living below your means Archives - Faithful with a Few

Up until about 2006, buying a home was a relatively low risk proposition, even for first-time homebuyers. But now that mortgage underwriting guidelines are more difficult, and property values are bouncing up and down like a yo-yo, you need to be more informed before making a purchase.

Here are six money-saving tips that will make the process easier, and remove at least some of the risk involved in purchasing a home as a first-time home buyer.

6 Money Saving Tips For The First Time Home Buyer

1. Buy Beneath Your Means

This first tip is one where you will have to push back against your real estate agent. The conventional wisdom – which will be strongly advanced by members of the real estate community – is that you should buy the most expensive house you can afford. The idea is that you will be able to more easily afford it as the years pass and your financial situation improves. There may be merit to this, but it’s bad advice for a first time home buyer, especially in today’s market.

It will be better for you to buy at least a little below your financial means. This will leave more room in your budget to pay for everything else in your life. When you buy above your means, you’re flirting with being house poor. No matter how much you love the house, being house poor gets old fast.

2. Buy Below Market

To the best of your ability, try to buy house at a price that is below the going market price. You should aim to buy a house at least 5% to 10% below the prevailing market value. If the house is reasonably worth $200,000, you should try for a settlement price of between $180,000 and $190,000.

This will give you some extra equity upon closing on the house. More important, it will provide some insulation in the event property values should fall.

It’s easier to do this in some markets than others, but you should always try. You never know how anxious seller is to make a deal. Those are the kind of properties that you want to buy – the ones you can get at least a bit of a deal on.

3. Get A Home Inspection

Many times a first time home buyer will resist this idea, because it means coming up with an extra $300 or so before closing. But this can be the very best money you can spend in the entire transaction.

A home inspection can provide the following benefits:

It can alert you about needed repairs; if you know about these upfront, you can have the seller fix them before closing, saving you a major headache later.
You can use repairs and other deficiencies to negotiate a still lower price on the property. A home inspection often provides you with a list of bargaining chips.
It can reveal that the property is a complete disaster, allowing you to get out of the deal before closing.

Spend the extra money for the home inspection, you’ll be glad you did.

4. Use A Real Estate Agent

Property sellers sometimes like to work without real estate agents, so that they can avoid having to pay the real estate commission. As a buyer, there’s no real advantage to not having the services of real estate agent.

The agent acts as a third-party negotiator between you and the seller, and that tends to be more effective than face-to-face negotiations. This is especially true if there are significant issues that develop along the way to the closing table. The agent acts as both a go-between and a shock absorber, helping to work out mutually agreed upon terms.

In addition, since real estate agents work in the business all the time, they know how the process works. They can present a written offer, handle negotiations, schedule the closing and home inspection, and even help you select the mortgage lender and closing agent. If you are a first-time home buyer, you will have enough on your plate without having to worry about all of that.

5. Save Up More Than The Minimum Down Payment

It’s natural for first-time home buyers to want to buy with as little money as possible, but that’s not how the real estate business works these days. The minimum down payment with an FHA mortgage is 3 ½% of the purchase price. If you are using conventional financing, the new normal will be more like 10%, or even 20%.

[What is private mortgage insurance, and is it really necessary?]

You should have your down payment saved in advance, but that’s not all. You should have at least a few thousand dollars saved up in excess of your down payment requirement. There are at least three reasons for doing this:

On conventional mortgages, lenders require that you have “reserves” in excess of the down payment, equal to anywhere from 3 to 6 months of the new house payment.
The extra money will come in handy with incidental and unexpected expenses related to the purchase, such as moving, establishing utilities, making minor repairs, and last-minute purchases.
It’s never a good idea to be broke immediately after purchasing a new home. Save some extra money to give yourself some breathing room after the closing.

6. Clean Up Your Credit Before Applying For A Mortgage

Some first-time home buyers don’t bother reviewing their credit before applying for a mortgage, but it’s to your advantage if you do. If you wait and let the mortgage lender run your credit, and there are credit problems, your loan could be declined. But if you obtain a copy of your credit report in advance, and fix any issues that show up, your credit report will be “clean” by the time the lender pulls it. That will improve your chances of getting a mortgage approval.

[See why a 15yr mortgage may not be the best choice for you!]

The underwriting guidelines for mortgage loans are still quite a bit tougher than they were a few years ago. You will need to enter the process in the best financial shape possible. Determining the quality of your credit is something you can and should do in advance.

Follow these steps, and not only will buying your first home be easier, but you’ll find the entire transaction – and subsequent ownership – to be a much more pleasant experience.

What kind of problems did you encounter as a first time home buyer?

A lot of people are working very hard at becoming rich. Some will make it, but most won’t – at least statistically speaking. But you don’t have to be rich in order to be happy and successful in life. You can become cash-rich, and have all the same benefits.

What Is Cash-Rich, And How Is It Different From Regular Rich?

Cash-rich means having enough money to live your life, plus some extra for savings, investment and fun. It is determined purely by individual factors. For one person, that can mean making $25,000 per year. For another, it could mean making $250,000 per year. And since most of us can live on far less money than we think, the real number is probably a lot lower than we realize.

Regular rich is more objective. It’s usually measured in certain dollar figures, particularly as they relate to income and net worth. Perhaps the fact that it’s measurable is the reason so many people pursue it. Since it often has a specific number attached to it, it can be displayed almost like a trophy. That appeals to our humanity.

[Is it a sin to be rich?]

Why Cash Rich Can Be Just As Satisfying As Regular Rich

While regular rich can mean a lot of tangible evidence of your financial success, it often also comes with complications and more than a small amount of stress. It is not unusual for the regular rich to have less freedom and mobility than the merely cash-rich. There is high income and investment worth, but there is also a high living standard soaking up a lot of the extra money.

Being cash-rich can be just as satisfying. You may not have the tangible evidence of your financial success, but you’re largely free to come and go as you please. You live in a lifestyle that you can easily afford, you have extra money, and you can often do the things that you want to do in your life. In addition, you may find it much easier for you to change jobs or even residences, since these elements don’t define your life.

In the end, quality of life is the real objective we all seek. Regular rich often resembles a money chase. You reach a certain level of wealth or income, then immediately set new goals for each. You’re constantly striving for higher numbers. But if cash-rich is the goal, your primary objective is to avoid overextending yourself. For most of us, that’s a much more simple process.

Busting Your Hump To Be Rich When Cash Rich Will Do Just As Good

As glamorous as becoming regular rich may seem – and as much as our culture favors it – the effort itself comes with more than a few limitations:

Despite your best efforts, you may never become rich.
Worse, you may become rich and then lose it all.
You may become rich, but also lose your health, your family, or your friends in the process. Many people become so driven by the desire to get rich, that these can become common casualties of the effort.
You may not live long enough to enjoy your wealth.
“For what shall it profit a man, if he shall gain the whole world, and lose his own soul?” – Mark 8:36. I can’t say it any better.

Chasing regular rich is not a risk-free proposition.

Since it is much closer to the ground, becoming cash-rich is usually easier to attain. In fact, a number of Bible verses – especially in Proverbs – that tell us to do just that. Even more important, by being cash-rich you can enjoy many of the same quality of life benefits normally reserved for the regular rich. It won’t be anywhere near as opulent, but then we won’t be taking anything out of this world when we leave it anyway.

How To Become Cash Rich

Becoming cash-rich is usually much easier to achieve than becoming a regular rich. In fact, it’s well within reach of the average person of ordinary means.

Start by living beneath your means. Becoming cash-rich all starts with this concept. What ever it is that you make, you live on at least a little bit less. This not only forces you to keep your living expenses low, but it leaves extra money for the next two steps.

Become a saver. The money that you save from living beneath your means can go immediately into savings. Once you have several months worth of living expenses sitting safely in a bank account, your entire financial outlook will change. The financial stress will disappear, you’ll sleep better at night, you’ll think with more clarity, and you may even be able start investing your money to make more money. That’s the basic thing that regular rich people do, but you have to be cash-rich before you even begin to think about it.

[Take the 52-week savings challenge, in order to painlessly become a saver!]

Gradually pay off your debt. Once you have some money saved – and the financial strength that it brings – you can begin to gradually payoff your debt. As your debt payments begin to drop, you’ll have more control over your income, to save more and to do more.

There’s no need to invest 20 or 30 years in building a business or career, no requirement to build a seven-figure investment portfolio, and no necessity for a mansion or luxury car. You’ll have control over your income and your money, and that’s all you need to be cash-rich.

Are you ready to abandon the chase to become regular rich, and focus instead on becoming cash-rich?

Six Money Saving Tips for a First Time Home Buyer