Part 15 (1/2)

Believe it or not, you can often negotiate on rent before you sign the paperwork Wait until you and the landlord seem to havethe socks off your next landlord: tinyurlcom/GRS-renttips) Once he likes you, it's okay to ask whether he can do things like include the cost of your Internet service in the price or let you have a dog: ”Well, it's a great place, but I don't know You don't allow pets My next stop is with so you could do to help?” (See the box on Close the deal Close the deal for tips on negotiating) for tips on negotiating) Ren it Pay special attention to costs and dates, and don't be afraid to ask questions: What does it take to get your security deposit back? Howout or when does the lease end? Negotiate any details you don't like

Be sure to docu-even before you s, record a video tour or take photos of the unit before you fill it with your stuff If your landlord is there for the tour, that's even better

Once you move in, live up to your end of the deal The best way to stay on your landlord's good side is to pay the rent on tiht away and explain the situation Offer to pay as ive a firet to get renters insurance Renters are 50 larized than homeowners, and just as subject to fires and floods Your landlord has insurance on the property and the things he owns-but not on your your stuff Plus, renters insurance protects you froets hurt in your home and sues you For about 10 bucks a ive you peace of mind (For more info, head to stuff Plus, renters insurance protects you froets hurt in your home and sues you For about 10 bucks a ive you peace of mind (For more info, head to tinyurlcoood cos, so don't rent from someone who's slow to return your calls and e-and ask your landlord to do the saood side; it can pay off in lots of ways If he likes you, he'll be more likely to reduce rent if you ask, respond quickly to your maintenance requests, and maybe make other concessions

If you have roommates, choose theree by the rules If your roo, you still have to pay the rent in full (Here's soal but your roommates aren't: tinyurlcom/GRS-roommates) Before you et your deposit back (You and your landlord may have different definitions of ”clean”) Just as you toured and photographed or videotaped the apartain for the move-out inspection

If you run into a sticky situation while renting (or after you move out), check your local laws The US Depart and Urban Develophts for every state here: tinyurlcoood resource

TipSpend so up a book like Renters' Rights (Nolo, 2002) by Janet Port can save you a lot of grief

Buying a Home Generally, once you've saved 20 for a down paye pay for a home Yes, you can buy a ho run You'll need to carry private e Insurance), you'll pay more interest, and you could put yourself in a position where you can't afford to sell your hoe Professor's down-payment calculator: tinyurlcom/MP-dpcalc

If you think you're ready to buy a house, take a fewThe Money Book for the Young, Fabulous & Broke Fabulous & Broke (Riverhead, 2007), Suze Orman says that you should ”play house before you buy a house” Here's how: (Riverhead, 2007), Suze Orman says that you should ”play house before you buy a house” Here's how: 1 Figure out how much you think you can afford to pay for a hoht be 1,750, for exa for rent If your rent is 1,000 per et 750 per eted Savings Accounts Targeted Savings Accounts) On the first day of each of the next 6 months, stick 750 into this account

If you can't make this work financially, Orman says you need to wait: ”If youthe payments, you are not ready to buy a hoot the thu for a ho, you need to kno much you can spend

How Much House Can You Afford?

Housing is the largest expense in ets But how much is too much to spend on shelter?

Economists have used decades of financial stats to create computer models that predict howand debt Traditionally, lenders have used what's called a debt-to-incooes toward debt every month-to estimate how much people can afford to borrow to pay for a home To find this ratio, divide your ross (pre-tax) income For example, if you pay 300 toward debt every month on a 3,000 income, your DTI ratio is 10 (The lower the nue brokers look at two nu how much to loan you: - Front-end DTI ratios (so expense ratios), which include your total housing expenses: e principal, interest, taxes, and insurance These four factors are often called PITI (Yes, the e industry is filled with acronyms and abbreviations) - Back-end DTI ratios (also known as total expense ratios), which include all of the above plus other debt payments like auto loans, student loans, and credit cards

When you apply for a e, a computer checks to be sure the aes This process is called auto When the computer is finished, the loan application , where an actual person uses industry-standard DTI ratios to decide whether to approve or deny the loan

NoteThe key thing to understand about DTI ratios is that they're used to estie company uses them to check whether they think you can make the payments-not whether you can comfortably make the payments So if you want to be able to dine out and take vacations and pursue other financial goals, the DTI ratio you use in your calculations should be lower than the one your lender uses

During the 1970s (before credit-card debt became common), DTI wasn't split between front-end and back-end There was only one ratio, and it was 25 If your e, taxes, and insurance costs were less than 25 of your income, people assumed you could afford the payment (This is still an excellent rule of thuuidelines have relaxed over the years When e broker told us our front-end DTI ratio had to be 28 or less, ross inco The back-end DTI ratio was capped at 36, whichexpenses and other debt payments combined couldn't be ht our new horown by 5 ”That 28 figure is old,” ere told ”Most people can go as high as 33” The back-end ratio had been raised to 3841 in so bubble, soher, even above 50!) A 5 increaseabout a house pay 60,000 per year, 5 is 3,000, or 250 a month Many people have lost their hoe payments that were just 250 more than they could afford each month

Generally, banks are happy to lend you as much money as you want (Within reason, of course, and if your credit is good) The recent credit crisis has certainlyto stop you fro a hole for yourself if that's what you want to do In The Automatic Millionaire Homeowner The Automatic Millionaire Homeowner (Broadway, 2008), David Bach writes: (Broadway, 2008), David Bach writes: You should generally assu to loan you is more than you should borrow [] Don't fool around with this Do the math Be realistic about your situation Don't pretend you're in better shape than you are

Remember, nobody cares e broker, and bank all have a vested interest in encouraging you to buy as much house as possible-their incomes depend on it Listen to what they have to say, but make your decisions based on what's best for you

Homebuyers are often told to ”buy asthis advice is that you're left without a buffer What if you lose your job? Or what if you're forced to sell your ho prices have dropped? (Many A this proble as much house as you can afford, itconventional DTI ratios as ceilings (The box on Choosing a Hoht ) tells the story of a couple who bought ) Ultiuidelines are It all co Just because conventional wisdo payment on your 60,000 annual incoin for error Instead of basing your hoet on a 33 front-end DTI ratio, consider dropping that to 28 or, better yet, 25 Another way to create a buffer is to base your estiross pay You won't be able to afford as big of a e, but you won't feel pinched by the payments, either

Your Money And Your Life: Movin' on DownWhen they got ht a home near Boston, Massachusetts ”We found an old Victorian with gables and staircases and a finished attic” The 2,200 square-foot house was beautiful, and they loved it-but it was a night that house ured out pretty quickly that it wasn't our our dreae payment and the 600 monthly cost of their combined commutes (which totaled 160 miles every day every day) Sierra tried to boost their cash flow by al choices described in Chapter5 Chapter5, but she says, ”It felt like I was bailing out a leaky boat with a teaspoon”After 2 years of struggling to make ends meet, Sierra and Martin moved to a 1,500-square-foot colonial-style duplex closer to his office ”The new house feels save up a lot of square footage, but we didn't lose any functionality It turns out we didn't need all that space”They now pay about 1,600 each s: ”All of our utility bills are lower than they were,” says Sierra, ”and our co costs are nonexistent” Martin used to drive 40 miles to work every day; now it's a four-block walk And Sierra does a lot of her errands on foot ”The great thing about this is that it's saved a ton of money and and a ton of time” a ton of tis that bring happiness, but finding ways to align your spending with your values (see Chapter2 Chapter2): ”Every single day that goes by since we moved, we tell each other this is the best decision we ever made This i a Ho a hoest financial decision you'll ever ht: You don't want to overpay, ht a house you hate But you'll be happier in the long run-not to mention more financially secure-if you do your best to take emotions out of the process

That's not to say that you should buy a house using detached, Spock-like logic; even with preparation, the decision will be e, you can take steps to keep fro toopre-approved Once you've figured out how much home you think you can afford (see How Much House Can You Afford? How Much House Can You Afford?), it's tie co

One option is to get pre-qualified for a loan To do that, you give your basic financial info to a lender, who then does a quick calculation to give you a rough estimate of how much you can afford to spend on a house Bear into loan you this a, ”We think you can afford this much house-we'll work out the exact nu pre-approved for a loan instead Pre-approval is , and it takes days instead of minutes The lender will pull your credit report, review your financial info, and check your e you a pre-approval letter This process ives you the confidence that you can actually afford the hoives sellers confidence that you'll be able to get a loan

NoteNeither pre-qualification nor pre-approval is binding on you or the lender If you buy a house, you're not required to use the bank you talked to, and they're not required to lend you money (but if you're pre-approved, they probably will)

Be careful: Even after the recent e crisis, lenders can and do approve loans for more than people should borrow Run the nu to put on the brakes Don't spend 500,000 on a house just because a bank will lend you thatfor the pre-approval process to finish, put all your hopes and drea a list of wants and needs can help you avoiddecision

First, list all the things your family wants in a house This is a timental Your aim here is to make a list of features in your ideal hoe? A yard for the kids to play in? And what sort of neighborhood are you looking for?

Once you've s you want frooals What ardening and entertaining, so a big yard is a necessity But if your fa TV, the size of the faround you when you think you've found the ”perfect” house: It can remind you that you need a laundry room, and that you swore you didn't want a place where you'd have to re tiles As you search for homes, update your list as you discover neants and needs

On The Money: Does Size Matter?A book on sement isn't the place to tell you what to look for when choosing a horeat books on this subject, like Buying a Ho Manual) But so i to the US Census Bureau, the average new home was 2,349 square feet in 2004, up fro those 30 years, kitchen sizes doubled, ceilings rose rew byeven while our fae family had 31 people in 1974; it had shrunk to 26 people in 2004 (For the stats geeks out there, that547 square feet of hoer isn't always better The larger your house, the ht, paint, furnish, and repair That's not to say you should live in a shack, but as you shop for a house, remember that size comes with a price If you need the space, buy it If you don't, you're better off saving yoursmart Once you have your wish list and your pre-approval letter, it's ti Here's the last (and most important) way to outs process: Don't look at hoe

This seems sient ant to show you houses that are at the very top of your budget-or maybe cost a little bit beyond it If she tries to push you out of your price range, politely refuse If you don't look, you can't be teet and be patient It can be te because you're afraid ofout But the more you look, the better you'll know the market You'll learn what features are typical for your area and be able to spot good deals

Do what you can to prevent e you away Set priorities, try not to co a home is a purchase, not an invest decision: Do your research, shop for quality, negotiate a good price, and then keep it for a long time

TipBefore you make an offer on a house, ask whether you'll have to join a homeowners association (HOA) Some people like theht be just your style But be aware that HOAs usually charge a monthly fee, which could be a deal breaker if you can't afford it

Picking a Mortgage Once you've found a hoe Happily, because you've been pre-approved and stayed within your budget (right?), financing shouldn't be too tough

TipThe best thing you can do when shopping for aa few hours reading the archives at The Mortgage Professor (e interest rates is to go online Sites like BankRatecom, ShopRatecom, and Money-Ratescom can help you find the best rates from around the country If you'd rather shop locally, your credit union or coood rates, too But perhaps the best way to find a good lender is to ask faent) Personal recoet from a website

TipYou e Brokers association (upfronte to be clear about their fees and give objective advice