Budgeting #3 - More Questions Financial Planners Will Ask You as You Prepare to Purchase a Home

Jim Eyre • October 21, 2024
a picture of a budgeting # 3 page with a diagram of how to get where you want to go

Now that you know where you are financially, as well as where you want to be financially, the next question becomes "How are you going to get there? In the last couple of blog posts, we’ve been dealing with the questions Financial Planners ask prospective clients, which just happen to be exactly the same questions that a good real estate broker and a good mortgage broker should be asking.


The first question, “Where are you, financially speaking?” is simple enough. After all, everyone has to start somewhere. And it really doesn’t matter where you are when you start, it just matters that you start! 


The second question, “Financially speaking, where do you want to be?” is the logical follow-up, but sometimes it’s a little difficult to be specific with your answer. And I would add that I don’t believe “specific” is enough…I think you should get down to the bottom of the barrel, the ticky-tacky, nitty-gritty, hard core truth of the matter, and get face-to-face with where you really want to go. Be VERY specific with your answer, using the acronym S.M.A.R.T. Because if you really want to accomplish your financial goals, they should be specific, measurable, attainable, relevant, and time-based.


Once you’ve answered the second question, it’s time to get on to the third question, which is “How are you going to get there?” You have to create your road map, right? Unfortunately, it’s not as simple as asking Siri or Alexa how to go from point A to point B, but once you have that S.M.A.R.T. goal firmly in your head and written down on paper, the job of figuring out how to accomplish it becomes much easier. It usually involves some behavioral changes for most people. This can be problematic for many, but Financial Planners and Mortgage Brokers have developed some simple strategies to help you do just that. Let’s deal with the first two strategies today.


Strategy #1 is really simple - Always pay YOURSELF first. OK, you earn a certain amount on your job, and your employer takes out various taxes, social security, etc., before they give you your actual paycheck. You may have rent, utilities, credit card payments, car payments, etc. that you need to pay each month. But unless you set aside a little for your retirement every time you get paid, your retirement years may be pretty bleak. Financial Planners suggest that you should set aside 10% of your income toward retirement, but it might be hard for you to discipline yourself to do that. So just have your paycheck auto-deposited in your savings account. And when that money shows up in your savings account, transfer 90% of it into your checking account. Live off of what's in checking, and DON'T TOUCH YOUR SAVINGS ACCOUNT! If you set this up so that it's done automatically by your employer and your bank, it's a lot easier to accomplish.


Strategy #2 is to put a line item in your budget for home maintenance, and save a little money each month toward that. You may not own a home yet, but that doesn't matter. Get started doing it now, and you'll already have a little nest egg built up when you do purchase that first home. Look, I live in the Pacific Northwest portion of the U.S., and we get a lot of rain up here. And no matter whether I'm driving through a neighborhood that's priced for first time homeowners, or a neighborhood where the average price exceeds $3,000,000, I see the same three things all the time. I see old, rusted out lawn mowers sitting beside the garage, rain gutters and downspouts that are overflowing and rusty, and roofs with curled up edges on the shingles.


Now you might not be concerned about replacing a lawn mower. They're maybe... What - $300-$500 at the store? That might not pose a problem for you. But what about replacing damaged gutters and downspouts, that start out at around $3,000-$4,000 for a typical home in my neck of the woods? And if you need to have an old roof removed and a new one installed, it can run anywhere from about $8,000-$80,000! Maybe even more, depending on the size of your home, and the complexity of your roof design. Are you ready for that?


Please understand, I'm not saying these things will happen to you. But - they might. And if they do, I want you to be ready for them. I want you to be able to say "I've got this", and be able to sleep at night. If you have any questions about any of this, please feel to reach out to me whenever is convenient for you, via phone, text, or email. Remember, I don't work 9-5, I work start-to-finish. Come back again next week, and we'll deal with Strategies #3 and #4.

a large brick house with a driveway in front of it

Why Your Preapproval is Such a Big Deal?

By Jim Eyre • October 21, 2024
People ask me why a fully-documented preapproval is such a big deal. Here's why.
a woman is sitting at a table with a laptop and a man is using a cell phone

Let's Get You Into A House - Strategies 3 & 4

By Jim Eyre • October 21, 2024
Budgeting strategies to get yourself into a home. We've been considering the steps that people go through mentally to get ready to buy a home. And they normally ask themselves a bunch of questions, which as it turns out, are the same questions financial planners and mortgage brokers ask, or at least should be asking their potential clients. These questions are (1) Financially speaking, where are you?, (2) Financially speaking, where do you want to be?, and (3) Again financially speaking, how are you going to get where you want to go? And of course, in the context of this blog, "where you want to go" refers to buying a home. Last week we began to look at some specific strategies that are often suggested to help homebuyers reach their goal. The first was to "Always pay yourself first" by saving 10% of what you earn. The second was to budget a little bit for home maintenance every month, because in some ways, houses are like cars. Parts wear out, and either need to be repaired or replaced, and with a house, those parts can be quite expensive, and you don't want to be caught unaware. This week we're going to look at the next two strategies which can be utilized to help you ready yourself to buy a home. Strategy #3 is to start living as if you already have a mortgage, and here's how it works. Let's say you're already paying $2,000/mo. for rent, and you're concerned as to whether or not you can actually afford a mortgage. First, select a neighborhood where you'd like to live, and actually write down on paper what you need in a home. Then contact your real estate broker, and ask what such a home would actually cost. Once you have a price range in mind, contact your mortgage broker, and find out what a mortgage payment would be on such a home. For the purposes of this scenario, let's say that payment comes to $3,400/mo. for principal, interest, taxes, insurance and mortgage insurance. That's a $1,400 increase, and you might be worried whether or not you can sustain that over a long period of time - perfectly understandable, right? The way to determine whether or not you can sustain it is to go ahead and pay your $2,000 monthly rent, AND save $1,400 each month, in a separate savings account, designated for your closing costs when you buy your home. Do this for 3 months, 6 months, maybe even a year. Take however long you need. At the end of this time, you will know whether or not you can actually do it, and you'll make the appropriate decision. Strategy #4 is to minimize credit card debt. Mismanagement, and in some cases non-management of credit card debt kill more mortgage applications than anything else I see. So it's critical to understand how this can affect you when applying for a mortgage. It's actually a subject unto itself, and it's too long to go into real depth here, but I can at least give you some time-tested methods to manage a situation that's tough for many people. First, list out all your credit card accounts, their balances, their limits, and their interest rates. Sort them by balances owed first, and secondly by interest rate. Second, starting with the balances that are easiest to do this with, pay each of the cards' balances down to 50% of their limits, and NEVER exceed 50% again. Most people do not understand that when they exceed 50% of a credit card's limit, it begins to lower their credit scores. Once you've accomplished this, pay them down to 30% of their limits, and NEVER exceed 30% again. If you do this, you'll begin to see rapid increases in your mortgage credit scores. But hold on - you're not done yet. Next, use each card you have periodically. The reason for this is that banks who issue credit cards are in business to make money. If you don't charge something periodically, they won't make any money, and eventually they will close the credit card account for non-use. And this will lower your credit score for a couple reasons which are too detailed for this blog. Just be sure you use each card you have... You don't have to use each one every month, but use each one every few months, even if it's just for a tank of gas in your car. Last - never close a credit card account! There are two exceptions to this. If your identity has been hacked and you fear that someone may have gotten your credit card information, call the bank who issued you the card, and have them issue you a new card. And if for some reason you suspect that the bank who issued you the card is going to close the account for non-use, either charge something on it immediately, or close the account yourself. It always looks better on a credit report if you've closed an account, than if the creditor closes the account on you. Hopefully the questions we've looked at, and the strategies that I've suggested are things you find helpful as you get ready to buy your home. If you have questions about any of it, please feel free to reach out to me at anytime. Remember, I don't work 9-5, I work start-to-finish, and I will always give you straight talk without any sales talk.
a pen is sitting on top of a piece of paper with the words budgeting # 2 on it

Budgeting #2 - Where Do You Want to Be?

By Jim Eyre • October 21, 2024
SMART Goals. Two weeks ago we reviewed the first question financial planners will ask you, which is "financially speaking, where are you now?"