Budgeting, Home Ownership, Marriage
First comes love, then comes the mortgage, then comes the wedding? Although it may seem unconventional for a couple to purchase a home together before making the trek down the aisle, according to a 2013 study by Coldwell Banker, approximately 25% of couples between the ages of 18 and 34, and 14% of those aged 45 and older purchased a house together before they were married.
Here’s how to be unconventional, but also protect yourselves:
Address the Legalities
When going into any type of transaction with a partner, it’s imperative you have open and honest conversations about roles and responsibilities.
- How much will you each contribute to the down payment?
- How much of the mortgage payment will you each be responsible for?
- Who will handle the excess fees, such as such as property taxes, homeowner’s insurance, and any homeowners association fees?
- Who’s responsible for property maintenance and upkeep?
- How will you fund or handle home upgrades?
Delegate roles and responsibilities so that you’re each comfortable with what the other is contributing and consider documenting these in a cohabitation agreement, which is a legal document that will protect each of you should the relationship turn sour. Also, draw up a property agreement, which lists the items (furniture, appliances) each of you bring to the home and designates how jointly purchased items should be divided, if ever necessary.
Aside from documenting the financials, consult with an attorney on the correct titling of your property. There are two options:
1. Joint tenancy with rights of survivorship gives you each a 50% ownership in the home. Should either of you pass away, the deceased’s interest will automatically transfer to the surviving owner.
2. Joint tenants in common lets you to designate the percentage each owner is responsible for (i.e., 70% / 30%). In addition, the deceased’s interest wouldn’t automatically transfer to the surviving owner. Should either of you pass away, the percentage owned by the deceased will be distributed according to the deceased’s will or based on the probate process in your state should no will exist.
Have Open and Honest Conversations
If you’re talking about purchasing a home together, you should’ve already shared what each other’s income levels look like, existing savings account totals, debt load, and current credit score. If possible, peek at each other’s credit reports so you know what you’re each getting into. Also, share how much of your existing assets you’re willing to commit toward a home purchase.
Know that when you purchase a home, you’ll likely be approved for a mortgage amount and interest rate based on both incomes and credit histories. Should the relationship not work out, you’ll need to agree to one of several scenarios:
- Maintaining joint ownership.
- Selling the property.
- Trying to refinance into only one of your names, which may be tough with only one income, depending on the size of your mortgage.
In addition to divulging all of your financial numbers, be sure to come clean to each other about any financial habits that you have.
Naturally, you’re planning for a positive future together, but how should you handle things if the relationship doesn’t work out? By having an open and honest dialogue early on, you’ll set the stage for a more stress-free purchase process.
This post was written in partnership with The National Association of Realtors. I have been compensated, but the thoughts and ideas are my own. For additional home finance tips, check out HouseLogic.com.
Budgeting, Goals, Home Ownership, Organization, Travel
If you’re considering purchasing a home, you’ve likely already considered how much you have available for a down payment, what an ideal mortgage payment would be, and how much home you can actually afford based on your monthly income. But what about your lifestyle?
Have you considered how much wiggle room you need to leave in your home budget to enjoy life? Here are six life factors to consider when buying a home:
1. Travel
Travel is an important goal for many people. Think about the travel goals you have for yourself:
- Where do you want to go?
- What do you want to see?
- How long are your ideal trips?
- How much money would you need on an annual basis to make your travel goals possible?
- Is this already factored into your budget or will you need to cut back on travel to fund your monthly mortgage payment and home expenses?
There are no right or wrong answers, but it’s important to reflect on your priorities.
2. Green Thumb?
Do you love gardening, being outside, and all things landscaping? If you purchase a home with a lawn and don’t enjoy the upkeep, you could be looking at an extra $100 or more a month for professional landscape maintenance. Are you willing to skip the lawn in favor of hardscaping to reduce costs?
Bottom line: Factor hobbies and services into your monthly budget to see if the numbers still work out in the black.
3. Pool Time
How dreamy would it be to buy a home with a pool!? Before the dream becomes reality, add up the costs of pool maintenance and servicing, energy, and insurance (along with liability if you have small children) and you may be better off heading to the neighborhood swimming hole.
Pools can be a lot of fun, but they come with a lot of work. Factor time and money into your future plans when buying a home with this special feature and, once again, ask yourself if the numbers add up to support your other financial goals.
4. Children
If you’re buying a home and plan to start a family in the next few years, don’t just consider the amount of mortgage you can afford under your current expenses. Factor in daycare costs and then determine what your cash flow will look like. You may have to adjust the amount of home you’re looking to purchase.
5. Entertainment
Chances are you enjoy dining out, going to concerts and sporting events, and seeing movies. If you need to rein in these activities to make room for your mortgage, home expenses, and savings, aim to strike a balance that won’t leave you feeling restless.
After all, you’re likely choosing a 30-year mortgage, and three decades is a long time to feel deprived. If necessary, reduce the amount of home you purchase so you can enjoy yourself in the ways that are important to you.
6. Retirement
If you’re in your 20s, you should try to save 10% of your income; in your 30s, you should be saving 15%. If you need to cut back on your retirement savings to make a home purchase work, think hard about when you’ll be able to get back to your ideal contribution levels and how much you may be losing out on during that time.
Although home ownership can help build long-term wealth, it’s important to also maintain retirement savings for future security.
This post was written in partnership with The National Association of Realtors. I have been compensated, but the thoughts and ideas are my own. For additional home finance tips, check out HouseLogic.com.
Budgeting, Cash Flow, Home Ownership
Buying a home comes with a huge financial stake, a lot of responsibility, and even more fine print. While investing in this aspect of the American dream is exciting, it’s important to reflect on your current and future plans before buying. Here are five questions to consider:
1. What Are Your Goals for the Next 5 to 7 Years?
Are you happy with your job and feeling content with how your life is going? Do you anticipate any career, family, or financial changes in the next few years?
If you’re considering growing your family or changing careers, factor into your budget any anticipated changes, such as extra room for a baby or an income cut. That’s better than taking a financial loss by having to turn around and sell your new property.
2. What Will It Cost to Both Purchase and Own Your New Property?
A general rule of thumb is to keep your PITI (principal, interest, taxes, and insurance) costs below 28% of your gross monthly income, while your overall debt-to-income ratio should be no more than 36%.
Are you buying a bigger space than what you currently have? Don’t forget to factor in increased heating and cooling costs. Also, plan for homeowner’s association dues if applicable.
In addition to the funds you have for your down payment, don’t overlook the following expenses you’ll incur once you purchase your home:
- Moving costs
- Closing costs
- Home repairs
- Painting
- New appliances
- Fixtures
- Furniture
I recommend opening a separate savings account in addition to your down payment fund to save for these expenses.
3. What’s Your Credit Score?
Your credit score is your financial report card, except it will follow you long after college. This number can either save or cost you thousands of dollars when it comes to locking in an interest rate on your mortgage. The lower your score, the higher your interest rate and the more you’ll pay to borrow from a lender. The higher your credit score, the lower your interest and the more money you’ll keep in your pocket.
If you have any issues on your credit report, tackle them as soon as possible.
4. How Will You Handle Home Repairs and Maintenance?
Is there a lawn to mow or a pool to clean? Do you enjoy the idea of tinkering with appliances and fixing things around the house? Consider if you’ll DIY or delegate. If you’re a delegator, price services ahead of time to ensure there’s room in your budget.
One of the first things I told my husband upon seeing our new backyard was that I don’t do landscaping. Apparently, neither does he, because 12 months in, we have a monthly line item in our budget for a gardener.
5. How Will Your Ideal Location Affect Your Monthly Nut?
It’s important to consider more than just the home price in your desired community. Will you be farther from or closer to work? How will your home’s location affect your commuting costs? Our family purchased in a community that has a toll road, so we’ve added tolls to the monthly budget.
In addition to transportation costs, consider whether your food and utility costs will increase or decrease, and whether you’ll enroll kids in the local school district or opt for private schooling.
This post was written in partnership with The National Association of Realtors. I have been compensated, but the thoughts and ideas are my own. For additional home finance tips, check out HouseLogic.com.
Goals, Home Ownership
Buying your first home is not only a major life milestone, but it’s also a big financial goal to meet (one that comes with commitment and responsibility). While many consider a home an asset, this investment of your money is a decision to carefully consider before making.
What’s the Cost of Home Ownership?
Keep in mind that the cost of your home goes well beyond the down payment. Other items to factor in include mortgage origination fees, closing costs, principal and interest, homeowner’s insurance, and property taxes, which can fluctuate depending on the yearly assessed value of your property. Remember to factor in expenses like the cost of utilities (especially if you’re upgrading to a larger living space) and any renovations the house requires if it’s not move-in ready. Oh, and don’t forget: while a home inspection can help make you aware of any problems with the property, inspectors are human, too. They don’t always spot hidden problems that can cost you big bucks down the road. And then there’s the regular, everyday stuff: maintaining the interior and exterior of the property, making repairs as necessary, and replacing elements as they wear down and age. This may not be a comprehensive list and is definitely not meant to be all doom-and-gloom. It’s mean to educate you on the financial realities of homeownership before you jump in.
How to Determine If You’re Financially Ready to Buy a Home
Owning your own place is fantastic — if you’re financially ready to do so. Here’s a quick checklist to help you determine if you have your financial ducks in a row and could feasibly manage that home purchase:
- Your other financial goals are on track. This means you’ve already established retirement accounts and contribute to them on a regular basis. You should also have your consumer debt under control — or, ideally, you don’t have consumer debt at all.
- You have a full emergency fund. The general rule of thumb says you need three to six months’ worth of expenses. If you plan to buy a home, you may want to boost your cash savings or create a new fund for house-specific costs (like regular maintenance and repairs).
- Your credit score is good or excellent. You’ll need great credit in order to be approved for a home and secure a low interest rate. This is crucial; with something as big as a home mortgage, your interest rate can easily cost you an additional hundred thousand dollars (or more!) over the lifetime of the loan.
- You’ve calculated out how much a home would cost you on a monthly basis. Your total living expenses with your new home should not equal more than about 25% of your current budget.
If you can check these items off the list, it’s time to start thinking about how you’ll prepare to purchase your first home. And if you’re not quite there yet, that’s okay. Keep looking for new ways to increase your savings and your income.
Questions to Ask Before the Hunt
Once your finances are in order, you need to ask yourself the following questions before house hunting:
- Do we know where we’d like to live for the next 5 years? Buying and selling a property within five years is typically a losing proposition. The home hasn’t had enough time to increase in value.
- Do we have job security? It’s difficult to say you’re 100% certain your position at work isn’t going anywhere — but if your work is highly unstable, that might be a red flag. Don’t get into a home you can only afford if you always make your current income or more.
- Do we have a down payment? You need to have an appropriate amount of cash available to put down on any property you want to buy.
Did you answer “yes,” to all these questions except the last one? If so, it’s time to focus on saving that “appropriate amount” that you need for a down payment. You need to have at least 20% of the home’s purchase price saved for the down payment. Any less and your mortgage lender will slap you with something known as PMI. PMI is private mortgage insurance, and it’s designed to protect the lender in case the borrower defaults on their loan. If you show up to the table with less than 20% of the purchase price to put down in cash, the lender will see you as more risky and place PMI on your loan. This is an additional monthly fee on top of everything else that makes up your mortgage payment.
How to Start Saving Up for a Down Payment
If you’ve made it this far, congratulations! With your finances in order and your future goals defined, you’re probably close to buying your first home. The most critical piece of the puzzle you need now is that 20% down payment. In addition to helping you avoid PMI, a larger down payment means more manageable monthly payments. That’s good news for your monthly budget. But 20% of a home’s purchase price is still a big number. If you’re ready to start building your first home fund, try one of these strategies for saving up a home down payment: Establish a special savings fund: This is a big goal you’re working toward, and it deserves its own savings account. Look for a savings account at a credit union or online bank that offers at least 1% of interest. It may not be much, but it’s better than nothing — and it allows your savings to get to work by earning more, too! Slash unnecessary expenses and save instead of spend: Are you currently enjoying any little luxuries that you don’t really need? Maybe you’re paying $100 (or more) for a nice gym membership — but there’s a bare bones gym down the road that works just as well and only charges $20 per month. Or maybe you’ve been enjoying trips to your local Whole Foods, when you could save by making the switch to shopping at a lower-cost grocery store. Look for little swaps like these: Change out your expensive habits for cheaper alternatives that still get the job done. Then, track your new spending habits. You should create a surplus, where you’re spending far less than what you bring in. Be sure to transfer those savings to your home down payment fund. Create a budget and make room for savings: If you don’t already use one, establish a budget and stick to it each month. This makes it easy for you to track — and cut — discretionary expenses so you can save more. Make sure you include how much you’re saving each month toward your home down payment. You can then track and celebrate your progress, which is a motivating factor all on its own. Hang on to extra money: Whenever you receive a bonus, gift, or any other kind of “extra” income, put it straight into your home down payment fund. If you feel like you just gotta treat yourself, divvy up the extra cash: put 80% into your savings and spend 20%. Find ways to increase your income: Feel like your savings progress is too slow? There will only be so much you can cut and eliminate from your current budget. If you’ve hit that wall, look for ways to increase your income. You might be able to work overtime at work or pick up additional shifts. You could ask for more and negotiate a raise with your boss. Or you could establish your own side hustle and earn extra money in your spare time, outside of your day job. What questions do you have about buying your first home, or saving up for a down payment?
Education, Financial Planning, Home Ownership
2014 is a big year of transition for me and the husband. A lot of change is ahead and to top it all off, we’re looking to sell our downtown San Diego condo and upsize to some more space both indoors and out. Selling and / or buying a home is a huge undertaking that can come with a lot of confusion and questions. We recently ventured down the path of finding a realtor we work well with and had our list of questions armed and ready as we powered through some interviews. If you’re in the market for a real estate agent, below are some questions to have on hand when finding your best fit:
- What experience do you have / How long have you been in business?
It’s important to know how long your agent has been in business, whether this is a full or part-time job and if they specialize in your neighborhood or area of town (depending on the size of the area you live in). Ask about average length of time the agent’s homes sit on the market, their list-price-to-selling-price ratio and types of properties the agent has experience with.
- How will you keep me updated?
Communication is a key factor in any successful relationship. Understand the frequency and form of updates you’ll receive. Indicate the level of information you expect in terms of buyer interest, new property listings, open house feedback and more.
- What are the drawbacks of my home?
Your agent is there to give you honest feedback in order to set appropriate expectations for the home buying / selling process. If you’re selling, your agent should be able to identify any items that may be an issue and affect the value of the home.
Whether it’s a for sale sign on your front lawn, a direct mail campaign, or open houses and online marketing – make sure you’re aware of what each agent’s strategy would be before signing on – and more importantly, that you’re comfortable with it. For buying – it’s important to know what type of competing buyers are in your market, how the agent will assist in searching for a new home, how they’ll handle multiple offers, and the level of activity in terms of driving to homes or just sending you listings via e-mail.
- Do you work alone or with a team?
Understand if your agent handles all details solo or if they leverage a team environment to ensure efficiency. If a team environment is the case, find out what areas your agent specializes in and who you may be working with aside from them and in what capacity.
- How many clients are you currently representing?
This will help you to gauge how much of your agent’s time you may receive. Are they spread too thin or perhaps not representing many clients at all? This one will be a personal preference as to what matters most to you – time or experience (preferably, a healthy blend of both).
- Can I see your references?
Typically you can find these on Yelp these days. If not, ask for at least 3 references from satisfied clients. When screening references, be sure to ask about accessibility, personality, professionalism, communication and satisfaction with the agent.
Most real estate fees are negotiable. Agents will typically charge a percentage averaging 2-4% on each side of the transaction. Percentages vary by agent, but commissions tend to be around 6%. Check out what’s average for your area before going into talks. Make sure you understand the agent’s cancellation policy and any other fees involved with the sell or purchase of a home.
- What should I ask that I haven’t?
Ensure your agent takes the time to educate you and make you feel comfortable. This isn’t a decision or relationship you want to rush in to. Note the agent’s observations about your home, their effort to explain key terms and refrain from using industry lingo and their genuine interest in helping you reach your goals.
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