Beating Broke

Personal Finance from the Broke Perspective

Saving on Home Loans

By 4 Comments

One of the biggest purchases you will make over your lifetime is the purchase of a house.  Some will argue that purchasing a house is an investment.  But, if it’s your primary house that you intend to live in, it’s not an investment.  Sorry, it just isn’t.  If you intend to rent the house out, that’s another story, but your primary residence is just a purchase.  Even so, it’s a very large purchase.  It makes sense, then, that we will want to find as many ways as we can to save money on the purchase of our home.

Saving before a home purchase

I’ll discuss how to save on your home once you’ve already purchased it a bit further down, but you’ll find yourself a good bit ahead of the game if you start thinking about how you can save money on your home purchase before you make the purchase.

  1. Improve your credit, improve your rate – The rate at which you borrow the money to buy your home is a big deal.  A half a point on the rate can translate to thousands of dollars more in interest over the life of the loan.  The best way to guarantee that you get the best rate available is to have excellent credit.  Depending on how far you improve your credit, you could shave as much as two or three points off the interest rate of the loan.  Not only will that reduce the payment you’ll make, but it will reduce the amortized amount of the loan by tens of thousands.  Want to know what makes an impact on your credit score?  Read the Beating Broke Guide to Your Credit.
  2. Compare home loans – I mentioned how this will likely be one of the biggest purchases of your life, right?  Well, why on Earth wouldn’t you compare the loans available to make sure you were getting the best deal?  You’ve got to compare those loans!  Different lenders will have different policies, rates, and even lengths of loans.  Not only will failing to compare the home loans available cost you money, but it could cause you a lot of stress over the life of the loan.
  3. 20% down or more – If you’ve got the savings for it, put at least 20% down on the home.  Why?  Well, it reduces the amount of the loan, for one.  The less you have to borrow the better, right?  More importantly, 80% is the normal cutoff for when a lender will require you to add Private Mortgage Insurance to the loan.  It can add a hefty bit to the monthly payment, and it doesn’t go anywhere but into the insurer’s pocket.

Saving after a home purchase

  1. Refinance – This may not be for all of you looking to save, but with the current rates, it bears looking into for some of you.  Refinancing a higher interest rate mortgage into a lower interest rate loan can save you thousands over the life of the loan.  Refinancing into a shorter term mortgage can also save you thousands, but beware that the mortgage payment is likely to be higher due to the shorter amortization period.
  2. Make extra payments – If refinancing isn’t in the cards for you, make sure that your lender will accept extra payments to principle and then start making them.  Reducing the principle will reduce the interest, and by simply making an extra payment a year, you can shave years off of your mortgage.

Whether you’re looking at buying a home, or already have, saving money on the biggest purchase of your life is always worth looking into.  A few minutes on the phone with your lender can sometimes save you more than you would cutting lattes every day.  With the higher number of defaulting mortgages recently, many banks are much more willing to help you save money on your payments and pay the loan off early.  They like getting their money back too!

What other ways have you used to save money on your mortgage?  What’s the most extreme example that you’ve heard of?

Your Primary Home is NOT an Investment

By 11 Comments

Home or Investment?Your primary home is not an investment in the normal sense of the word.  Dictionary.com defines Investment thusly*: “the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.”  Some of you will argue that you buy your house because it will appreciate in value.  But, to fit the definition, you must have bought it specifically for that purpose.  And in the case of a primary residence, that isn’t true.

When you bought (or buy) your primary residence, you’re looking for a home.  You’re looking for a place to call your own where the money that you spend on it goes towards your ownership of the home.  Sure, it may show some returns by way of appreciation of value, but those are locked into the house until you sell.  And, truthfully, you probably don’t care about that unless you sell, so if you plan on living in the house (the definition of primary residence) it makes little difference what the house is worth as long as it provides a home for your family.

So, don’t be fooled into looking for a good “investment” when you buy a house.  Look for an affordable home that will provide for your shelter needs.  When (if) you sell the house, it gets converted into an investment and you will have hopefully made some money, but when you’re looking for a home, pick the one that will fit your needs. Not the one that shows the most potential for return.  That’s what second homes and rental properties are for.

*I know that thusly isn’t really a word.  I blame it all on Alton Brown.

Photo Credit: svilen001 @ sxc.hu

Reasons why homes owners should consider “going green”

By 4 Comments

Everybody knows it’s great to go green, but have you ever considered why? Here’s some advice for homeowners on how greening their homes can lead to a higher quality of life.

1. Homeowners with greener homes pay less for water and electricity each month. If you’re one of the green-savvy homeowners who have installed solar panels or a solar water heater, you are at a great advantage. Although these systems are usually used to complement traditional means of providing electricity and heating water, some lucky homeowners have discovered that they can produce enough green energy to go entirely off the grid. Not to mention that maximizing natural light can lead to lower consumption of electricity, as well.

2. Green homes last longer and sell higher. For those homeowners who are fortunate enough to be able to build their dream green home or participate in the construction of a home already in progress, green additions can be well worth the investment. Not only do these homes produce less waste during the construction process, but their green features — such as reclaimed bamboo floors and solar panels — last longer, giving them a higher resale price if you ever decide you want to move. And who knows how much more in-demand green homes will become as fuel prices continue to rise?

3. Green homes are healthier for you. When going green, it is important to think of the little things, as well. Using non-vinyl window blinds can help reduce the amount of lead particles in the air around your home, as well as using chemical-free paints. These chemicals, when ingested over a long period of time, can lead to health complications that you may not even be aware of. So greening your home is also a way to live a longer, healthier life.

Don't forget to recycle!4. Green homes require less maintenance. Whilst you’re spending time around the house this year treating your deck and polishing your floors, consider this: design materials made from recycled product often require little to no effort to maintain and last longer. This means that you can actually save both time and money by incorporating things like environmentally friendly flooring in your home’s decor.

5. They help maintain a mutually beneficial relationship with the environment. This may seem like a no-brainer, but green homes do a lot more for the environment than just reduce waste. Home builders who know how to work with the environment in the process of designing their homes can actually use things like the angle of the sunlight to eliminate the need for artificial lighting. They can also take advantage of wooded areas on the land for climate control inside the home instead of destroying the trees.

photo credit: Pylon757