What to Consider Before Buying Your First Home – Part 1

row houses

Coming to a position in life when you feel ready to purchase your first home is very exciting. Of course there will be a lot of planning and budgeting before any concrete decisions are made. But, there are certain things that many first-time buyers forget to even think about when planning out their big buy.

Use this as a checklist of things you should take into consideration when thinking about investing in a home.

Look Into Funding & Grants

You’d be surprised by the assistance available for potential buyers if you do the proper research. Many people are quick to assume they wouldn’t qualify for grants because of income limits, but that’s not always the case. There are a lot of associations that provide grants and assistance based on profession, so check for those first. Then, look into grants available specifically for the area/type of area that you are looking to live in.

 

Can You Handle a Financial Emergency?

I mentioned emergency funds in a past blog post in the context of bankruptcy prevention, but it absolutely bears repeating. If you are going to invest in a home, you must have a significant savings. If you lose your job, or there is a medical emergency, do you have enough saved to cover expenses and your mortgage for a few months?

First-time buyers who are transitioning from renting also often forget that all maintenance will now come out of pocket. Many homeowner insurances will have deductibles that you must hit before they pay for damages, so remember that there can be a lot of unplanned out-of-pocket expenses that come with owning a home.

 

Think About What Kind of Neighborhood You Want to Live in

It’s easy to be swept up into the whirlwind of house showings and open houses, and the last thing you want to do is fall in love with a house in an area that doesn’t align with your needs. One of the most important things to determine is whether or not the area is primarily renters or buyers. The high turnover of residents in rental properties means that the vibe of the neighborhood can shift very easily.

If you’re planning to have a family, there are also a few things to think about. What are the schools like? Are there a lot of other families in the area, or is it primarily single residents? Will there be resources for your children?

Tips to Prevent Bankruptcy – Part 2

bankruptcy

In this blog post, I started to address a few of the ways that an individual can avoid having to file for bankruptcy. Bankruptcy should truly be viewed as a last resort; the long term consequences of filing for bankruptcy can be paralyzing. In this blog post, I will cover a few more basic tips to keep your finances healthy, and avoid traveling down the (usually avoidable) path to bankruptcy.

 

Start an Emergency Fund

While this may not be possible if you are already deeply in debt, it is a great preventative measure. This emergency fund should be several months worth of salary that you save over time. In the event that a person disaster takes place (loss of a job or medical emergency), you will be able to continue to function financially for a few months and avoid immediate thoughts of bankruptcy.

 

Work To Rid Yourself of High Interest/Unsecured Debt

If a majority of your debt is on credit cards, it is likely that a large portion of the money you owe carries a very high interest rate, and is what we call unsecured debt. (Unsecured debt is debt that does not pertain to an asset or specific property – ie: a car, house, etc.) If possible, refinance your secured debt to rid yourself of the unsecured debt. Work with your lenders to refinance your mortgage and get a cash out to pay off the unsecured, volatile debt. The refinancing will allow you to take on debt at a lower, more manageable interest rate.

 

Maximize Your Income

If you have already worked to minimize your spending across the board, and it is not feeling like it is manageable, it may be time to take on a second job. If you have a capable spouse who is currently not working, they should also begin to seek employment. Any increased income that can be had will help make your situation a little better.

The reality is that the process of preventing bankruptcy is never an easy one, unfortunately you may be looking at making a lot of decisions that do not align with your current lifestyle. But, if you are actively thinking about bankruptcy, that does mean that your finances are in trouble, and a personal sacrifices now will ultimately make your life easier down the road.

 

For more resources, see these articles: Investopedia, Quciken, USNews

 

Getting Approved For a Mortgage: Here’s What You Need

calculator

The desire to own a home is relatively universal, and once you decide it’s time to start looking at homes, a whole plethora of tasks begin to unfold in front of you. The average individual does not have hundreds of thousands of dollars of cash on hand, so the greatest task to tackle is getting approved for a mortgage. While lending companies may be willing to extend credit under certain circumstances, the reality of the situation is that the standards for being approved (quickly) for a mortgage are very high. There are a few things that you will need (and need to be aware of) when applying for a mortgage:

 

Strong & Lengthy Employment History

Lenders feel safer with lending when your recent employment history touts at least a 2 year stint at your most recent place of employment. The longer you’ve been working (and the smaller number of job hops that you have on your resume), the more trustworthy you become to banks.

 

Excellent Credit & Your Credit Reports

This is a bit of a no brainer; your credit score is one of the most important factor when it comes to being approved for a mortgage.  Your FICO score can be in the 620-640 range to be approved for some loan programs, however a  credit score of 720 or higher will lend itself to getting much better interest rates, which can equate to thousands of dollars saved over your lifetime.

 

Make sure to review all three of your credit reports before diving into the mortgage application process. An estimated 40% of credit reports contain errors that could be directly affecting your credit score. Make sure to get all discrepancies fixed as soon as possible.

Money Down & Cash on Hand

It is virtually impossible to get a loan without putting money down. The general rule is to be prepared to put down a minimum of 20% of the mortgage up front. It’s also important to remember that banks and lenders will also be checking your cash on hand. Lenders are weary of mortgage applicants that don’t have a significant enough savings; if a single emergency could clean out your savings, it is unlikely that you will get a mortgage.

 

Misc Important Documents:

  • Records of your employment history for at least 2 years
  • Records of your residence for at least 2 years
  • Proof of Homeowner’s Insurance
  • Pay Stubs from the last 2 months of employment

 

For references and additional resources, please see the following articles: 123

 

Tips to Prevent Bankruptcy – Part 1

credit squeeze

Some individuals’ personal finances become so overwhelming that they look to bankruptcy as a quick fix. But the reality is that bankruptcy should be an absolute last resort. Filing for bankruptcy leaves the filer with an abysmal credit rating, which will make borrowing money virtually impossible for at least a decade. Those who file for bankruptcy are also subject to mandatory credit counseling, and are likely to be forced to make continuous and ongoing payments to various creditors.

There are a few situations where bankruptcy is virtually unavoidable. A long period of unexpected unemployment or a severe medical emergency can quickly clean out a savings account and leave few viable options for financial survival. However, most cases of bankruptcy are caused by unsustainable spending habits and a lack of savings. The majority of those cases can be avoided with just a few lifestyle adjustments.

 

Reduction of Spending

The easiest way to start cutting what you spend is to first determine where your money actually goes. Create a budget using an online service like Mint.com to really get a handle on exactly what your spending is each month.  Once you see exactly how you are spending your money, you can find areas where spending can be reduced.

 

Start by destroying credit cards, and using cash to make purchases. This will make your spending feel more “real”. If cash only is impossible, then your next step may be to downsize your current living expenses.  The goal of all of the reduction is to live within your means. If that means moving into a less expensive home or buying used cars instead of new cars, then those are measures that should be taken.

 

Contact Creditors/Lenders/Service Providers Before Payments Are Late

If you are already making the minimum payments on your bills, but are still struggling to keep up with the payments, contact the lenders. It’s important to determine if a late payment  could be made without penalty or if the bill’s deadline could be extended.

 

If you are working with a large amount of credit card debt, and seriously considering filing for bankruptcy because of it, speak to the creditors about your options. A lower interest rate or repayment plan may be available. Creditors do not want to lose all of the money that was loaned out, so they will be more inclined to work out a scenario where your payments are more manageable.

There is still much more to learn. Be sure to check back next month for more tips to Prevent Bankruptcy.

For resources and more information, see these two sites: here & here