I was puzzled too, because not long ago I remembered them buying a home, which at the time (maybe three or four years ago) was a major step up for them. It was a very nice home, and one that offered the space they needed for their growing family. I just assumed they would be there for years – maybe decades.

Somewhere along the way my friend got a promotion and his wife returned to work. They had some new-found cash flow, and felt some temptation to step up in house again. Rates were nearing an all-time low, and prices had been knocked down a bit in their area (though not quite as bad as in other parts of the country).

They decided to, in his words, “stretch a bit” to buy a much larger home (around 1,000 square feet larger), with a bigger lot and many more high-end features. They considered it a smart investment.

Fortunately, they sold their old house relatively quickly, and for the first couple of months they were tickled with the new place. Unfortunately, it didn’t last.

They soon realized that the new home came with larger bills. I guess they always knew that would be true, but now they were feeling it. They were paying more in utilities each month. Their payment was significantly higher thanks to higher taxes (they now owed city and county taxes since they moved closer to town).

My friend’s wife saw her hours cut at work, which was a mixed blessing since she missed spending more time at home with their kids. On the other hand, they counted on her earnings to help cover the mortgage. He said they were starting to feel “squeezed.” Looking back, he confesses, it would have made more sense for them to just stay put and find something else to “invest” in.

Finding Contentment

I can relate to what my friends are experiencing, and his story was a timely one for me. My wife and I often wish we could relocate to a different area. Houses in the area we desire are significantly more expensive than what we owe on our current home.

We feel like a move there would mean depleting our cash for a down payment on a larger debt. At the end of that trade we wind up owning less (savings) and owing more debt. That just doesn’t fit with our financial goals.

Since becoming debt free but the house our goal has been to acquire assets – things that go up in value, or add value to our lives, or create a passive income. While you could make the argument that real estate meets these qualifications, I don’t necessarily want to put all my eggs in my primary residence. I’d rather buy rental property, or land, or invest in REITs for real estate exposure. My home is my shelter; it’s not an investment.

When I start feeling a little house fever, I remind myself that all the granite countertops, square footage and stainless steel appliances in the world can’t change my fundamental feeling about new debt.

I don’t want to take on more debt. I want to pay off the remaining debt I have (the mortgage), and be free from debt altogether.

I don’t want to buy something that will cost me more to maintain, draining more money from future earnings.

I don’t want to buy a fancier roof over my head if I think one day I may not be able to pay for that roof, a roof that keeps the rain and the wind and the cold away from my family.

So for me, curing house fever is relatively easy. I take a walk around the outside of my home and think of the blessings I have inside, beginning with my family. Everything else is just stuff. And I don’t need a bigger box just to hold more stuff.

If I lost everything inside that house, but still had my wife and kids, I’d still be a blessed man. Anything else is just gravy.

As for my friend, he said they are looking to downsize, but are now having trouble selling their home – one of the larger ones in his neighborhood and significantly more expensive than the short sales happening around him.

As he put it, “We may never find someone dumb enough to take this house off our hands.” I told him to be positive, because after all, the previous owners did.

When it comes to buying a home we’re all well informed of the costs that go along with this purchase. We understand that you need to pay taxes, pay for moving costs, deal with loading your place up with furniture, pay the lawyer, and deal with many other expenses. There’s one more expense that we don’t really factor in.

What’s this hidden cost of home ownership? It’s TIME. Time is a ownership cost that most of us rarely factor in when we decide if we should rent or buy a home in our 20s. We run all of the financial calculations and crunch all of the numbers. What we don’t do is think about the time that we’ll now have to invest as a new home owner.

Why is time such a hidden cost when it comes to home ownership?

• You’re going to have to wake up an hour earlier in the winter to shovel your driveway.
• You’re going to have to spend a Friday night raking leaves in your backyard.
• You’re going to spend time on fixing up rooms and customizing them to your expectations.
• You’re going to have to spend an afternoon waiting for the cable guy to show up to fix your internet connection.

Simply put you’re going to have to spend lots more time on your new home than you ever did with your rental. When you rent a place you don’t really have to deal with anything at all. As a renter you just deal with your own basic household chores. The rest of the work or anything that breaks down gets delegated to the landlord of the unit. The renter simply calls the landlord to deal with most issues around the place.

What if you don’t want to invest all of this time into your new property? Well then you have two clear options for how you can avoid this heavy capital investment:

1. Outsource the work. You can always pay someone else to do the work. You can hire a landscaping company shovel your snow in the winter and mow your lawn in the summer. You can also outsource all other household related tasks. The obvious benefit here is that you can save yourself lots of down. The downfall is that it’s going to cost you
   even more money.
2. Avoid the work. You can also attempted to avoid the household work. We all have that one home in the neighborhood that always looks like a complete mess. The benefit here is that you don’t have to worry about investing time or money into tasks around the task. The obvious setback is that your home won’t be attractive at all.

As you can see there’s going to be a heavy time requirement when you decide to buy a new home. Once the euphoria of owning a home fades away, you’re going to be stuck with all of these new tasks on your plate.

Is there any other solutions to the time investment required with your property? You can either enjoy the work or think of it as an investment. Enjoying the work can become really easy because after a while, mowing your lawn on a summer morning can be a great feeling. The investment part comes into play when you start to perform upgrades on your house. In the process of upgrading your home, you can improve its market value when you plan on selling it eventually.

As a young professional are you ready to invest all that time into your new home? Would you rather outsource these tasks?

If you want to learn more about deciding if you should rent or buy a home in your 20s, please check out my new eBook on the topic.

The reduction in the number of foreclosures processed is largely due to the increase in the amount of time it takes to foreclose. The same report indicated it took an average of 400 days to foreclose in the first quarter of 2011. That’s up from an average of 340 days during the same period last year.

For some perspective, in 2007, foreclosures took about 151 days.

What does this mean for the housing market and those interested in buying a home? Well, as I’ve said before, I don’t have a crystal ball. However, if I were in the market and could afford to wait a few months to buy, I might consider holding out, unless you think the opportunity is just too good to pass up.

I think we’re going to see a wave of foreclosures hit the market between now and the end of the year. This could be especially true in states such as Massachusetts, New Jersey and Nevada.

Unfortunately for sellers, this probably means home valuations are headed lower again. Simple economics tells us that as supply increases, the price decreases (all other factors being equal, of course). Again, bad news if you are planning to sell, but potentially good news if you are in the market to buy.

Interest Rates

The “X” factor in this discussion is interest rates, which are hovering at around 4.5% for a 30-year mortgage. I believe the Fed has kept rates too low too long in an effort to help a sputtering housing recovery. They know if they raise rates while potential home-buyers are already on the fence, the housing recovery could completely stall.

I recognize it is a delicate balancing act, but I think the pendulum has swung too far for too long.

The benefit of low rates is that borrowing money to buy a home may not be cheaper for a generation. The downside is inflation; as we’ve all experienced at the grocery stores, gas stations and elsewhere over the last several months.

If interest rates begin to move up, as I suspect they will soon, a shaky housing market could cool even further. In a matter of months we could be looking at higher costs to borrow and a wave of new foreclosures hitting the market. Not a good combination for homeowners.

Real Estate Investors

This could make for a good time to buy an investment property, if you are so inclined, and your finances allow it.

In a recent post I discussed the dilemma of being out of debt and wondering how to allocate money to savings, investing, etc.

I’m not much of a market timer, however, I’m also convinced the market is just about maxed out in the near term and may backslide a bit in the coming months (particularly if this housing market gets any uglier).

Instead of piling cash into investments that may soon get the rug pulled out from under them, it might make since to invest in more tangible assets, such as real estate. Now, I have no illusions of fixing and flipping, rather I’d love to find a small property that I could rent out, using the cash flow to pay off the mortgage quickly and enjoy years of rental income.

Even if the house itself appreciates very little over the years, the earnings from renting could make real estate investing a profitable idea. Until the real estate market shakes out, I bet the number of renters increases significantly, increasing the demand for rental properties.

Of course, if you have enough cash, and enough patience (and savvy) you could even look at buying a foreclosure. I signed up for RealyTrac’s service some time ago to monitor the foreclosure properties, and other homes for sale, in my area. It’s a little expensive, but they do offer basic information for free and they have a 7-day free trial to check out their offerings.

If you aren’t up for land-lording, it may also be a good time to look at land – timberland, farmland, etc. Like my grandfather used to say, “They ain’t making any more of it.” I suspect land itself (improved or otherwise) will continue to appreciate more than home values in the near term. And of course with the news of food shortages, farmland has been a very hot commodity in recent months.

In addition to traditional investments such as stocks and bonds, I believe real estate, in some form, should be part of your overall investment mix, along with more conservative investments such as CDs, cash, and gold and silver. You can adjust the mix according to various factors such as your age, risk tolerance, etc.

The economic turmoil in the United States is nowhere more apparent than in the residential real estate world. All of that bad economic news that we hear about daily has led to a flood of homes being listed for sale. Americans in record numbers are placing their homes on the market to downsize, to avoid foreclosure and to get out of loans they no longer can afford. In this market where prospective buyers have so much to choose from, making your house stand out can be a challenge.

When the market was at its peak, the concept of “staging” a home, or revamping its appearance as a marketing strategy, had really taken hold, and an entire industry of professional home stagers had emerged. In this distressed market, however, sellers should consider several simple, inexpensive ways to enhance their home’s appearance before listing it for sale.

1. Clean, Clean, Clean. Of course your house needs to be clean when prospective purchasers come through, but you would be surprised at how often homeowners neglect this simple, no-cost tip. We all lead busy lives, but if you really want to sell your home, making sure that the kids’ toys are put away and that the dishes are safely in their spot is a must.

2. Rearrange Things. It’s hard for homeowners to hear that their chosen furniture arrangement needs work, but you must consider the appearance (not necessarily the functionality) of your personal property when trying to sell your home. For example, although most people display furniture so that the television is the focal point, that’s not always the most aesthetically pleasing arrangement. But, fear not, despite a little heavy lifting, following this tip shouldn’t cost a dime.

3. Don’t Forget about Curb Appeal. Most sellers concentrate on the interior of their homes for good reason, but you can’t neglect the exterior. Pulling weeds costs nothing and shouldn’t take much time. If your yard is an eyesore, you may want to invest in some more extensive landscaping, but before you take on any project, consider how much it costs versus how much value it might add to the home.

4. De-Clutter. The #1 complaint of prospective purchasers when they visit homes on the market is clutter. Unfortunately, it’s very difficult for some people to see past your stuff strewn all over the room and envision a world where their things look tidy and neat. So, while your home is on the market, put away magazines, kid’s toys, dog beds, litter boxes, etc. A good rule of thumb for most folks is to remove at least a few items from every room.

5. Hit the Thrift Stores. If you’re not the type that needs to de-clutter and, instead, you need to spruce up your décor, you don’t have to break the bank doing so. Consider a trip to a thrift store, a flea market or a yard sale. Because these places can be overwhelming, make sure you go with a mission. If the living room desperately needs a lamp, make that’s your sole priority when shopping.

6. Bring on the Green. Plants and flowers can bring a room to life. But you don’t have to purchase an expensive floral arrangement or a luxurious plant from a nursery. Instead, check your yard for fresh blooms or look for wildflowers.

7. Let there be Light. If you have fussy drapes or other heavy window treatments, consider removing them while the house is on the market, or at least opening them up so light can fill the room. Letting in the natural light and providing a clear view of the outdoors can make a room feel larger and more alive.

8. Don’t be a Closet Case. Unfortunately, you can’t just hide your clutter in your closets. Buyers these days are obsessed with closet size, so be ready for them to take a peak at yours. The more cluttered a closet is, the smaller it will appear to those considering a purchase.

9. Keep it Simple. If you have a flair for the dramatic, make sure you tone it down when your house goes on the market. If you have to splurge on a new coat of paint, for example, opt for neutral colors. The goal is to make your home appeal to the broadest cross section of the population possible.

10. Depersonalize. There’s no need to remove every possible sign that someone does actually currently inhabit the property, but it can help buyers imagine themselves in the home if your family photos aren’t prominently displayed.

Jack Simms has been providing research on issues of interest to home buyers and owners for LeadSteps.com’s Online Mortgage Rates business for three years. Prior to his involvement with LeadSteps, Jack was a real estate professional providing marketing services to realtors in northern California. Jack’s research for LeadSteps’ Mortgage Rates Website is driven by his desire to better explain the complicated decisions involved in both home ownership and the purchase of a home.

“Our budget is $475,000 to $490,000.”

Huh? These young people barely looked old enough to buy an adult beverage, and they were considering a half-million dollar home? They had my attention.

For the next thirty minutes or so I watched these young people roam from house to house with their real estate agent. I was extremely impressed with their thoughtful considerations of each house. You know, like which one had enough room in the backyard so their two dogs could play without feeling “claustrophobic,” and which house would be best for “entertaining.” After all, these are important considerations when just starting out. End sarcasm.

It was at this point that I began to regain my strength. I think it was adrenaline actually, as I had the overwhelming urge to reach through the television and smack some sense into these people.

Admittedly, I know very little about this couple, other than one is an “account executive” and the other is in medical sales. However, I think it is safe to assume that unless they inherited a couple hundred thousand dollars, they planned to borrow most of their first purchase.

$3,000 a Month for Thirty Years

Let’s run some numbers working with our assumptions. I think the couple settled on a house listed for $490,000 and paid about $475,000 (I don’t remember the exactly sale amount). I’d like to think they saved up at least 10% to put down, which is a fairly large amount of money for this size house. Perhaps they did have $50,000 to put down, and financed the remaining $425,000 on a 30-year mortgage.

Their monthly payments would be around $2,281 before taxes and insurance, which could easily add another $800-$1,000 a month, bringing their total monthly mortgage payment to over $3,000. Let that sink in for a moment.

This 27 year-old couple was about to sign a binding contract promising to make 360 payments at $3,000 a month for the next 30 years. They would be 57 years-old by the time they paid off the mortgage.

During those thirty years they would likely have children, and have to continue working like maniacs to make that $3,000 a month payment. They would need to save for retirement, pay for the annual vacation (or two), buy, maintain and replace seven or eight cars between them, deal with a medical emergency, deal with a medical emergency with their parents, deal with a job loss, etc. They would have to deal with all of life’s curve balls with a $3,000 a month obligation hanging over them.

“But We Can Afford the Payments”

When I watch people engage in this type of transaction, I can’t help but be a little sad for them. And my feelings aren’t limited to those taking out a huge mortgage – even though these are usually the longest of financial commitments. Many people borrow money for expensive cars and such which obligate them to costly monthly payments for a number of years because they can “afford the payments.”

Hearing the statement, “we can afford the payment” is a sure-fire sign someone can’t afford the payments. Marketers have won the battle of convincing us that we can afford things we can’t if we only have to pay for it every thirty days, rather than all at once. But what happens when you hit a bump in the road? What happens when life happens? Because trust me, it will.

Someone will get sick. Someone will get hurt. Someone will lose a job. Someone will get stuck in a soul-sucking job and dread Monday mornings like a trip to the dentist. Life is not always rosy. Things happen. I’m not being a pessimist, I’m being a realist.

It’s hard to tell that to a couple 27 year-olds with their whole life ahead of them and without a care in the world. Sometimes people have to find out the hard way. I just wish people would listen to others who have been down the same road (if you are a parent, you can relate to this).

My First Place: An Alternate Ending

Imagine if this same young couple decided to put their $50,000 down payment on a $200,000 home, and finance only $150,000. Their monthly payment drops to about $800 before taxes and insurance, they avoid having to pay private mortgage insurance (PMI), and they can seriously consider a 15-year mortgage, or paying off a thirty-year mortgage in the same amount of time. They could easily be debt free before 40, house and all.

Yes, they would be giving up a little space for entertaining, and the dogs would have to get used to a smaller backyard, but imagine the freedoms they would enjoy. Imagine them as a 40 year-old couple with a $225,000 house, a modest pile of savings, and zero debt.

Imagine a young mom having the option to stay home with the kids. Imagine those kids going to college and graduating without debt because their parents can afford to help. Imagine those kids getting married and making a similar first-home purchase decision because they admired their parents’ frugality. In one single decision, that couple could complete change their family tree, and one day leave behind a legacy of debt freedom for generations to come.

This post appeared in the Canadian Finance Carnival

Current trends in the housing market indicate that small investors might be wise to consider buying foreclosed property as their family home, for resale purposes, or for rental income. Savvy investors will also note that that the variety of foreclosed homes now available includes those found in affluent areas and seaside resorts, areas where home values typically see nice growth (until beaten down by housing bubbles such as the one we recently experienced.

How You Could Benefit from Buying a Foreclosed Home

While the majority of foreclosures are sold at 5% below market value, your savings may increase if you buy from a lender that is willing to lower the down payment or interest rate, or waive certain closing costs, because the mortgage is in default. Since an appraisal on the property has already been done, you might be able to avoid the appraisal fee, and much of the risk entailed will be removed if title insurance is also included in the purchase price.

If you have a good credit rating, your loan may equal the foreclosure’s full amount, and if you plan to use the home for rental income, the lender may only require a down payment of 10%. Obviously, lending requirements are different across institutions, geographic regions, etc, so investigate down payment requirements in your area.

If you have a substantial amount of equity in your current residence, you may be given a line of credit to make the purchase without even providing a down payment. Personally, I’m not crazy about the idea of using equity in my primary residence to finance the down payment, or significant percentage of the purchase price, of a second, foreclosed home.

What You Should Know

Many home owners who default on their mortgages have been in financial difficulty for about a year, and both regular maintenance and repairs that are needed in the home have probably been neglected on either a large or small scale. Since this can even happen in an affluent area and location really does count, if the resale value of the home seems promising, you might want to consider making a reasonable offer and prepare to invest in its upgrading.

In other words, keep an eye out for the ugly house in a nice neighborhood that is in need of mostly cosmetic upgrades, but is structurally sound. I don’t recommend novices get involved changing floor plans or repairing sinking foundations. If I bought a foreclosure in need of upgrading, I’d stick to new carpet, paint inside and out (if needed) and maybe a go so far as replacing the roof if it was in dire need of replacing. Beyond that, I’d leave it to someone with more time and money than me.

To locate foreclosures, I’d recommend starting your search with a  visit to RealtyTrac, the nation’s #1 site for foreclosures.

As a rule, banks try to sell their foreclosed home at an auction or work through a real-estate broker. If a property has been up for sale for less than a month, the lender will probably expect a full-price offer, but after that, they may be ready to sell at a bargain price.

A Word About Home Auctions

In the past, a foreclosed home was usually auctioned off for less than 50% of its fair market value, but today, attendance at these auctions has increased significantly. The hike in the number of bidders in attendance increases the competition, which results in a higher sales price. Consequently, foreclosures now often go for 10% to 20% less than fair market value, which makes them an interesting investment, but not the golden opportunity they were when buying foreclosures was done in more exclusive circles.

Note that if you buy a foreclosed home at below market value in a good area and it appreciates annually, this may turn out to be a wise investment strategy. The appreciation will be tax-exempt until you sell the home, and if it becomes your primary residence, it may also be tax-free. If you use the home as a rental property, it may build equity and increase in value while giving you a valuable tax deduction at the same time.

Cover All the Bases with a Home Inspection

Before completing any real estate transaction, especially a foreclosure, you should be willing to pay for a complete home inspection. This will cost between $250 and $400, but it will reveal anything that is wrong with the property’s systems or structure. Remember that you can only determine if the asking price is fair when you know what maintenance and repairs are needed. If you plan to make a direct offer to the owner, find out if there are any outstanding lines or other claims on the home.

Finally, I would recommend using a real estate attorney to help navigate the legal hurdles of buying a foreclosure. We used an attorney to buy our home, because a real estate agent was not needed, and I wanted someone representing my interests throughout the transaction.

So I’m a huge proponent of truly owning one’s home mortgage-free.

That said, here are some pros and cons of paying off one’s mortgage before the terms of  your loan are satisfied (the usual 15 or 30-year mortgage):

Pros:

Most personal finance experts recommend owning your home mortgage-free before, or soon after, your retirement. The amount of money you’ll need in retirement goes down considerably as a result since you won’t have to pony up hundreds or thousands of dollars each month.

In addition, by paying off your house early, you save thousands of dollars in interest over the life of the loan. Take a $100K loan at 8 percent interest over 30 years: you’ll end up paying a bit more than $264K for the $100K loan. Pay the loan off in 15 years and your cost declines to $172K, a savings of $92K.

Many people claim the tax deduction is a great reason to carry a mortgage. Personally, I never really understood that. My wife and I look at it this way: why would we want to pay someone $1 in interest in order to receive 28 cents in a tax-write off?  (If we pay $10K in mortgage interest in a year and we’re in the 28 percent tax bracket, we may deduct $2,800 from our taxes.)

Plus, as we pay off the mortgage, more and more of our payments go toward the principal, thus lowering the amount we pay in interest and thus lowering the amount of our tax deduction each year.

Cons:

Using extra cash each month to pay more on your home loan means you can’t use that money for other, important things. Things such as:

• Paying off credit card debt
• Building an emergency fund
• Contributing as much as you can to a retirement account such as your 401(k), IRA or other form of retirement savings
• Saving money for college for your children
• Building a Health Savings Account (HSA)
• Setting aside cash for a much-wanted vacation
• Home improvements
• Starting a car replacement fund

Also, you’d more than likely earn a better rate of return on your money if you invest it in mutual funds or the stock market rather than in pre-paying your mortgage.

Take the example of a homeowner at year five of a 30-year $200K loan at 6 percent who takes $1,000 she normally would have saved and instead pays it toward her mortgage. This homeowner adds $1,000 in equity to her home and saves $3,400 in interest. However, had she placed that grand in an investment vehicle that earned her an average of 8 percent over the next 25 years, her $1,000 would have grown to $6,800.

In addition, if she places that $1,000 in a tax-deferred savings vehicle such as a traditional IRA or 401(k), she’ll reduce her tax liability for that year.

Regardless of your personal feelings toward pre-paying your mortgage, you may want to consult with a tax advisor/investment advisor to determine if pre-payment is a good course of action for your situation. But a word of caution: don’t allow them to persuade you to keep a mortgage around so they can sell you a hot “investment.” The future financial security of your family may be at stake, and that is far more important than the chance to strike it big.

That six percent was the smallest annual increase in four years, RealtyTrac.com said. So while the rate of increase in foreclosures has declined, the number of foreclosures still continues to rise. In fact, RealtyTrac.com said three million additional homes should receive foreclosure notices this year, on top of the homes already in foreclosure.

Which is bad news for someone trying to sell their home, since foreclosures tend to drive home prices down. Plus, a glut of foreclosed homes means anyone trying to sell a home today will need to learn the art of patience: some areas of the country are seeing homes on the market for six months to a year or more.

But if you need to sell your home quickly in this down market, below are some tips to help you find a buyer as fast as possible:

1. Make your home as appealing as possible inside and out. Paint the interior a neutral color. Patch the holes in your lawn. Plant some flowers (or at least place a few floral color bowls by your front door). Make minor repairs as needed: replace a cracked vanity mirror, replace a torn window screen, replace the broken hinge on the closet door, and so on.

Don’t bother with major renovations at this time; you won’t recoup your outlay. In fact, there are many ways to increase your home’s value for less than $100 (check out this link for even more frugal ideas to help your home sell). For major blemishes, you can offer carpet/appliance “credits,” or allowances, to potential buyers if they’re balking at your worn carpet or outdated appliances.

2. Clean your house as it’s never been cleaned before. Clean the carpets. Clean the drapes. Steam clean your furniture. Get rid of clutter. In fact, try to remove as much bric a brac and small items as you can from your living space. Try to make your home look as if “no one lives there.”

3. If you want to sell quickly, hire an aggressive realtor. It’s probably not a good time to try to sell the home by yourself so long as you find a house-selling dynamo. Yes, you’d save thousands on agents’ fees by going it alone, but if time is of the essence, hunt for the most aggressive agent you can find.

(Side note: in my own neighborhood, one of my neighbors sold her home in less than a month; most of the homes in a nearby semi-rural area are taking at least six months to sell. Her secret? She found a realtor who marketed the house like crazy to people already living in our town who wanted to buy a bigger place.) Ask potential realtors what they’re doing to sell homes. Be “brutal” with them — you want specifics, not generalities.

4. In addition to marketing your home the traditional way (open houses, ads in “homes for sale” publications, flyers at your “for sale” sign, etc.), post your listing on Craigslist. Ask your realtor to videotape your home’s interior for a virtual tour, post it on YouTube and place the link to your home’s video on your Craigslist ad.

In fact, use social media to your advantage. Twitter about your home for sale, for example. (One savvy marketer I know has given her house its own Twitter account; her home tweets about itself regularly).

5. Pricing. Again, if you must sell PDQ, price it PDL (potentially darn low) compared to comparables in your area. You just might find yourself enjoying a bidding war among multiple potential buyers. Be sure your agent — or you, if you’ve decided to save on realtor’s fees — performs a thorough market analysis of comparable homes for sale. The more homes you use in your analysis, the better.

6. Consider an auction. No, you don’t have to be in foreclosure to auction your home, but you do need to sign on with a recognized auction house, along with an attorney and/or real estate agent. Auctions by their very nature get people bidding against each other, so you could find that your buyer has purchased your home for more than in a “regular” sale.

This occurred to me just last night as I was logging on to ING Direct to check my savings account balances. One of ING’s security questions is, “What is the street number of the house you grew up in?” The question gave me pause. I didn’t “grow up” in any single house.

My mom was a Marine Corp brat, and traveled extensively around the country growing up, moving from base to base as my grandfather was reassigned. Eventually, she got married and had me, but was soon divorced from my dad and found herself a single mother trying to raise a son on her own. Thankfully, my grandparents were close and provided a lot of support.

Throughout my childhood my mom and I bounced around from apartment complex to another. It was a big deal when I was in junior high school because we rented a little house in a neighborhood – I had a yard! Unfortunately, that was short-lived, and we were back in an apartment for my high school years. In fact, my mom didn’t own her own home until she was in her 50′s.

Growing up, I was always a little jealous of friends who had their own house. Didn’t matter if it was a tiny shack, or a mansion, it was theirs. They always had a “home base.” My best friend in high school, and eventually my roommate in college, lived in the same home from the time he was in elementary school. His parents still live in that home today, and no matter where he goes, or decides to live, that is always his “home base.”

My wife’s experience growing up was much like mine. She did even more bouncing around than I did, especially when she was very young. Because of the background we both had, providing a stable home for our kids is something we have worked to provide for our own kids. I tend to believe home is where you make it, and I have very little emotional attachment to the “sticks and bricks” that make up your home. But I do very much value the idea of giving my kids a “home base” – somewhere they will always feel welcome and secure.

I know it must appear that I’m arguing with myself, after just writing at length about the benefits of renting only a couple days ago. I’m not waffling; I still believe renting makes a lot of sense in some situations. However, more and more, I find myself valuing the idea of settling into a permanent residence to raise our kids. My mom and my mother-in-law didn’t have a choice, but we do, and we plan to work hard and sacrifice a few toys to make it reality for our kids.

My father-in-law passed away recently, and we would like to pay off our 2nd mortgage with some of the inheritance money that we will be receiving. We have been in our home for 15 years and took out the 2nd mortgage in 2006. While the thought of reducing our debt and increasing our monthly savings is our first priority, my husband and I are not sure how this will affect our taxes next year. Also, we were planning to move sometime within the next 2 years after our daughter graduates from high school. How will this affect the price that we sell our home for?

Lisa, first of all, I’m sorry to hear of your father-in-law’s recent passing. I know this is a difficult time for both you and your husband. And what a blessing it was to receive an inheritance.

As you know, I’m not a big fan of mortgages (they are a necessary evil for most of us), and I like second mortgages even less! That said, it may or may not be the best time for your to clear that mortgage depending on the shape of the remainder of your family’s finances.

First, if you do not have an adequate emergency fund, I would park some of this money in an online savings account to cover several months of household expenses. If you have already established a solid emergency fund, I would use some of the remaining money to clear high-interest, non-deductible debt such as credit cards and high-interest loans.

With your emergency fund in place, and debt free except the house (and the second mortgage), it is time to evaluate the second mortgage. I like Dave Ramsey‘s rule here: if the second mortgage exceeds half your annual income, I would simply include it as “house debt” and pay it down on schedule (or a little early as income allows). If the amount of your second is less than half your annual income, use inheritance funds to clear as much as possible.

If you were deducting interest on the second mortgage at tax time this will affect taxes. However, I’ve never understood the argument to send a mortgage company $10,000 a year in payments to save $3,000 a year on taxes (rough example). My personal rant aside, if you have questions about the tax implications it might make sense to talk with a tax professional to determine what the bottom line impact of paying off the second mortgage would be.

As for selling the home in a couple years, by paying off the second mortgage you’ll increase the likelihood that you will get some equity out of the sale. Paying off mortgage debt also gives you more wiggle room when setting the sale price of your home. If the house was fully leveraged, you would be less likely to be in a position to reduce the price for a quick sale.

Whatever you decide, my best advice is to move slowly. When we lose family members emotions are raw, and rarely do we make sound financial decisions when emotions are driving us to make them. There’s nothing wrong with parking the money in a money market account, or CD, for a few months while you think over how best to use the inheritance. You only get one opportunity to use this inheritance wisely, so make it the blessing it was intended to be.

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