In this post, I won’t be concentrating too much on the actual details of a home mortgage, instead I want to focus on the process that I went through for purchasing my home.

From an abstract point of view, here are the things that I considered to be very important when purchasing my home:

1.) Determining affordability

2.) Finding a good home mortgage program

3.) House hunting

An important thing to note, when I had decided to purchase a home, I knew that I would stay for long term(meaning at least 8-10 years) The thing is, if you can’t commit to remaining in one place for at least a few years then you might want to reconsider owning a house. With all the different costs and fees of buying a home you’ll probably end up losing a lot of money, especially in my case where I bought points to lower my interest rate.

Let me break down my 3 points.

Determining affordability. The earlier you’re able to determine your home purchasing power the better. It is very important to establish what range and bounds you should be working in and also to pre-calculate your expenses. You don’t want to end up in a situation where your house payment is so high that you can’t afford to get anything else.

The general rule of thumb  is to buy a house that roughly costs two and a half times your income. For example, if your income is $100,000/year, then you want to get a house that’s around or under $250,000. Now this amount seem reasonable to you? We can go deeper and found out. Lets assume that your interest rate is 4.5% with a 30 year mortgage. Using a mortgage calculator, a mortgage for $250,000 would come to $1266 each month. Can you afford this? There’s more, lets move on…

Next, you also want to determine expenses like taxes and home insurance. Assuming you have a general idea of the location where you’d like to live, you can find out how much that county/city tax is by calling your their local treasurer office. Also, don’t forget about state tax. It’s usually around ~1% of your home value for county/city and much lower for state. In my area, I have to pay for both county and city and state tax which comes to .94%, .65% and .11%, respectively. That’s a total of 1.7% in taxes that I pay on my home, that’s alot of money so its good to be able to know this upfront before  making any decisions. If you lived in my county, and taking the $250,000 value from my last example, then you would pay ~$354 each month for taxes. Now that’s $1266+$354= $1620  each month. How about now, can you afford this? Okay, we’re not quite done yet there’s more, lets move …

Now lets talk about insurance. There’s so many types of insurances out there but I just want to talk about the two major ones. Private Mortgage Insurance(PMI) and Home owners insurance. According to wiki, typical PMI rates are $55/month per $100,000 financed. So lets continue on with the example and you owe a total of $250,000 on your mortgage. That’s $55 x 2.5, which comes to a total of $138. Now a quick note, PMI is only required if you do not own 20% equity on the home, in other words, if you put down 20% for downpayment then this does not apply to you. In my case, I do not have PMI but it’s not because I put down 20%, I’ll explain what I did to avoid this when I go into my 2nd point(Finding a good mortgage program). Home owners insurance varies from company to company and also depends on what’s in your home(fire alarm, home security systems, home value..etc), so in this case I’ll just estimate. Usually for a home that’s valued at $250,000 the home owners insurance will be ~$40. Now lets add what we have here… $1620+ $138 + $40 = $1798.  Now, can you afford this?

So early last year, I calculated how much I could afford(based on the steps I just went through) and I kept plugging in new numbers with different location tax prices to determine how much I can afford. I repeated these steps until I reached a number that  I was comfortable with and then continued on to step two which I’ll talk about in my next post.

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For this edition, I’ve decided to take the popular “Chicken Soup for the Soul” idea as my theme but instead filled with money stories with pictures. There is a total of 14 great stories and I put them each into their own perspective chapters or topics. In order to get to the story, just click on the picture. Anyway, without further delay, I present to you the Carnival of Money Stories #13 :Chicken Soup for the Financial Soul.

Chapter One: Real Estate

Trent from The Simple Dollar

Silicon Valley Blogger from The Digerati Life

Cap from Mint

Chapter Two: Customer Service

Mr Medicated Money from Medicated Money

Fire Finance from FireFinance

Chapter Three: Financial Mistakes

Bret from The Frugal Law Student

Mr Credit Card from Ask Mr Credit Card

Chapter Four: Credit Cards

FundZine

The Credit and Credit Card Blog

Matthew from Getting Green

Skilled Investor from The Skilled Investor Blog

Chapter Five: Career

Nina from QueerCents

FreeMoneyFinance

Chapter Six: Retirement

Stop Swimming

So that concluded this weeks Carnival of Money Stories. I want to thank all the contributors for their great work.

The next edition of Money Stories will be hosted Monday over at Frugal Law Student, don’t miss it! You can submit your money stories here.

This is Kris from Mill1on, I am guest hosting for andy today. I wrote an article called the Importance of finding a good realtor. It discusses the advantages and disadvantages of hiring a realtor. So lets get to it.

Studies have shown most people that are in the process of buying a home, or selling their home would never make the choice of doing it themselves again. Buying a house, or selling a house can be a difficult thing to handle, especially if it is your first time. Most people don’t know the first thing about finding a house, or selling their house. That’s why they have professionals out there to guide you in the process of making one of the most critical decisions one can make in their lifespan. So you ask yourself…

“What are the advantages and disadvantages of hiring a good realtor to sell my home?”

Here are a couple advantages of hiring a realtor:

• A good realtor will determine what your property value is given in the area you live in. They will have a higher chance to sell your house at more than you could have done yourself.
• A good realtor will also take care of all the legalities involved with selling a house. This can be very time consuming and difficult for first time sellers.
• Last but not least, a good realtor will take care of your home as if it is their own. They will guide you through the process and make it very comfortable for you to sell your property.

Here are a couple disadvantages of hiring a realtor:

• You must handle all the paperwork and legalities on your own. Disclosures, home inspections, valuation, negotiating the deal, closing, etc.  In addition to taking up a lot of your time, all this involves expert knowledge about real estate and the selling home process, which you may not necessarily have.
• Buying or selling a house can be very time consuming. Not many of us have the time to go through the process of selling a house.
• Homes that do get sold by their owners typically sell for lower prices than similar homes sold through Realtors.  This is because real estate agents are professionals in their field and know how to price your home for sale, as well as negotiate expertly with the buyers to get top dollar for your home.

I know when I buy or sell my first house I am going to hire a realtor to guide me through the process. Will you?

Looking at the past ten years, the stock market has an average return of 8%. Lets take S&P 500 Index for example. Say you invest only 10 dollars a week and we’re assuming that S&P 500 returns at an average of 8%, over the next ten years you’re looking at 8,000 dollars, if you’re fortunate and it goes for an average of 12% then you can expect about 10,000 dollars!

Also, if you meet the requirements and you’re not making that much money, the government can refund as much as 50% of what you put in! So say you were able to put in 1,000 dollars for your IRA or 401k account that year, you would get at least 500 of that back. Then, if you’re really a dedicated investor, you can put that 500 into next years investment

When investing with little money, you should look into mutual funds. Mutual funds can hold anywhere from a dozen to hundreds of stocks, so when a stock doesn’t do all so well the impact will not hurt your portfolio as much.

Here is a list of fund companies I found on MSN Money who accept small investors:

1.) Steward Funds.

Minimum initial investment: $25

Minimum monthly investment: $25

2.) Amana Funds.

Minimum initial investment: $250

Minimum monthly investment: $25

3.) Hodges Fund.

Minimum initial investment: $250

Minimum monthly investment: $50

4.) TIAA-CREF.

Minimum initial investment: $100

Minimum monthly investment: $100

In the meantime, I’m going to start saving up for that down payment and I can start on that as soon as I get my credit card paid off. Looking at my current situation, I think I will be able to beat my clock counter and be able to have it paid off sometime in Mid February. How did I do it? Well, there were some unexpected income that I will receive within the next month. I will get a refund check from my school that will be at around 1450 and my tax refund will be somewhere around 2500 to 3000. Aaaand, my friend who owed me about 1300 will be able to pay me off with his tax refund. So I think I should be in good shape for now.

Anyways, I was browsing through Yahoo’s Real Estate section and came across this neat calculator. It’s pretty cool because it shows you an estimate not only for your house but also the other houses around your neighborhood. You can check out the calculator by clicking here.

I also found some interesting facts about some price values of popular homes values.

The Brady Bunch House estimated at 972,428

Osbourne MTV House estimated at 12,177,002

Charmed House estimated at 980,748

Beverly Hills 90210 House estimated at 1,184,579.

What’s interesting about this is that the 90210 is referred as the postal address but actually their zip code is 91001 and is not in Beverly Hills but rather in Altadena. Kinda funny eh?

1. Not fixing your credit. Before you even think about applying for a mortgage, obtain copies of your credit report and your FICO credit score and make sure that you check to see everything is in order.You can order your FICO score on the Web for a fee of $14.95, which includes a copy of your credit report.
2. Not getting pre-approved for a loan. It seems that many first-time borrowers confuse being “pre-qualified” with being “pre-approved.” Pre-qualification is where a lender tells you how much money you can borrow based on how much you make, how much debt you already have and how much cash you have for the down payment.Pre-approval  is a much more rigorous process and involves actually applying for a loan.
3. Borrowing too much money. Not only are you taking out the biggest loan of your life, it’s probably 3-4 times your annual income. Many people take out the biggest loan they possibly can, figuring that their incomes will eventually increase enough to make the payments comfortable.
4. Not shopping around for rates and terms. There are too many borrowers with good credit getting stuck with loans meant for people with poor credit. If the borrower doesn’t know what the prevailing interest rates are for someone with their credit standing, they can easily pay thousands of dollars more than they need to.
5. Not planning for closing costs. Plan for closing costs by getting a good-faith estimate from your lender as early in the loan process as possible. You also want to avoid not having cash on you after your closing costs because your going to be hit with unexpected expenses. So it’s good to have an emergnecy account and not be scraping for pennies when you have get your water heater repaired.

1. Panama City, Florida
2. Vero Beach, Florida
3. Bridgeport, Connecticut
4. Lakeland, Florida
5. McAllen, Texas

1. Panama City, Florida. Panama City now is poised to host big airliners, which in turns means more visitors and a lot more buyers. In 2008, the state and the local government and top regional developers are planning to build an airport thats gonna be over 300 million dollars in costs. Locals expect the airport to open up the region and bring in some aggressive traffic.
The projected gain in 5 years

 Median home price
2006: $223,000          72% Increase
2011: $383,00

2. Vero Beach, Florida. The weather down here is great, has low property taxes, and a cost of living 3% lower than that of nearby West Palm Beach make this town an affordable place to live. Expert says that vero beach is at high risks in the short term but will move up in the long run.

Median home price
2006: $235,000          64% Increase
2011: $386,000

3. Bridgeport, Connecticut. The last place you’d expect to find under valued houses is in the Fairfield County, home to towns like Greenwich and Darien. As more businesses have left New York for Greenwich, more middle-class workers like entry-level professionals, executive assistants, and so on will have come too, and they’re keen to take advantage of bargain prices.

Median home price
2006: $480,000          63% Increase
2011: $784,000

4. Lakeland, Florida. Here in lakeland, a house goes for a fifth less than the national median of $227,500, and Lakeland is just 30 minutes from Tampa, which is swarmed with 2.7 million people that’s projected to add almost 210,000 more residents over the next five years. Not to mention, Meritage Homes, one of the fastest-growing U.S. builders, plans to build more than 1,300 homes in the area by 2008.

Median home price
2006: $178,000          59% Increase
2011: $282,000

 
5. McAllen, Texas. This place is mainly latinos, 80% at that, and experts are saying that Latino families are larger than the average caucasian families. At 3.8 members being latino and , on average, and compared with 2.4 for Caucasians. “These border towns have a housing shortage,” Cochrane says. “There’s pent-up demand. They’ll be looking for more space and better space.”
 
 

Median home price
2006: $70,000         57% Increase
2011: $109,000

1. Start by getting your credit report. Unless your planning to buy your house in full, you will need to get a mortgage. Its wise to get your credit report couple of months in advance before house hunting so that you can straighten out any problems you might discover.
2. Aim for a home you can afford. Dont make the mistake that most americans make by buying a house that will put you way over your head. There are plently of online calculators availible that checks your income, debt, and other expenses. Check it out here!
3. Dont worry if you cant put the usual 20% down. There are plenty of lender, if you qualify, who offers low mortgage interest rates with down payment as small as 3%!
4. Buy a home thats close to alot of good schools. Even if you dont have children who could benfit from these schools, when it comes time to sell, you’ll learn that strong school districts are a top priority for many home buyers, therefore helping to boost property values.
5. Before going out to house hunting, get pre-approved. This way you dont waste time looking for houses that you cant afford. This way, when you find the right house your in a better position to make a serious offer.
6. One final tip is to hire an house inspector. Although your lender will require a home appraisal but that’s just the bank’s way of telling you whether the house is worth the price you’ve agreed to pay for. You  should hire your own house inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road, which is a huge money saver.

Now keep in mind, you shouldnt buy a house just because you can afford it, make sure it fits your lifestyle as well. House hunting can be very fun and exciting but also can ve stressful, I hope this list helps.