Determining How Much You Should Borrow for a Home

If you are first-time home buyers, you may be excited and yet overwhelmed by the enormity of the decisions facing you.  Not only do you have to choose the home you want to buy in the neighborhood you prefer, but you have to decide how much to borrow and what type of loan to take out.  Care should be taken to avoid being “house poor” or simply working to afford the home.  The decisions you make now can have a direct impact on your finances for as long as you own the home (and sometimes longer).

As you begin the home search, your first question might be “How much can I borrow?”  Before you even go to the bank, you should have an idea of how much money you can comfortably afford to pay each month.  From your income, deduct all of your monthly expenses, excluding any rent expenses you may currently have.  Remember to also include a few new categories that house buying necessitates—property tax, homeowner’s insurance, and maintenance and repairs.  What you are left with is the amount you can afford for a mortgage.  Use a calculator mortgage online to determine how large of a loan you can take out and still pay the monthly payment you have determined you can afford.

You may find when you actually begin the loan application process that the bank will allow you to borrow more than you may feel you can comfortably afford.  Although it may be tempting to find a house in the upper range of the mortgage you qualify for, try to avoid this temptation.  If there is anything the last few years have shown us, it is that no job is truly secure.  If you or your spouse suddenly lost your job, would you still be able to afford the same mortgage?  If the answer is no, buy a home at the price level you can afford.

While buying a home can be intimidating for first time home buyers, know that the decisions of what home to buy and how much to borrow ultimately rests with you.  Take out a mortgage that you can truly afford, and you will not risk being house poor or working solely to pay for the house.  This in turn can make homeownership a positive experience rather than a stressful one.

Rent a room to make Ends Meet

Renting out a spare room is a great way to make ends meet. Even charging a modest amount of rent money can go a long way in helping pay the mortgage and you could be helping someone who otherwise can’t afford an expensive apartment complex.

But with any landlord/renter agreement comes the potential for problems. Be sure to do your homework well ahead of time so the rental agreement can cover, in writing, rules about food, storage, behavior, noise and visitors.

Will you be offering additional storage areas to the tenant or will they be limited to their room? If you do not offer storage, inform the renter that they will need to acquire a storage facility elsewhere.

While it may seem like a no brainer to share the same refrigerator and cabinet space, you may be asking for headaches with such an arrangement. It’s worth your while as a landlord to provide a small refrigerator in the rented room. Designating separate cabinets and pantry space is also important.

Make any house rules clear. Who takes out the trash? Should everyone just wash their dishes immediately after use or will there be a sharing of chores around the house? As the landlord, you may end up doing all the chores if you don’t spell out the rules in the rental agreement.

List what constitutes acceptable noise and visitor stays. Do you really want an overnight visitor walking through your kitchen at 7am?

Once you determine how you will approach your new role as a landlord, make sure the space is adequate enough for a long-term tenant.

Renting out a room with access to a private bathroom is wonderful and letting out an entire basement apartment is ideal, but if all you have to offer is a single bedroom you need to be prepared to ask for a smaller amount of rent.

To maximize the amount of money you can charge, see if your budget allows for a new private entrance or even private bathroom addition.

Of course, adding a new entrance into the rented room from the outside will be less expensive than building an entire en-suite bathroom, but your investment will come back to you either way.

Fortunately, homeowner loans can help finance these types of upgrades. Homeowner loans allow you to borrow money based on the equity in your home and with interest rates incredibly low, now is the time to borrow.

People should never take out homeowner loans if they aren’t sure whether or not they can consistently make payments. Missing them can mean foreclosure.

Those that qualify and have stable incomes will find that using homeowner loans to prepare rental space will triple or even quadruple the amount of rent money you can charge, making the debt well worth it in the long run.

Before settling on a tenant, ask close friends and family if they know of anyone personally looking for a room to rent. If you do place an ad, interview the applicants in person and go over the lease agreement.

Although credit and background checks may be priorities for most landlords, giving someone with bad credit a chance after enduring the harsh realities of the recession can be quite rewarding, since these types of renters are unlikely to qualify for housing elsewhere.

As long as you prepare the rental space to a standard in which you could see yourself living and set all the boundaries upfront and in writing, renting a room to make ends meet is a smart decision.

Post by Les at MoneySuperMarket

How to Finance a Home Extension

No matter how much money or how little you have spent in the creation of your home extension, there comes a time when you will eventually have to pay for the work you did or had done. Of course, the smaller the extension is, the less of a problem you will face, but in every case, you will still have a number of options at your disposal. Such options may range from paying for such a project through personal savings to various forms of lending and borrowing.

Regardless of which step you select, the first thing you will need to do is to create a budget that is the right kind for the task. It should be detailed and should guide you through exactly how much money you will eventually need to borrow. This is key, as you will not want to run out of money half way through a project.

Private or commercial?

Once you have figured out how much money you are going to have to put down, and presuming that you have discovered that you will not have enough in savings to cover that amount, then your next step will be to figure out how and where to borrow the money from a person or an institution. What you do at this point will depend on a number of different factors, such as whether or not the home extension in question involves your home.

If the extension involves your home, then you will continue to live there. However, if you are extending a property that is not yours for residential purposes, then you might be working on a developmental project, such as improving a property so you can turn a profit on it during the sale. Extending and then selling a property is not an uncommon practice these days and popular amongst builders.

Commercial developers will be able to access a number of different financing options that will consider the final property values once construction has finished; this is something you typically will not be able to get typical providers such as building societies and banks to do.

A number of commercial developers are private investors. They make their money through loans to developers once they have examined the viability of the project in question. They will provide large sums of money through daily or monthly interest rates. Other lenders may be financial institutions that focus on the provision of funds for development projects.

Make use of existing equity

If you are improving your own home, then you will probably want to get the money by extending the mortgage you already have; this is called a re-mortgage. It releases your home’s equity due to the increased value of your home. You borrow the money you need and pay it back through your mortgage. In some cases, you might not face a significant increase in your monthly payments. When you come to sell your home you will pay back both mortgage charges together.

It was not too long ago that borrowing against your mortgage was difficult and rarely done, but the rules have been changed to make it much easier these days, so you can even play a number of lenders off each other when trying to find the best deal. Watch out for deals that feature low introductory payments, as these periods will inevitably come to an end.

The problem with those situations is that you might fancy yourself earning more money at the ends of those periods but if you aren’t, you might be stuck with much higher monthly payments that are much harder to pay. Be sure you know what you are getting into before you sign any papers.

Alternative Loans

You can also get additional loans beyond your mortgage, including loans from banks, specialist lenders, or building societies. These can be secured or unsecured loans, depending on whether they are secured against your property or not. Separate loans are generally over shorter terms than mortgages and come with higher repayments. Consider the pros and cons of each option.

Bio

This guest post was written by Andrew Potter from My Online Estate Agent. My Online Estate Agent is a UK low cost estate agent and charges a fixed fee to advertise on Zoopla and many other top UK property portals and provides all the online tool and guides you need to sell or let your property.

 

Celebrity Foreclosures: You’re Not Alone

It seems like foreclosures are everywhere. And it’s true. Even the rich and famous are facing foreclosure and abandoning their homes (not that I have any sympathy for the rich or famous losing their homes).

1. Jose Canseco

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Former baseball player Jose Canseco reportedly abandoned his home in the spring. His 7,300 square foot Encino, California house had four bedrooms, and six baths. He bought it in 2006 for almost $2.8 million. It had an outstanding balance of over $3.3 million which includes back payments, fees, and penalties.

2. Ed McMahon

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Former Tonight Show announcer Ed McMahon is behind about $644,000 on his 90210 home. The mortgage balance is approximately $4.8 million and is currently listed at $6.25 million. He has had no offers in two years. The home has six bedrooms and seven baths and he paid less than a million back in 2000.

3. Evander Holyfield

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Former heavyweight champion Evander Holyfield has a 54,000 square-foot, 109-room, 17-bath mansion in Fayette County, Georgia. Holyfield defaulted on his mortgage (balance of $10 million) this spring and an auction was scheduled but has since been cancelled. He said that he is in no danger of losing his home and that he’s “just not liquid.” Holyfield must have found some cash because he is no longer in foreclosure.

4. Michael Jackson

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Michael Jackson’s 3,000 acre estate in Los Olivos, California is valued at around $35 to $45 million. He owes more than $24 million on the mortgage and the loan was taken over by Colony Capital, LLC since Jackson left it in 2005.

5. Courtney Love

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Singer Courtney Love purchased her home in Olympia, Washington in 1997 but stopped making the payment in 2003. It went into foreclosure in 2006. Her balance on the mortgage was $386,000 at the time. The house went to auction but it failed to sell and Love caught up her payments. She is still the owner of the house.

Source: CNN Money