financial zen

I’ve read across a few finance blogs that have been talking about prepaying mortgages or not - a lot of people seem against it, saying that the money would be better spent putting into various investment vehicles for “in theory” greater returns on the investment.

In researching this idea, I’ve gotten a good grasp on what seems to be the going concern - what debts are being paid off first?

In thinking about prepaying the mortgage, we’re laying out the debt that takes interest - i.e. credit card debt, which we will have paid off this month (as we do every month).

Our debt consists of:

• 0% credit cards (used for appliances, setup to be paid off one month before they expire)
• Student loans (for me, still in school).
• Mortgage

That’s the extent of the debt - Mortgage, Student Loans, and credit cards. What is charging the most? Our mortgage!

I’m contributing to my company’s 401k to the match, so I’m not losing any money, and with my wife working that gives us over a grand extra disposable income per month! The plan is to take this money and apply it towards our debts AND the mortgage principal - paying the principal (by sending a direct check notated that it’s for the principal) will cut down on insurance, as well! I do not look at it as “a return on investment” with our prepayments do to the recent volatility of the housing market. If we prepay the mortgage and sell the house in - say five years - we’ll have paid down $30,000 on the mortgage, plus the built up equity, meaning we could potentially have a huge down payment for the next home - all from the money gained from our home!

It’s still something I’m looking into, but I will be paying some extra down on our mortgage while paying down all other debt - while reaping the tax benefits of interest paid on student loans and our mortgage…

I’m taking that “oh-so-forbidden” (I kid, I kid) route to personal finance shame - I’m buying a house.

Guess what? Interest-only mortgages are making a comeback. Guess what? On houses people can’t afford. Because, in theory, you’re going to take the difference (i.e. “savings”) and hope to get a return on it higher than what you’ll be paying down the line - or maybe you’ll pay more than you owe and have your house paid off in less than twenty years. Maybe sixteen, maybe ten - who knows? The point is to not buy a house you can’t afford - but then would Interest Only loans on a house you can afford work in your favor?

Free Money Finance has five tips to get the best deal in buying and selling (from parade magazine) - buying is what I am doing (did?) and we (Wife and I) hit it pretty much on the head. We’ve got great credit ratings, our debt is almost extinguished (I promise to update my networth this week! And my NCN Network!). Overall, we’re doing incredible - on top of our finances, enough cash to cover emergencies, and we landed a great deal in a great neighborhood - a house that was on the market for 180+ days, passed inspection with flying colors.

But why housing? Why not investing?

We want a house. We, being my wife and I, want a place to call home, where our neighbors are not against our walls, their dogs aren’t scratching at our door, and they aren’t blaring their polka music at full blast at 3am. We’re wanting stability, and a place where we can have space to grow a family, a backyard to throw Barbecues in, and a place we can decorate and design the way we want it, how we want it, without the landlord complaining.

Yes, it’s an emotional thing. But you have to weigh the cost (financially) with what we will get out of it (utility). Trust me, it’s something we’ve debated, gone over, checked our selves on renting vs. buying many times (and we’re not the only one) - we came to this decision after a lot of thought. We won’t have to deal with misinterpretations of our lease, or poor maintenance (I get to be poor maintenance!).

It’s a hefty decision - but like many bloggers have pointed out, sometimes you save too much for retirement that you miss out on life. I’m not saying they aren’t right about investing or renting, I’m saying that a person who buys a house has more in mind than just making money.

I’ve read a number of articles and posts talking about how it is cheaper to rent your living space instead of buying a house. It’s all about maximizing your returns, and where you can earn more money in that alloted time (because stats don’t lie, right?)

With that in mind - I’m going to take a different approach. Put your heart into this decision and decide - do you want to make extra cash, or do you want a home you can be happy in?

It’s a delicate balance! Happiness in renting, or happiness in home-owning?
The Real Estate Journal reinforced my thoughts on the issue - they discuss home improvements and whether they really add value - basically, recognizing your bad investment for being exactly what it is - making you happy, with a possibility of a cost (or loss).

In other words, do you temper your desire for what you want your home to be, because what you want may temper a future buyer’s enthusiasm? Or, do you disregard the future to enjoy the present?

Basically, as the article states: Your style is their disaster.

Just think when you are house hunting (or apartment hunting), and even when you hang out with friends. What goes through your mind? Probably something along the lines of “I like their style, this is cool” or…

“What in the WORLD were they THINKING?”

You may think Greco-Roman is in this year. Maybe a little Asian Zing. You drop a lot of money to get a style into your home, either with decor or by remodeling. But you’re doing it for YOU - not for resale, unless you are keeping it as basic and simple as possible. It’s important to remember:

“I want our house to fit our style while we’re here,” my friend says, “but unless I plan to die here, I want to recoup as much money as possible from a remodel.”

That’s it - it’s realizing how long you’re going to live in your house - spend money to make yourself happy in it - and it especially makes sense if you think it’s the house you’re going to grow with your family in.

As for my future home? I plan on making a couple improvements, maybe a remodel here or there - but basic. Making it less dated, a little more roomy and functional - but I won’t be installing the Kitchen of my dreams until we’re settling and in the area when intend to live and grow for the rest of our lives.

We made an offer on our first home - our first major investment. It went down.

The house was appraised at: $191,000
It was purchased for $181,000
They were asking: $179,500. Motivated Seller.

We offered 10% less - $162,000, and I was expecting a counter offer - I know I made a low offer, but “buyer’s market” and “motivated seller” equals “me making a low offer.” Oh well! We moved on to our other choice - a house in front of elevated rail road tracks. It was our original desire to get this house:

Appraised: $198,000
Purchased: $140,000
Asking: $175,000

I’m offering $160,000 - same reason as before - I’m looking for a deal, and to haggle. If they don’t counter offer, we’ll keep looking.

Of course, we could stretch out our budget and maybe we’ll write a post like Mighty Bargain Hunter about how we bought more house and got the banks to be suckers and forgive part of our loan. Or go bankrupt trying to hassle the system. I think we’ll stay legit and honest and buy a house we can afford, not a house that will do us in.

The secret to get rich.

Last week, we went house hunting, and met with our mortgage broker. All matters aside, we have settled on getting a house. With all the sub-prime hubbub going on, it’s definitely a work to make sure my budget is intact so I’m not over borrowing (Read: I = We = My wife and I). We’ve been approved for a large sum - but what’s funny is no one is telling us what we can and cannot afford! Of course, is this *anyone’s* responsibility? NO! It’s ours to figure out what we can afford and cannot afford.

Could we get a $200,000 home? Yup.
Do we need a house that is that expensive? Heck no!

We’re aiming for an extremely low monthly payment to allow for maximum payments (paying off all debts, paying off the house early) and that way, should something unexpected come along, it won’t be a problem.

For instance, Mary Pope’s comment on the Digerati Life. We are honest with our numbers, and we’re not being wishful about being better at budgeting - we know we can ‘afford’ more, but we like the idea of merely spending what we’re planning and not going all out.

What do you have against condos?

ASSOCIATION FEES! And… the condos we looked at had no yard, and if I’m going to be ‘renting’ so someone else will do my (meager) lawn and supply a sub-standard ‘pool’ and ‘work-out facility’ for $100+ a month. For $1200 a year ($2400 at some of them), I could buy an above ground pool and get a weight bench and treadmill or an exercise bike! I’ve got a real bike presently in storage - it’ll be pulled back out after the move. It’s like a fee for making a bad investment choice.

We’re looking at a few more houses this week, some more expensive than the first, but just to ‘keep our eyes open.’ We don’t want to pounce on the first house when something better (bigger yard, cheaper payments, not near a rail road track).

So the quest continues!

The guy was incredibly nice. Like, overly, incredibly nice. He is all ready a step-up from the last person - instead of insisting on a bunch of random items and *telling* us what we wanted, jacking the price skyward on what we were looking at, he listened to what we wanted and we went to check out a house a few condominiums.

To be honest, I’m looking at houses based solely on my income. I’m salary, my wife is hourly - and since we’re expecting a baby, this means she can relax and not work, and we won’t be ‘hit’ by her taking time off after the baby is born and she needs to take time off.

This also means we’re aiming lower, which means a lot of houses are out of our reach - to be honest, I do not like condos. It’s like buying an apartment - sure things get done for you, but you can’t change the exterior of your house, and you are paying an association fee that can continually change (seldom in your favor).

Other things I noticed between the house and the condos:

Lots of for sale signs around the condos (and a few foreclosure notices) - generally a sign that people don’t have much interest in staying (or can’t afford to).
*No one* was out at the condos - lots of people were walking around the neighborhood of the house.
Heard loud country music at one condo. (nothing against country music, I just notice it, haha)
Lots of kids around the neighborhood the house was in (which I liked, since we’re having a kid and all) and a lot of old people in the condos.

We liked the house, despite being smaller than the condos it had a bigger yard. It’s also right next to a train track. Luckily, the train rolled through why we were there - a slight rumble. Actually, two trains rolled through. Slight rumble. Not a big deal for either of us. But I’m not rushing into getting this house - don’t want to jump on the first one yet.

So the adventure continues in the foray of real estate!

Tonight we go out with Bruce Baer, a real estate agent, to check out houses and condos.

I’ll write about our first venture when we get home tonight!

I’m currently in the market for a Real Estate agent. I’d figure that once I made my intentions known, people would be beating down my door for business.

So far, we’ve received a flood of “lenders” offering us an assortment of loans. Is that helpful? No.

We finally got contacts by two real estate agents - they sent us a listing of houses and asked us to contact them. One lady sent us a notice saying the property she had listed was sold, but she had similar listings, and another gentleman sent us a listing of homes similar to what we were emailing him about, and asked us to contact him. After these initial offerings (we liked some of them) we contacted them both - and neither have responded.

Did the sub-prime lending scandal end their faith in their own business? Are Real Estate Agents freaking out?

I guess it’s back to square one.