It’s the American dream. Owning your own home is a lifetime goal of many Americans. Afterall, renting a house or apartment is costly. Sure, you pay your monthly rent and the majority of your housing expenses are covered. Maybe even all of your expenses if your utilities, trash collection, et cetera, are covered in your rent. But, at the end of a calendar year, besides having had a roof over your head, what do you have to show for the money you paid out? You may have paid anywhere from $3,600 this year to $12,000 on up for rent! Twelve thousand could have made several mortgage payments instead! And, instead of having twelve rent receipts to show for your money, you could have invested that money into a home of your own.
With that said, being a homeowner in today’s world means you need to economize anywhere you can. When I sat down to analyze my finances, I did my homework, and plenty of it! You might be surprised to find out what I discovered: that the “Top Ten Monthly Expenses” for the average American family are – in no particular order:
2. Credit Cards
7. Health Care
8. Recreation & Entertainment
9. Child Care
10. Personal Items
I must make a notation here: The ranking of these expenses depends solely on your family’s particular lifestyle. Even so, you and your family cannot live without the majority of these expenses. So, your only alternative is to find ways to effectively diminish your outlay!
Let’s take a look at the costs of owning your home, and I’ll fill you in on some proven techniques you can use to effectively diminish these expenses, and save yourself tons of money in the process!
A Homeowner’s Four “Checkbook Challenges”
Generally, the highest expenses you will incur by being a homeowner are:
1. Your Mortgage Loan
2. Your Property Insurance
3. Your Property Taxes
4. Your Home Maintenance
Your Mortgage Loan – You’ll Find This Interesting
If you are one of an estimated sixty – six million people who own their homes, you probably have a long-term loan of 20 or 30 years, and you make a mortgage payment once a month. Hopefully, your loan is a fixed-rate mortgage, because that’s usually the most economical choice. Why? Because your monthly payment stays the same for the life of the loan.
This way you are shielded from interest rate hikes. Adjustable – interest loans commonly cost less at the starting line, but they can cost you big bucks on down the road when the interest rates go up! When you use a flexible-rate loan, it’s similar to riding a roller coaster with its repetitive peaks and valleys.
Short – term loans let you build up equity in your home faster, but the customary 30 – year mortgage loan usually gives you the lowest payment per month. This is especially important for families who are just starting out. The extra cash saved from the lower payments can be used to pay other debts. When you have the extra money available, you can apply that money towards the principal of the loan to help pay it off faster and save enormous interest costs!
Three Ways to Slash the Cost of Your Mortgage Loan
There are three basic ways you can save money on your mortgage:
1. Get a lower interest rate
2. Increase your monthly payment
3. Make regular lump sum payments
Unless you already have a “bottom of the barrel” interest rate on your loan, you should take some time to shop around and find the best interest rate possible. If you have a $100,000 loan for 30 years at 8.5%, for example, your payments would be somewhere around $768 a month, not including taxes, insurance, etc.
But if you could refinance your loan – – the same amount for the same length of time – – but at a 7% interest rate instead, your payment would be approximately $665 a month. That’s a savings of $100 a month right there! Times that by 12 and you could save at least $1200 a year!
Now that’s a chunk of change!
So, consider refinancing your mortgage. A Home Equity Loan might even be the right move for you. With a H.E.L., you can deduct the interest off your income taxes. That’s an added bonus!
There’s a certain satisfaction in knowing you haven’t paid more interest than need be.
Watch Your Savings Grow!
You can then either pocket that extra $100, or, you can reinvest it and make it grow so you can save even more money in the long run!
How can you do that? Simply take that $100 and apply it towards your mortgage loan every month. That means, instead of making a $665 dollar payment, you are actually paying $765 towards the loan. The result? You’ll be well on your way to paying off that 30 – year mortgage 10 years – one decade – early! Now, that’s a major league hit!
Even if your loan has a prepayment penalty clause, it still might be to your benefit to pay the loan off early.
Lump Payments Add Up
If you need to spend the extra $100 on other things, that’s fine. You can still make lump sum payments one or more times a year when you have additional money to spare. Sources of added income might include a hefty income tax refund, an inheritance from a rich uncle, or a year – end bonus from your job.
It would be a wise idea to talk to your current lender, and then shop around and get the
interest rates, points, and fees from at least five other lending institutions. You want to find a mortgage loan rate that is at least 1% lower than the interest rate you are currently paying.
Then, look at the numbers to see how they compare. Talk to your accountant or financial
planner for information on how much each loan would cost you, and how each loan would affect your taxes.
The whole idea in a nutshell is to pay off your mortgage loan as quickly as possible. The
faster you pay it off, the more money you will save in interest charges.
Still another way to achieve these results is to pay one – half of your monthly mortgage every two weeks. This method of payment is an incredibly – easy way to make a 13th payment on your mortgage loan every year without bankrupting your budget!
Before You Sign…
Before you sign on the dotted line for a new loan, you should call several lenders for rates and terms based on the type of mortgage you want. You will need to ask the following questions so you can be sure this loan is right for you:
” How long is the term of the loan?
” What is the minimum monthly payment? Is there a maximum?
” What is the annual percentage rate?
” Is the interest rate fixed, or is the proposed loan an adjustable – rate mortgage (ARM)? If so, what would the maximum interest rate be? How often might the rate change and what determines the rate change?
” Are there any annual fees or transaction fees?
” What are the “closing” costs?
Refinancing was a step in the right direction for me. I saved big by locking into a lower interest rate than I previously had. In turn, my monthly payment was reduced, and that was an important factor in helping me to improve my financial picture!
However, I didn’t stop there. There was much more to do! Read on to find out what else you can do to slash your home expenses!
Even though you must carry a certain amount of insurance coverage on your home and its contents, you can still save your insurance budget from exuberant costs! There is one insurance expense you can do without, too.
Cancel This Insurance Quickly!
One insurance you can cheerfully do without is called Private Mortgage Insurance. This is an insurance you must sometimes have in order to protect your mortgage lender in case you default on the loan. Obviously, you don’t want to have to pay for this type of insurance. But, if your credit rating is poor, and you are considered a risky borrower, your lender might insist you carry the PMI coverage.
If you have to carry PMI to get your loan approved, then you’re stuck with paying the added expense, at least initially. There is a bright light at the end of the tunnel! Just remember the “Eighty Percent Rule!” Your loan agreement should release you from carrying the Private Mortgage Insurance once you have paid your loan down to an amount that is less than 80% of the value of your home.
Did you know that? If you’re saddled with the costs of PMI right now, be sure to check your loan papers to see how fast you can get out from under it.
One Insurance You Can’t Do Without
Homeowner Insurance protects your home against the losses caused by fire, theft, vandalism, and the like, and, of course, this type of expense is a necessity. Depending on where you live, there are even policies you can take out that insure your home against earthquake and flood damage too.
You can still save hundred of dollars a year on homeowner insurance, though, simply by being a careful consumer, and here is how to do it:
Begin Cutting Your Insurance Expense NOW!
The first step is to make sure your insurance policy covers your current needs exactly. Read over your policy and make sure that your home and its contents are adequately covered with enough insurance to replace them in case disaster would strike.
This is especially important if you have built – on, or otherwise improved your home, or increased its value in any way. You don’t want to be caught short by finding out you that don’t have enough insurance coverage to replace your home and its contents!
How is this going to save money, you ask? This might not save you much money right now, but it could save you thousands of dollars in the long run!
Take the Next Step…
The second step is to check to see if there are any items you pay premiums for – especially “extra” premiums that can now be canceled. Examples of these might include expensive jewelry, rare coin collections, valuable stamp collections, a TV satellite system, an outside building that you razed, and so on. You need to have these items removed from your coverage.
Now that you have updated your insurance policy, and you know exactly what type of coverage you need, and how much, the third step is to shop around. You will need to find the lowest insurance rates available for the type of coverage need on your home and its contents. In other words, you will want to get the most “bang out of your buck.”
Where You Can Find the Best Rates
Your state insurance department is the most comprehensive resource you can use to find an insurance provider. (Numbers by state are available in the Valuable Resources Section.) Or, you can log-on to the Internet and search for: (Your State) Department of Insurance to find their website.
Each department provides samples of insurance premiums that you can use to help compare rates. All types of insurance are covered, including medical, health, automobile, etc., not just homeowner insurance. Each department also furnishes a special section on their website where you can file a complaint in the event you have been ripped – off by an disreputable insurance company.
The Final Step
After you have found the five lowest-priced home insurance companies, the final step is to call them and request specific quotes which meet your needs.
Do make certain your new policy is in effect before you cancel your current one!
Am I saving money on my house insurance! You bet! Here again, I found a bundle of savings by actually shopping around, then changing insurance companies! I found out that my former company was charging me premiums on coverage we didn’t even need!
I offer you this proven tip: Don’t listen to what an insurance representative tells you. I can’t emphasize that enough. Read, read, read the proposed policy and make sure you understand exactly what it covers.
Taxes – -One of Life’s Certainties
It was over two hundred years ago that Benjamin Franklin, one of the great statesmen of our time, made this immortal statement: “Nothing is certain in life but death and taxes.”
Did you know that Franklin was also an economist? He is also quoted as saying, ” A penny saved is a penny earned,” and he meant it. His entire life was based on frugality, and his penny – pinching made him a wealthy man.
So, just like Mr. Franklin, you must pay the required taxes on your property. That’s a given.
However, take another tip from him, and make sure you pay the lowest amount possible.
Special Cost – Cutting Programs
Depending on where you live, some counties or municipalities offer their citizenry special programs for seniors or for low-income individuals. These programs permit qualified persons to pay a reduced amount of their property taxes. Call your local tax office to see if you meet their criterion for any money-saving programs they might offer.
Chances Are, Your Property Taxes Are Too High!
You might even considering filing for a tax reduction with your local tax office.
Did you know that economists estimate that over half of all us American homeowners pay too much real estate tax every year? Why? Because many properties are said to be assessed above and beyond their actual value! One of the main reasons for this is that local tax assessors use a “one – size – fits – all” process to appraise properties.
If you win your appeal, and it’s not hard to do, you could save yourself several hundred dollars, or more on your property taxes every year! Wouldn’t you like to put that money in the bank?
Reasons For Getting Your Taxes Lowered
Some common reasons for getting your property taxes lowered include out buildings, sheds, or garages that no longer exist on the property, deteriorating structures, out buildings, roofing, decks, driveways, and so forth.
How To File For A Tax Reduction
Filing for a tax reduction is easy to do. Simply contact your local tax office and ask for the necessary forms. Take them home and read them over carefully. Then, do a careful audit of your home and property and list the reasons why your taxes should be reduced. Complete the forms – -fill them out completely and carefully – -and return them to the tax office.
If you need help, you can contact a property tax professional for assistance. The tax office will probably set-up an appointment for you to come in and present your case. In a week or so, they will let you know, by mail, the results of your case.
Tax laws vary, so be sure to check with your local tax office to find out the specifics on how your property is taxed.
The Rest of My Story
Okay, now for the “rest of my story.” I had purchased a small house that sat on a plot of land, for “next to nothing.” The house needed completely remodeled. I knew if I did the majority of the work myself, I could turn that house into a beauty for just pennies on the dollar!
The property taxes were cheap. Because they were so low, I just assumed that the place had been properly assessed, and I wasn’t paying too much in taxes to start with.
Still, I went to the local tax office and got a map of the property. I figured this map would be handy to have in any event. And boy, did it ever come in handy! I found out that the property map hadn’t been updated for many years.
In fact, the property taxes included two outbuildings that weren’t even on the property!
The result? I filed for a tax reduction and got it! And I immediately stopped paying for buildings I didn’t even own!
The moral of the story? Don’t just assume your property taxes are right. Make sure they are. You may be as surprised as I was!
To keep your property values up for resale or loan purposes, your property needs to look nice and be well – maintained, that’s a given. To do this, you’ll need to make renovations and provide repairs on your home and property. The upkeep can realistically cost you anywhere from hundreds to thousands of dollars, depending on the job.
On top of that, the scams that are pulled on homeowners every day, in regard to hiring contractors, are numerous. These scams bilk homeowners out of additional money that often cannot be recouped!
Americans spend over a hundred BILLION dollars a year in home repair and improvements, according to the National Association of Home Builders. What does that mean to you? Two things: one, it means that the chances are high that you’ll hire a contractor to perform some work on your home. And two, if you do, then you’ll need to take some precautions.
How To Find the Best Contractor
1. Obtain at least two written estimates from two qualified contractors. The estimates should list what specific materials will be used, what services will be rendered, the specific start and finish dates of the work, the payment schedule, the contractor’s guarantee in regards to the services rendered, the name, address, and telephone number of the contractor, and the total costs of the work.
2. Never pay the full cost of a job before it is completely finished. It’s often customary to pay, for example, 50% of the total bill before the work begins. When the work is done – completely to your satisfaction, I might add – then the remaining 50% is paid.
3. Be wary of contractors who were “in the neighborhood” and decided to stop by to see if you needed work done. Also, don’t fall for “high – pressure” sales tactics! Dishonest contractors might try to con you into having work done that you don’t want, or even need!
4. Before you hire a contractor, call your local Better Business Bureau to find out if there are any existing complaints against them.
5. If you run into problems that can’t be remedied otherwise, contact your State Attorney General’s Office to file a consumer complaint. Don’t forget to file a complaint with your local BBB too!
“Do – It – Yourself” and Pocket Your Savings!
Don’t forget about the option of doing-it-yourself. You can fix up your home and turn it into a beautiful showcase and save $$$ at the same time! And, it’s not as difficult as you may think!
I am not a professional carpenter. Yet I have successfully replaced windows, hung drywall, laid floor tile, plastered, replaced water faucets, installed kitchen and bathroom cabinets, hung wallpaper, painted and so on, for only the cost of the materials! There are easy-to-follow instructions that come along with many types of building materials – – such as floor tile, for example – – and anything else you need to know can be found in manuals and books from your local library!
My biggest project to date was building and staining a deck! There are deck kits you can buy, and they vary in size and design. But I designed my deck myself.