic options that will save you money. In addition, you can customize your projects to be exactly what you want. (See also: 18 Amazing DIY Decorating Projects That Are Easier Than You Think)

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This article is from Rachel Slifka of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Sell Your House Despite Your Messy Kids

Mikey Rox — Wed, 20 Dec 2017 09:30:09 +0000

It takes a lot of moving parts to sell a home, and it can be frustrating when one or more of those moving parts just won’t sit still. I’m talking about kids. Kids who, despite your best efforts to present your home in its optimal condition, don’t give a good gosh-darn that Mommy and Daddy are trying to make a sale.

But there’s still hope. As the old saying goes, if you can’t beat ’em (and you definitely cannot), join ’em — with these helpful tips on how to sell your house despite your messy kids.

Conduct a purge before the house goes on the market

Your house is for sale, which means you’re probably moving soon. Now is the best time to cut your clutter so you don’t have to drag all that junk from one house to another. Set a week aside to organize your purge, then pack up and ship out whatever you don’t want or need anymore.

“We end up with a lot of baggage over the course of our lives, and while a lot of these items have sentimental value, that's about the only thing they're worth,” says Texas realtor Abigail Vytlacil. “Donate what you can, toss what you can't. Then, pare your home's contents down even more by storing anything and everything that isn't being used. Surfboards, bikes, winter clothes, baseball uniforms and equipment, golf clubs — get as much as you can out of the way, out of the house, as possible.” (See also: My 16 Favorite Ways to Get Rid of Clutter)

Have the house professionally cleaned

Kids or not, a well lived in home has years of dust and dirt buildup in the corners and hard to reach places. A deep clean will give that extra sparkle to impress buyers. While it is more expensive to hire a professional cleaning service than doing it yourself, it’s better. It’s hassle-free for you, and you can take the little ones out for the day while the service works their magic. You'll get to spend quality time with your kids instead of screaming at the little buggers because they keep tracking mud across the floor you’ve freshly mopped.

At the same time, have the carpets cleaned. Removing stains and odors from the carpets is just as important as anything else you’ll beautify in the house to make a good impression.

Touch up or repaint the walls and doors in high-traffic areas

A little paint goes a long way to freshen up walls, doors, and baseboards that have encountered your children and pets over the years. You may not even notice how grimy these areas have become, but get up close and you’ll agree that they need tending to. (See also: 4 Paint Colors That Can Boost Your Home's Value)

Organize cabinets and closets

Buyers will absolutely want to look in your cabinets and closets to get a good idea of what kind of space they have to work with. So, take the time to tidy these areas up. Fold and organize the clothing in the closets (a good time to eliminate clutter here, too; donate whatever your kids haven’t worn in awhile or items that no longer fit), and get rid of any expired foods and open bags/containers in the pantry. Streamline the contents of your kitchen cabinets — toss dishes you don’t use or that your kids have outgrown — to make the shelves more aesthetically appealing at quick glance.

Concentrate on areas to clean based on the type of buyer

If the potential buyers stopping by for a showing are not parents, concentrate on cleaning up the areas that have your kids’ proverbial handiwork all over them. These buyers want to know what the house will look and feel like for them, not a family of four. Likewise, if you’re showing to parents, focus more on the family gathering places that will be most important to them.

“If something is going to be messy, let it be the children's actual rooms that are messy,” adds Michigan-based real estate broker Jon Boyd. “I've never had buyers not buy a home because of the condition of the children's bedrooms. However, if there is junk or clutter in the kitchen, bathrooms, dining areas, and living areas, it is going to be a challenge.”

Draw buyers’ attention away from problem areas

Open your blinds and curtains to let in the sunshine; many buyers are attracted to how well a home receives natural light, and that may distract them from your kids’ belongings lying around. Create focal points in the least attractive rooms using art, flowers, or mirrors, the latter of which can also help seemingly expand the space through optical illusion. Whatever works. (See also: 8 Ways to Stage Your Home Without Hiring a Pro)

Offer incentives to your kids for keeping their rooms clean

Yes, I’m telling you to bribe your children. Increase their allowance for helping you keep the house extra tidy. The end result will pay off much bigger than the extra few bucks you’re shelling out per week to keep your kids in line.

Keep the kids’ rooms brightly lit

If you don’t have a magic wand to send all your kids’ bedroom junk back under the bed, use a light bulb.

“Make sure the light switch near the door works in the kid's bedrooms, and make sure it is a reasonably bright bulb," Boyd suggests. “A well lit but messy bedroom won't stop a motivated buyer, but a poorly lit messy bedroom might give them second thoughts.”

Use totes to pick up and store clutter in a flash

If you’re short on time before a showing and everything your kids own is spread across your house, use totes to quickly gather up the mess and toss them in the garage, basement, or attic. This smarty-pants tip is courtesy of realtor Denise Supplee, co-founder and operations director of Spark Rental.

“I tell clients to purchase a bunch of non-see-through totes,” she says. “Keep them on hand. Have your agent provide you a heads-up of showings of an hour or so. Take everything that is on the floor, tables, beds, and throw it in the totes. Stack them neatly. People will expect to see them because you are moving.”

Set specific times for showings so you can always prepare in advance

You’ll have a better chance of keeping the familial chaos under control if you discuss with your realtor a set schedule for showings, with available times on weekdays and weekends. If you know that there will be showings on Sundays from noon to 2 p.m. and Wednesdays from 6 to 7 p.m., for example, you can plan ahead and stay prepared.

Enlist help to get the kids out of the house

It’s difficult to get the joint spick-and-span when your kids are coming right behind you to mess up what you’ve done. Why not pawn them off on their grandparents or a favorite aunt or uncle for the afternoon? They’ll get to spend time with someone they enjoy (and probably enjoy being a little spoiled), and you can focus on your long list of showing-prep to-dos.

Create a "buyer’s book" to showcase what you love about your home

If you don’t have time to douse the house in bleach or make it look like the maid just left, fortify your efforts with a book of photos of your home looking its best — including before and after pictures if you’ve made any improvements — to help buyers see the home’s full potential.

“Add a little extra to your showings by creating a listing binder or 'buyer's book' that showcases why you've loved the home, what it's like living in the area, things your family likes to do, and other pertinent information to a new homeowner like average utilities, association dues, and anything else that would help them make an informed decision faster,” says Vytlacil. “It may seem trivial, but you'd be surprised at how much these little touches affect a prospective buyer.”

Let your family come and go using one door

You’ll reduce your cleaning workload substantially if you restrict your family’s access to the home to one entrance while it’s on the market. Fewer paths of entry equates to less dirt and outside gunk tracked into your home from multiple directions.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

10 Surprising Ways Real Estate Cuts Your Taxes

Damian Davila — Fri, 24 Feb 2017 10:00:13 +0000

Once you own property, you may be eligible for a long list of tax breaks, whether you use it as your primary home, for rental income, or sell it for profit. Let's run through familiar benefits, such as the mortgage interest deduction, and also the various (stunning!) tax breaks real estate investors, landlords, and homeowners enjoy.

1. Mortgage Interest

This is the most familiar of all deductions and one of the very few times that you can use the interest that you're paying to reduce your tax bill. Besides deducting mortgage interest that you're paying for the purchase of your primary residence, you can also deduct mortgage interest from a second mortgage or a home equity line of credit (HELOC).

You can deduct up to $500,000 ($1 million if married filing jointly) in all mortgage interest used to buy, construct, or make substantial improvements in your first home (and second, if applicable). You can't, however, deduct any mortgage interest for purchases on a third home and so on. You can also deduct up to $50,000 ($100,000 if married filing jointly) from all home equity debt for reasons other than to buy, build, or substantially improve your first or second home.

2. Mortgage Interest Credit

Recipients of a mortgage credit certificate (MCC) by a state or local government under a qualified mortgage credit certificate program could be eligible for a federal income tax credit of up to 20% of their annual mortgage interest. Figure this credit on Form 8396. The best part is that the remaining 80% of your mortgage interest is still eligible as a deduction!

3. Points

Charges paid by a borrower to secure a mortgage (also known as origination fees, maximum loan charges, or discount points) can generally be deducted. However, if you were to pay points to refinance an existing mortgage, you would amortize the points over the life of the mortgage. When you refinance a loan, your lender will send you a Form 1098 listing the points that you paid, but in the event that they don't, look for your points in your HUD-1 settlement sheet.

Page 6 of IRS Publication, 936 Home Mortgage Interest Deduction provides a useful diagram to determine whether or not your points are fully deductible for this year.

4. Real Estate Taxes

You can deduct real estate taxes, including state, local, or foreign, you paid on real estate you own that wasn't used for business. Tally only taxes paid to government institutions and don't include itemized tax charges for services to specific property or people, such as a gardener or trash collection service. If you were to sell your property and receive a refund or rebate of real estate taxes, you would reduce your deduction by the amount of the refund or rebate.

5. Mortgage Insurance Premiums

You can deduct eligible mortgage insurance premiums provided by government authorities, including the Department of Veterans Affairs, the Federal Housing Administration, and the Rural Housing Service, as well as private mortgage insurance (PMI) issuers on loans issued after December 31, 2006. (See also: What Is Private Mortgage Insurance, Anyway?)

In 2017, you can't deduct your mortgage insurance premiums if your adjusted gross income is more than $54,500 ($109,000 if married filing jointly). If your adjusted gross income falls between $50,000 and $54,500 ($100,000 and $109,000 if married filing jointly), your deduction is limited and you must use the Mortgage Insurance Premiums Deduction Worksheet to figure your deduction.

6. Capital Gains Exemption

Eventually, you may sell your real home. Depending on several factors, such as years of ownership, substantial improvements, and neighborhood developments, your home may have appreciated by several thousands of dollars. To lessen the tax hit on taxable capital gains from the sale of your property, the IRS may exempt up to $250,000 ($500,00 if married filing jointly) of that gain from your income.

In general, you qualify for a capital gains exemption as long as you have owned and used your home as your main home for a period aggregating at least two years out of the five years before its date of sale. Consult Publication 523, Selling Your Home for more details. The beauty of this tax break is that there is no restriction as to how many times you can use it!

7. Investment Interest

Real estate investors also get a tax break on interest paid on money they borrowed that is allocable to property held for investment. Such investors need to use Form 4952 to figure out their investment interest expense deduction.

Despite its name, this investment interest deduction doesn't cover interest gained from passive-income activities or securities that generate tax-exempt income.

8. Expenses for Business Use of Homes

Freelancers, independent contractors, and small business owners can deduct expenses for business use of their homes. With Form 8829, you can claim the area used regularly and exclusively for business to allocate a deductible portion from a wide range of expenses, including utilities and depreciation.

If your deductions for home business are greater than the current year's limit, you can carry over the excess to 2017! This carry-over will be subject to the deduction limit for that year, whether or not you live in the same home during that year.

9. Tax Credits for "Green" Improvements

To encourage more energy efficient home improvements, the IRS provides tax credits for qualifying expenses. Here are two examples:

Windows, doors, and skylights that met the ENERGY STAR program requirements and were installed between January 1, 2012 and December 31, 2016 at the homeowner's primary residence may grant you up to $500 in energy efficiency tax credits.
Solar energy systems provide a tax credit of 30% of cost with no upper limit through December 31, 2019. The credit will decrease to 26% in 2020, drop to 22% in 2021, and goes away in 2022.

To learn about other tax credit opportunities from energy efficient home improvements, visit EnergyStar.gov.

10. Deductions From Rental Income Activities

Rental real estate provides several tax breaks to landlords. For example, landlords could potentially deduct:

Local transportation expenses to collect rental income or to manage, conserve, or maintain rental property;
Expenses for managing, conserving, or maintaining rental property from the time it was made available for rent;
Depreciation expenses for the wear and tear of rental property;
Local benefit taxes for maintaining, repairing, or paying interest charges for the benefits;
Legal and professional fees directly related to operating expenses; and
Prepaid insurance premiums.

To learn the full list of rental expenses and guidelines for deduction, consult Publication 527, Residential Rental Property. If you use some of your rental properties for personal purposes throughout the year, then you should hire a tax pro to appropriately deduct expenses for rental income. Hiring an accountant to report income from your rental activities is itself an eligible deduction, after all! (See also: 4 Times You Should Splurge and Hire a Pro)

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

These Are the 7 Features Home Buyers Want Most

Camilla Cheung — Thu, 29 Sep 2016 09:00:07 +0000

Interested in buying a new home? It's a good idea to be aware of what new homebuyers are looking for. I interviewed Markus Brown, a Realtor in Orange County, California, about what he sees buyers looking for in potential new homes. The following features are currently generating a lot of demand, which may potentially translate to higher home values.

1. An Open Floor Plan

The days of compartmentalized rooms all separated by walls and doors are gone, and the era of connected living continues to be one of top new home trends. Specifically, buyers "want the kitchen to be open to the family room, which creates the "great room" as it's most typically defined," says Brown. Homebuyers are also looking for an open floor plan kitchen, as it allows people to flow to and from the heart of the home during gatherings.

2. Hardwood Floors

Forget the wall-to-wall carpet, today's homebuyers are looking for hardwood floors on the main floor of the home, according to the National Association of Home Builders. Hardwood flooring looks especially beautiful when flowing throughout an open floor plan.

3. A Modern Kitchen

New homebuyers are looking not just for an updated kitchen, but a modern kitchen design that hits the latest trends. Granite continues to trend, but the pattern in the granite tends to be characterized by more "movement and flow," according to Brown, as opposed to a busy, speckled look. Quartz aggregates are a popular alternative for countertops. Floor tile has been growing in size, with large rectangular tiles (and fewer grout lines) leading the trends. Keeping hardwood flooring flowing throughout the kitchen and living spaces is also very popular.

The trendiest kitchens have a large island that doubles as an eating space, combining cooking and eating/entertaining in one feature. Open shelving has seen a resurgence in interest, but it can be a polarizing feature that some love and some don't.

Brown points out that modern backsplash finishes are important, and he has seen a trend toward the "subway tile patterns that were popular in the 20s and 30s." Pullout shelves and self-closing doors in the kitchen are also a plus.

4. Plenty of Storage

Along with an open floor plan comes a need for ample storage to keep those open spaces clutter free. New homebuyers are looking for pantries, linen closets, and storage areas such as a separate laundry room, mudroom, and cabinetry in the garage to help them stay organized and to keep the clutter out of sight. In fact, the most recent survey by the National Association of Home Builders (NAHB) reports that 92% of buyers want a laundry room, making it the most desired feature of a new home.

5. Multi-Generational Living

Many new homebuyers appreciate the possibility to house an older parent or family member, if not full-time, at least part-time with comfortable guest quarters. A guest room on the ground floor with a full bathroom is one of the features that makes multigenerational living more comfortable for everyone.

6. Multi-Functional Space

Something many new homebuyers are looking for is a "homework loft," "gaming loft," or some kind of multifunctional space within the home. This could be a desk located on a second floor loft outside the bedrooms, or an area off the living room or kitchen which can be used for various needs. "The loft and great room are mutually dependent in many ways," says Brown, because along with greater open space comes a need for a place for kids to hang out separately from adults.

7. Indoor-Outdoor Living

Today's homebuyers are looking for ways to incorporate the outdoors into their daily lives. Millennials and younger buyers, in particular, are increasingly demanding a patio and multiple outdoor areas. Outdoor living space also increases the functional square footage of a home. Having an outdoor kitchen and entertaining space can be very attractive to new homebuyers. Sliding doors or French doors leading to a large patio that encourages flow between indoors and outdoors are often coveted features.

The "California room" or "outdoor living room" is an increasingly popular concept, according to Brown. A California room is a space that seamlessly blends indoor and outdoor living, usually comprised of a covered patio or sunroom, comfortable furnishings, and easy access to both inside and outside.

8. Energy Efficiency and Eco-Conscious Living

Energy efficiency is a feature that is becoming increasingly important. Energy Star rated appliances, windows, and an Energy Star rated whole home were desired by over 80% of new homebuyers. Features like a whole house fan, solar "readiness" (infrastructure in place for solar panels), solar water heater, heat pump heater/air conditioner, and "smart" thermostats can all appeal to the eco-conscious buyer. "In certain areas of the country," notes Brown, "drought-tolerant and low-maintenance landscaping are also important."

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This article is from Camilla Cheung of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Reasons You Shouldn't Buy a House (Yet)

Dan Rafter — Fri, 17 Jun 2016 10:00:11 +0000

You hate sending that rent check to your landlord every month. The neighbors living above you have a newborn baby that cries all night long. And you dream of planting your own vegetable garden.

In short, you're tired of renting and you want to buy your first home. But wanting to buy a home and being ready to do so are two different things. Are you financially ready for the burden of a monthly mortgage payment?

Here are five signs that you're not ready to buy a house just yet. But don't fret; even if you are struggling with these financial issues, you can still become a homeowner. You'll just need a bit of patience and improved financial skills.

Sign 1: You Have No Savings

Buying a home is expensive. You'll need money for a down payment. For most mortgage loans, you'll need at least 5% of the home's purchase price. For a home costing $200,000, that comes out to $10,000. If you are buying a home insured by the Federal Housing Administration, better known as an FHA loan, you'll need a down payment of 3.5% of your home's final purchase price, depending on your credit score. For a $200,000 home, that still comes out to a down payment of $7,000.

Then there are closing costs, the fees that mortgage lenders, title insurers, and others charge you to originate your mortgage loan. Real estate website Zillow says that these costs can run from 2% to 5% of your total mortgage loan. If you are borrowing $180,000, then your closing costs can run from $3,600 to $9,000.

It's true that you can get help with some of these costs. You can use gift money from relatives, for example, to pay for all or part of your down payment. You might be able to convince a home's seller to pay for all or part of the closing costs. But if you don't have any savings built up, lenders might hesitate to lend you mortgage money. They want to make sure that you have reserve funds on hand to cover your mortgage payment for at least two to three months if you should suddenly run into a financial crisis such as a job loss.

What to Do

It's best to start searching for a home only after you've saved enough money to cover a down payment and your estimated closing costs. Most lenders will also want to see enough money in your savings after you've paid closing costs and your down payment to cover at least two months of mortgage payments.

Sign 2: Your Credit Score Is Bad

Your credit score is a key number when you're applying for a mortgage. Lenders pass out their lowest interest rates to borrowers who have FICO credit scores of 740 or higher. But the lower your score, the higher your interest rate — and your monthly mortgage payment — will be. If your score is too low, say under 640, you'll struggle to qualify for a loan at all.

What to Do

First, order at least one of your three credit reports from AnnualCreditReport.com. You are entitled to one free copy of each of your three credit reports — maintained by the national credit bureaus of Experian, Equifax, and TransUnion — once every year. Once you get your report, read it carefully. It will list how much you owe on your credit cards and how much you owe on student loans and car loans. It will also list whether you have any late or missed payments during the last seven years. Those late or missed payments will send your credit score tumbling.

Next, order your FICO credit score. You can do this from the credit bureaus, too, but you'll have to pay about $15 to do so. If your score is low, and there are negative marks on your credit report, it's time to start a new history of paying all your bills on time. You also need to pay down as much of your credit card debt as possible. Both of these actions will steadily increase your credit score, though it could take months or even more than a year before your score recovers enough to make you a good candidate for a mortgage loan.

Be patient and wait to apply for that mortgage until your FICO score is over 700.

Sign 3: You Have a Mountain of Credit Card Debt

Your debt-to-income ratio is another key number when it comes to buying a home. Lenders want your total monthly debts, including your estimated new mortgage payment, to equal no more than 43% of your gross monthly income. If your debt-to-income ratio is too high, you'll struggle to earn approval for a mortgage. (See also: 5 Day Debt Reduction Plan)

For many potential homebuyers, large amounts of credit card debt are what shoot that debt-to-income levels past 43%.

What to Do

Pay off that credit card debt. Always make more than your minimum monthly required payment. And wait until you've substantially reduced that debt before you add a monthly mortgage payment to your financial responsibilities.

Sign 4: You Routinely Miss Your Monthly Payments

Maybe you have more than enough money each month to pay all your bills on time — you just routinely forget to pay them. Making late payments, or missing payments completely, is a sure sign that you're not ready for the financial responsibility of owning a home.

If you miss a mortgage payment by more than 30 days, your credit score will fall by 100 points or more. If you miss enough, you could lose your home to foreclosure.

What to Do

Learn better financial habits before you apply for a mortgage. Set up reminders on your phone or computer alerting you when bills are due. Or pay those bills as soon as they arrive to make sure you don't forget them. It might makes sense to set up automatic payments through your bank. But don't apply for a mortgage until you've broken the habit of regularly missing your monthly payment due dates.

Sign 5: You Don't Have a Stable Job

You'll need a steady, reliable stream of income if you use a mortgage to finance the purchase of a home. If you're worried that you'll lose your job, or if your income is sky-high one month thanks to overtime and then low the next, you might not be ready to buy a home.

Your monthly mortgage payment will become the biggest financial responsibility you have. What happens if you lose your job? What happens if your company goes through a dry spell in which they reduce your income for several months? Would you still be able to afford that monthly payment?

What to Do

Find a job that is reliable and that pays you a stable income each month. Don't take the risk that everything will work out. You don't want missed mortgage payments on your credit reports. And if your job is unstable? You'll greatly increase the risk of these black marks.

Are you ready to buy a home? What steps are you taking to make it happen?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Only 5 Rules of Home Buying You Need to Know

Dan Rafter — Thu, 19 May 2016 09:30:24 +0000

Buying a home can be stressful and complicated. But if you follow just five basic rules, you'll make the challenge of buying a home a bit less intimidating.

1. Meet With a Mortgage Lender Before Touring Homes

Touring homes is the fun part of buying. But before you start looking at properties, you need to meet with a mortgage lender.

That's because a lender can pre-approve you for a mortgage loan. To do this, your lender will run your credit. You'll have to provide copies of such documents as your last two paycheck stubs, bank-account statements, W2s, and tax returns. Your lender will take this information and determine if you qualify for a mortgage loan, and how large that loan can be.

This is important for house hunters. Once you know that a lender will approve you for a mortgage loan of $200,000, you won't waste time looking at homes that cost $300,000.

Make sure, though, that you get pre-approved and not pre-qualified. A pre-qualification is when a lender takes down your information by phone and tells you how large of a mortgage loan you can afford. But in a pre-qualification, lenders don't actually verify your financial health as they do when pre-approving you.

2. Review Your Credit Reports

You have three credit reports, one each maintained by the credit bureaus of TransUnion, Experian, and Equifax. These reports list how much you owe on your credit cards and any other loans. They also list if you've missed any payments or paid any bills late. They'll list, too, any negative judgments such as recent foreclosures and bankruptcies.

You can order one free copy of each of your three credit reports every year from AnnualCreditReport.com. Once you do, study the reports to make sure that the information contained in it is accurate. If it's not, it could cause your credit score to fall.

3. Order at Least One of Your Credit Scores Before You Start House Hunting

Speaking of credit scores, this three-digit number is critical to anyone buying a home. Lenders rely on your credit score to determine how much of a risk you are. If your score is low, say under 640 on the FICO scale, you'll struggle to get a mortgage loan without paying an exorbitantly high interest rate. If your score is above 740, though, you'll generally qualify for the widest variety of mortgage loans and the lowest interest rates on these loans.

To determine how strong your credit score is, you'll have to order at least one of your three reports, one each maintained by the credit bureaus again. You can order your score from Experian, Equifax, or TransUnion for about $15.

4. Reduce Your Debt

There's another number that lenders look at when you apply for a mortgage loan — your debt-to-income ratio. This ratio compares your monthly debt obligations with your gross monthly income. If this ratio is too high, you'll struggle to qualify for a mortgage.

Lenders prefer that your total monthly debts, including your estimated new monthly mortgage payment, equals no more than 43% of your gross monthly income. If your debt-to-income ratio is too high, cut down as much of your debt as possible — maybe starting with credit card debt — before you start looking for a new home.

5. Interview to Find the Right Real Estate Agent

When you're buying a home, you get to work with a real estate agent for free. When you find and buy a home, your agent is paid by the seller, who uses part of the profit of the home sale to provide your agent with a commission. Because of this, there's no reason not to work with a real estate agent when you're buying a home.

But you do want to work with the right agent, so schedule interviews with several. When you're speaking with agents, ask them some key questions: How long have they worked as real estate agents? Do they work often in the neighborhoods that you're targeting? How much of a home's asking price do they shave off on average for their buyers? Do they represent both buyers and sellers or are they exclusively buyers' agents?

Be sure, too, to ask agents for referrals from past customers. You'll want to talk to some of these past customers to determine how responsive and effective an agent was for them.

Is our list of rules too short? What other rules should home-buyers heed?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Be a Smarter Home Buyer by Avoiding These 12 House Hunter Cliches

Carrie Kirby — Fri, 29 Jan 2016 16:00:04 +0000

HGTV is like brain candy for anyone who's thinking about buying a house, and no show is as riveting at this stage of life as House Hunters. Too bad the people featured on House Hunters usually appear clueless about how to select the right home.

Go ahead and enjoy the virtual tours of homes in different parts of the country — just don't use the featured families as role models for your own house hunt. Too many of the comments uttered on the program are shortsighted, severely unimaginative, or simply ridiculous.

1. "I could live with any commute for this house."

The biggest misconception House Hunters creates is that searching for a house is all about the house itself, not about the neighborhood, the schools, or the distance from your job. Those other things might not make good TV, but there's a reason the phrase "location, location, location" has never disappeared from the real estate conversation. For one thing, a long commute can literally kill you. For another, if you have children and the local public school doesn't work for you, you'll end up spending as much or more as your mortgage payments on private school tuition.

2. "The appliances/wall colors/bathroom fixtures are deal breakers."

When you view a house, focus on the features that would be very expensive or impossible to change, such as the number of bathrooms or the square footage. You can change a room's color for a few hundred dollars — less if you paint it yourself. It's not a factor.

3. "We absolutely need a master suite."

Although a large bedroom with its own bathroom and living area has become de rigeur in high-end and even mid-range houses, these spaces are hardly used, according to UCLA's Center on Everyday Lives of Families. Researchers recorded where family members really spent their time, and found that people spend the most time in the kitchen and family room. So a spacious kitchen should be a higher priority when house hunting than a master suite.

4. "How can we both get ready in the morning without his-and-hers sinks?"

An unscientific survey of couples I know revealed that barely any of their schedules have them both brushing their teeth at the same time in the morning. While I can see the attraction of not having to use a sink that someone else left toothpaste gobs in, it's not as if a partner who doesn't wash a shared sink is going to wash a private sink.

One realistic friend put it like this: "Who needs to clean toothpaste off of two sinks?"

5. "I don't want to do any work on the house at all."

It's true that remodeling is a pain. But keep in mind that a home with a brand new kitchen and other up-to-the-minute updates will all be done with someone else's taste in mind — and you won't want to spend money changing a perfectly good kitchen just because you would have preferred a different style of sink or a different countertop.

There is no time more convenient to make changes than before moving in, so why not keep an open mind and look at houses that need some updating?

6. "We need a big yard for the dog/kids."

There's no doubting that a lot of outdoor space can be a plus, but don't ever imagine that pets and children can't live without it. In the city of San Francisco, where most residents don't have yards, there are 120,000 dogs (more dogs than kids, as a matter of fact). These dogs seem perfectly happy taking advantage of dog parks and city strolls.

As for children, the Center on Everyday Lives of Families found that even in temperate LA, neither kids nor their parents spent much time in the yard — even those that had been expensively upgraded.

7. "We really want a private pool!"

When the target is a vacation home, shoppers favor houses with their own swimming areas over those with shared community pools. But private pools come with responsibilities and risks. You rarely hear families on the show include the cost of pool cleaning, replacing parts, or liability insurance in their cost comparisons.

8. "I want vintage charm and an open floor plan."

Whether they are naive or just inventing conflicts to make the show interesting, the many House Hunters families who wish for these two things together are living in a fantasy world. Older homes weren't built with kitchens that open up into family rooms; the kitchen was the domain of servants. Sure, you may find a vintage home that has been remodeled to feature an open floor plan, but chances are that plenty of those charming details were lost in the process.

9. "It doesn't have enough storage space for all our stuff."

If your possessions take precedence over your family's needs in choosing living space, isn't it time to pare down?

10. "We can (or can't) afford this house based on the listing price."

It's so silly that couples on the show pretend to have serious financial discussions based on the asking price, a number that in many markets bears little relation to what the house will actually sell for. This reality is revealed at the end of many episodes, when the realtor is able to negotiate a supposedly unaffordable house into the buyer's price range. On the other hand, where I live in the San Francisco Bay area, everyone knows that a home's final price will be as much as $100,000 above asking.

11. "The washing machine is in the kitchen? Weird!"

This is said on almost every episode of House Hunters International. It's not weird. It's the norm in most parts of the world. If you're going to live abroad, accept that your washing machine may well be in your kitchen and move on.

12. "I want to soak up the culture of Italy with the amenities we had in Texas."

Another gem from the international version of the show. If you are not willing to let go of having an "American-sized fridge" or a big yard, you're probably not going to end up steps from a piazza with a charming cafè. And if maintaining your American lifestyle is the most important thing, tell me again why you're moving abroad?

What comments on House Hunters have irked you?

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Surprising Things Your Homeowners Insurance Doesn't Cover

Tim Lemke — Tue, 29 Dec 2015 14:00:03 +0000

If you've never read the entirety of your homeowners insurance policy, you might believe you're protected against any kind of problem with your home or property. But the truth is, many things are specifically excluded from most policies. Most of us know flooding and water damage is not generally covered by standard policies. The rest, though, may surprise you.

Does your homeowner's policy cover any of these 10 items? If not, consider getting special endorsements or riders to make sure you have the proper level of coverage.

1. Pools

You might think the liability insurance tied to your policy will suffice, but it's probably not high enough to protect you against many pool-related injuries. A typical homeowners policy covers about $100,000 in liability insurance — but if you have a pool, you'll probably need greater protection. The Insurance Information Institute recommends bumping your liability insurance to $300,000 or even $500,000.

2. Termites

Pests can pose a big threat to your home, but don't assume damage from the little critters is covered. That's because most insurance companies consider damage from termites and other pests to be preventable. Pay attention to moisture around your home, and closely examine any wood for possible pest damage. Also be sure to keep plants and wood piles a good distance from your house.

3. Tree Houses

Many insurance companies place treehouses in the "high-risk" category along with trampolines. Check your policy for exclusions before constructing that clubhouse in the old oak tree.

4. Earthquakes

What's interesting here is that damage from a volcanic eruption usually is covered by most homeowners policies. Earthquakes are a different story, and that also goes for earth tremors, landslides, and mudslides. If you live in an earthquake-prone area — Californians, I am talking to you — consider buying extra earthquake insurance.

5. Trees Damaged by Wind

If a tree gets knocked down during a storm and damages your house, the repairs to your home are covered. But insurance won't cover the actual removal or replacement of the tree itself. This goes for any other shrubs and plants. In general, homeowners insurance only covers damage to plants and trees caused by fire, theft, lightning, and car crashes. So if a car crashes into a tree, you're covered (up to $500.) But if the wind knocks the tree over, tough luck.

6. Expensive Jewelry or Other Personal Property

You may think your wedding ring is covered under your homeowners policy, but unless your hubby bought you a cubic zirconia, it's probably not. Most policies cover personal artifacts up to $1,000 or so. After that, you'll need a separate rider. But don't worry, such riders usually cost less than $100 a year.

7. Your Home Business

It's logical to assume that if you're running a business from your house, that business is covered under your homeowners policy. But that's not necessarily true. If you run a catering business from inside the home and someone gets food poisoning, you're not covered. If you are giving an art lesson and a student breaks a toe, you're not covered. This is especially true if your home business is located on your property, but in a separate structure from your home.

8. War

What's worse than having your house blown up by the enemy? Knowing that insurance won't cover the repairs. Most policies will not pay you back for damage caused by war, terrorism, or nuclear dangers. However, civil unrest, riots, and vandalism may be covered.

9. Many Popular Dog Breeds

Most dogs are covered under your homeowners policy, but only if they are not considered "aggressive" or "risky." And you'd be surprised how many breeds of dogs are basically uninsurable. The American Veterinary Medical Association lists the dogs most likely to bite humans, and appearing on that list is often a black mark for insurance companies. Blacklisted breeds include Pit Bull Terriers, Doberman Pinschers, Akitas, Rottweilers, and even Chow Chows.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Winterize Your Home for Maximum Savings

Tisha Tolar — Mon, 11 Oct 2010 13:00:13 +0000

The heat of summer is fading fast and fall temps may be prompting some around the country to start turning up the thermostat. With the rising costs of living already hampering many families, the added costs of heating oil and electricity will prove to be a real burden over the long, cold winter months.

In order to save money on winter heating costs, it is essential you start preparing your home to battle to cold before it takes hold. Most of the winterizing steps you need to take are relatively easy, do-it-yourself tasks that will not cost you as much as heating your home will. With initiative and some time, you can ensure big savings.

Low Cost/Simple Tasks

Here are some cheap and easy tips for winterizing against Old Man Winter:

Check windows and doors

Check the weather-stripping around all of your doors and windows, including those in the basement and attic, as they may deteriorate over time and due to the elements. Replacements are not expensive and can make a big difference in your heating bills. Make a draft catcher pillow out of old clothing or keep a rolled blanket at the base of all doors.

Check pipes and utility holes

Any areas where piping or cable leads to the outside of your home should be checked for drafts. Use a color-coordinated caulking or expandable foam insulation spray to fill in holes and gaps.

Cover permanent AC units

If you have a window unit air conditioner mounted into the wall, purchase a specialized cover or use a quality tarp to cover the outside of the unit. Inside the home, the air conditioner frame should be sealed off with foam insulation.

Inspect storm windows

When the weather is no longer warm enough to keep the windows open, check all glass storm windows for cracks or other damage and make sure they are tightly closed.

Shut off unused rooms

If you can control heat in rooms you do not use, turn heat on low and make sure all doors remain shut to prevent wasting heat.

Adjust the thermometer

During the day when no one is in and the sun is heating the exterior of your home, keep the thermostat low; only turn it up during the evening hours to keep the dampness and chill out of the air. Wear layered clothing and use blankets when hanging out at home. Leave blinds and curtains open during the sunlight hours and close them tight at night.

Hire professional cleaning

Having your furnace checked by a professional is not optional. For the safety of your family, you need to check your heating system before the start of each fall/winter season. Also have chimneys, fireplaces, and other supplemental heat sources checked for problems. A professional cleaning will cost a few hundred dollars but if you take the initiative to learn how to do it yourself, you can save the cash for something else. Ask a relative who is handy with home repairs or hang out with the pro on the next visit and learn what you have to do. Home improvement stores like Lowe's often sponsor classes in home improvement, so check in with your local store to find out more.

Bigger Jobs to Start Saving For

You may not have the cash to do a total home makeover before winter hits, but it is smart to be aware of the bigger jobs that need attention and start saving now. Over time, homes will all need more attention and simple tasks will no longer be enough to make your home heat efficient.

Here are some of the bigger things you need to consider:

Replace drafty windows

If most of your home's windows are old and drafty, it would be smart to invest the cash to replace them all at the same time. If you can't afford to redo all windows, start with those located in the most frequently used rooms like bedrooms, living room, and kitchen. Check with your local government offices and ask if there are any rebate programs or assistance for replacing windows and making your home more energy efficient. Also, check in with the IRS to learn more about energy-efficient tax credits.

Upgrade insulation

If you have an older home, you may have some insulation but not enough to sufficiently keep the heat inside. Fully insulating your home will not only save you money over the long haul, it will also improve the value of your home if you choose to sell down the road. Contact several home improvement contractors now and request a free estimate. Compare prices and work being completed. You'll have a financial goal to work towards during the next year and it will help you make the work a priority.

Invest in solar panels

Go a little green by investing in some solar panels which uses the sun as a heat source. Find a reputable contractor that works with solar panels and request free estimates so you'll know if it's financially an option for your home.

This article is from Tisha Tolar of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Pros and Cons of Paying Cash for a House

Xin Lu — Thu, 17 Jul 2008 20:56:32 +0000

My husband said that when we do buy a house, he wants to just buy it with cash so we can own it outright and in our way say "screw you" to the banks. I like that idea, but just like any financial decision, there are pros and cons to doing this.

Pros

No Credit History Needed

A long time ago I read a story of a guy who avoided credit cards and loans like the plague so he did not have a credit history, but he had considerable savings. When he wanted to buy a house no one would give him a loan, so he bought a house outright with his savings. In situations where you do not have the ability to get a reasonable loan, then paying cash might be the best option. (See also: Building a Credit History)

Risk Free Savings

If a mortgage costs 7% and you pay cash, you would essentially be saving 7% in interest risk free. So in the case where mortgage interest rates are higher than what you can get on your investments, you would come out ahead by paying in cash.

You Actually Own Your House

I think psychologically there is a big benefit in knowing that you own your house free and clear. You also free up quite a bit of income because you will have no rent or mortgage.

You Are Not Leveraged

Buying a house with cash means that if the value of the home goes down by 10% then the money you put in also goes down by 10%. The most you can lose is the amount of money you put in. In the case of a 20% down mortgage, if the house's value goes down 10% then you lose 50% of the money you put in because of leverage.

Negotiate a Better Deal

When you have the cash to pay for the full amount of a house, it means that there will be no contingencies on getting a loan and the amount of time needed to close a deal is shorter. This generally gives you the buyer more negotiating power for a discount on the price of the home.

Cons

Less liquidity

Having a mortgage lets you free up your cash for other investments. It is also not wise to put all your liquid assets into buying a house with cash because it is harder to free up that money in case you need to use it. If you buy a house with cash, any new mortgages would be considered refinances and carry a higher rate than a first mortgage.

You Are Not Leveraged

Leverage goes both ways, so if the value of the home goes up, then the percentage gain of an all cash buyer would be comparably lower than the person who purchased with a mortgage.

No Tax Advantage

Mortgage interest is deductible on income taxes in the United States. If you are in a high tax bracket that benefit lessens the bite of the interest by quite a bit. In contrast, buying a home with cash does not give you any tax deductions.

Conclusion

Generally, I think it makes sense to pay for a house with cash if the following conditions apply to you:

The amount of cash you spend does not consist of a significant portion of your liquid assets.
The interest rate on a mortgage is higher than what you can earn on your other investments.
The amount of savings you get from an all cash deal versus a loan deal is significant.
You do not want to deal with a credit agency in any manner.

Currently, I think mortgage rates are still low enough for mortgages to be worthwhile, but as banks raise their lending rates and housing prices fall further it may make more sense to buy a home with cash in the near future.

Have you ever purchased real estate without financing? Tell us about it!

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This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What's Faster for Mortgage Payoff: $100/Month Extra or 1 Payment/Year Extra?

Julie Rains — Fri, 10 Aug 2007 21:20:44 +0000

Recently, a reader with a 15-year mortgage and an interest in accelerated mortgage payoff asked if it was better to pay $100 per month extra ($1,200 per year) or make an extra payment at the end of each year? The short answer: it depends on your loan balance and interest rate, though generally the higher extra payment is going to result in a faster payoff. There's more, but I'll go ahead and put my disclaimer here and say that I am responding to an inquiry not necessarily recommending that you pay extra on your mortgage. (See also: 6 Great Reasons for Paying off the Mortgage on Your Home)

Here are the detailed calculations:

As with any financial calculation, you have to make assumptions so I've created these: $200,000 loan balance, 15-year fixed rate mortgage, and 5.93% interest rate (which was bankrate.com's average rate when I first starting researching this question on August 3, 2007). So, your monthly payment (principal and interest not including escrow amounts) is $1,680.16.

Add $100 to the monthly payment and you will pay off the loan in 165 months (13.75 years); or add an extra payment at the end of each year and you'll pay off the loan in 160 months (13.33 years). Just for fun, I did calculations on balances from $100,000 to $400,000 at the 5.93% rate and, if you make the one extra payment every year, you will always pay off the loan in 160 months. However, if the loan balance is $100,000 and you pay $100 extra each month, then you will pay off the loan in 152 months (12.67 years); if your loan balance is $400,000, the payoff is at 172 months (14.33 years). (See also: Fixed or Adjustable? Choosing the Right Mortgage Loan)

Now you may be wondering if there is any advantage in making extra monthly payments throughout the year rather than waiting until the end of the year. There is a slight advantage. For example, if you took that extra payment amount ($1,680.16), divvied it into 12 equal payments ($140), and then paid $140 extra each month, then you would pay off the loan in 159 months (rather than 160 months if you paid the $1,680.16 at the end of the year, every year).

Also, why would you want a 15-year mortgage?

Generally, 15-year mortgages will offer a lower interest rate. So, over the life of the loan, you will pay substantially less interest as compared to a 30-year loan because 1) you are paying more principal earlier in the life of the loan, and 2) you have a lower interest rate.

Here are some differences between the 15-year and 30-year fixed rate mortgage, given a $200,000 balance and a 6.26% rate on the 30-year, fixed rate mortgage.

15-year mortgage

Monthly payment: $1,680.16
Total Payment: $302,428.68

30-year mortgage

Monthly payment: $1,232.74
Total Payment: $443,784.77

Differences between 15-year and 30-year fixed rate mortgage

Monthly payment: $447.42 more for the 15-year mortgage
Total Payment: $141,356.08 more for the 30-year mortgage

You could take that extra $447.42 and invest it rather than put it toward your mortgage; if you earned more than 6.26%, you'd come out ahead (not considering tax implications). (See also: Top 10 Real Estate Write-Offs)

Still, there is something attractive about paying off a mortgage in 15 years. Here are some scenarios where the shorter, lower rate mortgage makes sense:

You want to save as much in interest as possible and you want to be debt-free as quickly as possible.
You are fully investing in your 401(k) and any other nontaxable accounts for which you are eligible.
You are saving and investing regularly.
You don't want to think about accelerating your mortgage payoff anymore. (To me, the 15-year mortgage offers a built-in acceleration.)
You and/or family members like the way that the shorter-term mortgage helps you stick to a budget. (That is, you may be likely to spend the extra $400+ per month rather than invest it if you don't opt for the longer-term loan.)

If anyone is clamoring for a spreadsheet to do your own calculations on a 15-year fixed rate mortgage, let me know and I'll upload one. Or check out my 30-year mortgage schedules at DIY Mortgage Acceleration.

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This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: