Is Home Ownership Still The American Dream?

Is home ownership the American dream that everyone cracks it up to be? The age old pay yourself instead of paying your landlord is certainly true but how do you know you are actually ready for the demands that come with home ownership? There are multiple factors to consider before taking the plunge, here are just a few.

1. Low Credit Score

One of the biggest expenses that will come from owning your own home is the interest expense. You will want to ensure that you secure the lowest interest rate possible. The best course of action is to check your credit score before ever prequalifying for a mortgage. A small difference in credit scores can translate to thousands of dollars more in interest paid on a home.

2. Job Stability or Relocation

Home ownership is a long term commitment. If you aren’t certain that you want to be in a particular location for a long time, that might be the first sign that you are not ready for home ownership. Additionally, there are other factors to consider such as how secure your job is, or even if there is a potential for you to be relocated in your job.

3. Maintenance fund

Cash is king when it comes to owning your home. The number of things that can go wrong in a house, even if it’s new, is astounding. You will want to make sure that you have enough cash socked away in the event of an emergency or other routine maintenance that is sure to pop up. It is said that you should have at least 5% of the value of your home saved for maintenance and emergencies.

Among the many factors that go into home ownership, these are some of the most important. If you still think you are ready after reading these, you may be a good candidate after all. The most important thing to remember is to do your due diligence and make sure you are walking away with the absolute best investment for your needs. It is hard not to rush decisions such as these, especially when you have invested so much time into the process. There are always houses out there to discover on sites such as Mitula, so never make a final decision to buy a home if it doesn’t feel absolutely right. However, careful planning and preparation will ensure that you will land the house of your dreams.

Concerns About The American Dream

Home ownership is not always all it’s cracked up to be, or the American Dream. There are a lot of considerations that go into owning a home, and jumping into something that you are not prepared for is never a good idea. It is for this reason that you should make sure that you have all of your ducks in a row before committing to something. Home ownership is not for everyone, and sometimes renting can be the better option depending of several factors.

Low Credit Score

When you are getting your first mortgage, your credit score holds the reins on what kind of rate you will receive. It is often recommended to delay the purchase of your first home until your credit score will be able to work to your advantage.

Job Stability or Relocation

If you are not sure you are going to be in the same city for a relatively long time, it may not be in your best interest to own a home. There are multiple factors outside of your control such as job relocation, but most of the time you know where you will be in the short term. If you are not able to rent out your home, you will be stuck paying for an extra mortgage. If you sell your home, you will most likely be losing money on the transaction.

Maintenance Fund

If you do not have the funds available to repair and maintain your home, it is probably a good idea to hold off until you have saved enough money. It is recommended to have a reserve fund of 5% of the purchase price of your home in order to make fixes and be prepared for emergencies that can result from owning a home.

As you can see there is a lot that goes into owning a home. If you are not prepared financially (and mentally), purchasing a home may not be the best investment. However, if you are prepared, owning a home can be a very rewarding and gratifying milestone in life.

What Piece of the $787 Billion is Yours?

obama

You could read the entire stimulus bill (the American Recovery and Reinvestment Act of 2009) online at the Library of Congress that President Obama signed into law today. Or…you could just find out how it affects you right here on Christian Finance Blog!

First things first. You’ve probably heard that the new bill has a tax credit on your paycheck. It’s called the Make Work Pay credit and it’s worth 6.25% of any earned income in 2009. The max is $400 for singles making less than $75,000 and $800 for families with $150,000 or less combined income. It will be distributed through payroll for the last 26 weeks of the year. So it equates to about $15 a week for single filers who qualify for the $400. This will not come through your tax refund like the last stimulus. It also provides a one-time $250 payment for those who don’t work and retirees.

The next big tax credit in the new bill is the $8,000 New Homebuyer credit. This is different from the $7,500 new homebuyer “credit” that was supposed to be paid back over 15 years. The new $8,000 new homebuyer credit is a real tax credit, not an interest-free loan. It actually reduces your tax liability. Even if your tax bill is less than $8,000, you’ll get the difference back. If you overpaid your taxes throughout the year, you’ll get your regular refund plus the $8,000 extra! Sounds like a good deal to me!

So how do I qualify? You have to purchase a home between January 1, 2009 and November 30, 2009 and be a first-time homebuyer. To qualify to be a first-time homebuyer, you must not have owned a primary residence home within the last 3 years. It’s okay to have owned investment property or a vacation home as long as you didn’t live in it for most of the year. Also, you need to stay in the new home for 3 years to keep the tax credit. Income restrictions are the same as the Make Work Pay credit; $75,000 for singles and $150,000 for married filing jointly.

The next part of the bill that may affect you is the Car Buyer tax deduction. This is a tax deduction not a tax credit (which is more valuable). A tax deduction only reduces your income so it’s only worth the amount times your tax rate. The deduction allows you to deduct the state and local sales tax for any new car, truck, R.V., or motorcycle that was charged on the purchase during 2009. This won’t help you if your state doesn’t have a sales tax and it’s an above-the-line deduction so you don’t have to itemize to get the deduction. Income restrictions are $125,000 for single filers and $250,000 for joint filers.

Next up is the American Opportunity Tax Credit for 2009 and 2010. This tax credit increases the existing Hope Scholarship tax credit from $1,800 to $2,500. Income restrictions are $80,000 ($160,000 for married filing jointly). Partial credits are available to those making up to $90,000 ($180,000 filing jointly). Also related to this is the increase of the Pell Grant to $5,350 in 2009 and $5,550 in 2010.

For those of you who are unemployed, there’s also help for you in the bill. Cobra coverage (which allows the unemployed to keep health insurance from a previous employer) will be subsidized up to 65% of Cobra premiums for up to 9 months if you laid off between September 1, 2008 and December 31, 2009.

Unemployment benefits are also going to be increased by an additional 20 weeks (and 13 weeks more in certain states where unemployment is higher than 6%) and $25 additional weekly. Also, the first $2,400 is tax exempt in 2009 on your federal income taxes.

There are other portions of the stimulus bill like increased food stamp payments and deductions for energy efficient appliances and others. I may not agree with some of Obama’s policies but I’ll take free money any day! Bring it on Prez!

How To Buy A Rental Property

When we bought our first home we thought carefully about the idea of renting out the basement. We ultimately bought a place with a rentable basement and it has worked out very well for us. The best mortgage rates are right around 3% right now, which makes this the perfect time to buy an investment like this.

What To Look For In A Rental Unit

First and foremost, you need to buy a house that’s structurally sound. Cracking paint and an ancient kitchen can be fixed easily, but you don’t want to have to re-pour part of your foundation because of deep structural issues.

Depending on how handy you are, you might do well to buy a house that doesn’t have a rental unit yet, but where you can put one in easily. When we bought our place the kitchen was only roughed in (meaning the plumbing and electrical were ready, but there wasn’t actually a kitchen there). A quick shopping trip later and we’d ordered cabinets, a countertop, a sink, and appliances and were ready to go. We spent less than $10,000 getting it ready – an investment that’s paid us back many times over the years.

Dealing With Tenants

We’ve all heard horror stories about tenants and landlords. When looking for a tenant you of course want to check references and ask a lot of questions, but I’ve found that simply treating people well motivates them to treat you well. If there are any problems, take care of them immediately. When our almost brand-new fridge broke, we had a new one delivered the next day. Tenants who know you have their back will be more respectful of your property.

Reaping The Rewards

Now you can enjoy the fruits of your labors. You should also learn about taxes. Rental units offer a number of helpful tax advantages, including being able to write off a portion of all utilities, taxes, and other bills. In Canada, where mortgage interest can’t be deducted, you are allowed to deduct the interest you pay on the portion of your home that you’re renting.

You should also watch out for how you claim capital costs. A capital cost is any upgrade you do to your property that improves it in any way. You don’t pay capital gains taxes when you sell your primary residence, but if you’ve claimed capital costs on your rental unit, you may have to pay capital gains on that portion of the home. Look into this ahead of time and don’t get stuck.

How Working Overseas May Affect Your Mortgage Decisions

If you are a homeowner who will soon be working overseas, you have many decisions to make regarding your house. Should you keep the house or sell it? Should you rent out the space? Should you make changes to your mortgage based on your current plans?

The answers, of course, depend on your personal situation. However, if your company is moving you abroad, you will likely receive several perks, including housing that is paid for when you are abroad as well as travel allowances and sometimes hardship pay, all of which can translate to a nice increase in pay. If you are going to be living in a country with a lower standard of living and you are going to also receive an increase in pay, you could find yourself in an enviable position of having quite a bit of extra cash.

Strategy One—Keep the House and Make Extra Payments

Several months before your move, if you decide you want to keep your home, you may want to compare home loans. With all of the extra allowances you will receive living abroad, you may find that you will be able to put more money on your mortgage and pay it off faster. In this case, a flexible mortgage may be right for you because it offers you the flexibility to pay more on your loan without incurring any penalties for early payment. If you are living abroad for several years, you may find that you have enough money to pay off your home during that time. You can use a loan repayment calculator to help plan how much extra you would need to pay on the house to pay it off while you are abroad and making extra money.

Strategy Two—Sell the House in the Next Few Years

If you don’t feel comfortable making any plans for your home before you move but think you may want to sell, you might want to consider refinancing and taking out an adjustable rate mortgage. Some adjustable rate mortgages are adjusted five years into the loan. If you can get a low interest rate now, you can continue making payments, and you will have five years to make up your mind whether or not you will keep the house. If you choose to sell before the adjustment at five years, you have saved yourself interest on your payments, and you do not have to worry about refinancing when the rate is set
to adjust. In addition, refinancing may reduce your monthly payments, so you will have more money to enjoy overseas, which may give you the opportunity to travel more.

Moving overseas to work is an exciting prospect. Still, before you can enjoy the move, there are many things you must take care of at home. Deciding what your future plans might be can help you determine if you want to sell or keep your home. If you decide to keep it, refinancing may be necessary to help you live a comfortable life when working overseas.