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How to Manage Your Finances

Real Living GreatWest (Real Living GreatWest) — Wed, 29 Sep 2010 12:50:07 -0700

Today, I’m going to give advice on managing your cash flow. One of the most important to consider, when managing your personal finances, is to treat yourself as a business. Businesses live and die on cash flow. If a business runs out of cash, it fails.

Managing your cash flow in today’s world is necessary for financial success. The first step is to log all your income sources. For most, this is easy. Include all ways you get money. Obviously the biggest source is probably your job. Others include money from investments, interest, bonuses, child support, alimony, and allowances.

Next, you want to estimate your expenses. Include everything you spend money on. Groceries, gas, tuition, utilities, rent, credit card payments, mortgages, eating out, insurance, and anything else you can think of.

The next step is to put everything into a spreadsheet. This is important because it gives you an easy way to view all the information and make comparisons. Start your spreadsheet with you income page. The spreadsheet will have three columns for each month; estimated, actual, and variance. This will include all those sources of income you just listed. List the items in whatever order you wish, with a summation of total income at the bottom. Then you want to estimate the how much you will earn from each item each month, and sum them at the bottom.

The next page will be your expenses page. This should be set up in the same manner as the income page, except there will be categories. The two major categories are fixed and variable expenses. Fixed expenses are those which you know you will have to pay each month and have a cost which does not change. Examples of fixed expenses are insurance premiums, rent, mortgages, and loan payments. Credit card bills can be included, only if you pay the same amount every month. Variable expenses are everything else. You want to break up your variable expenses into categories, as well. These categories can be anything you like. It is best to break them up in a way which makes it easier for you to visualize. I use food/drink, transportation, entertainment, personal care, wardrobe, and gifts. Then, as with your income, you need to estimate all the expenses for each month. You should do this for at least four months.

Once you have all your income and expenses estimated, you can see if you are at a surplus (extra cash) or deficit (negative cash) and adjust your spending accordingly. The benefit of this is that if you know you are not going to have enough income to cover all your expenses, in a given month, you can do something about it. You can spend less the month before or plan on having to use your credit card. At the end of every month, you need to fill the “actual” column with what you actually earned and spent; then subtract those numbers from your estimates to get your “variance”. The goal is to have your variance equal zero. The closer your variance is to zero, the better you are at estimating your income and expenses.

This is the best way to manage your finances; it gives you an excellent visual breakdown of all your expenses and allows you to adjust. It also connects you with your finances so you are more in touch with what you spend your money on, which is a great way to make sure you don’t over spend.

There are many computer programs which can help you set this up. I fine Microsoft Excel works best for me. If you have any questions or comments, feel free to leave them below and I will get back to you as soon as I can.

How much house can you buy?

Real Living GreatWest (Real Living GreatWest) — Wed, 22 Sep 2010 17:08:17 -0700

One of the major problems in the mortgage industry today is, most potential home buyers over estimate how much home they can afford. I will discuss how your bank evaluates your income and how you can use what the banks use to figure out how much you can spend.

The two major ratios that banks use to determine how much you can afford are the debt to income ratio and the housing expense to income ratio. The later is calculated by dividing your estimated monthly housing payment by your gross monthly income. Your estimated monthly housing payment includes the payment of principal, interest, taxes and insurance. This number is expressed as a percentage.

Your debt to income ratio is similar to the housing expense to income ratio, except it includes all your reoccurring debt. This includes credit cards, auto loans, child support, and any other debts which have a monthly payment. Most lenders, for conventional loans, those which are not government sponsored want a debt to income ratio under 38% and a housing expense to income ratio less than 30%. However, these numbers are only guidelines. Many compensating factors, such as net worth, credit score, and the ability to make a large down payment will allow for higher ratios.

The other factors you need to consider are your down payment amount and closing costs. Your down payment is mostly your decision and should be based on how much you feel comfortable with. One of the benefits of a large down payment is you the lower your loan amount to value ratio, the lower your interest rate will be. The loan to value ratio is calculated by dividing the total loan amount by the appraised value of the home (or the sale price, whichever is lower). If your LTV is over 80%, you will need private mortgage insurance, which will add to your monthly payment. Your closing costs usually add up to about 2% to 3% of the sale price. Closing costs are paid at the close of escrow and is due on top of your down payment.

Now let’s do an example. Say you, the buyer, make $15/hour and you work 40 hours a week. To find your gross monthly income (income before taxes) we will multiply your hourly wage by your hours per week then by weeks in a year and finally divide by months in a year.

$15 X 40hours = $600 per week

$600 X 52weeks = $31,200 per year

$31,200 / 12months = $2,600 per month

Your gross monthly income is $2,600

Let’s apply the 30% rule to your housing expense to income ratio.

$2,600 X .3 = $780

This means, to have a hosing expense to income ratio of 30%, your maximum monthly house payment cannot exceed $780.

Now let’s do the same for your debt to income ratio, DTI. Say you have an auto loan which you pay $150 per month, a credit card with a minimum payment of $50 and no other reoccurring debt. If we add that to your $780 house payment, we get $980.

$980 / $2,600 = .38 or 38%

As you can see, you would meet the guidelines for the ratios. However, if you had more debt, say child support, you would not qualify and you would probably need an extensive down payment or impeccable credit to get the loan.

Now we can find out how much you can spend on the house. Say market interest rates are at 5%, using your $780 per month payment with a 30 year fixed rate mortgage and a financial calculator; we find your maximum loan amount to be about $145,000. Now that you know how much of a loan you can get, you just need to figure out how much of a down payment you can make. This completely depends on your comfort level and your funds available. Most banks like an 80% loan to value ratio, and you should too. Because private mortgage is required for any loan with a LTV of over 80%, you can save a lot of money by paying more up front. Therefore, if you use an 80% LTV, you can buy an $180,000 house. If you can’t manage to make the large $35,000 down payment, you can always have a higher LTV and just pay mortgage insurance.

This just briefly touches on how banks determine what you can afford, but it is good to know. If you have more questions about what I presented here, feel free to leave a comment or give us a call at (800) 741-3710. I’ll have a new article for you next week and I will definitely be touching on this subject again.

How to Improve Your Credit

Real Living GreatWest (Real Living GreatWest) — Wed, 15 Sep 2010 13:12:40 -0700

Now, more than ever, one’s credit score has a huge impact on what they can “afford”. Credit scores play a major role in determining your worthiness for mortgages, auto loans and credit cards. They can even affect your ability to get a job. Many of us, especially in these times, have a few, if not many, negative remarks on our credit reports. Because of that, I am going to give a few tips on how to build or rebuild your credit.

Pay your bills, in full.
I know this is easier to say than do, but it is important. If you can, it is best to pay off your full bill every month. This s good for two reasons; One, when you pay your bill in full every month, you don’t pay any interest and two, it shows that you are well within your spending ability, given your income and credit.

Keep your balances low.
It is best to keep your balances under 30% of your limit. It is better to spread your debt over a few cards than to have one card with a high balance and two cards with no balances.

Pay your bill on time.
This is one of the most important ways to keep your credit in good standing. Creditors do not want to see late payments. This can reduce a good credit score; say 720, by as much as 100 points, depending on the circumstance. We all hit hard time and it can be tough to pay all one’s bills on time, but if you know you are not going to be able to make you payment, call your creditor. There is a good chance they will move back the deadline, but remember, do it early. The sooner you let them know, the more likely they are of giving you an extension.

Don’t apply for a lot of credit.
This is something that a lot of people don’t know, but when you apply for a new credit card or loan, it shows up in your report. Creditors do not like to see a lot of inquires within a short period of time because it is a sign that you are in serious need of money, which is a red flag for risk.

Keep your old cards.
When it come to your score, credit history is very important. The longer you have been using credit, the better; so don’t close your old accounts. It is much better to keep them open and to use them. Each is beneficial for its own reasons. Keeping old accounts open benefits in both credit history and overall available credit. Using those old cards will help spread your debt.

Ask your creditors to increase your limit.
This can be very beneficial because it will spread the gap between your balances and your limits. I recommend asking for an increase every 2 to 3 months. One of the pros of doing this, other than the obvious, is when your current creditors pull your report for an increase; they do a “soft pull”. A “soft pull” is similar to when one checks their credit report and it does not have a negative effect. This is not true of a “hard pull”, which is when you apply for new credit, such as a loan or new credit card. “Hard pulls” show up in your report and, like I stated above, creditors do not like to see a lot of inquires.

Review your report.
The best way to keep your score up is to review your report often. Mistakes happen in credit reports and they can have a huge impact on your score. You can get a free report once a year from annualcreditreport.com and there are many services that will send you a monthly report. Remember, your own inquires will never affect your score, so check it as often as you want. If you are new to credit, I recommend checking your report once a month. This will aid in your understanding of the report, its self, and ensure that you won’t be stuck with any surprises.

Feel free to leave a comment or a question below.

I hope this helps. We are all going through tough times, but remember, good things come to those who make it happen.

How to Improve Your Credit

Real Living GreatWest (Real Living GreatWest) — Wed, 15 Sep 2010 13:10:30 -0700

Feel free to leave a comment or a question below.

I hope this helps. We are all going through tough times, but remember, good things come to those who make it happen.

Under Water Mortgage Relief

Real Living GreatWest (Real Living GreatWest) — Mon, 09 Aug 2010 11:47:47 -0700

This is a re-post of an article from Barron's.com by Randall W. Forsyth, which I thought was very interesting. I would love to hear your comments about it.

http://online.barrons.com/article/SB50001424052970203667404575412951885388376.html?mod=googlenews_barrons

Importance of Credit in Mortgages

Real Living GreatWest (Real Living GreatWest) — Mon, 26 Jul 2010 11:18:54 -0700

Credit and Loans In today’s economy and real estate market, the most important asset in securing a loan is good credit. But should it be? Does having good credit mean that you will make your payments on time and does having bad credit mean you won’t? Although one’s credit is definitely a good way of showing a person’s past actions, it may not be the best way of showing their future. I believe there needs to be less emphasis on credit ratings when it comes to loans. There are many items which can affect credit, and sometimes, they cannot be controlled.

For instance, say you went to a medical institution for physical therapy. You paid your bill on time, every time. But, they say you owe them for a visit. They can attack your credit and you have no choice but to enter a dispute. This has a great negative effect on your credit rating. Furthermore, proving that you do not owe them any money can be extremely difficult. Now it might only be $200, but that can be the difference between a 10% and 7% loan rate. Also, say you defaulted on a credit card 5 years and entered a rate reduction plan and have been paying your bill every month on time for the past 5 years. This still has an extremely detrimental effect on your rating.

Personally, I think loan qualification should be based on more recent than past history and also, more on your income debt ratio. If you have $50,000 in the bank and you want a $20,000 loan, it shouldn’t matter what you did 5 years ago, as long as within the last 2 to 3 years you have been doing all the right things. I just think, as a society, we put too much emphasis on arbitrary numbers that are based on actions, which so nothing about how you carry yourself and your finances now.

Problems for Defaulters.

Real Living GreatWest (Real Living GreatWest) — Mon, 19 Jul 2010 11:17:07 -0700

I believe most of you know about the new Fannie Mae regulations for borrowers who purposely default on their mortgages. If you do not, one is quite simple. If you “strategically default” on your mortgage, you will have a seven year ban on new Fannie Mae loans. They are using this as a means of detouring borrowers who can afford to make their payments, but choose not to. This is becoming popular amongst borrowers who owe more on their home than it is worth. On top of the seven year ban, according to an article on seerpress.com, Fannie Mae might start attempting to recover some of their losses through the court system.

I don’t know how most of you feel about this topic, but I agree with Fannie Mae. I know these are hard times and it must be very difficult to be “upside-down” in your mortgage, but I don’t think that give one the right to walk away. We are all facing the same difficult times and why should we, as taxpayers, homeowners, and citizens, have to pay for one’s strategic default. When someone defaults, it is a cost to all of us. The value of the nearby houses goes down, which is a strain on the community and can cause further defaults. The huge numbers of defaults also make it harder for everybody to receive credit, as banks need to become more conservative. Personally, I think Fannie Mae is well within their rights to try and recoup their losses, however, there must be a thorough investigation to see if these cases are actually strategic defaults. Otherwise, they will be punishing those who are already in over their heads.

What do you think? Leave a comment and let us know.

Source: http://seerpress.com/fannie-mae-tightens-belt-on-borrowers-defaults/2697/

New Lead Paint Regulation

Real Living GreatWest (Real Living GreatWest) — Mon, 12 Jul 2010 11:38:27 -0700

With unemployment rates still very high and the economy struggling, is now the best time to be adding to the cost of renovating one’s home?

According to an article by Inman News, the Environmental Protection Agency is removing a provision in their 2008 Lead Renovation, Repair and Painting rule. This stipulation allowed home owners and their contractors to disregard the rules of the act as a means of saving money, as long as they could prove there were no children under six years old or pregnant women living in the home. Now, whenever there is work done to a home built before 1978, the contractors must follow all aspects of the rule, regardless of the owners’ requests.

I know most of you are probably thinking this is a great thing. There will be less toxic substances in our homes and we will all be safe because of it. But I ask, is now the right time? With all the problems in the housing marking, is it a good idea to make the cost of renovation higher? These costs could deter many home owners from making key “efficiency improvements”, which can raise the value of the home and decrease energy use.

What do you all think? Would you prefer the added cost, or be able to your own decisions about what needs to be done with your house?

Buying a Home

Real Living GreatWest (Real Living GreatWest) — Wed, 07 Jul 2010 14:37:43 -0700

Anyone setting out to buy a house knows what a huge commitment it is. When buying a home there is just so much to consider. All the way to the furnishing, it is about expenses. If you have made the momentous of decision to buy a place of your own, whether as a permanent residence location or a real estate investment, you need to be clear about how you plan to go about it. Firstly, before buying get the opinion of professional agents about the place, how has it been faring in the market, what sort of land developments are underway in the vicinity, how have the prices been and what profits can you expect.

Secondly, you need to decide on the mortgage and payments for your property. A mortgage is an expensive commitment. Whether you buy in Elk Grove, Yuba City, or any other place, you need to be sure you have money set aside to meet with the commitment that you are entering into when buying property. Once you have decided on what you want to do in terms of the various payment schedules you have to work out how you plan to pay for everything. Sometimes you may not be eligible for the whole amount on the house – get sound advice from well-qualified agents and professionals about this. In that case, you can pay off part of it in mortgage, but you need to have savings set aside or alternate means to acquire the remaining money.

When buying a home you are spending a lot of time and money on it. Many real estate websites will tell you about the home, the neighborhood, what to expect living there, how to do up the décor of your place and much more. The real estate blogs are written by experts that have years of experience being in the field. People who know what needs to be done in order to get the best look for your home. So if you know what you need to do, then go ahead and get started.

If you talk to realtors or do the whole deal on your own, you need to do research so you know all about the documentation, the various steps involved, how things proceed, what is expected, what regulations apply, what sort of mortgage is best suited and more. The more information you gather, and the more agents you consult, the more well versed you will be to deal with the situation on hand. Buying a home can change your life.

For additional resources and information please visit the following sites.

Resource Links:

Local Blog Link

How to Manage Your Finances

How much house can you buy?

How to Improve Your Credit

How to Improve Your Credit

Under Water Mortgage Relief

Importance of Credit in Mortgages

Problems for Defaulters.

New Lead Paint Regulation

Buying a Home

Realtors, Technology and Social Media

Real estate scenario in Sacramento and in the neighboring counties

How to find the Ideal Home in Sacramento

Careers in Roseville

Realty in Elk Grove, Sacramento

Real estate

Real Estates Websites: Project, Promote and Provide the Best

Affordable Apartment Hunting Over the Net

Placerville: Ideal home in Placerville

Are you ready to own property?

Come and Stay In Roseville

Real Estate Survey of Yuba City

Sacramento Real Estate Job Openings

A Guide to Prominent Roseville Apartments

Technology in Real Estate

Pick the Perfect Realtor to Guide You