#1.  Sell it…

Selling the house is a great way to get cash, but selling the house plays to the advantage of the realtor.  Actually the equity in the house may be more for realtor protection than the homeowners’.  Here’s what I mean.  First, some people don’t like to borrow money.  Fine.  Sell the house.  Second, and possibly more importantly, look at history.  Until the late 1990’s, Texas did not allow home equity lending.  The realtors lobbied against it.  Common myth says equity is for homeowner’s protection, but in reality, it protects the realtors market.  They need sales!

#2.  Rent it…

Renting property can take a house of brick and mortar with a ton of cash tied up into a business creating income.

#3.  Borrow it…

For homeowner’s who do not go with option #1 or #2, borrowing can be done.  However, home equity loans come in a couple of ways with vastly different approaches.  The first way is a HELOC (home equity line of credit).  A HELOC is simply an amount of money available against the house, but generally uses the house’s original value and does not need new appraisals, etc.  Simply put, homeowners are borrowing their own money.  The next way is a cash-out equity loan.  The cash-out is different than a HELOC, because it allows the current market value of the home to come into play.  Simply put, if the house has appreciated in value, owners can take the profits out of the house without selling the house.  (See why realtors don’t like the loans?)

4.  Reverse it…

Baby boomers are a big target market right now and a reverse mortgage is a hot topic.  One might be lured into the idea of getting money out without ever making a payment.  True, no payments required (with a couple of stipulations), but any money borrowed has to be repaid…by the heirs or estate for example.  If traditional thinking, meaning pay cash or get a loan and pay off the mortgage worked for past generations, why a reverse mortgage now?  Fact is it didn’t work for many people.  Therefore, if an owner needs money, or potentially will need money, why tie up an enormous amount of money into brick and mortar sitting idle for so many years?

The bottom line is how to get cash out of the home should by why put it there in the first place?

Owning a house may or may not be the American Dream we commonly hear and the answers can be broken down into areas.  Real estate decisions and financial decisions.  People spend quite a bit of time looking for a house, but what appears to be minutes in deciding about a loan or paying cash.  In reality, both are huge decision and they are separate, but equal and should be looked at independently of each other.

Read about it in Barking With The Big Dogs and see what is happening to your (and my) money every day.

From the title of this article, if interest rates are not the importance of the loan, what is?

Let me start by saying interest rates are important, I do understand this. Obviously, rates set the payment and determine how much interest is paid. However, on a calculator (mortgage or other loan), the rate is changed. What this means is that the rate is secondary to the loan calculation, a.k.a. amortization schedule. That’s right the amortization is more important than the rate. This is just one key factor to understanding the bank that I discuss in Barking With The Big Dogs so people can understand the inner workings of the bank. But rather than go into the real meaning behind the amortization right now, which is not to simply just show numbers with payments and interest like everyone else does, let me continue with a question…

If rates were the importance of a loan, then why do banks and credit unions build new buildings when rates are at their lowest?

(You can get the answers in Barking With The Big Dogs…but only for a limited time while it’s still available. Get a copy today before the copies are gone.)

Why is all of this important to you? It’s your money, that’s why!

What I found interesting on one radio slot was the statement about getting monthly income tax free. (Not quoting exactly, but if I recall the statement was very similar.) Tax free income from your home each month, really? I’m not sure if that is entirely true, but taking profits without selling the home may be more inline. And, definitely getting equity money out is true too.

Really though, are people getting income, or simply a monthly draw against the equity in the house in the form of a loan? A loan, not income. The balance has to be repaid at some point; either if the house is sold or the estate pays the balance, plus interest. Income does not have to be repaid.

The following paragraphs are excerpts from Barking With The Big Dogs…

“The reverse mortgage lets the owners get the money back out of the house without selling the home. Of course, many reasons, from living expenses to investment purposes, exist for wanting the money out of property and making the choices to access funds. ”

To continue from the chapter Refinancing By Design…

” A reverse mortgage is an adjustable rate mortgage the owner does not have to make payments on, or pay off, provided the owner lives in the house or until the surviving spouse dies. The heirs or estate will be responsible for the debt.

The bottom line for reverse mortgages is simple. If people use their mortgage and resources correctly to begin with, they may want and get a reverse mortgage, but will not need one.”

Many times saying all debt is dumb is easy advice to give. For example, let me ask the question, “do you like to pay interest to someone else, or do you want to save and keep the dollars for yourself?” From a salesman’s perspective, the previous question was a leading question. The answer was already known. Everyone wants to keep money versus giving the funds to someone else. Therefore, telling people debt is stupid or dumb is easy advice to give (or sell). No other explanations are necessary.

Well, I’m not interested in stopping here, some explanation is required for true financial knowledge instead of simply rehashing the obvious mass amount of common knowledge already in existence.

Read the entire article below. It’s short, sweet and easy to read…

Is it smart to pay 10% interest on inventory?

Cash flow statements in business are easy to understand. Money coming in versus going out. Cash flow on a personal level is easy to understand too. Paychecks coming in, bills taking money out. Either way, business or personal, if more money is in the checking account at the end of the month, the cash flow is positive. If more money is going out than coming in, cash flow is negative and can lead to deficit spending. (I wish Washington would look at their budgets this way. But I guess this is too simple.)

When looking at a house, figuring the math is very simple.

First, I’ll start with buying a house with a mortgage. Typically, a 30-year mortgage is common.

(I won’t use a 15-year mortgage, because I think the 15-year loan is the most risky loan on the market for the average person. Read Barking With The Big Dogs and you’ll see why.)

Let’s start with a $250,000 house and a 20% down payment.

Using a 30-year mortgage, a loan amount of $200,000 at 6% interest runs $1,200 per month. Taxes and insurance vary, but a good, high estimate is 3% for taxes and 1% for insurance on the value of the property.

3% = $7,500 or $625 per month
1% = $2,500 or $208 per month

When combined, taxes and insurance are $833 per month. Add $833 to $1,200 for a total payment of $2,083 per month.

$2,083 / $200,000 is approximately 1%; therefore, look at paying 1% of the loan amount to own a home. Pretty simple.

(Just as an FYI, the percentage will go up with a smaller loan amount, say 1.5% of the loan amount, but the payment will be less over all, which is what is important. With the maximum amount borrowed, say 100% financing, the percentage is just below 1%. So, for conservative estimates, use 1% of the value of the house. Pretty simple.)

You can see a calculator by clicking here for more precise scenarios.

Now, for those who do not want a mortgage, taxes and insurance are payments you will have every month, year after year, so don’t be fooled in thinking you own a home free and clear. Don’t pay the taxes and see who owns your home.

Also, don’t buy the hype that paying cash is the wisest financial decision either. Yes, paying cash has advantages, but not always financial advantages.

Next, did I mention repairs? Nope.

According to a realtor, expect to budget and pay 3% each year for repairs and maintenance. 3% budgets to $625 per month, just like taxes. More if a foundation or roof needs replacing.

Taxes, insurance and repairs won’t go away just because a loan does.

Read Barking With The Big Dogs for more – and easy to understand – information regarding home ownership, money, loans, investing, that is not commonly discussed – but very important financially.