Debt Shepherd Ongoing Coaching Letter – Issue #24 – March 10th, 2012
Owning Your Home:
Just a few days ago my older brother told me he had just paid his house off! He’s 45 years old. That is a major milestone for anyone, let alone someone who’s not even 50 yet. Scratching your head and asking “How the hell did he do it?” Here’s a few inside tips on how you can do the same thing.
Buying At The Right Price:
I don’t know exactly what my brother paid for his house. I do know it’s out in the country a bit and he got a bargain. If you’re house shopping, start thinking outside the box a little when it comes to location. The bargains can sometimes be where you have to drive a little more than your house hunting peers.
Smaller Debt, Faster Payoff:
When you’re patient and look for that bargain price, it means you’ll borrow less money when you buy. Makes sense, right? The less you finance the faster you’ll pay it off and own it free and clear. I recommend having at LEAST 5% of your own funds as a down payment.
You want 5% equity the day you sign the papers. That’s 5% of the purchase price applied to a down payment. This 5% doesn’t go toward your closing costs, prepaids, etc. Whose gonna pay my closing costs & pre-paids? You’re going to pay cash or ask the seller to pay them (or a portion) for you.
Sweat Equity:
One type of bargain is a “fixer upper.” My brothers house, for example, needs some work on the floors. It could use some paint over those brown wood panels on the walls. It doesn’t have central heating and air, but uses a propane tank and space heaters. You can make these repairs over time, at your leisure. You sweat to do the work, you get the equity when the work is done. Equity is the difference between what is owed and what it’s worth. Equity is how much of the house you actually OWN.
Instant Gratification:
The bottom line is most people don’t want to take the time/effort to really search for a bargain. They want to look at a few houses with a real estate agent, nothing wrong with that, and close two weeks after they sign a contract. Americans have been trained to be impatient. I want it all and I want it now is the mantra. Personally, I think that is slowly changing. The higher price you pay for anything is usually because of convenience.
Prepaying Your Mortgage:
Here’s the meat and potatoes of the article. My brother is 45, he bought a bargain, he paid his house off early. How’d he really do it? I know he prepaid his mortgage to some extent. That means if you get a windfall of cash, a bonus at work for example, you write a check to the mortgage company and write “pre-paid principle” on the check. This is separate from your regular monthly payment. This pays down the balance faster and gets you to total ownership faster.
Summary:
You can own your home much faster than you think. The old saying in real estate is “You make your money when you buy, not when you sell.”
1) Look for a bargain and good things can happen faster later on.
2) Be willing to make some repairs, if necessary.
3) Prepay your mortgage if you have NO OTHER DEBT. Prepay while carrying other debt, and you’re not maximizing the power of it. When you get windfalls of cash is one way to prepay. Apply 10% of your net income each month is another.
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To Your Financial Freedom,
Greg Whitaker
greg@debtshepherd.com
