Sharing an apartment requires taking a leap of faith. Make sure you have a safety net in place.
Millennials are a generation of renters—expected to spend some $600 billion on rent over the next five years. And the percentage of Gen Y making the transition to homeownership is not expected to spike anytime soon.
Of course, there are several advantages that come with not having a mortgage that may appeal to the average Gen Y’er who’s saddled with student loans, credit card debt and job uncertainty. Renting allows for a more flexible lifestyle, since you can pick up and move with no strings attached. Plus, you avoid property tax, mortgage insurance and all the other costs that come with homeownership.
The downside? If you’re shacking up with a roomie—whether it’s a friend or a random person picked off Craigslist—you are taking a leap of faith that that person will be as responsible with their finances as you are. If the person is not, you could end up paying, literally, since a landlord could hold you liable for the entire rent and your credit score could suffer from your flatmate’s missteps.
Help protect your finances with these three moves:
Pick a Roommate First, Location Second
In a perfect world, you’d find the perfect apartment followed by the perfect roommate. After all, location is key.
But if you had to prioritize one over the other, for the sake of your financial and mental well-being, be more choosey about the person rather than the place, says Matt Hutchinson, director of UK and NYC-based roommate site SpareRoom.
You want to pick someone you click with and with whom you have an easy time communicating. In your listing include details of what you do to relax, what your hobbies are, and where you like to socialize, adds Hutchinson.“You don’t need to be best friends with your roommates, but sharing an apartment with people you like will help you feel relaxed and at home,” he says. Making sure you’re compatible now helps ensure that you won’t find yourself back on the apartment market—and wasting money on movers, brokers and the like—too soon.
Even more important, an ideal roommate also respects the fact that there are shared responsibilities and obligations that need to be met on a timely basis.
The landlord should do a credit and background check on each tenant, but you’d be wise to ask your potential roommate in advance to show you his or her credit score to get a sense of how financially responsible he or she has been. You can purchase this from MyFico for $20; if your roommate doesn’t want to lay out the money, offer pay for it. Better to lose $20 now than thousands later.
Keep Rent to No More than 30% of Income
In expensive cities like New York, San Francisco and Washington, D.C., it’s easy to justify spending a hefty chunk of your salary on rent.
A survey by SpareRoom found that three out of four renters spend more than the often-recommended 30% of income on housing. Of those, 42% fall into the “severely rent burdened category” where they spend 50% or more of their pay on housing.
Do yourself a gigantic favor and keep your housing costs as low as possible, even if it means spending an extra hour per day commuting to and from work. Even if it means walking up three or five flights of stairs to get to your door.
And if you still can’t keep it to below 30%, consider moving home temporarily with mom and dad. There’s no shame in that if it means you’ll be able to use your extra income to save and pay down debt.
Get Your Name on the Lease
Nearly half (46%) of roommates in New York, a popular city for renting, admit that they’re not on the lease for their current rental, according to the SpareRoom survey. Another 6% have no clue whether they are or not.
People often think it’s better not to be on the lease, says Hutchinson.
“While this will mean you’re less accountable financially, it also means you have no legal rights or protections,” he says. “Your landlord or roommate can ask you to leave and there’s nothing you can do about it.”
If you’re subleasing from a tenant, make sure the landlord is aware, he says, and make sure you have written agreement in place with your roommate that covers at least the bare minimum, such as how much rent you pay.
Farnoosh Torabi is a contributing editor at Money Magazine and the author of the best selling new book When She Makes More: 10 Rules for Breadwinning Women. Her new podcast So Money features intimate interviews with leading entrepreneurs, authors and influencers. Visit SoMoneyPodcast.com to listen to the show’s inaugural interviews with Tony Robbins, James Altucher and Jean Chatzky. Follow her on Twitter.
More by Farnoosh Torabi:
Keeping your home gorgeous year-round is easier and less expensive than you think.
Does your house look like a million bucks? That might depend on when you’re doing the looking. In most of the country, properties shine brightest in spring and summer, when everything is in bud and bloom. But when the weather starts to cool off, “things can get dull and dreary,” says Madison real estate agent Brian Callahan.
It doesn’t have to be that way. You can maximize your curb appeal—and your property value—throughout the year with a few simple projects. Here, our seasonal guide to having the best-looking house on the block.
Add interest with bark, berries, and seeds. Colorful evergreens, such as cypress (gold) and barberry (red), brighten your winter yard, says landscape contractor Ross Mastrorocco of Monroe, Conn. Choose deciduous trees with interesting bark, like birch, or unusual shapes, such as corkscrew willows.
Cost: $25 to $200 per sapling, depending on type; add 50% for pro planting.
Brighten with paint. Next time you need to do a full exterior house-painting job, add a punch of color on the walls. “In winter, paint color can become the focal point of the property,” says home designer and contractor Dean Bennett of Castle Rock, Colo.
Cost: $4,000 to $10,000 to repaint the entire home.
Light up the night. During winter’s short days, landscape lighting creates after-dark appeal. Use up lights for trees, down lights for stoops and porches, and walkway lights on your entry paths. Today’s low-voltage systems are easy to install yourself: Plug the transformer into an exterior outlet and run the wires under your mulch.
Cost: $400 to $500, or two to three times that if you hire a pro for installation.
Undo winter’s damage. Cut the beds and mulch. Use a spade to cut clean edges for your planting beds and lay down bark mulch (skip the cheap tree-company wood chips, which may contain termites or carpenter ants). Go easy: Deeper than 1½ inches can smother the roots, says Mastrorocco. For a mulch that lasts, use cedar, which is slow to decompose.
Cost: $200 to $500 to DIY; $500 to $1,000 for a pro.
Get a free landscape plan. A nursery or landscaper can suggest plants to provide color throughout your growing season. In southern New England, for example, azaleas bloom in spring, hydrangeas in summer, and some roses last into fall. Add a few perennials and annuals and you’ll have three seasons of blooms.
Cost: $25 to $200 per plant, plus 50% for planting.
Spring-clean the windows. After the dust storm of tree pollen is over, tackle your windows. Use water mixed with dish soap and a glass-safe scouring pad. Invest in a squeegee rather than trying to dry with linty paper towels, says B.J. David of Mella Window Cleaning in Cincinnati.
Cost: Expect to pay a pro $8 to $30 per window, depending on whether you have storms or tilt-in windows.
Mow high. Tall grass stays greener, helping to mitigate the brownouts that are so common during the dog days of summer. So set your mower (or ask your landscaper to set his mower) about three inches off the ground. The longer turf will retain more moisture and also better shade the soil, ensuring that the roots don’t dry out—and shading out any crabgrass.
Cost: Free if you mow yourself; $30 to $50 per mow if you hire a landscaper.
Have fun with numbers. Get rid of those boring “contractor grade” house numbers. You can find interesting numerals in all sorts of fonts and finishes at houseofantiquehardware.com. Wayfair.com offers letters too, so you can spell out your low-number address.
Cost: $5 to $25 per digit
Upgrade the walk. A cracked or outdated walkway hurts curb appeal all year long, but summer is the best time to tackle replacement. Handy? Interlocking pavers make the job simple enough to do it yourself. Look for tumbled pavers if you want a stonelike look.
Cost: $500 to $1,000 if you do it yourself; $2,500 for a professional installation (compared with $4,000-plus for natural stone).
Update your flower boxes. Rotate fall bloomers, such as mums, ornamental kale, and autumn sage, into your flower boxes and planters in early autumn. When those are done, cut back the plants and poke in seasonal cuttings, such as evergreen boughs and holly sprigs, suggests Chicago realtor Laurie Gross.
Cost: $15 to $25 per store-bought plant.
Fertilize in fall. Your shrubs and lawn are having an underground growth spurt right now, developing long roots to reach nutrients deep in the soil. Promote this growth with a potassium-rich fertilizer. (Your nursery can suggest one for your climate.)
Cost: $40 for a bag of fertilizer; $75 to $150 for professional fertilizing.
Give the yard a buzz cut. Readjust the lawn mower blade to as low as it will go without scalping the grass. Short turf looks better when dormant because it won’t get folded over and matted down, says Mastrorocco. Cut back perennials and annuals to the ground to make the yard look neat—and to limit how many fallen leaves get caught up in the grass and plantings, simplifying cleanup.
Cost: Free if you do it yourself; $250 to $750 to hire a professional.
Q: We paid a small fortune to have our great room painted last summer—and now that it’s winter, the paint has cracked at nearly every seam in the woodwork! Did we get a bad paint job? Can we demand free touchups?
A: This is an extremely common problem, especially with new woodwork and especially in climates where there’s a wide temperature swing from summer to winter. Your house was painted during the warm weather, when high ambient temperatures (and, depending on where you live, humidity too) make wood expand. Come winter, temperatures and humidity levels drop, wood shrinks, and each piece of trim separates a tiny bit from its neighbor, cracking the paint.
If the cracking is happening along all of the seams, your painter didn’t properly prepare the wood before painting, says Debbie Zimmer, of the Paint Quality Institute, a research arm of Dow Chemical. All of the seams between wood pieces should have been filled with paintable acrylic or siliconized acrylic caulk prior to the job. Unlike paint or other wood fillers, this rubbery material flexes with the wood, stretching and compressing as the boards shrink and swell and preventing the paint from cracking.
But even properly caulked projects will sometimes crack here and there. Most painters offer a two-year warranty on their work—and count on repeat business from good clients—so you should absolutely call your painter and ask him to come back and address the problem. It’s a quick fix for him, Zimmer, says and he should not charge you for the work if it’s within his warranty period. It’s quite possible some cracking will occur again in the second winter, and you can absolutely call him back again for another free touchup.
Don’t delay, because you could miss out on the warranty—and because those cracks will all but disappear when the weather warms up, making it harder to make your case and harder to identify every crack that needs caulk. Still, even if you miss out on the warranty, this job should cost only $200 or $300. Or, if you have experience with caulk and paint, you can fix it yourself: Fill all gaps with top-of-the-line paintable caulk, wipe away excess with a wet rag, allow it to cure for the time recommended on the tube, and then brush on paint. If you’re using leftover paint, first bring it to the paint shop or home center where it was purchased for a free shake to ensure that it’s well mixed.
And next time you hire a painter, make sure to confirm—and perhaps even note on the contract—that he will caulk all seams and joints as part of his prep process.
47% of buyers aren't comparison shopping for a mortgage, and it's costing them tens of thousands of dollars.
When it comes to purchasing a home, most buyers generally don’t have trouble comparison shopping. According to a recent study, 22% of house hunters even described themselves “addicted” to online listings. But while home buyers love shopping for homes, they aren’t doing the same with mortgages. And it’s costing them tens of thousands of dollars.
A new report from the Consumer Financial Protection Bureau shows that 47% of home buyers seriously considered only a single lender or broker before deciding where to apply for a mortgage. And 77% of buyers only applied with one lender or broker instead of applying with multiple lenders and selecting the best offer.
Granted, shopping for a mortgage isn’t nearly as fun as shopping for a house, but rushing this part of the process can cost consumers an enormous amount of money. The bureau’s research showed that a borrower looking for a conventional 30-year fixed rate loan could be offered rates that differ by more than half a percent. According to BankRate’s mortgage payment calculator, the difference between a 4% and 4.5% interest rate for a conventional 30-year fixed-rate mortgage of $200,000 is slightly more than $21,000 over the lifetime of a loan. Put another way, comparison shopping for a mortgage can save you enough money to buy a second car.
Why don’t most buyers make the effort? Aside from the obvious—comparing financial instruments isn’t exactly a day at the beach—the CFPB found that being informed has a lot to do with consumer behavior. Borrowers who felt confident about their knowledge of available interest rates were nearly twice as likely to comparison shop as those who were unfamiliar with the interest rates they could expect to receive.
To solve that problem, the bureau has created a website to educate prospective buyers on the home purchasing process. Among other tools, it offers a page that lets consumers check interest rates for their particular situation using their location, credit score, down payment, and other factors.
Q: Our 100-year-old farmhouse costs a fortune to heat, and I’m thinking of using my holiday bonus for an energy efficiency upgrade. What’s the best investment: a new furnace, new windows, or blown-in insulation?
A: Improving the “envelope” of your house is the place to start, says Matt Golden, a former home performance retrofitter who’s now a consultant to the Department of Energy, several California utilities, and the Environmental Defense Fund. “By sealing and insulating the exterior, you reduce your house’s heating and cooling demand,” he says, “so when you’re ready to buy a new furnace someday, you might need one that’s only half the size of your existing one.”
Here’s the order of priorities Golden typically recommends:
- Air-seal the envelope: That includes weather-stripping doors and windows, but the most important step is filling any penetrations in the attic floor, such as around pipes, chimneys, wiring, and recessed light fixtures in the ceiling below. Little gaps and cracks can drastically increase your heating and cooling costs, Golden says, and this job has to come first because you won’t be able get at the openings once you insulate.
- Insulate the envelope: If you insulate only one thing, it should be the attic floor, since heat rises. You want at least 10 inches of insulation up there, says Golden. Blowing insulation into the walls is a far bigger job since there’s a lot more wall area—and because getting the insulation into the walls involves drilling dozens of holes in your siding. Still, in very cold climates, the job can be very cost-effective, especially if you do it when you’re planning to repaint or re-side the house anyway.
- Seal and insulate the ductwork: The ducts in a typical house leak so much of their heated and cooled air into the attic, basement, or crawlspace that sealing the seams and wrapping the ducts with insulation can slash your HVAC costs by 30 percent. The job is not as simple as applying duct tape to the joints; despite its name, duct tape doesn’t last very long on ducts. You’ll want to hire a pro for this messy and time-consuming job, which requires specialty mastic and tape.
- Replace your old furnace or boiler and air conditioner: Heating systems that are more than about 20 years old and cooling systems that are more than about 10 years old are inefficient by today’s standards. Installing even middle-of-the-road equipment sold today can yield 10 to 20 percent savings—far more if you select high efficiency units, if you can downsize the equipment thanks to the sealing and insulating you’ve already done, or if you’re switching from oil to natural gas.
- Replace the windows: Although houses lose a lot of energy through their windows, high-quality replacement windows are so pricey (think $800 plus per window) that they’re almost never cost-effective purely for energy efficiency purposes, says Golden. “Of course, there are many other reasons to replace your windows, like easy operation, tilt-in cleaning, and improved resale value.” Just don’t expect the energy savings to come close to paying back the cost.
You can get specific recommendations, including estimated project costs and payback savings, for your house’s exact specifications, at homeenergysaver.lbl.gov.
When you’re ready to get started, Golden advises, look for a home-efficiency contractor who offers all of the above solutions; that way he doesn’t have a vested interest in selling you one method or product over another. The contractor will send a crew to do some tests on your house and make recommendations for the most cost-effective steps you can take. You can find certified professionals by zip code at BPI.net.
Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com
The changes will save borrowers an average of nearly $1,000 a year.
The White House announced on Wednesday plans to reduce government mortgage insurance premiums in an effort to make homeownership more affordable for low-income buyers. President Obama is scheduled to talk about the policy in a speech Thursday in Phoenix, Arizona.
In the announcement, Housing and Urban Development Secretary Julián Castro said the Federal Housing Administration would slash insurance fees by more than a third, from 1.35% of the loan amount down to .85 percent. The FHA had a 30% share of the mortgage insurance market in the third quarter of 2014, according to Bloomberg.
Mortgage insurance, required of FHA borrowers, is meant to protect the lenders in case of default by allowing them to recoup some of their losses.
Over the next three years, the FHA projects the rate drop will allow 2 million borrowers to save an average of $900 a year when they purchase or refinance a home. The agency also estimates these savings will encourage 250,000 first-time buyers to enter the market.
The move marks a trend of recent policy changes meant to help low-income Americans get into the housing market. In December, mortgage providers Fannie Mae and Freddie Mac announced that certain first-time buyers could now qualify for a loan with a down payment of just 3 percent of the home’s value.
Taken together, today’s announcement and lower down payment requirements should make the housing market far friendlier for the economically disadvantaged. However, David Stevens, CEO of the Mortgage Bankers Association, told CNBC that the effect of the new policy may not spur an especially large increase in home buying.
“I think the marginal impact on sales will be small because potential buyers make the decision to purchase based on trigger events, such as a new job, marriage, kids, etc,” Stevens told the network. “Changes in affordability only impact how much home they can buy.”
While Democrats have been supportive of policies that aid low-income and new homebuyers, Republicans are concerned that lower insurance premiums could put the government at risk if borrowers once again default in large numbers. The FHA has previously required billions in taxpayer assistance, and while the agency is no longer losing money, its capital requirements will not meet the legal limit until 2016.
The NYPD's legendary Theo Kojak has some wise words for a young couple ready to purchase their first home.
Terri and David came in for a meeting with me. They were expecting a baby and wanted to buy a house.
“I’m a contractor,” David said. “I do painting.” Terri was an attorney with a law firm. Together they made about $150,000.
They had their eye on a $500,000 house, and wanted to make a down payment of 5%, or $25,000. Their question for me: “How should we make the down payment?”
David, who had $30,000 stashed in a safe deposit box, wanted to use that cash for the down payment. Terri wasn’t quite sure that was a good idea. Terri hugged her chair nervously.
Their basic problem was becoming clear: David worked in a business that can be largely cash. Terri liked to follow rules. She wanted to know whether showing up at the closing with a pile of $100 bills would get them into trouble later.
It’s at times like this that you need to remember Telly Savalas. That’s right, the actor who played the detective Kojak in the 1970s TV series of that name. He was famous for sucking on a lollipop and saying, “Who loves ya, baby?”
“You’re asking the wrong question,” I said to them.
I had their attention.
“What both of you should be worried about is that you can’t comfortably afford this house,” I said. “I don’t care where the down payment is currently located. Let me be clear: You’re buying too much house.”
“But the mortgage guy said that we could swing it,” said David. “I should be able to replace the cash in a year. I’ve calculated it all out and we can do it before the baby arrives.”
This is when we need Telly Savalas.
The answer to the question “Who loves ya baby?” is not “your mortgage broker” or “your realtor.”
This is a lesson I learned the hard way.
Before I started working as a financial planner, I didn’t know what I know today. I made a big mistake.
I bought a house I couldn’t afford. That’s not what I intended to do. It’s just that I was listening to the wrong people and not to Telly Savalas.
I focused on how much mortgage a bank would lend me. Here’s what my experience taught: The bankers don’t love me. They don’t give a rip about me. All they care about is making the most money for themselves. They got their money, but I was miserable.
I made the decision in a month or two and locked myself into the expenses for years to come.
In retrospect, this was predictable. A good rule of thumb is that a home is out of your price range if it costs more than two or two-and-a-half times your annual income. The house I bought was way over this range of affordability.
Housing costs soaked up my disposable income and made it tough to save. Living paycheck-to-paycheck, I couldn’t afford a decent vacation. When an emergency arose, I didn’t have adequate funds. So I felt the stress of both the emergency and scrambling to pay for the emergency.
All this stress was unnecessary.
If I did it right, I would have bought a condo that cost less than 2.5 times my annual income — say, $150,000 instead of the $200,000 I spent. And I would have saved up and made a 20% down payment, not the 10% payment I made.
Yes, the location wouldn’t have been as nice. And I wouldn’t have had an extra half-bath and an icemaker, both of which I enjoyed having — but which I didn’t really need.
Mortgage people and realtors will tell you there isn’t much of a difference. Let’s run some numbers, though: what I did, and what I should have done.
|What I did||What I should have done|
|Monthly mortgage and tax payments||1,400||860|
|Total monthly cost||$1,800||$1,170|
Spending $1,170 a month on housing would have been fine. Spending $1,800 made me feel “house poor.” It wasn’t the mortgage. It was everything else.
My message to Terri and David: David, report your income. Then, Terri, it doesn’t matter if the money is stored in a savings account, safe deposit box, or plastic baggie in the basement freezer. Don’t worry about it. And for the question that you didn’t ask: When buying a house, remember who loves ya, baby!
Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.
According to Zillow, college kids, newlyweds and all other renters around the country paid a grand total of $441 billion for rent in 2014, up 4.9% from the year before.
You clicked on these 15 homes—from a sleek penthouse to a wacky mushroom house—more than any others.
Which homes piqued the most curiosity in 2014? We went door-to-door, virtually, and scoured realtor.com® data to figure out which homes were the most-clicked over the past year. We limited our list to show only homes that are currently on the market. The resulting list shows us exactly what you want to see when curiosity strikes.
This article was originally published on realtor.com.
Address: 142 Park Rd, Perinton, NY
Choice quote: On the market since April 2013, the Mushroom House was described byThe Wall Street Journal as “composed of several 80-ton concrete pods and built partially into the side of a hill.”
Address: 172 Bliss Canyon Rd, Bradbury, CA
Price: $68.8 million
Choice quote: The listing describes this home that’s been on the market for almost three years as a “Palladian Masterpiece” and also states, “Nothing compares.”
Address: 5200 Moore Rd, Suwanee, GA
Price: $13.995 million
Choice quote: From the listing: “Underground tunnel connects detached garages with main house.”
Address: 7 Montagel Way, Birmingham, AL
Price: $13.9 million
Choice quote: According to the listing, it’s quite simply “America’s largest home.”
Address: 809 N Jefferson St, Huntington, IN
Choice quote: The historic Purviance House “will require much renovation as there is currently no HVAC, plumbing, electrical, kitchen or baths.”
Address: 20 W 53rd St, New York City, NY
Price: $60 million
Choice quote: This duplex atop the Baccarat Hotel and Residences offers “panoramic 360-degree views of iconic NYC landmarks.”
Address: 9904 Kip Dr, Beverly Hills, CA
Price: $39.995 million
Choice quote: Because the “main house comprises 10 bedrooms [and] 22 baths,” you won’t be squeezed for space.
Address: 8272 E Left Hand Fork Hobble Crk N, Springville, UT
Price: $35 million
Choice quote: On the market since July 2012, this mansion has a “2-lane bowling alley [and] indoor shooting range.”
Address: 10696 E Wingspan Way, Scottsdale, AZ
Price: $32 million
Choice quote: The most expensive listing in Arizona “combine[s] opulence and sophistication without overindulgence.”
Address: 490 W Paces Ferry Rd NW, Atlanta, GA
Price: $15.9 million
Choice quote: The listing doesn’t skimp on hyperbole: “Buckhead’s most palatial estate on Atlanta’s most prestigious street.”
Address: 5444 Valerio Trl, San Diego, CA
Price: $1.595 million
Choice quote: While it’s not a multimillion-dollar mansion, this SoCal home “features charming curbside appeal, ideal privacy and a functional floor plan.”