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.