Monthly Archives: July 2014

Buying a House? First, Put Your Financial House in Order

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You know you want to own a home one day, but how do you get there? One of the first steps you can take that will also bring long-term benefits is taking charge of your finances. Besides getting you ready to make that important purchase, it can give you confidence, show you what is affordable, and make it easier to pay your bills while you’re renting. Here are some tips you can follow to help boost your bank account and get ready to buy a home.

Commit to a budget. Creating a spending and savings plan helps you see how much money you’re taking in versus how much you’re spending on bills, food, and other expenses.  As a general rule of thumb, follow the spending guidelines below:

Category % of your net budget spent on that category
Housing 20-30%
Utilities 4-7%
Food 15-20%
Transportation 6-20%
Medical 2-8%
Clothing 2-4%
Saving/Investing 5-10%
Debt Payment 15-20%
Misc. 5-10%
Net Income (Total) 100%

 

If you are spending more than you bring in, identify discretionary spending where you can cut back. When you spend less than you earn, use those extra earnings to save for that house.

Write down everything you spend. After you have committed to a budget, writing down your spending habits can help you see how well you are sticking to it. Keep receipts and make note of everything you spend each month. You may be surprised to see where your money goes!

Bank the difference between your rent and a mortgage payment. Use a mortgage calculator to get an idea of how much a mortgage may actually cost. If you want to see what it’s like to pay a mortgage, set aside the difference between your current rent payment and that “mortgage payment” in a savings account. This will help you build up savings quickly while getting you ready for the extra expenses that ownership can bring.

Check your credit report. You are able to get one free credit report from each of the three credit reporting agencies – Experian, TransUnion, and Equifax – each year. Ask for copies of your credit reports here and check them for accuracy. Remember, it is your responsibility to make sure they are accurate and to report any inaccuracies you may find. This will help put you in the best position possible when you are seeking approval for a mortgage, and it can help you catch identity theft.

Seek out budgeting resources. If you’re feeling overwhelmed getting your finances in order, you don’t have to go it alone. There are HUD-approved Housing Counseling agencies across the state that can help you create a plan to improve your credit and become financially ready to own a home. You can attend a free seminar or workshop and receive free one-on-one coaching afterwards to help you develop your personalized budgeting plan. You can also check out your local library and search for online resources that offer tips about how to build a budget and stick to it.

Have you followed any of these strategies to save for a house? Do you have money-saving tips of your own? Share them in the comments!

New Hampshire Housing is your statewide housing resource! Through a broad range of rental and homeownership programs, we promote, finance and support affordable housing for Granite State residents. Since our inception, we have helped more than 40,000 families purchase their own homes and have financed the creation of more than 14,500 units of rental housing for individuals and families. More information about our homeownership and rental programs can be found on our websites at www.nhhfa.org and www.GoNewHampshireHousing.com.

Amanda Flitter is the Communications Administrator and Web Content Manager for New Hampshire Housing. You can follow New Hampshire Housing at http://newhampshirehousingheadlines.org/.

A Different Kind of Help

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Like all good housing counselors, my colleagues and I are trained to consider a range of options for homeowners who seek our help. But, every once in a while, we work with a client who needs us to think of solutions that don’t appear in the training guides. I had one such case recently, and we are going to call him Charlie.

In January of this year Charlie came to our office seeking help with his mortgage. In 2013 Charlie’s wife passed away. As a result, his household income fell by almost half, and his mortgage payment of $1,400 per month was more than two-thirds of his remaining income. Despite his best efforts, Charlie had fallen a few months behind on his mortgage payment and he was concerned that his lender might foreclose.

After we met and considered a number of possibilities, Charlie decided that he would like to try to get his mortgage modified to an affordable payment and, at the same time, to put his house on the market so he could move to Florida.

After a month or so, Charlie’s bank offered him a modification. Unfortunately, the modified payment was only about $200 lower than the original payment. So, while Charlie would be current on his payments, his home was not sustainably affordable. Charlie was concerned that he was going to have to accept the first offer on his house – even if it was lower than the house is really worth – in order to move on with his life. That’s when we decided to see if there was something else we could do to make Charlie’s payments more affordable.

I called the tax collector in Charlie’s home town and asked her whether the town offered a discount on property taxes for senior citizens. In fact, they do. Although the application process seemed daunting to Charlie, with a little encouragement from me, he agreed to at least try.

The first application Charlie made to the town was incomplete, but with some more coaching on my part he submitted a completed application on the second try. Then we heard nothing about the application for a few weeks. So I started making weekly calls to the town’s tax clerk.

In the end, we got a great result: Charlie’s annual tax bill was cut from almost $7,000 to $1800, which, together with the loan modification, lowered his monthly payment from the original $1400 to around $780, which he can now afford.

Charlie is now able to hold out for what he thinks is a fair price for his home, and he can devote the time and energy he had been using to worry about his mortgage payments to planning the next chapter of his life.

There are obviously limits – imposed by time and other resources – that prevent housing counselors from being able to help with all of the situations our clients might face. But it is refreshing and encouraging when a little bit of extra effort can deliver a big improvement.