Property Tax Dropped over 50%!

I just got my annual notice for my property tax on my house. I had to read it several times to be sure I understood because I didn't believe it at first. It had dropped over 50%!

I checked it against last year's bill and they property value they put on my house also dropped by over half so it made sense to me. While this is not a good thing if I were wanting to sell my house I am not concerned. I will be living here a while and eventually keep it as a rental property.

This is great news since it reduces the amount I have to dedicate each month to paying the property taxes. Since I have been over saving the past 6 months I moved the surplus funds into other savings goals.

It is nice to get a tax bill in the mail well below what you expect. Doesn't happen often!

Home Insurance Shopping: Lesson Learned!

I recently switch my homeowner's insurance since it would save me nearly $200 per year. Doing so I went online to insweb.com to get quotes. To be fair I did get some quotes and the end result was good. On the down side I am getting endless calls from insurance agents. I will not do this again!

It was good to get multiple quotes so I can be sure that I get a fair price. The problem lies in the agents. They almost all work on commission and are aggressive. I am to the point now where I simply hang up on all of them as they don't seem to understand that I have bought and am completely not interested in anything they have to say.

I know now better for next time. I will look up and contact a few companies directly so some website doesn't fan out my phone number to 20 people. The fact that this burns my cell phone minutes is a minor annoyance to the calls I get all day long while I am at work. I was also annoyed that most of them did not simply email the quote I requested. They wanted to call and try to sell me other insurance. Lesson learned!

Refinance Closing Complete! Consolidation Begins!

Today I closed on the refinance of my current mortgage and HELOC into a new 30-year mortgage. I went through my local credit union and lowered my interest rate from 6% to 4.5% on my entire balance. This is a great rate and I freed up almost $200/month in cash flow as a result!

I finished my closing around 2 hours ago and I feel a big relief. All the paperwork, applications, appraisal, inspectors, and general hectic mess is over. I am now paying just shy of $400 per month for my newly remodeled foreclosure home in a great area. It took me 1 year, 2 months to get to this point. It feels great!

Now some real work begins. As I write this I am on hold with yet another credit card company. Now that I am past credit checks and needs for borrowing I am doing an "avalanche" of account closings. I have multiple cards that I no longer use. I opened them to get bonuses and rewards and am now closing the accounts I don't need.

I am in the big process of simplifying my financial life so I can focus on other things. I have paid off all of my credit card balances except for 1 and that will be paid off this month and I will close that account too. I will be left with only a handful of my oldest accounts to maintain my credit history and to have for emergencies. I will continue to use my Delta SkyMiles card to earn my free travel rewards as usual.

House Appraisal: $98,000!

I just got my appraisal in for my mortgage refinance. My home value, according to the appraisal, has risen $8,000! This is great news as I can now refinance with no out of pocket costs. This also means my net worth has risen a bit too!

I am moving forward with my refinance at 4.5% which is a lot less than the 6% I am paying now! I will also roll in my HELOC to make one payment and total monthly out of pocket too. My HELOC is at 4% but it is a variable rate that will eventually rise so I am OK with locking in 4.5% now.

This is a big leap forward for my monthly cash flow and overall interest rate on my mortgage debt. I am locking in one of the lowest interest rates in history for my 30-year mortgage. I intend to pay extra toward the mortgage once I have exhausted all of my other debts to speed up the repayment. I will continue my debt snowball as planned.

Now is the time to refinance if it makes financial sense!

HELOC Closing tomorrow!

Tomorrow I close on my home equity line of credit. I am getting it from a local credit union that pegs the rate at prime + 0.00%. The rate is currently at their minimum rate of 4%. This is being used to repay all the money I borrow form family to do my home remodel.

I am paying $0 in closing costs and will have access to the money next week. This is the final step in my house remodel process. I can now move on with my life!

My House is DONE!

I am celebrating this week. I am FINALLY done with the remodel of my house. It has been a long 9 months and I am happy with the results. I am getting my final cleaning done today and my appraisal tomorrow so I can refinance my mortgage. This is a big milestone.

Some stats:

• Materials cost: $13,500
• Time: 9 months working only evenings and weekends
• Lessons learned: Countless!

This remodel was a test of my own patience, skill, project management, and forced me to learn a lot about construction. I am glad I did it and would do it again!

For those who do not know I bought a foreclosed home in dire need of remodel. It was built in 1981 and everything was original. It is now a nice, updated home that is worth twice what I paid for it. I did almost all the work myself and it only cost me materials (no small cost!).

I can now move on with my life!

Refinancing my mortgage!

I have started the process of refinancing my mortgage. It is a lot of paperwork and coordination but will produce some good results for me. I am dropping my interest rate by 1%, dropping mortgage insurance, paying off all of my remodel expenses, and simplifying my financial life all at once.

As an added bonus I am not required to escrow my property tax and insurance. I will set up a savings account and escrow it myself so I can earn the interest instead of a bank. I will also get some of the escrow "required surplus" money back that I can use as I wish. It will be added to the emergency fund.

This time I am using a local credit union for the mortgage. They were the best deal I could find and I like the idea of keeping it local. I also have some savings with them so I like the idea of moving to them for the mortgage. They are very easy to work with and treat me more like a person and less like an account number.

I have come a long way remodeling my foreclosure purchase. I am 98% done with the house now and the only remaining variable is the appraisal. Once that is done I can lock my rate and continue onto closing the new loan and consolidating. It will be a great feeling to have this done and over with!

Mortgage Escrow Surplus! ...and reminders!

I got notification that I have a mortgage escrow surplus from last year. I will get getting almost $800 back from Chase which I will in turn throw against debts immediately. This is a nice surprise and a great boost for my net worth. I also like getting unexpected checks in the mail!

This brings me to the point that it is important to read your annual escrow statement from your mortgage lender. It can go the other way where you might have to actually send them more money. I always check the accuracy of their calculations and the actual numbers they use. Does the property tax, insurance, and other escrow items match what you have? These people do thousands of these a month and mistakes do happen!

If you do find any mistakes you need to bring it to their attention immediately as underpaying over 1 year's time could lead to having to cut a big check the next year. Also if you personally receive bills that are covered by escrow funds be sure to send them onto your lender so they get paid on time. Most of them have a mailing address and/or fax number to send them too. A little paperwork now saves a big headache later!

Benefits of Mortgage Prepayment

Paying off a mortgage early can give us a feeling of accomplishment and relief. Dropping a large monthly payment can put us in a great position to save more and do more of the things we enjoy. It is a step to financial freedom!

Warning: Do not prepay a mortgage if you have other debts outstanding. This is the last step in the debt elimination process. I have had people as me how much they can really save so I put together this post!

Example:

30 Year Mortgage, $100,000 @ 6.00%

Normal payment: $599.56

Prepayment Examples (assuming you pay extra from day 1):

• Add $100 in principal each month: Paid off in 258 months (21.5 years) and save $39,896.57 in interest
• Add $200 in principal each month: Paid off in 197 months (16.42 years) and save $58,446.42 in interest
• Add $300 in principal each month: Paid off in 163 months (13.6 years) and save $69,460.99 in interest

As you can see adding as little as $100 per month can save you a lot of money. You also knock off 8.5 years of payments to boot. Prepaying a mortgage can help us get to our goals faster. If you have the free cash flow and no other debts or obligations I highly suggest you do this.

To calculate the above scenarios I used this free tool here. It is a little quirky but once you get the hang of it you will be able to play with the numbers and decide what is best for you!

Get your first time homebuyer tax credit NOW!

I did some digging around and found out that you can refile your 2008 federal tax return using form 1040X (amended) to get the money back early. The form is a little complicated so I suggest consulting a tax adviser if you are not comfortable with it. Here is the article on the IRS site that says you can refile.

The IRS claims it will take 8 to 12 weeks to process but my past experience has seen it more like 4 weeks. With something as simple as a tax credit it should not take too long or much scrutiny. I would suggest that everyone who is eligible file now to get the money. It would be a great debt payment or savings addition and their is no reason to wait!

Suggested uses for home buyer credit (in priority order):

• Pay down credit card debt (best)
  
• Pay down auto loans
• Pay down other debts (non-mortgage!)
• Emergency Fund Savings
• Roth IRA contribution (up to max--preferred)
  
• Other Retirement Savings

I specifically left out the mortgage pay down as I believe a mortgage is good debt and only needs to be paid off early if you are near retirement. Interest rates are generally low on mortgages and you can get better returns on your money in investments. I especially am against paying it down if you plan to sell the property anyway. Houses are very illiquid and your money is better off in an asset that is easier to liquidate and earns more return.

My story for my tax credit:

I just completed my form 1040X to mail off tomorrow. Unfortunately you cannot have direct deposit using this form so I have to wait on a paper check. This may make me wait as I will be in Thailand for 5 weeks on extended vacation. Either way I am happy to get the money!

I will end up with a large sum once my amended return is processed. I plan to send this money directly to my debts to knock off a nice chunk. This will significantly help my net worth and reduce my monthly payments so I can accelerate the others. It will be a big relief to drop a monthly payment!

15 year versus 30 year mortgage

Since I was recently house shopping I have decided to share my thoughts on mortgages. I am not a fan of adjustable rate or interest-only mortgages as they tend to only cause financial trouble or even crisis later on. I only support fixed rate, fixed term mortgages and that is what I have on my foreclosure that I just bought.

When I was looking at houses I decided that a 30 year mortgage was best for me. I am over 30 years away from retirement, have a lower payment, and can always add principal payments if I desire. I like the flexibility. Having the lower payment allows me to tackle higher interest bad debts and get them gone faster. I end up saving in the long term.

If you are house shopping and no longer have bad debts (credit card, auto loans, etc.) I would suggest a 15 year mortgage if you can afford it. You will save a small fortune in interest in the long term and the monthly payment goes away a lot faster. You should absolutely get a 15 year mortgage if you are 20 years or less away from your target retirement age. The ideal situation is to have the house paid for by the day you retire at the latest.

That said, their are exceptions to the above rules. If I knew that I would be selling the house in a few years after I bought it or going to use it as a rental property after I moved out then I would do a 30-year mortgage. The tax breaks and more positive cash flow from a rental make sense in this case. If your cash flow becomes exceptionally good you can always accelerate the payments on principal.

The best way to pick the term of your mortgage is to take a close look at your personal financial situation. Ask yourself these questions:

• Would I save more in interest by taking a 30 year term and paying down other debts?
• How much of a monthly mortgage payment can I afford?
• When is my target retirement date and how close am I to that date?
• When do I plan to sell the house (if at all!)?
• Am I going to need to borrow money to do remodel or repairs on the house as well?
• What are the tax, insurance, and maintenance costs each month?

You should also consider your tax bracket and tax breaks from the interest. This is only a secondary concern but does changes the numbers a bit. It is best to avoid paying interest when you can but sometimes it can make sense to pay more interest and refinance later if rates are expected to drop. If you fall into a 20% marginal tax rate, for example, you can reduce the total interest on the loan by 20% as you would save that money on your income taxes assuming you itemize deductions.

One final item to consider and should really not affect your decision at all is future borrowing potential. Having a higher payment from a 15 year mortgage could theoretically drop your ability to borrow for other needs as you have less disposable income. This should be a non-issue for most as we should save for things and not borrow.

Buying a house is a big investment and it is important to make the right mortgage choice for your situation. If you have covered all of the above items then you have "done your homework" and are on the right path. Now that you have figured out your mortgage details and how much you can afford go out and find your new home!

Becoming a landlord: the details

With the purchase of my new house I am essentially becoming a landlord. I just happen to live in the property I also rent out. I have been doing some research and found that I will need, at a minimum, the following items:

1. Lease from each room tenant. I plan to use the nolo.com $14.99 lease form to get started. This protects both me and the renter in a dispute and puts everything in writing.
2. Taking deposits. I plan to hold each tenant's deposit (equal to one month's rent) in an interest bearing account for the duration of the lease. Any damages at the end must be taken from this and detailed to the tenant.
   
3. Maintenance. I am responsible for making sure everything in the house is in working order. It must be safe, secure, and livable at a minimum by law. I will make sure that everyone is happy. A happy tenant is one that pays on time!

I expect to have both of my spare rooms rented out within the next couple of months. I currently have one tenant ready and am looking for another. This will definitely be a learning experience but hopefully a good one. I am also looking into more rental properties as a way to earn extra income.

I have always thought about getting into real estate and I think this house is a great first step. I got a great deal on it and there are more deals to be had. I will see how this goes and look into getting another. I have the vision and now just need the means!

2009 First Time Home Buyer Tax Credit

I personally was not sure exactly how this credit works so I did some digging and summarized it here for us in simple terms. Digging through tax law is rarely fun but in this case certainly worth the financial reward.

Here are my findings:

• Amount of credit: 10% of the purchase price up to $8,000
• It does not have to be repaid!!
  
• Types of homes: Single family, condo/townhouse, mobile, and houseboats
• Income cutoff: $75,000 single, $150,000 married (phases out starting at these levels)
• Refundable: Yes. If the credit exceeds the tax you owe you get a check for the difference!
• Purchase timeline: Between Jan 1, 2009 and Dec 1, 2009. Must be closed by this date!!
• Only for new home buyers: Neither you or spouse can have bought a home in the last 3 years.
• You must keep the home for 3 years after purchase in order to no have to pay it back
• You can get a loan for the credit now to pay closing costs and FHA 3.5% down payment.
• You can apply the tax credit toward your 2008 return if you so choose.
• You can base the credit on your 2008 income if you are subjected to above phase out.

You have to file IRS form 5405 to claim the credit on your tax return. This is also where you calculate the amount of credit you will receive.

As always consult a tax advisor to calculate your credit and if any of the above rules would help you get more money.

I am now a homeowner!

Today I closed on my first house. I bought a foreclosed home in Decatur, GA, an inner suburb of Atlanta, for a really low price. I estimate that my equity after the remodel will be around $30,000.

I used an FHA loan to purchase the house and it was quite a process with inspections, HUD rules, insurance, escrows, etc. It took me nearly 4 months from looking at the house to purchase but I am finally done with it and am happy that it worked out.

This weekend I will begin construction and try to get as much as I can done with my Dad in town. It is going to be a lot of work but a major payoff in the end.

Buying a house? New PMI Rules!

This is another personal experience that I will share for those of you looking to buy a house in the near future. With the recent rash of foreclosures and bad deals the entire industry is buttoning down. It is a LOT harder than it was a couple years ago.

A little background on my scenario:

I am buying a 3 bedroom, 1.5 bath town home here in the Atlanta area. It is a foreclosure that needs work. I can put up to 5% down on the property with my savings. This puts me in the situation that I would need PMI or Private Mortgage Insurance.

I was informed that my credit score was not high enough to be able to obtain PMI. As it turns out the insurers are really getting hit hard now and they raised their minimum credit score to get PMI. I was blind-sided by this and had to change to an FHA loan last minute.

If you are unable to qualify for PMI and you don't have 20% to put down you are left no choice except to get a government sponsored (read: insured) loan. You still pay "mortgage insurance" but instead of private it is provided by the US Government. I am personally using an FHA loan with 3.5% down since I am a first time home buyer. My interest rate ended up being lower too!

This came as a complete surprise to me so I thought I should share my experience here. I will soon be rid of the insurance as once I get the house, do the repairs and upgrade, and get a new appraisal I will have more than 20% equity. This is a temporary headache (I hope!).

Since I am buying the house through a normal FHA loan I have to pass a HUD inspection. This put me in the unique situation where I have to do repairs on a house I do not yet own. The only reason I am doing this is that once the work is done on the home I should have close to $50,000 in equity. Worth the risk in my opinion.

If you are in the market for a home and will need PMI keep this information in mind. It would be heartbreaking to find a place you like to only find out 2 weeks away from closing that you cannot get it and have the whole deal fall through.