Friend and freelance writer Les O’Dell shares this diary entry from the 12th session of Financial Peace University, a 13-week course from national talk-show host Dave Ramsey.
Tonight’s Financial Peace University session dealt exclusively with real estate – buying an selling homes, paying for property and what sort of loans to look for when mortgage shopping. While the lesson itself was relatively short, the material covered draws on Dave Ramsey’s years of experience in the real estate field. As he tells his students and listeners, he made (and lost) millions of dollars in real estate in his early 20s. Then he learned the proper way to approach property and loans. That is what he taught tonight.
The Right Home Loan
Of course, the lesson was prefaced with an understanding of Baby Step 6: Pay off your home early. Ramsey told students simply, “remember to hate debt.” He said the absolute best mortgage is the 100 percent down plan, but if borrowing is necessary, he teaches to get a 15-year fixed-rate loan with payments that do not exceed more than 25 percent of your take-home pay. He also reminded students to make sure they have a fully funded emergency fund (Baby Step 3).
Things to Avoid
Ramsey said to avoid Adjustable Rate Mortgages, interest-only loans, reverse mortgages and from falling into the myth that keeping a mortgage for tax advantages is a good idea.
He outlined several financing options (always reminding students to borrow for 15 years or fewer) including conventional financing, FHA mortgages, Veteran’s Administration loans and owner financing, which he called a great option because of the ability to structure the loan creatively.
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Buying a Home
Ramsey outlined that homes are great investments because they are the equivalent of a forced savings plan, they are a good hedge against inflation and the invested money grows virtually tax-free. He recommended purchasing a home in the lower portion of the price range in the neighborhood and, when possible, buying a home with a view or one that is near water. He said bargains can often be found by overlooking bad landscaping, outdated décor and ugly colors – all of those things can be fixed.
He recommended a survey of the property as well as a certified home inspection and an appraisal, if it makes you more comfortable with your prospective purchase. He cautioned against buying trailers or mobile homes (they go down in value, he says) and timeshares.
Selling a Home
Ramsey also gave several tips for individuals selling their homes, including thinking like a retailer and making sure that the home is in near-perfect condition. He said that there is a tremendous return on fix-up dollars and that the most important preparation is to make sure the home has curb appeal, or looks good from the street.
He taught that sellers should work with a realtor, particularly one with a track record of success, and avoid real estate agents who are family or friends. He said to make sure that the home gets exposure both online and through the Multiple Listings Service.
Les O’Dell is a freelance writer living in Carbondale, IL. His work can be seen in a number of newspapers, magazines, publications, and websites. He is co-author of the popular “He Said, She Said” newspaper column. He can be found on the web at www.lesodell.net. Les is not affiliated with or endorsed by LPL Financial.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.