Net Worth Week 69 – Spinning Round Edition

Gentle Readers,
My tutoring sessions continue to improve my skills greatly. Every day I am more excited about the possibilities on the horizon.
Knowing that I will pay out of pocket for Invisalign the same month that my business has many bills due has been stressful. I think I will have to return the money my business “paid” me back to my operating account. Unless a new client comes in ready to hire me very soon. One current client contacted me yesterday for a tiny bit of work that will help enormously, but not cover everything I have going out this month. I should be able to do everything he needs this weekend.
I am grateful that I have this blog, because it taught me how simple a balance transfer is; it also reminds me that the last time I took this step it was because of dental pain, as well. C’est la vie.  My credit score is good and I have no plans in the next six months to take out a loan of any sort. Knowing that I have significantly higher outlays than projected income in the next two months, my plan is to hold off on paying down my credit card so that I have the funds available for my business, if necessary. Once the first big payment is due for my Invisalign, I’ll put it on my credit card and then initiate a balance transfer. That will buy me many months of no interest for the fee of a 2% balance transfer. This is much cheaper than letting it sit on a credit card with an APR over 10%.  It’s not the greatest situation, but I know better how to use the tools available.
Next week may not have a net worth check in because I will be in Texas visiting my love! I cannot lie, I have been dreaming about TexMex.

This week’s net worth numbers

7/28/2017 8/4/2017
 Joy 1107 1108
 Travel 1  1
 Down Payment 19 19
 Retirement 21 21
 Health 46 46
 Moving 285 285
 EF 11 11
Business 1004 1005
Life 1499  1818
 IRA  13481  13486
 Brokerage 809  836
 Rewards Card 2 -2406 -2489
 CC (largest) -114  0
 CC (longest) 0  0
 Rewards Card 0  0
SL 1 -105329 -105444
SL 2 -46411 -46464
 Earnest -4033 -4042
 Net Worth -140010 -139803
 Percentage Change -.46% .15%

How often have you felt the phrase “One step forward and two steps back” in your financial life?

Fannie Mae Easing DTI Standards Impacts Your Ability To Get a Mortgage

Gentle Readers,
Remember when I learned that FHA guidance would make it much harder for me to get a mortgage any time soon? Things are changing, potentially.
Fannie Mae is changing their debt-to-income (DTI) formula. This will allow some folks to qualify for a mortgage who could not under the old standards.  The old DTI maximum was 45%, but at the end of July, it will be 50%.

What is the DTI Formula?

The DTI is simple to calculate. All of your debts go on the left of the colon and your income goes on the right. Then divide your debt by your income and multiple by 100.  That is your DTI percentage.
  • If I make $4000 a month, and have debt obligations of $2000, I have a DTI of 50% and am just barely eligible.  2000:4000  (2000/4000)100=50%
  • If I make $4000 a month, and have debt obligations of $1800, I have a DTI of 45% and am eligible.  (1800/4000)100=45%
This applicable DTI seems to be for Fannie Mae mortgages and not Freddie Mac or Federal Housing Administration mortgages. Their standards may or may not change to fall in line.

What does this DTI standard mean for me?

I’m not sure that this is a good move. The more debt you have relative to your income, the harder it is to pay for everything you need. This is true even without emergencies cropping up. Perhaps if the rent in your market is outrageous in comparison to your potential mortgage + insurance + maintenance, then this could be a boon for you.

 

This change still seems risky. Everything in the US market seems frothy right now. Real estate and other investment prices do not seem to correspond to the underlying asset values in a lot of markets. It does not seem like now should be the time for loosening our standards. Just because you can receive a mortgage, that does not mean it is financially responsible.

 

The next thing I need to research on my quest to own a condo is the Fannie Mae Homepath program.

 

What do you think of the new DTI requirement? Good for the market or for individuals? 

Net Worth Week 44 – Best Week Yet

Gentle Readers,
My high credit score officially returned last week. It took a beating down from excellent to high-ish after I completed a balance transfer last summer. The balance transfer rate ends in July. I am doing a lot of OT right now, and part of the aim is to use those funds to knock it out before then.
I still have not made an appointment  with an oral surgeon.  There is not time right now, and my focus is elsewhere. I am going to try and sneak in a massage or reflexology. My body is terribly stressed right now.
My streak re-set to 2 week’s positive net worth growth! This is my closest to zero since I’ve kept track.

This week’s net worth numbers

2/3/2017 2/10/2017
 Joy 1103 1104
 Travel 324 324
 Down Payment 19 19
 Retirement 21 21
 Health 45 45
 Moving 284 284
 EF 810 810
Business 7511 751
Bed  0.19 0.19
 Life 1356  819
 IRA 11459  11536
 Brokerage 674  679
 CC (largest) -4182 -4182
 CC (longest) 0  0
 Rewards Card -1530 -1120
SL 1 -103998 -103854
 SL 2 -45804 -45738
 Earnest -6562 -6109
 Net Worth -145201 -144610
 Percentage Change .33% .40%

Are you making plans for Valentine’s Day? Do you spend a standard amount?  

Net Worth Week 25 – Mentor Edition

9/16/16 9/23/16 9/23/16
Joy 1100 1100 1100
Travel 323 323 323
Down Payment 19 19 19
Retirement 21 21 21
Health 45 45 45
Moving 283 283 283
EF 1004 1004 1004
Business 1 1 1
Bed 0.29 0.29 0.29
Life 871 1732  1596
IRA 9854 10079  10033
Brokerage 395 402  400
CC (largest) -4699 -4693  -4660
CC (longest) 0 0 0
Rewards Card 0 0  -701
SL 1 -102726 -102858  -102957
SL 2 -45223 -45283  -45328
Earnest -8126 -8143  -8160
Net Worth -146867 -145967  -146981
Percentage Change -.22% .60%  -.69%

Any recommendations for paying your employment and quarterly taxes as an LLC?

Net Worth Week 24 – Fall Growth Edition

9/9/16 9/16/16 9/23/16
Joy 1100 1100 1100
Travel 323 323 323
Down Payment 19 19 19
Retirement 21 21 21
Health 45 45 45
Moving 31 283 283
EF 1004 1004 1004
Business 1 1 1
Bed 0.29 0.29 0.29
Life 747 871  1732
IRA 10186 9854  10079
Brokerage 403 395  402
CC (largest) -4699 -4699  -4693
CC (longest) 0 0 0
Rewards Card 0 0  0
SL 1 -102594 -102726  -102858
SL 2 -45163 -45223  -45283
Earnest -8109 -8126  -8143
Net Worth -146532 -146867  -145967
Percentage Change .15% -0.22%  0.60%

Is Fall a busy season in your industry?

Net Worth Week 20

My pain keeps circling itself. I think that the steps I’m taking are having long-term effects, but they are shorter lived than I hoped.

Date 8/5/16 8/12/2016 8/19/2016 8/26/2016
Joy 1100 1100 1100  1100
Travel 323 323 323  323
Down Payment  19 19 19 19
retirement  21 21 21 21
health  45 45 45 45
Moving  31 31 31 31
EF  2003 2003 2003 2003
Business  1 1 1 1
Bed  .29 0.29 0.29 0.29
Life  1444 769 1844  2127
IRA  9984 10087 10127  10058
Brokerage  409 410 402  401
CC (largest)  -4791 -4791 -4791  -4791
CC (longest)  -273 -295 -319  -437
Rewards Card  0 -273 -564  -1022
SL 1  -102713  -102489 -102604 -102719
SL 2  -45217  -45115 -45167 -45220
Earnest  -8486 -8404 -8522 -8540
-$146099 -$146657 -$146050 -$146599
  .56% change -.38% change .41% change -.37% change

Have you seen growth in other areas of your lives lately? Have the hustles been paying off?

What’s a Basis Point and How Will It Impact My Mortgage?

Gentle Readers,

You’ll recall that I want to buy a small place of my own, but that I have a lot of learning to do in the meantime. I understand how mortgages work in general, but a term I didn’t fully understand is Basis Point.

Mortgages are simple.

They are loans that are supported by collateral, ie the building you live in. You don’t make the proper payments, and your home can be returned to the mortgage lender. Your right to “your” home is conditional while there is a mortgage outstanding. Not a good look for you since you would prefer to remain living in the home. The lender makes money off of the loan itself through origination fees and interest payments. The lower the mortgage rate, the lower the cost of the loan for you. There are other parts of the mortgage, ie taxes and insurance, but I’m not going to write about those today.

There are a range of available down payments that are based on percentages of the total house and land value. It used to be standard for a buyer to pay in cash 20% of the value of the home. That standard is less likely these days. Some down payments are 3.5% of the home’s value or lower. I hope to do a 10% down payment for a home that is less than $170,000. My down payment would be $17,000 plus or minus some fees and my mortgage would be for $153,000. When I look at Bankrate’s Mortgage Calculator for those terms with today’s interest rates (3.39%), I would expect to pay $677.68 monthly for 360 months. Roughly equivalent to my current rent, which is why it is the top end of what I’d like to pay. I would actually prefer to pay much less.

Most lenders and buyers will agree to a 15 or 30 year term. That means, if you pay the stated amount every month for 30 years, the mortgage and associated payments will be completely paid off. You’ll actually own the home and not have the risk of a foreclosure from the lender. You will have satisfied the condition of the loan.

The interest rate on your mortgage determines how much you will pay in the long run. A higher interest rate means that the cost of borrowing that money will be greater for you. People with less than stellar credit are penalized by these higher interest rates, because lenders consider them less likely to fulfill their payment obligations. This means you have some control over how much you pay for your house. If you increase your credit score, you will look like less of a risk to lenders.  The less-risky version of you will have a lower interest rate and pay less.

All of that makes sense to me.

Basis Points are strange to me.

I know they exist, but I don’t understand what they have to do with my life. When I googled Basis Point, I got the following result:

“In addition to the interest rate, the lender could also charge you points and additional loan costs. Each point is one percent of the financed amount and is financed along with the principal.”

And also this definition:

“A basis point is a unit of measure used in finance to describe the percentage change  in the value or rate of a financial instrument . One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields.”

Why are mortgages stated this way? Why have an interest rate of 3.375% plus the ability to buy basis points? Why not just state the entire interest rate in one blow? It seems unnecessarily complicated to me.

One example I found explains that a way average consumers encounter basis points is during the lock-in period for a mortgage with your loan officer. She guarantees a certain rate at closing, which will be sometime in the near future, but not today. You are charged 50 basis points to lock in the rate. That is you are charged one-half of 1 percent of your mortgage loan balance to guarantee the interest rate you agreed upon. To me, it looks like an interest rate of 3.50% with fifty basis points ends up being a interest rate of 4.0.%. Am I wrong?

It also looks like a basis point can be known as a discount point. A discount point is a way to pay for a lower interest rate. I don’t really understand how this is different from a higher down payment, even with the following explanation.

“Discount points are a form of prepaid interest by which you pay the bank an upfront fee in exchange for it lowering the rate. The amount you can cut your loan’s rate will vary depending on how many points you pay and on how your bank underwrites it, but assuming that paying one point, or 1 percent of the loan’s balance, will lower the rate by 25 basis points.”

What do you wish you understood about basis points before securing your first mortgage? Is my understanding, or lack of understanding, off?

 

Paying off Credit Cards 2 of 3

Gentle Readers,

I previously used credit responsibly. The period in which I did not use debt responsibly is something I am still digging out of, and I am now trying to share my mistakes and my corrections so that others may learn from them without making them.

For many years, I  was a responsible user of credit. Always paid off in full. No balances. I did not care about my APR, because it did not matter.

And, then, things changed. The major change occurred after I completed my professional certificates. My computer that was my source of job ads was about to die and I did not have enough saved to buy a computer outright. I had previously been a responsible consumer of credit and felt comfortable taking out a 0% APR credit card for the purchase.

Around the time that it absolutely needed to have a zero balance to prevent an interest charge for the entire balance that had ever been on there, my gig income temporarily dried up.

It sucked. I felt ashamed. But I did not stop using the card. The company kept upping my limit. I kept getting close to the limit. I kept feeling shame.

During this time, I opened my LLC, and it took nearly a year before it received money from a client and not from my personal bank account. I used my credit cards to keep me afloat while paying my personal bills and my business expenses.  Parts of my credit card debt, subsequently, were sensibly acquired. That business is an investment in the life I want.

Fast-forward to the present.

This year had the potential for significant travel. My credit card debt existed, but my credit score was in the great range according to my FICO score. I applied for and received a rewards card with an 0% introductory APR. I put away both of my other credit cards, and focused on only using this while trying to pay the other cards down. I “earned” the 40000 bonus miles within the Rewards Card’s timeline. I purchased two round-trip tickets with the miles so far.

I still had the debt and the APR on my highest balance was high, and it frustrated me. I applied for a loan from Earnest to cover most of the balance at an interest rate that was half of the APR. I then threw two full paychecks and some of my savings at this credit card debt.

Now I have two years to pay off the Earnest loan and one remaining credit card balance. If you use my link when you apply, your rates are not impacted, but my balance will be impacted.

To sum up – I made mistakes, I took out a loan to pay off some of those mistakes, and I am now throwing lots of money at my mistakes to take control of my life.

Small steps count.

Have you been able to change your use of credit cards for the better?