Stop Paying Rent now Buy a Home

Don’t Pay Another Cent In Rent To Your Landlord…..

Renting is like taking money out of your pocket and watching it disappear, whereas owning is like taking money from your right pocket and putting it into your left.

With that being said, don’t pay another cent in rent to your landlord! But, if you’re like most renters, you feel trapped within the walls of a house or apartment that doesn’t feel like home. And how could it when you’re not even permitted to bang in a nail or two without a hassle? You probably feel like you’re stuck in the renter’s rut with no way of rising up out of it and owning your own home.

But, we’ve got some good news for you;

it doesn’t matter how long you’ve been renting, or how insurmountable your financial situation may seem. The truth is, there are some little known facts that can help you get over the hump, and transfer your status from renter to homeowner. With these 6 tips, you will begin to see how you can do it.

You can buy a home with much less down than you think:

There are some local or federal government programs (such as 1st-time buyer programs) to help people get into the housing market. You can qualify as a first-time buyer even if your spouse has owned a home before—as long as your name was not registered. Ensure your real estate agent is informed and knowledgeable in this important area so they can offer programs to help you with your options.

You may be able to get your lender to help you with your down payment and closing costs:

Even if you do not have enough cash for a down-payment, if you are debt-free, and own an asset free and clear (such as a car for example), your lending institution may be able to lend you the down-payment for your home by securing it against this asset.

It’s a dream we all have-to own our own home and stop paying rent.

But if you’re like most renters, you feel trapped within the walls of a house or apartment that doesn’t feel like yours. How could it when you’re not even permitted to bang a nail or two without a hassle. You feel like you’re stuck in the renter’s rut with no way of rising up out of it and owning your own home.

Don’t Feel Trapped Anymore

It doesn’t matter how long you’ve been renting, or how insurmountable your financial situation may seem. The truth is, there are some little-known facts that can help you get over the hump, and transfer your status from renter to homeowner. With this information you will begin to see how you really can:

• Save for a downpayment
• Stop lining your landlord’s pockets, and
• Stop wasting thousands of dollars on rent.

6 Little Known Facts That Can Help You Buy Your First Home

The problem that most renters face isn’t your ability to meet a monthly payment. Goodness knows that you must meet this monthly obligation every 30 days already. The problem is accumulating enough capital to make a down-payment on something more permanent.

But saving for this lump sum doesn’t have to be as difficult as you might think. Consider the following 6 important points:

1. You can buy a home with much less down than you think.

   
   There are some local or federal government programs (such as first-time buyer programs) to help people get into the housing market. There are several programs that allow for no down payment, or will match a homebuyer dollar for dollar. Finding a qualified mortgage professional that is aware of such programs will give you a good idea of how much money you will need to have.

2. You may be able to get your lender to help you with your closing costs.

   
   If you have the money for a down payment, but not closing costs, your lender may be able to give you a credit to help cover these fees. If you have good credit and income, but seem to be a bit short on cash, this is a viable option.

3. You may be able to find a seller to help you buy and finance your home.

   
   Some sellers may be willing to hold a second mortgage for you as a “seller take-back”. In this case, the seller becomes your lending institution. Instead of paying this seller a lump-sum full amount for his or her home, you would pay monthly mortgage installments. In addition, a seller can contribute to your closing costs through the proceeds they receive from the sale of their home. Having your own expert Real Estate agent negotiate this for you is very wise, and could mean the difference between a sale or not.

4. You may be able to create a cash down payment without actually going into debt.

   
   By borrowing money for certain investments to a specified level, you may be able to generate a significant tax refund for yourself that you can use as a down-payment. While the money borrowed for these investments is technically a loan, the monthly amount paid can be small, and the money invested in both home and investment will be yours in the end. Many companies’ 401K accounts will allow their employees to borrow money solely for the purpose of purchasing a home with no penalties. Check with your company’s HR Representative to see if your company offers such a program.

5. You can buy a home even if you have problems with your credit rating.

   
   If you can come up with more than the minimum down-payment, or can secure the loan with other equity, many lending institutions will consider you for a mortgage. Alternatively, a seller take-back mortgage could also help you in this situation. In recent years, several products have opened up to allow credit challenged home buyers the opportunity to purchase a home and re-establish their credit. Finding a qualified mortgage professional that is aware of such programs is of great benefit.

6. You can, and should, get preapproved for a home loan before you go looking for a home.

   
   Preapproval is easy, and can give you complete peace-of-mind when shopping for your home. Mortgage experts can obtain written preapproval for you at no cost and no obligation, and it can all be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written preapproval is as good as money in the bank. It entails a completed credit application, and a certificate which guarantees you a mortgage to the specified level when you find the home you’re looking for.

Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make the difference between obtaining a mortgage, and being stuck in the renter’s rut forever. Typically, there is no cost or obligation to inquire.

There are many important issues you should be aware of that affect you as a renter. Why on earth would you continue to lose thousands by throwing it away on rent when with your agent you could take a few minutes to discuss your specific needs so that you can stop renting and start owning.

This conversation costs you nothing. And, of course, you shouldn’t have to feel obligated to buy a home at the time you review this. But by taking the time to explore your options, and learn about the ways you can afford to buy a home, think how prepared and relaxed you’ll be when you are ready to make this important step.

In practice, it works like this. Let's say your family income is $70,000 and you pay $1200 in rent. If you buy a home for $240,000 with 20% down, your payment might be $1558 a month. Don't get upset about the 20% for now, just follow me here for the sake of discussion.

The $1558 comes from a home loan at 7%, real estate taxes, and insurance.
I know $1558 per month is more than $1200, but wait! $1479 of that is a tax deduction, meaning in the first full year of homeownership, you would pay taxes on an income of $52,255 instead of $70,000. Since you are in the 28% tax bracket, you would save $4969 a year in taxes, or $414.05 a month!

(Disclaimer! I'm not a CPA, so I'm not qualified to give tax advice. The numbers I used assume you are already itemizing deductions on Schedule A. Consult your tax professional to see how the numbers work out on your specific tax return.)

So let's recap. Your rent was $1200, and now your mortgage payment is $1558, but Uncle Sam is giving you $414.05 of it! So your new cost to have that roof over your head is really $1143.95, less than you were paying in rent!

But it's actually better than that, because I haven't figured any state income tax savings. Oh, and remember that $50-100 a month I talked about back at the beginning of this article? That's the part of the loan that goes towards paying it back, called "principle reduction". I didn't figure that into the calculation either, but that's like putting that money every month right into the bank, the bank of your own home.

But you say, "getting money back from Uncle Sam is great, but how can I possibly make the $1558 payment with my current take home pay?" Well, you don't have to, you can take the extra money out of your check now, and let Uncle Sam tax what's left, remember? You do this by telling your employer to take less taxes out of your check using a W-4 form. This way, you get the extra $414 a month now to make the mortgage payment with, rather than getting a huge tax refund at the end of the year!

"But I still have a big problem", you're thinking, "Where do I get the 20% down, that's $48,000!" Yes, it is. Now we get to where the rubber meets the road. You have to really want your own home, really believe that this is what you have to do for yourself or for your family.

You can of course, buy with 10% down, 5% down, or even zero down, but in those cases, your monthly housing expense will be higher than rent, even after figuring the tax savings. If you can handle the payment, it still works out in your favor, because remember the 7% a year? That $240,000 house will be worth $256,800 next year, an increase of $16,800! So you might have to spend $200 a month more than you did in rent, but look - you paid $2400 a year more, but you gained $16,800. That's an amazing return, way better than a 401K, even a company matched 401K! If it were me, I'd put less in the stock market and buy my own home instead.

The Amazing Power Of Leverage

That reminds me of one of the best advantages to buying real estate, the benefit of leverage. As I said, if you buy a house for $300,000 in ten years it'll be worth $600,000 so you doubled your money in 10 years. In fact, we own a house in Carlsbad that we bought for $300,000 five years ago, and now it's worth $450,000, a 50% increase, right on schedule.

But here's my point - you didn't have to come up with the whole $300,000 for the house, you only put 10% down. You only invested $30,000! So when your $30,000 becomes $300,000, that isn't a double, it's a ten-fold increase in your money!

More Benefits Down The Road

Oh, and there's more - once the value of your home increases, you can borrow against it and use the money for whatever you want. The money is tax-free, and the interest on this money is tax deductible. So while your renting buddies are paying 11% on their car loans with after tax money, you're deducting the interest on your car payment because you're a homeowner.

I know people who have used this method to pay for college for their kids, get the down payment to buy a second home or an investment property, or just borrowing against the house for tax-free retirement income.

And here's the best one - when you sell that $600,000 house that you paid $300,000 for, you can pocket the gain tax-free, up to $500,000 for a married couple. The money in your 401K may grow tax-deferred, but when you take out the money to spend in your retirement, you must pay taxes on it. With your personal residence that you've lived in for 2 years, you just put the gains in your pocket and pay no tax. This is incredible advantage that no other investment can offer! In fact, there are some interesting ways to retire using these tax-free gains, but that's another subject.

I challenge you to find me an investment other than real estate that gives you appreciation, leverage, tax deductions and tax-free capital gain.

Until you can do that, I think I'll keep my money in real estate.

How To Get That First House

So if you're convinced that you should own a home, how do you actually go about it? What if it's just too darn expensive in Honolulu? Well, there are a number of special first time buyer programs to make it easier, and we'll definitely explore those together. But what if it's still too expensive?

In that case, "you gotta do what you gotta do". You could get a 4 bedroom place and rent out a couple of the bedrooms to roommates to help pay for it. You could go where real estate is cheaper, like Ewa Plain or Mililani to get your first house. Some people who work in Honolulu are going even further than that to get their foot in the door. I know it's hard, and it wasn't easy for me to get my first place either. You just have to grit your teeth and do it. The hardships are temporary, but the benefits last a lifetime.

My advice to you is to just go for it. Even if the first house isn't your dream house, you have to start somewhere. Face your fears and get it done. It's not just me saying this. In the book, "The Millionaire Next Door", the author says that more millionaires were made through real estate that any other method. Robert Kiyosaki in his "Rich Dad-Poor Dad" series talks about the "3 mountains" of financial security - your own business, stocks, and real estate

Why Now Is The Perfect Time?

Are you afraid it's the top of the market? With interest rates the lowest in 30 years, I think the risk is greater that the interest rates will go up, not that home prices will go down. But even if prices do go down a little, if interest rates tick up, the monthly payment on that house will be higher, even if the price is less. So your risk in trying to "pick the bottom" is that you'll miss out on today's very low interest rates. And besides, I don't believe that prices will fall in the entry-level price range, for a number of reasons that I'd be happy to share with you personally.

The next step is up to you. I'd suggest sending me an email or giving me a call and we'll see what can be done. Even if your lease isn't up yet, we should still get the ball rolling, because we may have some credit work to do, and that could take 3 months or more. If you're not ready to talk yet, but would like to be kept up to date with the real estate market, then sign up for my email newsletter.

Either way, do something. Get something to show for your efforts. Don't be like the old saying, "Work your fingers to the bone, and what do you get? Bony fingers." You know, next year at this time you could still be renting, or you could be in your own home building equity. You might even discover you're handy at doing home improvements, as some of my clients have done, and they've really increased the value of their properties quickly.

Who knows what you'll accomplish once you have this big unfinished business of not owning your home out of the way? You know you need to do it - it's like a big weight holding you back until you get it done. Today's a good a day as any. So call me today and you can stop making your landlord rich and start building a nest egg for yourself instead

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