Can You Afford To Buy?

When you decide to buy a house, one of the hardest things to figure out is how much you can afford. The important thing is only to spend as much as you can comfortably afford.

What Do You Need To Know about Home Loans?

Most people bxorrow money to buy a home. If you take out a home loan, then you will have a monthly mortgage payment. This payment has several components. These parts of a mortgage payment are called PITI – principal, interest, tax and insurance.

Principal. The principal is the loan amount remaining unpaid.

Interest. The interest is the amount charged for borrowing money.

Real estate taxes. The real estate taxes are collected each month by the lender until the annual property tax bill comes due, and then the lender pays the tax bill.

Homeowner’s insurance and mortgage insurance. Lenders often require homeowner’s insurance and mortgage insurance as part of your payment. Homeowner’s insurance provides protection if something major happens to your house such as a fire, and the mortgage insurance protects your lender in case you don’t make your payments.

What Are Other Costs of Home Ownership?
Too often people consider only the monthly mortgage payment when deciding if they can afford to buy a home. Other costs are also very important such as loan costs, new housing expenses, and current living expenses. When you borrow money, a lender may charge fees such as an application fee. Another initial cost can be points.

Points are a one-time charge by the lender to increase the loan yield. A point is one percent of the mortgage loan amount. These are some possible closing costs. Closing costs are expenses (above the property price) paid by the buyer and the seller.

You can’t borrow all the money you need to buy a house. You will need some cash for the closing costs and the down payment. A down payment is a percentage of the home’s purchase price.

The percentage depends on the type of loan you get. Lenders usually require 20 percent down payment for a conventional mortgage. Some lenders will finance for as low as 10 percent down payment, but require the buyer to purchase mortgage insurance. FHA (Federal Housing Authority) and VA (Veterans Administration) financing requires even a smaller percentage down payment.

What are the additional costs you will have with home ownership? Use
Table 1 to list your current housing expenses and to estimate your future housing expenses. For example, what is your utility bill now and will it increase if you buy a new home?

Consider changes in the cost of your insurance, taxes, commute, tools, and fees such as condo fees.

You may want a "reserve fund" to cover initial new home expenses such as decorating, window coverings, furniture, lawn care equipment, and unanticipated repairs. Try not to do any major remodeling during the first year. If you stretch yourself too far and you can’t pay your monthly mortgage payments, you may lose your home.

Don’t forget to keep in mind your non-housing expenses. Non-housing expenses include food, clothing, entertainment, education, car expenses, medical expenses, childcare, savings, etc. These expenses are important to consider as you look at the mortgage payment figures. Can you comfortably afford the monthly mortgage payment if one of your other expenses (such as medical or childcare) increases?

****Provided courtesy of http://urbanext.illinois.edu/housing/afford.html

Seven worthwhile energy-efficient products

There's no shortage of gadgets designed to help you use less energy. Yet some of the most effective energy-efficient products lining store shelves are also the simplest.

The following low-tech items will save energy and money with minimal effort and investment.

1. Power strips can help put an end to vampire power. There's a wide range of choices from simple to sophisticated, but the general concept is the same. If you plug your electronic devices into one and turn it off when you're not using, you'll reduce standby power consumption and save more than $100 a year according to the Natural Resources Defense Council. Some, such as the Smart Strip, have the ability to know when your computer powers down and can then cut power to the peripherals. You can find strips with motion sensors or even a remote control. The Kill A Watt identifies the biggest energy drainers in your home, but try borrowing one from a friend or neighbor since you only need to use it once.

2. Indoor drying racks allow you to air dry your clothing in the winter and in places where hanging clothes to dry outdoors is difficult or even illegal. Abandoning the dryer in the summer can save you $43.60, so imagine how much you'll save if you air-dry your clothing all year round (although even just bypassing the dryer sometimes will save energy and money). While you're at it, wash your clothes in cold water for additional savings.

3. Installing efficient showerheads and faucets will save water and the energy it takes to heat it. The result: You'll spend less on water and electric bills.

4. Compact fluorescent light bulbs use about 75% less energy than incandescent bulbs and last longer so you'll buy fewer bulbs. There's no need to sacrifice quality since some CFLs outperform traditional bulbs. You'll save at least $30 in electricity costs over a bulb's lifetime. Click here to learn about mercury and disposal issues. Environmental Defense Fund offers buying tips and a tool to calculate cost savings.

5. If you use a programmable thermostat properly you can save as much as 15% a year on your heating bill. In the winter, keep your thermostat at 68 to 70 degrees when you're at home or awake (the summer guideline for those with central A/C is 78 degrees). Whether you choose to upgrade your thermostat or not, turn it back (or raise it in the summer) when you're away or asleep.

6. Wrapping your water heater in a "blanket" is an easy way to save about $15 a year. Lower your water heater thermostat to 120 degrees for more painless savings.

7. Sealing large air leaks in your home can save you a bundle. Try installing door sweeps to stop air from escaping from underneath your doors.


****Provided courtesy of Environmental journalist Lori Bongiorno product reviews with Yahoo! Green's users.

Improve your financial health during tough economic times

Don't let the recent economic downturn affect your money management practices. By paying close attention to your spending activities and keeping a reliable budget, you put yourself in the driver's seat to stay afloat during these difficult times. These three tips below can assist your efforts. Take a few moments to review these pointers and gauge your own financial health.

Live within your means to keep your debt level low. There are good reasons to keep your debt level low. In the worst cases, high debt can have a significant negative impact on your lifestyle. Most students are on a limited budget. Check out some strategies to help you avoid the pitfalls of excessive debt.

Maintain a good credit rating. Your credit score can affect many aspects of your life. Whether you need a loan to buy a home or if you apply for a credit card, your credit score is used to judge your reliability and risk. Learn more about the ins and outs of your credit score.

Recognize the warning signs of financial difficulty. Financial problems, once started, tend to get worse if they are left unsolved. Pay attention to the warning signs. If you spot trouble, start turning things around — the sooner the better. Recognize the signs and take action early.


Provided courtesy of SallieMae.com

Top 10 mistakes of first-time buyers

Buying a home may seem a daunting task, but a little preparation will ease the way. Check out these 10 common pitfalls of first-time homebuyers before starting your search.

By SmartMoney

The declining home values that are plaguing homeowners are just one of the factors creating an opportunity for prospective homebuyers.

Standard & Poor's latest Case-Shiller index, which tracks home prices across 20 major U.S. cities, reported that values dropped 19% in January from a year earlier.

Those depressed values, combined with near-record-low mortgage rates and government incentives (an $8,000 first-time homebuyers' tax credit included in the stimulus bill), are luring more first-time home buyers into the market. Indeed, a recent Century 21 Real Estate survey found that more than three-quarters (78%) of potential first-time homebuyers say now is a good time to buy.

If you agree, be aware that buying a home comes with plenty of potential missteps. Here are 10 all-too-common mistakes first-timers make.

1. Not knowing how much house you can afford.
Many novice homebuyers spend a lot of time researching homes — comparing kitchen layouts and backyard square footage — but very little time researching their financing options. One of the first things buyers should do is talk to a qualified lender and get preapproved for a mortgage, says Claire Clark, senior vice president of business development at Prudential California Realty. Without first figuring out how much house you can afford, you risk falling in love with one you can't.

2. Assuming foreclosures are great deals.
Just because the previous owner owed $450,000 on a house before the bank took it over doesn’t mean it’s worth that much now. Values have slipped significantly, says Jay Michael, partner at Estate Property Group, a Chicago real-estate brokerage, so you may not be getting the bargain you think with a foreclosure. Also, most homes owned by lenders or banks have been sitting vacant for months and may have been vandalized. That could require extensive renovation or repair. Weigh the costs of fixing up the property against the savings you’ll likely reap by buying a lower-priced foreclosed home.

3. Letting your true feelings show.
No matter how much you've fallen in love with a house, don’t let the seller’s agent in on it. Otherwise, he will gain the upper hand in negotiations.

4. Failing to find a good buyer's agent.
Landing a mortgage is tough these days. So buyers should rely heavily on knowledgeable agents to help them get their finances in order, says Michael. After all, buyer’s agents have a fiduciary responsibility to the buyer exclusively — and should be looking out for his best interests. Start your search at the National Association of Exclusive Buyer Agents, a nonprofit representing buyers. Or consider using an agent recommended by a relative or friend. Interview the candidates about their experience; ask if they’ve worked with first-time buyers before and what kind of service you’ll get from them.

5. Underestimating the costs of owning a home.
Whether it’s a rusty pipe or a leaky roof, things go wrong and need to be fixed. Many homebuyers don't anticipate the additional costs for repair and maintenance, or for an increase in utility costs, says Erin Baehr, a certified financial planner and president of Baehr Family Financial. Consider the age of your new home and how well it’s been treated by the previous owners in your budget. Be prepared to set aside a small percentage (1% at most) of the home’s purchase price annually for repairs and upkeep.

6. Failing to budget for property taxes.
Property taxes — and the likelihood that they’ll climb over the course of your time in the house — should be factored into any homebuying budget, says Baehr. To get an idea of how much you’ll be paying, call the local assessor’s office or talk to people in the neighborhood.

7. Assuming your first offer will get accepted.
As home prices get even more affordable, competition is bound to heat up. “You can’t assume you’ll walk in there, make the offer and get it,” says Clark. Try not to get discouraged if you lose out on the first — or second — house you make an offer on.

8. Skipping the inspection.
Before signing anything, hire a professional inspector, says Justin Lopatin, a mortgage planner with American Street Mortgage Co. The seller isn’t likely to tell you there’s mold in the basement or the walls are poorly insulated. Lopatin advises buyers to find and hire their own inspector — independently of the real-estate agent — to ensure there’s no conflict of interest. (You can find inspection companies in the phone book, or by doing a simple Web search with your ZIP code.)

9. Doing too much too fast.
Some buyers want to make the house their own right away, says Baehr. They overextend themselves on credit to do so, and assume the improvement will pay for itself by increasing the home's value. But that’s not always the case — especially in today's market. Instead, buyers need to exhibit patience and make changes over time.

10. Failing to include a contingency clause in the contract.
A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house, says Lopatin.

*Provided By Lisa Scherzer, SmartMoney