When it comes to New Year’s Resolutions, financial goals like paying off credit cards and doing a better job of saving rank at the very top of most people’s lists, right up there with the perennial goal to take off a few pounds.
But for many Americans, visions of sugarplums had to share mental space this holiday season with visions of home – from buying a new one, to cutting costs in the one they already have. Whether you rent or you own, here are 5 key real estate resolutions to consider setting for 2011 (plus some pointers on how to fulfill them).
1. Owners: Accelerate paying your mortgage off. During the bubble era, many homeowners were comfortable with refinancing ad infinitum, so long as they could afford the payment. It was not unusual for homeowners to refi their mortgages every year, pulling cash out for everything from cars to college tuition. After the burst, homeowners who have witnessed friends and neighbors lose their homes are exhibiting a new level of interest in paying their homes off – all the way off. While some money pundits say the cash is better used by investing it, many homeowners seek the security of owning their homes free and clear sooner than planned, which also saves them thousands and thousands of dollars in interest payments over the life of the loan.
Fortunately for them, there are lots of strategies out there for getting your mortgage paid off ahead of schedule. In 2010, we saw the seeds of a trend of homeowners with upwards of 25 years left to pay on their 30-year mortgages with 6.5% interest rates refinancing those loans into low interest 15-year-fixed mortgages, slashing both their rate and the number of years they have left to pay on their loan nearly in half. Interest rates trended rapidly upwards in December, but rates on a 15-year-fixed rate loan are still very low – just barely above 4.25 percent – so if you’ve had your loan for awhile, you can still cut your interest rate significantly by refinancing into a shorter term loan.
If you can’t refinance for any reason or you simply would rather not commit to the higher mortgage payment on a shorter term loan, here’s a hack you can use to get your existing home loan paid off sooner – effortlessly: pay half the amount of your monthly mortgage payment every two weeks, rather than the full payment once a month. This results in an extra monthly payment per year, and can pay your mortgage off as much as 6 years early!
2. Renters: Renegotiate your rent. Most resolution-setters looking to save more cash start with cutting out their daily latte and canceling cable. But housing is your largest expense; saving there can be the equivalent of cutting out dozens of lattes – in one fell swoop. If you are seeing rents in your building or around town that make yours seem high, or you search Trulia Rentals for your building and find that the rents currently being charged are lower than yours, these are good signs that you might be paying above-market rent. If that’s the case and/or if you see a high number of vacancies in your building, you should have no qualms about contacting your landlord and renegotiating your rent.
To be an effective negotiator, point out the rental “comparables” which are lower than yours, and explain that the rent is too high for you to continue paying at this level; also, point out that you always pay your rent on time and the other ways in which you are a desirable tenant. Let your landlord know that you would love to stay in the building, but that you can’t afford to pay above-market rents when there are so many other units available in the area at a lower cost. Many landlords would rather discount your rent by $50 or $100 than lose a good, paying tenant at a time when they already have so many units to fill.
3. Sellers: Create urgency for buyers, and get your home sold. If your home lingered on the market in 2010, you may need to take the bull by the horns to get it sold in 2011. Cut your price to a level slightly below the recently sold comparables; even if you’ve cut the price before, this can create a pricing “sweet spot” where buyers recognize the value and get concerned that such a good deal won’t possibly last. Same with condition – primp and spruce your home so that it shows so much better than the other homes in your area that buyers will see that they feel compelled to leap off the fence.
Finally, if you’ve had lots of buyers – or even repeat visits from the same buyers – consider making a reverse offer to the buyers who have shown an interest but not yet made an offer. With a reverse offer, the seller actually puts together a written offer to sell to the buyers, usually at a price or on terms that are more favorable than the property was listed with. And a smart reverse offer has a pretty short shelf life – by making it expire within a day or two after issuing it, you create a level of urgency not seen since the tax credit was about to expire!
4. Buyers: Qualify for a mortgage to buy a home. Many would-be buyers have mentally disqualified themselves, despite the great economic climate for buying a home, because they have heard it is so difficult to get a mortgage. The fact is, with a 620 credit score and a 3.5 percent down payment (plus closing costs, in some cases), an FHA loan can finance the purchase of your home. Start with the basics – pull your credit reports from AnnualCreditReport.com and check them for errors, following the instructions to dispute any inaccurate information that might drag your score down. Then, get referrals to a local mortgage broker who can pull your credit score – the same ones the banks will look at – and let you know where you stand, as well as giving you some tasks to boost your score to where you need it to be, if it’s too low. Don’t talk yourself out of even applying for a home loan; instead, get a professional’s opinion about your purchasing power and their help in getting yourself ready to buy.
The other big to-do list item is saving up “cash to close” – the money you need for your down payment and closing costs. Again, work with a real estate broker or agent and the mortgage broker or professional – local to your area – to help you figure out about what your target savings amount needs to be. Then, get started going through your last month’s bank account statements to see where you can eliminate expenses and direct those funds into savings, automatically and every paycheck, ideally.
I suggest setting up a new savings account that you nickname “Home” or whatever gets (and keeps!) you inspired to stockpile your cash there.
5. Owners: Pay your property taxes. Coming out of the recession, many a cash-crunched homeowner has held onto their homes by the hair on their chinny-chin-chin, through job losses, reduced income and rising adjustable mortgage payments. There’s a major contingent who have been able to keep their mortgage current, but have fallen behind on their property taxes. Though many states will not foreclose on a home until the taxes are anywhere from 2-5 years delinquent, if you’ve fallen behind on your taxes and are starting to get your financial footing back under you, 2011 would be a great year to get current. I know this is tough, because you’ll have to start paying your current taxes, plus chip away at the back taxes, but it is possible – just treat it like any other financial project and start devoting whatever you can to the delinquent taxes on a monthly basis. Also, make sure you have budgeted a monthly savings amount to cover your current taxes, even if you only pay them twice a year, to avoid falling further behind.
Two things that can help: first, make sure you’re not overpaying. Check the assessed value of your home, as it appears on your tax bill or on your county tax assessor’s website. Then, visit Trulia, search by your address, and find the recent comparable homes that have sold in your area. If they are selling for significantly lower than your home’s assessed value, dispute the value with the tax assessor. Most of them offer a dispute form on their websites, and simply require that you tell them what you believe to be the new, lower value of your home and offer them the addresses of recent sales that back your estimated value up.
Second, most tax assessors and/or collectors do offer a long-term payment plan for delinquent taxes. Visit their website or give them a ring – many times, you’ll be required to make a down payment of, say, 10% of what you owe, but then can make low, monthly payments for up to several years to get rid of your arrearages.
Article on Trulia.com by Tara-Nicholle Nelson