How to Save for a Home When All Your Money Is Going Toward Rent

Renters everywhere are feeling the constraints of rising rents. Higher rents erode your ability to save the cash you need to buy a home. Your living situation becomes a Catch-22: the longer you rent, the bigger percentage of your discretionary income you may need to save to offset rent increases.

Saving up to buy a home is no easy feat. You typically need at least a minimum of $20,000 to cover a down payment plus closing costs. That’s because you’ll need at least a 3.5% down payment to qualify for a mortgage and closing costs can be around $7,000 to $10,000 (about 2% to 3% of the purchase price). This goes without saying, but the higher the home price, the more funds you will need for the down payment.

(Keep in mind, you’ll also need a good credit score to qualify for the best mortgage rates. You can get your credit ready to buy a home by checking your free annual credit reports at AnnualCreditReport.com and looking at your credit scores for free each month on Credit.com.)

Picture this scenario: you’re diligently putting away at least 15% of your gross monthly income to buy a home in the near future. If your income is $8,333 per month ($100,000 a year) either from you or a spouse or combined, you would be saving $15,000 per year (or $1,250 a month) to meet that 15% mark.

Savings tip: A 15% home savings rate is a figure you may want to aim for if you make at least $60,000 a year and are looking to buy a house within the next two years. In some markets, however, your savings rate may need to be higher to be consistent with the cost of living in that area.

As demand for housing remains strong, monthly rents are subject to change commensurate with what the market will bear. Let’s say your rent payment is $2,200 per month now, but rises to $2,500 due to housing market changes. You would need to find a way to recover the $300 increase if that money was formerly going into your savings fund. How do you do it?

How to keep rent increases from ruining your plan

Taking no action and using the money you would be saving for a home to cover the higher rent payment will lengthen your home-buying trajectory as your savings rate diminishes. With the rent now at $2,500 and your annual income still at $100,000, your savings rate, as a consequence of losing that $300, falls to 11.4% a year.

You may still get you a home, but will perhaps have to look for one in a lower price range or a different neighborhood. Alternately, you can lengthen your timeframe for making your purchase. You can also cut expenses to offset the rent increase. Here are a few ways to possibly do so:

1. Cut an expense equal to the rent increase. Sounds obvious, but if you can find another spending area to cut back on (Daily Starbucks? A rarely used gym membership? Online shopping?) rather than diverting the home savings to cover your higher rent, you’ll be able to stay on track.
2. Look for a new place with a lower rental obligation. The process might be difficult, but could be worth it for the greater good of buying a home in the near future.
3. Move in with family to aggressively save for your new house. Going from $2,200 a month in rent to $0 can super-accelerate your home-buying timeline.
4. Get a roommate to help pay the rent and offset the increase.
5. Lock in your rental amount with a lease, keeping in mind that a lease binds you to the property. This contract, however, might not be such a bad thing if the term of the lease is consistent with your savings and home-buying plan.
6. Consider buying a home sooner, if you’re financially able to do so. Many 401(k) and retirement fund accounts allow for special privilege borrowing provisions to buy a primary residence. If you have a slush fund in your 401(k), this could be a good option and the money comes out of your paycheckpre-tax.
   ———
   This article was written by Scott Sheldon and originally published on Credit.com.

Shared from:  http://www.realtor.com/advice/finance/how-to-save-for-a-home-when-all-your-money-is-going-toward-rent/

My Movers Damaged My Landlord’s Property—Am I Responsible?

Moving day is always a pain, but it can be infinitely more so if you damage your landlord’s property while trying to skedaddle out of there with all your stuff. And It’s even worse if you aren’t the one who broke the $500 picture window.

If your mover was at fault, it should offer to pay—but things aren’t always that simple. Here’s what happens when movers won’t pony up.

Your landlord has the right to come after you

Don’t expect your landlord to do the legwork of filing a claim. You hired the movers and invited them into the property—from the landlord’s point of view, it’s your responsibility to pay for damages. So you might have to eat the security deposit while you try to get the money back from the moving company.

You’ll have to review your insurance—and theirs

Yeah, we know—you did the responsible thing and took out insurance to cover your goods. Right? The problem is it covers only your goods.

Typical insurance provided during a move—such as coverage of 60 cents per pound, per item— “would not cover any damage done to the landlord’s building or property,” says Kim Weaver, compliance manager at Relocation Insurance Group in St. Louis, MO.

Instead, the moving company would have to use its general liability insurance, or its auto insurance if the damage was done by vehicle. Some companies may have only cargo and auto insurance. When choosing a mover, you should search the U.S. Department of Transportation’s licensing and insurance page for any companies you’re considering, Weaver recommends. There, you can view details about what types of insurance the company is registered for.

Just don’t assume a mover has general liability insurance.

“In my experience, to get licensed in most areas, a mover has to have insurance,” says Troy Doucet, lawyer and owner of Doucet & Associates in Dublin, OH. “That doesn’t mean everyone has insurance.”

And therein lies another problem: If movers don’t have insurance—or are operating illegally—they probably don’t want you to find them. So how in the world can you get them to pay?

You try to track them down

If you used an unscrupulous mover, your “options for pursuing reimbursement will be limited,” says Pete Johnson, co-founder ofHireAHelper based in Oceanside, CA.

“The customer could tell the moving company they’re planning to take the issue to small-claims court,” Johnson says. “It might produce results and, if it doesn’t, then they can go ahead and file if they have an address for them.”

That’s a big “if.” Even otherwise official-looking movers may have websites without an office location or employee names listed, making it difficult or impossible to track them down. But if you can, here’s what you should do:

• Review copies of all the forms you signed (the moving company is required to give you copies, so make sure you hang on to them). Did you sign a liability waiver? Even if you did, “it may not be enforceable in your state,” says Alicia Dearn, CEO of Bellatrix Law and trial lawyer. This means the company may have tried to trick you into backing down.
• Get a lawyer—if only for a letter threatening litigation. “A situation like this is best resolved by negotiation—a letter from a lawyer can really work wonders in these disputes,” Dearn says.
• Photograph the damage for evidence.
• File a consumer complaint with the state’s attorney general office.

If the mover still refuses to pay, you’ll be looking at settling in small-claims court—it’s up to you to weigh the cost and decide if it’s worth pursuing.

Shared from:  http://www.realtor.com/advice/move/movers-damaged-my-landlords-property/

Should You Rent Your Home To Others?

With rental prices rising, you may be wondering if now's the time to become a landlord. There are advantages to renting your current home while you purchase another to live in.

The advantage to renting your home is that you're likely paying a homestead mortgage interest rate, which will make it easier to make a profit than if you purchased rental property with a mortgage at a higher interest rate. As you've owned your home, it's likely appreciated in value, allowing your home to compete well in the rental market so you can use profits to put back into the home to keep it rentable.

Assuming you're current on your mortgage, have the credit scores to buy another home, and have saved enough cash for a down payment, now may be the ideal time to add a rental investment to your portfolio.

Real estate has always served as a hedge against inflation and against other investments, so the first thing to do is find out how rents compare to home prices in your area. Your real estate professional can provide you with market comparables that show you how much homes are renting for per square foot and how quickly they rent, as well as for what prices comparable homes are selling.

If the rental income is enough to cover your mortgage, you're in good shape, but there are other expenses to consider, such as income taxes, advertising, listing and management fees, and maintenance.

For income tax purposes, your current mortgage isn't considered a cost of doing business that you can deduct like office supplies or equipment purchases. You'll pay taxes on this gross amount, less repairs and management fees, if any. On the bright side, if you sell the property within five years and you've occupied the home two of those five years, you'll likely pay no capital gains at all up to $250,000 for an individual or $500,000 for a couple.

To qualify for a mortgage on another home, your ender follows a typical multiple home formula. Even though you may have your home rented, plan to deduct approximately 20% of rental income from your "investment." Why? Most homes have a period where they are not rented while they're on the market, which means no rental income. Your lender wants to make sure you can handle periods when your home isn't rented.

When you turn your home into a rental, it's no longer a homestead, but an enterprise. Tax laws require you to make a profit within three years of launching an enterprise, or otherwise you won't be able to take deductions associated with it. Also, expect to pay more in property taxes as you will also lose the homestead deduction rate, since you'll be applying for the homestead deduction on your new home.

On the other hand, one of the best ways to build equity is to have someone else pay your mortgage for you. The longer you own your home and the longer it's rented, the more the amortization tables turn in your favor. Every loan payment is made of principal and interest. The longer you own your home, the larger the percentage that goes toward reducing principal.

Based on the purchase price of your home, you can deduct "depreciation" from your income every year you rent it, but this amount decreases with time. You can also deduct some maintenance and improvement expenses which are not available to homesteaders. See your tax professional for more information.

There are other pros and cons of becoming a landlord. You'll be dealing with people who don't respect your home as much as you do and could cause damages. They may skip out without paying the final month's rent. You'll have two homes to maintain, and could get broken plumbing or appliance calls in the middle of the night. On the bright side, renters of single-family homes tend to be older, more responsible and remain occupants longer. Also many losses are tax-deductible to landlords.

Ask your real estate professional or someone else that you know who owns rental property for more insights. They'll be able to share real-life property management situations and costs that may help you to decide if this is the right step for you.

Shared from:  http://realtytimes.com/consumeradvice/homeownersadvice1/item/38854-20151002-should-you-rent-your-home-to-others-htm