The American Dream Is Only As Good As Your Plan To Achieve It

Go to www.daveramsey.com/fpu to learn more!

Decisions, Decisions!

The American dream is to own a home, but at what cost?  Should you sacrifice financial security just to buy a home?  Should you take advantage of creative financing in order to bypass the red flags?  Should you buy a home if you have absolutely no savings and no down payment?  The answer is NO to all of the above.  If you attended the Town Hall For Hope event then Dave Ramsey attempted to teach us a new word.  That word is “NO”. His point was that we need to learn how to say NO again, instead of just blindly saying yes to everything just because we want it.

Having your own piece of the American Dream is nice, but there are some things to consider before you sign on the dotted line.  For instance, do you have 3/6 months worth of savings tucked away in case you lose your job?  Do you have at least 20% for a down payment to avoid paying Private Mortgage Insurance (PMI)?  Have you considered getting a 15 year mortgage instead of a 30 year mortgage? (On a $225,000 home at 6%, you will pay only $550 more a month and after only ten years you will have a balance of about $98,000 on the 15, as opposed to $188,000 on the 30.)

My friend J, over at Budgets Are Sexy agrees, that you shouldn’t be afraid to rent for a small period of time.  You have less risk, less responsibilities, and more time to strengthen your financial situation.  It’s not forever unless you want it to be!  Patience and proper planning are wise and don’t worry, one day, you will have a piece of the American Dream too.

Here Are Some Of The Things You Should Avoid

  • Adjustable Rate Mortgages – The risk of higher interest rates is transferred to the buyer in exchange for a lower rate.  It is also possible to think you can get more house.  It might seem like a good idea but when your rate adjusts, you will suddenly find out why it is not a good idea.
  • Interest Only Mortgages – Stupid, Stupid, Stupid!!  This is what we did and boy do we regret it!  Paying only the interest sucks!  Don’t do this EEEEEEEEEVER!  ($36,250 and 29 months later we still owe the same as on day one.)  When thinking about it I often want to slap myself for being so foolish.  haha!
  • Accelerated or Bi-Weekly Payoff – This is not a bad idea if you do it yourself but believe it or not there are Mortgage “Gurus” that will try to convince you to do this for a fee.  I’ll save you the fee:  Pay one half of your mortgage payment every two weeks and because there are 26 two week periods each year you end up paying ONE extra payment.  Yep, that is what they are charging you for.
  • Tax Benefits – This is not only a myth, it is also bad math, but so many people tell you to “take advantage” of these supposed benefits. (see example above)
  • Trailers, Mobile Homes, and especially Timeshares – Buying a trailer or a mobile home is the equivalent of buying a brand new car.  The value drops like crazy and if you think you are upside down on your car, wait till you see your new home value plummet.  Buying a timeshare is not a good investment.  Timeshares are huge scams and once you buy into one, you are going to have to like it because getting rid of it is next to impossible.
  • House Fever – This is when you are at your highest risk for buying more than you can afford, or even overlooking something that can later prove to be costly.  Consider your options, look for a deal, and never ever forget to use your walk away power.  If you have walk away power then you will likely make a better decision.

Debt Free Suggestion

People think that the only way to own a house is to have a mortgage, but I disagree.  Have you ever considered paying 100% down?  If not you should consider the benefits of doing so.  Some benefits include avoiding bondage, having more of your income to invest, build wealth, and give!  I like those benefits and after we get rid of our current mortgage we will not be borrowing for one ever again.  People on the Total Money Makeover complete Baby Step 6 (Pay off your mortgage) in about 7 years.  Keep in mind that is after paying off any other debt, saving 3/6 months of expenses, saving for college, and investing 15% of your income.  If you did all of that in about 7 years how free would you be.  More free than most that’s for sure!

 

 

About Brad Chaffee

14 Responses to “The American Dream Is Only As Good As Your Plan To Achieve It”

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  1. Tod says:

    Brad,

    Excellent web site!!! I hope your CNN article yields lots of hits.

    I have personally been credit-card-free for 10 years after discovering a mystery $2000 balance on a card I had paid off (courtesy of my wife). Don’t need ’em, don’t use ’em. I converted to Check Cards (looks and acts like a credit card for convenience, but money comes directly from my checking account) and operate on a 100% cash basis with the exception of my mortgage — no car loans, no credit cards.

    Anyways, I did try bi-weekly payments with my mortgage company, but they didn’t apply the early payments until the entire mortgage payment amount was received claiming that they didn’t know what to do with the money. They wanted me to call them every time I sent an early check to tell them how to apply the balance. I’m still looking for another solution…

    thnx

  2. Neil Davis says:

    I’m with Tod, though I carry a small CC balance. I use it for trips so I don’t need to carry my check card (which has 0 fraud protection). I save my money for my trip, use the CC then pay it all off when I get back.

    Mortgage companies really make it a PITA to make extra payments. Mine tells me I can’t do it without a $300 fee. Pardon my French but what the hell? Isn’t it illegal for them to do this? I specifically asked “Ok, is there any way to pay extra money on my mortgage without incurring a fee?” and the answer was no.

    What do I say to the person on the phone when they try to feed me this bologna?

    -Neil

  3. “Patience and proper planning are wise” – You got that straight brother! There’s no shame in renting at all, we all have different dreams and paths ahead of us, what works for me won’t work for you and others, but it’s good to understand that…

    Appreciate the shout out!
    -J

  4. Karl Rudolph says:

    I think credit cards are the greatest thing there is for smart, disciplined people because I receive anywhere from 1 to 5 % cashback each time I use the card. And if I wait until I have accumulated $200 in cashback, Chase will send me a check for $250. This way I average more than $600/year on cashback, that’s $50/month. I guess for you undisciplined citizen out there in US fairyland, there is only one problem to fully benefit, pay off your darn bill every month.

  5. Brad Chaffee says:

    @Tod- Thanks for the kind words and congratulations for being able to do what so many have said can’t be done without using credit cards. Thanks for sharing that with everyone!

    As far as your mortgage company not allowing you to make payments every two weeks. I have heard of companies having something put in the contract that does not allow you to do that, but I think it is unfortunate. Again thanks for stopping by! What mortgage company are you dealing with so I can be sure to spread the word?

    @Neil- So glad you stopped in to say a few words. Just wanted to clear something up for you. Unless I am mistaken, your debit card does offer the same protection if it is used as credit purchase and not a debit purchase. That is another myth that has been spread like a wildfire.

    This is from usa.visa.com “With a debit card, also known as a check card, you can shop at many merchant locations without having to carry cash or remember your checkbook and enjoy all the protections of using Visa, like our zero liability policy* against fraud. Just present your debit card anywhere you see the card’s logo, and have the purchase amount deducted directly from your checking or savings account.”

    About your mortgage company telling you you can’t pay extra. What company are you using, and do you know if there is anything stated in your contract that backs up this supposed policy? If you can’t find it I would have them send you a copy of the agreement that specifically states that you can not pay extra. I am certainly no mortgage expert but this seems a little fishy to me. I would love to hear an update from you!

  6. Karl Rudolph says:

    @Brad Chaffee, I should really respond concerning the assumption you made about me, but I won’t except to agree with you that you are right I am a lot smarter than most, and about a nest egg, I had one before you were born.

    Seriously, I think you are doing a good thing, trying to educate people about financial matters. As far as I can tell this task is urgently needed. Good luck with your website.

  7. Brad Chaffee says:

    Sorry for the assumption, it just seemed as though you were attacking smart people for making poor decisions. Everyone makes mistakes. I bet you have made some mistakes in other areas of your life, but I wouldn’t talk down to you because of it. Maybe you are smarter than some with credit cards, but where’s your humility? I am glad you have not had to go through what some people have financially, but when it is all said and done you are human just like the rest of us. I guess from someone that has the experience and wisdom that you claim to have, I expected a more uplifting message. Sorry if I seemed a bit irritated in my response.

    I do thank you for coming back to say something nice.

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