1. The Home Decision II: Answers to Questions Updated 2012-02-13 Personal Finance: Another Perspective

2. 2 Objectives 1. How are mortgage brokers paid? 2. How do I know when to refinance my home? 3. What happens when good credit marries bad credit? 4. What about prepayment penalties? What should I know? 5. What’s the lowdown on buying down or paying discount points?

3. 3 Objectives (continued) 6. How do I make sure that brokers give what they promise, i.e., no bait and switch? 7. How much of a percentage should I pay for a down payment? 8. Should I pay off the loan early or stick to the loan schedule? 9. Is a 15 or 30 year loan better? 10. Do I have to pay Private Mortgage Insurance (PMI)?

4. 4 Objectives (continued) 11. How do I know whether to rent or buy? 12. How easy is it to refinance a home with an interest only loan? 13. If a person is upside down in their mortgage (i.e., they owe more than the house is worth) and they would like to sell their house, what can they do? This is called a short-sell. 14. If a person is upside down in their mortgage, can they still refinance?

5. 5 Objectives (continued) 15. What do you think about purchasing distressed properties out of state? 16. If you move from your first house, do you recommend keeping it as a rental? 17. If the offer is not accepted, is the earnest money returned? 18. What is your recommendation on your first house? 19. Can you review the Home Buying process?

6. 6 Objectives (continued) 20. What type of account should you use to save for a down payment (e.g., ETF, stocks, bonds, money market, etc.)? 21. With home values depressed, home values are bound to increase. How do we weigh this in the decision to purchase a home? Should we accelerate the purchase so we can buy when the market is low? 22. How do we balance our current home size need with the fact that our family will be growing?

7. 1. How do Mortgage Brokers get Paid? 7 Principle: Stewardship Logic: If you understand how people are paid, you can use that knowledge to your advantage in getting a lower interest rate Mortgage brokers are out to provide a service and make money They generally work with similar lenders with similar rates They are done with you after your loan—there is no follow up Your goal is to minimize your interest rate received with the fewest discount points (if any)

8. Mortgage Brokers (continued) Mortgage brokers make money three ways: Origination fees: These are the costs and profits on making the loan Discount Points: These are payments you make to lower the loan interest rate Backend bonus: These are bonuses paid to the mortgage broker if they get a higher interest rate than what the lender requires There is a relationship between discount points you pay and the broker’s backend bonus Your goal is to minimize the interest rate and the discount points you pay. It will likely reduce the broker’s backend bonus as well.

9. Mortgage Brokers (continued) How do I estimate the Lenders required rate or return for mortgage loans? Logic: Broker’s earnings are origination fees, discount points and backend bonus Find out how low (the interest rate and points) they will let you buy-down to, i.e., 4.75% with 3 points This may be close to the lender’s rate, as they will not let you buy-down below the lender’s required rate Use this information in your negotiations 9

10. The Underwriting Process 10 The Underwriting Process From http://upload.wikimedia.org/wikipedia/commons/0/08/Borrowing_Under_a_Securitization_Structure.gif on 7Oct08http://upload.wikimedia.org/wikipedia/commons/0/08/Borrowing_Under_a_Securitization_Structure.gif on 7Oct08

11. 11 2. How do I know when to Refinance my home? Principle: Stewardship Logic: Determine the costs you would pay before refinancing and the costs you will pay during and after refinancing, including any prepayment penalties Calculate an internal rate of return on your savings, which takes into account the time value of money Calculate a breakeven analysis and a total cost analysis as well These are all inputs into your decision

12. Refinancing (continued) Calculate: A. Current monthly principal and interest costs B. Refinance monthly principal and interest costs C. Monthly savings from the refinance D. Total new fees/costs, including origination fees, discount points, and other fees from the refinance. In addition, be sure to include all new costs that will be incurred in taking out of the new loan including prepayment penalties Note that costs that are the same for both loans, i.e., escrow or reserve accounts, do not need to be included in these calculations

13. Refinancing (continued) To determine if refinancing makes sense, look at three calculations: 1. Internal Rate of Return, 2. Breakeven Analysis and 3. Total Costs If all are reasonable, then do it. If only one calculation makes sense, I would likely not do it

14. Refinancing (continued) 1. Internal Rate of Return Outflows: A. Calculate all costs and fees for the loan Inflows: B. Calculate the monthly savings C. Determine the number of months savings Note: Set the number of months on the new load equal to the number of months remaining on the old loan Recommendation: Set PV = - A, PMT = B, N = C, solve for I If your IRR is greater than your risk-free rate, then refinance 14

15. Refinancing (continued) 2. Breakeven Analysis Calculate: A. All new costs and fees for the new loan B. Savings in principle and interest over the old loan Recommendation: Divide all new costs (A) by monthly savings (B) which will give you your breakeven point in months (C) If your breakeven point (C) is: Less than 4 years, it may be a good idea If 5-7 years, it might be considered Greater than 7 years, be careful You may likely move before 7 years 15

16. Refinancing (continued) 3. Total Costs Analysis (no Time Value of Money) Calculate: A. Your total new costs and fees from the loan until it is paid off B. Your total current monthly principal and interest costs remaining without refinancing C. Your total refinance monthly principal and interest costs Recommendation: If you will be paying less overall, think about it If A + C < B, it may make sense. If A + C = B, it may not make sense If A + C > B, it does not make sense 16

17. Case Study #1 Data Steve has a $150,000 30 year 6% fixed rate loan that he has paid on for 10 years, and he owes $125,529 on the loan. He is looking to refinance. He has found a 20 year 5.25% loan with origination fees of $1,500, and $2,500 in other fees. His risk-free rate is 8%. Calculations: Calculate the three types of refinance analysis for this new loan: IRR, Breakeven and Total Cost Analysis. Application: Should Steve refinance with this loan? 17

18. Steve has a $150,000, 30 year, 6% fixed rate loan that he has paid on for 10 years ($125,539 remaining). He has found a 5.25% loan with a $1,500 origination fee and $2,500 in other fees. Calculate Steve’s Breakeven and Total Cost calculations. Should Steve refinance with this loan? 1. IRR Analysis A. Calculate all costs for the new Loan? $4,000 B. Calculate the monthly savings: Old versus New Old: -$150,000=PV, N = 360, I = 6%, PMT = ? PMT = $899.33 New: -$125,539 PV, N = 240, I = 5.25%, PMT = ? PMT = $845.87 Monthly Savings = $899.33 - $845.87 = $53.46 C. Months on the new loanN = 240 Recommendation: Calculate the IRR PV = -4,000, PMT = $53.46, N = 240, solve for I? I = 15.27%. Compare this to their risk-free rate 18

19. Steve has a $150,000, 30 year, 6% fixed rate loan that he has paid on for 10 years ($125,539 remaining). He has found a 5.25% loan with a $1,500 origination fee and $2,500 in other fees. Calculate Steve’s Breakeven and Total Cost calculations. Should Steve refinance with this loan? 2. Breakeven Analysis A. Calculate new costs and fees $1,500 + $2,500 = $4,000 B. Calculate monthly savings Current principal and interest: PMT = $899.33 Refinance principal and interest: PMT = $845.87 Monthly Savings: $53.46 Recommendation: Calculate the Breakeven in Months Divide the total costs (A) by the monthly savings (B). The Breakeven is $4,000 / $53.46 = 74.8 months / 12 = 6.2 years. Not a great payback period 19

20. Steve has a $150,000, 30 year, 6% fixed rate loan that he has paid on for 10 years ($125,539 remaining). He has found a 5.5% loan with a $1,500 origination fee and $2,500 in other fees. Calculate Steve’s Breakeven and Total Cost calculations. Should Steve refinance with this loan? 3. Total Cost Analysis A. Calculate new costs and fees for new loan until paid off: 240 * $845.87 = $203,008 B. Total costs without refinancing: 240 * 899.33 = $215,838 C. Costs to refinance: $4,000 Recommendation: Total Cost Savings Since $203,008 + 4,000 = 207,008 < $215,838, the savings are positive (they would save $8,830), I would think about refinancing Summary: Since the IRR is greater than their risk free rate of 8%, and since they will save $8,830, they likely should refinance. 20

21. 3. What Happens when Good Credit Marries Bad Credit 21 Principle: Stewardship Logic: Determine the cheapest way of getting the highest credit score so you can pay the lowest interest on your loan There are five main options: 1. Buy the house as co-owners and co-borrowers 2. Have “good-credit” buy the house alone 3. Have “good-credit” buy the home using a “no- income verification” mortgage (if available) 4. Have a third party with good credit replace the “bad-credit” as the co-borrower 5. Improve “bad-credit’s” credit score

22. Good Marries Bad Credit (continued) 22 1. Buy the house as co-owners and co- borrowers Bad credit will result in bad credit for the loan and a higher interest rate This is what you want to avoid 2. Have “good-credit” buy the house alone This is the preferred option However, this may limit the size of the loan to the income that good-credit can support Do not buy a house on two incomes when you know you will drop to one income in the future—it is a recipe for disaster

23. Good Marries Bad Credit (continued) 23 3. Have “good-credit” buy the home using a “no-income verification” mortgage This would be OK, but these mortgages are much harder to get These mortgages also require higher down payments of 25-30% of the property value 4. Have a third party with good credit replace the “bad-credit” as the co-borrower Co-signers are hard to find Usually, only a parent would be willing to do this

24. Good Marries Bad Credit (continued) 5. Improve “bad-credit’s” credit score Suggestions include: Put “bad-credit” on joint accounts with “good- credit” spouse. This can improve history and score Call bank to increase the available credit limits on “bad credit” Pay bills twice a month to reduce amount used for “bad credit” to reduce percentage of credit Pay off debt as quickly as “bad credit” can 24

25. 25 4. What about Prepayment Penalties? What should I know? Principle: Stewardship Logic: Understand what you are getting into before you sign the Loan papers Mortgage lenders usually do not require a prepayment penalty on a first mortgage, but they do require it on a 2 nd, 3 rd, or subprime loan If mortgage brokers get a prepayment penalty on a loan, they may make more money Make sure there is no prepayment penalty on your first mortgage

26. Prepayment Penalties (continued) 26 There are two main types of prepayment penalties: soft and hard Both have: 1. A stated period of time, i.e., 1, 2, or 3 years the prepayment penalty is in effect 2. A maximum pay down percentage (MPP), i.e., 6% of the principal per year, and 3. The prepayment penalty if you sell it before, i.e., 6 months interest

27. Prepayment Penalties (continued) 27 Soft Prepayment: You cannot within the stated period of time without penalty: Refinance at all Sell the loan to family members Pay down more than your MPP each year The only way to get out of a soft prepayment penalty is to sell the property to an unrelated party

28. Prepayment Penalties (continued) 28 Hard Prepayment: You cannot within the stated period of time without penalty: Refinance at all Sell the loan to anyone Pay down more than your MPP each year There is no way to get out of a hard prepayment penalty before the defined period without paying the penalty

29. 5. What is the Low Down on Buying Down (Points)? Principle: Stewardship Logic: You can reduce your loan interest rate by paying discount points (these points go to the mortgage broker—not the mortgage lender) The longer you actually stay in the home the more valuable the discount points as those costs are allocated over more years Since the average homeowner is in their homes only 5-7 years, the savings from the discount points should break even before that time is up

30. Buying Down (continued) There are two different analyses for determining whether you should buy down your interest rate: 1. Internal Rate of Return Analysis Outflows: A. Calculate all costs for the new loan Inflows: B. Calculate the monthly savings C. Determine the number of months savings Recommendation: Set PV = - A, PMT = B, N = C, solve for I If your IRR is greater than your risk-free rate, then refinance

31. Buying Down (continued) 2. Breakeven Analysis A. Calculate your monthly payments: 1. Without the discount points, and 2. With the discount points B. Calculate the savings between options 1 and 2 C. Calculate the cost of the discount points Recommendation: Calculate your breakeven point in months by dividing the cost of your discount points (C) by your monthly savings (B). If your breakeven is less than 4 years, it may be a good idea, 4-7 years, be careful, and greater than 7 years, it is likely very questionable 31

32. Buying Down (continued) 32 Before you pay the points, ask yourself: Will you be refinancing soon? If so: There may be better uses for your money than to buy down a tax-deductible interest rate Better uses may include: Paying down higher-rate debt Saving for retirement in tax-eliminated or deferred accounts Building your emergency fund

33. Case Study #2 Data: Mark is looking into a $250,000 6.0% fixed 30 year mortgage for his new house. The broker offers him 6.0% with 1 origination point (loan A). He also says that he can buy down the loan to 5.5% with 1 additional buy down points (loan B with 2 points total). Mark’s risk-free rate is 8%. Calculation: Calculate the IRR and Breakeven Analysis for Loan B. Application: Assuming Mark will take one of these two loans, which loan should he take? 33

34. Mark is looking into a $250,000 6.0% fixed 30 year mortgage for his house. The broker offers him 6.0% with 1 origination point (A). He also says that he can buy down the loan to 5.5% with 1 additional buy down point (B). IRR Analysis: A. Calculate the monthly payments for both loans Loan A: PV=-$250,000, I = 6%, N=360, Pmt = ? PMT = $1,498.88 Loan B: PV=-$250,000, I = 5.5%, N=360, Pmt = ? PMT = $1,419.47 B. Monthly savings: $1,498.88 - $1,419.47 = $79.40 C. Cost of discount points: 2%* $250,000 = $5,000 IRR PV=-$5,000, PMT =$79.40, N=360, solve for I? IRR = 19.0% 34

35. Mark is looking into a $250,000 6.0% fixed 30 year mortgage for his new house. The broker offers him 6.0% with 1 origination point (loan A). He also says that he can buy down the loan to 5.5% with 1 buy down points (loan B). Breakeven Analysis: A. Calculate the monthly payments for both loans Loan A: $1,498.88, Loan B: $1,419.47 B. Monthly savings: $1,498.88 - $1,419.47 = $79.40 C. Calculate the cost of the discount points 2 points * $250,000 = $5,000 Breakeven Divide the cost by the monthly savings $5,000 / $79.40 = 63 months or 5.25 years Since the breakeven point is greater than 4 years and less than 7 years, I would recommend they buy down the loan 35

36. Mark is looking into a $250,000 6.0% fixed 30 year mortgage for his new house. The broker offers him 6.0% with 1 origination point (loan A). He also says that he can buy down the loan to 5.5% with 2 buy down points (loan B). Recommendation Their IRR is 19%, substantially higher than the 8% risk-free rate Their breakeven analysis is 5.3 years. Since their breakeven is less than 7 years, it may be a good idea Since the breakeven for this loan is less than 7 years, I would recommend Mark to think about it I would use this as a negotiating tool. Go back to the mortgage broker and tell them that if they can do the same interest rate with 1-1.5 points, I would do it because my breakeven is 2.6 years at 1 point and 4 years at 1.5 points. 36

37. 6. How Do I Get the Best Deal with Mortgage Brokers? Principle: Accountability Logic: You can reduce your overall costs by shopping around and holding mortgage brokers accountable for what they say. Following are a few ideas to help you in this process 1. Work with a number of brokers to find the lowest interest rate and fees 2. Research the reputation and background of potential lenders. Check with the BBB

38. Dealing with Mortgage Brokers (continued) 3. Beware of the “bait and switch” routine. They should follow through with what they promise. 1. Hold them accountable for their closing and other costs by seeing the complete (not summary) Good Faith Estimate and comparing it to final closing costs 2. Hold them accountable for the interest rate that they promise by having them show you their “Rate Lock Commitment sheet” to make sure it is consistent with what they promise. 38

39. Dealing with Mortgage Brokers (continued) 4. Beware of lenders who advertise “no closing costs” or “no origination fee.” Generally, they will either raise the interest rates, call it a processing fee, or add the costs to the principal of your loan. There are costs to processing the loan 5. If your lender promises a short turn around or processing period for your loan (7-14 days), ask to confirm that their underwriter is in the same state (or in the same building). Sending data to underwriters out of state can result in loans that take much longer to process. 39

40. 7. How much of a down payment should you make? 40 Principle: Stewardship Logic: First, fulfill the covenants of the loan, and second, make sure you have an adequate Emergency Fund after all closing costs are paid Having a buffer the first few years are important in case of job loss or other concerns Once you have this buffer in place, you can pay as a down payment amount any additional funds you have saved However, I recommend you both pay down your loan and save for your other goals at the same time (not just pay down the loan) Have a balanced plan for your goals

41. 8. Should you pay off the loan early? Principle: Stewardship Logic: While there are some tax benefits, you are paying interest instead of earning it with a mortgage even after tax benefits We have been counseled to buy a modest home, fix it up, and pay it off as soon as we can We should use wisdom in all that we do I recommend to both pay off principal and save for your other goals at the same time (diversification) Maintain a balanced plan for your goals

42. 9. Is a 15 year or 30 year loan better? Principle: Stewardship Logic: While there are some tax benefits to a mortgage, you are paying interest instead of earning it. My inclination is to pay it off sooner. The inputs into the decision for a 15 versus 30 year mortgage are: Monthly cash flow and budget under both rates Stability of your job and job outlook Interest rate differences between 15 and 30 year Realize you can also take out a 30 year mortgage and pay it off in 15 years as well (see TT19: Prepayments) if you have other concerns 42

43. 10. Do I Have to Pay PMI? Principle: Stewardship Logic: Pay PMI only if required, and then get rid of it as soon as your equity in your home is greater than 20% PMI is generally required if your down payment is less than 20% of the appraised value of the home. This can be due to: Principal being paid down Home value appreciation, or Both PMI may be avoided through “piggy-back” loans if available, but these are as well 43

44. Eliminating PMI Once your principal is reduced to 80% of the value of the loan: Contact the loan servicer Request information on cancellation of PMI Often, they will require a new appraisal to determine the Loan to Value ration (LTV) Once the appraisal is completed and documentation is provided (at your cost), PMI will no longer be required. 44

45. 11. How do I know whether to rent or buy? Principle: Stewardship Understand what you are trying to do before you do it. There are a number of rent versus buy calculators on the internet. One student sent this one to me. It looks only at monthly rent, home price, down payment, mortgage interest rate, and annual property taxes. It does not take into account what you spend on landscaping, appliances, repair, etc. http://www.nytimes.com/interactive/business/buy-rent- calculator.html http://www.nytimes.com/interactive/business/buy-rent- calculator.html 45

46. 12. How Easy is it to Refinance a Home with an Interest Only Loan? Principle: Stewardship Refinancing with an interest only loan is the same as with a traditional fixed or ARM It is a fixed or ARM loan with an interest only option You will follow the same steps as if you were refinancing a traditional mortgage It is easy 46

47. 13. What is a Short-sell? A short-sell is where a lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss A short sell requires: A borrow who wishes to sell the property A lender who decides that selling at a moderate loss is a preferable alternative to pressing the borrower into foreclosure and incurring the risks and costs from that process 47

48. Short-sell (continued) A short sell allows: Borrower to avoid foreclosure, which involves hefty fees for the bank and poorer credit outcome for the borrower Lender to make “less” of a loss on the property and to not enter foreclosure A short sell does not: Necessarily release the borrower from the obligation to pay the remaining balance of the loan (called the “deficiency”) 48

49. 14. If a person is upside down in their mortgage, can they still refinance? That depends: If the entire mortgage is a first mortgage, then the answer is likely no However, if there is both a first and second mortgage, and the first mortgage is significantly less than the market value of the home, you may be able to refinance the first mortgage because the first mortgage has first claim on the home and it must be paid before the second is paid 49

50. 15. What Do You Think About Purchasing Distressed Properties Out of State? Principles: Stewardship and Accountability 1. Can you adequately assess the quality of rental properties from out of state? Generally no. You would need to trust someone else’s opinion as to the quality of the investment Be very careful about advertisements that state you can buy rental properties at 85% off retail If it was that good, they would buy it themselves 50

51. Distressed and Out of State (continued) 2. Can you adequately maintain these rental properties from out of state? Generally no. It is very difficult to maintain these properties unless you use a property management company (PMC) Do you know the quality of the work done by the PMC? PMC fees are very high, often > 50% of your rental costs It is hard enough managing properties in your same city. It is not a good idea 51

52. 16. If you move from your first house, do I recommend keeping it as a rental? Principles: Stewardship and Accountability A few questions 1. Can you sell the house? 2. Will cash flow cover principle, interest, taxes and maintenance costs after PMC fees? 3. Do you have the time (and patience) to be a landlord? It is a ton of work and time (and PMCs are expensive) Generally, I do not recommend it 52

53. 17. If the offer is not accepted, is the earnest money returned Yes. The earnest money is contingent on the acceptance of the offer If the offer is not accepted, the money is returned 53

54. 18. What is your recommendation for your first house? What is your recommendation for your first house: condo, townhome, or single family? This depends on three things: 1. On the area you are moving to (i.e., San Francisco) What is available in your acceptable area? How many miles are you willing to drive each way to work and back? Is there mass transit that you would be willing to take? What is your maximum commute time each way 54

55. The First House (continued) 2. On your budget ($150-250K) What is available in your price range? Often your budget will determine the decision 3. On your preferences (yard versus no yard) and available time Can you do the upkeep on a yard? Can you pay others to keep up the outside? Can you live with close neighbors in condos? Can you take the externalities with condos/town homes? 55

56. The First House (continued) I would first answer those three questions You might find your choices are limited by the answer to those questions Where has appreciation been the best? From my understanding, generally appreciation has been greater in single family homes than condos and town homes 56

57. 19. Review the Buying a Home Process Purchasing a house is a four-step process 1. Understand your limits Understand your budget and how much you can spend Pull your credit report and score. Aim for a FICO score of 750 and above Calculate your front-end (28%) and back-end ratios (36%) and how much you can afford Calculate your ratios for LDS (TT11) which includes tithing and savings 57

58. Buying a Home (continued) Know how much for a down payment Have copies of current income (2 years if possible) and tax records Choose the preferred type of loan (fixed, variable, interest only option—I recommend fixed) Determine the term of the loan (30 years?) Get pre-approved Note that for students, due to work history and down payment, an FHA loan may be the best alternative 58

59. Buying a Home (continued) 2. Find your home Develop a plan for finding a home Determine what is important to you Use a realtor or other resources to find a home in your price range Use Zillow.com to find current home values Once you are serious about the home, get a home inspection (offers can be contingent on the home inspection) Determine any CCRs and homeowners fees for your prospective purchase, and add them into your prospective costs 59

60. Buying a Home (continued) 3. Negotiate the loan Choose multiple lenders to compete for your business Get Good Faith Estimates from each of your lenders Determine the amount time you estimate you will be in the home. Take the various loan offers from the lenders to calculate your lowest Effective Interest Rate 60

61. Buying a Home (continued) Determine (as best you can) the investors rate by finding the minimum brokers will allow you to buy down to Find the best rate from the prospective lenders chosen Take the best rate to your favorite (nicest) broker, and ask them to beat it by ¼ to ½%. See the Interest Rate Commitment sheet Fulfill the covenants of the loan and have the loan funded. 61

62. Buying a Home (continued) 4. Enjoy home ownership Maintain it well Take care of your purchase and it will take care of you Generally it will take roughly 1-2% of the home’s value annually for upkeep Put this amount into your annual budget A professional cleaning a few times a year can help retain a home’s value Now keep the value of your home up! 62

63. 20. What type of account should I use to save for a down payment? Principle: Stewardship Understand your competing principles: Investing to preserve principle will earn lower returns Investing to increase returns will increase risk and may not, over the short term, lead to higher returns 63

64. Down Payment Account (continued) Recommendations If you have one-three years before you will be buying the house Invest to preserve principle MMMFs, CDs, internet savings, and bond funds (with shorter maturity) If you will be saving for more than three years Use a combination Invest the majority to preserve principle You may also want to invest some (10-40%) in low-risk equity index funds/ETFs or longer-term bond funds for a higher return 64

65. 21. Should I purchase a home now when the market is very low? Principle: Stewardship Understand yourself: Your behavior Your ability to forecast housing prices, and The financing process 65

66. Should I Purchase Now (continued) Understand yourself Behavior: Do you really consider this an opportune time to buy, or is this really an excuse to buy now because you are impatient? Forecasting: Is the home market really as low as it is going to get, or could it possibly go lower? Financing: Do you have the down payment money? If you save more, can you get PMI removed from the outset (put 20% down)? 66

67. 22.How do we balance home size need with the fact that our family will be growing? Principle: Stewardship Understand your competing principles. Your goal is to balance among the three key areas: Home size: Larger homes will be more expensive than smaller Location: Homes closer to the City will be more expensive than those farther away Travel time: Homes with less travel time to the City are typically more expensive than those with longer travel times 67

68. Balancing Home Size (continued) Understand your options: Your primary options are: 1. Buying a large home to support your future family may be more than you can afford and outside your budget 2. Buying a smaller home may be within your budget but may require a new home within five to seven years or require significant travel time Are there other alternatives? 68

69. Balancing Home Size (continued) Secondary options could be: 3. Moving in 4-7 years may be a viable alternative if you can build up sufficient equity to overcome the 6-7% cost of selling the house 4. Buying a smaller home with an unfinished basement or attic may also be an alternative as you could refinish the basement as income permits 69

70. Balancing Home Size (continued) 5. Buying a smaller home with a big lot to allow a possible home addition in the future may also be an alternative This could be a good opportunity to learn additional home skills (carpentry, plumbing, electrical, etc.), but there are risks as well Be careful that with the addition you do not make the house significantly more expensive than those in the neighborhood 70

71. Questions? These were the questions that were sent to me. Do you have any other questions?