Sunday, March 31, 2013

From Renting to Buying House - Complete Analysis ( Financial Social Quantitative and Islamic perspective)

Assalaamu Alaikum (Peace be upon you)!

If you are considering moving from Renting/Leasing to Ownership of a new Home. Please give some moments to assess Risks involved and Hidden Costs and make Quantitative analysis suiting your needs and budget.

Must watch this videos for Quantitative (mathematical) comparison between Renting and Owning a Home
The speaker is Salman Khan, world's Top Online educator (IITs+), entrepreneur, founder of the Khan Academy(a free online education nonprofit platform)

"In 2011, the National Association of Realtors found that An average home-seller lives in his house not more than nine years (before selling). In essence, the average homeowner is simply paying rent for nine years to a bank instead of a landlord".

“To a modern generation, ownership isn't about having it forever, it is about having it when you need to have it,” 

"Confronting a jobless rate above 8 percent since 2009 and student-loan debt hitting about $1 trillion, 20-to-34-year-olds are renting apartments, cars and even clothing to save money and stay flexible.

“This is a generation that is scared of commitment, wants to be light on their feet and needs to adjust to whatever happens..What once was seen as a solid investment, like a house or a car, is now seen as a ball and chain with a lot of risk to it.”

"Unexpected loss of income due to job termination or unemployment may limit money available for home ownership costs."

"Toss into an average life some devastating medical bills, a sudden job loss, an overambitious home purchase, sudden illness / death, rising interest rates, and pretty soon a house that took years of toil to purchase is auctioned away in seconds."

Major causes behind Foreclosures/Auctioning of Homes
Most homeowners face sudden extenuating circumstances that force them to stop making timely mortgage payments. Here are a few of those reasons:
  • Job loss / unexpected unemployment
  • Sudden illness or medical emergency
  • Death in the family
  • Divorce / loss of second income
  • Excessive debt obligations
  • Job demotion or promotion denials
  • Inability to pay an adjustable interest rate that increases
  • Unexpected major home maintenance expense
Major Changes expected in Lifestyles, when one moves to a Home
  • One is already Involved in Riba (Interest). "Allah has permitted trade and forbidden interest … Allah will deprive interest of all blessing (2:275-6)
  • One has incurred a Huge Debt payable in 30 yrs.  Specialists have described the dangers it poses to the economy, for example:
    • Desire for immediate gratification with no thought of the future.
    • Lack of responsibility and self-reliance
    • Poor distribution of wealth  “Wealth should not only circulate between the rich amongst you” (59:7)
    Prophet (pbuh) said:
      “Allah, I seek refuge with You from sin and heavy debt”.  “Whoever dies free from three things – arrogance, cheating and debt – will enter Paradise” (reported by Tirmidhi), and The soul of the believer is held  hostage by his debt in his grave until it is paid off. al-Tirmidhi-1078. 
    • With a 10% down-payment (50k$ or more), and monthly Home Costs higher than Rental, it Nullifies one's ability to contribute to Charitable aspects like Zakat, Sadaqa, Supporting Society Financially .. 
    • Reduces one's focus on Family's Health, healthy Food, due to Tight Financial conditions, Debts, Stress and lesser Free time.
    • Virtually a person replaces Spritual Insurance (Sadaqa, Zakat ) by Worldly Insurance (Home Insurance etc) to prevent against Calamities, disasters.
    • Reduces one's chances to find friends, community, favorite shopping stores, Mosque, good neighbors  in close proximity.
    • Reduces one's chances to return back to native place for good (India), for genuine reasons like Ailing Old Parents etc.
    • In Job Loss, one finds it difficult to relocate, and hence waste lot of time, to explore new Jobs locally.
    • Reduces one's Free time considerably, for contribution to community.

    Contentment, Comparison and Limit to one's Desires

    Comparing ourselves to people whom Allah has given better looks to, more money to, nicer possessions to, better education to, higher status to, etc., is a common cause for our showing ingratitude to Allah. We then automatically discard the blessings that Allah has bestowed on us and can think of only that which we are lacking that someone else has. There will always be something more that we could have.
    Always Remember beneath, before one invests in anything new:-
    • Before you replace existing shoes with a new one, remember that there are people, who drag their  1$ Slipper for years, or are barefooted.
    • Before you replace existing Car with a new one, remember that there are people, who rides on a bicycle with wife and kid, and others on-foot.
    • Before you switch from existing apartment to a Bigger Home , remember that majority of Indians live without proper shelter, hygiene, water, without Toilets or bathroom.
    • Before you buy an additional Expensive Jewellery for wife, remember that majority of woman are bare-necked, and sacrifice their desires to feed children.

    There is always a very thin line between being Modesty and being Extragavant, and many people cross this line unknowingly. simply because one avoided careful planning and risks assesstment, and one tried to follow the footsteps of other folks or friends.

    Prophet (pbuh) said: “Look to those below you, as it will more likely remind you of the favors Allah has bestowed upon you. 

    When one of you looks at one who stands at a higher level than you in regard to wealth and physical structure he should also see one who stands at a lower level than you in regard to these things.” [Muslim]

    Legitimacy/Valid Reasons for shifting from Renting to Mortgage

    Shariah commands individual to keep within the boundaries of need, otherwise all that relates to comfort and luxury remains prohibited.
    Renting a residence provides a way out from falling into the riba that is prohibited by Allah and His Messenger. However, if renting becomes extremely hard for some people due to irreconcilable considerations such as the number of family members that exceeds what is allowable in a rented place, an amount of rent that supercedes the family's financial capacity or any other legitimate urgencies, then, it becomes permissible to use mortgage in light of the aforementioned governing principles.

    Assess all risks, Issues, Costs and ask yourself questions, before you Buy House?

    It is worth emphasising that incurring debt to fund luxury and extravagance is contrary to core Islamic values that condemn excess and waste. The Qur’an has in very strong words condemned and prohibited extravagance and wasteful expenditure:
    "Eat and drink, but waste not by excess, for God loveth not those who waste by extravagance". (7:31)
    "Squander not wastefully, surely the squanderers are the devil's brethren." (17:26-27)

    Before you make a huge investment (e.g. Buying new Home / Car / Costly furniture other investments, ask yourselves these tough questions?
    • If you acquired the home with a down payment of 10 percent or less, it could be brutal. To sell you'll have to part with about 6 percent in real estate commissions, as well as closing costs of about 1.5 percent for the seller.
    • Will you like the neighborhood? Tips  :- If you are buying a Home in a place you hardly know, spend a year in a rental until you're certain that you want to stay there forever.
    • Will you be happy giving up the freedom? Renting gives you the freedom to move around without having to wait for a house to sell. Renting is also lower risk because unexpected maintenance costs or sudden property tax hikes and natural and other disasters like floods, earthquakes, and boiler explosions are the landlord's problem, not yoursAsk any homeowner and you'll hear some tale of woe. Houses have an unfortunate tendency to leak, attract pests, and cave in when your bank balance can least afford it.
    • No Maintenance Issues:- In a Home, sometimes Lawn that needs mowing, the termites that need to be eliminated, the plumbing that needs to be fixed, plus in a few years the house will need repainting, and who would forget the accidental damage your kids caused on your glass windows
      When you rent, you can also save yourself the effort of having to fix things yourself.
    • Fancier Living That’s right, when we rent, we get to enjoy living in a better neighborhood, a more luxurious condominium, and a pad right beside your workplace which otherwise would not be financially possible or practical if you decide to buy.
    • Water and Heating Included :- You can also rack up on savings since there are some apartments who already include water and heating in the package. You can not only save money on the extra bills, but you can also save time and hassle with having to pay them off.
    • More Predictable Budget :-There are a lot of hidden costs when it comes to owning a home. You don’t know when the large repairs will suddenly suck your budget. Renting makes budgeting easier because you already know just how much you will need to shell out per month. No matter how many repairs are needed, you still end up paying the same amount as you used to.
    • Perks and Amenities:- There are a lot of apartments that come with community pools and gyms. This is especially great for those who love swimming and working out. If you own a home, there’s a very little chance you’d have an Olympic sized pool, not only is it a pain to maintain, but there’s hardly any space for it in your yard. Also, think about the money you’d save on gym memberships!
    • Property Taxes:-There are some areas where property taxes can amount to as high as $8,000-$14,000, which would equate to roughly $800-$1,000 a month!Renting will help you avoid surprise expenses such as this.
    • Moving is Easier:-When it’s time to change location, renting makes moving so much easier. There are a lot of factors involved, such as a change in job assignment location, having a bad neighbor, or a bad landlord. As soon as your contract expires, you can go ahead and pack your bags. With having a home on the other hand, this can be a more difficult process.
    • Mortgages potentially impede young folk's career growth: Mobility is another plus to renting that younger tenants might enjoy especially. While getting settled in their lives, it is important for people to have the ability to move and find a new job or new city, for career growth, Better pay. Renters can simply put up a Craigslist posting and move their apartment in no time. Homeowners, on the other hand, have a much longer process. Being locked into a mortgage severely limits one's potential opportunities in an ever-changing job market.
      American dream
    • Span of an average home-seller:-In 2011, the National Association of Realtors found that the average home-seller had lived in their house for nine years. That means if you have a 30-year mortgage, about one-third of the house should be paid off? Wrong. In fact, it's usually not until about the 21st year that an owner will have paid off just half of the principal on a mortgage. That's because the nature of an amortization schedule front-loads the interest payments to the bank, and back-loads the equity-producing payments on the house. 

      In essence, the average homeowner is simply paying rent for nine years to a bank instead of a landlord. 

    • House is a big commitment :- A financial planner in Calif. says "Some people don't take it as seriously as they should.There is the financial commitment. Not only do you have to fork over the cash for a down payment and closing costs, you have the ongoing expenses of a mortgage, property taxes and maintenance.There is also the time commitment. If you're not sure to stick around for at least a few years, you could easily lose money on the deal even in a strong housing market.
    • Is your Job and your company stable , i.e. company has strong Economic Base to fight future Recession ?
    • For a person of conservative origins like an Indian, Parental health/needs appeals more than lucrative careers abroad, and one never know, when consciousness forces a person to return back to his native place for Good, to look after his ailing parents and bigger family who need his support more than anything else. Remember the movie Swadesh?
    • In US and west, remember always the word www. "Work, wife and weather". None of these are certain. You never know,

    1.    if something happens in a city due to Terrible weather ( cyclones etc), or 
    2.    someone lose his job due to Uncertain economy, or
    3.    someone desires to change his Job, for better pay or desiring better career.             

    • What are your exact needs?,. Considering that every person has different needs, and its sometimes dangerous, to try to follow the footsteps of friends who've invested Heavily in Homes or Cars. Genuine needs may be :-
      • One has a big family comprising of parents, and lets say 4 grownup children, and all need privacy, which is not possible in a rented home.
      • One needs a big Family SUV to replace current small car, to accomodate all members of family. But here one needs
        to ensure balance between His wealth and his investment, and if there is possibility to purchase a slightly used Family Car, that's the best deal!

    • We are living in a very Uncertain society, where a person has no option but to consider all uncertainties that could meet his Life and force Migration.
      Indeed, Allah [alone] has knowledge of the Hour and sends down the rain and knows what is in the wombs. And no soul perceives what it will earn tomorrow, and no soul perceives in what land it will die. Indeed, Allah is Knowing and Acquainted. -  Quran 31:34

      Some of them being
      • We are living in an hostile environment, where you never know, Wars could break out, and there is serious need to Migrate back to our native place.
      • We know, from recent experience of Arab Unrest, where 10s of thousands of migrants returned back from Syria, Egypt and the countries affected by Civil wars and unrest.
      • Due to economy slowdown, US is increasingly seeing unrest among its citizens, and you never know, when that unrest forces migrants return back to their country for multiple reasons like "new Immigration Laws, Job Loss, Racial attacks etc"
      • If you are a muslim, you need to be aware of ever increasing Islamophobia in US and abroad. For many years muslims living peacefully in Burma, Russia, Gujarat, Assam and many Non-muslim countries, have been forced to migrate Barehanded because their properties and investments were destroyed..See recent article>>  Muslims vanish as Buddhist attacks approach Myanmar's biggest city.

        People making huge investments generally claim...e.g. "Well US is founded on strong secular grounds, and there is little chance of Communal Tensions or Riots." To respond, we just acknowledged that nowadays even the peace-loving Buddhists are turning out to be communal rioters. Some of developed and rich countries like Iraq, Syria, Lebonon, Egypt, have turned into just the opposite. Its just a matter of time, when Allah reverses situation of a country or an individual to entirely Opposite.
        Allah says in Quran  “Know that the life of this world is only play and amusement, pomp and mutual boasting among you, and rivalry in respect of wealth and children. (It is) as the likeness of vegetation after rain, thereof the growth is pleasing to the tiller; afterwards it dries up and you see it turning yellow; then it becomes straw. But in the Hereafter (there is) a severe torment (for evildoers), and (there is) forgiveness from Allaah and (His) Good Pleasure (for good‑doers). And the life of this world is only a deceiving enjoyment”

        Prophet (pbuh) said: It is not poverty that I fear for you, rather what I fear for you is that worldly riches may be given to you as they were given to those who came before you, and you will compete for them with one another as they competed with one another, and you will be destroyed as they were destroyed.”

      • We are now on the verge of Climatic emergencies, where Global Warming ( God forbid) may cause Ir-reparable damages to cities and towns, as its evident from increasing frequencies of such events in recent past ( e.g. New York, NJ etc). People try to feel safe after taking Home/Life insurance, but there is no protection
        against these calamities besides faith in Allah and regular Charity .
    • What would be the best insurance to take, to ensure that I live and die in a state of peace, contented and Happiness..The answer is being kind to people in word and deed,  This is one of the means of removing worry, distress and anxiety. Allaah says 
      ’There is no good in most of their secret talks save (in) him who orders Sadaqah (charity in Allaah‘s Cause), or Ma…roof (Islamic Monotheism and all the good and righteous deeds which Allaah has ordained), or conciliation between mankind; and he who does this, seeking the good Pleasure of Allaah, We shall give him a great reward“ [al-Nisa‘ 4:114] 
      To sum up 
      Give, give, give - Sadaqa does not decrease wealth. Be on the lookout for opportunities to give (Ramadan, Emergencies, Floods etc,  if you know a relative or another Muslim in need, etc. ). and remember that Aspire for others what you wish for yourself, and feel the pain, what others are already experiencing.
      Wish for others what you wish for yourself. (Related by al-Bukhari).
      Prophet Muhammad  said: "The believers, in their love, mercy and compassion for each other, are like a single body; if one part of it feels pain, the whole body responds to it with wakefulness and fever." [Sahīh al-Bukhārī (6011) and Sahīh Muslim (2586)] 

    and Lets all pledge to limit/put a brake to our needs and expectations from this Life, and invest our savings for purpose of Charity  / Social service / Maintenance of Masjids etc) and avoiding Investments that involves debts, interest and stress.

    - AVOIDING Unwanted and non-mandatory Insurance ( Home/Health/Auto),  while knowing that the True Insurance/Safety against Calamities and Emergencies lies with Allah, through Sadaqa.."Give Sadaqah (Charity) without delay, for it stands in the way of calamity."  (Tirmidhi #1887)
    - AVOIDING throwing left-over food, Instead sharing extra food with neighbors And keeping left over food outside for birds/squirells/Cats etc. Remember feeding Animals is also Sadaqa.
    - AVOIDING Lavish parties,
    - AVOIDING Wasteful Birthday Celebrations,
    - AVOIDING Unnecessary Marriage Pomp-Show and Anniversaries,
    - AVOIDING Buying Expensive Gifts /goods for Kids or family, when cheaper alternatives are available
    - AVOIDING Spending too much on Travelling, Costly Restaurants etc
    - AVOIDING Piling up goods at home, which is rarely used
    - AVOIDING Purchasing Cars or Homes on Mortgages, while we know, that we all are travellers on Earth, and we never know, when we need to shift our Base.
    - AVOIDING Cravings for latest Gadgets in market like IPhones / TVs / IPads etc.

     A short compasrison between Renting and Mortgage

    The 30-year fixed rate on a mortgage is as low as it has ever been.

    But even if you own and you pay off your mortgage in 30 years, there's still no guarantee that you'll come out on top of a renter. Using The New York Times nifty calculator -- which takes into account inflation, closing costs, maintenance, and so on -- we see that renting is still a good option.

    Imagine two friends live in identical $200,000 houses next to each other.
    One friend, Spending Sammy, buys his house paying 10% down with a fixed 3.8% mortgage and a property value that increases 3% per year.
    The other friend, Frugal Fred, pays $900 rent per month (more than Sammy's $840 mortgage), and his rent increases by 3% per year. Fred saves the equivalent of the down payment and any money from not paying for home improvements. Over time, Fred simply invests that money in a fund that matches the stock market's historical 8.8% return.
    After 30 years, Sammy sells his house and they both move down to Florida for retirement. When all is said and done, Fred will walk away with roughly $90,000 more than Sammy -- and he didn't have to worry one bit about repairs and upgrades to his house!

    How Much You Should Spend on a Home (Most lenders suggest that you spend no more than 28% of your monthly income on a mortgage.)

    First-Time Home Buyer Tips - When Renting is Better

    18 Tips to Simplify Our Spendin


    Friday, March 22, 2013

    Reduce Health Insurance Costs tips and Improve your Health

    Assalaamu Alaikum (Peace be upon you)!
    • Prevention is Not just better than cure, its a lot cheaper nowadays, however it involves Better nutrition, planning, precautions, Self-control, wise decisions, sacrifices, Struggle and Hard work.
    • It is often cheaper to buy individual health insurance instead of getting it through your employer ( find below why)

    Advice as per my experience, Count all the pennies going into Auto, Health, Life insurance, Dr's visits, Medicines and revisit them each year. Try looking alternatives without any compromise on Health. I'm sure those who invest time while looking for alternatives would save upto 500-1000$ a month, while improving their Health and Lifestyles. And the considerable savings you get, can be invested in those avenues which benefit you in Life and the Hereafter ( like spending in path of AlMighty ( Masjid, Zakah, Sadaqa etc)
    We all know eating healthy helps us look and feel our best, but there is another great reason to upgrade your healthstyle: a healthy diet can save you a ton of money on health care costs.
    Over the past decade, health insurance rates have skyrocketed. In 2009, monthly premiums in the United States were 131% higher than they were in 2000, according to the Kaiser Family Foundation. This is largely due to the high cost of treating diseases related to unhealthy diets.
    According to a recent study by the U.S. Centers for Disease Control and Prevention, the Agency for Healthcare Research and Quality, and RTI International, health conditions related to obesity (including type 2 diabetes and heart disease) cost the American health care system over $147 billion each year.
    Fortunately the solution for better health is relatively simple. Visiting a farmers market once a week and buying a cookbook or two can save you a substantial amount of money on your health insurance plan in the long run. Reas More How Healthy Eating Saves You Money On Health Insurance
    Would you buy a luxury car with a monthly payment as big as your mortgage? There’s not much point in thinking about a Cadillac insurance policy your budget can’t handle, either. If you’re relatively young and healthy, consider choosing a policy with a high deductible, the amount you must pay out of pocket before certain benefits kick in. A plan with a deductible of $1,000 or more is likely to cost you considerably less per month, and could save you money in the long run.

    Congress passed a new health care law this year, but the main provisions don't go into effect until 2014. So how can you cut the cost of your health insurance in the meantime?
    CLICK HERE for the web extra tips on how to save money on health insurance when your kid goes to college.
    Raise Your Deductible
    What's the first thing we do when we want to save on car or homeowners' insurance? We raise the deductible and you can do the same with health insurance. The deductible is the amount you have to pay out of pocket for your care before the insurance kicks in.
    If you choose a higher deductible, the insurance company rewards you with a lower premium. For example, if a healthy, 41-year-old woman raises her deductible from $500 to $1,500, she will save $1,428 per year. She could set the $1,428 aside and use it to cover the $1,000 difference, and still have money left over.
    You should only raise your deductible to a level that won't ruin you if you have to pay it.
    To get a feel for how raising your deductible will lower your premium, try shopping online. Click HERE to get a quote. Just keep in mind that you have to submit a formal application and be approved before the rates are finalized.
    The federal government also now offers a helpful health insurance shopping portal and it is expected to become even more helpful as they develop it further.
    Click HERE to learn more.
    Open a Health Savings Account
    Not many people seem to know about health savings accounts, which you can get when you open a high deductible health plan. They are more lucrative and less hassle than flexible spending accounts. A health savings account, or HSA, is a tax-free account you can use to pay for health care costs. But unlike a flexible spending account, you don't have to guess how much money you will spend on health care and then forfeit the money if you guessed wrong. Instead, HSAs roll over from year to year, you can take them with you when you change employers and you can cash in your HSA for any use after age 65, so if you are fortunate health-wise, you can spend the money on something else someday.
    To learn more about Health Savings Accounts and high deductible health plans and how they work, the Treasury Department has a detailed site. Treasury? Yup, since Treasury is in charge of the IRS and since these are tax-free accounts. Click HERE to learn more.
    Join a Professional Association
    There are other group plans you can join other than through your workplace. For example, you can join your state's farm bureau to get a group rate on health insurance -- and you don't have to be a farmer! If you belong to any professional associations -- or could join -- that's often another way to get group health insurance. And people love to hate credit card companies, but some of them offer access to health insurance coverage as one of their benefits, so you may learn to love your credit card company.
    Price Individual Health Insurance
    For folks with health conditions, joining a group plan can be key, but if you are young and healthy, it is often cheaper to buy individual health insurance instead of getting it through your employer. The reason is, work plans have to accept everyone and so insurance companies price it to cover that risk. A friend of mine discovered she could get a private policy for herself for $115 a month, whereas adding herself to her husband's work plan was $350 a month. So she saved herself $235 a month, $2,000 a year, by being savvy!
    Shop With an Independent Agent
    Independent agents have access to multiple different health insurance companies, so it's like shopping around, but with one easy phone call. And the price differences between big reputable companies, for the same coverage, can be dramatic.
    "Good Morning America" asked an independent agent to shop around for a big Virginia family with two adults and seven kids, and she found they could save $6,756 a year by switching to a different insurance company. You should keep in mind, sometimes the very biggest insurers don't work with brokers, so you should also price those plans accordingly.
    You can find an independent agent at, the consumer website of the Independent Insurance Agents and Brokers of America.
    Another source of agents is the National Association of Health Underwriters.

    Web-extra Tips

    Here are two ways that where your kid goes to college can save you money on health insurance.
     If you have a college-aged child who is covered by a commercial health plan -- not just the campus health service -- offered by the university, your child might be able to add you as an additional insured. That's right, some colleges subscribe to name-brand health plans for their students. And the rates are bound to be competitive, because they are insuring a generally young, healthy population. Consult the policy paperwork to see if you can be added.
     On the flip side, you may be paying twice for healthcare coverage if you have college-aged kids. Buried in the reams of enrollment and tuition paperwork could be a clause about the student health service on campus or a commercial health plan as mentioned above. It can cost thousands of dollars. If your son or daughter can access your own insurance company's doctors and hospitals in the area where the college is located, you could forego this double coverage. And remember, the new healthcare law allows kids as old as 26 to remain on your plan, and that provision just went into effect.