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.

Post by Frugal Dad

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.

Ask the Readers:  What advice do you have for Lisa and her husband?

Post by Frugal Dad

What percentage of your net income should go towards a mortgage?  I don’t want to rush into anything so I was hoping you could give me some ideas as to what to avoid.  Would you consider giving me a couple pointers?

Thanks for your question, Jeremy. Before we get into specific numbers, I have to commend you for even taking the time to ask the question. Unfortunately, many people are still rushing out to sign up for a mortgage without considering the years of financial obligation they are taking on, and what impact that will have to their overall financial plan down the line.

The 28/36 Rule

There are several ways to look at the answer to, “How much house can I afford?” Some people, including most Realtors and mortgage brokers, banks, etc. use what’s called the 28/36 rule. The formula means mortgage lenders like to see your monthly mortgage payment come in at less than 28% of your gross income, and your total monthly debt payments, including your mortgage, represent less than 36% of your gross income. Notice I said gross income, as in before taxes and deductions. The fact you asked your question specifying “net income” means you are on to something.

When someone asks how much our annual income is we typically respond with our annual salary, and any other income from self employment, etc. But the number we use to budget from, and live off, is much lower after Uncle Sam stakes his claim along with benefits deductions for health insurance, and other employment-related expenses that come right out of our paychecks. So why not use this figure to determine mortgage affordability?

Because using gross income increases the amount of house agents can sell you and mortgage brokers can lend you, which means higher commissions and larger interest payments in their pocket. It’s not that they are doing anything wrong, it is just a different way of looking at the question of affordability.

The Frugal Mortgage Calculator

I actually have a more frugal formula for determining how much you can borrow for a home. I personally would not spend more than 25-30% of my take home pay on housing. So if your combined household income is $4,000 a month, meaning the direct deposit or paychecks from your employer totals $4,000 a month, then I would not spend more than $1,200 a month on a mortgage. To do so would mean giving up money towards another financial goal such as debt freedom, kids college savings plans, or even an early retirement.

What If the House I Want Comes With a Higher Mortgage?

Well, this is a case of suffering from champagne tastes with a beer pocketbook. Who doesn’t want to buy more than they can afford at some point in their lives? As I see it, you have three options.

• Ignore my advice and buy the bigger home with a bigger mortgage payment.
• Save up for a larger down payment to drive down the amount financed, and the resulting monthly mortgage payment.
• Shop for a more modest home.

Of course I would strongly consider option number three, because larger homes come with larger expenses (taxes, utilities, maintenance, etc.), even if you can get the monthly mortgage payment lowered with a large down payment. Still, option two does have some advantages. By waiting to save a larger down payment, chances are you can also clear some debt, which may improve your credit score and qualify you for a lower interest rate (and a lower payment). Still, consider the increased costs of owning the larger home, even if you technically qualify for it based on income.

If you are wondering, we currently spend about 18% of our monthly take home pay on housing. But that wasn’t the case when we first moved in (fortunately our income has increased over the years) – and it caused a real pinch those first few months. Don’t make the same mistake we did!

Ask the Readers:  How much of your take home pay are you currently spending on housing?

Post by Frugal Dad

A Real World Example

A friend of mine is considering the purchase of his in-laws’ house. The house appraised for $205,000, and they owe roughly $150,000. His in-laws are looking to relocate for retirement, so if they can sell the house to their daughter and son-in-law without having to market the home, and gift the equity to their kids, everybody wins.

My buddy’s in-laws have graciously agreed to sell them the house for what they owe, and gift the equity in the home to him and his wife.  While they can easily afford the mortgage, they don’t have a pile of money sitting around to come up with down payment required by their lender.

Gift of Equity Letter Requirements

If you decide to go this route, you’ll need the seller to sign a Gift of Equity letter stating the following:

• Name of the donor
• Name of the recipient
• Relationship (son, mother, sister, etc.)
• Address of the property
• Assessed market value of the property
• Gift amount

The letter will also need to have some language explicitly stating the gift of equity is just that – a gift. There is no obligation or expectation of repayment.  Contact your lender, as most have a standard form or Gift of Equity Letter available in a format they prefer.

Tax Issues Associated With A Gift of Equity

Tax issues are of little concern if you receive a gift of equity. However, if you are on the giving end of a gift equity, there may be tax consequences to consider related to gift taxes in general.

As it stands, anyone can give up to $13,000 per year to another individual. If the gift of equity exceeds that amount then a gift tax may be reportable (that doesn’t necessarily mean you have to pay taxes on that money, but you will likely have to file IRS Form 709 to report the gift).

Even if you have to file Form 709 (IRS website) the amount of the gift of equity exceeding $13,000 per individual involved in the transaction will simply be deducted from the million dollar exclusion for which most of us are eligible.  It is probably not a deal breaker, but when discussing a gift of equity it makes sense to discuss the deal with a CPA or tax professional, particularly one familiar with real estate deals.

Post by Frugal Dad

Approach your existing lender. You already have an existing relationship with the lender, if you have always kept lines of communication open and always sent your mortgage repayments on time, there is no reason for your existing lender to turn down your home refinancing request. A benefit to refinancing your home through your existing lender is that they will often offer you special deals just to keep you from taking your business elsewhere.

However, you may benefit from keeping an open mind. Just because it’s often easier to refinance your home mortgage through your existing lender, doesn’t always mean it’s worth it. Sometimes, switching to a different lender will get you a better deal in the long term. Contact at least ten different home mortgage lenders and ask them for a quote. Tell them that you are making a general inquiry and are currently contacting multiple lenders to find the most competitive rate. Letting the lender know that he’s got some competition can’t hurt any.

Review refinancing offers.  After you have called ten lenders and received their quotes, it’s now time to review the offers. Don’t fall prey to the common tactic used to draw in borrowers. For example, a common tactic used by lenders to draw in borrowers it to offer discounter of waived closing costs in exchange for a higher interest rate.

While you will not be losing any immediate out of pocket cash, in the long run accepting such a rate can turn out to be more expensive than simply sticking by your current home loan. If you have approached numerous lenders and are yet to encounter a package that suits your needs, keep looking. There will always be a lender offering more competitive rates.

Applying for the mortgage refinance.  It’s probably been a while since you have applied for a home mortgage, and luckily for you lenders have improved on their speed a bit.  The overall home refinancing application process is very similar to applying for your home’s first loan. However, the wait time for this application will be decrease to approximately three to six weeks and you can now apply for a home refinance loan through the comfort of your own home.

That’s right, you only have leave your home if you want to, you being present during the physical application is no longer a requirement thanks to technology. Loan officers fill out an application form on your behalf with the information that you provide to them through the electronic application.

Jazmin Espinal is a professional freelance writer and the owner of Capital Web Writing, a web content solution for businesses and webmasters. To contact Jazmin or to see samples of her writing, please visit CapitalWebWriting.com.

Post by Frugal Dad

Now, our idea of a tiny house might be two bedrooms instead of three, or anything less than 1,200 square feet.  Most in and around real estate would agree.  However, I’m referring to extremely tiny houses – in the neighborhood of 100 square feet.  We are talking just enough room for small couch, kitchen and loft with a bed.  Upscale versions feature indoor plumbing.

The benefits of living in such a tiny house are captured in the interview with Peter King, a tiny house builder in Vermont.  Imagine being able to construct one of these tiny homes in a couple weeks, pay cash for it (no mortgage), and live off the grid thanks to a solar panel.  Sounds like my kind of place!

Now back to reality.  There is obviously no way my family of four (five if you include a dog  that weighs as much as some people) could occupy such a tiny house.  However, there are some valuable lessons here for those of us who are not single.

My wife and I have kicked around the idea of downsizing our home.  We decided to stay put for now, but examples like this always get my downsizing juices flowing again.  I start dreaming of a cheaper mortgage payment, lower utilities, lower taxes, and less stuff. Even thought we can’t move into a 100 square foot home, that doesn’t mean we couldn’t look at downsizing to a smaller home than the one we are in now.  And we could enjoy many of the same benefits, though admittedly to a lesser degree than those who live in tiny houses.

Benefits of Buying a Smaller Home

• Lower monthly mortgage payment
• Lower taxes
• Easier to pay off mortgage completely in a shorter time
• Less space to fill with furniture
• Smaller lot (maybe) to maintain
• Significantly lower utilities

So what’s holding us back?  Well, there’s the idea of moving, which sucks the energy right out of my body.  To add to it, there’s the realization that we would need to do a little work to our house to get it ready to go on the market.

At the moment, I don’t feel like doing either one – moving or fixing up! And, to be perfectly honest, we’ve sort of grown into our current space, and would need to get rid of a ton of stuff from all rooms before we could even consider moving into less space.  Still, it is something we will continue to consider, particularly if the right house with the right deal comes along.  In the mean time, I’ll live vicariously through people like Peter King and other ultra-frugal friends.

Post by Frugal Dad

Our 2009 New Year’s resolution for finances is quite simple, but will take some effort to pull off.  We want to downsize our house.  Yes, in the age of bigger is better we want to reverse course.  Our current home is not overly extravagant, but it does require a little more of our paycheck than we would like to dedicate to living quarters.  While the small house movement (via Lazy Man and Money) does appeal to me, I don’t think I could convince the wife and kids to go to such extremes, so we’ll stick with a modest-sized home significantly cheaper than the one we are in now.

Benefits of Downsizing House

The first benefit is the most obvious–a lower monthly mortgage payment!  We have thought long and hard about staying put and continuing to pay for our current home versus making the move to downsize.  The number one motivation behind moving is to reduce our mortgage and free up that money for additional financial goals.  As it is, too much of our income goes towards making the mortgage payment, and not enough goes towards financing other dreams.  We aren’t quite “house poor,” but housing eats up too much of our budget.

A smaller home means lower utilities.  Our summers are brutally hot, and seem to last for five months out of the year (May-September).  Cooling a large home breaks our utilities budget every single month during the summer.  Our current house lacks a wood-burning fireplace, something we would like to utilize in the milder winters to heat the home without running a heat pump.

Moving to a small home will force us to simplify our lives.  This one seems a bit strange, but we would like to move into a smaller home and reduce a lot of the clutter we have now.  Of course, we could simply reduce the clutter in the home we are in now, but without space concerns there isn’t a strong motivation to do so.  I like the idea of giving away a large percentage of unused things, moving to a smaller home with a fresh start, and living a more modest, simple existence.

A lower mortgage puts us closer to financial independence.  In my favorite personal finance book Your Money or Your Life, the authors suggest minimizing your monthly expenses so that you can afford to do something you really love without worrying about the salary.  So many of us have become slaves to stuff, particularly our homes, that we continue to drag ourselves to an unfulfilling job simply to make a mortgage payment.  I don’t want to be that guy in another ten or fifteen years.

We plan to payoff our mortgage in about ten years and enjoy living completely debt free from that point forward.  Think about it; with no house payment or other debts, and practicing frugal living, it wouldn’ t take much income to meet our basic needs.  Free from the burden of earning a high salary to pay for stuff we would be able to turn our attention to causes that matter more than pushing paper.

In the coming weeks I’ll be sharing more about our journey to downsize homes.  First, we need to do a couple small things around our current home to improve its selling condition, and I’ll need to contact our real estate agent for some advice on pulling off a sell/buy in this market.  I wonder what her reaction will be when I tell her we want to move back into a “starter home?”  A few years ago this probably seemed strange, but I bet we aren’t the only ones considering such a move in these times.

Post by Frugal Dad

Over the last couple months two long-held truths of the financial world have been turned on their heads.  One, money market mutual funds can’t lose money, and two, the value of real estate always goes up.  Unfortunately, many have discovered neither of these “truths” have ever been 100% true, just assumed.  And you know what assuming does.

Has the American Dream Been Oversold?

For years the “American Dream” has been to own your own home.  The notion itself is a little absurd.  After all, you never really own your home outright.  Don’t believe me?  Try not paying your mortgage for a couple months.  But you own your home free and clear you say?  Well, try skipping out on property taxes this year.  No, we never really own our homes completely free of any obligation.  However, to a lot of people “owning” a home represents the pinnacle American financial experience.

Realtors and Brokers and Politicians, Oh My!

So who has been perpetuating this idea that owning your own home would somehow complete you, financially?  Realtors have certainly played their part.  Let me make clear first, I am a fan of realtors.  I think there are some truly great real estate agents out there who have their buyer’s (or seller’s) interest at heart.  But I think there is an even larger number out there who signed up clients for mortgages they knew they couldn’t afford, and did so by conspiring with banks and mortgage brokers to work “creative financing” for their clients.  In other words, since the buyers couldn’t qualify using standard mortgage practices they had to “get creative,” which led to a variety of bad loan options such as adjustable rates and  interest-only loans.

So realtors and banks played their part, but the government isn’t off the hook.  For the last two decades administrations have pointed to increases in home ownership as evidence of a strong economy, and a happy citizenry.  The Clinton administration called for increased loan options for lower-income families, particularly those who did not have funds available for down payments.  Bush furthered the problem by calling for an “ownership society” early in his first term.  It seems both administrations were caught up in the idea that home ownership was a proper measure for our fiscal health.

We’ve now discovered many homeowners would have been better off continuing to be renters.  Despite what others tell you (particularly those associated with the real estate industry), renting is not the equivalent of “throwing money away.”  Renting a house is a viable option for providing safe shelter for you and your family.  There should be no shame associated with it, and in fact, in many cases it is much smarter to continue renting than opting to buy real estate.  After all, a house is just sticks and bricks, but a home is where you make it.  And it doesn’t matter who holds the mortgage on that “home,” you or a landlord.

Often times mortgage brokers run numbers and say things like, “Well, for the same amount you are throwing away in rent each month, you could be making a mortgage payment!“  Unfortunately, the real world tells us that rent and mortgages are not equal, in terms of the financial risk associated with each.  If you buy a house with no emergency fund and the hot water heater bursts sending gallons of water over your flooring, guess who gets to pay for the cleanup and repairs?  If that same scenario happens in a rental home, your landlord is on the hook for necessary repairs.

Owning a home is still a worthwhile goal as real estate prices do typically increase over the long term.  However, it’s best not to jump into home ownership solely for the investment potential.  Leveraging too much of your life by over-buying a house can wreak havoc on your family’s finances for years to come.  Renting has its downsides as well, but they are typically more inconveniences (fluctuating payment amount year to year, having to move if owner wants to sell or reoccupy, etc.) as opposed to the uglier potential negatives associated with mortgages.  Can you say “foreclosure?”  So, if you are in position to buy a home, make a frugal purchase and enjoy your new humble abode.  If you are not in position (no down payment, no emergency fund, etc.) then simply rent a space and keep plugging away at building savings–no shame in that game.

Post by Frugal Dad

I asked for Tracy’s permission to post her story here and allow Frugal Dad readers to offer their advice. I’ve provided my response below her original email, and hope you will do the same in the comments section.

From Tracy:

I have a burning question that ties in with a topic you’ve touched on before; your advice was, (I think I remember this correctly): When purchasing a home, “buy a starter home and stay there.” In our situation, our starter home was in a small, suburban tract community about 40 minutes away from my work and an about an hour from my husband’s. Throw in some heinous weekday commuter traffic and a couple of daycare stops (after a couple of years) and we decided we were spending way too much of our lives in vehicles. So, we purchased a 30-yr-old fixer much closer to our places of work and now our commutes are down to about 20 minutes each, one way. Right now, that’s about the only good thing we can say about the place!

We sold our first home much quicker than anticipated, and our buyers were relocating and really wanted to be in our home in three weeks. So we had to find a home and move in very little time. We’d narrowed down our choices to two houses in the same neighborhood. We made an offer on one, a sprawling ranch with an open layout that we both loved. The inspection came back with structural damage, as well as a number of other costly items; the seller was not willing to negotiate the price to offset fixing the items, nor was she willing to fix them, so we rescinded our offer. The other home came back with a clean inspection, but had many cosmetic issues such as 30-yr-old green shag carpet, layers and layers of floral wallpaper, etc.

Now, three years later, we’ve made a few updates but still have a long way to go. The kitchen, which I thought was “quaint” when we were under the gun to find shelter, is actually barely functional and doesn’t really meet our needs as a family of four. It has one operating drawer for utensils, and only about six cabinets for dishes, pots, pans and food. There is no pantry.

The huge yard with lots of flowering shrubs (mostly azaleas) was a big plus when we were buying the place, but last summer they contracted a disease and promptly died, leaving us with gaping holes in the yard after mercifully putting them out of their misery earlier this year. There are also drainage issues with the property that we’ve been told would cost about $3500 to correct. Also, our minivan barely fits in the narrow one-car driveway, and when people stop by to visit–forget it. We’re forever moving vehicles to prevent blocking someone in.

The other items add up to about $14,000 in repairs/upgrades: Painting or removing the dark paneling in the den, replacing the green carpet with hardwoods or laminate, adding a freestanding pantry to the kitchen, replacing cracked tile in the bathrooms, replacing a cracked shower door, widening the driveway, etc.

We’ve only been there three years, so we don’t have a lot of equity to tap into for a second mortgage, nor do we want the added expense. Our current mortgage is about $1300. The average cost of homes in the neighborhood is around $190,000 (up from $165,000 when we bought the place). Most of the homes for sale in the neighborhood are about the same age with virtually no upgrades; ones that are fully updates go for much more, around $250,000, which is out of our price range. Newer homes in our range are generally about 30-40 minutes away, which would put us back at square one.

What do you recommend? My husband is reluctant to move, knowing that it’s a stressful ordeal, and often costly, even if the new mortgage ends up being less than what we’re currently paying. Thanks for any help!

Tracy, your story is probably not that uncommon from others around the country. I’ve known people who have taken on “fixer-uppers” for a variety of reasons and suddenly they find themselves without the motivation or means to continue. It’s a cautionary tale for taking on such projects, but you are here now, so let’s consider your options.

I guess my first question would be how much of the “cosmetic” issues could you live with, in the short term? Ugly carpet, a narrow driveway, and paneling in need of paint are certainly not ideal, but far from untenable. I’d recommend prioritizing these jobs and saving for them in a dedicated savings account. Things like drainage issues and leaky shower doors should be a priority as they can lead to further damage, while cosmetic items can be prioritized much lower.

Depending on how handy you and your husband are, perhaps some of the work can be done yourselves. House painting is a relatively low-cost project that can make dramatic changes to a space without much investment, assuming you don’t have to pay a paint crew to do the work. I’m not particularly good with flooring and tile work, so I’d probably have to hire someone for those projects. Ask around at work or at church to see if you can find someone reputable to do the work, or perhaps find a colleague who would like to tackle the project on the side.

Basically, my advice is to move slowly. What’s gotten many of us into trouble as a consumer society is impatience – the need for instant gratification. It sounds like you aren’t interested in taking on new debt, and that’s a good thing. Stick to that! It will take longer to make these repairs if you have to save up the cash, but at least you will own your new driveway, new floor and additional pantry, outright.

For the benefit of other readers, this is a good example of why I stress that there is no shame in renting. I’m not sure it was even an option in Tracy’s case, but assuming her and her husband had rented for six months to a year they could have bought some time to fully explore all available options before buying their next home. What would be your advice to Tracy and her husband?

Post by Frugal Dad

“Renting is like throwing money away every month.”

This is a fairly popular idea sold by the anti-rent crowd, including realtors, mortgage brokers and banks. In fact, there are many times when renting makes the most financial sense, particularly when you consider the costs and added risk of mortgaging a house. My newlywed friends have some debt to pay off, and have very little in savings. Just because they technically qualify (according to a bank) for a mortgage loan doesn’t necessarily mean they should take one.

“If I rent I won’t be building equity.”

Building equity in a home is not the only way to grow your net worth - there are plenty of other investment opportunities. Some could make the argument after the recent housing bubble burst that real estate is no longer a “sure” investment, even though I believe over the long term it is certainly safer than others. Think about it – there will always be new companies, new technologies and new services created over the years, but as far as I know we haven’t figured out how to invent new land. It is this limited supply that causes real estate to appreciate at a fairly reliable rate over the long term.

So renters cannot participate in this appreciation. Worse things could happen if you buy without adequate savings established. You could buy more house than you can afford and eventually be forced into foreclosure. You could buy a house that requires costly repairs at your own expense (versus passing the repair bills on to a landlord). You may be required to buy private mortgage insurance on top of your payment, homeowner’s insurance and taxes, making for a costly monthly payment. The potential negative consequences for premature home ownership are endless. Conversely, renting frees you from many of those consequences. You do not need to worry about large repairs, taxes, PMI, and homeowners insurance (although renter’s insurance is a good idea to protect your contents).

“Homeownership is the American dream.”

I know it is, and a noble one. However, it is not wise to dig too deep a financial hole for yourselves early in a relationship. The first couple years of marriage are tough enough without struggling to meet a mortgage payment. The average home buyer commits thirty years to a mortgage payment of nearly $1,000 a month. Thirty years is an awfully long time to commit $12,000 a year (or more). Consider renting the first six months to a year to get to know each other, and the area where you decide to settle.

“Rates are at an all-time low.”

True, but even the lowest rates don’t make sense if you are really stretching to take on a mortgage payment that you cannot afford. Consider lowering the bank’s suggested 28/36 debt-to-income/obligations ratio to a more comfortable level based on your income. In the book The Ultimate Cheapskate, author Jeff Yeager advocates “buying a starter home and staying there.” Over time you may make improvements to the home, or expand if necessary, but your goal should not be to trade up every few years, a practice that continues to push your mortgage payments further into the future. I personally think this is great advice, and something many newlyweds should strive for. If you cannot initially buy a starter home, look for a starter rental and move up when you can, but then stay put and pay off your mortgage early to speed up your plans for financial freedom.

Post by Frugal Dad