Personal financial in your twenties comes with a steep learning curve. One minute you’re studying for your finals and the next you’re expected to suddenly know about APR financing, 401(K)s, and fixed-rate mortgages.
If you’re in your twenties and are facing these new challenges, you’re probably equal parts terrified and excited for the future. And, although it can be anxiety-inducing to step into the world of personal finance, you have one tool to your advantage that your parents and grandparents didn’t have: the internet.
So, in this article, we’re going to give you some tips about buying a home and managing your finances in your twenties.
Have an emergency fund
You probably have a lot of things you want to save for. Down payments on mortgages and auto loans, saving money for traveling, beginning your retirement funds, and maybe even starting a family; they’re all important investments that will take time and financial planning to achieve.
However, one thing that many young people neglect when they first start saving is an emergency fund. There are any number of things that can throw a wrench in your plans in your twenties. You might lose a job and have to live off of savings while hunting for a new one. Maybe something goes wrong with your car and it costs hundreds to repair. Or, you could have unforeseen medical expenses that aren’t covered by your insurance. Regardless of the reason, having an emergency fund will help you stay out of unnecessary debt.
It’s recommended to have at least 6 months of living expenses saved in your emergency fund. Once you have this amount saved, it’s a good idea to keep it in a separate account to avoid spending it on things that aren’t exactly an emergency.
Don’t live above your means
We all know that buying a house, going to college, and even buying groceries are all exponentially more expensive than they used to be. However, it’s still important to try to adjust your lifestyle to the things you can afford.
This includes the vehicle you drive, the first home you buy, and even smaller purchases you make.
Avoiding lifestyle creep
Related to our last point about living above your means, lifestyle creep is the phenomenon that occurs when you get a raise or a higher paying job: the more we make, the more we spend. However, it’s possible to avoid this trend by keeping your finances in check.
The next time you get a raise, make sure that money is put to use in either your retirement fund or savings account. This method is based on the goal of “giving every dollar a job.” When every dollar you earn has a purpose, you’re less likely to spend it on new video game consoles every six months.
Shopping for a house is a high-stakes game. If you’re a first-time buyer, it can be difficult to gauge the value of various components and features of a home. Appraisals are designed for just this reason.
However, an appraisal is a subjective tool to determine a rough estimate. Furthermore, there are a number of things you can’t learn from an appraisal--such as how convenient the home would be for your work commute.
In this article, we’re going to help you, the homebuyer, determine the true value of a home as it would mean to you in your everyday life. Read on for tips on finding out the value of that home you’ve been dreaming of and deciding whether it’s really the best home for your budget.
Appraisals are a baseline
When lenders are in the process of approving your home loan, they’ll want to decide whether the home you’re buying is worth the amount you’re paying. To achieve this, they’ll typically hire a third-party appraiser.
Find out from your lender which appraiser they use and read their online reviews. This will ensure that they’re a trustworthy source of information. Also be sure to check that the appraiser is certified and that they work with a diverse range of clientele (not just your lender!).
Since you’ll likely be paying the appraisal fee as part of your closing costs, make sure you’re happy with the appraisal and appraiser.
Key appraisal factors
After the appraisal, consider getting a second opinion or inspection of any of the key components of your home that may impact the appraisal. Some of these factors include:
The roof, HVAC system, and septic systems
The energy-efficiency of the home
The current market value in the area
The general upkeep of the home--a few cosmetic problems shouldn’t affect the home value much, but serious neglect can cause long-lasting and expensive issues like mold, water damage, pest invasion, and more
What an appraisal can’t tell you
Now that we’ve discussed the nuts and bolts of home value, we have to venture into what value means to you and your family. You’ll need to ask yourself a series of questions, and some of them won’t have a cut-and-dry answer.
First, how well does this home fit into the work life of you and your spouse? Will it mean a shorter commute, and therefore lower transportation costs and more free time? Putting a dollar value on an extra thirty minutes not spent in traffic can be difficult, but it’s a worthwhile exercise to take part in.
Furthermore, does the house have features that will make it a better asset in years to come? Energy-efficiency, proximity to in-demand schools, businesses, etc., can all be selling points for future buyers that are willing to pay more for your home.
Using a combination of a certified appraisal and some introspection, you should be able to come to a confident conclusion as to the value of the home as it means to you and your family.
Applying for a mortgage is a big step towards homeownership and financial independence. If it’s your first time buying a home, you might be curious (and a little intimidated) about all of the things that go into your mortgage application.
When reviewing your application, mortgage lenders are trying to determine how risky it is to lend you money. If all goes well, and they determine that lending to you would be a worthy investment, you’ll get approved for a mortgage.
There are three main things that lenders will use when weighing your application (however, there are other factors as well).
First, they’ll run a detailed credit report. This will tell them how much other debt you have, what kind of accounts you have open, how long you’ve had this debt, and how responsible you are when it comes to making your monthly payments in time.
Second, they’ll consider how much money you’ll be using toward a down payment. A larger down payment alleviates some of the risk associated with lending to you. Therefore, people with little or no down payment saved can have a difficult time getting approved for a mortgage. And, if they do get approved, they’ll have to pay monthly private mortgage insurance on top of their regular mortgage payments.
Finally, the third main consideration will be your current income. Lenders will look at your previous two years of income (including tax returns) and will seek out current income verification from your employer.
The latter is a key part of getting approved, as lenders will want to ensure that you are in a stable financial situation and will be able to immediately start making mortgage payments.
Today’s post will center around income verification and how mortgage lenders will use your income to determine your borrowing eligibility.
How Do I Verify My Employment?
If you’re employed with a company, most lenders will reach out to your employer directly to verify your employment. You’ll be asked to sign a form that authorizes your employer to share these details with the lender, and then your part of the job is done and you can move on to the next step of your application.
Things get trickier when you’re a freelancer, are self-employed, or work with several clients as a contract worker. In these situations, lenders will typically require you to file a Form 4506-T with the IRS. This form allows your lender to obtain your tax returns directly from the IRS.
Can I submit additional information to verify my income?
There are some situations where providing additional income information can bolster your case in terms of getting approved for a mortgage.
If you own a business, your lender of choice may ask for a profit and loss statement. If you’re an independent contractor or freelancer, your clients who have paid you at least $600 or services or $10 in royalties will be required to send you a Form 1099-MISC.
If you have mixed income, such as a full-time job with freelance work on the side, showing these 1099-MISC forms can help increase your income on paper so that lenders will approve you or a higher mortgage amount or lower interest rate.
Let's face it – selling a home may prove to be a long, arduous process, particularly for those who are listing a residence for the first time. Fortunately, we're here to help you simplify the home selling journey and ensure you can enjoy a pleasant home selling experience.
Now, let's take a look at three tips to make the home selling process quick and easy.
1. Evaluate Housing Market Data
The housing market frequently changes, and a seller's market today may transform into a buyer's market tomorrow. However, if you analyze housing market data, you can understand real estate segment trends and map out your home selling journey accordingly.
Take a look at the prices of recently sold houses in your city or town. This information can help you differentiate between a buyer's and seller's market.
Also, evaluate the prices of local houses that are similar to your own. This data will show you how your residence stacks up against the competition.
2. Hire a Home Appraiser
Although you might have received a great price for your house a few years ago, the value of your home likely has changed. As such, you should conduct a home appraisal to receive an accurate property valuation.
A home appraiser will look at your house's exterior and interior, along with assorted housing market data. Then, this appraiser can provide you with a valuation of your property. And once you have a property valuation in hand, you can determine how to price your house.
In addition, it often helps to complete a home inspection prior to listing your residence. Because if you perform a home inspection today, you can identify and correct any home problems that otherwise may slow down the home selling process.
3. Collaborate with a Real Estate Agent
If you're unsure about where to find housing market data or how to hire a home appraiser, there's no need to worry. Real estate agents are available in cities and towns nationwide, and these housing market professionals will do whatever it takes to help you sell your house.
A real estate agent is a housing market expert who is available to assist you in any way possible. For instance, if you need help pricing your house, a real estate agent can make it easy to establish a competitive initial asking price. Or, if you are debating whether to accept or reject a buyer's proposal, a real estate agent can help you make an informed decision.
Let's not forget about the comprehensive support that a real estate agent provides in the days and weeks after you accept an offer, either. This housing market professional will keep you up to date about a home purchase agreement as closing day approaches. And if you ever have home selling concerns or questions, a real estate agent is happy to respond to them.
Ready to list your residence? Take advantage of the aforementioned tips, and you can increase the likelihood of a fast, simple home selling journey.