By Mike Giusti • Bankrate.com

The allure of foreclosed properties to a would-be real estate investor is nearly irresistible: Buy valuable properties for pennies on the dollar with little or no risk of your own money, work when you feel like it, and grow rich.

Countless seminars and how-to books promise to turn even the most novice buyer into a high-powered real estate investor through the magic of foreclosed homes. The trouble is the dream of instant, safe, trouble-free wealth often turns out to be like most things that sound too good to be true — a scam. If easy money was to be made, everyone would be getting rich off of foreclosures.

True, some people do, just like some people get rich in the stock and commodities markets, oil wells and foreign currencies. But, just like these other forms of investing, profitably buying and selling real estate takes research, knowledge, experience, money and time. And nearly every deal with a huge profit potential also comes with an appropriately sized risk.

Beyond get-rich-quick seminars and informational classes offered by nonprofit agencies and local sheriff’s offices, few, if any professionals are available or willing to teach novice investors the ins and outs of foreclosure sales. Why should they show you how to buy a great property at a deep discount instead of doing the deal themselves?

Still, if you are willing to go it alone and invest the time and cash required to deal in foreclosures, your first step should be to understand the process as thoroughly as possible.

The basics
Foreclosure is the legal method by which lenders or governmental agencies take properties from owners who fail to make payments, and then resell those homes to recoup money owed them.

Nonpayment of a mortgage or home equity loan is the most common reason a home gets foreclosed, but it is far from the only reason. But people could also be facing a foreclosure because of a balloon payment, not paying property taxes, not carrying enough insurance, or even failing to keep the property in good working condition, says Rande Johnsen, a trustee for Trustee Corps in Irvine, Calif.

There are three distinct phases of foreclosures, each with its own advantages and each fraught with peril.

The 3 phases of foreclosure:

• Preforeclosure: The time between when the homeowner has stopped making payments and when the land is actually put up for sale at auction. Investors take this opportunity to deal directly with the homeowner. • Auction: When the courts seize the property from the homeowner and sell it to the highest bidder. The county sheriff or a trustee handles this process, depending on the state. • REO: If the property fails to sell at auction, or if the lender ends up as the highest bidder, the home becomes “real estate owned” (REO) by the bank. Banks then try to sell these REO properties on the open market, often through a real estate agent or third-party marketing company.

Often these homes are sold to buyers who don’t even know they are buying a foreclosure and go through the entire process as they would with any other home.

Going once …
The typical foreclosure is literally bought on the county courthouse steps during a sheriff’s auction or a trustee’s sale. These auctions are typically held on a weekday morning, and bidders must come to the sale armed with information and flush with cash or its equivalent. Plastic, personal checks and IOUs are almost universally shunned at auction and, depending on where you live, investors usually must make a sizable deposit or pay the entire sum on the spot, says John T. Reed, editor of Real Estate Investor’s Monthly newsletter and author of the book “How to Buy Real Estate For At Least 20% Below Market Value.”

Details vary widely by state, but as a rule, prospective buyers are not allowed inside the house before bidding begins. This is a frightening concept for many buyers, who must lay down thousands of dollars in cash upfront without knowing anything about the home beyond what is available through basic public records searches and a curbside appraisal.

The house could be infested with termites, gutted to the rafters by previous residents or filled with lead paint or asbestos, and a buyer wouldn’t know until after the sale is final.

This as-is aspect of auctions is only part of what can make foreclosures so perilous for beginning buyers. Another is that these homes can never be guaranteed to come with a clear title.

 ”You can never be absolutely sure you are going to be buying a house with a clean title in any sale, but foreclosures are particularly problematic,” says John Mixon, law alumni professor at University of Houston Law Center.

During a typical foreclosure auction, the homes that will be sold are listed in the legal advertising section of the county’s newspaper of record at least a week before the sale. And while you may have a week to research the records and history for each house scheduled for auction, many homeowners settle their disputes with the bank at the 11th hour, halting the sale. This means any time, effort or expense you invested to research the home is lost. Given these constraints, obtaining title insurance is out of the question.

But choosing to forgo title research could end up being infinitely more costly. “There are so many regulations, so many procedures that if you leave out a step, a previous owner may come out of the woodworks and show this to the court and you lose everything you put into the deal,” says John T. Reed, editor of Real Estate Investor’s Monthly newsletter and author of the book “How to Buy Real Estate For At Least 20% Below Market Value.“

Even if a title blunder doesn’t invalidate the sale, overlooking a lien that wasn’t wiped out by the foreclosure, such as an IRS debt you now have to pay, could wipe out any profit you hoped to earn. Procedural errors and court rulings could also halt a foreclosure sale. What’s more, some state laws include a statutory redemption period, allowing the original homeowner to repay the past-due amount on their loan, regain ownership and leave the investor holding the bag.

Not all hopeless
But all that doesn’t mean every auction deal is hopelessly risky.

“Very few institutional foreclosures are defectively handled,” Mixon says, so the best bet is to stick to homes that were foreclosed by reputable lenders, but only if they were the first lien holder, usually through a first mortgage. If the deal was done properly on the front end, complete with title insurance, there’s less likelihood that a skeleton is lurking, and about a 90-percent chance of getting a good title. “If you are buying a foreclosure brought by a small or shady lender or by a family member who lent the money, you may be looking at odds that are no better than you would get at the roulette table,” Mixon says.

Government auctions
Another variation on the auction is buying properties foreclosed by a government agency, such as the Department of Housing and Urban Development or the Veterans Administration.

These auctions are typically conducted online through a marketing company. Buyers are allowed to tour the homes in advance, conduct inspections and can often get title insurance.

While these auctions are appealing, the availability of homes is limited and the small stock is often bid on by several buyers. This makes it a very competitive market with prices discounted only slightly, if at all, off current market value.

Tabletop negotiations
One purchase method advocated by numerous seminars and real estate gurus is to find property owners delinquent in their payments through legal ads or online services that search public records and courthouse documents. You could then approach the owner directly to negotiate a private deal.

Advocates of this method call it “buying equity.” Essentially, investors pay the owner a fee and then take over the existing debt and the home. This keeps protects the homeowner’s credit report from the black mark of foreclosure.

Buying equity this way is difficult if a seller’s market exists because the owner could just as easily sell the home and usually pocket a greater amount in appreciation than an investor would be willing to pay.

“Some people call this stealing property,” Reed says. “It is a situation fraught with ethical problems.”

But similar to auction situations, the slightest slip-up could blow the deal, leaving the homeowner in the house and the investor out significant amounts of money. Also, all of the title problems inherent in an auction also apply in preforeclosure sales, except that without the legal proceedings of a foreclosure, all subordinate liens, such as home equity loans and construction liens, remain in place.

Sale mentality
Despite all the potential pitfalls, interest in foreclosures runs high. Part of the attraction comes from the same motivation that makes bargain shopping trendy, says C.J. Gehlke, editorial director of “The Resource,” a monthly newsletter published by REO Nationwide.

“What you find is a frenzy similar to what you get at a department store sale,” she says. “When you buy a house at foreclosure, it has the same mystique. You can brag to people at a cocktail party about how much you saved.”

Reed agrees that get-rich-quick fantasies are driving most buyers’ interest in foreclosures. “Buying foreclosures is not something a beginner should try. Many of the gurus are out there telling crowds anything they want to hear, true or not, just to sell some books.”

Michael Giusti is a freelance writer based in New Orleans.

By Holden Lewis • Bankrate.com

Lenders have abruptly stopped offering the most popular type of subprime mortgage. Credit-challenged borrowers suddenly have fewer options.

“Many borrowers are not going to be able to refinance,” says Deborah Goldstein, executive vice president of the Center for Responsible Lending. The consumer watchdog group has criticized loose standards for subprime mortgages, which are home loans for people with problem credit — generally, with credit scores below 620.

Over the past few years, the most common type of subprime loan has been an adjustable-rate mortgage known as the 2/28 ARM. Since mid-July, five of the six biggest subprime mortgage lenders stopped offering 2/28 ARMs. Suddenly, there’s a shortage of the type of mortgage preferred by about 60 percent of subprime borrowers.

“We think it’s a good thing for consumers,” Goldstein says, because too many 2/28 ARMs were underwritten without regard to whether borrowers could afford to repay them. “So we think it’s positive that lenders are going to stop offering that product. It doesn’t mean they’ll stop offering subprime loans.”

A 2/28 subprime ARM has a low initial rate that lasts two years. After that, the loan resets, which means that the rate is adjusted upward or downward. At the first jump, the rate can conceivably climb 2 to 6 percentage points, causing monthly payments to skyrocket. (In practice, the first rate jump is usually on the smaller end of that scale, but it can keep rising every six or 12 months after that.)

What’s a refi customer to do?
Mortgage brokers and loan officers say borrowers who need to refinance their subprime mortgages still have options — just not as many. Some lenders might still offer 2/28 and 3/27 ARMs, although the rates might be high — possibly into the double digits.

And some lenders offer 5/25 ARMs and 30- and 40-year fixed-rate subprime mortgages. In addition to that, there are “expanded approval” loan programs, which allow lenders to offer Fannie Mae-approved loans to people with blemished credit — but borrowers have to document their incomes, pay principal as well as interest, and, in most cases, pay mortgage insurance.

“It’s old-school again,” one mortgage banker sums up.

Federal Housing Administration-insured loans are another option, as long as the borrower has at least 3 percent equity in the house. Veterans Administration-insured loans don’t require a down payment.

What about homeowners who face an impending rate reset that will send their payments to unaffordable levels, but can’t qualify for a refinanced loan — either because of insufficient payment history and income, or because they owe more than the house is worth?

“Some families are going to have to make ugly decisions,” a banker says, by cutting back on spending or, in the worst case, losing the home in foreclosure.

Cause and effect of easy borrowing
Underwriting for subprime ARMs was so lax in 2005 and 2006 that hundreds of thousands of borrowers fell behind during the initial two-year period, before their loans reset and the payments jumped.

At the end of March, almost 16 percent of subprime ARMs were at least 30 days past due, according to the Mortgage Bankers Association. That’s high, and the default rate is bound to get even worse as subprime ARMs reset over the next couple of years.

Too risky
Wall Street and Capitol Hill were surprised by the high default rates, and pressure from both places led to this month’s sudden scarcity of the 2/28 subprime ARM.

On Wall Street, investors’ demand for bonds backed by 2/28 ARMs abruptly dried up because the loans were perceived as too risky. Unable to sell the loans on the secondary market, lenders stopped offering them to consumers.

That was the explanation offered by Countrywide, the largest mortgage lender (both prime and subprime): “Due to the current market environment for subprime collateral, Countrywide is no longer able to offer subprime 2/28s,” the company said in a terse statement. “The decision reflects substantial tightening of secondary market demand for this product.”

HSBC Finance was the nation’s second-biggest subprime lender at the beginning of 2007. An HSBC spokeswoman says the company still offers 2/28s, and “we are always evaluating if and how we will offer this product going forward.”

The next four largest subprime lenders — Option One, First Franklin, Wells Fargo and Washington Mutual — withdrew 2/28 ARMs in the last few days. First Franklin and Washington Mutual eliminated 3/27 ARMs, too.

Some options remain
The only lender that was willing to talk at length about the decision was Washington Mutual. David Schneider, president of WaMu’s home loans division, says the lender will continue to offer 5/25 subprime loans, in which the introductory rate lasts five years. When WaMu pulled the plug on 2/28s and 3/27s, the introductory rate on 5/25 subprime loans was one-eighth of a percentage point higher than on the 2/28.

“The difference in rate is fairly small,” Schneider says. “We think it also gives borrowers more time with stability of payments versus having shorter-term loans with the possibility of rate increases.”

WaMu announced other changes in the way it underwrites subprime mortgages. All subprime borrowers will have to document their income instead of merely stating it without providing proof, and taxes and insurance must be included in their monthly payments. Every borrower will be contacted by someone from Washington Mutual, even if the loan was originated indirectly through a broker. WaMu describes these commonsense standards as “industry-leading,” with justification, which goes to show how reckless subprime underwriting became in the last two years.

The withdrawal of 2/28 ARMs, plus tighter underwriting standards such as the ones that WaMu implemented, follow months of pressure by federal regulators. At the end of June, the agencies issued guidelines telling lenders to qualify borrowers based on their ability to repay subprime ARMs after they have reset to higher rates.

The regulators told lenders that they should require subprime borrowers to document their income because doing so “is critical to conducting a credible analysis of borrowers’ repayment capacity, particularly in connection with loans to subprime borrowers.”

Yes, federal regulators actually had to tell lenders to verify the incomes of credit-challenged customers who want to borrow hundreds of thousands of dollars.

by Joel Kotkin
Thursday, July 12, 2007provided by

Sure, big cities have their charms, but for families the suburbs are here to stay

An increasingly trendy theory holds that the ticket to attracting and retaining the educated and upwardly mobile is a big dose of urban cool: Think open-air cafes where well-heeled retired boomers and twenty-something professionals gather after the theater to sip Pinot Grigio while looking out at a skyline defined by the latest creation of a world-renowned starchitect.

The facts, though, don’t bear out the theory. Most of those twenty-somethings don’t stick around. As they get older, according to research by my colleagues at the Praxis Strategy Group, they tend to leave the hip urban areas of New York City, Los Angeles, Boston and San Francisco for the suburbs or for less glamorous but more affordable markets such as Phoenix, Charlotte, Atlanta, Dallas and Houston and their suburbs. And that, for the most part, is where they’ll stay.

Opportunity First

This migration pattern, which began at least as early as the mid-1990s, has accelerated since the late ’90s. Why? People follow jobs. Despite all you’ve heard about legions of Wall Street traders and Internet 2.0 entrepreneurs in New York City or San Francisco, job growth — including jobs in technology and financial services - has been weaker in these urban cores than in the sunbelt.

Meanwhile, places like Houston, not usually thought of as the embodiment of cool (of humidity, yes, but not cool), have seen a surge in educated migrants due to the boom in energy and health-related industries. “Our business has been growing 30% to 40% for the past three years,” says Chris Schoettelkotte, CEO of Manhattan Resources, a Houston search firm that recruits energy executives. “We’re pulling people from Wharton, Harvard, MIT and UCLA like never before.”

Besides a good job, Houston and other growing areas can provide far more attractive housing options, a bigger and bigger issue of late. Between 2001 and 2005, housing prices more than doubled in Los Angeles and Washington, D.C. vs. a rise of 25% or less in Dallas, Houston or Charlotte. Equally important, prices have risen far more quickly than income in cities such as New York, Miami and San Francisco.

It’s no wonder that in a recent survey by the Coastal Industrial Cities Project, which studies urban attitudes around the world, 81% of Houstonians agreed that “if you work hard in this city, eventually you will succeed.” Just 76% of Angelenos and 67% of New Yorkers said the same.

Over time these differences will affect talent flow. In Portland, Ore., 33% of families can afford a median-priced home; that city will lure people from the Bay Area, New York and L.A., where fewer than 10% can. More affordable Dallas, Houston and Charlotte will continue to flourish. Indeed, housing costs have a big impact on corporate decision makers. Most companies require a broad spectrum of skilled employees, not just the rarefied products of Harvard Business School or Caltech. This allows a place like Charlotte to compete more effectively, says local developer John Harris. “It’s hard to be a mass employer in San Francisco,” he notes.

Kids Are Better Than Cool

That’s particularly true, Harris adds, if you’re trying to lure workers with families. And at some point in their prime working years, the educated staffers companies want will have young ones at home. High-priced cities like San Francisco have among the lowest percentages of children; Dallas, Phoenix and Charlotte are, comparatively speaking, crawling with the little tykes.

This is not to say amenities don’t matter. To be sure, you don’t suddenly stop liking art museums, good food and street-level diversity when you hit 30. But priorities change. The desire for cohesive neighborhoods, home ownership, good schools, recreation and proximity to jobs usually trumps the need to be at the center of the action. It’s worth noting that the cultural amenities in Dallas, Atlanta, Houston or Charlotte have improved notably. Espresso and art follow good jobs, not the other way around.

Sterile? Says Who?

“Have you ever lived in the suburbs? It’s sterile. It’s numb. It’s wasting your life,” then New York City mayor Ed Koch once said. He was wrong. People keep moving from the city to the suburbs, and apparently they like it.

The trend is fairly universal. Greater Portland, considered an earthly paradise by many new urbanists, may be a magnet for educated workers, but that doesn’t mean most live in the hip urban core. Since 2000, more than 95% of greater Portland’s population growth, notes demographer Wendell Cox, took place outside city limits.

The reasons for the push outward vary, but numerous studies reveal that, contrary to some assumptions, residents feel suburbia provides a richer community life. Granted, most people don’t think they live in the land of Leave It to Beaver, but it’s a far cry from the dystopia of American Beauty.

One would imagine that residents of Philadelphia, a city of well-established neighborhoods, would identify strongly with their communities. Yet a recent Temple University study found that nearby suburbanites were considerably more likely than city dwellers to see their neighborhood as “home.”

Finally, it’s worth noting that home is where they’ll stay, even as children move on. According to a recent Brookings Institution study, most boomers will age in place, and the migration of retirees out of cities will be more common than into them. I’m no hater of cities. My last book was a history of cities. My family and I live in Los Angeles, albeit in a ’30s vintage “suburb” in the San Fernando Valley, and we plan to stay. But the data spell out that most people over 30 probably want something even less urban: a bit less edgy and a lot less crowded, more family-friendly and usually more affordable as well.

Joel Kotkin, a presidential fellow in urban futures at the Hobbs Institute at Chapman University, is author of The City: A Global History. He is writing a book on the American future.

by Jeff Cox
Monday, July 16, 2007provided by

Looking for an affordable place to own a home? Think Garfield Heights, Ohio, or Penn Hills, Pennsylvania, or any number of the townships and communities clustered predominantly in America’s industrial heartland. Nine of the 25 in the list can be found in Ohio alone.

To generate the list, we divided median family income by median home prices. The towns are ranked in order of their home-to-income ratio. And average prices are less than half the cost of hot coastal markets, such as Boston, San Francisco and Seattle.

Northbrook, Ohio
Median family income: $59,902
Median home price (2006): $83,760
This sleepy Cincinnati suburb has more than 11,000 people and some of the best housing buys in a region known for affordable places to live. Residents say they like the low-key living there, aided by a high percentage of home ownership. Northbrook is one of many Ohio communities benefiting from an influx of out-of-state buyers looking for investment properties. Prices, however, remain reasonable and the community has managed to maintain its character.

Blacklick Estates, Ohio
Median family income: $59,172
Median home price (2006): $83,480
A short drive from the flourishing state capital of Columbus, Blacklick Estates provides a pastoral setting with good schools nearby and a number of activities within walking distance.

Tonawanda, New York
Median family income: $51,819
Median home price (2006): $74,878
The town’s name means “Swift Running Water” not “Crazy Real Estate Bubble.” Tonawanda commonly refers to several towns in Western New York, but in this case we’re talking about the two that run along the Niagara River with attractive affordable homes. Available there: A ranch with three bedrooms and two baths for $119,000 — and that’s on the high end. Values are easily found for under $100,000, making this region both beautiful and budget-friendly.

Shiloh, Ohio
Median family income: $54,079
Median home price (2006): $79,722
“Shiloh” is generally believed to be an Old Testament reference to the Messiah. Ohioans are so enamored with the name that they’ve given it to four towns in the state. We’re focusing on the one in Montgomery County. The city has an abundance of neatly kept, smartly priced homes where fixer-uppers start in the mid-60s and where you can get a three-bedroom with garage for about $135,000.

West Mifflin, Pennsylvania
Median family income: $52,771
Median home price (2006): $81,113
Just a few miles southeast of downtown Pittsburgh, West Mifflin provides easy access to the greater metropolitan area with housing prices that are anything but big-city. Late-model split-levels go for $189,000, while wide open spaces can be purchased for a reasonable $50,000 an acre.

North College Hill, Ohio
Median family income: $52,482
Median home price (2006): $80,761
While this Cincinnati suburb dates to the year the Constitution was signed, you don’t need old money to live there. Well-maintained ranchers and Cape Cods go for under $100,000, and you can pick up a newer four-bedroom for under $170,000. The Ronald Reagan Cross Country Highway provides fine transportation access but hasn’t caused property values to skyrocket.

Maple Heights, Ohio
Median family income: $54,368
Median home price (2006): $84,597
This Cleveland suburb has been the beneficiary of some very ambitious local economic development initiatives, but housing costs remain well in line with what the locals can afford. Prices there tend to be a bit higher than other parts of the state — a modest Cape Cod in the nicer part of town will run you $130,000 — but Maple Heights is still well below the national average. There are plenty of bargains in the below-$100,000 range.

Kenmore, New York
Median family income: $59,875
Median home price (2006): $93,413
Kenmore joins the aforementioned Tonawanda to form a region the locals call Ken-Ton. The Buffalo suburb offers low-cost housing in low-crime neighborhoods. Decent single-family homes start around $70,000 there with many in the $150,000 range. More exclusive areas, like Deerfield Park, will cost you close to $300,000.

Penn Hills, Pennsylvania
Median family income: $54,022
Median home price (2006): $84,915
For an incorporated township, Penn Hills is sizeable with more than 40,000 residents, but the real estate market hasn’t overheated. Decent homes in this Pittsburgh suburb can easily be found for less than $100,000, while impressive five-bedroom homes on sprawling properties can be had for about $300,000.

Brentwood, Pennsylvania
Median family income: $55,105
Median home price (2006): $86,878
Another in a long list of inexpensive, quiet suburbs in the Pittsburgh-Northeast Ohio corridor, Brentwood gets plenty of lake-effect snow but lots of heat from the local real estate market. Like its counterparts, you can get a decent fixer-upper or starter home in the $60,000 range, but you can also go upscale with the $300,000-and-up construction sprouting in the newer neighborhoods.

Depew, New York
Median family income: $56,786
Median home price (2006): $90,149
Quiet Depew is another Buffalo suburb known for nasty winters and low-cost housing. In this old railroad town it’s not unheard of to find older homes selling for around $50,000, with very few properties over the $400,000 mark.

Irmo, South Carolina
Median family income: $74,920
Median home price (2006): $119,003
This suburb of state capital, Columbia, features scenic Lake Murray, a solid travel system and great schools — just the kind of place where real estate prices should soar. Yet costs remain reasonable, with a fair number of bargains below $150,000. The high end, though, can get pretty high, with properties listed at $500,000 and up.

Corning, New York
Median family income: $52,152
Median home price (2006): $83,198
Glass manufacturer Corning Inc. serves as the economic bedrock for this southwest New York community known also for the elaborate Rockwell Museum of Western Art. Opportunities abound for the housing bargain hunter, with many fine homes listed below $75,000 and few over $400,000.

Lancaster, New York
Median family income: $61,781
Median home price (2006): $98,883
The town of Lancaster and the smaller adjacent village by the same name have been talking about merging, but until then this upstate community stands on its own as an affordable housing center. Single-family homes start under $100,000 and run to the half-million-dollar range — still far lower than in many other regions in the state.

Bellevue, Ohio
Median family income: $55,104
Median home price (2006): $91,322
This little sliver of a city somehow manages to span four counties, perhaps accounting for the wild variations in home prices. A small single can run you as low as $35,000, but the larger homes in newer developments will set you back close to $600,000.

Gates-North Gates, New York
Median family income: $59,960
Median home price (2006): $99,612
Part of the larger town of Gates, this upstate community is near a number of major corporate headquarters including Eastman Kodak and Bausch & Lomb. Despite such well-heeled neighbors, the Gates area remains a place where you can easily find a great home in the $100,000 range.

Cheektowaga, New York
Median family income: $53,039
Median home price (2006): $88,239
Yet another place to go house-hunting in the Buffalo region, Cheektowaga is the largest of the suburbs with a population approaching 100,000. The town features hundreds of multi-dwelling units that go for $90,000 and under as well as an amazing array of single-family houses priced below $75,000.

Cheviot, Ohio
Median family income: $54,611
Median home price (2006): $92,038
This small Cincinnati suburb has houses priced to sell. A handful of available luxury homes will set you back about $500,000, but the lower end finds a slew of handsomely maintained homes for well under six figures.

Boardman, Ohio
Median family income: $61,012
Median home price (2006): $103,175
Part of that up-and-coming Pittsburgh-Northeast Ohio region, the sprawling town is known mostly for farming and its banner crop of athletes, which include former Cleveland Browns quarterback Bernie Kosar. On the real estate scene, an array of cute single-family homes goes for under $100,000, with an abundance of fixer-uppers for half that price. There are also quality higher-end properties available around this charming town.

Lincoln Park, Michigan
Median family income: $56,912
Median home price (2006): $96,579
Residents of this Detroit suburb generally work in the city at one of the automotive plants, with industry in town virtually non-existent. Housing prices run the gamut, with most under $150,000 and very little above $250,000.

Melvindale, Michigan
Median family income: $53,156
Median home price (2006): $90,302
A Detroit suburb with precious little of its own industry, there are lots of homes available in Melvindale for under $100,000. Even $150,000 gets pricey here, with the most expensive homes topping out at under $300,000.

Storm Lake, Iowa
Median family income: $50,455
Median home price (2006): $85,830
Home of Buena Vista University, Storm Lake is an ethnically diverse community rich with housing bargains. There are a handful of homes in the $500,000 range, but you can get plenty of house for under $70,000.

Garfield Heights, Ohio
Median family income: $54,166
Median home price (2006): $93,116
This Cleveland suburb recently witnessed the completion of the $200 million CitiView Center, a mega-complex to house shopping, a hotel and office space. Property values are still reasonable though, with an amazingly rich selection of real estate, at least half of it priced under $150,000 and only a sliver of more than 1,700 listings priced over $250,000.

Kokomo, Indiana
Median family income: $50,355
Median home price (2006): $87,148
Slow-moving Kokomo is home to a DaimlerChrysler plant and Delphi Corp. world headquarters. Its real estate market, though, remains tame, with most listings coming in below $250,000 and more than half well below $100,000. Not the Kokomo Island of which the Beach Boys sang, but definitely an oasis for home shoppers on limited budgets.

Harper Woods, Michigan
Median family income: $63,770
Median home price (2006): $110,486
This small city split off from a larger township 55 years ago and has made its identity, as the name implies, as a rural counterpart to its more industrialized neighbors in the Detroit area. Co-ops and condos might be the biggest bargain in town, with most starting around $40,000. Single-family homes are available as well for under $100,000 where even the high end doesn’t get much higher than $200,000.

by Kate Ashford, Asa Fitch, Stephen Gandel, Josh Hyatt, Sarah Max, Jennifer Merritt
Monday, July 16, 2007provided by

Some towns have everything any family could want

When you’re young, the big city is a great place to be. There comes a point, though, when you’re ready to trade night life for shade trees, sushi for pizza and roommates for children.

It’s time to find the place where you’ll spend the better part of your adult life — raising your kids, climbing the career ladder and building your family’s future. For most folks who have the option, that means a place that’s smaller, safer and greener.

But there’s a big difference between a gated McMansion subdivision and a town where you can put down roots and participate in a community that has a broader list of concerns than the height of the hedges. The latter are the kinds of places MONEY looks for in naming America’s Best Places to Live.

This year we focused on smaller places, between 7,500 and 50,000 in population, that offered the best combination of economic opportunity, good schools, safe streets, things to do and a real sense of community.

We made a few tweaks to our methodology adding a ranking for ethnic and racial diversity and — with the cost of housing an issue for so many families - paying extra attention to home prices and property taxes. That meant a few expensive locales that have been on past lists slid in the rankings, while some more affordable places moved up. And the winner is…

1. Middleton, Wis.

Population: 17,400
Typical single-family home: $325,000
Estimated property taxes: $6,200
Pros: Small-town charm; booming economy; extensive parks and bike trails
Cons: Do you like winter?

Troy and Sally Mayne liked Madison just fine, but they were looking for something more — a tight-knit community where their two children could play with friends, go to school and bike to their heart’s content. They found what they wanted seven miles away, in Middleton, this year’s No. 1 spot. The Maynes bought a home in Middleton Hills, a nationally recognized “new urban” development with large swaths of open space and close proximity to the 520-acre Pheasant Branch conservancy.

Five years on, they feel they have the best of both worlds. They benefit from the economic and cultural advantages that come with Madison’s status as home to the University of Wisconsin and as state capital. But the pace of life in Middleton is a little slower, the people friendlier. “In Madison you weren’t tied in with the fabric of your community,” says Troy, 43, a real estate attorney. “It’s just the opposite here.”

Many Middletonians, like the Maynes, commute to Madison, where Sally is a government lawyer. But Middleton proper has a strong pool of jobs too, mainly in the pharmaceutical, tech and medical industries. Dollmaker American girl is one of the town’s largest commute to Middleton than residents leave for Madison.

After business hours Middleton has more going on than you might expect for a town of 17,000. The beer garden at the Capital Brewery is host to corporate mixers, and there are good restaurants downtown. But make no mistake: family life is what Middleton is about. In the summer you’ll see parents and kids plying the bike trails of the conservancy, splashing in the town’s waterslide-equipped pool or sailing on Lake Mendota.

On the downside, winter is tough, and there’s not great ethnic diversity. But for Bronx natives Mary and Carmelo Saez, who settled here in 2005 after a long search for a safer community with better schools than they could find close to home, the positives easily outweigh the negatives. First, there’s bang for the buck. “There are houses here that you can afford comfortably,” says Mary, 35, who works in the district office of the elementary school her girls attend.

Second, there’s a sense of tranquility they’ve longed for. “Out here it’s more relaxed,” says Carmelo, 37, who teaches adult education in Madison. “People are really comfortable around one another.”

2. Hanover, N.H.

Best of the East
Population: 8,500
Typical single-family home: $385,000
Estimated property taxes: $6,000
Pros: Rich cultural and community opportunities; diversity
Cons: Winter isn’t for wimps.

Don’t be fooled by Hanover’s mountain setting or its quiet charms. This isn’t your typical New England college town: It’s more an international city than a pastoral hideaway. About 20% of residents are nonwhite, and more than two dozen nationalities are represented.

That’s partly what led Aharon Boghosian, 50, who left in 1981, to return with his wife and two kids to take over the family business. “We have friendships with people from all over the world and all different cultures,” says Boghosian, who runs Gilberte Interiors, the company his Armenian mother started in 1967. Daughter Rachel’s classmates hail from as far away as Ghana and Japan.

The world-class teaching hospital Dartmouth-Hitchcock Medical Center (just a stone’s throw away in Lebanon), a smattering of environmental engineering and mid-size technology firms and, of course, Dartmouth itself all attract the cosmopolitan crowd. Add a downtown dotted with locally owned shops and restaurants and a fully stocked grocery cooperative, throw in a myriad of year-round activities sponsored by the college or the town, and it’s easy to see why people love it here.

Being outdoors is simply a way of life in Hanover, says Jan Sayles, who arrived here two years ago with her husband Rick and their two kids, seeking refuge from the New Jersey suburbs. Jan, 42, now often walks a wooded and winding path along the Connecticut River near her home. Rick, an accountant and financial analyst, has joined a growing number of new arrivals who telecommute. “There’s a real sense of community spirit and unbelievable cultural opportunities here,” says Jan.

Hanover has drawbacks, certainly: It’s out of the way — two hours from Boston and 90 minutes from Manchester, N.H. — and while you can get a four-bedroom house for less than $400,000, homes close to town can be pricey. The pressures of gentrification have reached the point that the town is developing moderate-income housing. And if you can’t stand winter, you won’t like Hanover. But if you’re the adventurous sort, the skiing and skating are great.

3. Louisville, Colo.

Best of the West
Population: 19,500
Typical single-family home: $310,000
Estimated property taxes: $2,100
Pros: Historic downtown; hiking and skiing
Cons: Tech-heavy economy

When Jill Connell and her husband Brian Lutz relocated here from nearby Longmont last year with their two children, pies arrived on move-in day and the neighbors threw them a welcoming party. “It’s like living in the 1950s,” says Connell, 36. Or even earlier. Louisville was founded in 1882 by immigrant coal miners, and the old wooden buildings downtown still give the place the feel of a small frontier town.

Louisville’s economy, though, is decidedly 21st century: Technology firms are the area’s mainstay. Louisville suffered two years ago when StorageTek, once the town’s largest employer, was bought by Sun Microsystems. Headquarters were moved to a neighboring town, and 500 jobs were cut. But other employers have moved into the city’s 240-acre business park, and Louisville is only six miles from Boulder, 25 from Denver. And the health-care and biotechnology sectors have added jobs and diversity to the area’s economy in the past five years, says Brian Lewandowski, a researcher at the University of Colorado at Boulder.

Since this is northern Colorado, the outdoor life is spectacular. Locals hike and climb in Rocky Mountain National Park, about 45 minutes away, and Colorado’s famed ski resorts are reachable in less than three hours. Louisville’s own 26-mile wooded biking and running path winds through much of town, in between homes and through backyards.

On summer Friday nights, residents head downtown to the fairgrounds for concerts, craft booths and food. “Louisville feels cohesive,” says Alison Sarinopoulos, a mother of two who has lived here for six years. “It is more than just a place with a bunch of houses.”

Speaking of which, home prices are up recently — to more than $300,000 for the average single-family residence. But an old farmhouse near downtown can be had for less than $200,000, and condos can be found for similar prices. What you won’t find are the private, gated developments typical of other prosperous small cities. “A gate,” says local real estate agent Kelly Moye, “would be too pretentious for Louisville.”

4. Lake Mary, Fla.

Best of the South
Population: 13,200
Typical single-family home: $325,000
Estimated property taxes: $5,200
Pros: Big-economy jobs, small-town feel, no income tax
Cons: Florida summers, Florida hurricanes

Charlotte Smith-Wilkes used to commute an hour and 20 minutes to work each way when she lived in Miami. Now that the insurance executive lives in Lake Mary, the trip takes her four minutes flat. “We were looking for a calmer place to live, a place to raise children,” says Smith-Wilkes, 48. She and her husband arrived 10 years ago and now have two daughters. “You get really spoiled,” she says, “because everything is so close.”

Less than a decade ago, “everything” might have referred to Orlando or Disney World, which are 30 minutes away, or to Daytona Beach, reachable in 45. But growth has brought Lake Mary residents plenty of shopping, restaurants and events in their own backyard. There are lakes for boating and fishing, and the Timacuan Golf Course lies in the center of town. The downtown is a work in progress, but plans are moving ahead to create multiuse plazas that incorporate retail, office and residential space.

Recreation is one thing, but jobs keep Lake Mary humming. On weekdays the population rockets from less than 14,000 to more than 35,000 as commuters arrive. AAA and Ruth’s Chris Steak House keep their headquarters here, while others, like the Hartford and AT&T, maintain a large presence in the area’s office parks.

All of the development has pushed housing prices higher, but a four-bedroom, three-bath house can still be had for $300,000. Of course, there’s always the weather to worry about. In 2004 the town spent more than $2 million cleaning up after hurricanes. Three years later, though, the streets are once again lined with palms and flowering crape myrtles, and residents are more than willing to risk a storm for the town’s amenities. “We’re away from the tourists, we’re close to the beach, and there are really good schools,” says Tracy Paone, 39, a stay-at-home mom who lives here with her husband and two children. “To me, it’s just right.”

5. Claremont, Calif.

Population: 35,900
Typical single-family home: $700,000
Estimated property taxes: $7,800
Pros: Tight-knit community with topnotch schools
Cons: Poor air quality, high home prices

A lot of Southern California suburbs are defined by trendy retail chains and cookie-cutter developments. Claremont is defined by a rich history, spectacularly tall trees and a mix of Victorian and Spanish colonial architecture. Thirty miles east of Los Angeles at the base of the San Gabriel Mountains, the city came into its own in the early 20th century after the founding of Pomona college. Streets were named after prestigious east coast schools, and residents were encouraged to plant trees.

Today, Claremont is called the city of trees and Ph.D.s. That’s no exaggeration. The city has won the National Arbor Day Foundation’s Tree City USA award for 19 straight years, and Pomona College is part of a prestigious seven-school consortium known as the Claremont Colleges. The downtown, or “the village,” is a mix of hip boutiques and old school businesses. And the historic College Heights Lemon Packing House is now home to the Claremont Art Museum, restaurants, a jazz bar and artists’ lofts. “There is no other place like this in Southern California,” says Jason Annigian, 32, an attorney who moved from Newport Beach with his wife Katharine, 28, in October. “It has a small-town feel, but it’s also artsy and eclectic.”

And relative to much of California, it’s affordable (emphasis on “relative”). The Annigians, who are expecting their first child in August, sold their Newport Beach condo for more than they paid for their 2,200-squarefoot home near The Village.

With 3,000 employees, the colleges are the largest local employers. Ties to academe have rubbed off on Claremont’s primary schools, which are among the state’s best. “I don’t know of a better place to bring up kids,” says Jeff Stark, 45, a financial adviser who was raised here and moved back after college.

As for the grown-ups, “in the winter you can surf in the morning,” says Stark, “and ski in the afternoon.”

6. Papillion, Neb.

Population: 18,800
Typical single-family home: $250,000
Estimated property taxes: $5,100
Pros: Outdoor recreation, growing local economy
Cons: Lack of arts and culture

Fred Juhl always wanted to live in a small town like the one in northwestern Iowa where he grew up. When he and his wife Terrie decided in the early ’90s that it was time to leave Omaha, where Fred was a systems analyst with insurer Mutual of Omaha, they started looking for a suburban enclave with the kind of community feel that Fred desired. They found it in Papillion, then a town of 10,000 about 12 miles from downtown.

In the 15 years since, the Juhls have raised two sons, and Papillion has grown and prospered along with Omaha, an increasingly important center of finance and insurance. Warren Buffett’s Berkshire Hathaway and TD Ameritrade, among others, are based there. In Papillion itself, home-security powerhouse ADT and InfoUSA, a collector and vendor of personal and business information, have major operations.

Papillion’s population has nearly doubled since the Juhls moved in, but much of what attracted them remains — low crime, good schools and a vast expanse of parkland. Parks take up almost 30% of the town and include a network of bike trails that connects to Omaha’s 120-mile system. Recently, Papillion has spent more than half a million dollars renovating the historic downtown, putting in new sidewalks, faux-antique street lighting and ironwork accents. “It was a very small town and a well-kept secret when we came,” says Terrie Juhl. “But it had room to grow, and the town has managed the growth well.”

That will continue to be a challenge. Permits were issued for more than 300 new homes last year, but town leaders insist that they won’t let the tide of development turn Papillion into a sea of subdivisions and strip malls. “We’re one of the fastest-growing communities in the state,” says Mayor James Blinn, “so it’s imperative that we don’t fall asleep at the wheel.”

7. Milton, Mass.

Population: 25,700
Typical single-family home: $440,000
Estimated property taxes: $5,900
Pros: Close to Boston; borders conservation land
Cons: Traffic, little commercial activity

A former actress who appeared on Seinfeld, Carissa Steefel has traded in her Hollywood dreams to raise a family in Milton. “We’re not going anywhere,” she says. Not that there’s anything wrong with that. Just eight miles south of the heart of Boston, Milton borders the Blue Hills Reservation, a 7,000-acre park with hiking, swimming and skiing. “It’s almost rural, but you have easy access to the city,” says Jonathan Pincus, a physician and father who works in Boston.

Indeed, proximity to the city is what brings — and keeps — Milton residents where they are. Its loyal citizens do age, but even then they don’t move. Fuller Village, a senior-housing development, is the town’s single biggest taxpayer. In part that’s because there are few businesses contributing to the tax base. East Milton Square is the town’s Main Street, with coffee shops, a pizza place and a small grocery store. What’s missing, most agree, is a destination eatery. “Everybody wants a restaurant but not in their backyard,” says Kathleen Kechejian, a mother of two who last year opened Glory Daze, a consignment boutique. During the summer the big gathering place is the city swimming pool, built by a local family and open to any resident who pays the $75 annual dues.

Milton boasts a diverse pop