An FHA loan is one of the tools available if you want to buy a home but don’t have much money for a down payment. I actually bought my home with the help of a FHA loan. However, it is important to consider the pros and cons of a FHA loan before jumping in.

What is an FHA Loan?
The FHA loan is backed by the Federal Housing Administration. With a FHA loan, the government guarantees the loan, so that a lender is at a lower risk should you default. FHA loans were not terribly popular before the financial crisis of 2008, since it was possible to get 0% down home loans fairly easily.

Now, though, with many mortgage lenders tightening requirements, the 3.5% down payment requirement for a FHA loan seems attractive to many. It is important to note that the 3.5% down payment option is only available to those who have a credit score of at least 580. If your credit score is between 500 and 579, you will need a 10% down payment. FHA loans are not available to those with credit scores are less than 500.

You do need to show sufficient income to be approved for a FHA loan, and some of the guidelines are stricter than what was available prior to the financial crisis.

Private Mortgage Insurance
When you borrow for a mortgage that’s not an FHA loan, banks and other lenders ask for at least 20% down on the home to protect themselves against a default.  If you don’t have enough money to make a 20% down payment, they may still lend you the money but you’re required to buy private mortgage insurance.

Private mortgage insurance (PMI) usually amounts to between 0.5% and 1% of the entire loan amount each year. If you have a $200,000 loan, and the PMI is 0.75%, you will pay $125 a month each year until your loan to value ratio drops to 80%.  Although the existence of PMI does extend home ownership as an option to many that might not be able to afford it, that monthly fee can add up to a big expense for the homeowner.

PMI vs FHA Insurance Premiums
If you borrow money with an FHA loan, you don’t pay PMI but you do have to pay into a fund that guarantees FHA loans.  This fund is an escrow account setup by the U.S. Treasury Department.  Lenders are still exposed to the risk of default (even more so since the down payment is so small) but the Federal Housing Administration is agreeing to back the loan with the escrowed funds paid into by FHA borrowers.

When you have a FHA loan, you will need to pay 1% of the loan amount up front (Upfront Mortgage Insurance Premium), and then an annual premium depending on the term of the loan and how much you put down. (You can add the 1% up front premium to the loan amount.) You have to pay the premium for at least five years, and you stop paying the premium once your loan to value ratio reaches 78%.

The table below is based on the rates on the FHA website for new loans after April of 2011.  The table shows the annual premium for an FHA loan according to the length of the loan and the size of your down payment.

		Loan Term
		<= 15 Years	> 15 Years
	< 5%	0.50%	1.15%
Down Payment	>= 5%	0.50%	1.10%
	< 10%	0.50%	1.10%
	>= 10%	0.25%	1.10%

 

So, to figure out how much mortgage insurance you’d pay with a conventional loan vs FHA loan you’d first figure out your monthly premium based on your loan term and the size of your down payment.  Multiply that times the number of months it would take you to pay down the loan to less than 78% loan to value ratio.  Then add that number to the amount of your Upfront Mortgage Insurance Premium and you’ll have the total cost of insurance for your FHA loan.

There are many variables involved in this decision.  In addition to the term of your loan and the amount you have to put down, you also have to factor in what the appraised value of the property will be.  In terms of determining if you can afford the monthly payments, you’ll also need to know what interest rate you’ll pay.  The combination of the interest rate and the term of the loan will determine what your monthly payments will be – which you need to know in order to figure out how long it will take you to pay down your loan to the point where you have at least 20% equity in your home. I haven’t seen a good calculator that compares a conventional loan vs an FHA loan but if I find one I’ll be sure to write about it.

Saving Up for a Down Payment

Right now, with tighter lending standards, a FHA loan can be quite tempting. You have a lower down payment requirement — and a lower credit score requirement. However, you might end up paying more. A bigger down payment can save you money in the long run, since you will be financing less, and paying mortgage insurance premiums for a shorter period of time.

What you decide depends on your priorities: Do you want to buy now and long in a lower home price and lower interest rate? Or do you want to save up for a down payment and borrow less? In the end, it depends on whether you want the home now, without saving up, or whether you want to wait until you have a bigger down payment.

A short sale is a way for you to get out from under your upsidedown mortgage and lessen the blow of foreclosure. At least, it offers a way to have to admit that you were foreclosed upon. We all know what the term “short sale” means these days. Many folks know less about what it involves, and more alarmingly, what it feels like to be on the receiving end of that short stick.

5 Secrets to Survive a Short Sale

Here are five little nuances that, if you’re just now considering this, you may not yet have been told, all of them something you need to weigh.

1. In comparing a short sale to a foreclosure, you’re basically trading one pain for another. Because in either case the bank won’t like you, and in return will send the credit bureaus a smear campaign with your name on it. Foreclosure will mercilessly ruin your credit for seven years. A short sale, if you can pull it off, will put a black mark next to your name for two, and give you quicker access to credit-rebuilding programs, which are suddenly all the rage.

But don’t sign up yet. Because your credit score isn’t the only variable involved.

2. Foreclosure is relatively easy. You just stop making mortgage payments, and then one day you get notified that you need to be out the door by a specific date. Which may or may not be the date you really need to be out of the house (some folks have been known to squat in their own home for up to year after a foreclosure notice).

When the real date arrives, you just pack your stuff and go. Simple.

3. By comparison, a short sale is like taking out your own appendix versus going to the emergency room. Nothing easy about it, and orders of magnitude more painful. First, you have to stop making your payments completely or the bank won’t even talk to you about a short sale. Don’t even thing about making a partial payment because, after all, you’re one of the good guys, it’ll back-fire on you.

What they will do, however, is turn your account over to a collection agency who will call you with some of the nastiest, most confrontational rants you’ve ever heard. Best advice here, if you truly are heading toward a short sale: don’t answer the phone. Instead, call your bank (not the collection agency) yourself every six weeks or so and tell them – yes, tell them – that you’ve chosen to do a short sale on the house, and you’re ready when they are, and in the meantime, no further payments are forthcoming.)

It gets worse from there. Once the short sale fuse has been lit, the bank will have a market appraisal done on your house, and your ego won’t like the number. They’ll want the highest price they can get, which is contrary to your desire to sell the house as quickly as possible. And by the way, at this point you are completely out of the conversation, on any and all issues. Just sit back and let your real estate agent handle the chaos.

Which brings us to the next little secret.

4. You absolutely need to work with an experienced short sale real estate professional. Ask for references and credentials. Anybody with a business card with the words “real estate” on it will say they can do it, but only a fraction actually specialize in it. Why do you need a specialists? Because the runaround you’re in for is astounding, and you need someone who can cut through the crap the bank will throw down in this process.

An attorney is a good idea, too, but that’s no secret.

5. There’s no such thing as a free lunch or a completely scott-free mortgage forgiveness, according to the I.R.S. You will receive a Form 1099-S in an amount equal to the amount of the loan forgiveness that results from a completed short sale. There are ways around actually claiming this income on your tax return, including the possible extension of Obama-generated tax breaks based on certain factors that you, your CPA and your attorney need to kick around.

But exempting this “income” from taxes is not remotely a sure thing, making this the dirty little secret of short selling.

6. There’s help out there. Go online and search for “short sale advice,” as well as “government programs for foreclosure avoidance.” The programs have income thresholds and expiring timelines, and this landscape is shifting constantly.

The banks, for example, have an incentive to help you apply for a kickback of up to $3000 — because they get a kickback of their own from taxpayers, which means you should thank all your neighbors for the help if you go this route – as part of the matrix-like cluster-bomb of paperwork and closing costs you’ll encounter.

Remember, while you may feel alone with your problems, you’re not.

Short sales are at an all-time high, and banks are resigning themselves to it as an alternative to foreclosure, which is the epitome of a pain-in-the-asset where they are concerned.

Just remember, though, that the short sale buyer is a close DNA match with the common shark, and they’re on your porch smelling blood for the sole purpose of capitalizing on your misfortune. Thus, coffee and cookies during showing are not expected… save the five bucks and buy yourself a sandwich. Just don’t tell your bank that’s how you’re spending your money, because they’re looking for any reason at all to tell you no.

Nolan Hoffman is the lead writer for onlinebanks.com and also blogs about his short sale experiences at debtkid.com.

Finding Contractors

Unfortunately for our budget, our back patio needs to be mudjacked so I went through my usual contractor search process yesterday afternoon.  I actually ended up calling 5 different places – I left a message with one of them, the second one specialized in foundation work, and I made appointments with the other three.

Everytime I go through this process I end up with a piece of scrap paper with a list of company names, phone numbers, appointments, notes, etc scribbled on it.  More than once I’ve misplaced my list which makes it a pain to remember who I called, who I liked, and who’s coming to give estimates (and when).

Contractor Checklist

So this time I decided to make a spreadsheet template I can use each time I have a big project I need to get bids for.  It’s actually too bad Angie’s List doesn’t have a feature like this built into their site for members, I imagine it would get a lot of use.  They’re pretty good about listening to customer feedback, maybe they’ll read this and add it.

But for now, here’s a link where you can download the template.  Of course you don’t have to find contractors on Angies List in order to use the spreadsheet. Anytime you’re researching companies and getting bids you can keep track of everyone you’re considering with this tool. However you find your list of potential companies, first add them to the spreadsheet. You can always add more as you go but I’d start with at least three contractors so you can get a range of bids.

Contractor Evaluation

If you’re busy like me you may not get to all of the companies in one sitting so it helps to include the date you called them.  This can help you remember which you’ve talked to and which you have to call still.  In my case there was one that really sounded good, they had great reviews but they didn’t answer their phone so I left a message.  Recording the day you called also lets you keep track of how long it’s been since you contacted them.  If I don’t hear back by Tuesday I’ll probably try again, or you may decide if it’s been 3 days with no response you don’t want to hire them because it could be sign of how responsive they are.

Appointments

There’s also a place to record the day/time of any appointment you make.  When you’re dealing with several contractors it helps to keep track of who is coming when.  You don’t want to miss the initial appointment because in a way they’re evaluating you as well. If you don’t show up for your first meeting they might decide that you’re not worth their time.

I also include approximately how long it will take them to start the work if you decide to work with them.  If it’s an urgent issue and one contractor can start weeks before the others that’s a good thing to know.

Estimates

If they give you an estimate over the phone or after they’ve come and given you a bid you should record it in the spreadsheet.  This can help you compare the different contractors and also helps you remember how much each one bid.  It’s not a good surprise if you get the bids mixed up and after choosing to work with one you find out the cost is higher because you lost track of which bid was from each contractor.

Some companies will give you an Angies List coupon if you found them via the service.  Most businesses will ask how you got their name and I always mention that I saw them on Angies List. 

Some places offer a fixed amount off their services and others do it a a percentage.  Typically if they do offer an Angies List discount it’ll mention it in their company description as shown here.

Rating

If you only go with companies that have an A rating, like I have, then you might not use this field.  However, Angies List does have several different sub-criteria that members use to rate contractors (Price, Quality, Responsiveness, Punctuality, Professionalism). 

They could have a B in a few sub-categories and still have an A rating overall.  It’s nice to note any B ratings so you can be aware of those when you’re evaluating providers and trying to choose between two of them.

Notes

I actually have two different places to keep notes in the spreadsheet.  One of them is to keep track of anything you find out in your phone calls or face to face visits with a contractor.  For example, I found out that one of the companies worked mainly on house foundations and didn’t do much with patios.  I’d prefer someone who had experience with patios so I moved that company to the bottom of my list and made a note of why.

The other notes section is to record anything that jumps out at you from other customer reviews.  Some reviews are pretty short and don’t offer much in terms of specifics.  However, some people go into detail about particular aspects of their experience – for both positive and negative reviews.  If there’s anything that really stands out you should make a note of it, particularly if it’s mentioned by more than one person and you see a pattern emerge.

Comparing Contractors

Once you’ve spoken to all the candidate companies and have all your observations in your spreadsheet, alot of times the information you’ve gathered will make it easy to choose a contractor.  If you do find two that are pretty similar and you’re having a tough time deciding between them, hopefully having the detail you’ve captured in an easily comparable list will make your decision easier.  Some of the spreadsheet columns, like Angies List coupons and customer reviews, won’t apply if you’re not using Angies List – but the others will.

So, whether you’re using Angies List or not you can use this tool to compare contractors and find the one that should do the best work at the most reasonable price.  Good luck!

The Fear of Mistakes

Remembering back to our experiences of buying a house I can recall that in the back of our mind the whole time we were worrying that we would make a big mistake.  If you only buy one or a few houses in your lifetime you don’t go through the process very often and a rookie mistake could end up costing you thousands of dollars.

It’s not just the potential cost of a mistake that sets you on edge, it’s also the fact that you’re making one of the biggest commitments of your life and making decisions that may live with you for the next 20 or 30 years – or even longer.

Buying a House With Less Stress

It was no surprise to me that when I asked what kept you up at night one of the big things was finding a house you liked and could afford.  So as a result over the last few weeks you’ve seen the series of articles on home buying topics.  I tried to focus them on common problems you might struggle with: finding money to buy a house, finding a house that won’t break your budget, getting a home loan at the lowest cost, and how to handle a big mortgage after you buy.

Here’s a summary of everything we covered, let me know if there are things we didn’t touch on that you’d like included. 

Finding Money to Buy a House

Unless you’ve saved up enough money to pay for your house with cash, you’ll have to borrow funds to buy a house.  You’ll have to figure out how much you’re eligible to borrow and how much you’ll expect to pay based on your financial situation. 

If you’ve struggled with finances in the past and have bad credit or a history of bankruptcy or foreclosure that makes it more difficult and we touch on that in one of the articles. Also remember that how much you’re able to borrow usually isn’t the same as how much you should borrow.  You may be approved for a loan amount that’s actually higher than what you can afford.  But we’ll get to that in the next section.

• How to Improve Your Credit & Buy a House
• 12 Steps to Improve Your Credit Score
• Mortage Pre-Approval When Buying a House
• Down Payments and Private Mortgage Insurance

Buying a House You Can Afford

As I mentioned earlier, buying a house is probably of the biggest financial commitments you’ll ever make.  You want to find something that meets your needs but also a home that won’t put you in the poor house for decades to come.  So here’s a look at figuring out how much you can afford and some ways to help stretch your dollars to get more house for less.

• 3 Ways to Buy More House for Less Money
• How to Buy a House in an Expensive Market
• How Much House Can You Afford?

Financing Your Home 

Decisions about financing your house can potentially save you or cost you tens of thousands of dollars over the life of a home loan.  If that’s not enough to stress you out, picking the wrong type of loan could even mean the difference between being able to make your payments or facing foreclosure.  Here’s a look at the implications of the different loan options and ways to keep your borrowing costs down.

• 30 Year Mortgage vs 15 Year Mortgage
• FHA Loans vs Conventional Loans
• How to Use a Mortgage Calculator to Compare Home Loans
• 6 Key Factors for Home Mortgage Rates
• Finding the Best Mortgage Rates
• Home Loan Closing Costs

Paying for Your House

Once you finally find the right house and the right loan and get moved in your house payment is due every month for the length of your loan. If it turns out that bill is more than you can handle or is just higher than you’d like here are a few things you can do to help ease the pain of a monthly mortgage.

• What To Do If You Can’t Pay Your Mortgage
• How to Sell Your House Without a Realtor
• 5 Ways to Pay Off Your House Early

I hope these articles help take some of the uncertainty and stress out of the process of buying a home. Next up on the list of things that keep you up at night is a series that covers investing your money, stay tuned!

Many real estate agents take a 5% to 6% commission on a home. On a $180,000 sale, 5% is $9,000 – that’s money not going into your pocket.  Whether realtors are worth it is a topic we’ve discussed before and it really depends on your personal situation.

However, if you’ve decided not to use a real estate agent to sell your house, here are some things to consider.

Understand the Market

Research your area and understand the local market. Find out what comparable homes in your neighborhood are selling for. You can also ask a couple of real estate agents to come by and give you an analysis.  If you are up front about your desire to sell the home on your own, some may pay you a visit. They want to leave a good impression just in case you get tired of trying to go it alone. Get a realistic idea of what you can expect for your home and try to avoid pricing it too high.

Advertise Your Home

You can’t sell your home if no one knows it’s for sale. To spread the word, you’ll need to advertise your property.

You can do this with ads in the local Classifieds, which can be quite reasonable. You can also list online with a service like For Sale By Owner. These cost anywhere between $200 and $1,000, depending on the service and what is included. Some sort of listing is a good idea, since it will make your home more searchable in databases used by real estate agents and buyers when they are looking for homes.

For the best exposure you can have your home included in the Multiple Listing Service (MLS) by agreeing to pay the commission of the buyer’s agent when your house sells.  This is typically about 3% of the sale price – which is still a lot of money but better than 6%.

If you have some free time and want to be creative, you can take pictures of your home, and put them online on a web site or blog of your own. Getting people to your site will be the trick but if you’re creative enough you might be able to draw attention from local media or local bloggers.

Know the Paperwork

Perhaps the most difficult portion of selling your home without a real estate agent is making sure that the paperwork is in order. You can get help on this from a trusted attorney, preferrably one with experience dealing in real estate.

The legal fees you’ll pay won’t be cheap but will be less than what you would pay in commission. You can do the paperwork yourself, but you need to make sure that you are in compliance with all the state and federal laws that apply. Take some time to educate yourself about these things before you begin.

Prepare to Work Hard

Selling your home is hard work. Be prepared to show the home, negotiate, and keep it clean. You may need to stage your house or enhance its curb appeal. You also need to be ready to put in the hours necessary to educate yourself and properly advertise your home. If you are prepared, you can sell your home on your own — and save yourself the commission.

Our Home Buying Story

My wife and I live in that beautiful semi-rural part of central New Jersey that nobody knows about. It feels as far away from “The Jersey Shore” as Boulder, Colorado. Because of our relatively close proximity to New York City, the houses here are always very expensive.

During our nearly one-year house search, we learned that it was nearly impossible to find a decent house for under $300,000 in the county where we live. Note that I’m talking about a whole county, not just a town or two. This is also true of many of the surrounding counties where we live.

Here were our only requirements for our first home:

1. Home not be listed “as is”
2. Have three or more bedrooms
3. Be located in an area with a good school district
4. Not be located on a busy street
5. Not be a total “fixer-upper”

Our price range was $300,000 or less. We found it nearly impossible to find a home that met even three or four of our requirements in that price range. By utilizing the below tips, however, we did eventually find and purchase a great home.

We love our house and it met all of our qualifications with the exception that it is located on a busier road than we would have liked. It took nearly a year of planning to find a home we could afford in a pricey market. With the below tips you too might be able to buy a great home, even in an expensive real estate market. By implementing the tools it took us a year to learn, hopefully you’ll be able to afford a home in a much shorter period of time.

1. Find the Right Agent

I think this is important for any real estate purchase, but even more so if you are looking to purchase in an expensive real estate market. In the beginning of our house search my wife and I found an agent online. We were not very impressed with the results and still wonder whether that agent had our best interests in mind.

The second time around we got smart and asked a few real estate attorneys we know their opinions about who the most trustworthy local real estate agents are. You should be able to find a good real estate agent from within your social circle as well.

2. Do Your Own Homework 

Although you will be well-positioned if you have a committed and trustworthy agent, you should still learn about your local housing market. You should visit as many houses as you can. How else will you know what a fair price?

Websites such as zillow.com, realestate.com, or trulia.com can show you globalized real estate listings. Make sure you study the listings sent to you by your agent as well–even the homes you have little or no interest in.

3. Consider Foreclosures and Short Sales

Buying a foreclosure or a short sale can be an effective method for buying into an expensive market that you may otherwise be price-precluded from entering. Recognize, however, just how difficult these types of transactions generally are.

Banks have made the short sale process more difficult than ever. You may wait months even after a seller accepts your bid waiting for the bank to reach a decision. Some people waste months waiting for a bank short sale acceptance that will never come.

Foreclosures have their own issues. Many foreclosed homes are in terrible shape. Foreclosures and short sales provide a means to purchase a home in an expensive market at a reduced price, but do realize you will likely be paying in other ways.

4. Expand Your Search 

If you’re not finding a value home in your price range, then consider expanding your search. This will provide you with more options and a better chance of finding a home you can afford.

5. Look For Homes New to the Market 

Most of the homes that have been sitting on the market for months remain unsold because they are either: a) extremely flawed; or b) not priced to sell. Also, be weary of sellers who list the home themselves or who are using a real estate company you have never before heard of. These may be signs the sellers cannot accept the true value of their home, and therefore have not been able to hire a legitimate real estate agent to assist in the sale.

6. Develop a Solid Negotiation Strategy 

One of my favorite negotiation tools is the “price history” on Zillow.com. Many times I would find that the owner purchased their home in 2005–right at the height of the market. I knew this person would likely be difficult to negotiate with, because they would want me to subsidize their mistake.

If you know your market you can use the price history to establish a fair current market value. For example, if you know the person purchased their home in 2005 and your real estate market’s average home prices have decreased 20% since that time, this provides an idea of the home’s current market value.

The key to just about any negotiation is to make a low first offer that is still high enough to not be offensive. Good real estate agents should help you with your negotiating strategy as well.

7. Save for a Larger Down Payment 

It seems to mee that we’ll see further depreciation in most real estate markets. Although nobody can time the market, perhaps the best idea is to wait a year. During this time you can save for a larger down payment and hold out to see if prices will continue to drop. A year from now you might be able to afford that dream home, even in an expensive market.

What other strategies have you used to purchase a home in an expensive real estate market?

Bankruptcies and Foreclosures

If you have a low credit score, with no bankruptcy or foreclosure, you might be able to purchase a home now. You will have to pay a higher interest rate, and you might not get the best loan terms, but you probably won’t have to wait — as long as you have a large down payment and a credit score above 500. (If you have a small down payment, you might not be able to get a bad credit mortgage with a score below 580.)

Waiting periods apply if you have had a bankruptcy or foreclosure. Most lenders won’t offer you better rates until a bankruptcy is four years behind you and it has been at least two since a foreclosure. In order to qualify for a FHA loan, you have to be at least two years away from a foreclosure, and you can get a loan with as little as a 3.5% down payment.

Improving Your Credit to Buy a Home

So what should you do if you don’t have any recent bankruptcies or foreclosures and would like to buy a home but have bad credit?  Your first move should be to try and improve your credit score. Here are three ways to begin improving your credit score:

1. Make your payments on time and in full.
2. Pay down your debt, reducing your debt to income ratio.
3. Avoid applying for very much new credit.

One way to build a history of making regular payments is with a credit card, but you may not qualify for one if you have bad credit.  One option is to open a secured credit card, where lenders are willing to give you a credit card if you provide collateral in case you don’t make your payments.

As long as you use it responsibly, making regular purchases and paying down the balance each month, this can be a fast way to help your credit score.

Other things that can help you improve your qualifications for a home loan include:

Earn a regular wage. Self-employment offers a different challenge. If you are self-employed, you should be able to show tax documentation of regular earnings. However, self-employment income isn’t going to be viewed by lenders as favorably as a salary. Show that you have been steadily employed for at least a year or two.

Save up for a down payment. If you have poor credit, you can improve your chances with a down payment of at least 10%. If your credit score is lower, approaching 600 or below, you might need 20% down. If you have a credit score of less than 500, there is a good chance that you will need a 35% down payment to qualify.

Letter of explanation: If you have a compelling explanation for your low credit score, a letter of explanation might be required. You can explain extenuating circumstances (such as job loss or medical catastrophe) that led to your poor credit. You can also describe what you are doing to improve your financial situation.

When you have bad credit, it is still possible to buy a house. However, you will need to work hard to improve your credit score at least a little, and you may have a couple other hoops to jump through.

Obviously, I’m all about saving money so I don’t want to suggest that you sign up for a membership that you can’t use. In light of that, I’ve put together a list of 5 reasons you might not want to join Angies List.

1) No Contractor Reviews in Your City

The main benefit of the service is hearing and reading the experiences other consumers had with individuals and companies they’ve worked with. If you go to search on a certain type of review and there are only two pieces of feedback for your area it’s not that helpful.

To avoid situations like this, Angies List has certain criteria they use to determine whether a city will generate enough consumer reviews to make it worthwhile to potential customers to sign up for the service. Here’s a list of cities with Angies List reviews, if you don’t live near one of them then the service won’t do you much good.

They are adding new cities as demand appears, if you want to signup for my newsletter, I can let you know when new ones are added.

2) Extremely Specialized Work

As I mentioned in the first point, the big value of Angies List is that you get a good sample of feedback on someone before you decide to hire them.  However, if you’re in need of a very specialized service that may only turn up one or two reviews in your area, then it won’t do you much good to check on that kind of work.

If you have a question about whether a specific service is reviewed you can contact Angies List, their customer service has always been helpful for me and they might be able to answer your question about a specific type of work in a certain area. 

You can also contact me with questions - I won’t be able to look at service providers in your city but I can get an idea of whether the kind of contractor you’re looking to hire gets reviews in a major metropolitan area – and if so how many.

3) Emergency Work Needed

The great thing about Angie’s List is that it helps you find the best service for your needs.  I’ve explained before that I like to choose three different providers that meet my criteria and get bids from all of them.  Then I pick the one with the best price and service for us.

If you’re having an emergency, you don’t need the best, you just need someone to fix your issue. For example, if the water main downstairs is spraying water and filling up your basement.

This does bring up the the other big benefit of Angies List, it helps you avoid deadbeats and people out to cheat you.  When I follow my process it accomplishes both, eliminates crooks and finds the best provider.  But if you’re in a major hurry you don’t have time to go sign up and search for providers.  If you’re already a member, it doesn’t hurt to go pull the most highly rated name and call them.  But if you’re not, call a person you really trust to get a quick referral who can show up immediately.

Pre-Screening Contractors

This also brings up the point that it’s not a bad idea to do some research before you have an emergency.  It’s probably worth your time to spend a few minutes finding the top providers for a few categories, like plumbers, electrician, heating/cooling, roof repair, etc.  Basically things that you might have to call about right away – like a water main break, if the heat quits middle of the winter, or a big leak in your roof on a stormy spring day.

Then over the following few weeks, call them up and find your favorite. Make a list of your tops picks and keep it somewhere handy.  You might want to pick two of each in case one is busy or unavailable when you do call in an emergency.

4) You Don’t Want to Give Reviews

Angies List has grown to the point that there are millions of users around the country leaving feedback, so chances are you can get first hand reviews of companies you’re thinking of working with.  Users have a vested interest in leaving reviews, particularly once you’ve found a good provider on the site.  If you find a quality company, you want to share it, with the understanding that the other members will do the same and you’ll be helping each other out.

Of course, you can still be a member and lookup reviews even if you don’t leave your own feedback but it’s not as helpful to the people in your community if you don’t.  I’ve actually felt guilty about that in the past year, I’ve been so busy I haven’t taken much time to leave my feedback. But what I’ve found out is that Angies List actually has employees whose job it is to just call up members and ask them to give their reviews over the phone.  While driving home from work last week I gave reviews on our HVAC contractor, pediatrician, dentist, and lawn mowing company.

5) You Don’t Think It’s Worth the Money

If you don’t want to pay for a membership, I know how you feel.  You already have enough expenses, you don’t want to add one more.  But I did give away some free Angies List memberships just a few months ago and I’ll be doing it again in the future. If you’d be interested in winning a free membership, enter your email below.

In terms of cost, Angies List has recently reduced the price of a membership.  Their logic in dropping the price seems to make sense. They know that the more people they have using the service, the more valuable it is to everyone. 

They realized that by reducing their prices they’d actually help consumers in two ways.  First off, the lower cost would save new members money and get more of you to join and give people more access to the service.  Secondly, the larger number of people using it makes the service more valuable – basically customers get a better price and more value.

So if you’ve checked them out before and price was a concern, you might want to take another look.  You can also save money when signing up with these Angies List discounts.

Why does it seem like the place you want most when house hunting is often the one at the top of your budget?  Only you can determine how much house you can afford.  However, if you’re getting frustrated and having trouble finding homes that meet all your criteria and are in your price range, here are a few tips that can help lower the price of your home.

First we’ll look at lowering the cost of borrowing money to pay for your home.  Then we’ll move on to finding the square footage and features you want at a price you can better afford.

1) Lower Your Credit Score & Interest Rate
One of the best things you can do is work to improve your credit so that you get a better interest rate. The interest that you pay on a home purchase can make a big difference in how much you pay over the life of the loan. Indeed, you could pay tens of thousands of dollars more over the life of your mortgage just by having to pay an interest that is 1% higher.

The reason it makes such a big difference is because you’re often borrowing large amounts of money and then paying it off over 15 – 30 years.  Due to the way that banks amortize your mortgage payments, you’re paying mostly interest and only a small bit of principal during the first half of your home loan term.  Here’s more info about how your credit score affects your interest rates.

Credit Score

Your credit score is only of the factors that goes into determining your mortgage rate but it’s one that pretty universal for borrowers so it makes sense to work on it. Improving your credit is a great way to reduce what you pay in interest.

Work to boost your credit score by making on time payments, reducing your debt, and being choosy about the new debt that you apply for.   Remember, when you apply for a home loan it shows up on your credit report, so it’s best to check your credit first before just applying for a loan and seeing what rate you’re quoted.  If it’s lower than you’d like, you can work to raise your score before filling out any loan applications.

When you have a good score, you should be able to qualify for a lower interest rate. So this should help you buy more house with less –  since less of your payment will be going to interest. Saving up for a sizable down payment can also help, since you will be financing less of the home’s purchase price, and you will pay less in interest over time.

Credit score & Mortgage Rate Resources:

• How to Find the Best Mortgage Rates
• 12 Steps to Improve Your Credit Score

2) Home Bargain Hunting
All you have to do is drive around a few subdivisions and you’ll see the toll the housing market crash took on people who borrowed more than they could afford or who lost their job in the bad economy.

This has led to many foreclosures and short sales, which sometimes give you a chance to buy more house for less.  Obviously this is bad news for existing home owners but can be an opportunity if you’re looking to buy a house for a bargain.  According to CNN Money, foreclosures and short sales accounted for 26% of the total homes sold last year.  Based on a recent RealtyTrac report, their statistics show that foreclosures save you an average of 36% off regular home prices – and short sales typically get you a discount of 15%.

How to Use Home Savings

A 15–36% discount on a $100K-$200K house can certainly save you a lot of money. The question is do you use that discount to spend your existing budget on a bigger home, or get a smaller house and pocket the savings?  One thing to keep in mind is that if you’re buying a home that’s bank owned or in the process of foreclosure you’ll likely have to invest some money into it on top of the sales price.

Often home like these have been sitting empty for a while, which can cause problems for you as a new owner.  For example, if the utilities have been turned off then there’s nothing to power a sump pump and spring rains can mean wet and moldy basements.  Unfortunately, lack of care and maintenance isn’t the only concern.  Sometimes previous homeowners that are being kicked out by the bank will take their anger out on the house and intentionally damage the property before leaving.

How Much Will a Bargain Cost You?

There can be some unexpected costs when buying a foreclosed home, however, there are ways to anticipate some of them.  If you’re buying a house on the courthouse steps, which is an option right after a home has been foreclosed on, then it’s often sight unseen.  You have to bring cash to the auction and when you buy the house you may not know all it’s potential issues.

However, if you buy a home from the bank that foreclosed on the property then you have more time to do some research and anticipate your costs.  You can setup a time with the seller’s agent to bring in contractors to assess the damage and give you bids on what it would cost to get the house back into shape.  Not only does this information help you figure out how much you can afford to pay for the home and still do repairs, you can also include the estimates in your offer to the bank to justify the price that you offer.

Non-Foreclosure Bargains

If you don’t want to deal with a foreclosed home, there are still ways to save money on a house.  Start off by searching for homes that have been on the market for a while.  What you’re looking for are listings that indicate that the seller is motivated to sell since that gives you room to negotiate.

One frequent cause of this are home owners who are moving to a new home and don’t want to be stuck with two mortgage payments.  They may be more likely to give you a discount on price and get it sold than risk owning two houses for an extended period of time. 

Some companies that relocate their employees will actually guarantee them a sales price for their home if they’re willing to move.  Many of these companies work with re-location services to help sell homes and these can be a source of good deals for you.  The company isn’t in the real-estate business and doesn’t want to hang on to mortgage debt, they’re motivated to sell the house quickly, which gives you an opportunity to negotiate the price.

Short Sales

As I mentioned earlier, short sales are another alternative to foreclosures.  In these cases the bank hasn’t repossessed the property but the homeowner has asked the bank to let them sell the house for less than the amount owned on their loan.

The downside to short sales is that any offer you make has to be approved by both the home owner and the bank.  Banks are so swamped with short sales that it can take forever for you to get a response on an offer.  However, you can check the public records on a home and if you can find date it’s scheduled to go into foreclosure, this can give you leverage.

It’s often in the best interest of the property owner and the bank to get the home sold before going through foreclosure.  So if the home owner is coming up against a foreclosure deadline they may be willing to approve a pretty low offer, simply to avoid foreclosure.  Of course the trick is the bank also has to approve your offer so don’t make it so low that they simply dismiss it.

3) Know the Market

Understanding the local real estate market is a huge advantage when you’re trying to buy a house at a bargain. For example, anyone who comes to buy in my neighborhood is likely to pay $20,000 less than what the owner originally paid because there are so many homes for sale — and those that have sold have done so at a discount.

Real Estate Agents

One way to tap into market knowledge is to work with a buyer’s agent.  It’s best if you can work with someone who specializes in a certain area.  For example, if you really like a specific neighborhood and can find a buyer’s agent who actually lives in the neighborhood then you’re more likely to have access to property insights that you wouldn’t find with a random real estate agent you found in the phone book.

Technology

Whether you use an agent or not, you still want to do your own research.  The Web makes it pretty easy to keep your eye on developments in areas that you’d like to buy.  There are websites that allow you to save search critiera with your desired price range and house features.  They’ll send you emails when new properties are listed or when prices change on existing homes.  If you subscribe to a service like that for a few months you’ll have a decent feel for what’s available and what it will cost you.

Something else to consider is making use of a mobile device when you’re out “in the field” doing your research.  A lot of information about real estate is now accessible via your smart phone so if you run across something new or unexpected while out looking at homes you may be able to do your research and get your question answered while you’re in a house or sitting out front in your car.

Buying More House For Less

If you can lower your borrowing costs and find real estate that’s “on sale”, it’s definitely possible to get more home for your money.  Both of these require research, planning, and doing a fair amount of work before the actual purchase of a home.  However, the money you’ll save will make your efforts well worth the time you invest.

Warranty Costs vs Benefits

In our case we were negotiating under the approval of the bank for the short sale and there was no room for the possibility of having a warranty included.  So we had to decide whether it was worth it for us to pay the money for the home warranty.  We had a hard time making the decision, my wife wasn’t crazy about the idea but I felt the cost was worth the potential expense of a major system problem like the air conditioner or furnace going out.  The house was about 10 years old so I could see the air conditioner quitting on us right after we bought it.

Our First Home Owner Claim

We ended up buying the home warranty and haven’t needed to use it until today.  Last weekend our furnace started making a lot of noise and running rough enough that the floor above was shaking so we called up the home warranty company to have someone come look at it.  We couldn’t get ahold of them on the phone but we did go to their website and file a claim online.

Claim Filing Process

For those of you trying to decide if you should buy a home warranty, here’s a look at how the claims process works.  It might vary from company to company but many of the large ones are having you submit a claim online these days.  Some offer the option of letting you file over the phone but you’ll probably sit on hold forever so it’s probably less hassle to do it online.

Keep track of your contract number because you’ll need it to pull up your account and file your claim.  If you don’t have it, they may have a process where you can retrieve it using your name, address, and phone number. 

Once you’re into the online claim system you’ll choose the type of claim that you’re filing and may be able to enter in some detail about your claim, as shown here.

After going through a verification screen to make sure everything looks right you submit your claim and you’re given a claim number. 

What happens next depends on the warranty company, typically you’re at least sent an email confirmation of our claim.  In some cases you may have to wait for them to contact you, in others you may be given a number to call.

Home Warranty Claim Servicing

Many of the national home warranty companies don’t do the actual service themselves, they have contracts with local companies to do the work on their behalf.  If that’s the case, at this point you’ll get the name and number of a local contractor to call to schedule an appointement.  That’s what happened in our case, I called them up and got a voicemail where I left my home and cell number along with our claim number.

Here’s what they said on the claim confirmation page:

“When scheduling the appointment, please advise the representative that you have a service agreement and provide them with the claim number. The service technician will go to your home to determine the cause of failure and will contact us with their service report. As a reminder, you are responsible for paying the service company for their service call, diagnosis and/or covered work performed up to your deductible amount of $75.00. Please print or save this important information for future reference.”

Is a Home Warranty Worth It?

So far, this part of the claims process has gone relatively smoothly. I was able to submit it quickly and the local contractor called back withn an hour to schedule the appointment for tomorrow afternoon.  We’ll see what happens after they check out the furnace.  Hopefully the repair bill won’t be too large and they’ll honor the warranty.  One thing some home warranty companies are notorious for is doing the least amount of work just to get you back up and running, without paying to fully fix the problem.  Hopefully we won’t run into a situation like that and everything will go smoothly and the warranty will be worth the money we paid for it.