4 Tips to Avoid the Pitfalls of Loaning to your Best Friend

I’m sure that you heard the old adage never mix business with pleasure. Most people prefer to keep their personal and professional lives separate, particularly where money is involved. Poor business decisions or ventures can lead to a rupturing of a friendship and the same holds true in a money-lending situation. Many good friendships have been lost because money has been lent and then misspent or not repaid.

But what about situations when there is no one else to turn to? You’re desperate for money and your best friend offers their assistance. Can you afford to turn him or her down? Or what about the reverse – one of your closet friends comes to you with a financial problem and asks for your assistance because they have no other options? Would you feel right turning them away? How can you avoid falling into the pitfalls of mixing friendship and money as either the lender or the borrower? Here are a few tips on how to approach a loaning situation between friends.

Eliminate All Other Options

Before you accept money from a friend or offer money to a friend, make sure that there aren’t any other options you can pursue. Maybe one bank has turned you down, but have you really tried all of them? Is there another money lending companies that will work for your situation? Have you cut back your expenses to the absolute minimum or are there some non-essential items that you can do without? One of the best things to do is sit down and figure out a monthly budget. Write down the amount of money you have coming in and then subtract only those things that are absolutely essential for your survival. You might find more money that you thought you had just because you took the time to map out your monthly spending. The most important things to keep in mind is that borrowing from friends should be your last option, not your first. If you can get it from someone or somewhere else, then you should.

Treat it Like the Business Arrangement it is

What most people fail to do is treat this kind of loan like the business arrangement it is. You must outline in writing the amount being borrowed, the time frame for repayment and the amount of interest (if any) that will be included in the repayment. If you do not have a solid agreement like this in place, it is far too easy to get complacent about the situation.

Be Wise in Your Spending After Borrowing Money from a Friend

This may seem like an obvious point, but you’d be surprised how much of a problem this can become. Most friends don’t mind lending the money and helping someone out, but it can be very aggravating to believe that money is being misspent. Put yourself in the lender’s position. Just say you lend money to your best friend, Sarah, to help her pay off her credit card debt. If after lending her the money, you see her spending money on non-essential items like cosmetics or shoes instead of increasing her payments back to you, wouldn’t you be a little upset?

If you’ve borrowed money from anyone – be it a bank or a friend – your first priority is to pay that money back. There will still be plenty of time for life’s little pleasures and luxuries once that debt is settled. And if your the lender, don’t let your frustration build up – make your feelings heard and let your friend know in the nicest way possible that you need your money back as soon as they can spare it.

Pay it back!

No matter how long it takes, you need to pay the money back. If it takes longer than you anticipated, then it is important to talk to your friend and explain the circumstances. Most people will understand if there are good reasons for the delay.

If there is a rupture or end to the friendship before all the money is paid back, it is still important that all of the money be returned. There is no way to salvage the friendship or your good name if you do not settle your debts.

Enhancing the look of your home from a street perspective is a great way to attract potential buyers. After all, the ‘curb appeal’ of your home is like a major plus for people driving through your neighbourhood or who see your house in a real estate for-sale photo. By putting in a little extra effort, you can improve your home’s curb appeal and increase your chances of an earlier sale at a higher price.

You probably live in the house you are trying to sell, and therefore you are familiar with its appearance – perhaps too familiar. Chances are, you don’t notice small cracks or peeling paint the same way someone seeing your home for the first time would. Starting from a position on the street, take a close look at your home. What stands out? What looks wrong? Does the tree in front need pruning? Perhaps a shutter needs to be repainted? Maybe the porch light fixture is broken. These are generally small tasks that don’t take a lot of time or money to repair, but that make – or detract—from the look of your home. It may help to take a photograph of your home from the street to see if that gives you a new perspective.

Here are some areas to consider when sprucing up your home for increased curb appeal and sale:

You will have more potential buyers in people can find your house. Your house number should be displayed in a prominent location and illuminated so that it is easy to read. This is extremely important in the evening and during the winter when daylight is limited. If your house is set back a fair distance from the street, consider installing your number on a gate, pillar or fence post that is easy to see.

The old adage that cleanliness is next to godliness applies to your house, too, particularly when you want to sell.  The exterior, including eavestroughs, should be neat, clean and in good repair. Downspouts should have extensions to take water away from the foundation to avoid pooling. Any settling of backfill around a house should be corrected to ensure that the grade at the foundation is higher than surrounding areas.

A lush green lawn enhances your home. It should be freshly cut, weeded, and edged. Flower beds should be weeded and cultivated, hedges trimmed, and garden debris removed. If your lawn isn't in good shape, time will be required to improve it, and professional help may be desirable. Any areas that require new grass should be sodded rather then re-seeded to ensure a finished appearance. If you are selling during the fall or winter, when your yard may not look its best, make sure that all dead material is removed from gardens and leaves are raked off the lawn. Store shovels and other equipment in a shed or other out-of-sight location.

Doors should be unmarred, clean, and repainted with care if necessary. The doorbell and door hardware should be in good repair. Potential purchasers who see a Realtor wrestling with a reluctant door lock may wonder what else is wrong with the house.

When a Realtor is opening the door of your home, a potential purchaser has plenty of time to look at the porch and entry. Accordingly, they should be clean and tidy. Do not allow flyers to accumulate, and if there is a doormat, it should be clean and in good condition. Decoration such as a tasteful wreath is fine, but don’t overwhelm your entry and door with frilly adornments.

Your garage should be a storage area for automobiles, not for miscellaneous articles. To make the best impression, it should be clean and tidy, with garden tools hung neatly off to one side or in a storage cabinet. If they can't be stored elsewhere, bicycles, the snow blower, and the lawn mower should be placed so as not to impede movement around the cars. Garbage containers should be empty and clean. Illumination should be bright, ideally with a 150 watt bulb, at least during the listing period.

The driveway should be degreased and sealed.

Walkways and patios should be clean and free of cracks, with litter removed (if your walkway or patio has unwanted grass or weeds they can be eliminated easily and in an environmentally friendly way with boiling water or a propane torch). In winter, the driveway, walks, and porch stoop should be cleared of snow and salted if necessary. Inside the front door should be an overshoe tray, and a carpeted area where overshoes can be removed.

Your home is an investment, and by taking a little time to put it in top form, you will get a higher return on that investment when you decide to sell.

Your mortgage off early

One niggling question that perhaps gnaws at everyone’s peace of mind at some point of time or other is: Should you pay off your home loan or invest the money? You’ll be amazed by the variety of answers this question can elicit, and from this alone you can realize that there’s no one answer for everyone. Though theoretically, the concept is simple: If you think of extra mortgage payments as an investment and your return as the interest on the loan, you need to now consider if you can get higher returns elsewhere? “Yes?” Then, keep the mortgage and invest the money securely.

Having said that, it’s a matter that requires great thought whether you should pay off your mortgage payments or carry them for longer. It depends on several factors such as your tax bracket, how your cash-flow picture looks and what you think about carrying a big loan on your head. Your decision really depends on your mental make-up and your situation in life.

For instance, if you are at the peak of your career, you should hold on to your mortgage. No, don’t consider paying off an early mortgage just yet. If you are in the high income bracket, it means higher income tax too. The good news is that your mortgage interest is just one more income tax deduction you can claim to pay a lower tax. This is the happy side to your loan and you never realized it, did you?

Now, you can even get the most out of your mortgage-interest deduction if you pay off the greater part of your interest early on in your loan term. You can do this by paying one or two more installments during the year. Now to balance your budget, take care to save for a rainy day, for your children’s education, etc.

If mortgage rates are low, invest your money in schemes that give you better returns. But when mortgage rates are higher, invest it in to your home since this guarantees you a higher rate of interest. If for example, you have a 14% mortgage, you can get a 14% rate of interest if you pay it off. Then, before you know it, you will be loan-free.

If you are reaching retirement age, you perhaps want to expedite the repayment of your loans so that you are debt-free when you hang up your boots. Ensure that paying off your mortgage payments in a rush doesn’t actually become counter-productive.

So suppose you decide to refinance your mortgage so that your term is shortened to 15 years and you have a zero balance on your home loan by the time you’re 65 years old. Due to this, your principal and interest payment stand at $950 a month instead of $750 a month. When you reach pay-off day, you can now invest that $950 in a fund that gives you 9% interest. Give yourself another 15 years and you’ll have a tidy sum of $360,000.

Now let us suppose you’ve been retired for a few years now. Considering this, you’re sure to have been paying off more principal than mortgage interest. If this is so, paying off the mortgage loan becomes your prime interest in life, besides also proving to be a cash flow problem. If you know that post-retirement your cash flow will be largely restricted, it would be wiser for you to concentrate on paying off your mortgage. But if you have a few assets or none, it might be a better idea for you to diversify your investments. You could consider saving in either a savings or money market account which would give you healthier returns than the interest you are paying out on your mortgage.

If you’ve just sold a big house and are cash-rich, taking out a mortgage makes complete sense, just so long as your investment returns are larger than your mortgage interest. If you don’t tie up all your cash in real estate, you can take full advantage of tax deduction, invest in other schemes and have greater liquidity at your command. Not only will your loan be paid off, but you will have peace of mind in your sunset years.

There comes a time in everyone’s life where they have to make the ultimate decision and decide whether to buy and own their own home or continue to rent. It’s a huge decision as both have notable benefits and disadvantages and it is not one to be taken lightly. So lets have a look at these advantages and disadvantages to see which option is really the best option for you.

Owning your own home is the traditional dream that practically everyone has, especially when it comes to starting a family. It gives you a feeling that you have accomplished one of your goals and that you are both financially and emotionally secure as well as giving you a great sense of community. But is it the right decision for you? Lets have a quick look at the advantages and disadvantage of buying and owning your own home.

Advantages:

You set your own rules

You have a sense security

You have made a great investment

You have a sense of freedom

You get various sorts of tax rebates and deductions

Your repayment is usually the same or sometimes even lower than it would cost to rent

Your repayments aren’t wasted like rent – they are going into owning your own home

You have the freedom to do what you like in terms of renovating and decorating your home and gardens

You build equity in your home over time

You have a better credit rating if you ever needed a loan again

Disadvantages:

You are liable for any accidents and injuries on your property

You are liable for any damage that is caused to you neighbors property if it stemmed from yours. For example if you have a tree that has a branch hanging over the neighbor’s yard and it breaks off, it can cause damage to their house which you are responsible for.

You are responsible for any maintenance in, on, or around your home

You haven’t the ease to just pack up and move when ever you want

You have a huge loan that needs paying off even if you are having financial hardships

You are responsible for all the insurance on your home and land

Varying equity rates

You will need to pay out a large down payment up front

You have property taxes to pay

Renting is something most of us start out doing and many people are comfortable doing it all their lives. There are many advantages to renting a home but there are also a few disadvantages. Let’s have a look at them.

Advantages:

You can up and leave as soon as your lease is up

If you hit financial hardship you can again move

You have little or no responsibility for maintenance

Sometimes utilities are included in the rent

Sometimes you have free use of amenities such as laundry, pool and other sorts of actualities

Disadvantages:

You have little or no freedom in what you can do with the place

You may face increasing rent

You have limited space for your money

You are not eligible to get any tax deductions

You are at risk of being evicted

The house could be sold and you can be asked to leave

You could have restrictions on certain things like noise and pets

You could have a restriction on how many people can live with you

Your rent isn’t going into a productive investment for you

As you can see clearly there are many advantages and disadvantages to owning your own home and renting. Some have advantages and disadvantages the other doesn’t have, but both can be a comfortable way to live. When it really comes down to it you have to choose the one that suits you’re financial, emotional and lifestyle needs at this time. You have to take your future into account as well, will you want to be tied down and take responsibility for a huge investment or will you prefer the freeness of being able to move whenever you please?  It can be quite a hard decision to make and it is one that needs a lot of time and thought before you proceed to take any further steps.

Most of us think of our home loan as a mortgage, when that isn’t particularly true. When a borrower agrees to pay a lender a certain amount of money, under certain conditions, the borrower will sign a promissory note. A lender will then require the borrower to sign a mortgage, as a security tool to give the lender a legal form of security. A mortgage is a written document to protect the lender’s interests in your property. Therefore, a mortgage is not a loan.

A mortgage is between two parties, you the “mortgagor” and your lender. The mortgage is a document that creates a lien on your property that is entered into public records to serve as the lenders security for that debt. Possession cannot be transferred to another party until you, as the borrower, pay the debt to release the lien. Only you have all the rights of ownership to your property, even if your loan is secured with a mortgage.

Only if the borrower defaults on their mortgage will the lender have the right to protect their interests and foreclose on the property in order to recover funds. When a mortgage is used as the lenders security, foreclosure will usually go through the judicial foreclosure process through the court system that may take up to four months. Mortgages are used as security tools in more than half of the states in the U.S., while other states may use a deed of trust. Both the mortgages and the deed of trust, often serves the same purpose, but with some significant differences.

Like the mortgage, a deed of trust is entered into public records to put a lien on your property. There are three parties involved with a deed of trust: you, as the “trustor,” the lender as the “beneficiary” and a “trustee,” who is a third party that holds a temporary title until the lien is paid. The trustee holding the temporary title, should be a neutral party that does not favor the trustor or the lender, if problems should arise. These third parties acting as neutral trustee’s can be attorneys, an escrow company or title insurance companies. Under no circumstances can the third party, or trustee, take over your property.

The deed of trust will only be removed when the debt to the lender is paid. Only then will the will the trustee issue a release of the deed that should be recorded at the county recorder’s office and made available to the public that the loan has been paid in full and that the lender interests in the property have come to an end.

The difference between a deed of trust and a mortgage will only affect home owners when foreclosure becomes an issue. This is when the trustee has the authority to sell your home when your loan becomes delinquent. It is up to the lender to provide the trustee with proof of the delinquency and to request foreclosure proceedings to begin. The trustee must then proceed as allowed by law and as it is dictated in the deed of trust. The process may bypass the court system to make a much less expensive and quicker way to go for the lender during a foreclosure. 

A deed of trust and a mortgage can also differ during foreclosure. Depending on where you live, state law will have to determine how a foreclosure will be handled. Normally, a deed of trust allows for a speedier foreclosure. When the borrower defaults on a loan, the lender gives the deed of trust to the trustee to sell the property. A mortgage is normally requiring a judicial foreclosure, which may take longer. Properties may not be foreclosed upon until all rules are followed and notices have been sent.

Borrowers cannot choose which way their loan is secured, whether it’s by a mortgage or a deed of trust, this is all determined by what state you live in or are buying in. It’s very important to have a complete understanding of the type of lien that will secure the debt of your home. This should all be explained to you thoroughly by your lender or trustee. Do your homework and ask questions before signing any documents. Borrowers must protect themselves as the lenders and other companies do.