Housing – Rental Advice & Home Mortgage Savings

Room Rental Helps Pay the Mortgage

I own a house in the San Francisco Bay Area where houses have always been very expensive. I made sure I bought a house with one more bedroom that I needed and rented out the master bedroom suite for the first several years I lived there. That allowed me to make the mortgage payment.

Later, my salary increased and I was able to refinance the house so that it was not necessary to rent out the room any longer. This would not work for all families. Some would object to the invasion of privacy, but you don’t have much privacy when you have children. Others would worry about bringing a stranger into your home.

Screening is very important. Also, I charged each applicant a fee to have their credit checked. I had very strict rules stated in writing and signed by each occupant to make sure they understood my expectations. This turned out to be a totally positive experience for my family and I will own the house free and clear in just a few years. Barbara Stratton – Fremont, CA

If you are interested in renting a room for the short term, consider signing up to be a host with Airbnb, this is a great way to earn some extra income. Steve & Annette from MoneySmartFamily rent two of their vacant rooms and have earned an average of $1000 per month since 2014.

Tips for Paying Off a Mortgage Early

I’m very frugal and I’m hoping I can pay off my mortgage in about one year. How did you both do it? Do you have any tips and advice for me?

Answer: Thanks for sharing your update with us. You are really staying focused on eliminating debt. The last time you wrote was about 7 months ago and you owed $2500 on your credit card.

Paying off a mortgage is much the same as paying off a credit card. Control your spending with a budget system so that you have extra money each month to pay toward the loan principal (the money you borrowed).

As your income increases, take some of the increase and build your savings; another portion to pay on the house; and a little bit of the extra that you earn to enjoy. Do something fun just for you. It doesn’t have to be extravagant. But spending a little of your excess as a reward will help you stick with the hard work longer.

We wrote about this in our first book, America’s Cheapest Family Gets You Right on the Money – in the Savings Chapter section about windfalls. Having a plan BEFORE extra money comes in will help you eliminate debt faster.

Taking Equity Out of Your Home

Question: I am impressed that you paid off your mortgage in just nine years. Could you share how you did it? We have been in our home for 11 years, but due to refinancing and taking cash out of it, our balance is the same as when we moved in. I now see the error of my ways and want to reverse course.  Can you help?

Answer: Using your home an ATM is a dangerous habit. Paying off a home is not as difficult as you might think — it just takes a plan and discipline. But reducing the principal balance in your home should only come after you’ve eliminated your consumer debt — credit cards, car and student loans, most of which usually charge higher interest than a home loan. Deciding to live debt-free and to control our spending by using a budget were the first two steps we took to pay off our home.

We have always worked to keep our overhead low — if we wanted to buy anything from a car to a remodeled kitchen, we saved the cash before we spent, and never financed it. Financing raises your monthly overhead and costs you more in interest. Because we were debt-free except for our home, we started by paying $2 extra each month. As our income increased, so did the principal amount we paid on the house.

The Beauty of a Budget

By using a budget, we were able to control our other expenses and free up more money to pay off the house. We always asked our lender to provide us with an annual loan history to be sure they properly applied our extra principal payments.

This doesn’t mean that it was always easy. There are times when we would have loved to take a few hundred dollars and buy some new furniture, but we realized we could buy high quality used stuff for a fraction of the price and still reach our goal of paying off the house. As we watched the principal balance plummet, our enthusiasm and determination to pay it off soared.

Downsizing from our Dream Home

We bought our first home in 1993. It was 1800 square feet and we paid it off in just seven years. Not bad — I thought. Both my husband and I were working and once we got serious, all of my paychecks went to paying off the house. But over time, things changed. We had two babies 18 months apart and we began to feel cramped, and then our area was re-districted into a less than desirable school district. So after ten years in our home, three without a mortgage, we bought “the big house” including a corner lot, with a pool in the back. We even joined an inexpensive country club — only $90 each month. It sounds nicer than it was.

The house was a foreclosure, so we got a pretty good deal on it. But it needed work, lots of work. I know, I can hear you saying, “Stop, don’t do it!” Well, I wish we hadn’t, but we did. We bought into the “Big” lifestyle. We were in that house for almost two years when Bill and I decided we’d had enough. Within twenty-four hours we put the house up for sale and decided that we would move to Peachtree City, about 45 minutes west of where we lived.

The move just made sense. Peachtree City is in Bill’s sales territory, the schools are great, his golf club is nearby and it’s very family-oriented — most everyone goes to church!

Our friends were shocked by our decision. Our old house sold in six months, quite fast for that neighborhood! We got a good price, although we didn’t make much profit. But then again, I didn’t expect to.

The Dream House Wasn’t Worth it!

We went from a home that cost $275,000 to one that cost $188,000, is much smaller and has almost no yard. Bill hates yard work. Unfortunately, we still have a bit of a mortgage but we are paying it down quickly. Because we asked the seller to pay extra points, we were able to get a lower interest rate. I am so happy, I can clean the entire house so quickly now. I know that buying big was stupid, but I also know that we’ll never do it again.

If ever I had a dream home that second house was it. But it just wasn’t worth it. We knew it was a mistake even before we bought it, but neither one of us had the guts to say, “Hey lets not do this.” We argued about money in that house, something we’d never done before. Now, the arguments are gone, I just tell Bill what I’m doing to save money and that I want to put the savings on the house. He just smiles.

I have NO regrets except that we didn’t do this in the first place! I’m okay that people think I’m odd — because to them, being debt free is ODD! On occasion, I do miss the kids’ huge loft and bonus room but I don’t miss cleaning and heating and vacuuming the entire house! Yes, I did feel “stupid” for being “stupid,” but I don’t dwell on it anymore, I’m too busy enjoying my new, freer lifestyle.  Elizabeth & Bill— Peachtree City, GA

9 Keys to Smart Renting

Nine Keys to smart renting from radio host and consumer advocate Clark Howard.

1. Before you pay an application fee to rent a house or apartment, clarify the monthly rent, length of the lease and the terms of the deposit.
2. Be sure to confirm what utilities are and are not included in the lease: electricity, gas, water.
3. Always take a day to review the lease document. Have a friend read over it also. Don’t be afraid to ask questions and indicate changes on the lease where you disagree with the terms.
4. Add a clause to the lease that gives you the right to terminate the contract before its normal expiration if your circumstances change.
5. Ask if the lease automatically renews at the end of the term.
6. Make sure to be present for the move-in inspection, and note everything you can find wrong with the apartment. Be present for the move-out inspection, too.
7. If a landlord doesn’t return your security deposit, you have the right to sue in small claims court.
8. Renting from a private owner is fine, but be aware of the danger of not being able to renew your lease, or of the owner being foreclosed upon.
9. If your landlord fails to respond to maintenance requests, send written requests. If a landlord doesn’t respond to a breakdown that makes the apartment unlivable, consider paying for the repair yourself and deducting the amount from your next month’s rent.

For more of Clark Howard’s money saving tips visit www.ClarkHoward.com

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For more info regarding Housing, consider purchasing an autographed copy of our first book, America’s Cheapest Family Gets You Right on the Money. There is an entire chapter devoted to housing expenses.

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