Hi All,
If you’re like many Americans, you are probably looking ways to shave money from your housing bill. There usually aren’t any quick fixes with this sort of thing, most of them require some degree of sacrifice. That said, here are some moves you might consider.
For renters:
1) Work Your Lease. If you are close to the end of your lease, consider doing two things. First consider moving out and not renewing it. Second, if you like your place consider negotiating with your landlord. Its a real pain for landlords to get tenants, so you might have some bargaining leverage. If the lease is still in effect, consider getting out of it. Depending on who you rent from, you might be able to talk your way out of the lease – try pleading poverty or doing some informed bluffing. Alternatively you might carefully read your lease to see if you have to pay a penalty to quit early.
2) Consider moving in with a friend or with your parents. If you are able to use put the money you’re saving to good use, this could potentially get your finances in order again quickly. While living with your parents not might be the best for your self-esteem, lots of debt is worse.
3) If you want to stay in your current place, consider getting a roommate. This is a bit harder with smaller apartments, but if you’ve got a one bedroom there are ways to organize it. You might have to get creative with you how you partition up the apartment, but cramming lots of people in one place has been done before.
For owners:
1) Sell and downsize. Smaller homes are considerably cheaper in terms of heating, insurance, mortgages and property taxes. If you downsize you could realize considerably lower housing expenses. Millions of empty nesters can’t be wrong.
2) Rent out an extra room. More people in a home means increased utilities and food bills, so be sure that you’re making enough money to cover the cost of having guests.
3) Refinancing is always an option. Interest rates are super low right now, but when you refinance you want to be sure the lowered payments are worth the cost of making the refinance deal happen. Also, watch out for loans with ripoff terms like interest only or balloon payments.
4) Lease your home and move someplace cheaper. This tends to be a bit more complicated because you’ll probably have to learn to be a landlord if you aren’t one already. Also, you’ll have to be sure that the amount you charge in rent covers all your expenses. By your expenses I mean all of them, taxes, insurance, maintenance, repairs, legal fees, utilities, etc.
5) Dump your PMI. In some cases you might have something called private mortgage insurance (PMI). PMI is often required by lenders when you have more than 80% loan to value in your mortgage. Sometimes if you can lower the amount you owe on your mortgage to 80% loan to value or less, PMI is no longer required. This can shave a couple of hundred monthly off your mortgage.
6) Look into a loan modification. Loan modifications are increasingly hard to get, but the Federal Government has provided financial incentives to some of the major banks to make home loans more affordable. So if you quality, if your lender participates and if you want to deal with the paperwork, you might be able to get a better interest rate. You will have to hurry though because many loan modifications programs are set to expire in 2015.
Finally, even if you are comfortable with how much you pay, a lot of these suggestions are extremely cost effective. For example if you are able to pay off your PMI by making a $10,000 payment and you get a $200 per month savings you are looking at a 24% return on your money. If you take on a roommate who pays you $400 a month, then over the course of a year you’re looking at $4,800 in additional income. Neither of these figures are anything to sneeze at.
Readers, if you have any other additional ideas you’d like to share feel free to leave us a comment.
James Hendrickson
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.
Great advice, most people don’t even look at housing as an expendable expense.
Nice article. I think some have gotten a little out of hand with how much real estate they purchase. Do you need something so big? Are you really busting out of the house with all of your stuff? There are a lot of options for housing without breaking the bank.
These are great tips. It can be tough to lower payments once you’re already in a lease or have bought a house, so my biggest tip would be to buy/rent smaller from the beginning. So many people take the amount they were pre-approved for as being their budget when in reality your budget should probably be much lower.
We rent out an extra room and it’s easy money!
I’m preparing to enter the market for my first house next year and I think a lot of people look for the house first and then look at the price. I’m looking at the price first and seeing if the house will work. I’d like an extra bedroom or two (I have a lot of hobbies), a finished basement, a garage and/or shed, but I accept that it may not be doable within my budget and that’s OK. I have to live within the income I have, not the income I want. If I’m not satisfied down the road (when my student loans are paid off) I can look to upgrade then.
We bought our first home in 2007, refinanced in 2011, and paid it off early this year (2013). We rented out a room on and off for about 2.5 years total of the 6 years we were there. It’s now our rent house. We bought our current home in late 2012 and rent out space here too, so we are hoping to pay this one off in 10 years or less too. Currently, all of the rental income combined covers our remaining mortgage and all property taxes plus a couple of hundred dollars. It really is very helpful for anyone who thinks they could be okay with the right roommate.
Hi David,
Expandable expenses are definitely a huge consideration. Condo fees, taxes, repairs and maintenance, etc. are all big things to contend with. In a place like DC, you can guarantee that whatever your taxes are listed at when you buy a place will easily double by your next payment. Expenses that are linked should also be considered, such as transportation and commute related expenses.
Cheers,
Miel & James
Grayson – one thing to consider is getting a place that is big enough for your needs. For example if you are planning on having children, a one bedroom might not be large enough. However you otherwise make a great point, nobody really needs a McMansion.
James
@Jake,
Well said!
@Michelle, Good for you!
@Steve, thanks for the comment. Consider getting a fixer upper. If you are willing to put in some sweat equity, you can sometimes get a lot more for your money.
Crystal,
If you have time I would really love to see how you managed to get your debt paid off. Do you have a posting or something you can reference? Ten years is a short amount of time to get your debt under control like that.
Currently my husband and I live in a one bedroom. It’s the perfect size for us now, but I know we could have potentially found a cheaper place. Still, we leave near right next to the water so its quite nice while we’re still young! Since moving in together we both have saved money from rent and utilities! For the future, we plan to buy a house of our own. We definitely plan to only buy below what we can afford and are busy saving up 20% for that down payment so we don’t need to pay PMI. No condos either so no HOA fees. Probably will end up with a liveable fixer upper!
@James, we use to live on about 35-40% of what we brought in and used the rest for mortgage payoff, the stock market, and Roth IRA’s. Now we live on about 50-60% of what we make and use the rest for the same stuff. It helps that we live right outside of Houston, TX. Our first house was a foreclosure that cost us $114,000 and we put 20% down. So we paid off the remaining $92,000 (first at 5.375% and then refinanced at 4.5%) in 6 years. Our current home was $261,000, we put 20% down, and we are hoping to pay off the remaining $205,000 at 4% over the next 9 years.
My post about the first home payoff was here:
http://www.budgetinginthefunstuff.com/annoying-letter-means-we-paid-off-our-first-mortgage/
You can email me anytime at budgetingfunstuff *at* gmail.com. Thanks!