First-Time Homebuyers: How Your Mortgage Will Affect Your Personal Finances

When you're used to paying rent every month, it can be easy to think of a mortgage as more of the same: a monthly expense for housing. 

The truth is a mortgage can affect your personal finances in many ways that rent cannot, including saving up for your down payment and closing costs, ongoing maintenance and repairs, and your tax liability. 

Also as a renter, you are usually not responsible for any major updates and repairs. As a homeowner though, you will also be financially responsible for any home updates and repairs for the duration of your homeownership. Here's what you should know.

Saving for a Down Payment

The best way to clear your path to homeownership and keep your loan payment affordable is saving up for a down payment. 

If you choose a conventional mortgage, you will need a down payment of at least 20% to avoid private mortgage insurance (PMI) in most cases. PMI is a type of insurance that protects the lender if you default and it can add $150 or more to your payment. 

With an FHA loan, you will need a down payment of at least 3.5%, but you will need to pay two mortgage insurance premiums (MIPs) if you put down less than 20%. 

The upfront (MIP) of 1.75% is due at closing while the annual 0.85% MIP is automatically added to your monthly mortgage payments for the life of your loan.

If you don't have much saved for a down payment, a USDA mortgage may be a good option, according to USA Peak Loans. 

This loan option is designed for low to moderate income buyers buying in "rural" and suburban areas. USDA mortgages do not require a down payment.

Budget for Maintenance Expenses

For first-time buyers, one of the most overlooked costs of buying a home is the cost of maintaining the house. 

Expenses like lawn care, trash removal, plumbing repairs, and roof replacement add up over time. According to the Las Vegas Review-Journal, the average $350,000 American home costs $1,126 per month to maintain -- although this includes homeowner's insurance, property taxes, and utilities. 

A good rule of thumb is budgeting at least 1% of your home's value per year to spend on general maintenance and repairs like plumbing leaks, HVAC servicing, and roof repairs.

Owning a Home Can Offer Tax Breaks

While this may not affect your day-to-day budget, buying a home and taking out a mortgage can offer many tax breaks not available as a renter. Owning a home can reduce your tax liability in the following ways:

• Mortgage interest deduction, which is especially beneficial with new loans as the interest payments are higher 
• Mortgage points deduction 
• Mortgage Credit Certificate Program allows you to get a tax credit (not deduction_ worth up to 30% of the interest you pay every year. This program is available from many local and state governments for lower income first-time buyers. 
• Real estate tax deduction 
• Tax-free IRA withdrawals for first-time homebuyers to avoid the 10% penalty normally applied to early withdrawals 
• Deduction for interest on home equity lines of credit (HELOCs) and home equity loans to finance home improvements 

A home loan can affect your finances in many ways, both good and bad. It all comes down to how well you manage your finances each month. And hopefully you didn’t buy a home with a mortgage payment that you can’t afford in the long run. 

While owning your own home means being solely responsible for the property taxes, maintenance, and repairs, your mortgage can also be the gateway to better credit, tax breaks, and financial stability.

5 Ways You Might Be Sabotaging Your Mortgage Preapproval

If you're beginning the process of buying a home, obtaining a mortgage preapproval is one of the first key steps. Real estate agents often require a preapproval letter before showing homes to potential clients. 

With preapproval, you'll fill out a mortgage application from your chosen lender and pay the requisite application fee. You'll also need to provide documents that prove your income, and the lender will check your credit score. 

Here are five of the most common mistakes that potential homebuyers make during the preapproval process, and how to correct them in time to avoid sabotaging your mortgage during the early stages.

1. Not Knowing Your Credit Score

For most lenders, you'll need a FICO credit score of at least 620 to qualify for a mortgage, and a score of over 700 will qualify you for the best rates. 

Experts recommend checking your credit at least six months before you plan to apply for a mortgage preapproval. This gives you time to take necessary steps to raise your score before beginning the home buying process, such as paying down debt and disputing incorrect information on your credit report. 

Improving your score will not only help ensure you get approved, but potentially save you thousands over the life of the loan.

2. Making a Large Credit Purchase

You've already gotten your preapproval and had an offer accepted on your home, so it's time to finance your new furniture, right? 

Not if you want to qualify for a mortgage. According to industry blog My Mortgage Insider, Fannie Mae and Freddie Mac now require credit to be pulled again 48 hours before closing. 

If there are major changes, it could affect the lender's willingness to provide final loan approval.

3. Paying Off the Wrong Debts

You know that you have to get rid of some of your debt before you'll get approved for a mortgage, since your debt to income ratio should ideally be below 30 percent. 

According to Nerd Wallet, some aspiring home buyers waste money paying off old debts that are no longer collectible and won't affect mortgage approval. 

Instead, focus on paying down credit cards with a large balance in order to obtain the magical 30 percent ratio.

4. Missing Loan Payments

Make sure to keep paying all your credit cards and other loan obligations on time from the time you're applying for preapproval to the time you close on your home. 

Missing a payment in this period can jeopardize your mortgage loan by damaging your payment history and thus lowering your credit score.

5. Not Having Cash on Hand

In most cases, you'll need to show the lender that you have the required down payment funds plus three months' reserve in your bank accounts. 

If you're planning to cash out investment accounts to purchase a home, do so sooner rather than later so the funds will be in your account.

Buying a home is a great step, but it can be set back greatly by unwise choices surrounding the mortgage preapproval process. By keeping these five tips in mind, you're helping ensure that the mortgage approval process will go smoothly.

What's the Difference Between a Bank Loan and a Title Loan?

Many people experience a situation in which they need cash to make a purchase, but they do not have enough on hand. 

A bank loan or title loan can be used to generate an influx of cash for a situation such as a home repair or payment of a medical bill. 

There are some important differences between bank loans and title loans that you should understand before signing your name on the dotted line.

Bank Loan Requirements

Bank loans are provided by a lending institution that must operate under the terms of federal laws for interest rates and other loan terms. 

In order to get a bank loan, you may have to provide proof of your ability to repay the loan. This would come from copies of your pay stubs. If your income is low, you may need to have a co-signer. 

The bank will also check your credit score. A low credit score can mean a high interest rate.

Prerequisites for Bank Loans

Banks will scrutinize your finances and calculate your income to debt ratio before agreeing to a loan. 

The bank loan can be secured, such as with a mortgage. In a secured loan like a mortgage, the deed to your house would go to the bank if you fail to pay. In an unsecured loan, the bank is taking a gamble on your personal finances. 

The interest rate for an unsecured bank loan is usually higher than the interest for a secured loan.

Title Loan Terms

The terms of a title loan are different from a bank loan. With a title loan, the title to a piece of property owned by you secures the cash that is loaned to you. 

For example, you could put up the title of your car. If you fail to repay the loan, the lender gets the title of your vehicle. To get a title loan, you must own the property free and clear. 

Some companies, like American Cash Advance and Title Loan, know that the property cannot have any liens on it. Title loans also come with interest fees, which can be tied to your credit score.

Before taking out a loan, be sure to read all of the fine print. You will need to know the terms of the loan, such as payment schedules and what could happen if you miss even one payment. 

Understanding how these loans work will help you to make the best financial choice for your situation.

Drowning In Debt? 3 Strategies To Make Bankruptcy A Little Less Terrifying

The new millennium did little to bolster people's ability to earn an income and pay off their bills each month. In fact, the first decade of the 2000’s was fraught with inflation, high unemployment numbers, and stagnant hiring.

Even with the economy slowly getting back on its feet, many people are still struggling with their finances. When liquidating or consolidating your debts through the federal court system is your best option to regain control over your money, you can make filing for bankruptcy less scary by using these three helpful tips.

Organize Your Bills

Your first step to approach bankruptcy in a calm and orderly fashion calls for you to organize your bills. Gather any and all documentation for bills related to:

• medical expenses
• credit cards
• utility charges
• payday loans
• bank or car loans

As you organize and gather your bills, you should ensure that you have proof of the original creditors' addresses and contact details. Keep your bills in a folder and bring them with you when you meet with your attorney.

Decide the Chapter

The United States Court website shows that more than 900,000 people filed for bankruptcy in 2015 alone. Out of those 900,000 or more cases, many of those were total liquidations of debts. Others were consolidations.

How do you know which chapter is right for you? You can decide between a Chapter 7 and a Chapter 13 bankruptcy by deciding your own ability to pay off the bills even after they are consolidated with the court.

Can you make on-time monthly payments over the course of four to five years? Would the monthly payment hurt your budget and become another expenditure on which you could potentially default?

If you file for a consolidation Chapter 13 bankruptcy, you do not have the option of defaulting on your payments. If you miss or refuse to make payments, you could incur legal consequences that could range from a lien put on your house, car, bank account, and paycheck to jail time.

Focus on the Future

Finally, you can make bankruptcy less scary by focusing on the future. You may feel embarrassed or sad over your financial state. Consider working with professionals, like those at Demers Gagnier Inc., to help you move forward from your debts.

It is important that you look ahead rather than at your past mistakes or misfortunes. Resolving to move forward lets you deal with filing bankruptcy and helps you anticipate what the future has in store for you.

Filing for bankruptcy may be necessary to rebuild your finances. Make it less scary using these three simple tips.

Wealth Wisdom: 3 Creative Ways to Teach Your Child about Finances

One of the most important things you can do as a parent is teach your kids about money. It’s possible to teach children as young as three years old about the basics of saving or spending money. 

So why hasn’t every adult mastered basic finance management concepts? It’s because we, as a society, are not teaching them. 

Public educational offerings do not include lessons in proper money management, and children are left to educate themselves unless their parents can teach them what to do. So what should you do? 

Teach your kids some valuable lessons with these ideas.

The Value of Clichés

There are a number of timeworn phrases that describe some simple truths about money management. Instead of just repeating the phrase, why not get creative about teaching your children why they’re true? Here are some examples:

· “Money doesn’t grow on trees.” If money grew on trees we’d all have a lot more of it, and it’d be worth a lot less. 

However fruit does grow on trees, and that can help teach your kids the value of working for their money. Spend the morning picking fruit at a pick-your-own orchard. That afternoon they can sell their fruit at a roadside stand (lemonade optional). 

This also illustrates you have to spend money to make money, as they’ll have to pay for the fruit they picked before they can sell it.

· “If it seems too good to be true, it probably is.” Teach your child the importance of researching products and investment opportunities. 

It shouldn’t be difficult to find a spam email they can easily do a little research on and discover to be a scam.

· “A penny saved is a penny earned.” Teen children will grasp this lesson quickly by using the following method. Ask them to do the shopping (and maybe the cooking too) for all the meals on a given day. 

Give them a reasonable budget, and allow them to plan the meals and make the purchases. 

Explain that it’s important that they come in under budget. When the shopping is complete and the meals are finished, ask how much money was left. The money leftover is theirs to keep. 

It’s a lesson in frugality they’ll remember.

Clichés tend to stick around because they represent ideas that bear repeating and are still true today. You really do “get what you pay for.” Pass on that wisdom to the next generation.

The Value of Pretend

Children love to play pretend and mimic what they see adults doing. Take the opportunity to explain why you go to the bank, tell them about why you are choosing to buy one thing and not another, and when you pay the bills let them “pay bills” too. 

One of the easiest ways to introduce money into a child’s world is to create a “shop” where they can use real coins to buy real items from a pretend store. 

Set aside a low pantry shelf as their store, just be sure to supervise the game enough to hold them accountable. Nothing should go for free.

The Value of Stories

We often tell our children the story of the three little pigs, but what about applying that story to their piggy banks? Multiple piggy banks give a visual representation of progressing towards goals and budgeting funds. 

In the story of the three little pigs there is a house of straw, of stick, and of stone. A “straw” piggy bank would be money that is for spending on whims and candies—things easily blown away and gone. 

A “stick” piggy bank could represent saving for bigger purchases. The money is still spendable, but for things of value that will last a bit longer and cost a bit more. It is the way to save for a remote control robot, concert tickets, or a trip to space camp. 

The “brick” piggy bank is the security money saved for the sake of learning to save. This should be that largest of the three banks and children should be encouraged to put more of their incoming funds into this bank than the other two. 

It can help to discuss the money in the third pig as part of your child’s college fund, and point out that once they are through college they will need to continue saving like this for emergencies and for their retirement fund.

Teaching children how to save, how to earn, how to budget and how to share gives them a better understanding of the value of currency. 

Part of your job as a parent means preparing them to face the world, and life in the real world requires an understanding of money. There are plenty of resources available online to help you teach financial skills to different ages. 

Explain to your kids about credit cards and repaying credit card debt. Help them understand why and how you are budgeting your income. 

By sixth grade, most children have all the math and reading skills necessary to complete a tax return. 

Have you ever considered letting your kids do your taxes? It’s never too early to teach them skills that will help them succeed.

Don't Let Moving to a New Home Destroy Your Bank Account

When you're moving your family, it seems like your bank account takes a hit. From the payments made to the utility companies to the gas that you need to purchase for the vehicles to get your belongings back and forth, all of the expenses seem to add up quickly. 

Make a plan before you begin moving so that you can save money instead of spending it while making sure your family has everything in order. 

You Have To Eat

Going to a restaurant or getting food to bring home might seem like a good idea, and while it is if you get the inexpensive foods, it can become pricey over the weeks and days leading to the move. 

Prepare foods ahead of time, storing them in your freezer so that you can easily heat them up in the evening. This will allow you to save the money that is spent on gas to get to the restaurant and the money that is spent there. 

Coupons and Discounts

Look for coupons whenever possible. Some moving companies, such as Wheaton World Wide Moving, offer discounts that are worth looking into. 

Some companies do such discounts based off of whether or not you use multiple services, such as the movers packing and unpacking after transporting. 

There are coupons for packing supplies that you can get as well to save money on everything from tape to trash bags that you might use to hold blankets or sheets. 

Bundles for Utilities

One of the things about moving is that you have to get new utility services started. This can take a huge chunk of money from your bank account, especially if you have to pay deposits for each service. 

Consider bundling your services as much as possible, such as cable and internet. This will save on your monthly bill as well as the installation fees that you need to pay as everything can be done at the same time. 

Selling What You Don't Want

Instead of spending money, you can make money for your bank account when you're moving. As you go through each room, make it a time to sort the items that you no longer need. 

Consign the nicer items, and have a yard sale with the items that are mediocre or that you can't sell at a consignment store. An added benefit is that you can count any donations on your tax return. 

Moving is an exciting time. It's also an expensive time as you have to pay for connections for services and items needed to move. 

If you get the family involved with the move and ways to save money, then you can begin to pad your bank account instead of spending money.