Beating Broke

Personal Finance from the Broke Perspective

Buying a House: How Much Can You Buy

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This post on behalf of Emortgage Calculator

One of the more important parts of buying a house, is not over spending on the house that you plan on buying.  Despite all the headlines during the recent real estate boom and crash, people are still trying to buy much more house than they can reasonably afford.  When they do that, any little setback can be a disaster to their housing situation.  Think about it; if you’re already stretching to pay the mortgage, and you lose your job or have some other major expense, will you still be able to pay the mortgage next month?  Probably not.   And that’s where the trouble begins.

door keyMany will say that you shouldn’t buy a house where the mortgage payment accounts for more than 40% of your income.  Some will include the escrow and utilities into that equation, some do not.  Being the frugal fellow that I am, I suggest you shoot for a far smaller number than that.  If you want to truly be able to afford your house, the mortgage payment, including escrow (but not utilities), shouldn’t exceed 25% of your income.  If you really think about it, do you really want to pay any more than one quarter of your income on just your house?  How will you afford anything else, let alone pay down debt?

There are several ways that you can estimate how much house you can buy.  Your lender will tell you how much you can buy and still qualify for the loan, but that’s a terrible way to go about it.  They are only interested in completing the loan, not whether you can pay for it for 30 years.  Many of the real estate websites will have a loan calculator on their sites as well, which can give you a pretty close estimate.  If you’re in the UK, the Emortgage Calculator can help you estimate those costs.  Most calculators will ask you a few simple questions.  How much is the house worth (value), how much will you borrow (loan total), how long will you borrow it (Term), and at what interest rate (Rate).  Using those numbers, the calculator will amortize the loan, and return the estimated monthly payment on the mortgage.  Use that number, plus an estimated escrow amount (roughly 20-25% of the payment amount makes it a safe estimate), and you’ve got a number that you can use to determine if the house is too much house for you.  Then, you can continue on with shopping for a house.

A few other notes.  Yes, an “interest only” loan gives you a much smaller payment amount and may seem like a good way to get into a house that you otherwise couldn’t afford.  But, you’re only paying interest for that period.  When the interest only period ends, so does your affordable payment amount.  Then, you’re stuck with a much larger payment, and all of the principle of the loan.  Same goes for an “ARM”, or “Adjustable Rate Mortgage”.  The payment is nice and low before the first adjustment period, but when that adjustment happens, the payment can go up by a good amount.  Avoid both and stick with the conventional 15 or 30 year mortgages.  You’ll be glad you did.

photo credit: woodleywonderworks

We Conquered Black Friday

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With the recent changes in my employment, it’s become pretty darn important for us to not only keep to our budget, but to reduce our budget as much as we can in order to keep from sending our finances into the whirlpool of red ink that is broke.

One of the ways that we’ve got to cut back, because of the time of year, is in our Christmas present shopping. We’ve already come to the agreement with our extended family that we wouldn’t be exchanging presents with them. However, with the wonderful consumerism myth that is Santa Claus, it’s a bit more difficult to completely cut off the kids from any presents whatsoever. With that in mind, we decided that we’d still be getting the kids a few things, but would have to take advantage of as many great deals and coupons as we possibly could. And, you all know what that means.

 

 

 

 

 

World Class Traffic JamAs a general rule, I avoid the masses of people that throng to the Black Friday specials. I don’t have the patience for all those people rushing around the aisles, searching for that one last electronic door buster special, or digging through the mountain of cheap DVDs in the middle of the aisle. But, when you’ve got to save some money, sometimes you’ve gotta take a few risks. 😉 Late Thursday night, after all the turkey had been eaten, we went through the flyers for the stores and decided on a few things that we should pick up to give to the kids.

Luckily, for us, our kids are still young enough that they are satisfied more by quantity, than by amount, so it’s easy for us to buy a few bundled items and pack them individually and still come away with as much present opening satisfaction as we would have otherwise.

We took the tips that I wrote a week or so ago, and put them to good use. We went into the day with a detailed idea of what it was we were looking for, and where we were looking for it. We had a list of what we wanted to get, and a budget to spend on that list. If the stores were out of something, we didn’t substitute with the similar, more expensive, item that was conveniently set up next to the empty shelves.

And, we conquered Black Friday. We stuck to our list, only buying one extra item. We not only kept to our budget, but we beat it! When we were done with our busy morning of shopping, we had everything on our list, and we’d spent less than $150! Christmas will be a little lighter under the tree than it has been in previous years, but I’m pretty sure the kids will be happy with it, and we’ll all have a great time, like usual.

Now, we just have to avoid the impulse purchases that will come today in all the Cyber Monday emails and ads, and we’ll be all set. 😉 But, we conquered Black Friday, and that’s something!

How did you all do this Black Friday? Did you go out and shop with the masses? Did you stay home and polish off the turkey leftovers?

photo credit: joiseyshowaa

I Quit My Job: Recovering

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When I finally put in that two-weeks notice, I was floating on this nice little cloud, high above the world, happy with my decision and feeling like I could do no wrong.  Like Andrea of So Over Debt put it, it was the first good nights sleep I’d gotten in quite a while.  And, of course, for the two weeks that I was still working, I stayed on that cloud, anticipating that last day, and the end to my tenure at that employer.

As those two weeks went by, I went from anticipating the day, to downright demanding it came faster.  As more and more of my tasks were transferred to temporary replacements, and I packed more and more of the stuff off of my desk, I began to think about all the things I could be doing at home, at my computer, with this site, and my other sites.  It was torture!

Balloon LaunchAt the end of those two weeks, I nearly ran for the door!  I was already filled with ideas of what I would write the next day, the things I would do, and the changes I could make.  Little did I know that I had a bit of a different path planned.  You see, I woke up early the next morning, with the flu.  Yep.  I spent my entire first day of self employment with the flu.  The following day, I was well enough to at least sit at my desk, but being productive was almost certainly out of the question.

One of the things that I decided, early on in this adventure, was that the income from this and other sites wasn’t going to be enough to make up the difference, or even to make a dent in it.  I would have to get a part-time job in order to help pay the bills, while I built the sites up to a reasonable income level.  I already had a lead on one, so the first full week of self-employment, I went and met with the owner and we worked out some details, and I started last Thursday.  The part-time income from that should help with the bills.  I’ll get a bit less done on my sites, as I’ll be working three days a week, but it was something that I felt/feel was necessary in order to keep some constant money coming in while I work on building other things.

Now, a full week and a half after I quit, and the holidays rushing in on us, somethings are coming back into focus.  I’ve always gotten a bit worked up about finances.  That’s why I created this site, after all.  So, knowing that we lost over half of our income and will only be able to constantly replace about 1/3 of that income immediately, has me a bit stressed.  My wife want’s to do some holiday shopping, and my natural instinct is to shut off all of that, and “give hugs” this Christmas.  It’s caused a bit of friction, but I’m sure we’ll figure it out.

I’m recovering.  From the high of quitting my job.  From the flu.  From stressing entirely too much over money.  From a lot of things.  Such a major life change is bound to require some recovery period, and I am confident that I’ll come out the other side.  There’s just a few bumps in the road.  What an adventure!

photo credit: alibree