Preparing to Buy a Place – 1 Year Out

Gentle Readers,

In April 2016  – I made the decision to get my financial house in order, because it is time for them to become my erstwhile roommates. This is the true reason I started this blog. I know that I work best under “pressure,” which is where putting my financial mess out in public comes in. This is a space for me to learn and grow.

I know a few things. I need great credit so that I can get a favorable rate on my mortgage and I need a down payment.

My Fico Score was 732 when I made this decision. This is essentially what it was before I opened my business two years ago.  It was great, but not excellent. By most reckonings, the bottom end of excellent is 750. I was close. That 18 point difference will make a difference on the APR I’m offered on my mortgage, and thus on the amount of interest I will pay over the life of my loan.

Once I made this decision I began making calculations.  How long to pay off my CC debt.  How long to save up a deposit. How to get my credit score up.

I’m on track to pay off my credit card debt by October or November, barring new expenses. I have an upcoming dentist visit and I think it will be time for adult braces due to some bad changes in my mouth. Expensive. I’ll see if they have a payment plan.

I’m glad to report that my credit score is now 787 as of May. HAPPY DANCE!

I did this by paying off two of my three credit cards. I took out a loan through earnest to do this.  I learned that the right type of credit (the earnest loan) looks more like a mini-mortgage and makes me look more responsible. I also kept the amount of credit utilized on the other card low because I learned that having less than 30% of your available credit utilized makes a difference in your credit score. This is why I did not close those cards, but continue to use them for tiny purchases each month. 

I did all this in April. More than 6 months before I would approach a lender to see what I could get pre-approved for.  It worked. All of this concentrated effort paid off. I’m firmly in the excellent credit category and can keep improving.

I also put more of my expenses on auto-debit so that I won’t accidentally miss them.

I learned that a mortgage should not be more than 2.5 times your annual salary. I had never heard this rule, but it makes sense to me. Helps me to plan. Thanks to Freedom is Groovy for linking here to Fritz Gilbert’s Retirement Manifesto, which is available here.

I do not consider the place I live to be an investment since I need to live somewhere. I do not want to tie up too much of my capital in my mortgage and other housing costs. That means I’m looking to pay little. I don’t want to live in a dump, but I don’t want something incredibly nice.

Things I need to learn:

  • What the heck is a basis point?
  • Will I even be able to get a mortgage without a cosigner since I have years of contingency work?
  • FHA loan rules.
  • HOA rules.
  • The differences between condos and coops.
  • If I want a coop, learn about the coop mortgage rules.
  • How much of an emergency fund will make me feel secure?

Things I need to do:

  • Pay off the rest of my credit card debt.
  • Get into no more credit card debt
  • Save a down payment.
  • Save enough money to actually move.
  • Prepare my financial documents so I’m ready to talk to a lender.
  • Find a realtor I respect
  • Decide what I want versus what I need in a home.
  • Monitor the local market.
  • Buy a home.
  • Take advantage of my access to a garage to paint and/or build the furniture I want for the new space.
  • Move.
  • Unpack.
  • Not share my shower with people I’m not in love with.

How did you prepare when you wanted to buy a home? Am I missing anything?

 

 

 

Net Worth Week 2

Gentle Readers,

I have made many changes to my finances in the past two years, and have been building up my efforts to achieve financial freedom in earnest in the past six months. These changes will result in my net worth getting closer to zero, but involve a lot of hovering around the negative $150,000 mark for now. It can be discouraging, but I know that progress is happening. Even when it does not appear true.

To show myself that my efforts have value and to encourage myself to keep them up, I am tracking my net worth weekly. I know this is obsessive and do not intend to do it indefinitely, but I think that there is a value in having meticulous attention to these matters for the time being.

The Changes

I started a business from my liquid savings in 2014. In 2015, I opened and fully-funded an IRA. In 2016, I opened a separate brokerage account, paid off (with help explained here) two of my credit cards, and began preparing to purchase a coop or condo.

All of these changes feel big, but my bank account feels small. Hopefully my focus will get me to and beyond zero.

Date 4/1/2016 4/8/2016 4/15/2016 4/24/2016
Joy 1097 1097 1097 1097
Travel  752 322 322 322
Down Payment  284 18 18 18
retirement  221 21 21 21
health  45 45 45 45
Moving  31 31 31 31
EF  9 9 9 9
Business  1 1 1 1
Bed  .29 0.29 0.29 0.29
Life  471 1066 907  963
IRA  6928 6885 7026  7100
Brokerage  220 217 221  222
CC (largest)  -11883.98 -983 0 0
CC (longest)  -567.28 0 0 0
Rewards Card  -2762 -2850 -3000  -3160
SL 1  ?  -101791 -101892 -102041
SL 2  ?  -44970 -45001 -45046
Earnest  -10000 -10009 -100036 -10054
–$151,728 -$150,890.71 -150230.71 -150471.71
-1.0% change .99% change .99% change  -1.0% change

What changes have you made in your finances recently?