buying a home

5 Money Moves to Make Before You Turn 40

Holly Johnson — Thu, 01 Oct 2020 17:32:44 +0000

Turning the big 4-0 is a perfect time to reflect on how far you've come in life, the milestones you've surpassed, and the relationships you've built. But for some people — especially those who don't have their financial ducks in a row — it's a time when panic sets in.

After all, turning 40 can make you painfully aware that time is running out to fix any financial mistakes you've made in the past. At the same time, you need to get serious about your money if you want to enjoy your golden years without financial stress. That's why financial advisers suggest a handful of money moves everyone should make before their 40th birthday.

1. Deal with consumer debt

Ryan Inman, a financial planner for doctors, says it's crucial to create a plan to deal with consumer debt well before your 40th birthday. That's especially true when it comes to high interest credit card debt. With the average credit card interest rate now over 17%, this type of debt can be difficult to pay off — and a big drain on your budget each month.

If your goal is paying off debt, there are multiple approaches to consider. You can attack it the old-fashioned way and pay as much as you can each month, or even try the debt snowball or debt avalanche methods. You can even apply for a balance transfer credit card that lets you secure 0% APR for up to 21 months.

Ideally, you should strive to have no debt other than your mortgage at this point in your life, says Inman.

While this may seem like a lofty goal, not having to make interest payments toward consumer debt will make it a lot easier to save more for retirement and play catch up on your investments if you're already behind.

2. Maximize your retirement savings

It's easy to think maxing out your retirement savings isn't necessary when you're young, but when your 40s hit, you become keenly aware of just how much more your nest egg needs to grow.

Financial planner Benjamin Brandt, who hosts a retirement podcast called Retirement Starts Today Radio, says he suggests anyone approaching 40 start maxing out their retirement savings. Remember that you'll set your contributions up through payroll out of your pre-tax income, so it's not as costly as it may seem. Also note that contributing the max to retirement will reduce your taxable income, which could mean a smaller income tax bill this year.

If you can't contribute the max, Brandt says to try to contribute more than you are now and inch your goal up slightly every year until you get there.

Brandon Renfro, an assistant professor of finance and financial planner in Hallsville, Texas, says that, at the very least, you should make sure you're getting the full employer match on your retirement plan. An employer match is the amount of money your employer might match when you save for retirement yourself. For example, your employer might agree to contribute up to 6% of your income each year as a match, but you have to contribute 6% to get the full amount.

Remember that your employer match is free money for the taking, and you should take advantage of any help you can get toward retirement savings as you approach your 40s.

3. Automate your finances

Certified Public Accountant Riley Adams, who also writes at Young and the Invested, says that your 40s are a good time to try to automate your investments if you haven't already. With more automation and money moving on its own, you're less likely to spend money on stuff you don't need or end up in a situation where you're inflating your lifestyle as your income grows.

"To protect yourself from yourself, learn to establish automated financial transactions to handle your money moves each paycheck," he says. "Doing so takes the hassle out of your hands and also puts your money to better use."

For example, you could set up an automatic bank transfer so a specific amount of money is transferred to a high-yield savings account every month. Or, you can set up automatic deposits into a brokerage account. Boosting your retirement savings in a workplace account can also be considered automation since the money is taken out of your paycheck automatically and invested on your behalf. (See also: 5 Ways to Automate Your Finances)

4. Purchase insurance based on your future finances

Financial planner Brenton Harrison of Henderson Financial Group says that, by your 40th birthday, you should also have your insurance needs squared away. However, you should strive to think of your insurance needs in future tense.

"It's tempting to determine your needs based on your current income and net worth," he says. "But for many people, their 40s are their peak earning years, meaning that the insurance needs you have before 40 might not be enough as your career progresses."

Harrison suggests sitting down and thinking about where you'd like to go in your career and where you plan to be financially in 10 years. From there, buy insurance based on that financial picture.

"If you know you can and will achieve a certain level of success, don't wait until you've reached it to start planning," he says.

While the types of insurance you'll need vary depending on your situation, think beyond the basics like homeowner's and auto insurance. For example, you may want to buy an umbrella insurance policy that extends your coverage limits in certain cases.

Also, make sure to get proper life insurance coverage," says financial planner Luis Rosa.

"If you have a family or are planning on having one in the near future, it is crucial to make sure that they are protected," he says. And you're much more likely to qualify for the coverage you need at a price you can afford when you're in your 40s (or before) and still relatively healthy.

5. Build an emergency fund

If you've struggled with your finances over the years and dealt with credit card debt multiple times, chances are good it's because you don't have an emergency fund. While any amount saved is better than nothing, most experts suggest keeping a separate fund for emergency expenses or job loss that's stocked with three to six months of expenses or more.

You never know what kind of roadblocks life will throw your way, but you'll be prepared for almost anything if you have savings set aside. And if you can't save six months of expenses, it's still best to start somewhere — even if you can only squirrel away a few thousand dollars.

Put your savings in an interest-bearing account and keep adding to it, and you'll eventually get there.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

11 Open House Etiquette Rules Everyone Should Follow

Mikey Rox — Thu, 11 Oct 2018 08:00:10 +0000

Shopping for a new home? Before you start pounding the pavement, you should know that open houses aren't an excuse to show up whenever you want and act however you want. Brush up on the rules of open-house etiquette before you hit the first showing. Here are some of the big ones.

1. Be on time

If an open house is scheduled from 1 to 4 p.m., don’t show up at 12:30 p.m. and barge right in. The sellers still may be preparing their property, and they’re entitled to that time. Arriving late isn’t acceptable, either. If the time is 1 to 4 p.m., respect it; if that doesn’t fit into your schedule, pursue other arrangements, like scheduling a private walk-through on another day.

“I have had a few occasions where I spent 30 minutes turning off the lights and locking things up, only to have a person stop their car while I was out picking up the open house signs several blocks away, asking if I will go back and let them in,” says John Austin, associate broker for Realtypath South Valley in Riverton, Utah. “Of course I always do, but that adds an additional hour or so to an already long day. If you are going to be late, please call the agent's cellphone in advance to ask if they will stay late. They almost always will be glad to.”

2. Wipe your feet before walking in

It’s common courtesy to wipe your feet before entering someone’s home. If there’s inclement weather, you might even be polite enough to remove your wet shoes and leave them by the door. If this is an established rule of the homeowner — to remove shoes, that is, regardless of the weather — you either need to follow it or leave. Respect is key here. You wouldn’t want someone dragging mud, leaves, and other gunk through your nice clean house, so you should expect to extend that courtesy to others.

3. Register your name when you walk in

Signing in might seem like a way for a realtor to get your information (and it is), but it also serves a more important purpose: security.

“When we hold open houses for homes that are still furnished, we demand that guests sign in or they cannot preview the house," explains Kevin Gunn, director of general brokerage at the real estate search engine Real Living. "We take every precaution to make sure valuables are locked up; however, the agent cannot be everywhere in the house at one time. So, please understand that signing in protects the owner of the property. Should something happen, we need a log of who was there.”

4. Let the host realtor know if you already have an agent

If you come to an open house alone, but you already have an agent, tell the agent at the open house that you are there to view it and already have representation. That way the agent will leave you alone to view the property while he or she spends time talking to buyers who are not already represented.

“In my open house events, I average 125 to 175 people through the five-hour period; that’s a lot of people to talk to and divide my time,” Austin says. “It happens at every open house: I ask people if they have an agent, they say no, and I spend five or 10 minutes talking to them before they admit they have an agent, or worse — they are an agent. If you have an agent, I want to respect that relationship." (See also: 20+ Questions to Ask During an Open House)

5. Mind your children

If you’re bringing your children to an open house — which, in my opinion, should be a last-resort scenario — it is your parental responsibility to keep those kids by your side at all times. If you don’t think your children will behave in someone’s home while you’re viewing it, don’t bring them. Have your partner mind them outside while you view the property alone, then switch.

Vincent DePalo, part of the Andre Rouach Team at Douglas Elliman Real Estate, recalls a situation where a broker brought his kids to an open house where they all sat down and ate a free lunch and made a mess. He details another awkward incident during a well-attended open house:

“I once had a family of 11 people come to an open house, including the couple that was looking, both in-laws, a sibling, and three young and energetic kids ages six to 10,” he explains. “They were running around touching and opening things, climbing on window sills, and scuff-marking the walls. I could not give much of a presentation because I was so worried that either a kid would get hurt or damage the apartment.”

6. Give other guests their space

If there are other visitors at the open house while you’re viewing the property, give them equal space. Don’t crowd into rooms. Wait your turn so everyone has a chance to see what they came to see. If there’s a couple upstairs, start downstairs or outside. If they’re taking longer than you’d like, be the bigger person and exhibit patience; everyone will get through the house eventually.

7. Don’t nose through people’s personal belongings

When you go into someone's home for an open house and you’re compelled to touch something, you really only need to ask yourself one question: Is this mine? If this answer is no — and it is — don’t touch it. Don’t go through drawers or medicine cabinets or appliances. Everything you need to see right now is in plain view for you. A more thorough inspection of the property will be provided to you if you become a serious prospective buyer.

8. Keep your design ideas to yourself

You probably have plenty of ideas on how you’ll change the home once you’re in it, and that’s very exciting — for you. Remember, this is someone’s home, and they may be leaving it reluctantly, so the open house isn’t the right time or place to detail outloud how you’re going to gut the place.

“It’s fine to talk about how you might knock down a wall, but do not share your design opinions about the kitchen’s state of disrepair,” adds Jennifer Porter, owner of Seattle-based Satsuma Designs. “It kills me to see all the home-show touristers bad-mouthing other peoples’ design choices.”

Depending on whether a home is staged or still includes the personal effects of the owner, you may also find personal items on display. Porter suggests that you keep walking, reserve judgment, and never discuss the room and items publicly.

“It’s simply good manners,” she says. “Even if you’re ready to put in the winning offer, it’s not your house yet.”

9. Schedule a second showing for plumbing concerns

Listen, we all understand that when nature calls, nature calls — but, please, try to do your business before going to the open house. And don’t go through the house turning on faucets and flushing toilets just to see if they’re working. If you’re that interested in the plumbing situation, schedule a separate appointment with the realtor, who will be happy to give you a more comprehensive tour. (See also: 12 Crucial Things Homebuyers Overlook at Open Houses)

10. Ask permission to open closets or to take photos

Closet space is a selling point for many buyers, but before you go swinging doors open, ask. It’s just the polite thing to do. Same goes for snapping photos; it’s likely nobody will mind, but ask first.

11. Get in and out efficiently

Walk through the house, ask a few questions, and gather the materials and information you need. An open house is not an invitation to linger, loiter, and fill up on wine and snacks. Take one cookie and a drink if you’d like, and go. Better yet, plan to have a meal in the neighborhood so you can get a better idea of what it’s like, which is especially important if the house you just viewed is still among your prospects. (See also: How to Research a Home's Location Before You Buy)

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Things a Homebuyer Shouldn't Say to a Seller's Agent

Dan Rafter — Wed, 06 Jun 2018 08:30:23 +0000

You're touring an open house and the real estate agent running the event walks over to say hello. What should you say in return? Well, you can say hello right back. But other than that, it's best to stay pretty much mum.

The agent at an open house is a seller's agent. This individual is paid to represent the best interests of the people selling the home — not yours. If you say too much, you run the risk of accidentally providing them with information that he or she can use against you if you make an offer and eventually enter negotiations to buy their client's home.

What should you never say to a seller's agent? Here are five conversation gaffs to avoid during an open house.

1. How much you love the house

You might think it's natural to tell the agent at an open house how much you love the home you are touring. This, though, can be a big mistake when it's time to negotiate a final sales price if you decide to make an offer.

Think about it: If the seller's agent knows that you absolutely love the home, they might be less willing to advise the current owners to lower their asking price. After all, you've already told the agent that the home is a great fit. They might even figure you'll be willing to pay more because you like the home so much.

Don't say anything to the seller's agent about how much you like the home, even if you really do love it. Don't confess that the backyard is perfect for your children. Don't say how much you love the renovated kitchen. And don't mention that you can already imagine relaxing in the spacious living room. Keep these thoughts to yourself to avoid giving your seller's agent any extra ammunition during future negotiations. (See also: 20+ Questions to Ask During an Open House)

2. How soon you need to move

Never let a seller's agent know that you're getting desperate to find a home. This, too, can give an agent inside information that could be used against you.

If you tell an agent that you absolutely need to move in the next month, that agent might tell his or her clients that they should hold out for a higher final sales price. After all, you're desperate to move. The seller's agent might rightly assume that you'll be more likely to accept a higher sales price if it means getting into a new home quickly.

3. How much you're willing to spend

You likely have an upper limit for how much you can afford to spend on a home. Keep that limit to yourself. Absolutely never share it with a seller's agent.

Say you can afford to spend up to $300,000 on a home. Don't comment to the agent that you're excited the house is listing for $290,000 because it's $10,000 under your budget. If the sellers know that you can afford to spend more, they may not be as willing to lower their asking price during negotiations.

Share your budget with the agent representing you — your buyer's agent. But make sure it's a secret that the seller's agent never learns.

4. Personal details

Maybe you're looking for a home because your company transferred you to a new location. Maybe your family is growing. Maybe you've gone through a divorce and you need to downsize.

Keep these personal details to yourself. If you share them with the seller's agent, the information you've spread might once again come back to haunt you during negotiations.

For instance, maybe you need to move because you're having a baby and once that baby arrives, you won't all fit in your current home. Armed with this knowledge, the seller's agent might advise his or her clients to hold firm on their asking price. They know you're backed into a corner. You need to move to find space for your expanding family, and they have the space you need.

5. Any financial problems you're having

You want sellers to view you as a serious buyer. If you share financial struggles with the seller's agent — a past bankruptcy, a low credit score, mounds of credit card debt — you might do the opposite. If the home's sellers think you have financial problems that might prevent you from qualifying for a mortgage (assuming you haven't prequalified), they'll be less willing to enter into serious negotiations with you.

If you've had financial hiccups in the past, keep them to yourself. You don't want sellers to think they'll be wasting their time by accepting an offer from you. (See also: Everything a First-Time Home Buyer Needs to Buy a House)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Agree on the Perfect Home With Your Spouse

Ashley Eneriz — Mon, 04 Jun 2018 08:30:17 +0000

Buying the home of your dreams can be a thrilling process — until you find out that you and your spouse cannot agree on anything. House hunting with someone that has different tastes or priorities can slow down the process and make every home you look at a disappointment.

Here's how to find the perfect home for you and your spouse, even if you can't agree on every little thing.

Make separate wish lists

You and your spouse should both write out your 10 must-haves for your new home. If you have more than 10 items, narrow it down so that you focus on the highest priorities. Let's be real: You can live without a claw foot tub in the master bathroom, but you might be at your wit's end if you have to deal with a small, cramped kitchen.

Once you both have your lists made, highlight any items that are matching. If you can find four to six matching items, you are off to a great start. Those should be the items you focus on. All non-matching items on your list then need to be rated as "must-have" or "nice to have, but can live without." This will allow you to narrow down your search and save time when looking for the perfect home.

Determine the big non-negotiables

Some things are non-negotiable, such as price or neighborhood. If you know that you can only spend so much money or that you only want to buy in a certain area, it helps you both to get on the same page. I recommend sitting down and agreeing on a maximum budget before even starting the home tours.

When you are dealing with hundreds of thousands of dollars, going $20,000 over budget for your dream home may not seem like a big deal, especially when you have 30 years to pay off the debt. However, in addition to adding cost to your monthly mortgage payment, going over budget can also add tens of thousands of dollars in interest over the life of your loan. It is important to know exactly how much you will be paying each month for your mortgage, as well as an estimate of yearly property taxes. (See also: 8 Signs You're Paying Too Much for Your Mortgage)

Find the compromising points

When you and your spouse have two conflicting must-haves on your list, talk through them. Listen to why they want a certain item and share your feelings about why you do not want the item. For example, if your spouse wants to live close to the city so the commute to work is shorter, but you don't want to be close to the city for safety reasons, you should both present your side of the argument respectfully. Figure out if there are any other pros or cons to the situation. For example, perhaps living closer to the city also means more traffic and higher home sale prices.

Be willing to compromise on issues that aren't that important or can be remedied. For example, if your spouse is adamant about having an extra bedroom for an office or home gym, and you couldn't care less either way, respect that it is important to them. On the other hand, if your spouse wants a swimming pool but you are unsure because you have an infant, you may be more open to the idea if the pool comes with a secure gate. (See also: House Hunting? These Features Will Save You Big Over The Long Haul)

Look at the potential, not the actual

When you look at homes, there's a good chance that only a small percentage will be anything close to what you consider your dream home. Even if you find your dream home, there is an even bigger chance that the home will be out of your budget. The solution? Stop looking at houses as they are and start honing in on their potential.

If you or your spouse have items like "granite countertops and stainless steel appliances" or "office with built-ins" on your list, realize that these features can be added to almost any home. Gaining a Pinterest-worthy bathroom or a backyard with a deck to entertain and lush grass are also things that can easily be done for another $10,000 to $15,000. However, wish list items like a big kitchen, two-stories, nice neighborhood, or three-car garage are harder (sometimes impossible) and costlier to add after you buy a home.

It is also important to realize that many homes just need quick cosmetic changes to become desirable. You have to look past poor paint color choices, neglected yards, gross flooring options, and clutter. When my husband and I looked at the home we live in now, I was discouraged by the size of what were to be the children's bedrooms. In pictures and in person, the rooms looked tiny because the owner had queen-sized beds in them and large dressers. It wasn't until we moved our furniture in that we realized the rooms were bigger than most standard bedrooms. (See also: 9 Modern Home Improvements That Add Thousands to Your Listing)

House hunting can be exhausting, but don't let it ruin your marriage. Be willing to talk through the process and don't be afraid to bring a trusted, unbiased friend to help you narrow down the choices.

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This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Things You Can Negotiate When Buying a Home

Dan Rafter — Tue, 20 Feb 2018 10:00:06 +0000

You've found the home of your dreams. Now comes the hard part: You need to make an offer that the sellers will accept. Of course, making a full-price offer will help you land almost any home. But what if you want to negotiate? Will this turn off the homeowners and scuttle your chances?

Not necessarily. Yes, many parts of the country are in the middle of a seller's market, giving homeowners an advantage in negotiations. But this doesn't mean that buyers can't negotiate on everything from move-in dates to selling price to repairs.

Don't be afraid to ask for concessions from sellers. Sellers might make a counteroffer, but if you're making reasonable requests, the odds are that they won't suddenly break off negotiations.

Here are the things you should feel comfortable about negotiating when buying a home.

1. Price

The first thing buyers think of when it's time to negotiate? The sales price.

Maybe you love the home you've just toured, but you think it's priced a bit too high. When it's time to submit your offer, ask for a lower sales price. Sellers can reject your offer, accept it, or make a counteroffer.

If you get a counteroffer, you now have a choice to make: Do you accept the new price offered by the seller, or do you try to shave a few more dollars off the price?

Don't be shy about asking for a lower asking price. But do your research first. Work with your real estate agent to determine what similar homes in the neighborhood are selling for and make an offer that fits within these comparable listings. Don't lowball the sellers with an unreasonable offer; that will get negotiations off to a bad start. Some sellers might simply end negotiations with you immediately. (See also: Ask Yourself These 5 Questions Before Buying a Home)

2. Closing date

Maybe you need to move into your new home quickly because your apartment lease is expiring. Or maybe you'd like a later move-in date, after your children finish the school year. You can negotiate the closing date of your home sale.

Closing day is when you, your real estate agent, and officials from your title insurance company, along with everyone representing the home's sellers, meet to sign the papers and present the certified checks that make your purchase of your new home official. When negotiating your home sale, you can request a quicker or a later closing date.

Don't be surprised, though, if the home's sellers push back. They, too, have their own preferred date when they want to move. You might need to negotiate some back-and-forth before settling on a closing date that works for everyone.

3. Closing costs

Buying a home isn't cheap. You'll have to pay plenty in closing costs, the fees that your mortgage lender and other third-party providers — such as title insurers — charge you at the closing table. Closing costs can vary, but you can expect to pay from 2 to 5 percent of your home's purchase price.

You can, though, request that the home's sellers pay for these closing costs. This has become a more common factor to negotiate as the price of homes has steadily risen.

Sellers have no duty to pay your closing costs, of course. But many will agree to pay these costs out of the profits from their home sale as a way of keeping a real estate transaction alive. (See also: Here's What's Included in a Home's Closing Costs)

4. Major appliances

Some sellers plan to take their refrigerators, washing machines, and dryers with them when they sell their house. But maybe you'd like them to leave these major appliances behind. After all, you might be cash-strapped after buying a home. Having these pricey appliances in place when you move in could be a boon to your bottom line.

Many sellers won't object to leaving appliances because they weren't planning on taking them anyway. It's important to get in writing what stays with the home after the sale and what goes.

5. Repairs

After your offer is accepted, it's time to schedule your home inspection. An inspector will tour the home you are buying and point out any potential problems. If the problems are too severe, you might be able to walk away from the sale without losing your earnest money deposit.

But often, inspectors find smaller problems with a home. Maybe a furnace is nearing the end of its expected life, or maybe the kitchen sink's faucet drips. After viewing your inspection report, you can request that the sellers repair these more minor problems before you close on the home. You can also request that the sellers provide you a financial credit at closing so that you can hire a contractor to fix the problems on your own.

To keep the home closing on schedule, many sellers will agree to these requests. (See also: Thinking of Skipping the Home Inspection? Here's What It Will Cost You)

6. Furniture and other large fixtures

Love that swing set in the backyard? Or maybe you think the oversized couch in the living room is perfect for your new home. You can always request that the sellers leave specific items behind.

Some sellers will be happy to leave behind, for example, a swing set that's pounded into the earth of their backyard. Others might plan to purchase brand-new furniture after they move, so won't mind leaving behind a couch or love seat.

You never know unless you ask, so don't be shy about negotiating over these items.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why You Should Ask for a CLUE Report Before Buying a Home

Dan Rafter — Mon, 06 Nov 2017 08:30:16 +0000

That renovated Victorian home looks like the perfect fit for your family. But even though it may look like your dream home, how do you know there aren't expensive, hidden problems lurking beneath the surface?

This is where a CLUE report comes in.

The Comprehensive Loss Underwriting Exchange, or CLUE, database lists insurance claims on a property for the last seven years. Most home insurers participate in the database, reporting claims that homeowners file for everything from water damage, to fire loss, to break-ins.

If a CLUE report indicates a chronic or repeat problem, that's a red flag. If you buy that home, and the owners didn't do anything to resolve the problem, you’ll be the one paying for future repairs or filing future insurance claims. (See also: 23 Hidden Costs of Buying an Old House)

How a CLUE report works

When homeowners file an insurance claim, most insurers report that claim to the CLUE database. The CLUE report lists the dates when claims were made, the type of loss that a home suffered, and the amount that the insurance company paid out. The CLUE report also lists when insurers deny homeowners' claims.

All claim information, though, drops off a CLUE report after seven years.

Some CLUE reports will be blank. That can happen if homeowners haven't filed any claims in seven years or if the owners' insurance company is one of the few that doesn't report information to the CLUE database.

Homeowners can get a free CLUE report for their residence once a year from database company LexisNexis. The easiest way to do this is by ordering the report online. Consumers can order CLUE reports for their homes, their cars, or both. Those ordering a report for the first time must open a new account with LexisNexis to access their documents.

You can also order reports by mail or by phone at 1-866-312-8076.

The catch

For homebuyers, there is a catch: They can only order CLUE reports on the properties they already own. They can't order a report for a residence they are considering buying.

Buyers must ask the current owners of the properties they want to buy to order the CLUE reports and share the documents with them. Of course, owners don't have to provide this information. Those who have filed plenty of insurance claims, especially if these claims were for a chronic problem, might not be eager to share their CLUE reports.

Buyers, though, might get a sense of relief if they do request CLUE reports and homeowners are happy to provide them. This is one piece of evidence that owners aren't hiding anything.

The benefits of a CLUE report

Homebuyers should carefully search a CLUE report for indications of a recurring problem that could make living in the home a financial struggle.

For instance, if a CLUE report on a particular property lists five burglaries in the last seven years, that's a sign that a home could need an alarm system. It might also mean that you don't want to live in that neighborhood.

If a homeowner is making frequent claims for water in the basement, that might be another warning sign. Unless the homeowners did something to resolve the issue — such as waterproofing — you might not want to invest in a home with a basement that suffers frequent water damage.

Insurance claims, though, don't always mean bad news. Maybe the owners of a home filed a claim for a roof that was damaged in a severe hailstorm. If the insurance company paid out for a new roof, that's proof that you won't need to invest in a new roof of your own for several years.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Weak Credit? You Can Still Get a Mortgage Despite Tough Lending Standards

Mikey Rox — Thu, 05 Oct 2017 08:30:11 +0000

Talk to anyone who bought a house in the mid-2000s and they'll probably relate a painless, smooth process. It was a period of easy lending. Whether a borrower had bad credit, good credit, or no credit (am I starting to sound like a used-car salesman?), mortgage lenders handed out no-money down mortgages like they were going out of style — even qualifying some borrowers without verifying their income and assets. As we know, these loose lending standards helped cause the housing bubble to burst which led to the financial crisis.

More than a decade later, mortgage lending standards have tightened, with lenders putting a lot of emphasis on creditworthiness. This isn't an issue for borrowers with good credit. But if your credit score isn't up to snuff, you may have to delay your homeownership dreams.

Repairing a low credit score is obvious fix in this situation. This involves paying your bills on time, correcting errors on your credit report, and keeping your debt to a minimum. But what if you're in the process of repairing your credit? It takes time to build a low credit score back up. So while your payment history for the past six to 12 months might be excellent, your credit score could still struggle.

No worries. If your recent credit activity demonstrates a pattern of responsibility, it is possible to get a mortgage with weak credit — even with strict lending requirements.

Learn about FHA home loans

Conventional home loans are a popular choice because they require as little as 5 percent down and include temporary mortgage insurance. Lenders charge private mortgage insurance (PMI) when conventional borrowers put down less than 20 percent (and then cancel premiums once the property has 20 percent equity). The downside of a conventional loan is that lenders typically require a minimum 620 credit score.

A 620 credit score is lower than the loan's previous minimum of 680. Even so, you could find yourself several points shy of the minimum guideline. If that's the case, check out FHA home loans insured by the Federal Housing Administration.

This is an affordable alternative to a conventional loan, particularly if you have a weak credit score. Whereas a conventional loan requires a 620 credit score, an FHA loan allows for much lower credit scores — as low as 500 to 580. This is ideal if you've made a few credit mistakes in the past, yet you're on track to improve your credit score.

Anyone can apply for an FHA loan, but it's certainly a fitting solution if you've filed for bankruptcy or experienced a past foreclosure. Currently, borrowers are eligible for an FHA home loan one year after a Chapter 13 bankruptcy, two years after a Chapter 7 bankruptcy, three years after a foreclosure, and three years after a short sale (one year in cases of extenuating circumstances, such as a job loss or illness). (See also: Is an FHA Home Loan Right for You?)

Prepare for a higher down payment

Be prepared to fork over a larger down payment if you're buying with weak credit. Even though 20 percent down payments are no longer required by lenders, an FHA home loan does require a minimum 3.5 percent down — but only if your credit score is 580 or higher. If you apply for an FHA loan with a credit score between 500 and 579, your mortgage lender will require a minimum 10 percent down.

Choose a portfolio lender

Using a portfolio lender is another option with a low credit score. Because many banks sell their mortgages to investors, they have to ensure these loans meet the requirements set forth by Fannie Mae and Freddie Mac, the government-sponsored entities that buy most of the home mortgages in the U.S. This limits the number of bad credit score loans approved by mortgage lenders.

But if a mortgage lender or bank doesn't sell a percentage of its loans, they have the freedom and flexibility to approve riskier loan applicants — but only if the borrower has compensating factors to offset weak credit like a higher down payment, high income, or substantial assets. These loans are known as portfolio loans because the lender retains the loan as part of its own investment.

Expect a higher interest rate

Even though some mortgage lenders and loan programs accommodate weak credit, there's no escaping a higher mortgage rate. A low credit score and higher rates go hand-in-hand. Because the size of a borrower's down payment and credit affects mortgage rates, people with the lowest credit scores usually pay the highest rates. A higher rate increases borrowing costs and monthly payments, which makes homeownership more expensive in the long run.

Of course, as your credit score improves, so does the opportunity to refinance your mortgage loan. If you refinance down the road and snag a lower rate, you'll reduce the amount you pay in interest and potentially lower your mortgage payment.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Things to Consider Before Buying a Home When You're Single

Camilla Cheung — Tue, 18 Jul 2017 09:00:09 +0000

It's become increasingly common for people to buy a home by themselves instead of as a couple. According to the National Association of Realtors' Profile of Homebuyers and Sellers, new homeowners in 2016 were comprised of 17 percent single females and 7 percent single males.

Buying a home is a big undertaking, whether or not you're doing it as a single person. I spoke to Markus Brown, a realtor in Orange County, California, about some things to consider before buying a home by yourself.

1. Understand the risks

As a single person, is it better to pay rent or to own a home? The monthly costs of owning a home may be higher than what you pay in monthly rent when you consider costs like insurance, property tax, maintenance, and higher utility bills. You're also taking on greater risk by taking on a loan. (See also: Why I Choose to Rent Instead of Buy)

However, according to Brown, there can be significant advantages to owning a home, the biggest of which is the ability to fix your housing costs in the future. When you own your home on a fixed-rate, 30-year mortgage, you remove unknowns such as your rent going up, being asked to move because the landlord wants to renovate or sell, and more. This allows you to make concrete plans for the future without worrying about housing.

If you're planning to stay in the area for several years, you should consider buying a home. "Historically, you need to own for at least five to 10 years before market appreciation helps you to make a profit," Brown says, "[but] if you're going to be relocated in a year or two, don't buy."

2. Review your finances

Having only one income to rely on in purchasing a home can stretch you financially, so it's a good idea to go over your finances before considering a home purchase. You'll also want to take steps to improve your credit score before buying a home. Consider the stability of your income and whether you have enough savings to see you through if something happens to that source of income.

As a single person, you will want to have a large savings buffer, because you won't be able to fall back on another person's income if yours is disrupted. The rule of thumb is that your emergency fund should have at least six months of income — nine if your income is unpredictable.

3. Calculate the hidden costs

Don't be surprised by the "hidden" costs of owning a home, including the closing costs, property taxes, insurance, possible homeowners association fees, utilities, maintenance, and potential renovations. Factor all these extra costs into your budget before deciding on a home that you can afford. According to Brown, many people think they can buy more than they actually can when all these costs are factored in. (See also: 10 Hidden Housing Costs New Homeowners Don't Expect)

4. Talk to a mortgage broker

As a single person, it can be more difficult to quality for a loan because you can only count on one income. If it's your first time buying, you may be able to qualify for an FHA loan, which allows you to purchase with a lower down payment (only 3.5 percent down) and lower interest rates, and doesn't require as high of a high credit score.

Another option is the HomeReady Mortgage Program through Fannie Mae, which only requires as little as 3 percent down, and allows greater flexibility in qualifying for a loan, including income from co-borrowers, family members who are not on the loan, gifts from family members, and even "boarder" income from a roommate.

Talk to a mortgage broker or financial adviser about whether it makes sense for you to pay a lower down payment. You may have to purchase mortgage insurance if you don't put enough money down, so factor those costs into your decision.

"Low down-payment loans make sense for people who have a solid job and stable income, but don't have a lot of savings because they've just started out, such as new grads or young couples," Brown recommends.

5. Choose the right home

In his experience, Brown sees single people going for condos, because the maintenance and chores are simpler and easier to deal with. Brown suggests buying only what you need at the moment and getting a foot in the market, instead of trying to buy a family home when you don't know what you'll need later. Look for a condo in a community that has other working professionals, and allows you to enjoy your single life.

However, it's better to buy a two-bedroom rather than a one-bedroom if you can afford it, according to Brown, because it gives you what he calls "future-proofing." If you lose your job or the economy tanks, you can take on a roommate to help you share the costs. On the other hand, if you get married or have your partner move in, you have enough space for the next step in building your family. Either way, you won't have to sell immediately if something changes in the future.

In addition to potential financial benefits, there are a lot of intangible benefits to owning your own home. Pride in your own home, the ability to control things about your living situation that you couldn't control as a renter (such as decorations and renovations), and the feeling of being more settled, are all attractive reasons to buy a home as a single person.

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This article is from Camilla Cheung of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why I Choose to Rent Instead of Buy

Kat Tretina — Mon, 10 Jul 2017 08:00:08 +0000

Conventional wisdom says that buying a home is a smarter financial decision that renting. However, homeownership is a huge decision, and it can be an expensive option. Owning a home is not for everyone, and for some, renting can actually be the more cost-effective choice.

That's certainly the case for me. Despite earning a good income, my husband and I have decided to rent for the foreseeable future. Here's why it makes sense for us.

1. Affordable housing is hard to find

We live in one of the most highly-desired towns in the Central Florida region. A single-family, 1,200 square foot home in our neighborhood starts at $350,000. Even if you do find a home at that price, they often need significant improvements to be livable. Typically, houses in that price range need new roofs or foundation work.

If we put 20 percent down on a home — a whopping $70,000 — our monthly payment for the mortgage, insurance, and taxes would be about $1,600 a month. Besides coming up with a huge down payment, that's a high monthly bill.

While the housing market is extremely competitive in our neighborhood, rentals are much more affordable. We rent a large two-bedroom apartment with granite countertops, stainless steel appliances, hardwood floors, and resort-like amenities for just $1,300. And we didn't have to come up with a large payment to move in.

The lack of affordable housing is a nationwide issue. Particularly in areas like New York City or San Francisco, buying a home can be out of reach for most Americans. In those cases, it can make more sense to rent than buy.

2. Maintenance isn't my problem

If we were to buy that $350,000 home, the down payment and monthly mortgage payment would be only a small portion of our home expenses. We'd have to budget to prepare for other expenses, like emergencies. If the roof needs repairs, or if the appliances break, we'd have to cover the cost of the replacement.

With renting, all I need to do if there's a problem is call my landlord. Within 24 hours, they'll have the problem fixed. Not having to worry about the extra cost is helpful and gives me peace of mind. (See also: What It Really Costs to Own a Home)

3. Homes are not an investment

Houses are often touted as a good investment. However, the recession of 2008 showed how flawed that idea was. There's no guarantee that a home's value will increase over time, and there is a chance it could decrease.

The homes that go for $350,000 in our area sold for $500,000 pre-recession. But in 2008–2010, those same homes plummeted to under $180,000. For homeowners who took the plunge to buy, they lost a lot of money and either saw their bank foreclose on their homes or are still underwater.

To me, homes are a place to live, not an investment. My goal is to have a safe place to live, not to earn money. (See also: Stop Thinking of Your House as an Investment)

4. Flexibility is key

Homeownership scares me because it feels permanent. Of course, you could sell the home if you need to move, but that process can be long and complex. And you can end up losing money on the deal.

Renting gives me more flexibility. If an opportunity pops up on the other side of the country, I just have to pay to break my lease and am free to leave. Having that option is reassuring in a sometimes tough job market.

5. We have other priorities

If homeownership is your goal, you may have to sacrifice other things to make it possible. To save for a down payment, you may have to cancel your retirement contributions, or take money out of your emergency fund.

Contributing the maximum to my 401(k) and building my emergency fund are important to me. Because buying a home would mean postponing those goals, home searching just isn't in the cards.

Buying a home

Whether or not to buy a home is a very personal decision. While many say that homeownership is essential for financial security, it's not the only option available to you. Depending on your circumstances, renting can give you more disposable income each month and more freedom to pursue your other goals.

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This article is from Kat Tretina of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Fire Your Real Estate Agent

Dan Rafter — Fri, 02 Jun 2017 08:30:09 +0000

Whether you're selling a home or buying one, your realtor is a key partner in the process.

When you're selling, you want your real estate agent to negotiate the highest price for your home in as few days as possible. When you're buying, you want your agent to find the best house for you at the lowest price.

Working with the right agent can help you save or make a significant amount of money in what might be the biggest financial transaction of your life. So if you're dissatisfied with your agent, it might be time to break up your relationship.

But how do you do this?

Breaking up when buying

Ending a relationship with an agent who is helping you buy a home is simple. That's largely because you don't pay these agents, even when they successfully help you find and purchase a home.

When you close on a home, your agent is paid by the seller from the proceeds of the home's sale. The listing agent and the agent representing the buyer split a commission equally. This commission is usually 5 percent or 6 percent of the home sale — meaning that the agent representing you gets 2.5 percent or 3 percent of the money. That money does not come from your pocket. It comes from the seller's.

Because of this, most buyers don't even sign a contract stating that they are working with an agent. They just start working with that agent, who will show them homes available for sale. That agent will also draw up the offer papers when buyers find a home they want to purchase and will handle negotiations to close the sale on behalf of the buyer.

If you no longer want to work with your buyer's agent, ending the relationship is as simple as telling them. Give them a call and politely explain that you don't feel that they're the right fit for you.

Breaking up when selling

Ending a relationship with a real estate agent gets more complicated when they're helping you sell your house.

Because you are the one who pays your agent, you'll have to sign a contract. Most contracts between a homeowner and real estate agent are "exclusive right to sell." These contracts state that the listing agent receives the commission when the home sells no matter who finds the buyer. The contract will also state the commission you'll pay, usually 5 percent or 6 percent of the sale. It will also state the duration of the agreement, perhaps three or six months. Typically, you'll want this duration to be as short as possible. Then if you're unhappy, you can simply end the relationship by not renewing the contract.

Ending the contract early

Before you sign a contract, ask your agent what happens if you are unhappy with the service. Will he or she will let you cancel the contract before its end date? What conditions need to be met to allow a quicker break of the contract? Agents might agree to let you out of your contract if a certain number of showings aren't scheduled or offers aren't made during a set period of time. This is important: It's easier to break a contract if you can prove that your agent isn't fulfilling the duties listed in the contract.

Some agents will let you end the relationship early simply because they don't want to work with a client who isn't pleased with their services. Agents rely on positive recommendations from past clients; they don't want to take the chance that an angry client will spread negative information about them.

If you're unhappy with your agent, contact them immediately. Explain, politely, why you want to break your contract. Maybe you don't think your agent is doing enough to market your home. Maybe you aren't happy with the photos they took or the online listing they created. Your agent might be willing to make changes in the service he or she is providing to resolve your differences. If the differences can't be resolved, the brokerage in which your agent works will usually provide you with a different agent from its office with whom you can work.

If you don't want to work with the brokerage at all, you'll have to rely on its mercy when trying to break a listing contract before it expires. Some brokerages will let you break your contract if you're not happy. Others won't. Remember, your agent and brokerage have no legal obligation to let you out of a contract as long as the agent is fulfilling the duties listed in it. You can hire a lawyer to break a contract, but there is no guarantee that you'll succeed. Pursuing this option will also be costly.

Sometimes your best option is to wait out the contract until it expires. This is why signing a contract with the shortest duration is the smartest move.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should You Ever Consider a Balloon Mortgage?

Dan Rafter — Tue, 16 May 2017 08:30:14 +0000

Balloon mortgages have some tempting qualities. They come with lower interest rates and, because of this, smaller monthly payments. This can help borrowers get into a pricier home that they might not have been able to afford otherwise.

But balloon mortgages come with one huge risk: At the end of a set period, borrowers must pay off the remaining balance on these loans in full (the "balloon"). And these balances can be quite large.

So, how exactly do these mortgages work, and who do they work best for? Let's break it down.

How balloon mortgages work

A balloon mortgage comes with two parts. First, there's the standard repayment portion of the mortgage. For a set period of time, usually five to seven years, homeowners make monthly payments just like they would with a standard 30-year or 15-year fixed-rate mortgage.

During this period, homeowners' interest rates remain the same. This is a positive because the interest rates on a balloon mortgage tend to be lower than on standard fixed-rate loans or adjustable-rate mortgages.

After this period ends, though, the second part kicks in: You'll have to pay the balance of what you owe (the balloon payment). So if, for example, you still owe $130,000 on your mortgage at the end of your five- or seven-year period, you'll have to pay that entire $130,000.

Obviously, that's a lot of money. But most people who take out a balloon loan never make that payment out of their own pocket. Instead, they typically plan to refinance or sell their home before the balloon payment comes due.

If they sell the home, they can use the proceeds to pay off the loan in full. The same thing happens in a refinance: Once the refinance closes, borrowers pay off the remainder of the balloon and settle into making monthly payments on their new loan.

Sadly, unforeseen problems can ruin this plan.

Problems

What if, during the five or seven years after taking out a balloon loan, your FICO credit score falls? Now, lenders might not approve you for a refinance. The same could happen if your monthly income drops after taking out a balloon mortgage. Lenders might worry that you no longer make enough money to afford your monthly payments, and they won't approve you for a mortgage loan.

Then there's the question of home value. If the value of your home drops after you take out a balloon mortgage, you'll again struggle to refinance. Most lenders require that you have at least 20 percent equity in your home before they'll approve your request to refinance. If your home's value has fallen, odds are you won't have the equity you need.

Even if you are approved for a refinance, consider that interest rates can rise between the start and end of your balloon loan. If they rise significantly, you could be stuck with a much higher monthly mortgage payment.

If you can't refinance, you'll face some dismal options, assuming you can't afford the balloon payment on your own. The main option would be selling your home. That may not be an issue if you were planning on selling anyway, but what if you weren't? And what if you can't find a buyer? If your home has fallen in value since you took out your balloon loan, you might be forced to sell your residence for less than what you owe on your mortgage. If that happens, you still won't have enough money to pay off the balloon.

If you can’t make that balloon payment, either from your savings, refinancing, or selling, your lender can begin foreclosure proceedings. You could end up losing your home and watching your FICO credit score fall by 150 points or more.

What should you do if you can't pay the balloon?

If you can’t afford that balloon payment and you can’t refinance or sell, your best bet is to call your mortgage lender immediately. They might be willing to work with you. Maybe your lender will shift your balloon loan to an adjustable-rate or fixed-rate loan, or even extend the term of your balloon loan, giving you more years to either sell, qualify for a refinance, or save up enough to make the payment.

Is it ever a good idea to take out a balloon mortgage?

Given the risks, the short answer is: Maybe.

If you absolutely know that you will sell your home before that balloon payment comes due, this kind of mortgage can work. You’ll get the benefit of homeownership at a lower interest rate and lower monthly mortgage payment. The lower payments might even give you the opportunity to live in a home that you otherwise wouldn’t have been able to afford. Then, you can sell, pay off the balloon, and move on.

It's difficult to call a balloon mortgage worthwhile otherwise. There are positives to this type of home loan, but they can easily be outweighed by the risks.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Make These 5 Money Moves Before Applying for a Mortgage

Mikey Rox — Mon, 20 Mar 2017 10:30:21 +0000

Each year, millions of people apply for a mortgage and purchase a home. This, however, shouldn't convince you that getting a home loan is a piece of cake. In reality, a mortgage is one of the hardest loans to qualify for. But if you make these money moves before meeting with a lender, you can swing the odds in your favor.

1. Pay off debt

Getting approved for a mortgage doesn't require zero debt, but the more you currently owe, the harder it can be to qualify for a desired amount.

To avoid any roadblocks along the way, come up with a clearsighted plan to pay off as much of your debt as possible, especially credit card debt. A high credit utilization ratio — which is your credit card balance compared to your credit limit — can lower your credit score and make it difficult to qualify for a mortgage or trigger a higher mortgage interest rate.

As a personal goal, keep credit card balances below 30 percent of your credit limit. To attain this, stop using cards and pay more than your minimums every month. Also, ask creditors to lower your interest rate. If you can pay less interest, you'll reduce the principal faster.

Take it a step further and make higher monthly payments on other types of debts as well, such as a car loan, student loan, etc. This is to your advantage because the less expenses you have, the easier it'll be to adjust to a mortgage payment.

2. Determine what you're comfortable spending

Your mortgage lender decides an affordable amount based on your income and existing debt. Still, it helps to have an idea of what you are comfortable spending on a house before meeting with a bank. Typically, banks allow borrowers to spend between 28 percent and 31 percent of their gross monthly income on a mortgage payment.

Do the math and calculate 31 percent of your gross monthly income, and then review your budget to see if you can realistically afford this amount on a monthly basis. After determining a comfortable monthly payment, use a mortgage calculator to estimate the maximum you can borrow based on the desired payment range.

3. Devise a savings plan

Qualifying for a mortgage entails money — lots of it. Not just money for the monthly payment, but also cash for a down payment (between 3.5 percent and 20 percent of the home's value), plus there's the cost of closing. These fees can run up to 5 percent of the purchase price.

Even if you can afford a house payment at a certain price point, you'll only qualify for a particular amount if you have enough in reserves for mortgage-related fees. Let's say you want to purchase a $300,000 house. Your income may show an ability to afford the monthly payment. But if you only have $7,500 in savings for a down payment, instead of the required $10,500 (assuming you get an FHA home loan), you can't purchase the home. You then have two options — purchase a cheaper home, or postpone buying until you save additional cash.

Once you have an idea of how much you'll spend on a property, devise a plan to save for your down payment and closing costs. Based on your amount of disposable income each month and your desired time frame for purchasing a property, decide how much to save. Keep this money in a designated high-yield savings account.

4. Pay your bills on time

There are no hard rules regarding how many late payments a lender allows within 12 or 24 months before applying for a home loan. If there are late payments on your recent credit history, it's up to your lender to calculate the risk level and determine whether you're creditworthy. To do this, some lenders request an explanation to assess whether lateness was due to irresponsibility or circumstances beyond a borrower's control. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Either way, late payments in your recent history can result in a higher interest rate, which means you'll pay more for your home loan in the long run. Therefore, aim to pay all your bills on time. If you often forget due dates, set up recurring or automatic monthly payments.

5. Shop around for lenders

According to the Consumer Finance Protection Bureau, 47 percent of homebuyers don't compare mortgage lenders when applying for a home loan. What's even more surprising, 77 percent apply to only one lender at all. It might seem convenient to get this step out of the way ASAP, but it just doesn't make smart financial sense.

When you're ready to apply for a home loan, you need to do research and shop around. Don't just settle for the first mortgage lender who approves you. You might be eager to get the process underway, but be patient. The first person to give you the green light might not be offering the lowest interest rates (or charging the lowest fees), which could mean the difference between thousands of dollars. Maybe they're just not the right fit for you, or they don't take the time to really earn your business. You won't know unless you compare, and that step can save you a lot of stress (and money) down the line. (See also: 4 Mortgage Secrets Only Your Broker Knows)

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Homebuying Questions You're Embarrassed to Ask

Dan Rafter — Fri, 10 Jun 2016 09:00:05 +0000

You're ready to buy your first house. But you have questions. Lots of them. And some you think might be too embarrassing — too simple — to even ask out loud.

Here's the truth: Buying a home is a complicated process. It's normal to have questions. And you should never be embarrassed to ask any of them. Here are answers to five such common questions. (See also: The Only 5 Rules of Home Buying You Need to Know)

1. How Much Will My Real Estate Agent Charge Me?

The short answer: nothing.

It's true. When you work with a real estate agent to buy a home, you won't pay a cent to that realtor. Your real estate agent gets paid by the seller of the home that you buy. When the home sale closes, your real estate agent is paid a commission from the proceeds.

Typically, the agent representing the home's seller charges a commission of 6% of the home's sale. If a home sells for $200,000, the seller's agent receives $12,000. That agent then typically splits the commission 50/50 with your agent. Your agent in this example would receive $6,000 for helping you buy a home while the seller's agent would also receive $6,000.

But none of that commission money will come out of your pocket.

2. What Is a Buyer's Agent?

An exclusive buyer's agent is a real estate agent who only represents buyers. They are different from dual agents, who both represent buyers and work with sellers. An exclusive buyer's agent never takes on listings from sellers.

If you work with a dual agent, that agent will show you all the for-sale homes that meet your criteria, and will still work with you to negotiate a lower sales price. But this agent might show you a home he or she has as a listing, too. This can be tricky. Is your dual agent going to negotiate hard on the sales price if that agent is also representing the person selling the home?

3. What Is Pre-Approval and Why Does It Matter?

Your real estate agent might ask you to get pre-approved for a mortgage loan from a lender. During the pre-approval process, your lender will run your credit and ask for copies of documents that prove your income, such as your last two paycheck stubs, last two months of bank account statements, and last two W2s.

Once a lender has this information, it can calculate how much of a mortgage you can afford. The lender will then give you a pre-approval letter — that lasts a certain number of days, such as 30 or 60 — stating that it has approved you for a mortgage loan of a certain amount.

Getting pre-approved is important because it tells you how much home you can afford. It also makes you a more attractive buyer. When sellers receive multiple bids for their homes, they're more likely to choose a buyer who is pre-approved. Such buyers are more likely to be able to actually close the home sale.

4. What Is Earnest Money?

Earnest money is a deposit that you make after you and a seller sign a contract. It shows the seller that you are serious about purchasing the home.

After you and the seller agree on a sales price and each of you signs the sales contract, you'll deposit a certain percentage of the home's final sales price into an escrow account. The title company that handles your mortgage closing will usually manage the account. When the final mortgage documents are signed and the home sale officially closes, your earnest money is removed from the escrow account and used to cover part of your closing costs.

How much earnest money the sellers request varies. Some sellers will require 1% of the home's final purchase price. Others will require just a few hundred dollars.

Be careful with earnest money. If you back out of the sale because you can't come up with the mortgage dollars you need to finance the home, the contract might state that you lose your earnest money deposit. However, if you back out of the sale because a home inspection turns up serious problems with the home, the seller will usually return your earnest money deposit.

5. Do I Really Need a Home Inspection?

Yes. After you sign a sales contract for a home, you need to schedule a home inspection of the property. An inspector will tour the home and search for serious problems. Usually, the homebuyer attends the inspection, too.

If the inspection turns up serious problems, you have options. You can ask the seller to repair the problems before the sale closes. You can request that the seller lower the agreed-upon asking price to free up money that you can use to fix the repairs yourself.

If the problems are too severe, you can also back out of the sale. Your agent and the seller's agent will then negotiate what happens to your earnest money deposit. If the problems with a home truly are serious, and expensive, in most cases, you will receive a refund of your earnest money deposit.

Any fundamental questions we've overlooked?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's How Much to Spend on Life's 3 Biggest Milestones

Dan Rafter — Thu, 08 Oct 2015 11:00:25 +0000

Do you feel like spending two months' salary on an engagement ring? How about buying a house that requires a mortgage payment equal to 28% of your gross monthly income?

Those are two of the most common formulas that consumers have used to judge how much to spend on key life purchases. But here's the truth: There is no one-size-fits-all strategy to determine how much you should spend on a new car, house, or engagement ring. The amount you should spend on any of these three big buys depends on your specific finances and goals.

Assess Your Finances

"It's key to look at your entire financial plan and to budget appropriately within your means so that one purchase does not derail your long-term goals," saysDavid Mirabito, a financial advisor with the MetLife Premier Client Group in Syracuse, New York. "It's a balance between financial wants and needs."

If you have plenty of savings, are paying your bills on time each month, and aren't burdened with much debt, you can buy an engagement ring that costs six months' salary if it makes you and your partner happy. But if you're struggling to pay the bills each month? You might not want to spend even two months' salary on an engagement ring.

Avoid Overpriced Weddings and Bling

Who says you need to spend two months of salary on an engagement ring? The diamond industry, that's who.

It's no surprise that De Beers wants you to cough up thousands of dollars on a diamond ring. But that might not be realistic for many young people who are ready to get married. Young people face plenty of other expenses. Edvisors reports that the average class of 2015 college graduate will leave school with more than $35,000 in student loan debt. And weddings themselves are getting increasingly expensive, with wedding website The Knot's 2014 Real Weddings survey reporting that the average couple spends $31,213 on a wedding. (Though why so many spend so much for a one-day event is a good question.)

Adding $8,000 or more to pay for an engagement ring might not seem like a sound investment to consumers facing so many other big bills. Again, though, there is no real rule here. The key is to spend according to your budget. If you can't afford an expensive engagement ring now, there is no shame in spending less today and eventually trading up as your finances stabilize. Putting the cost of an expensive engagement ring on your credit card might make that piece of bling less attractive.

Choose a Realistic Mortgage

You're ready to buy a home. How much should you spend on it? Most mortgage lenders recommend that your new monthly mortgage payment equal no more than 28% of your gross monthly income — that's your income before taxes are taken out. But be sure to include all of the components of your monthly housing payment when determining how much your loan will cost you each month. Your mortgage will usually include your principal payment, interest payment, insurance fee, and property taxes. That's the standard PITI formula — principal, interest, taxes, and insurance.

This doesn't mean that your mortgage payment has to be 28% of your gross monthly income. You might feel more comfortable if your housing payment comes out to 25% or 20% of your gross monthly income each month.

Go with what makes you feel comfortable. Struggling to pay your mortgage each month can make owning a home feel more like a burden than a joy. Remember, too, that big purchases — such as a house — always come with big expenses in the future.

"The cost of most major purchases is not the full cost of the item," says Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. "In the case of a home, a down payment is only the beginning. There are costs for home insurance and taxes, private mortgage insurance, and ongoing upkeep and maintenance. For a car, routine and periodic maintenance can add up substantially. If an engagement ring is in the picture, there will be a wedding of some type, possibly a honeymoon, and other marriage-related costs. Before making a purchase, calculate the real costs of buying, now and into the future."

Buy Only as Much Car as You Need

Cars certainly aren't getting cheaper. According to the Kelley Blue Book, the average price that consumers paid for new cars in June of this year hit $33,340. That figure is on an upward trend, a boost of $209 from the previous month.

How much should you spend on a new car? One standard is that your monthly car costs — which includes not just the size of your monthly auto loan payment but the costs of insurance, maintenance, and gas — should equal no more than 15% of your net monthly pay. Another potential guideline? Some recommend that the price of any car you buy should never equal more than half of your yearly income.

Again, these are rough guidelines. If you're struggling to pay down high-interest rate credit card debt, it might not make sense to add a big monthly car payment to your expenses. You might want to follow another long-term guideline here: Make sure that your total recurring monthly expenses are no more than 36% of your gross monthly income. Buying a less expensive car might be a better financial move.

"Ask yourself, especially at a young age, 'How important is it that I have the latest and greatest gizmo in my car?'" said Mirabito.

What spending rules do you follow to keep major purchases reasonable?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Boost Your Home's Value With These 5 Projects

Ashley Marcin — Thu, 30 Oct 2014 13:00:05 +0000

Whether you've lived in your home for decades or just moved in, ROI's something to consider when thinking about home improvement projects.

A good first step — especially if you plan to sell in the near future — is to invite a trusted agent over to evaluate your home's features in relation to other houses in the neighborhood and market. You can get a solid idea of which projects are getting the biggest payoffs and, alternatively, which are better left undone. (See also: Recoup More of Your Investment: 8 Improvements that Add the Most Value)

That said, there are some universal improvements that can help you better enjoy your space today and gain property value down the line.

1. Bathrooms

When we put our house on the market earlier this year, the biggest detriment to sale ended up being our lonely single bathroom. We lived in a 1940s kit house that was identical to our neighbors' digs, and most of them had gone ahead and squeezed in a toilet and sink into the downstairs closet for a couple grand. Recent data from the American Housing Survey indicates that adding a half bath can add 10.5% to a home's value while a full bath adds closer to 20%. Plus, living with more than one toilet or shower is a huge convenience if you plan to stick around.

2. Exterior

Any improvements to curb appeal will instantly garner your home listing more views. We tried selling our house a few years ago, but after the initial rush — we weren't getting any foot traffic. A couple years later, we switched out the old front door for an energy efficient one with decorative glass. We also got our house professionally painted and put up new shutters. Guess what happened! Yeah — we sold within a couple months and had lots of "cute house" comments after showings. The ROI is in your favor for projects that involve siding, doors, windows, etc. They can gain back more than 70% of their cost at resale.

3. Kitchen

If you've ever watched a marathon of those house hunter shows, you know that people of all ages are obsessed with kitchens. Thankfully, the kitchen is one of your best bets when it comes to house improvements that pay off. Energy savvy appliances and upgraded finishes like solid surface countertops can — again — get back up to 70% of their original costs at resale. But don't order fancy granite just yet! Consider neighborhood comps when it comes to planning any upgrades. Sometimes simple stuff, like painting kitchen cabinets, will get more value via sweat equity.

4. Space

Need more space in your home? Rather than draft up blueprints for an addition or plan a move across town, consider transforming unfinished basement area into living space. The national average for ROI on finished basements is nearly 80 percent. And if you're on the fence about selling or staying due to space, some extra square footage could save you some major moving costs. Those of you with notoriously wet or damp basements, however, need to consider any remediation costs that could total thousands and cut into your bottom line.

5. Bedrooms

Much like with a basement remodel, an attic bedroom transformation can get you some big bucks back at sale. Also: I loved my big room in the attic as a kid. The national average for a return on an attic bedroom conversion is a little over 70%. Beware, however, since the actual return can vary significantly between cities. In San Francisco and Honolulu, for example, you can get up to 114% back for this upgrade. Where I live in upstate New York, that number is more like 47%. Think this type of project might be for you? Bounce the idea off a real estate agent to get some constructive feedback before signing on the dotted line.

Have you made a big home improvement recently? Did it pay off?

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This article is from Ashley Marcin of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: