Wednesday, May 30, 2007

Put Down the Subprime Mortgage Application and Back Away Slowly

Author: Nick
Category: Money
Topics: , ,

stop in the name of basic human intelligence

Are you itching to buy a home but think the best you can do is an 8.75%, 5-year variable ARM with 3 points and a kick in the face? Chances are you just aren’t looking hard enough, says some guy whose job it is to stick poor suckers with ridiculous mortgage loans. Here are some startling–no, shocking numbers on how many well-qualified dummies are saddling themselves with subprime loans:

  • What is the difference between a prime 6.00% and a filthy 9.00% $300,000 mortgage payment? $600 every month, or more than $200,000 on a 30-year mortgage.
  • Fannie Mae says half of subprime borrowers can find a prime loan instead.
  • Over 30 percent of homebuyers let their real estate agent find their loan for them.
  • How many subprime but prime-qualified borrowers could have saved thousands and thousands of dollars if they weren’t lazy and dove into the homebuying process without knowing a thing about it? All of them.

So what about that other half of sub-prime borrowers who are truly subprime? Maybe they should spend a few months fixing their credit before making the largest purchases of their lives at a trashy interest rate. Then they can come back, carefully explore their mortgage loan options, and save a stupendous amount of money.

Besides, the subprime label usually indicates someone who

  • isn’t the best at handling money,
  • doesn’t have a decent down payment, and
  • can’t afford to pay an extra 25% on their monthly mortgage bill.

In other words, subprime borrower should be synonymous for “person who has no business taking out a six-figure loan.”

Thursday, May 24, 2007

Punny Poll #20: How Far Would You Go For $50 Million?

Author: Nick
Category: Money
Topics:

would you turn cat hitman for cash?

With the U.S. tax season in our rear-view mirrors, Punny Poll #19 draws to a close and reveals some startling facts about Punny Money’s readers: nearly a quarter of you are tax cheats! About 3 in 20 of you indicated that you’ve skimmed a few dollars on your tax returns. That’s not so bad… until you consider that 15% of 200-some million taxpaying Americans cheating on their taxes for just $20 each is around $600 million (roughly equivalent to 12 seconds of Iraq war funding).

Seven percent of respondents also claimed to have cheated the IRS out of $2 million or more. I’ve already sent your IP addresses in for my reward, so please handcuff yourselves and wait for the FBI to arrive. (Hahaha, just kidding about the IP addresses. But if you’re a hot girl, please remain handcuffed until I get there.)

The results of the previous Punny Poll lead directly to the next poll question. It seems that more than a few of you don’t mind lying and cheating if it means saving some bucks at tax time. But how far would you be willing to go if the reward were much higher?

How would cutting Saturday mail delivery affect you?

View Results

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Wednesday, May 9, 2007

The True Cost of Do-It-Yourself

Author: Nick
Category: Money
Topics: ,

screw-it-up-yourself

The moment our clothes dryer started making a funny noise, I did what any frugal, internet-enabled person would do–try to Google the sound. Unfortunately there were no results for “scrteeeeeeeeeeb,” but I did find some insightful discussions on the many noises a dryer can make. At this point, I’ve narrowed the problem down to either a worn rear bearing or demonic possession. The priest will be over shortly to rule out the latter; the former is a relatively inexpensive fix that I am tempted to…

DO-IT-MYSELF!!!

But in the end, I will likely end up either (a) hiring someone to fix the dryer; (b) waiting until the dryer stops working completely, then hiring someone to fix it; or (c) buying a new dryer. Why would someone so obsessed with saving money like myself let any of these events come to pass when I could simply attempt the repair myself? It’s simply a matter of realizing my limitations. Yes, that rear bearing replacement sounds simple when you read it on an internet discussion forum, and the rear bearing replacement kit is tantalizingly cheap, but there’s a hidden cost associated with any do-it-yourself home improvement or repair: the “oh crap” cost.

The oh crap cost is the price you’ll have to pay if you screw up a do-it-yourself project. Perhaps you didn’t read the directions completely and installed something improperly, or your hand slipped and you punctured a hole in the drywall, or you accidentally tiled over your car keys.

Consider the following examples which compare the professional installation and repair fees vs. the do-it-yourself price vs. the oh crap cost.

Example A: Ceiling Fan Installation

ceiling fan, or electrical menace???

Professional Installation Fees:

  • Ceiling fan: $100
  • Installation labor and materials: $100

Do-It-Yourself Price:

  • Ceiling fan: $100

Oh Crap Cost:

  • Electrical burn treatment: $250
  • Fried wiring replacement: $300
  • New ceiling fan: $100
  • Installation labor and materials: $100

Example B: Shower Head Replacement

shower head, or tidal force???

Professional Installation Fees:

  • New shower head: $80
  • Installation labor and materials: $100

Do-It-Yourself Price:

  • New shower head: $80
  • Teflon tape: $5
  • Caulk: $5

Oh Crap Cost:

  • Cracked tile replacement: $200
  • Installation labor and materials: $100

Example C: Gas Water Heater Replacement

water heater, or bubbly broiler of brutality???

Professional Installation Fees:

  • New water heater: $500
  • Installation labor and materials: $300

Do-It-Yourself Price:

  • New water heater: $500
  • Other materials: $50

Oh Crap Cost:

  • Fire department bill: $5,000
  • Emergency room visit: $2,000
  • Reconstructive surgery: $15,000
  • New house: $200,000

The oh crap cost is a risk associated with every do-it-yourself project. If you know what you’re doing, chances are you’ll avoid it entirely and save tons over hiring a professional to do it for you. But if you merely spent 15 minutes Googling and have a “pretty good” idea of what to do… well, make sure you have a few extra bucks in your savings account just in case you find yourself saying “oh crap.”

Thursday, May 3, 2007

Adventures in First-Time Homebuying #8: Countdown to Closing

Author: Nick
Category: Money
Topics:

jumping the hurdles on your way to closing

Photo by tomeppy

So you made an offer on a home and it was accepted. Your work is done until closing day. Time to sit back and start dreaming of how you’re going to repaint those hideous neon green walls.

Okay, I lied. You still have lots to do before closing. Here’s a brief rundown of everything you’ll need to get done in the weeks before you get the keys to your new place. We’ll go into some of these in more detail in future episodes.

Give your lender the order to proceed

All that work you went through to get a pre-approval makes this step pretty easy. If you haven’t made a final selection between multiple mortgage lenders, now is the time to do so. Next, simply call them up (or have your real estate agent make the call) and tell them to begin processing your application. You will need to supply some additional information specific to the house you are planning to purchase. With that information, your lender will do the following:

  • Order an appraisal. Your lender wants to make sure the house is worth what you’re planning to pay for it. Your lender typically won’t lend you more than the fair market value of your home since they have no way of securing loan dollars in excess of the property value. Be careful here; some lenders have been known to artificially inflate appraisals to approve loans when the house isn’t worth the price being paid.
  • Send out the underwriters. These people will scour every bit of your application and supplied information to confirm that it’s all complete and accurate. Assuming you didn’t lie or add an extra zero to your income figure by accident, this part should proceed smoothly.
  • Order a title search. Your lender wants to confirm that the house is the sellers’ to sell and that there aren’t any debts attached to it that might surprise you. You also get to pay for some insurance (creatively called “title insurance”) in case something crazy happens down the road and it turns out the house really belongs to someone else. Your bank will require a title insurance policy, and you’ll want to get one for yourself. You pay for both.
  • Miscellaneous extras. The lender will usually order a flood certification to see if your home is in an area likely to flood; if so, you’ll need to purchase a separate flood insurance policy. Many lenders also want a survey done to ensure the house isn’t violating property lines.

Oh, and even though most of these are lender requirements, you still get to pay for them. The charges will show up at closing time.

Once all this is done, your lender will let you know that your mortgage loan is approved and that the funds will be waiting for you at closing.

Arrange closing

Believe it or not, there are entire companies devoted to handling your closing day. Most closing agencies are run by lawyers since the whole process of closing on a home is legally complicated. To find a closing agency, ask friends or family in the area who they used to close. You can also ask your real estate agent for the name of a closer since he or she has probably worked with many of them and knows who the good ones are.

Your real estate agent will set things up with the closing agency. Your main job here is to show up on closing day and pay the agency’s fee.

Important note: even if your closing agent is an attorney, he or she is not your attorney. If anything, the closing agent represents the lender. Feel free to bring your own attorney to closing. Some states require you to have an attorney throughout the whole homebuying process; ours doesn’t, so we did not obtain one, and things still went fine for us.

Home inspection

An entire upcoming episode will be dedicated to the home inspection process. For now, just be aware that this is something you’ll want to get done in the first few days after an offer is accepted.

Arrange moving

This is another topic we’ll cover more later, but you should begin the arrangements for moving from your current residence early in the closing timeline. Unless you’re using a full-service mover, you should also start packing right away. Don’t wait to pack until the week before you close because that’s one of the busiest weeks in the closing timeline.

Get homeowners insurance

If you’re going to be a first-time homeowner, chances are you currently have renters insurance or no insurance at all. Homeowners insurance is similar to renters, but it’s more expensive and there are a few extra components. Most notably, you’ll now need to insure your structure and not just your belongings, and you’ll want to carry some liability insurance.

Here’s a great guide to saving money on homeowners insurance. One of the most important notes in this guide is insuring your property for the correct amount. You don’t need to insure your $300,000 single family home for $300,000 since the purchase price is for the structure and land. Even if aliens beam your house into space, the land will still be there, so only insure up to the value of the structure. If you’re not sure how much the structure is worth, you can get a good estimate from tax records or a slightly less accurate figure by multiplying the square footage by local building costs (mine’s around $75 per square foot).

As with any insurance policy, shop around for the best price.

Transfer utilities and give your landlord notice

Call the local utility companies at least a few weeks before your move-in date to set up gas, electric, and other services. You may need to contact the city to set up some services like trash, water, and sewage.

Don’t forget to cancel utilities where you currently live as you will likely be responsible for charges incurred after you move out if you don’t. Some utilities require days or even weeks notice for cancellations, so plan ahead. I recommend setting the shut-off date at least a couple days after closing just in case something goes wrong on closing day and things get delayed.

While you’re at it, remember to notify your landlord of your intention to vacate.

Put together a shopping list

Depending on your current type of residence and the kind of home you’re planning to buy, you might need to pick up some items in your first few weeks of occupancy. For example, if you live in an apartment and are purchasing a house on half an acre, you’re going to need a lawnmower.

Here’s a quick list of some items that, based on your situation, you may want to acquire before or soon after move-in:

  • New locks and keys
  • Lawn and garden equipment
  • Paint and other redecorating supplies
  • Set of tools
  • Curtains, blinds, shades, etc.
  • Snow shovel

Before dropping a ton of cash at a home improvement store, look into picking up some of these items from other places. Print and online classified, relatives and friends, and yard sales are great sources of used but still useful household items.

Schedule final walkthrough

Closing may still be weeks away, but you should allocate some time the morning of or day before closing to do a final walkthrough of the house. Consider this a mini-inspection designed to make sure the sellers have met all of their promises and the house is in the same shape it was when you put an offer on it.

Some specific things to check for during your walkthrough:

  • Make sure stuff still works. Flick the light switches, try the faucets, flush the toilets, turn the doorknobs, ring the doorbells. The final walkthrough is a sort of mini-inspection, and it’s your last chance to complain about broken items before you sign on the dotted line.
  • Confirm sellers have moved out and that they’ve taken all of their belongings with them. Sometimes the sellers will remain until after closing, so this point may not apply.
  • Take inventory. You probably agreed that certain items like appliances would be left by the sellers. Double-check that everything that is supposed to be there is still there.
  • Look for moving damage. Check for dents in floors or walls that may have been inflicted on the sellers’ move-out day. Some problems may be pre-existing but will only become apparent after rugs or furniture are removed.

Bring your real estate agent in case there are any last-minute issues that the sellers need to address. Your agent can phone the sellers’ agent immediately and get the ball rolling on such issues so that delays in closing can be avoided.

Other stuff

Some areas have special rules requiring you to jump through various flaming hoops of legalese before you move in. Your real estate agent will help you navigate local ordinances.