Avoid Surprises with a Home-Buying Checklist (U.S. News & World Report)

If you're preparing to buy a home or rental property, you have probably experienced feelings of doubt as you've considered all the possible things that could go wrong: the property going underwater, the rental income doesn't cover all the expenses, or mortgage payments have become unaffordable.

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You are not alone if you have some reservations about buying a home. While those issues are just a few of the risks that are present when buying real estate, there are many more. Although these issues have been around forever, it's only been recently that typical buyers have become better about doing their due diligence and taking the time, energy and effort to lower their risk on real estate.

The process is not overly complicated, yet it is time-consuming. We've put together a list of items that you should check off as your go through the home buying process to avoid some unwanted surprises.

Here's how to lessen the chances of something going wrong with your purchase:

Understand the Home Buying Process

You should have a full understanding of the purchasing process from the start. Review the contract you will be signing early on and understand how to shop for the right property. You should understand different terms like: making an offer, contingencies, appraisals, mortgage financing, and when your earnest money deposit becomes "at risk."

Make Financial Sense

Investment Property: Start by penciling out the deal. You should determine the total cash you will invest and what "cash on cash" rate of return you project to earn. Bank CDs pay 1 percent, Bonds 5 percent, but real estate is riskier--so what should you earn? Five percent is the suggested rate. Value appreciation may come down the road and certainly will help, but be sure and count your cash first.

Personal Residence: Should you rent or own? There are some simple guidelines to follow here. If you plan to own for less than five years, you should remain a renter. You are not throwing away money renting and you will avoid a lot of stress. Buying for the long term is your best move. But don't buy just to buy something--buy the property you "love" and that will make you happy.

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Be Smart

Hoping to snag that once-in-a-lifetime deal on a foreclosure or short sale? If you're trying to chase some "great" deal at the courthouse auction, or through a distress sale, it may only be a waste of time and energy with little chance at success. Be prepared. Buying a foreclosure or short sale is complex and the purchase can get held up. Try the more conservative approach and search for a traditional sale on listing websites.

Real Estate and Taxes

Buying to save money on your taxes? Most couples buying residences under $300,000 get little in net tax savings. People with higher incomes and more expensive homes get the biggest tax benefit. Surprised? Meet with your CPA to determine what, if any, tax benefits you will earn.

Getting a Fair Deal in Financing

It has become easier to get a "fair deal" in a mortgage because of new federal regulations. Regardless, you should understand your Good Faith Estimate (GFE) and how to dissect it to make sure you get that fair deal. Mortgages are for the long term, so take some time to interview a couple of lenders and understand your mortgage so you can make a good decision.

Homeowners Association (HOA) Condition

This is one of those items that most buyers do not even know to review. The finances and operations of an HOA are becoming a huge risk issue nowadays. If you do not understand and review them, you may get a surprise in the form of sharply higher fees or special assessments in the years to come. Meet with a knowledgeable person to help you decipher them. The goal is to avoid a community where the association is in really bad shape.

[In Pictures: 10 Things You Should Always Buy in Bulk.]

Home Inspection and Fix Up Costs

Having a home inspection is one of the most important things you can do as a buyer. During the inspection you should be putting together a list of what needs to be repaired and replaced. Then you can take your list to a home improvement store to get a feel for the total costs to bring the property up to the standards you desire. This should help you negotiate any seller's credits and/or terminate the deal if the costs are too much.

Property Insurance

Insurance policies cover certain risks and have a maximum payout on any loss related to those risks. It is up to you to determine the maximum policy amount you want based on construction quality, cost to rebuild and your risk tolerance. The top issue is failing to increase coverage amounts over time as the cost of rebuilding increases. It's suggested to meet with your agent and have a once a year checkup.

Title Insurance, Title Issues, and Lot Lines

This is another purchasing task that few people review. And while the risk of an issue is very low, the potential losses are huge. Taking fifteen minutes to review your title abstract and history as well as the plat or a survey of the parcel and then walk the property to verify the information. It could save you endless headaches and financial stress down the road.

Other Investments

Fixer uppers, flipping, vacation rentals, second homes, apartment buildings, condos, hotels, land or building a home also have significant risk issues that should be evaluated carefully, before you make the decision to take on one of these investments.

Buyer Beware!

Taking the time to learn the risk issues and do the proper due diligence before you buy can significantly reduce your risk of something going wrong. And while it's hard work, it is much easier than straightening out a "predicament" after you close escrow.

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a guest blogger on Zillow, the author of "Real Estate Ownership, Investment and Due Diligence 101--A Smarter Way to Buy Real Estate", and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.

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7 Retirement Planning Mistakes to Avoid (U.S. News & World Report)

Deciding to make a plan for retirement is a great first step. But there are no guarantees that your saving and investment strategy will lead to a secure retirement. Once you start your plan, make sure you take care to avoid these seven retirement mistakes.

[See 10 Places to Retire on Social Security Alone.]

Readjusting to new numbers too quickly. Many people recalibrate their retirement account withdrawals based on recent market events. For example, let's say you have $1 million saved for retirement and, adhering to the 4 percent rule, you withdraw $40,000 in the first year and a bit more the next to account for inflation. But let's say that the market has performed well the first five years of retirement and your account balance grows to $1.5 million after withdrawals. While you could begin taking out $60,000 annually and still adhere to the 4 percent rule, it might be wise to continue to withdraw closer to $40,000 and save the excess for years when your investments don't perform as well.

Not planning at all. This point is pretty obvious, but most Americans don't have enough saved to finance even a few years of retirement. Until statistics show that everyone has a retirement plan, this point needs to be drilled into everybody's head.

Trying to come up with a retirement number without facts. Too many people are simply guessing how much they spend each month. You don't need to know where every single penny is going, but you should at least have a good idea of how much money you need by having a budget. Knowing how much you spend is key to figuring out how much you need to save for retirement.

[See 10 Things You Should Know About Your IRA.]

Not getting a second opinion. The worst case retirement scenario is running out of money too soon and having to depend on your children or significantly reduce your standard of living. With stakes this high, ask a second person to take a look at your retirement plan just in case. Even if you are absolutely confident in your retirement plan, a financial professional is trained to spot potential problems before they happen. If you don't trust financial advisers, then perhaps even a trusted friend or family member could help.

Comparing yourself to others and thinking that's good enough. Many people think they will be okay in retirement because they are saving 10 percent of their paycheck for retirement and that's what everybody else is doing. But, depending on how much you spend, 10 percent of your salary may not be enough to maintain your current lifestyle. Our national retirement preparedness is not as bad as the media sometimes makes it seem because Americans are incredibly good at making do. That being said, many Americans don't have enough saved for a stress-free retirement. Saving more than the typical American does not mean that you are saving enough to support yourself without working.

[See Companies with the Most Older Workers.]

Believing that retirement planning is only about financial numbers. While the financials are extremely important, your retirement plan should include non-financial planning too. Where do you plan to live? Will you downsize your house? How are you going to spend your time each day? You need to develop a plan to fill all the time when you used to be working.

Forgetting to figure out how you will turn your nest egg into an income stream. Turning a nest egg into steady income streams isn't trivial. You need to make sure that you have a plan in place to draw down your retirement savings without spending it too quickly or unnecessarily. You don't want to waste the money that you've worked so hard to save.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.

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Avoid Loan Delinquency and Default (U.S. News & World Report)

Caveat emptor! Your student loan documents probably do not explicitly state "let the buyer beware"--but maybe they should. A sobering report released this month by the Institute for Higher Education Policy, "Delinquency: The Untold Story of Student Loan Borrowing," suggests that a majority of students struggle to repay their loans.

As the cost of a higher education has exponentially increased over the last couple of decades, common sense and anecdotal evidence has suggested this is the case. Unfortunately, policymakers have relied solely on default rates as a measurement tool. Default rates alone paint an incomplete picture, because they exclude borrowers who have difficulty repaying their loans but avoid default.

The new report primarily focuses on the nearly 1.8 million borrowers who entered into repayment on loans obtained through the (now defunct) Federal Family Education Loan Program in 2005 during their first five years of repayment. It details the rates at which borrowers entered not only into default, but also into deferment (a temporary suspension of loan payments for specific situations such as re-enrollment in school, unemployment, or economic hardship); forbearance (temporary suspensions of a borrower's payments because of financial difficulty made at the discretion of the lender); and delinquency (late payment on a loan).

[Learn the 11 steps to relief from federal student loans.]

Overall, only 37 percent of the borrowers in the study managed to repay their student loans throughout the study period without postponing payments or becoming delinquent. Another 7 percent entered into deferment because they re-enrolled in school. A majority, 56 percent, apparently had difficulty making timely payments on their loans.

Examining that 56 percent more closely, the report reveals that 16 percent of the borrowers used deferment and forbearance to postpone their payments and avoid delinquency. More than a quarter, 26 percent, became delinquent but did not default. And about 15 percent became delinquent and defaulted. Overall, an incredible 41 percent of the student loan borrowers became delinquent or defaulted.

Delinquency and default have serious consequences for student loan borrowers. Delinquency can affect borrowers' credit scores and their ability to obtain loans, such as mortgages and auto loans, and the terms upon which those loans are offered. Borrowers who default face even more severe consequences, including wage garnishment, withholding of income tax refunds or Social Security benefits, the turning over of the defaulted loans to collection agencies, and liability for collection and court costs.

The report also reveals important distinctions between borrowers. Undergraduate and graduate borrowers who left without graduating were far more likely to become delinquent or default than those who graduated. Graduate students were far more likely to make timely payments without using deferment or forbearance and less likely to become delinquent or to default than undergraduates.

And students at public four-year and private, nonprofit four-year institutions were more likely to repay their loans on time without resorting to deferment or forbearance and less likely to default than students at public and for-profit two-year institutions and for-profit four-year institutions.

[Get advice from the U.S. News college loan center.]

It is clear that huge numbers of student borrowers struggle to pay back their federal student loans. And, since the study did not include private loans, it may even be understating the magnitude of the problem. A few lessons are clear:

-- Student loan servicers, guaranty agencies, financial aid offices, and other organizations should ensure student loan borrowers have the information and counseling they need to avoid repayment problems.

-- Students need to carefully consider the amount of debt they are able to take on in order to finance their education. They also need to understand and utilize repayment options--such as forbearance, deferral, income-based repayment, and public service loan forgivingness--to avoid delinquency and default.

-- We should all reconsider the effectiveness and the equity of relying on student loans to finance the cost of a higher education.

In the meantime, caveat emptor.

Isaac Bowers is the senior program manager for Educational Debt Relief and Outreach at Equal Justice Works. He was previously an attorney at Shute, Mihaly & Weinberger LLP in San Francisco, where he focused on environmental, land use, and planning issues. A graduate of the New York University School of Law, Bowers also has extensive experience in nonprofit advocacy and outreach.

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Avoid Loan Delinquency and Default (U.S. News & World Report)

Caveat emptor! Your student loan documents probably do not explicitly state "let the buyer beware"--but maybe they should. A sobering report released this month by the Institute for Higher Education Policy, "Delinquency: The Untold Story of Student Loan Borrowing," suggests that a majority of students struggle to repay their loans.

As the cost of a higher education has exponentially increased over the last couple of decades, common sense and anecdotal evidence has suggested this is the case. Unfortunately, policymakers have relied solely on default rates as a measurement tool. Default rates alone paint an incomplete picture, because they exclude borrowers who have difficulty repaying their loans but avoid default.

The new report primarily focuses on the nearly 1.8 million borrowers who entered into repayment on loans obtained through the (now defunct) Federal Family Education Loan Program in 2005 during their first five years of repayment. It details the rates at which borrowers entered not only into default, but also into deferment (a temporary suspension of loan payments for specific situations such as re-enrollment in school, unemployment, or economic hardship); forbearance (temporary suspensions of a borrower's payments because of financial difficulty made at the discretion of the lender); and delinquency (late payment on a loan).

[Learn the 11 steps to relief from federal student loans.]

Overall, only 37 percent of the borrowers in the study managed to repay their student loans throughout the study period without postponing payments or becoming delinquent. Another 7 percent entered into deferment because they re-enrolled in school. A majority, 56 percent, apparently had difficulty making timely payments on their loans.

Examining that 56 percent more closely, the report reveals that 16 percent of the borrowers used deferment and forbearance to postpone their payments and avoid delinquency. More than a quarter, 26 percent, became delinquent but did not default. And about 15 percent became delinquent and defaulted. Overall, an incredible 41 percent of the student loan borrowers became delinquent or defaulted.

Delinquency and default have serious consequences for student loan borrowers. Delinquency can affect borrowers' credit scores and their ability to obtain loans, such as mortgages and auto loans, and the terms upon which those loans are offered. Borrowers who default face even more severe consequences, including wage garnishment, withholding of income tax refunds or Social Security benefits, the turning over of the defaulted loans to collection agencies, and liability for collection and court costs.

The report also reveals important distinctions between borrowers. Undergraduate and graduate borrowers who left without graduating were far more likely to become delinquent or default than those who graduated. Graduate students were far more likely to make timely payments without using deferment or forbearance and less likely to become delinquent or to default than undergraduates.

And students at public four-year and private, nonprofit four-year institutions were more likely to repay their loans on time without resorting to deferment or forbearance and less likely to default than students at public and for-profit two-year institutions and for-profit four-year institutions.

[Get advice from the U.S. News college loan center.]

It is clear that huge numbers of student borrowers struggle to pay back their federal student loans. And, since the study did not include private loans, it may even be understating the magnitude of the problem. A few lessons are clear:

-- Student loan servicers, guaranty agencies, financial aid offices, and other organizations should ensure student loan borrowers have the information and counseling they need to avoid repayment problems.

-- Students need to carefully consider the amount of debt they are able to take on in order to finance their education. They also need to understand and utilize repayment options--such as forbearance, deferral, income-based repayment, and public service loan forgivingness--to avoid delinquency and default.

-- We should all reconsider the effectiveness and the equity of relying on student loans to finance the cost of a higher education.

In the meantime, caveat emptor.

Isaac Bowers is the senior program manager for Educational Debt Relief and Outreach at Equal Justice Works. He was previously an attorney at Shute, Mihaly & Weinberger LLP in San Francisco, where he focused on environmental, land use, and planning issues. A graduate of the New York University School of Law, Bowers also has extensive experience in nonprofit advocacy and outreach.

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