Why Get More Credit?

Credit, Bad – Debt-Free, Good

Credit Cards

If you’ve read any of my previous blog posts about credit, you know that I’m not a fan of people getting all kinds of different credit. I am a firm believer that being debt-free is an amazing way to live. You never have to worry about where your money needs to go, how much you need to make to pay all those various bills, or worry about what will happen if something happens like a job loss or a medical diagnosis.

You may also know that I am now a REALTOR®. I want to help people learn about that process so they can get into a home that they can afford without stressing about the increasing costs of ownership.

My Friend Paul

Paul Nolte

As a REALTOR®, a trusting and honest relationship is established. If you are a seller, I represent you in any negotiations once a Listing Agreement is signed. If you are a buyer, I represent you in any negotiations once a Buyer’s Representation Agreement is signed. Without an agreement, you are on your own when it comes to navigating the contract paperwork and any negotiations.

Paul Nolte is one of the partners and a preferred Mortgage Loan Originator from Home Team Mortgage at our Ebby Halliday, REALTORS® office in the Plano/Willow Bend area.

We’ve had several conversations about clients who need help getting a loan. One reason a contract will fall through is an issue with credit. That’s why it is so important to start working on your credit immediately, preferably six months before you want to purchase a home.

Paul has provided an article on how to improve your credit when preparing to purchase a home.

My Take

Debt-Free

Although I can appreciate having a variety of credit avenues open to show credit worthiness, sometimes, that is not a good thing for people.

If you have a habit of keeping a balance on your credit cards, then maybe a better way would be to keep one credit card and maintain control of your spending.

I was divorced in 2002 after an almost 15-year marriage. After six years, I managed to pay off my debts and only kept one credit card. Over time, I had several car loans for various lengths of time and maintained a zero balance on my credit card. With a credit score over 800, I had no problems qualifying for a loan for a house.

Everyone needs to decide their own path when it comes to finding a great home. If you choose wisely, your credit can help you achieve the goals you want. However, if you neglect what is happening with your credit, it may prevent you from getting that house.

Trip-Ups

Here’s a brief list of things that can trip you up when trying to purchase a home.

  1. Missed payments on loans.
  2. Late payments on credit cards
  3. Late utility payments
  4. Eviction
  5. Bankruptcy
  6. Foreclosure
  7. Too much debt-to-income ratio. If you owe more than about 36% of your income towards bills, you may not qualify for a loan.

There are also ways people can sabotage the loan process.

During the contract period, you start to purchase items for your home:

  1. Riding mower
  2. Refrigerator
  3. Washer and dryer
  4. Vacations

Once you are under a contract, do not make any changes that could affect your credit or your debt-to-income ratio. You’ll have time to purchase those items after you move into your new home.

Reach out to me so we can work together to make sure any credit issues are addressed before trying to purchase a home. Visit my business website for contact information.

Get the Pre-Underwritten Brochure!

 

3 Ways To Immediately Start Improving Your Credit

Credit Catch 22

Catch 22 Loan

Your credit score is a double edged sword. On the one hand, you need it in order to get loans for things like cars and houses. You will also need it to qualify for a lease. On the other hand, if you aren’t careful with your credit choices, you can end up in a credit crunch. This can make it very difficult to qualify for loans and leases.

I’ve been on all sides of the credit issue and have even written a book related to that experience. When it comes to buying a home, your credit is the first thing that gets looked at when you need to take out a loan for a home. Lenders will look at every aspect of your credit to determine if they will back a loan for you to purchase. In today’s market, it is so important to get pre-approved or even pre-underwritten for a loan so that when the house you want comes on the market, you are ready to go.

Here are three things you can start doing today that will begin to improve your credit score without resorting to debt-consolidation plans or filing bankruptcy.

Pay Every Bill On-Time

Fix My Credit

Nothing screams at your credit louder than missing payments on credit cards and utility bills. They are red flags to lenders. If you fall into this category, start paying your bills on-time. It may take six months to fix your credit this way but it’s an easy fix if you want to change your situation.

Don’t Use Credit

Don't Use Credit Cards

It’s ok to have credit. It’s not ok to have so much debt related to credit that your debt-to-income ratio gets so high that no one will loan money to you for a purchase. Typically, if you have 35% or more of your income dedicated to debts – and that includes your rent, then it will be more difficult to get that loan. The best option is to simply stop using your credit cards and don’t open any new accounts. Lenders will also tell you not to close any accounts. If you are paying all your bills on-time and no longer using your credit cards, then it just goes to say that your debt-to-income ratio will start to go down the longer you pay.

Start Saving

Piggy Bank

You’re going to need a down payment for that house you want to buy unless you are using a VA loan. Do you need 3.5%, 5%, or even 20% down when you purchase? Your decision will determine if you need to secure mortgage insurance on your loan. VA loans are for military – active duty and veterans – as a way to say thank you for your service. Other programs are available such as the Military On The Move program.

Conclusion

Take care of your credit and it will take care of you when it comes to larger purchases. Reach out to me if you are ready to search for a home or if you need more information about fixing credit issues so you can purchase.

Request a free brochure on steps you can take to get ready for pre-approval of your loan.

 

Can’t Afford To Buy?

The Issues

Buy A Home

So you want to buy a home?

The only problem is that your credit isn’t where it should be, or you don’t have enough for a down payment, or you filed bankruptcy, or you’ve been late on some bills.

But the cost of renting is so high right now!

Rent is as much as a mortgage.

A Way Forward

Home Partners Of America

Let me tell you a little about Home Partners of America.

Home Partners of America works with you to get you where you want to be.

Here’s how it works:

  • Search for your dream home
  • Home Partners of America will purchase it for the fair market value
  • They own the home now so they lease it to you
  • You work out any financial issues while leasing the property for up to three years (renewable on an annual basis)
  • You get the Right to Purchase that home at any time during the lease period

If you decide after moving in, that it isn’t the dream home you had hoped for, simply finish out your lease for that year and move out. Simple.

What’s the catch?

There isn’t much of a catch. Up front, you already know all the numbers. Your rent will be slightly higher than what you can rent a comparable home in the area for but don’t forget you have the right to buy the home.

Each year for the three years, the rent goes up a little as well as the price of the house. However, if the market causes the surrounding homes to go up quicker than your schedule, then you get the home at a discount. And – if the market starts to drop, again, you can simply finish out your lease and move on. That seems like a pretty good win-win situation.

You have one shot at it so make it count. This isn’t a program you can repeat. For one time, you get to find your dream home, lease it for a while and then have the right to purchase it. If you choose not to purchase, you can’t do it again.

How does Home Partners make money?

They are purchasing the home when you are ready and approved to lease it. That’s a fixed price for them. They charge you rent which cannot be used towards a down payment so they get that income. When you purchase the home, the price is appreciated at about 5% per year. Finally, if you back out of the lease, they turn around and lease the property to someone else as a regular lease property. It becomes part of their leasing inventory.

Next Steps

Simple. Send me an email requesting information about Home Partners of America. I’ll send you a link to register with them and then we can get together and find that perfect home for you.

Vacations

Unplug! Take Off! See Ya Later!

Beach Vacation

Beach Vacation

I don’t like vacations – said no one – ever!

Who doesn’t like a vacation?

Vacations can be whatever you want them to be.

I’ve had vacations that last 36 hours and others that have lasted ten days.

Either way, it is a way to unplug from our hectic lives and receive some renewal and much needed rest.

If we do it right.

Different Strokes

Vacation To Do List

Vacation To Do List

Some people like to go on vacation where everything is planned. Think about those trips you can get that have everything scheduled for you. You go from one place to another and it is a nonstop show to cram in as many things as possible.

Some people don’t plan a single thing on their vacation. They get to their destination and wing it.

My wife and I are “wing it” people. We don’t like the idea of rushing from one thing to another to see how much we can see. Instead, we schedule time off.

The best vacations we have been on have been the one’s were we rent a condo at the ocean, get there and then spend our time walking up and down the beach, figuring out where we want to try and eat, watching the sunset and not being on a schedule.

The Financial Piece

Cash Only Vacation

Cash Only Vacation

My wife and I do not go on vacation unless we can pay for the whole trip with cash. There have been occasions where we have spent more than we planned and taken some money out of savings but for the most part, we go when we have the money for it.

Right now, we are vacation deprived. We haven’t been on one in a while and it sure would be nice to go now but we can’t.

Paying for vacations with a credit card is like paying for Christmas with one. You end up with a huge balance on your credit card that is adding interest and you end up spending a whole lot more for your time away than you may have wanted to in the first place.

How cool would it be to go on vacation, spend time doing the things you enjoy and coming home, realizing that there are no additional bills to pay?

That’s how we roll. What about you?

Retirement Savings

The Reality

Reality Bites

Reality

Let’s face it. There are no more pensions being offered by companies that will maintain an income for employees once they retire. Pensions started going away in the 1980’s. Very few companies offer any kind of retirement package anymore.

Instead, companies are offering a 401k savings plan and maybe, if you are lucky, they will match part of it.

So the bottom line is that if you aren’t saving for your own retirement through a 401k or other investments, then you are setting yourself up to live on social security. The government has slowly been increasing the age when you can begin to receive social security.

If you were born before 1954, then your retirement age for social security is 65 years old. Between 1954-1960, the retirement age is 66. After 1960, the retirement age is 67. If you retire early, then you get a percentage of what full social security would be.

Oh, one more thing. If you were born on the first day of a given month, they calculate your social security based on the previous month. I guess it is better to be born on the 2nd rather than the 1st.

It’s Never Too Late To Start

Saving Retirement

Saving Retirement

So, where are you now with your savings for retirement?

Several years ago, I spoke with a high school friend of mine who is a certified financial planner. He told me that on average, people who are 50 have retirement savings of about $10,000.00.

What?!?

When you think about supplying money for your personal lifestyle, $10,000.00 doesn’t go very far.

What can you buy with $10,000.00?

  • A decent used car
  • 10 months of rent on an apartment for $1000 per month but that does not include utilities
  • A few gaming computers
  • 2-3 years of food for two? Not really sure there

Certainly, you cannot afford to maintain anything close to the standard of living you might be accustomed to living.

No matter what your age is, it is important to start saving right now for retirement. I have a saying.

 

“Retirement is a financial state.” ~Patrick O’Connor

 

You cannot retire and expect to live in your current standard of living until you have enough money put back so that you can live off the interest. At least that would be the ideal.

If your savings does not allow you to live for decades, you don’t have enough saved.

$10,000.00 is better than nothing. $1M is better.

Break it down

The average person can expect to take about 4% of their IRA per year and not affect the principle in the IRA. In other words, if you take out more than 4%, you will slowly deplete what you have in your IRA and each year you will ultimately have to live on less or you could run out of money before you expire from the planet.

Here’s what it looks like.

If you have $1M in an IRA and you remove 4% – that gives you $40,000.00 that you can add to your income in retirement. If you add social security at a pretty high rate, say $22,000.00, you would have $62,000.00. You would have to pay taxes out of that as well but it still gives you a decent amount of money to live on. Hopefully, you won’t have a mortgage or credit card debt to worry about in retirement so that should be pretty good.

What happens if you only have $500,000.00 in your IRA?

Well, 4% of $500k is $20,000.00. Add in that large social security again and your total is $42,000.00 before taxes. Now it’s getting pretty tight.

But what happens if you insist on having the $62,000.00 each year?

That would be taking 8% of the $500,000.00 the first year. That’s fine but you are eating into your principle that way.

Retirement Withdrawal

Retirement Withdrawal

The first year you would be fine but then the balance in your IRA would no longer be $500,000.00. Instead, your balance would be $480,000.00.

Doing the math, another 8% would not be $40,000.00. Instead it would be $38,400.00.

Still doing ok but now your IRA balance is $441,600.00.

As you can see, you will be pretty good for a while but as you remove the principle from your account, you will see the balance decrease at a more rapid rate each year.

Here is what it looks like each year starting at $500,000.00

Year 1 – $500,000.00 – 8% = $460,000.00

Year 2 – $460,000.00 – 8.7% ($40,200) = $419,800

Year 3 – $419,800.00 – 9.6% ($40,300.80)  = $379,499.20

Year 4 – $379,499.20 – 10.6% ($40,226.92) = $339,272.28

Year 5 – $339,272.28 – 11.8% ($40,034.13) = $299,238.15

Year 6 – $299,238.15 – 13.5% ($40,397.15) = $258841.00

Year 7 – $258,841.00 – 15.5% ($40,120.36) = $218,720.64

Year 8 – $218,720.64 – 18.5% ($40,463.32) = $178,257.32

Year 9 – $178,257.32 – 22.5% ($40,107.90) = $138,149.42

Year 10 – $138,149.42 – 29% ($40,063.33) = $98,086.09

Year 11 – $98,086.09 – 41% ($40,215.30) = $57,870.79

Year 12 – $57,870.79 – 69.5% ($40,220.20) = $17,650.59

Year 13 – $17,650.59 – 100% ($17,650.59) = $0.00

As you can see, by the middle of the 13th year, you will be broke and relying on social security for your entire income. Talk about a limited lifestyle.

Having more money in a retirement account means that you can set your standard of living, live worry free about running out of money, and leave something for your children and your grandchildren.

You can review a ton of other sites that talk about how much money you need to retire. I don’t claim to have all the answers and maybe the numbers I am using are way off. I hope that the numbers I am using are extreme and that a more conservative decay in your savings is more the reality.

My wife and I would rather have plenty of savings so that we don’t have to worry about it.

What about you?

The Budget

This is the third post in the series 5 Ways We Work Together. The five major areas my wife and I work together on our finances.

The Little Debt Free Book

The Little Debt Free Book

Way Back When

A long time ago – well – at least a dozen years ago, I needed to recover from financial disaster. At that time, I set out on a journey to rid myself of debt and get a firm foundation for the future. As a result, I ended up writing a book about my experiences.

Today I am fortunate to be able to teach a class based on what I figured out along the way. Wednesday was the last day of the class this time around. One of the ladies attending asked me why I was teaching the class? She said there were other classes offered by churches.

My response was that the classes being offered by the churches has a cost of about $100 attached to it. I make my book available for about $9. Right now, the organization that I teach for – Agape Resource & Assistance Center, Inc. – purchases the books from me at a discount and gives them to the women. I include a free workbook for them so they can keep all their finance stuff together in one place.

I told the woman that the reason I offer the classes is because it’s hard. It’s hard to figure out how to get out from under and maintain your sanity. I said it didn’t make any sense to me that someone should have to spend $100 to figure out how to pay things off. If you are in debt enough, where would the money come from to pay for a $100 course anyway? Would you skip paying a bill to attend a class?

Why The Budget?

Budget

Budget

I was in such dire straits that it was really hard making ends meet for a long time. I needed a tool to help me find the hidden nickels and dimes in my spending so that I could get out from under.

I still live on a budget that includes using cash where possible, designating a certain amount of money for eating out and entertainment, shopping, groceries, and an allowance.

My wife and I use the old style envelope system that your parents and grandparents used years ago. It’s no secret. People used it for years and years – especially before credit became so widely available.

Most of the time we do pretty good with our budget. There is usually a little something left over from each pay period and when there is not, we have a little setback for those occasions and for emergencies.

I remember going years without ever having more than $5 in my pocket or more than about $100 in savings.

If you want to add heaps of stress to your life, live paycheck to paycheck and use your credit cards to supplement your lifestyle. It’s an easy way to an early death and to stay worried 24/7.

What are you doing with your budget?

It’s easy to find ways to cut back a little each week. You just need to focus on finding those hidden wasteful spending traits.

Do you shop at a convenience store? Pretty expensive right?

Do you buy your coffee each day? What about buying your lunch each day at work?

There are so many ways that we waste money. Is it all your fault? No, not really.

You have control over what you spend but every day we get bombarded with advertisements telling us that if we only had this or that, our life would be better. Or we hear ads that say “go ahead – you deserve it.”

I invite you to check out the book I wrote and see if the ideas in there can help you at all. If it doesn’t, then at least you didn’t spend $100 on it. You can always give it to someone else who might get some use out of it.

Have a great day.

 

Purchases

Happy St. Patrick’s Day!

Smart TV

Purchasing a Smart TV

This is the second in a series of blog posts called 5 Ways We Work Together. A short discussion on how my wife and I work on financial things to keep our relationship healthy.

Purchasing Major Items

Whether it is purchasing a house, a car, a TV or something of major cost, we need to work together by talking over major purchases.

A funny story.

My wife and I decided last Christmas to limit the presents we purchased for each other and instead wanted to buy a new TV for our living area. The funny thing is that in mid-March, we have still not purchased the TV.

We began looking at various TV’s in early December with the expectation of buying it for Christmas. The longer we looked, it seemed there were more questions.

Would it be a 55” or a 50”?

I already knew it would be an LED TV since the cost of running an LED TV is like $14 per year.  So much better than the old Cathode Ray Tube televisions from my youth.

Should it be a Smart TV? After talking about it, and since we don’t have cable but we do have NetFlix, we thought that it would be a good idea to get the smart tv so that we don’t have to hook the computer up to the TV to watch the shows on Netflix.

Should it be standard HD 1080p or should we go for the new UltraHD 2160p 4K television? We weighed the pros of getting the 4K since it would be compatible with the latest and greatest things coming out now.  Then again, there are so few things out right now that are in 4K that we wondered if it would really make any difference for us.

Then we talked about the cost difference between the TV’s. There is still a pretty good difference in price between the two depending on the size of the TV.

Finally, since it was December, we knew that the prices were probably being jacked up for the holidays.

So we made the decision to wait until after New Year’s and see what would happen to the prices.

What Are We Waiting For?

SaleTag

SaleTag

We don’t really have a good answer for waiting this long to get our Christmas present for each other. After all the advertisements that the best prices were in December, we noticed that the prices are starting to drop even more now.

We can now purchase a 55” smart TV 4K for about the price of the 1080p HD 50” TV that was available in December.

I’ve noticed something over the years when it comes to electronics. The first is that a lot of electronic things are about the same quality. For instance, when you buy a phone, you can buy an iPhone, Samsung, LG or any other brand and they pretty much work like they are supposed to. It really comes down to your preference.

Computers are almost throw away unless you are a gamer or need major horsepower for some applications you are running. I remember a friend of mine buying a computer with the very latest video card in it several years ago. He went to the store the same week and bought a game that had just come out. He was shocked that when he installed the game, it told him that his video card was not current enough.

Bottom line. Whatever you buy today, is probably already obsolete with the newest things coming out.

So, what do you do?

Do some research, find something you like, and get it because it isn’t going to matter in a month or so – especially when it comes to electronics.

What Now?

Well, now we need to make a new decision. Do we buy the 1080p HD smart TV and a stand to go with it or a bracket to mount it on the wall or do we buy the 2160p Ultra HD smart TV and save for a few more weeks so that we can buy a new stand or bracket to hold it?

We aren’t really in a huge hurry so I guess we will talk about it a little more and I will let you know what we decided.

Of course, if you have a suggestion for me, I’m all ears.

Together

We make a lot of money major decisions together. By talking about big decisions, we both feel empowered to speak our mind on the issues and we make better decisions. No one gets tunnel vision about things about a specific aspect of something and we both walk away from the decision feeling better about it.

We talk about how things affect the budget, our savings, or what we want to do six months from now that using the money could affect. For instance, if we spend a certain amount of money right now, will we be able to take a vacation this summer?

It makes for a healthy, happy relationship.

Talk to each other. Reason things out. It makes for a happy, healthy marriage.