Furnishing a House on a Budget

I'm in the process of bringing my house out of 'dump' mode by doing things like oh ... putting in door knobs in our doors. A friend of ours who stopped by commented on the eerie sensation of using our bathroom knowing that any passerby could take a gander at him through the large peephole where a door knob should have been.

Installing fixtures is hard work, which is why I've left that task to my husband. My contribution to the house is purely decorative. Not that what I do isn't hard work, it's actually extremely difficult to find good deals on nice furniture pieces. However, I've managed to find some that I'm willing to share:

Wall Frames

I scoured SlickDeals for 40%-50% off coupons from Aaron Brothers and bought myself some nice wall frames. Classic black frames will easily do the trick and have your house looking like a pottery barn catalog ad in no time.


Bookcases

I've always liked the concept of leaning bookcases. I avoid clunky, unwieldy furniture pieces like the plague out of fear that they will tie me down and make moving that much more difficult. I really appreciate the mobility and sleekness of leaning bookcases. At $129 a pop from crate and barrel, they're not unreasonable.


Sectionals

A natural extension of my love for mobile furniture pieces is my love for modular furniture. Rather than making my poor husband lift a heavy sofa into our house, I'll let him get away with moving smaller pieces at a time. The greenwich sectional set from Pottery Barn is a nice blend of clean modern lines and style. However, just because I like the design doesn't mean I have to buy the sectional from Pottery Barn. I plan on visiting a copycat furniture shop and getting a replica for 1/3 of the price.


Maybe when my friend visits me next time, he'll be so impressed with the mobility of all my furniture, he'll forget about the gaping hole in the bathroom door.

Should I Borrow from my 401k to Fund a Down Payment on my First House?

As home prices have finally regained some level of sanity, many potential homebuyers are feeling the itch to make their first home purchase. Those who don’t have wealthy or generous relatives, significant stockpiles of cash, or liquid assets, are now in the interesting predicament of raising significant funds for a down payment. As nervous lenders are beginning to restrict financing to only those who are able to front the full 20% of the house value as down payment, it has become even more imperative for homebuyers to pony up significant amounts of cash. Should homebuyers consider tapping into their 401ks to fund a down payment on a house? Is it a good idea? Although many may disagree with me, I don’t think so. Here are my reasons:

-If you are fired or leave your current employer through which you have your 401k, the loan is due almost immediately or you run the risk of paying an early distribution penalty.

-Inflation-adjusted home values will most likely not grow as significantly as your investment portfolio. Statistics show that home prices only increased .7% per year from 1940-2004. It is not difficult to imagine your investment portfolio growing at a much more aggressive rate.

-You lose the magic of compounding in your 401k. Over time, small amounts of money can accumulate to significant sums through the work of compounding. If you max out your 401k and IRA for 1 year alone in your early twenties, and assume a reasonable rate of return (let’s say 8-10%), you could easily wind up a millionaire by retirement. By taking out money early in your life to cough up a down payment on a house, you are limiting the power of compounding in your 401k.

-Remember that the 401k loan for a down payment isn’t tax-deductible. While mortgage payments are tax deductible (as long as you don’t exceed a certain level of income), you won’t be able to deduct your down payment. Please also remember that you are using post-tax dollars to pay back pre-tax dollars borrowed from your 401k and that you will be taxed yet once again when you retire and take out funds from your 401k.

So if you don't have the money for a down payment and don't want to draw from your 401k, what options are left? Get an uglier house or wait and save.

Screwed by my Mortgage Broker

Don't get screwed by your mortgage broker like I did. Securing a good interest rate is probably one of the most important financial decisions of your life, so be careful who you work with.

Like most people, I attempted to refinance in January when rates were at an all time low, 5.5% on a 30 year fixed conforming loan, no closing costs or points! My mortgage broker submitted my paperwork and got an appraiser to stop by my house, all within a couple of days. I was happy with the progress. I was told that lenders were swamped handling the flood of refi applications and that they probably wouldn't be in touch with me for about 2 months. So I waited and waited. I called my broker almost every week, who told me to wait some more, and so I waited some more. Here I am 3 months later and still not refinanced as rates have increased. If I hadn't been nagging my broker, she probably would have let my application completely fall through the cracks. My friends who refinanced at roughly the same time, some even later, have already completed their refinance and are sitting pretty on a shiny new interest rate.

I've given up on my mortgage broker altogether and am working with several other more proactive brokers now. I missed the boat, I really missed the boat. If only I was as choosy about selecting my mortgage broker as I was about shopping for my new couch, I'd be in good shape! Please folks, make sure to select a responsive, knowledgeable broker, who will actually work for you. I should have dropped her like a hot potato them moment I realized that she wasn't meeting expectations. Should of dropped her like it's hot.

Tips from a Realtor

Hsin Feng is a realtor with Coldwell Banker and services the San Francisco Bay Area. Before joining Coldwell Banker, he worked in IT consulting, which he credits with developing his customer-facing skills. He has a passion for all things automotive and has spent time working in car sales, which he feels has prepared him for a career in real estate. In the interview, he shares some of his insight about the market and offers some useful tidbits for first time homebuyers.

1) What should every homebuyer know before even thinking of buying a house?

Know what you can afford and get preapproved! The mortgage industry is a mess right now, so it's even more important to understand what you can afford. You never want to scramble at the last minute to try and afford something that is beyond your reach. You also need to decide what type of home will fit your needs. Are you a handy person and don’t mind remodeling or do you need something that is in move-in condition? You also always want to consider location; be prepared to think about how small you can go to live in a desireable location.

2) What are some of the most common mistakes you've seem homeowners and realtors make?

I’ve seen many people try and scramble to get financing at the last minute only to see the home that they had their eye on slip through their fingers. Staged homes can also be deceiving. Buyers are apt to look at a staged home and overlook major issues. Buyers should also beware of realtors who are slow in returning phone calls and emails - make sure you have someone that will work for you.

3) What are your recommendations for finding 'good deals' on properties?

Look at houses that have been sitting on the market for a long time. The house may be overpriced or have too many structural problems for the average family to deal with. It’s quite possible that the seller may be getting antsy, so you may just be able to seal a deal by offering a lower but still reasonable offer on an overpriced home that has scared off all other potential buyers. If the house has significant problems, but you don’t mind investing effort in remodeling, you may be able to buy a fixer-upper at a good price.

4) Do you think that it is a good time to buy property now? Is the market expected to bottom out even more?

I personally just bought a property in February of this year in Sunnyvale. However, I know that downtown Sunnyvale is being remodeled and the property will be within walking distance to the new downtown. The market probably will correct a little more, but since the Bay Area is not heavily investor owned, there shouldn't be a huge correction like in other areas.

5) What can you tell us about buying a short sale property? Foreclosure property? Probate property?

I can tell you that realtors typically don’t like doing these types of deals. I have done several of them for clients, and it's a lot more work with much less pay. Buyers should be aware that unless the listing agent is experienced in these types of deals and know how to deal with the bank, buyers might never have a solid indication of whether they can purchase the property. Foreclosure properties can only be purchased at an auction at the city, and requires significant cash. You are bidding with contractors and investors, so it's another ball game. Probate is the same.

6) What's your advice on buying investment property?

Location, location, location. A more desirable location naturally commands more desirable renters, which means less hassle and maintenance. If you are thinking of purchasing a commercial property, make sure you work with a realtor that has relevant experience in commercial.

Buying a Second Home (Vacation Home)

I'm already dreaming of retirement and I know exactly where I want to be. When I'm seventy, I want to open my window to the ocean and sunshine, not a concrete highway. I'm just hoping that global warming doesn't swallow up my imaginary condo on the island that I have my eye on. I guess I still have 40-60 years to wait and see.


Who knows, if the government axes social security, I may be working my fingers to the bone until I'm 80. For those of you who are nearer to your goal of acquiring a vacation home, and want to recoup some of your costs by renting out your home, please consider the following:

Renting out your home

-On average, vacation homes need to be rented 15 to 17 weeks a year in many areas to break even.

-If you rent our your home for 14 days or less over a calendar year, you don't have to report rental income! However, this means that you can't deduct expenses from renting out your home. So ... the BBQ pit you were thinking of adding and writing off to 'improve the property' just isn't going to happen.

-If you rent out your vacation home for more than 14 days, you are entitled to deduct expenses, but only up to the amount you earned in rental income.

Living in your vacation home (no renters please!)

-You can write off 100% of the interest you pay on up to $1 million of debt secured by your first and second homes combined.

-You can deduct 100% property taxes on your second home.

-If you use your second home for 14 days or less, it is no longer considered a vacation home and considered a rental property instead, which means that you can deduct up to $25k a year in losses, but these deductions may be pro-rated when your AGI hits $100k and completely vanish at $150k.

An Interesting Pictorial of the Subprime Crisis

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1

Credit private trader Alex Wong for the link.

Beware of Puppies

Three years ago, my in-laws purchased a maltese/shih tzu puppy for three hundred dollars. However, if they were to account for the damage the pup has done to the house, they could probably bump up the price tag to $25,300.00. Here's the perpetrator:



Think indelible pee watermarks on the hardwood floor, chewed cabinet corners, and unsightly little scratches on the walls and built-in appliances. Let this be a lesson learned, think twice about getting an indoor puppy if you want to maintain the value of your house. If you can't get the idea of owning a puppy out of your head, at least invest in some puppy training classes. Who knows? If only my in-laws were willing to pony up a couple of hundred dollars for puppy training classes, they could have saved themselves thousands in property damage.

Surfing MLS Sites ... My Secret Passion

I like to think of my current house as a starter home. If some harebrained housewives from Orange County can live in lavish homes that they don't deserve, maybe I can manage to find a house that I don't deserve as well. And so, it is a passion of mine to browse through MLS listings and imagine myself lying on an over-sized inner-tube in an infinity pool or having a nice soak in my jet-stream hot tub or whipping up a fancy meal in my fully updated kitchen, complete with stainless steel appliances and tropical brown granite. I imagine that my blood isn't even rich enough to understand the finer interior touches ... I have been excluded from having even a slight awareness of what is available to the elite!

Some MLS listing standouts from a recent browsing session:

Perhaps if my parents, sister, and in-laws sold our existing homes, and pulled all our cash together we could manage a place about oh 15 notches down from what you see here. However, we still probably wouldn't be able to manage the property taxes. It comes to mind that one of the ten commandments is to abstain from 'coveting your neighbor's home.' How interesting that lusting after real estate is an egregious enough sin that it made it into the ten commandments!

Mortgage Deductibility

I’ll keep it simple because I know I’d rather be watching some crazy Youtube video or skimming through a more interesting blog with scandalous celebrity pictures than reading about mortgage deductibility.

Here’s the skinny. According to financial-planning.com there are two types of mortgages for tax purposes. There is acquisition indebtedness which is a mortgage used to acquire or improve a home and there is home equity indebtedness, which is a mortgage borrowed against your home that you use for other purposes, unrelated to your primary residence. So taking out a home equity line of credit or refinancing against the equity you’ve built in your home to fund your child’s college education or buy a second property falls under home equity indebtedness. Interest paid on acquisition indebtedness is deductible up to 1M. Interest paid on home equity indebtedness is deductible, but only up to 100k. However, if you are one of AMT’s lucky victims you’ll find that interest on home equity indebtedness is non-deductible.

So if you’re thinking of leveraging the equity you’ve built in your home and taking out a home equity line of credit or cashing-out a portion of your home’s equity as you refinance, be wary of the tax consequences. Sure you may be able to use the additional funds to beat the odds in the stock market or buy a second property, but please make sure that you account for non-tax deductibility. In short, if you’re not subject to AMT, only 100k of home equity indebtedness is deductible. If you are subject to AMT none of it is deductible.

Now back to watching an anaconda swallow some type of wildebeest on Youtube.

3 High Impact/Low Cost Remodeling Jobs (Part II – The Baseboards)

Being hard-headed and foolhardy and deciding that I hadn't been punished enough from painting the kitchen cabinets, I took on the task of updating my baseboards, which has provided me with fodder for this blogpost.

My house came with skinny little wood veneer baseboards that were something less than attractive. I decided that a taller white baseboard (5") would better complement the walls that I had just updated from 'bone white' (which really did have a grayish tint that you would associate with the inside of a dried out bone) to a creamy french vanilla. In hindsight, I can confidently say that swapping out the baseboards provided the best remodeling bang for the buck.

I was able to save thousands of dollars by updating the baseboards on my own with the assistance of a crowbar, miter saw, and semi-gloss paint. I measured the entire perimeter of my house to determine the number of baseboards I would need (I bought baseboards that came in 16 foot pieces) and then set up a spreadsheet to determine how I would utilize each baseboard to maximize each board's full length. I set the baseboards down in the garage and used a paint roller to layer on a coat of antique white, semi-gloss paint. While waiting for the paint to dry, I tackled the task of removing the existing baseboards in my house.

Using a crowbar, I pried out the nails that held the baseboards against the wall. Surprising, I found it therapeutic ripping out the strips of low quality wood; it felt just like removing a deeply lodged booger. After the baseboards had dried, I set about using the miter saw to cut the appropriate edges for the corners of each of the rooms. I attempted to perform as few cuts as possible by documenting the number of inside and outside edges I would need to cut and leveraging the natural creation of an outside edge from an inside edge and vice versa. Check out the following video for a useful demo.

After cutting the baseboards, I hammered in a few thin nails to secure the trim and used wood putty to smooth out the indentation left by the nail head, and lastly touched up the trim with a few dabs of paint. Although it is recommended that you caulk the baseboards, I skipped that final step and still came out happy with the transformation of the rooms in my house.

Increase in Conforming Loan Limit

Read what Inman News has to say about the increase in the conforming loan limit below. To summarize, if you have a jumbo loan and live in a high-cost area, you may want to consider refinancing under a conforming loan with the new limit increase before the end of the year.

The economic stimulus package includes a provision that will temporarily raise the conforming loan limit to allow Fannie and Freddie to purchase or guarantee many jumbo mortgages originated between July 1, 2007, and Dec. 31, 2008.

The increase, to as much as $729,750 in high-cost areas, will also apply to Federal Housing Administration loan guarantee programs. Because the increase will be capped at 125 percent of the median home price for an area, the conforming loan limit will remain at $417,000 in markets where the median home price is $333,600 or less.

Although the increase will expire at the end of the year, industry groups like the National Association of Realtors have urged Congress to mandate a permanent increase in the conforming loan limit in passing legislation to increase oversight of Fannie and Freddie.

Permanent changes to FHA loan limits are being addressed in bills that would also lower minimum down-payment requirements and expand the pool of eligible borrowers by using risk-based pricing. Both the House and Senate have passed FHA modernization bills, but differences between them are being ironed out (see Inman News story).

3 High Impact/Low Cost Remodeling Jobs (Part I – The Kitchen)

After being handed over the keys to my new home, I was plagued with serious buyer’s remorse. I couldn’t believe that I had spent so much money on such a dump. I guess that’s what you get for spending 750k in the San Francisco Bay Area – a dump. The dreary backdrop of the leafless trees and cold March winds only augmented the nastiness of the situation. My in-laws home, where my husband and I had been staying (yes, I lived with my in-laws and even shared a twin bed with my husband for the first 6 months of our marriage!) was a dream in comparison to this cold, cheerless, little hobbit hole.

The Kitchen

The problem: The house was built circa 1960 and definitely looked the part. The kitchen’s tannish plywood cabinets, coated in a thin film of cooking grease, which clung to the air, and cheesy faux-wood laminate countertops would probably even make Laura Ingalls Wilder run for the prairie. The worst part of the kitchen was the fact that the previous owner had lined all of the cabinets with wood-patterned contact paper – classy.

The solution: My husband and I avoided the kitchen for about two months. After about two months of not stepping foot into the kitchen and not cooking a single thing, we noticed that the grease odor had dissipated. We slowly began to incorporate the kitchen into our lives, even sharing a few takeout meals in there. While eating in the kitchen, we would frequently comment on what an eyesore the cabinets were. The ugliness was so compelling that one day we finally set about the task of painting them, which is a cheap alternative to enhancing the appeal of your cabinets if you can’t afford to replace them. WARNING: If you have a life or have the money, we don’t recommend that you paint as it can be a long process. However, having neither a life nor the money (mortgage payments and 401k contributions sucking every dime out of my paycheck), I resolved to ‘update’ the cabinets with a fresh coat of paint.

Since our kitchen is small, I decided that white and not espresso (the color I was originally favoring) was most appropriate. We bought 3 gallons of primer and several cans of ‘antique white’ semi-gloss paint from Kelly-Moore (Note: Check your company to see if they have any perks or company discounts at home improvement stores; my husband’s company actually had a discount code for Kelly-Moore, which reduced the cost of a can of semi-gloss paint from $45 to $32). After extensive web research (hey, we’re busy people) on painting cabinets, we proceeded to unhinge all our cabinets (22 in total) and rubbed down all our cabinetry in a diluted ammonia solution to remove the grease build-up. We then gently wiped off the ammonia solution and let the cabinets dry overnight. After the cabinetry had completely dried, we rolled on several coats of primer (this project took multiple days). Exhausted from the work, my husband and I took a 3-week break and once again distanced ourselves from the kitchen. However, the kitchen’s mystical forces once again lured us back and we finally applied the final coat of antique white semi-gloss paint. As we began the process of re-hinging the cabinets one-by-one (usually one a day since we like to take projects in small steps, very small steps) the kitchen started coming together. When we re-hinged the last cabinet door, the clouds broke and the birds sang – it was beautiful. Our kitchen was actually somewhat presentable now – and it had only taken us 4 full fun-filled, glorious weekends. We couldn’t resist and applied a fresh layer of paint to our kitchen walls to complete the project (we didn’t bother stripping the walls with ammonia or applying primer this time and it turned out pretty well). We are now in the process of finding some cheap granite stores to swap out the laminate countertops with some good-looking rock. If you do a little research yourself or pester your friends who are house-buffs, you will definitely be able to find cheap granite stores with installation services – and at better rates than Home Depot or Costco! Some places that I’ve found in the Bay area include:

Granite & Stone Expo
1722 Junction Ave Ste E&C, SJ
(408) 437-9891

KZ Kitchen Cabinet
2128 N 1st St, San Jose, CA
(408) 441-1288

Union Stone
2201 Lafayette St
Santa Clara, CA 95050
(408) 988-6888

And hence our kitchen remodeling project: $110.23 for primer + wall and cabinet paint + labor (free – we only used our own blood, sweat, and tears, which makes it free). One thing I will mention is that you should be careful when painting your cabinet drawers. I was a little over eager and applied too heavy a coat to the cabinet drawers and now the drawers don’t slide as easily. The fact that I now need bulging finger muscles to open the kitchen drawers doesn’t matter as much to me since I am the queen of takeout and plasticware, but if you don’t want to have to battle your drawers to access the silverware, be light on the paint job for your drawers or don’t even bother painting the bottoms at all – give yourself a freebie.

Credit Scoring for Couples

My husband and I recently joined the droves of Americans who are taking advantage of the Fed's interest rate cuts and are refinancing their mortgages. We live in the silicon valley and have been offered a 5.25% interest rate for a conforming loan, no closing costs, which is a full point lower than our existing mortgage, which we acquired in March, 2006. As part of the refinancing, we are now going through a credit evaluation process.

I've always wondered how lenders evaluate credit scores for couples. Are the scores averaged and normalized across couples? Can one person's strong credit compensate for another person's weak credit, or is strong credit always negated by poor credit? Our mortgage broker informed us that lenders (HSBC in our case) will typically look at each person's set of scores, throw out the high and the low, and take the lowest middle score between the couple. So if Jill's middle credit score is 800 and Bob's middle score is 550, the lender will use 550 to determine the interest rate. Lesson learned - poor credit will more often than not negate strong credit.