Couple Money header image ≡ Menu

Buying a House – Run the Numbers!

buying first home

Owning a home is a dream of some people, but there are many that either feel like it’s impossible for them to achieve it. I will say up front that I don’t think home ownership isn’t for everyone. If you’re not willing to put in the legwork and run the numbers, it can be a huge financial and emotional burden.

If you’re really intent on buying a home, taking the time to get a financial plan in order can be a huge step in helping you reach your goal. It can also provide you a way to make home ownership a relatively enjoyable experience.

Keeping Total Housing Costs 30% or Less

When we first were married we had a desire to own a house at some point in the future. At the time however, we knew that we weren’t financially or emotionally ready for the big responsibility. We focused on handling that first before we even gave serious thoughts to house hunting.

The biggest financial preparation was getting into the mindset of living off of one income. Even though we’ve been a two income couple, we felt that living simpler and below our means would help us reach some of goals quicker. At the time, they included:

  • Having a decent size emergency fund.
  • Pay down high interest debt (like my car loan)
  • Have some savings set aside for a house down payment.
  • Have wiggle room in the budget to go on some vacations and eat out a bit.

It would’ve been impossible if we tried to do it all while having our day to day budget be based on both incomes. I was an intern at the time, so it made sense to us to base the family budget on my husband’s pay. We’ve done our best to keep to this system.

When we were looking at a house to buy, we also made the choice to focus on only one income. For us, it meant that we  focused on keeping the numbers based on net pay, not gross income. While we could’ve looked at more houses in “our price range”, we decided to stay within our self imposed limits. It gave a us measure of comfort, knowing we were having a bit off buffer with our finances.

Another reason for us to be conservative was our goal to have a reasonable interest rate with our mortgage. We knew that in addition to the down payment we’ll put down, the lenders were looking at a couple of other numbers to determine the interest rate they offered.

Debt to Income Ratio

Having a high amount of debt can ruin your chances of getting a loan. Lenders want to know that you can make these payments for years down the line and your debt to income ratio is one thing they analyze.

Your debt to income ratio is calculated by simply taking all your debt (student loans, credit cards, car loans, etc) and dividing that amount by your income.  You want to make sure your ratio is lower rather than higher. If your debt to income ratio is higher than 36%, you could have a hard time qualifying for a mortgage.

Loan to Value Ratio

Another reason to take your time and build a down payment is the loan to value ratio and how it affects your chances of getting a mortgage. The loan-to-value (LTV) ratio is basically the mortgage loan amount you’re hoping to get divided by the appraised value of the property you’re considering to buy.

Your Other Financial Goals

This is important becuase lenders and real estate agents don’t figure this into their calculations. Your lifestyle will be affected significantly unless you plan accordingly.

What If You Really Want to Buy a House?

Buying a house can be a great financial and personal goal to have if you prepare ahead of time. You have basically have some options to look at carefully before you make a final decision.

  • Be patient and wait a bit until you buy your house. Give yourself more time to have a bigger down payment. This will lower your mortage loan amount you’d need. Prices could stay lower than normal with unemployment problems continuing.
  • Focus on getting a starter home. You can still buy a home, but you might consider getting something a bit more inside your price range, so you have bigger amount of wiggle room. If you’re buying your first home, a starter home can a better option. You may upgrades years down the road or you might find you like the house and stay.
  • Go for the home. If you’re in a position to get the home you want, that’s great. Just make sure you double check it is something within your budget. Otherwise, consider the first two options.

Our Essential Housing Expenses

If you’re thinking about being a home owner, here’s how our current housing costs break down to give you an idea of what to expect:

  • Mortgage         $ 661.57
  • Escrow  *         $192.18
  • HOA Fees        $112

Total                             $965.75

*Our escrow account takes care of homeowners insurance and property taxes.

Of course the numbers will be different for everyone, but it’s good to get an idea of what actual people are paying. Some may note we don’t include home repairs that may come up from time to time with our calculations. We have done is set aside savings which includes covering such expenses. It’s a new community and so far we haven’t had to make any big repairs. Additions such as adding ceiling fans to the rooms are done on a cash basis, we plan ahead for the small projects and save money up for the purchases.

Currently our housing expenses have been steady. The only big purchase we had to make since we bought it was the washer and dryer set. We bought those used off of Craigslist and they had served us well. Once they both stopped doing their washing and drying properly (2 cycles sometimes), we bought another set with savings we had set aside.

Thoughts on Buying a House You Can Afford

How did you how much mortgage you could afford? Did you rely on the estimate from the lenders or did you run the numbers yourself? Did you receive any pressure from your real estate agent to get a more expensive house? If so, how did you cope with it?

If you’re a home owner, what kind of mortgage did you get and why?

Photo Credit: Images_of_Money

Net Worth Review: May 2011

pile of money

It’s the beginning of the month, which means it’s time to examine last month’s finances. With June here, we’re inching closer to the arrival of our baby girl next month. I think it’s hitting us a bit more that we need to stay focused on our finances now. Once our daughter’s here, we’ll be spending our time and energy getting adjusted as parents and getting to know. Being prepared now will give some peace of mind with the transition (baby expenses!) coming up.

Our Spending Habits in May

Boy, oh, boy, we spent some money in May. Here are our 3 biggest expenses last month:

  • Home (Mortgages, Extra Payments, HOA Fees, etc): $1,140.75
  • Food (Groceries, Restaurants, Etc): $482.87
  • Bills/Utilities: $361.30

As you can see, housing is our biggest expenses between the essentials and the extra principal payment we send in. I’m happy that our food bill decreased significantly this month.

Checking & Savings

We transfered some money from savings to checking and after my husband pointed out some inefficiencies, we’re going to make some changes with the accounts. Hopefully with next month’s review I’ll be able to point out the increase with our savings and a steady buffer in our checking account.

Retirement Accounts

We’re still not planning on making any changes to our retirement contributions this year. We really want to focus on more immediate goals of getting ready for the baby. I can’t anticipate the future, but I believe once we have some idea of how we’re going to handle our finances as parents, we’ll look at our retirement accounts and contributions.

My husband’s 401(k) has steadily been going up and it’s bumped up our assets a bit this month.

Our Cars

The automated deposits are coming along as planned and if everything continues as it has this year, we should reach our goal of socking away $5,000 more into the car replacement fund in 2011.

Both cars seem to be doing well. We’ve had no repairs to do, we just need to take care of our fluid levels on the vehicles. In case you’re wondering how I calculate the vehicles’ values, I used Kelly Blue Book. Every quarter I’ll update the values to account for depreciation.

Student Loans

Nothing exciting or new, we’re just chugging along with the student loan payments. Payments have been automated so it’s been relatively easy to keep up with them; we just confirm payments have been made each month. We switched the payments from the end of the month to the middle of the month to break the expenses between our deposits.

House and Mortgage

The mortgage payments are chugging along. As part of our usual routine, our automated extra principal payment (now $175) was sent in on the 15th of the month.

When deciding on how much we were going to send in to our lender, our main focus was creating something sustainable and had some impact with the mortgage.

Here’s where we stand today with the mortgage:

  • Total Loan Amount: $110,890.76
  • Interest Rate: 5.00%
  • Loan Term: 30 years, fixed rate

Our goal is to pay off our mortgage way before we retire.  Right now our timeline is about 15 years, instead of 30 years. Once accomplished, we’d love to be able to direct that money into other interests and goals of ours down the road.

Monthly Summary

Here’s our net worth from the spreadsheet:

Net Worth (as of May 31, 2011): $52,389.44 (+$1,634.68)

Your Net Worth Update

How are you doing with your finances? How are you doing in 2011 so far?

Photo Credit: borman818

Love Drop: The Aubin Family

love drop join

Another month begins, so that means it’s time to get ready for another Love Drop! I wanted to help spread the word, so let me share this family’s story:

This month we’re coming together for the Aubin family (Sheila and her three children), who are going through a tough time right now with the loss of Keith, their husband and father.

He passed away in April after a long battle with multiple health problems, but he left behind a powerful legacy – donating many parts of his body so that others might live a better life.

Sheila and the kids are under financial pressure right now, and we want to raise at least $3,600 to pay their rent for the next three months, allowing them to focus on everything they need to take care of without fear of losing their home.

I don’t know how J and Nate do it, but every month they find fantastic families that truly deserve a Love Drop. If you want to be involved with Love Drop, please sign up for membership to donate $1,$5, or even $20/month. When your donation is combined with other contributions, some wonderful results happen. You can also make a one time contribution.

Love Drop is a great project and I can’t wait to see what the team is up to next!

Personal Finance Posts to Catch Up On

If you have some free time this weekend and want some tips and information for your finances, be sure to read some of these wonderful posts. There are some handy tips this week to help you out.

I hope you enjoy reading them as much as I did. I also recommend checking out my blogroll to pick up some great personal finance blogs to follow. Please also let me know what are some of your favorite blogs that you enjoy reading on a regular basis.

Have a wonderful weekend with your family!

4 Ways to Tackle Job Stress

handling job stress

 

Many people lost their jobs during the recent recession.  Those left often had to assume an additional workload.  This factor along with project deadlines, office politics and lack of control over your day can add up to a great deal of stress.

Stress can adversely impact your health with headaches, stomach problems, depression and more. Since most working adults spend half their waking hours at work, it’s important to deal with stress to avoid these consequences.

Get Enough Rest

Not getting enough sleep impacts mental performance.  It is even harder to meet the demands of your job when thinking and moving are slower than normal.  Memory is affected and  I am some people are more irritable.

Get yourself to bed in time to get a good night’s rest. Try sleeping without an alarm clock and let your body get as much rest as it needs.  Except for early morning trips, I haven’t used an alarm for years.

Exercise

There are several positive results of exercise that contribute to decreasing stress.  Exercise releases endorphins in your body which contributes to happiness and a sense of well being.  The increased blood flow to the brain aids enhances thinking.

Moving your body with exercise helps release muscle tenseness.  Ironically, exercise also helps you sleep better so you’re making the most of your rest time.

If exercise is not part of your current routine, check with your physician before starting a new program.

Diet

A lot of people respond to stress with changes in their diet.  Some can’t eat when they’re stressed out. Without fuel, our bodies (and mind) can’t perform as well.

Others, like me, overeat for comfort with salty or sugary foods.  Although this may provide temporary respite, the behavior can lead to weight gain and is often unhealthy.

It is important to follow good eating habits especially when under stress.  Don’t skip meals and do try to eat at the same time every day.  When tempted to grab that comfort snack, distract yourself with a quick walk or a piece of gum.

Environment

Sometimes the work environment itself is causing stress. Figure out what about your surroundings is causing distress.  Is it noise, seating, smells or some other factor?

If you can’t resolve these issues yourself, then work with your manager or human resources department to improve the situation.  If they can’t eliminate the distraction there may be other ways to tackle it.

One possibility is relocating your workstation.  Maybe you don’t like being near the lunchroom, but a sociable person might.  If noise is distracting then maybe your position can be performed with headphones.

Another option is telecommuting.  Not only would this resolve any office distractions but some people are less stressed by removing the commute and having more autonomy.

These steps can help with most job stresses.  If all else fails, you might consider finding new work.  Take steps to makes sure you don’t end up in the same situation at the new workplace.

How do you fight job stress?

Photo: Attribution Some rights reserved by alancleaver_2000

Getting Diapers at a Discount – Possible?

discount diapers for baby

Babies are not cheap. As our baby’s due date approaches, we’re becoming more and more aware of the financial costs of our new family member. As we’re preparing, I’ve been asking family and friends for their advice and their opinions on what we need to get ready.

The one item that kept getting mentioned to us is diapers. Every parent I spoke to told us that we’ll be surprised at how many diapers we’ll be going through and how much it will cost us. How much money are we talking about? The Bump has these estimates when it comes to diapers:

Newborn babies use an average of 75 diapers per week and up to 320 diapers per month. At about $.25 per diaper, that adds up over the year. Tack on two boxes of wipes per month ($3 each), and baby soap, lotion, powder, oil, and diaper rash ointment (about $14 month) and you have an additional $240 per year. Cloth diapers will save you money, if you plan to do the laundering, however using a diaper service costs about the same as disposable diapers.

For our sake and for others, I decided to looking into this further and see if its possible to find a way to get diapers at a discount.

Diapering Options

The good news is that parents do have choices when it comes to picking their diapering method. As far as I could see  it boils down to three options for parents:

  • Disposables: A popular choice for families that I’ve seen around. It can quickly add up and their environmental effects of the diapers in landfills bothers some parents.
  • Cloth Diapers: More and more people are looking at this option not only for environmental reasons, but also to keep costs in check.
  • Diapering Service: This option is supposed to allow parents the best of both worlds – reusable diapers that are cleaned outside the home.

Some parents have decided to mix it, but many still choose one method and stick with it for the most part.

Disposable Diapers

According to the estimates, parents can expect to pay around $72/month ($864/year) for the baby’s first year with disposables. While highly convenient for parents, it can quite a burden to keep forking over the money for more and more diapers.

Saving Money on Disposable Diapers

Shop in bulk. I’ve found that the cheapest option is getting your diapers in bulk for discount. If you’re a warehouse club member, you can get some big savings, especially when you consider how quickly you’ll go through them.

Online sites can be your friend. They are some great deals on diapers with online sites. Two of the big ones are diapers.com and Amazon (which offers additional discounts with Amazon Mom).

Join the a mailing list of your favorites brand. Baby Cheapskate shared how you can get some coupons simply by signing up as a member for one of the big disposable diaper companies:

Cloth Diapers

This seems to be the most frugal option with an estimated $19/month ($228/year) in diaper costs. However you also have to consider the cost of cleaning the diapers yourself. There is also flushable diaper inserts which can help some parents move towards cloth diapers. You have to check to see if your toilet at home can handle them as I’ve read from other bloggers that may not always be the case.

It seems that there is quite a few options for parents when it comes to cloth diapers, with several ‘big’ brands to choose from like bumGeniusFuzziBunzHappy HeinysgDiapers,and Rumparooz.

Saving on Cloth Diapers

Ask around to find the right brand for you. With so many more options now, it pays to see what system fits your lifestyle. I also noticed that cloth diapers can be pricey or they can be fantastically cheap.

Shop in bulk. While you don’t have to buy diapers as frequently as disposable, getting a big pack can be much cheaper than buying them in 2 packs.

Reuse. If you’re looking to save significantly, there are sites like Diaper Swapper that allow parents to sell their gently used cloth diapers. Some parents may not feel comfortable, but it could be an option for others.

Do It Yourself. Unless you’re skilled or have the time to make your own diapers, I’d pass on this. I saw some sites that offered instructions on how to do it, so if you want to I’ve included a link to one of them.

Diapering Service

BabyCenter reports that it’s about $76/month ($912/year) for parent to use a diapering service. Since prices can vary greatly according to where you live, please see how much it will cost you.

I don’t have any tips on saving with diapering service. I would just recommend looking around at all of your options in your area. If you use a diapering service, please share your average costs. It could help other parents to figure out if it’s a practical option for them.

Thoughts on Finding Diapers at a Discount

I’ve found that some parents have done variations of cloth and disposables based on their own baby’s needs. While we’re putting disposable diapers on the registry, we’ve haven’t ruled out cloth diapers. I’d like to get your thoughts and opinions on how you handle diapering.

How many of you are already been through or are going through the diaper stage? What tips do you have for new parents trying to keep to a reasonable budget? Please share your costs and savings with diapering too. We could sure use the perspective!

Join In the Baby Expenses Series

Are you a parent or a parent to be with some helpful advice or stories? Please go ahead and join in on the fun, there are 4 ways you can be a part of it:

  1. Leave your tips in the comment section. I  love reviewing thoughtful comments from readers. Some topics have several ‘right’ answers and I think sharing different view points can be helpful.
  2. Submit your stories for future posts. As you know, baby and expenses can cover a variety of topics. If you have a short story or some tips you want to share, please submit them. If you’re a blogger, please share your site’s address with the email so I can credit you if you want.
  3. Write a blog post about your experience. Please include a link in your bio for your site and if you have a relevant post on your site, please link to it in your post.
  4. Share you favorite posts with friends. If you have a favorite post, please share them with your friends who are expecting. I’ve included share buttons for Facebook and Twitter to make it easier and you can always email them your favorite posts as well. If you think it’s a great for them, please encourage your friends to sign up and receive updates through RSS or directly to their inbox. It’s free and an easy way for them to keep up with the latest posts on Couple Money.

If you’re expecting or raising a newborn, I wish you and your family the best!

Photo Credit: Sellers Patton