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“Am I ready to buy a house, or should I just keep renting?”
It’s one of the questions that we hear most often and something to which first-time home buyers often spend months, if not years, trying to figure out the answer.
Below are a list of four tell-tale signs that you’re ready to bite the bullet and take the leap into home ownership:
Sign #1: You’re ready to settle down
The first sign that you’re in the right mindset to become a homeowner is that you’re ready to stay put — at least for a little while.
Conventional wisdom states that in order for your purchase to make financial sense, you’ll want to plan on staying put for at least the next five years. When you sit down to think about house hunting, you’ll want to use that timeframe as your reference point.
Ask yourself the following questions:
Can you see yourself staying at your job for that long, or will you be looking for new opportunities?
If the right position came along, would you be willing to move for it?
Do you like the area you’re living in, or would you like to explore other options?
Do you see your living situation changing soon?
Are you planning on moving in with a significant other or expanding your family?
If these questions make you squirmy, the idea of looking five years into the future still feels a little too far ahead for you to grasp, or you still want to see where life life takes you, you may want to consider renting for a bit longer or thinking about a for-a-few-years home vs. a forever home.
2. You’re done living paycheck-to-paycheck
Let’s face it, becoming a homeowner is expensive.
Not only is there a monthly mortgage payment to consider, which will likely be more than your current rent check, but prospective home buyers need to be prepared to come up with a sizable down payment, shoulder a portion of the closing costs, and have the dough to take care of any necessary repairs.
Luckily, there is a way that you can prepare for the added financial pressure before the big day comes and understand how much house you can afford. Use a mortgage calculator to estimate what a monthly payment could based on the type of home you’re looking to buy. Then, subtract the amount you pay in rent each month, and aim to put the the remainder into savings.
Start by working towards a down payment that could be worth 3%-10% of a home’s sale price, and then move onto a seperate emergency fund.
3. You’re ready for more responsibility
Once you find a home and actually buy it, that’s really where all the fun begins.
Yes, owning a home means that you have a lot more freedom to improve the property as you see fit — whether that means putting in an entirely new kitchen or redoing the hardwood floors.
However, in addition to that creative freedom comes an added layer of responsibility. As the homeowner, you’re the one who is responsible for any necessary maintenance and upkeep on the property.
Think about what you’re like as a tenant now.
Are you willing to roll up your sleeves and help with small tasks or are you relieved to know that you have someone to call? If you’re less handy, you may want to take some time to familiarize yourself with common home maintenance tasks before committing to buying anything. It always helps to have a fair idea of what you’re getting into.
4. You know what you’re looking for
Last but not least, though it may sound self-explanatory, when you’re trying to determine whether or not you’re ready to buy a home, it’s useful to have an idea of what you’re looking for.
You don’t have to have every single detail set in stone. (In fact, it’s preferable if you leave some room to flexibility in your home search.) That said, though, having a basic set of parameters in mind will make the homebuying process go much easier.
Here, you’ll want to think about the most important factors that you absolutely must have in a home. These will be the things that you would not feel comfortable buying a home without. This may include details like your preferred location, an ideal number of bedrooms and bathrooms, a target sale price, or any specific must-have features like that perfect picture window view.
If you have a strong idea of your must-haves and can’t see that changing in the near future, and the above signs sound like you, you may just be ready to take the plunge into home ownership. If not, there’s no shame in the game waiting.
To help you get ahead, we’ve outlined some first-time homebuyer tips by calling out six of the biggest mistakes that you should avoid going into the purchase of your first home that could end up saving you a lot of time, money, and frustration.
Mistake #1: not getting pre-approved
Many first-time buyers make the mistake of thinking that they don’t need to get approved for a mortgage until they’ve found their dream home.
Unfortunately, that often ends up being too late.
These days, most sellers require that pre-approvals be submitted along with any offer, and, since your finances need to be vetted before the lender will agree to grant you a loan, this process can take days or even weeks.
Doing so will give you extra time to work on your finances, if needed, and will ensure that you’re ready to submit an offer ASAP once you’ve found your perfect match.
2. Borrowing the maximum amount
Once you have your pre-approval in hand, it’s time to decide how much you can afford to spend.
Many buyers mistakenly believe that the figure they’re given on their pre-approval letter should serve as their target sale price. However, make sure that this move won’t leave you feeling “house poor.”
Instead, it’s better to think of loan amounts as a range. You have the ability to borrow up to the amount on your pre-approval, but you don’t necessarily have to go that far.
The better move is to do some budgeting of your own.
First, look at your income and expenses to determine how much money you’d feel comfortable putting towards a mortgage payment each month. Then, using that number, play around with a mortgage calculator until you land on a price of how much house you can really afford.
3. Overestimating your abilities
Sometimes buyers are willing to take on any number of repairs and remodeling projects in exchange for for a low sale price.
Unfortunately, though, what ends up happening in many of these scenarios is that they end up finding that these properties were steals for a reason.
Often, the repairs require more time, money, and skills than the buyers can afford.
If you’re looking at fixer upper properties that require a lot of TLC — especially foreclosures, short sales, or auctions — you need to be honest with yourself about your abilities.
Do you have any previous remodeling experience? Can you afford to hire professional help? Are you prepared to cope with unforeseen problems and expenses?
Though some of these things may be hard to admit, doing so can end up saving you a lot of frustration in the long run.
4. Skipping the fine print
Yes, you should always read every contract you sign in full.
But, as anyone who’s ever sped through a “Terms & Conditions” agreement can tell you, that’s easier said than done.
While it might be tempting to simply skim your Agreement of Sale (and any addendums), resist the urge. This mistake could end up costing you.
Successful real estate transactions depend on each party fulfilling their respective contingencies by the deadlines specified in the agreement.
By signing, you’ve agreed to fulfill your end of the bargain. If you fail to meet those obligations, the seller may be entitled to take your deposit monies in reparations.
When you’re negotiating your offer, make sure you know exactly what you’re agreeing to before you sign on the dotted line.
5. Bypassing your inspections
Conventional wisdom states that skipping your inspections will put you in a better bargaining position. While this is true, the reality is inspections are for the buyer’s benefit.
They give you a realistic picture of what’s wrong with the property, so that you can either choose to buy it with eyes-wide-open and negotiate on repairs or walk away and find a more suitable option.
In contrast, when you choose to waive your inspections, you’ve agreed to take financial responsibility for any repairs that may come up, even if the problems pre-date your ownership of the property. Weigh your options carefully before deciding whether or not this risk is worth it to you. In some cases, just shortening your inspection contingency might be enough to make your offer more competitive.
6. Forgetting about closing costs
Budgeting to buy a home isn’t just about figuring out how you’ll swing a downpayment and monthly mortgage amount.
There are also closing costs to consider.
Your closing costs will be paid at settlement. They will include any fees needed to facilitate the transaction such as deed-recording fees, title insurance, and appraisal costs.
The exact amount you’ll pay will depend on the specific services needed to close on your property. Realistically, however, you can expect to pay between 2%-5% of the home’s purchase price, and that needs to be factored into your overall cost of buying a place.
No matter how much you’ve saved for retirement, it always seems like you need more. But what if, in addition to your own expenses, you also have to support your parents?
Statistics published by TD Ameritrade say that over a quarter of boomers are already supporting another adult and close to 8 percent of those adults are their retired parents.
If your parents’ savings and assets aren’t enough for their retirement, you may end up providing care and financial help, derailing your own future plans as a result.
Here are 6 tips to follow so both you and your parents can retire comfortably:
1. Analyze Their Finances and Savings
It can be tough for parents in their 70s or 80s to open up about money troubles to their grown kids in their 50s or 60s. But you can’t come up with a financial plan without knowing what you’re working with.
Be clear: In your conversation with your parents, let them know that you don’t want them to struggle or be a burden on anyone.
You may have to use tough love or get a third party (like a financial adviser or retirement expert) to mediate. If your parents get defensive or emotional about the topic, remind them that they’ll feel much worse approaching you for financial help later.
2. Make Sure They Have the Right Home
No matter what, your parents should always have a home where they are comfortable, secure and well cared for. They’ll want to retain their independence, but at some point, assisted care may become essential.
If you have siblings, sit down with them and discuss what to do when your parents can’t care for themselves. Retirement homes and assisted living facilities are expensive, so you could choose for them to move in with one of you (which an offer some surprising benefits for everyone concerned).
3. Get Their Insurance Up-To-Date
If your folks haven’t bought enough insurance to cover medical expenses, long-term care and other retirement costs, do it for them if you can.
Here’s why this is so important: If you don’t invest in financial protection for your parents now, you could be paying through your nose for even the most basic retirement expenses later. Health care costs in particular are rising every day, so this is equally important for your financial stability and theirs.
An expert’s advice about insurance, debt repayment, projected expenses, retirement plans or other financial vehicles can be invaluable.
However, make sure you visit an adviser who won’t try to push certain products for a commission or financial gain. Ask friends, relatives and colleagues for recommendations about reliable and effective planners in your area.
5. Don’t Let Your Parents Fall for Scams
If your parents are trying to boost their nest egg, they may be tempted into making investments that promise huge returns but are actually scams targeting the elderly.
Declining mental health may also affect their ability to make wise decisions, which is why scammers treat retirees as prime targets.
Keep track of where and how your parents are spending money, become involved in helping them study investments or “deals” and remain alert for any suspicious activity.
6. Keep Your Own Future in Mind
As your parents get older, you will likely want to help them live out their retirement years in comfort and security. At the same time, you can’t put your own plans on hold forever. If you do, you may end up relying on yourchildren someday because your savings were exhausted in the process of supporting your parents.
Be clear to your parents about the limits of your support, ask your siblings to pitch in and look for organizations who may be able to help if needed.
If you want to save while helping your parents maintain their quality of life, encourage them to enhance their retirement fund.
Remember, money isn’t the only kind of support your parents will need as they get older. Set aside time to spend with them as well — it’s precious and limited!
The above is a guest post by Rick Pendykoski. As someone who juggles managing my finances along with those of my parents, I found his advice very applicable and thought I’d pass it along. – The RCG
Rick Pendykoski is the owner of Self Directed Retirement Plans, a retirement planning firm based in Goodyear, Ariz. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. He regularly posts tips and articles on his blog at SD Retirement as well as sites such as Business.com, MoneyForLunch, Biggerpocket and NuWireInvestor. Email him at firstname.lastname@example.org or visit the SD Retirement site.
If you’re reading this, you’re most likely interested in putting your money to work in the market.
But maybe you’re also the kind of person who feels like the market is a little bit too risky for comfort.
Luckily, there’s a solution for you.
Creating a portfolio that never loses money and participates in some market upside may sound too good to be true, but it’s no fairy tale. Sophisticated institutions have been doing it for decades, and now you can as well. In this short guide we’re going to show you how it’s done.
Step 1: Put the right amount of money into a bond
First things first—what is a bond, exactly?
A bond allows the government to borrow money from you for a certain set amount of time. In return, you’re paid back the original principal, plus interest.
Let’s say you have $10,000 that you want to grow in the market for a period of three years. The first step is to use some of that money to buy a bond, such that you get back $10,000 after three years.
The current interest rate for a three-year US government bond is 2.4%, meaning that putting $9,300 into a bond now would become, in the span of three years, $10,000. That leaves $700 left over now that you can invest in other things. Notice that even if you lose that $700 completely, you’ll still end up with your original $10,000 at the end of three years.
That’s how you can ensure you can’t lose your original savings.
Step 2: Put the remaining money in stock options
How can we put that extra $700 into something that will appreciate with the market?
One way to do this is to use the $700 buy an index of stocks like the SPX 500. That way your portfolio will grow with the market.
A better way to get exposure to stocks is to buy what’s called a “call option” on the SPX 500. A call option gives you the option (hence the name) to buy the S&P 500 at a particular price of your choosing; professional money managers have been using these for decades.
Let’s examine what happens to that $700 in a few different scenarios if its invested in call options.
Right now the SPX 500 index is at $2,700. You can buy a call option that gives you the right to buy the S&P 500 Index in three years at $2,700. If, in three years, the market is down, it means your option is worth zero. (After all, why would you want to use your option to buy the S&P 500 at $2,700 when it’s worth less?)
But if the market is up to $3,725 in three years’ time, then the option to buy the S&P 500 at the price of $2,700 is worth a lot more: you can buy the S&P 500 at $2,700 and then turn around and sell it at $3,725. The graphic below shows you how much you would make in different scenarios by using the $700 we have left over to buy call options.
The good thing about buying a call option? You can never lose more than you put in.
Step 3: Wait (and stop worrying)
There you go. We’ve constructed a portfolio that seems to have magical properties.
If the market goes down, you get back your original savings. If the market goes up, you participate in some of the upside. In our example if the market went up 50%, we get back $12,500 on an investment of $10,000, which is a 25% return. This strategy allows you to participate in a portion (half in this case) of the market’s growth while ensuring you can not lose money.
You can create this portfolio using most brokerage accounts. If you’d rather someone else handle all the complexity for you, you can sign up for early access to the Benjamin annuity. It recreates this strategy with some additional benefits (tax deferral, longer terms than what you can create in your brokerage account) for 0.09% a year.