This is a guest post from Martin of Studenomics, where he helps you figure out how to find the best credit card for college students and how you can buy an investment property as a young investor.

We often assumed that buying a home is the logical thing to do in our 20s. You know the process: finish college, find a job, start a family, and buy a home. Is this really still the case?

Do you have to buy a home in your 20s? Is it even worth buying a home before you hit 30? I wanted to break this article down in three questions that should help you determine if buying a home is the right decision for YOU right now.

How much money do you have saved up for your home?

How much money do you really have for a mortgage down payment? Just because you have a set amount of cash in your savings account, you shouldn’t rely on this amount for being solely for your down payment. The reality is that you need to factor in the plethora of other costs that go along with buying a home. Some of these costs include:

• Property taxes
• Agent fees
• Lawyer costs
• The expense of moving
• I could go on but I won’t for today

Don’t assume that all of your savings will go towards the down payment on your new home. There are many other costs that you need to consider when buying a home.

How do you plan on making money?

How steady is your current job? Gone are the days of working in the same place for your whole career. Our generation is going to switch jobs often.

How much longer do you see yourself working in the same company? If you plan on quitting or looking for work elsewhere, you might not want to tie up your savings in a home just yet.

Do you want to start your own business? If you want to start your own business it’s going to be tough to venture off on your own knowing that you have to spend a set amount of money on your mortgage. If you want to go off on your own, you might want to delay buying a home.

Look at your job stability and plan for making money before you tie yourself down with a home purchase.

What’s the cost difference between buying and renting?

This is usually the deciding factor for anyone that wants to buy a home. We don’t want to feel like we’re “throwing money away” by renting so we conclude that buying is the better option.

The thing is that all home ownership costs need to be considered: mortgage, property taxes, maintenance fees, moving costs, potential repair costs, and insurance. Once you have considered all of the proper costs, you make a more education decision on the largest purchase of your life.

What’s the difference between rent and ownership costs when making your decision? It’s not always the better option to buy.

After reading this article I hope that you have a clear picture of what you plan on doing next when it comes to buying a home in your 20s. I’m here to answer any questions you may have in the comments section. I answer every single question in my eBook on Deciding if You Should Rent or Buy in Your 20s.

Also, a quick thanks to Broke Professionals for including me in this week’s Yakezie Carnival.

Image by cdsessums.

Do You Have to Buy a Home in Your 20s? is a post from: Narrow Bridge

Related posts:

1. Home Buyer’s Guide: Part I – Finding Home
2. The Hunt for a Home
3. Building Home Equity: Ways to Build Wealth

I had a nice feeling this morning when I logged onto my finance aggregation tool and took a look at my net worth box. For the first time, it has six digits… before the decimal!

How I Got Here

If you look at my most recent net worth update, you can see that I was a long way off from this point just a couple of years ago.

Around December, 2010, I was nearing a net worth of zero. While I did not have credit card debt, I was mid-way through graduate school, my student loans were growing and my bank accounts were shrinking. I had more debt than cash for the first time in my life and I knew I had to keep working hard to get out.

Fast forward to January 2011. In the eleven months since my last MBA tuition payment, I paid off my car, paid off one of the two remaining student loans, dramatically increased my savings rate, and had good trajectory.

I was in a good place with my career and my cash flow, so I decided it was time to look into buying a home. I took control of my “secret down payment fund” that I had kept separate from my other financial accounts. I only used about $5,000 from that account during grad school. When I took the cash and deposited it into my savings, my net worth took a big jump, but it was sort of artificial because I knew the money was there the entire time.

The Double Jump

I was good about pressing forward in my savings and generally good about my spending over the next nine months. I saw my total net worth fall some from equity investments, but I was still on track to buy a home. My expenses rose when my lease expired and I went month to month, so I knew it was time to make a change.

I found the condo I knew would be home around that time, and I started the process of buying my first home. I negotiated a fair deal on the condo and, according to Zillow, had an instant $40,000 home equity gain.

Cash Flow

After I bought the condo, I had lower monthly cash expenses. My costs were about $300 lower per month. It was just a matter of weeks from there for my net worth to make the extra jump to $100,000.

I don’t have any plans to change my spending habits. I will put that extra $300 per month into savings first, student loans second, and my mortgage payments third. That will keep me on track to add another zero to my net worth.

Who know, maybe the million dollar club is not that far off?

Image by financialfellow1.

The $100k Club is a post from: Narrow Bridge

Related posts:

1. Update on Lending Club
2. Lending Club Update: Get $25 For Free
3. August 2011 Net Worth Update

You recently read about finding your home and getting under contract. Now that the hard leg work is over, the hard finances will begin.

Find a Loan

The first step once you are under contract, if you have not already, is to find a trusted bank with competitive loan rates and fees. I had the good fortune of working with a family friend, but we don’t all have trustworthy bankers drop in our lap.

Research your local banks and credit unions and compare to online options. Once you find your bank, get in touch with a loan representative to get the process rolling. You will need to know the property address, your down payment amount, and the type of loan you are looking for when you get in touch with the bank for the first time. They will pull your credit report and score early on in the process, so make sure you only apply for the loan with one bank to avoid extra credit hits.

Inspection

Find a trusted local inspector to do a throughout walk through and inspection of the property. Make sure you can be there to join the inspector so you see the problems with your own eyes. Also, make sure your realtor is available to join and let the inspector onto the property.

After the inspection, you will get an inspection report. Use this to request repairs and fixes from the current owner. The request will become an amendment to your contract, so work with the realtor to make sure everything is addressed to your satisfaction.

Unless otherwise negotiated, the buyer generally pays for the cost of the inspector.

Get Insurance

Your bank will require you to have insurance on your property as long as you have a loan. It would be stupid not to have insurance, but the bank makes it easy by collecting an escrow payment as part of your loan payment every month.

Get insurance quotes from multiple companies for comparison. Find a policy that meets your minimum requirements and choose a deductible that you think is reasonable and you feel comfortable with. Sign the papers and get your insurance agent in touch with the bank. The bank will take care of your payments and bill you monthly as part of your mortgage payment.

Appraisal

The bank will require a professional appraisal to ensure that your loan amount does not exceed the true value of the property. Remember that sites like Zillow are automated estimates. An appraiser conducts a more in depth comparison to nearby properties to estimate the property value. Most banks have a preferred appraiser and will order the appraisal for you. You will be billed for the cost.

Take Care of the Incidentals

Something is bound to come up that will impact your closing. The repairs might take longer than expected. The appraiser is an idiot and can’t find the lock-box to get in (this happened to me). The IRS is slow to send your tax history to the bank (also happened to me). There are a lot of variables. Make sure to work with your bank and realtor to stay on top of the to do list.

Make the Big Payment

On the closing day or in the couple of days before, you will get a final closing cost statement from your bank. This will outline the expenses you are covering, the expenses the seller is covering, the down payment amount, the purchase price, the closing fees, the realtor fees, the title fees, and everything else that happens on the purchase date.

Review that document carefully and make sure you understand every cost that you are paying. At the bottom is a big dollar amount. You will have to bring a cashier’s check or send a bank wire for that amount to the title company. The title company is responsible for dispersing the funds to everyone.

Close on the Loan and the Sale

Closing day is a big day. You will need an hour or two to take care of everything for the closing. Plan on signing your full name a lot of times. My banker estimated that I would sign my name 120 times on closing day.

Read and understand the documents as you go. You are signing important legal documents with important and long term implications.

At the end, you get your keys and you are a homeowner. Congrats! Now it is time to move and deal with the challenges of being a new homeowner. Come back soon for a recap on what you need to do after you move into a new home.

Image by Muffet.

Home Buyer’s Guide Part III: From Contract to Close is a post from: Narrow Bridge

Related posts:

1. Home Buyer’s Guide Part II: From Offer to Contract
2. Home Buyer’s Guide: Part I – Finding Home
3. Building Home Equity: Ways to Build Wealth

I bought a home! I took one more step toward the American dream. I am a homeowner. If it were 1779, I just qualified to vote.

As you can see, I spent pretty much all of my cash. My down payment and closing costs came to about $34,000 all together. I sold stocks and used cash for the purchase, but I did not have to touch my Roth IRA and did not have to make any major changes to my spending or savings habits.

According to Zillow, I made quite a deal when I purchased my new condo. I had an instant equity gain by purchasing below the “market value” of the home. Of course, the value is really only what someone is willing to pay for it. But I also took on over $100,000 in debt from my new mortgage loan. All in, I am $110,000 in debt. That sounds like a lot, but I have big plans to pay it off quickly.

The breakdown is below:

October 2011 Net Worth Update is a post from: Narrow Bridge

Related posts:

1. November 2011 Net Worth Update (+2.55%)
2. September 2011 Net Worth Update
3. August 2011 Net Worth Update

This past weekend, I moved into my new condo. It takes a lot of work to move, and you have to decide if it is better to pay a professional moving company or make the move on your own.

Moving Company

Moving companies’ rates depend on a lot of different factors. How big is your home? How much stuff do you have? Is it already packed up or do the movers have to do it? How far are you moving? How many people are going to be needed to move your stuff? How big will the truck be?

There are a lot of factors. For a cross town move, a one bedroom apartment would cost about $200-$300 in my city.

The biggest benefit of the movers is that you don’t have to do the work yourself. You just pay and someone else does the heavy lifting. It is worth it to some people, but others would rather suck it up and take care of it themselves.

Friends

I decided to skip the moving company and recruited four friends to help with my move. Here was my cost breakdown:

Rental Truck: $65

Moving Boxes/Tape: $15

Pizza: $25

Beer: $20

Total: $125

Moving myself did save me some money, but it was a lot of work. Retrospectively, I would hire someone to do it for me. However, I did enjoy spending the time with my buddies, I did enjoy driving the big truck, and I did enjoy the accomplished feeling at the end of the day.

Your Opinion/Experience?

If you were going to move across town today, would you do it yourself or hire movers to take care of it for you? In the past, how have you taken care of moving? Please share your thoughts and ideas in the comments.

Recent Carnivals/Roundups

Thanks to My Personal Finance Journey and Free From Broke for including me in recent carnivals and roundups.

Photo by james.thompson.

Moving: Friends or Professionals is a post from: Narrow Bridge

Related posts:

1. The Economics of Moving
2. 7 Things to Keep in Mind When Loaning Friends Money

Making an offer on a home is a stressful undertaking. There are many complexities and decisions that have to be made quickly. You don’t have much time to decide what to offer on what is likely the single biggest purchase you will have ever made.

Offer Price

Every home has a list price. That price was decided by the seller and their realtor. It is likely based on current market rates and nearby comparable home sales. It is also going to have some emotion built in, as the seller generally takes pride in their home and puts a high value to it.

Remember, the seller’s agent is trying to get the seller as much money as possible, so they usually start the home price high and lower it if it does not sell. That is why it is important to work with an experienced buyer’s agent who knows the local real estate market.

The first time I made an offer on a home was about two months ago. I made the offer on the same day as two other potential buyers. I was looking in the hottest neighborhood in Denver and homes were, and continue, to move very quickly there.

In such a competitive market, it is important to make a solid offer that is within a reasonable range of the list price. I made an offer using the average selling price compared to list price in the Denver area. It turned out that I was significantly lower than the other offers and they took someone else’s bid. It was a good learning experience.

The second home that I decided to make a bid on had been on the market for quite a while. They price had been lowered twice. My realtor also found that it was developer owned and the last condo they had for sale in the building. In other words, they were looking to get rid of it. That made my situation much better.

I came in significantly below their offer price and they counter offered in between the original list price and my offer price. It was a fair price for the neighborhood and I accepted with the condition they contribute toward a washer and dryer.

When you make the offer, do not forget about the many conditions that go into the purchase. The price is the most important factor, but repairs and changes to the property are costs that someone is going to have to pay for. You should work to ensure the other party pays.

Going Under Contract

Housing contracts are an important legal document. The contract is a conditional acceptance of a price by the buyer and a conditional agreement to purchase by the buyer. The contract is usually a fairly standard document that gives each party a list of reasons to cancel the contract, but assuming good faith that you both intend to go through with the transaction.

When you go under contract as a buyer, you provide an earnest money deposit on the property. That is the collateral that says you are serious and intend to buy the property. If you try to breach the contract, you lose the money. If the seller cancels, you get it back.

Before you sign, read every single word of the contract and understand exactly what you are signing. Every contract is different and contains conditions that might favor the seller. You need to ensure that your contract is fair to bother parties or favors your position if possible.

The Next Steps

From here, you have a long to do list before you own the home. Come back soon to make sure you don’t miss out.

If you have bought a home before and have any stories or tips, please let us know in the comments.

See part one on finding your dream home and part three on closing your home purchase.

Photo from futureatlas.com.

Home Buyer’s Guide Part II: From Offer to Contract is a post from: Narrow Bridge

Related posts:

1. Home Buyer’s Guide Part III: From Contract to Close
2. Home Buyer’s Guide: Part I – Finding Home
3. The Hunt for a Home

A while back I wrote about my big debate, should I rent or buy? For the time being, renting was fine. When my lease expired, however, my rental rate went up by $155 per month (I went month to month). I decided it was time to buy. Interest rates are good, I had a down payment, I have a good job that I like and have been successful, and a rent vs. buy analysis gave me a favorable result.

So, I decided it was time to find a home.

House or Condo?

The first choice a first time home buyer has to make is what type of home to buy. I am single with no kids, but I do want two bedrooms. Initially I was looking at condos. They are generally cheaper and the HOA takes care of the building maintenance, so it seemed like a no brainer.

However, a little more investigation told me a different story. Every market and location is different, but I was shocked to see how much HOA fees are for condos in Denver. I saw fees ranging from $200 a month to over $500 a month. It seems that the closer you are to downtown, the more you are going to pay.

Based on that, I realized for the same cash flow impact I could buy a more expensive house and have the added privacy of a single family home.

Realtors Are Important

I worked with two different realtors over the course of my search. The first realtor was an expert in the neighborhood I wanted to live in, but after a few months of looking we did not find anything that met my standards.

I decided to switch it up and work with one of my Mom’s friends. She has helped other people my age in the past and would give me the same advice she would give her own kids. I trusted her and she helped me find the winner.

Know What You Can Afford First

Look at your down payment fund. Look at your monthly cash flow. Look at your whole financial picture. How stable is your job? Do you have an emergency fund? Do you have two incomes? Do you have kids? Is the neighborhood stable, trendy, or slipping?

Based on a full assessment, pick a price range and look from there. Do not pick a type of home and figure out how to afford it. That is how you can quickly become house poor.

Neighborhood

I knew I wanted to live within walking distance of downtown. I wanted bars and restaurants within a few blocks of home. If you have kids, you probably want good schools. Everyone’s priorities are different, and decide where to live based on your needs.

Long Term Thinking

I wanted a neighborhood, and a home, that I can grow with. I wanted to be sure that it would be a comfortable place for future Mrs. Eric to live. I also wanted a place baby Eric could live for three or four years.

Look a Lot

At the end of the day, you need to look at a lot of places to find the perfect home for your needs. I must have seen two dozen houses and condos before I found the winner.

Be patient. Do not rush into something you will not love. It is out there, just keep saving and looking and you will find it.

See the next part of the series on making an offer and going into contract and closing.

Photo by Images_of_Money.

Home Buyer’s Guide: Part I – Finding Home is a post from: Narrow Bridge

Related posts:

1. Home Buyer’s Guide Part II: From Offer to Contract
2. Home Buyer’s Guide Part III: From Contract to Close
3. Building Home Equity: Ways to Build Wealth

Welcome to the 321st edition of the Carnival of Personal finance. I had a lot of fun reading everyone’s submissions and added a few new folks to my reading list. I am excited to host this carnival for my first time. If you are new to Narrow Bridge Finance, be sure to check out some of my best posts and read about why you should listen to me.

This month I dealt with the single most bizarre experience of my life. I became friends with someone, started a company with him, and found out he was not who he claimed to be. It made me think about the millions of people who have been in similar situations. From Bernie Madoff to  Frank Abagnale, this week we are going to highlight some people who used finance for a very different purpose than the bloggers of today.

Image from Dreamworks film Catch Me if You Can

To begin, the con artist that makes fraud sound sexy. Frank Abangale Jr. was the subject of the popular film ‘Catch Me If You Can.” Based on the life of Abangle, Leonardo DiCaprio makes fraud look fun as he travels the world as an airline pilot, saves lives as a doctor, and eludes an FBI agent hot on his trail as he cashes fake checks and finds beautiful women.

Editor’s Picks:

Sustainable PF examines ways to make money online over four decades. Starting in the 1980s, SPF used innovative methods to create income streams. Some of them have died off and others are still applicable today.

The Financial Blogger thinks that debt is a good thing. How timely can an article be? As Fannie and Freddie are posting losses, the US Government is struggling with its own debt, and I am looking at buying a home, TFB takes a look at things from the other angle.

Mike, aka Oblivious Investor, reminds us that owning a bunch of mutual funds is not the same as diverse investing. Many mutual funds own the same stocks and some even own other mutual funds. Mike helps you dissect your portfolio to balance your investments.

Lindy at Minting Nickels made a few mistakes when she had her first baby. She shares her non-frugal moments in her post How We Didn’t Save Money with Our Babies.

Squirrelers has five easy steps to increase your savings. Sometimes it is good to get back to basics with personal finance.

Budgeting:

My blogging buddy Well Heeled has seven tips for buying an engagement ring at Costco. These are great tips when you are making such a big and important purchase.

Career:

Adam at Rabbit Funds continues a series on starting a home business. This post focuses on important accounting and marketing tasks that most bloggers and entrepreneurs can learn from.

Clint at Accumulating Money put together a list of different types of jobs for finance professionals. As a finance guy myself, I can attest to how important having a direction can be to your finance career.

Mike at Green Panda Tree House wants to help you make a plan to quit your job.

Control Your Cash reminds you that your time is worth something and you should give it a value. Do not give it away for free.

Bret at Hope to Prosper has the secret to success for working stiffs.

Your Life Their Life looks at George Costanza as a case study for how you can succeed at work.

Image via Wikipedia

Don’t forget the infamous Charles Ponzi. Yes, he is the guy Ponzi schemes are named after. Charles pioneered the genius pyramid marketing scheme that has cost so many people so much money. The Italian immigrant swindled people and governments by engaging in mail fraud and investment fraud.

Credit:

Jake at NerdWallet examines the different benefits of American Express cards. From Clear to Centurion, AmEx has a lot to offer, if you are willing to pay the fee.

Jeff from Good Financial Cents reminds you to avoid store credit cards. It is not worth it.

Janet at Credit, Eh thinks you should use income diversity as a insurance for your credit card payments.

Glen at Free From Broke found the best credit cards for college students.

Philip shares ten tips to stay out of credit card debt at Deliver Away Debt.

Debt:

Jeff at Sustainable Life Blog takes a look at what happened so far this year in his finances.

Cathy at Money Health Central has ideas for what to do after your debts are paid off.

Image from US Department of Justice

Bernie Madoff is a new edition to the list of fraudsters. Madoff admitted to operating the largest Ponzi Scheme in history. It is estimated that he cost investors $18 billion when his Manhattan investment firm went bust. He is currently serving a 150 year prison sentence. Sadly, many non-profits were dramatically impacted when Madoff’s house of cards collapsed.

Economy:

My University Money explains the implications of the rising Loonie compared to the US dollar and gives a brief FOREX lesson discussing why exchange rates vary.

Darwin from Darwin’s Money shares what the media did not regarding the debt ceiling vote.

Money Thinker has his own ideas for fixing the national debt.

Finance:

Money Beagle thinks having health insurance can be hazardous to your health. If you are considering a new addition to your family, this post has great insights.

Crystal shares her retirement checklist at Stupid Cents.

Image from US Department of Justice

Kenneth Lay is responsible for the largest corporate collapse from fraud in history. Lay lied to investors and cooked the books at Enron while being paid over $42 million per year to manage the company. The company with a $60 billion market cap with $100 billion annual revenue was exposed in October 2001 and now does not exist.

Frugality:

Kim at Blogging for Change noticed that her child’s school supplies were far more expensive than they needed to be, but most people just pay for convenience.

Free Money Finance takes a look at extreme couponing and wants to know your take.

Britney at TotallyMoney wonders if cost and expectation go hand in hand.

Hunter at Financially Consumed writes about caffeine addiction and how it impacts you, and your finances.

Glen at Parenting Family Money has 9 inexpensive ways to keep your kids entertained over summer vacation.

Jacob from My Personal Finance Journey has five great ways to reduce your car insurance.

Investing:

The Dividend Growth Investor looks at master limited partnerships and the implications of owning these investments.

The Div-Net takes a deep dive analysis into the high dividend yield of Kinder Morgan.

Intelligent Speculator things that Google might have a chance at social media after all. It is not going to happen automatically, but Google is taking steps in the right direction.

The Dividend Growth Stocks blog is on the never ending quest for the perfect dividend stock.

Matt the Dividend Monk will help you build a $150,000 portfolio by the time you are 30.

John at Stock Market Basics helps you discern the many gold ETFs you can purchase.

Ricky at Qwoter can help you decide on the best company for an IRA depending on your needs.

Growing Money has comments on CNBC’s recent list of 20 stocks about to pop.

Jim at the Retire Happy Blog has found the science of building a diversified investment plan.

John from Wallet Blog discusses the difference between money market funds and money market accounts.

Outlaw Finance gives tips on where to invest your money.

Image from ABC's Lost via Wikipedia

Okay, so this one was not a real guy, but I could not make a list of con artists without including James Ford, more commonly known as Sawyer. Sawyer taught the world about the “long con” on ABC’s series Lost. Sawyer also lived under the alias Jim LaFleur. Of course, Sawyer would not have been such a great con man if he had not learned from the man who stole his parent’s life savings.

Money Management:

Ricky at Qwoter discusses financial priorities. Learn about ideas ranging from the popular emergency fund to less known tips for building your own value.

Jen at Master the Art of Saving is taking an extreme couponing reality check. It is important to remember that behind the trendy “glamour” of feeding your family for twenty cents for four weeks that there are big costs. She also notes that guys (such as myself) may not appreciate your fifty boxes of tampons in the garage.

Anabelle at The Year of Shopping Detox wonders why so many financial experts and mean and yell-y. My personal opinion of Suze Orman is not so good, by the way.

Eric (good name!) at DollarVersity reminds us that bank account bonus offers are not always as good as advertised.

RJ at Gen Y Wealth thinks you do have enough willpower to make a difference in spending decisions. He also has strategies to make it easier on you.

MD at Studeneconomics explains why online banking is more popular than ever.

Canadian Finance Blog thinks it is time to start thinking like a wealthy person.

Jason from One Money Design asks the readers if they can live well on less than $40,000 per year.

Elizabeth reminds us to remain calm despite our volatile economic situation at Modern Gal.

Real Estate:

Nicole at Grumpy Rumblings shares her August mortgage update and the broken window hypothesis.

Sarah helps you find out how much your home is really worth at Money Under 30.

Saving:

Chris at Stumble Forward helps you set up a savings account for your child. This is an important step in your child’s financial education and future, so be sure to get them started young.

Mike at Cards Canada examines loyalty programs worth joining.

Ben at Money Smart Life has the best rental car deals for road trips.

Phil at PT Money, our great organizer for the upcoming financial bloggers conference, tells us how to save like a madman.

Other:

Boomer from Boomer & Echo is learning about caring for elderly parents and shares stories from difficult moments.

Junior at Consumer Boomer helps you decide whether funeral insurance is right for you.

Briana at Personal Dividends never travels without travel insurance. She lists of the major benefits of having your trip insured.

No Debt MBA helps you decide if admissions consulting is worth the cost.

Asking About Money interviewed No Debt MBA and had some interesting answers.

Next Week:

Next week the Carnival of Personal Finance will be hosted by Financial Uproar. You can submit your posts by visiting the Carnival of Personal Finance homepage.

Carnival of Personal Finance #321 – The Fraud Edition is a post from: Narrow Bridge

Related posts:

1. Carnival of Personal Finance – Oktoberfest Edition
2. Carnival of Personal Finance #270
3. This Week’s Carnival of Personal Finance

One of the biggest assets you will ever own is your home. The debate on whether a home is an investment will never die, but there is no question that the ideal situation for a homeowner is to build equity.

Get Rich Quick Scheme: Home Value Increase

Not so long ago, people purchased homes to see the value of the home rise. If you purchase a home for $200,000 with a loan for $160,000, you have $40,000 in home equity. If the value of the home quickly rises to $250,000, all of a sudden you have $90,000 in home equity.

This logic was a major contributing factor to the major housing bubble that the United States economy is still recovering from. So many people were buying homes so quickly that housing prices escalated beyond their intrinsic value. This led to a bubble burst where homes lost value.

If you are buying a home, resale value is an important factor. Only buy homes in a neighborhood that you believe will hold its value. If home prices stay the same or rise in today’s conditions, you are a winner.

Tried and True: Pay Your Mortgage

The less glamorous way to build home equity is to buy a home and make mortgage payments. If you buy the same home above and your house value remains the same, the only way to build equity is to pay off the loan. If you make a $10,000 principle payment (of pay that much over time), your equity increases to $50,000. That is not as sexy as getting $50,000 for nothing, but it can make a big difference in your life.

Making bi-weekly payments will also help you pay down your loan quicker. This is because you are paying less interest and you are making two extra bi-weekly payments every year. Use this as part of a debt snowball strategy to save a lot of money on interest over time.

The Benefit of Equity

Aside from the value in your net worth calculation, what is the big benefit of equity? Unless you take out a home equity loan, you can’t spend it. So what is it good for?

Today I can comfortably afford a house worth about $220,000. That will get me a moderate sized house in the neighborhood I want to live in. Nothing fancy, but it does the trick. Someday I want something fancy. To get there, I need to build home equity. When I sell my first house in the future, I can use that cash as a down payment on the next house. Assuming my equity goes up, I can buy a nicer house than the one I sell.

At the end of the day, while a house is worth money, it is worth a lot more than that. Its true utility is the shelter it provides you, the place for your family to live, the venue for your next party, the meeting place for your friends, the place you relax, the place you have a BBQ, and the place you call home.

Photo by Casey Serin.

Building Home Equity: Ways to Build Wealth is a post from: Narrow Bridge

Related posts:

1. Build Your Own Low Interest Equity Credit Card
2. Home Buyer’s Guide: Part I – Finding Home
3. Do You Have to Buy a Home in Your 20s?

A little while back, I was fully engulfed in the rent or buy debate. I had decided on the rent route for a handful of reasons. I explored the neighborhood and I am back to looking at buying with a realtor. I am not sure where I will end up, but I have to look to make an educated decision.

Becoming House Poor, Or Not

According to “experts,” most people can afford to spend about 30% of their income on housing. I believe that it is important to live below your means, so I am looking at spending closer to 20% of my gross income on a mortgage payment.

House poor is defined as:

A situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments.

There are two main factors that you can control that contribute to your monthly mortgage payment. Those are your down payment and the cost of the home. Insurance, PMI (if you have a down payment below 20%), and taxes are largely beyond your control.

Based on the down payment I have saved up, using the 20% rule, I can afford a house that costs about $220,000. Less the down payment, that makes my monthly mortgage payment about $900-$1,000 per month depending on taxes and insurance.

My current rent is $770 per month (up from $615 due to rent increase and going month to month). At that rate, I have plenty of disposable income. In fact, I use my budget more as a guideline than a strict framework. If my rent goes up due to a mortgage, I will have less disposable income, but as long as I buy within my price range, I would be far from house poor.

Ways to Avoid Being House Poor

Don’t Buy a House You Can’t Afford

I did the math to see what I can afford. The easiest way to avoid this situation is to avoid it in the first place. Think through your finances, job security, income, expenses, and only buy what you can really afford.

Get a Roommate

I am looking at two bedroom homes to share with a friend. I would be the owner/landlord, and he would rent a room from me. If you are doing this with a friend, set clear guidelines and sign a lease agreement beforehand.

If you can get an extra $400 or more (depending on your cost) toward your payment per month, you can either pay off your mortgage early or save on your cash flow.

Ever Been House Poor?

Have you been in this situation before? Know someone who has? Please share the story, and what happened, in the comments.

Image by Images_of_Money.

Don’t Be House Poor is a post from: Narrow Bridge

Related posts:

1. Buying Might Be Cheaper Than Renting
2. 5 Reasons Why Your House Isn`t Selling
3. Don’t Buy Stuff You Don’t Really Need