Protecting your investment requires diligence through the decades of ownership, but it provides a lot of freedom. Freedom to do whatever you like to the property, where renting would restrict you. Financial freedom to not have to pay rent forever, and live mortgage free after you pay it off. While laying out the benefits of home ownership are not my intention, it is important to note why we all go through the pain of protecting our investment. In order to protect these benefits, there are several things you need to consider:

Perform Regular Maintenance

Some people have misconceptions about home ownership. In fact, there are a lot of major costs that come with home ownership, that are directly tied to maintenance. Every home will need to be re-painted, updated appliances, new roof, among many other things. The years between these items vary, but the necessity is still there. Make sure to take care of these things before the develop into larger problems.

Insurance

If you have a mortgage, insurance will most likely be a necessity. Regardless of the requirements by your lender, you need to have insurance. It’s relatively inexpensive in comparison to the benefit that it provides. Don’t put yourself in a bad situation by trying to save a few bucks with getting rid of home owners insurance.

Home Security

This may not be a necessity, but it is something that everyone should consider. Depending on your neighborhood, home security can be really important for protecting your loved ones. You never know when your house could be targeted and it is often better to be safe than sorry. The last thing you want to happen is to not feel safe in your own home.

When you buy a home, it is something that you need to take seriously. I see too many homes that fail to protect their investment and actually lose money because they did not take care of it. Remind yourself of the benefits of homeownership the next time you are faced with a decision that could affect the value of your home.

Hopefully, this is going to mean better service for troubled mortgages, but it could have lasting ramifications for all mortgagees. Unfortunately, as regulations tighten, costs rise and industry professionals are predicting that banks may look to sell mortgages to specialty servicing companies. There are benefits for both banks and borrowers, but there are also a number of concerns that could greatly affect your finances for years to come.

You Lose Control of Who Services Your Mortgage

When your bank services your mortgage, you have an opportunity to look into your lender’s servicing practices. If you hear bad things in the news about how Bank of America mistreats borrowers, you know to stay away. This isn’t an option if your bank sells your loan to an outside company.

It begs the question: what if you don’t like the servicer? At least before, you could take some of the blame for picking a potentially lousy servicer. If mortgages are sold off to third parties, you are at the mercy of the company who places the highest bid. Even if you were to refinance, there is no guarantee that your next bank won’t sell your loan to the same servicer.

May Actually Make Predatory Lending More Prevalent

Remember how predatory lending played a role in the housing crisis? Well, creating a lending industry where those that originate a loan simply offload their obligations is likely to increase these types of practices. If the mortgage industry plans to simply cut the cord when collection gets tough, there isn’t a large degree of incentive to ensure that loans continue to be profitable into the servicing stage of a mortgage.

It might be all smiles when getting the loan, but wait until you see the company that is going to try and collect your mortgage payments.

In the short term, banks are looking to mainly sell mortgages that are already delinquent. Most mortgagees may never face the prospects of being sold to a servicing company. The good news is that not all banks sell their mortgages. It might be a question worth asking before signing on the dotted line.

1. Survey the Market: Understanding how much properties sell for in your area is essential to smart investing. You don’t want to look at houses without any understanding of the going rate.

2. Get Pre-Approved: If you don’t have the money sitting around, get pre-approved for a loan before shopping. This will speed up the process of bidding on a property and will also give you a metric to gauge how big of a house to buy. The difference between getting a good deal and missing out on a steal could be having to wait a couple days for approval.

3. Put Up For Rent Signs: Finding new tenants can be difficult depending on the market. This is why it is important to put up for rent signs immediately. The more you delay, the longer you will have to wait to get rid of that vacancy.

4. Protect Yourself: While you ultimately want to be insured immediately after buying, it’s important to have landlord insurance to protect yourself. The last thing you want to happen is to be unprotected and face a lawsuit. This could not only ruin your return on your investment, but cause you to lose your property.

5. Slowly Raise Rent, Enjoy Return: Last, but certainly not least, the last important step in investing in real estate is slowly earning more from increasing rent. Slowly increasing rent is one of the ways that long-term investors make a huge profit. As they owe less money on the mortgage, they make more and more with increasing rent.

If you are thinking of investing in real estate, it’s important to do all of your homework before hand and make sure that your investment is sound. It’s just like any other investment. You wouldn’t do it without being certain.

Crucially, you have to be prepared to lower your expectations. First time buyers often make the mistake of looking for a property that they can move into immediately, with the intention of staying there for a number of years. This is perfectly understandable, as many people looking for their first home are used to living in well-kept rental accommodation. Factor in the time and expense of buying, which can be draining if you’ve never done it before, and it’s easy to see why you wouldn’t want to do it again for as long as humanly possible! However, if you’re prepared to be flexible in your approach, you might find that it’s much easier to get on the property ladder than you first thought.

If you want to get the best deal possible, the first step is to change the way you think. Instead of a home, it’s a good idea to think of property as an asset, which can increase and decrease in value. If you’re prepared to invest money into extensive renovation, then you can usually make a tidy profit on a run-down property in need of a bit of love. You’ll be going up against builders and developers, but as your profit margins don’t need to be as high as theirs, you’ll be better placed to table the best bid. Aside from the state of the property itself, the location will be crucial to the price. You might fancy buying in a fashionable area, but the fact is that you’ll be paying more for what you get. If you can find a run-down property in an area outside of the cool part of town, but also quite close to it, you’ve got a great chance of watching the value sky-rocket in a few years’ time.

Ultimately, it’s uncommon for first time buyers to stay in their first home for more than a few years. If you start thinking long-term, you’ll have a much better chance of getting on the ladder without crippling your finances!

The Trouble with Home Equity

You might be able to assess the sale price in your home by looking at comparable housing. Your equity is loosely calculated by subtracting your home’s sale price by the balance left on your mortgage. However, the assessment of your home is far greater than what you’d actually bank if you ever wanted to convert equity to cash.

Cashing in your equity means making a large financial transaction, and those transactions have large costs. It’s important to be mindful of these costs before retirement so that you get the most out of your home and net worth.

Homeownership to Renting

There is only one way to tap into the full value of your home’s equity, and that is to sell your home. Selling is a long complicated process. It involves contracts, realtors and negotiations. However, in the end you get a check for the market value of your home.

Downsides: Unfortunately, this option comes with a lot of downsides. After you sell and jump into the renting market, you’ll find that your housing costs will incrementally increase due to rent inflation. When you own a home, you dodge housing inflation. Selling also requires hiring a lawyer and paying selling commissions. You might get the full value of your home, but transaction costs are highest.

Downsizing Your Home

This strategy involves selling your current home to purchase a much smaller, more manageable home. In selling and downsizing, you get to bank the difference in home prices. However, by buying instead of renting you can avoid rent inflation and retain property ownership.

Downsides: This might be thought of as the best of both worlds, but it is likely the most costly. In this scenario, you are not able to cash in the full value of your equity, since some of it will transfer to your new home. You also take on the selling burdens and the added high transaction costs of buying a new home.

Take Out a Reverse Mortgage

Banks sell an unconventional loan known as a reverse mortgage. These mortgages allow you to borrow your home’s equity without a mortgage payment. Instead, after you pass away your house is sold and the proceeds go to refund the bank the money you borrow. Any residual value on the home after the sale goes to your estate as an inheritance.

Downsides: You need to retain a portion of equity in your home to assure that the bank will earn back the loan after you have passed away. You have to pay interest on the loan. You risk foreclosure if you can’t maintain tax and homeowner’s insurance payments. This option might have the lowest transaction costs, but it also restricts you from cashing in on a great deal of equity.

There is no right answer to how best to tap into your home’s equity. In fact, you’ll notice from the strategies I’ve listed that equity is greatly overvalued since costs are high to convert to cash. However, if you plan now, you can begin to account for those costs and maintain a reasonable living on your home’s value in retirement.

JP is an MBA and works in finance. He is the author of the blog My Family Finances where he writes about how families can better manage their money and budgets.

Here are some of the other passive income ideas that I have been considering:

Online Real Estate – I have been fairly successful with running websites in the past, and I would love to invest in another quality website if the opportunity presented itself. Yet, at the same time, I am looking for something that wouldn’t require me to closely monitor its success. While this is still on the table, I really am looking for something more passive than online real estate.

Construction Equipment - I have seen more and more people doing renovation projects lately and I can’t help but wonder where they get their big machinery. I am confident that it doesn’t make sense of everyone to buy their own heavy machinery, so that must mean rentals. If I were to buy some machinery, like Hitachi Construction Machinery, I could easily market it and rent it out at a standard fee per day. This would certainly have peak seasons and would a few minutes to process each rental, but would otherwise be pretty much passive. This sounds like a great option.

Inflatable Toys – Another popular item in the Northeast, especially for children’s birthdays, is the inflatable toys. I am thinking of the ‘bouncy castles’ or ball pits, etc. Many families in the town that I live in will spend $1,000-$2,000 (if not way more) every year. If I could buy a few different inflatables and create a pretty basic business, I could generate some nice steady income. I really like the potential growth that this idea has and if I can keep it pretty simple, I might be able to compete with some of the larger companies (as I wouldn’t be paying for employees).

Passive income is always difficult generate if you don’t have an initial investment to make. I understand this completely and that is why I am prioritizing saving up a certain amount in order to invest. While I am still considering other options, real estate still looks like a great option.

What source of passive income is most appealing to you? Why?

• Building home equity boosts your net worth and improves your credit score
• It accumulates with each mortgage payment
• Your equity gets a boost from housing inflation
• The more the market increases, the more your home investment grows
• Property owners get to dodge rent inflation

Research published at the St. Louis Fed suggests that there may be a new advantage to homeownership: bigger unemployment benefits.

How to get a Larger Unemployment Benefit Using Your House

Nearly 5 years ago the housing market crashed and precipitated our most recent recession. However, recessionary pressures threatened to cripple the housing market further. As more and more homeowners were sent to the unemployment line, foreclosures threatened to flood the market with a large supply of homes for sale. Worse still, these unemployed and evicted homeowners would be shut out of future home purchases, crippling the base of potential homebuyers.

Seeing a threat, the government stepped in to help struggling homeowners. They encouraged banks to slow foreclosure processing and created government programs to help subsidize extended default periods. As a result, the average default to foreclosure period extended from about 3 months to 15 months on average.

The problem is that this extension also allowed unemployed homeowners to live housing-cost-free for well over a year. In general, we as a society see this as a good thing. However, when you know you can delay eviction for several months, it creates an incentive to remain out of work and collect an unemployment check, while delaying all of your housing costs.

More Harm than Good?

The Fed study pointed to several negative outcomes as a result of delaying foreclosure for those that are unemployed. The many policies set up to aid struggling homeowners may have hurt the economy and struggling homeowners more than it helped.

Stagnant defaults resulted in an increase in the unemployment rate of between ½ to 2/3 percent. Policies enacted to prevent foreclosure caused default to persist 8 to 12 percent longer.

Worse still, defaulted loans had late fees and interest capitalized during default periods. Depending on the duration of default, unemployed homeowners paid between 18 and 85 percent in interest on their outstanding mortgage payments. Since the average credit card charges only 16.75 percent in interest, those who went on to become chronic defaulters may have been better off with credit card debt.

There are lots of benefits to home ownership – and while you can boost your unemployment benefit, I’m not sure it’s worth the cost to society.

JP is an MBA and works in finance. He is the author of the blog My Family Finances where he writes about how families can better manage their money and budgets.

Does this mean that owning your own home is out the window? Should you give you up your hopes and dreams and resign yourself to a life of renting? Absolutely not! While buying a home may not be an option financially, building your own home may be a great alternative.

Advantages of Building Your Own Home

Okay, I know you are probably thinking… “I don’t even know how to use a nail gun, how am I going to build my own home?” If you’re not thinking that, it’s definitely what I am thinking. I couldn’t imagine building my own home. If you do have the construction background, than you are ahead of the game and will be able to save some cash.

Even if you don’t know how to do the advanced projects or tasks of building a home from scratch, I am sure you can cut some corners with some DIY projects. For the projects that you can’t do by yourself, like laying a foundation or roofing, you can hire it out. There are plenty of companies that list contractors for things just like this (for example, Cordell Residential Projects helps connect suppliers and contractors).

The benefit of doing some of the project yourself and hiring some out is that you can still have a quality-built home, while also not having to pad some contractor’s wallet for doing all of the little things that you could have done yourself. To put it simply, building your own home means less money spent on your house.

That’s not the only advantage of building your own home. Others include:

• Peace of mind knowing who built what and that the proper attention was given on necessary projects
• Having a new home, which ultimately means less maintenance costs and no uncertainty about when things will need to be repaired.
• You can choose the layout that you want. There is never an issue of having to live with a certain aspect of a house that you hate. With building it the way that you want it, you don’t have to settle. It’s that simple. Everything can be the way that you want it.
• No paying for features that you don’t want or need. Some houses come with large garages that you can’t fill or a large backyard that you don’t use. With building your own home, you don’t have to pay for the house. You create it – it’s that simple.

Building your own home may be a great way to save some bucks while also getting the house of your dreams. While it may come with many financial perks, it doesn’t mean that a cost doesn’t accompany it. In fact, building your own home and doing some of it yourself ultimately means that you will take longer to build it. As long as 1-2 years may be a reasonable time frame and that’s if you are hiring out the major projects. Ultimately it comes down to what you have an excess of (time or money) and what is most important to you – but you do have the option to save a few bucks, should you choose to take it.

A Home Warranty Defined

Homeowners insurance helps cover the loss of any personal items stored inside the home, while a home warranty helps protect major components of the home that are specified in the warranty contract. Most large items of a home that are covered under a home warranty are plumbing, electrical, air conditioning and the heater or furnace. Some warranties cover major structural issues, such as foundation cracks.

While repairs may not be free of charge, even though you purchased a home warranty, most service calls should only cost about $60. Some home warranties may also be purchased to include repairs for major appliances like refrigerators, washer and dryers and even swimming pools.

Purchasing a Home Warranty

When purchasing a home warranty you are required to pay an upfront, annual premium to guarantee the service when needed. These premiums are usually included in buyers closing costs when closing escrow on a new or used home. A home warranty typically costs a few hundred dollars a year with the option of renewing toward the end of every year.

Some companies offer payment installments, but however you choose to pay, you should know that your home warranty conditions are based on the type of home you purchase. A warranty’s cost may vary depending on if you purchase a single family home, townhouse, duplex or condo, and whether you opt for the basic or extended plan.

Some characteristics that are not considered when determining home warranty cost are the home’s square footage, separate structures such as detached garage or shed, and the home’s age unless it is brand new construction. On top of the annual premium, homeowners must also pay the service charge every time a repairman is called to fix one of the components covered under the home warranty.

The Benefits of a Home Warranty

The benefits to purchasing a home warranty are peace of mind and money that you can save when or if something malfunctions or is in need of repair. Fixing an electrical or plumbing problem can be expensive, but with your home warranty you are guaranteed to pay only the price of the service call and nothing else to fix or replace what went wrong. The older the home, the more problems it may face in the future so you may be able to relax knowing you won’t be responsible for all of those out of pocket expenses.

The Drawbacks to a Home Warranty

Still, there are a few downsides to consider however when making the decision to purchase a home warranty.

If you purchase an older home that the former tenant failed to properly maintain, there may be components excluded from service on your home warranty. For example, if the previous homeowner did not properly maintain the heater or furnace, then you just purchased a 10-year-old problem that the warranty company may not fix due to improper maintenance.

Another drawback is that home warranty companies have the deciding factor on whether something gets repaired, replaced or denied. They have many exclusions to their coverage policies and even place dollar limits on repair costs per year. While inexpensive home warranties are tempting for that peace of mind or “just in case” feeling, more often your home will go years without needing major repairs and all the while you are paying hundreds of dollars a year without making a service call.

So, when purchasing a home…

You should weigh the pros and cons of purchasing a home warranty. If it’s an older home, and you don’t have an emergency savings, you may feel comfortable buying peace of mind. If the home is fairly new and in great condition, you may want to put the money you save by not purchasing a home warranty into savings just in case something needs replacing in the future.

Did your home have an existing home warranty when you purchased it? Or did you purchase a home warranty? Why and how has it helped you?

Authorbio: Dominique Brown of YourFinancesSimplified.com wrote this article. You should subscribe to his blog and his video blog! He gives great financial tips!

No matter how dire your situation has become, there are options. Banks and the Federal Government have a number of programs for those facing foreclosure. However, you’ll never take advantage of these options if you don’t know what they are.

Deed-In-Lieu of Foreclosure (DIL)

In some states, banks can seek payment on your mortgage debts even after you’ve lost a house in foreclosure. If you want to avoid financial recourse from losing your home, you should seek a deed-in-lieu of foreclosure. In a DIL, you voluntarily turn over the deed to your home to the bank, but in exchange, all of your debts and obligations are released. Unfortunately, you still lose your home, but it is better than paying debt long after you’ve moved out.

Short Sale

One of the biggest challenges due to the recent housing bust is that mortgage prices have hit the floor. It has left many homeowners owing more on their mortgages than the property is worth. It also makes it hard to sell if you need to list a home over market value in order to get the mortgage company to release their lien interest.

In a short sale, the struggling homeowner gets an offer to buy for a price below their mortgage balance. The seller then submits a hardship packet to the bank and a request for short sale approval. If the bank approves, you are given permission to sell and resolve your mortgage. However, in some states, mortgage companies are given the right to potentially collect on the mortgage balance at a later date.

Home Affordable Modification Program (hamp)

The government offers a special loan program that temporarily sets your mortgage payment to 31% of your monthly pre-tax income. While the program provides noticeable payment relief, it doesn’t forgive your loan or relieve you of your debt. It merely allows you to pay reduced payments for a period of time.

There are other related programs as well like the Second Lien Modification Program, which lowers payments on 2^nd mortgages.

Special Bank Programs

The government is not the only institution that can offer loan modifications. Some mortgage companies have their own programs.

For example, Bank of America has a Loan-to-Lease program. It works a lot like a deed-in-lieu of foreclosure except that after a homeowner surrenders their deeds they become tenants in their own home.

Another example is Mortgage reduction. This is where the bank forgives a portion of the borrowers mortgage balance.

Whether it’s a bank or government program, if you are facing foreclosure there are plenty of options. You just need to pick the one that is right for you.

Legislation Slowed Foreclosures in 2011

In October 2011, legislation took effect to slow the foreclosure process. Banks are now required to file an additional affidavit to begin the foreclosure process. That additional paperwork adds time, and moved many homes facing foreclosure in 2011 into the 2012 foreclosure season. This was more than evident in the dramatic increase in homeowners underwater in their mortgages.

Major Banks Off the Hook

We are now coming to an end of the year of the “robo-signing foreclosure scandal.” Due to improper foreclosure processing by banks, major commercial banks like Wells Fargo and Bank of America found themselves the subject of a massive lawsuit filed by most states. While the court drama played out, the nation’s largest mortgage holders slowed down the pace of foreclosures to avoid fallout from the cases.

However, we’ve seen a settlement and end to the lawsuits and banks aren’t wasting anytime accelerating foreclosures in 2012.

Strategic Default

The federal government, in an election year, is aggressively pushing for a mortgage write-down policy. Essentially, those with underwater mortgages can have their mortgage principal magically disappear overnight. The idea has some merits. Those with equity in their home tend to resume payments. However, it also undoubtedly encourages people to default in order to benefit from the write-downs. With agreements with BofA already made and talk of a Fannie-Freddie write down policy, we may be starting to see the fruits of strategic defaults.

Shifts in Debtor Preferences

Sometimes it’s hard to separate the cause from the effect. Recent studies have shown that debtors have switched their preferences in loan repayment. Americans used to pay their mortgage first, auto loans second and credit cards third. However, that traditional order in consumer payment preference has shifted to car loans first, credit cards second and mortgages third.

It could simply be a product of all the factors above: underwater mortgage, strategic default or slow down in foreclosure process. Regardless, the way people treat mortgage as debt has altered, perhaps for the long-term. It could be an indicator for rises in foreclosure rates.

The housing industry has had a direct impact on our current economic turmoil. The fact that home foreclosure is picking up could mean more unemployment and slower growth. If you want to gauge what the future of the economy will be, keep an eye on the foreclosure indicators I’ve detailed above.

Shaun is the author of the blog Smart Family Finance, a site dedicated to exploring the challenges of family finance; from starting a marriage to starting a family, from teaching your children about finance to helping them pick a college, from single income to multiple income. The intricate world of family finance unlocked, one post at a time.

Of course, this means that the interest rates rise or fall depending on the market situation.

This fact is especially important when you are living in a crumbling economy like that of the United States with hardly any national income growth these days.

These are the basic features of adjustable rate mortgages:

• Initial interest rate- this is the beginning interest rate; usually low.

• Index rate- this is the base on which the mortgage is based 1-year, 2-year and 5-year treasury securities are common.

• Adjustment period- this is the length of time that the interest rate on the ARM is set to remain unchanged; normally reset at the end of this period.

• Interest rate caps- these are limits on how much interest rates or monthly repayments can be changed by the end of the adjustment period or the loan lifetime.

• Margin- these are percentage points that the lenders add to the index rate given in order to determine the interest rate of the adjustable rate mortgage.

• Negative amortization- this basically means that the mortgage balance is increasing gradually. This arises when the monthly mortgage payments are not large enough to pay the interest amount due on the mortgage in full at once.

• Initial discounts- a super-benefit of ARM’s are the initial discounts. These are interest rate concessions normally given in the first year of the ARM or other subsequent years to reduce the overall interest below the prevailing rate.

• Prepayments- these may arise where the agreement requires the buyer to pay some special fees or a penalty in case the ARM is paid off too early. These terms are negotiable in most cases.

• Conversion- in some cases, the agreement may allow the buyer to convert the ARM into a fixed rate mortgage. This can be quite essential in times when the prevailing market rate is fluctuating abnormally.

Most people pocket some pretty dollars in the housing boom if they have ARM agreements. This happens because they took the mortgages when the interest rate was low and they can therefore sell these houses when the interest rates are high.

You shouldn’t plan to stay in the same house for the long term if at all you want to enjoy the benefits associated with ARMs.

A great benefit enjoyed with adjustable mortgage rates is the fact that there is no need to refinance the loan in case the interest rates are dropping. The overall payment and monthly interest rates instead drop at the scheduled evaluation rate thus adjusting to the market condition. This is not the same case with fixed rate mortgages where one must refinance the mortgage in order for the rates to drop.

Since adjustable rate mortgages’ interest rates are usually lower than those of fixed exchange rates; owing to the discounts offered, the borrower can comfortably afford the risk of a future increase in the rates. We can, therefore, say that the buyer of an ARM ends up saving some money due to the lower interest rate paid initially.

Recently, an observation of the current crisis in America has laid the blame on ARMs for the housing crisis being faced. However, this is not the case because there are several other thousands of mortgagors who are enjoying great benefits attributed to ARMs. It all depends on the choices that one makes.  If you are looking to buy a house as property investment, this might be a great option. It is also important to be on look out to know when the interest rates have began to rise so that you can sell the house and earn some profit.

Do you have an ARM? Would you purchase a house with an ARM? Why or why not?

YFS is owner and author of Your Finances Simplified. He was born and raised in West Philadelphia and is now a financial adviser, IT contractor, landlord, and treasurer of a non-profit. He created his blog partly due to his desire to help people with their finances.

What Is The Program?

Instead of loan modifications or foreclosure, Bank of America is proposing the mortgage-to-lease program. It offers struggling mortgagees the opportunity to convert their mortgages into lease agreements. Essentially, you give up ownership of the house and become a renter. However, your payments will be reduced dramatically and you can lease for up to three years.

Who Qualifies for the Mortgage-to-Lease Program?

You can’t get into the program unless you qualify. Here are the qualifications:

• Live in AZ, NV or NY – BofA is testing the program in only these three states at this time
• More than 60 days delinquent
• Have exhausted modification solutions or have not responded to alternatives to foreclosure
• Have no junior liens
• Make adequate income to pay rent
• Stuck with an underwater mortgage

What Do You Get Out of It?

It’s important to understand that this program is a new option for you and more options are usually a good thing. However, options also make things more complicated, so you really want to understand what your choices are. While I have some serious reservations about the program, I cannot disagree that it might be a good option for some people, given the right circumstances.

One piece of BofA marketing that needs to be exposed is that this is not a program to keep you out of foreclosure. The program has you turn ownership of your home to the bank. So in reality, this accelerates the foreclosure process for the bank. What this program will do is stall eviction for up to three years.

According to the BofA news release, the mortgage is canceled as a term of the program. This means that if you were looking at a short sale, this program might keep you from continuing to pay your mortgage principle after you’ve said goodbye to the home.

It’s a Bank Program That Mostly Benefits the Bank

Yes, there are some potential benefits for current homeowners who are underwater on their mortgage. However, this is really a program meant to provide huge benefits to the bank. Just take a look at these benefits that BofA gets out of the deal:

• Easier path to foreclosure, in that you agree to the foreclosure up front. Government regulators have been making the road to foreclosure more complicated for banks. This program, if popular, would make that headache go away.
• Quicker eviction for you, the homeowner. I’m certain that the bank would prefer that you pay the rent, but you need to understand that it’s much easier to evict you as a tenant instead of a homeowner. You only need to be a little late with rent and the bank can start the eviction process. You lose some of your legal rights when you have no ownership.
• Your tenure as a renter will help BofA fill in that gap between principle balance and home value. Good news for BofA, as you pay for rent, you’ll be helping move the property out of underwater status.
• Renters will start making payments again. Sure, rent is less than your mortgage, but homeowners who have stopped paying on foreclosed homes have no money coming in the door until they are sold to a new homeowner. This program keeps at least some money coming in the door.
• You could potentially occupy the home while the bank sells it. Sure, you are guaranteed rent for up to three years, but the bank is able to sell the home to anyone during that three years. When the three years are up, you can be sent packing.

Important Downsides for Homeowners

For the most part, I’ve already covered many of these in the last section, but I feel that it is important to reiterate some of the downsides to this program.

First of all, it isn’t an alternative to foreclosure or even eviction for that matter. You turn over your rights as homeowner much quicker under this program than if you went through foreclosure. It allows you to delay eviction for up to three years. It’s probably best if you count on being evicted by year three.

You lose some of your power when it comes to eviction. Laws favor property owners, which is why it takes BofA effort to evict mortgagees. Once you are a tenant, the advantage of law switches hands and BofA will have an easier time evicting you. Don’t do this program if you have even the slightest doubt you can make rent payments on time.

Is The Program Right for You?

In my opinion, this program is best for those that are going to still owe the bank money after foreclosure or short-sale. The program wipes the slate clean, which means that there is no recourse to the mortgagee once you become a tenant. It could be a way to wipe the slate clean.

However, I do have to question whether delaying eviction is really that big of a benefit. As I discussed on Smart Family Finance last week, when you face foreclosure you risk losing your down-payment and closing costs. This program doesn’t abate those loses, in fact, they make them more certain.

If you ask me, eviction is eviction whether it’s three months from now in foreclosure or three years from now. Your losses will be the same. However, it’s your money. If you think delaying the inevitable will benefit you, this program might be a good fit for you.

Shaun is the author of the blog Smart Family Finance, a site dedicated to exploring the challenges of family finance; from starting a marriage to starting a family, from teaching your children about finance to helping them pick a college, from single income to multiple income. The intricate world of family finance unlocked, one post at a time.

Rent is on the Rise

According to Zillow, median rent went up nationally by about 3% last year. The median doesn’t give full justice to how much rent has increased in some locations. In Orange County, CA, rent has increased up over 13%. Minneapolis, MN saw over 11% for rent increases. Chicago, IL topped out just over 9%.

While the percent increase in gas may seem more alarming, it is important to put these expenses into perspective. Housing is the largest total expense by far in the average budget. Transportation comes in a distant second and fuel is only a portion of the transportation category. In other words, small increases in housing costs have big impacts on your budget.

The important question to ask is why.

Increase of Home Foreclosures

Places that have seen some of the largest rent increases are the same locations with the largest foreclosure rates. When homeowners are faced with bankruptcy or foreclosure, they usually have no recourse but to become renters. After all, no bank is going to hand out a mortgage to someone who just defaulted on one.

A sudden spike in once homeowners-now-renters increases demand, which means increase in price. This reality is evidenced by record low vacancy rates.

Slow Growth in New Apartments

The recession was a double-edged sword for rent prices. The economic downturn converted homeowners into renters, but it also dried up interest in new construction. With rapidly falling housing prices, there hasn’t been a lot of interest from landlords in purchasing and building a new supply of apartments to meet the new demand. Stagnating supply all but guarantees an increase in rental prices.

Harder to Get a Mortgage

As the banking industry reeled from distressed mortgage portfolios, government and the Fed have tightened requirements for new mortgages. Prospective homebuyers now need more money for down payments, are able to get less in seller paid concessions and must have higher FICO scores. For many prospective buyers, the economy has exacerbated the difficulty in reaching these more stringent requirements.

Since attaining a mortgage is essential for keeping renters in the rental market and preventing new landlords from acquiring new units for rent, the ability to attain new mortgages has impacted the supply and demand for rental property.

Your housing expenses are about to go up in 2012 and there’s not much you can do about it.

Shaun is the author of the blog Smart Family Finance, a site dedicated to exploring the challenges of family finance; from starting a marriage to starting a family, from teaching your children about finance to helping them pick a college, from single income to multiple income. The intricate world of family finance unlocked, one post at a time.