Personal Savings Worksheet
HOW MUCH ARE YOU LOSING?
Many different things will factor into determining the best real estate strategy for a particular individual. Everybody's financial situation is different. If you are a current homeowner, you should be aware of the various tax laws that will affect your bottom line. If you are thinking about moving, you will want to take into account current interest rates, the likelihood that rates will increase, the cost of your new home, the potential costs of starting the home search process without buyer representation and a variety of other issues. If you are currently renting, you should consider the money you are losing each year by paying rent, the loss of future equity and how long you are planning on staying in the area.
While it's impossible to get an exact dollar figure, and the issue can be complicated, you can get an approximate idea of how much you might be losing. Pitfalls you should watch for include waiting to make your transition, allowing a foreclosure without attempting a short sale, proceeding without proper representation, renting instead of buying and missing tax benefits, such as the homestead tax credit. You can calculate item by item by reading each section of this article, or use my worksheet to see how much these issues could impact your finances.
We are currently experiencing a combination of low interest rates and bargain housing prices to a degree that has not been seen in most of our lifetimes. If you would like to transition into a new home, but are waiting for the value of your current home to increase, you are missing the big picture. While the value of your home may increase, the cost of the home you are moving into is likely to increase even more. In addition to the added purchase cost, interest rates are more likely to go up, than they are to go down. Rates are being kept artificiallly low by the Federal Reserve. At some point, the economy will have grown to a level where this deemed to be unnecessary.
Aside from the money, there are also intangible factors to keep in mind. How long do you want to wait to move on with your life? If you are downsizing and using the equity to enjoy your retirement, do you want to lose two or three years of that?
When a homeowner gets behind on their mortgage, they are likely enduring one of the most stressful periods of their life. At some point, they may have the impulse to walk away from everything. Following that impulse can be very costly. Both a foreclosure and a short sale will damage a borrower's credit, but a foreclosure impacts credit for a much longer period. In addition to that, the borrower is not automatically exempt from paying off the balance of the loan after the sale. The lender can choose to pursue a judgment against the borrower in court. In a short sale, the property is put on the market with a real estate agent, and the lender agrees to accept less than the full amount owed as payment in full. The borrower, in most cases, can negotiate to avoid having to pay off the balance.
©Copyright 2013 Douglas R. Barry