No Major Purchase of Any Kind
Review the article titled, “Don’t Buy a Car,” and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings……and automobiles, of course!

Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them. The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious. Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it “easier,” could make it more difficult for the lender to properly document. So leave your money where it is until you talk to a loan officer. Oh…don’t change banks, either!

When you get a raise or accumulate some savings, you may find yourself confronted by an innate instinct of modern civilized men and women. The desire to spend money.
It begins simply, by going out to restaurants, then accelerates to purchasing clothing, electronic gadgets, and since North Americans have a special fondness for the automobile, you may even buy a “brand new car.”
If you’re married or ambitious, a few months later your thoughts eventually turn toward buying your own home. Or a move-up home, if you are already a homeowner. Next, you contact a loan officer to get pre-qualified for a mortgage loan. You state your desired price and how much you can put down. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).
“If only you didn’t have this car payment…”
Debt-to-Income Ratios and Car Payments
You see, when determining your ability to qualify for a mortgage, a lender looks at what is called your “debt-to-income” ratio. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and home-owner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and….
…car payments.
How a New Car Payment Reduces Your Purchase Price
For example, suppose you earn $5000 a month and you have a car payment of $400. Using an interest rate of 8.0%, you would qualify for approximately $55,000 less than if you did not have the car payment.
Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours. Do not get discouraged, however. You should still take the time to get pre-qualified by a lender.
Next, you contact a loan officer to get pre-qualified for a mortgage loan. You state your desired price and how much you can put down. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).
However, if you have not already bought a car, remember one thing. Whenever the thought of buying a car enters your mind, think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well being.
Do not buy the car. Buy the house first.

We’ve had a few cool days here in the Madison Valley! With winter weather fast approaching, this may be the time to check out the following list of simple tasks complied by Ace Hardware. A few tasks done now may prevent headaches down the road!

Interior tasks:
Change furnace filters monthly. Clogged filters decrease the efficiency of the furnace and could cause problems.

Drain water heater yearly. Sediment will drain out with the water from the tank, and removing this sediment can prolong the water heater’s lifespan.

Clean the coils. With baseboard heating units that use hot water, remove dust from the coils inside units to maximize heating efficiency. With hot water boiler/furnace, the pump inside the furnace should be oiled twice a year.

Check circuits. Check circuit breakers in electrical circuit box twice a year by flipping them off and then back on. When a circuit continues to shut off with normal daily use, call an electrician as it could indicate faulty wiring.

Check for drips. Check under sinks periodically for leaks or water stains. Catch small leaks early to prevent water damage.

Exterior tasks:
Keep moisture out. Water is a major enemy. Each season, check for signs of water damage. Flashing, the metal pieces used to seal areas between the roof and chimneys, around doors and windows, etc. are especially vulnerable to damage from wind and age.

Check around foundations. Check the foundation for cracks and gaps that would allow intrusion of water or varmints. Also check the ground around the home for any settling. When landscaping, prevent water flows towards the home.

Roof and chimney checks. Check your roof for loose shingles and gutters. Check chimneys for signs of loose mortar and missing bricks. Have chimneys cleaned every two to three years.

A few weeks ago I shared with you part of an article from RealEstateabc.com that touched on why home ownership is still a great idea for most people. I wanted to make sure to share the remainder of the article as well since I think it speaks to a number of additional benefits of home ownership.

Income Tax Savings
Because of income tax deductions, the government is subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income. For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction. Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.

Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year – or even more often. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties. Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?

Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates. Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate. Over time, history has shown that owning a home is one of the very best financial investments.

I recently came across an article on RealEstateabc.com that had good information I thought I’d share here as well. When the country is suffering from a recession, it’s easy to get nervous about spending money – especially on big purchases. However, there are still great benefits to homeownership. I’ve included part of the article here and will share additional pieces in future articles.

The Best Investment
As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.

But take a second look…
Presumably, if you bought a $200,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000.
At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual “return on investment” would be a whopping twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying a home is higher than most any other investment you could make.