First-Time Home Buyer? 10 Mistakes to Avoid

US News lists 10 mistakes first-time home buyers should avoid:

1. Not checking your credit report and score

2. Not getting pre-approved

3. Not creating a long-term budget

4. Forgetting about the hidden costs

5. Not using professional help

6. Picking your real estate agent and lender blindly

7. Thinking you’ll get everything on your wish list

8. Not keeping your feelings in check before hiring a home inspector

9. Not researching your neighborhood

10. Not considering the resale value of your home

While I’m currently a renter, I do plan to buy a home in the next few years. A home is the biggest purchase most of us will make in our lifetime. For that reason, it’s a good idea to spend some time thinking about these details.

The process of buying a home is often very emotional for first-time buyers. It’s easy to become attached to a particular home or feature, such as granite counter tops or walk-in closets. Before you even look at properties though, it’s important to get a copy of your credit reports from each of the 3 credit bureaus. You can do this for free once a year at annualcreditreport.com. You should do this about 6 months before you plan to purchase a home. It’s also a good idea to pay $20 to get your FICO credit score, which is the one lenders look at to assess your creditworthiness. These steps ensure that you will be offered a good interest rate on your loan.

When looking at your credit reports, make sure all information is accurate. This includes addresses, credit card accounts and loan balances. If you see an account you don’t recognize, or one that’s older than 7 years, submit a dispute to the credit bureau and also contact the creditor who put the account on your report. Let them know that the debt is not valid. You also want to have at least six months of on-time payments for all of your accounts. When you’re satisfied with your credit reports and score, you’re ready to sit down with lenders to get pre-qualified for a loan.

Just because you’re approved for a $230,000 home doesn’t mean you should buy one for that price. Look at your budget and determine a monthly payment you can comfortably afford. Remember that there are many extra costs involved with a house that you don’t have as a renter. These include: property taxes, regular maintenance, failed appliances, homeowners association dues, and homeowners insurance.

When you find a home you like, it’s important to hire an inspector to vet out any potential problems. He or she will look for issues with construction or mechanical systems and give you a repair estimate. If you decide you still like the house, you’ll need to factor this into the offer you make to the seller. Drive through the neighborhood at different times, day and night, to get a feel for the place you’ll be living. Is the location convenient to your workplace, grocery stores, schools, parks, etc.? Do you feel safe there?

Considering these details will save you from the most common hassles faced by first-time home buyers. By eliminating major issues before moving in, you can ensure a smoother path to your dream home.

Photo by hewy

Set It and Forget It: Target-Date Funds for Retirement

We’ve established that the Roth IRA is the best way to save for retirement. Now that we have a “house” (the Roth), what “furniture” (investment funds) should we put inside?

One type of fund that has grown tremendously in the last 5 to 10 years is the target retirement fund. These funds are designed to give you the appropriate mix of stocks, bonds, ETFs (exchange traded funds) and mutual funds based on the number of years until your retirement.

Most investment companies have target funds in five-year increments. Based on your age and the number of years you plan to remain in the workforce, select the fund closest to the year you plan to retire. For example, if you plan to retire in 30 years (2042), choose the 2040 fund.

These accounts are extremely easy to set up — just put all of your money into the fund and the fund manager will take care of the individual investment mix. They offer adequate diversification across a variety of industries and require very little monitoring. My favorite company to use is Vanguard, which has very low fees relative to others in the industry (0.19% vs 1.5% or higher).

These funds are extremely low-maintenance. At the outset, when you’re young and have perhaps 35 to 40 years until you stop working, they are set up to invest heavily in stock-type choices. The fund I use, the Vanguard Target Retirement 2050 Fund, invests in about 90% stocks and 10% bonds at the time of this writing. The mix of funds automatically turns more conservative by increasing the ratio of bonds to stocks as you approach retirement age.

A target retirement fund inside a Roth IRA is an efficient, low-cost way to save for retirement. The strategy is very simple: set it and forget it. You can open a Roth account for as little as $1,000. Set one up today and start putting money away for your future.

Photo by pensionriskmatters.com

Saving Money During Your First Job

Humble Savers lists 5 ways to save a portion of your income during your first job:

  1. Start saving
  2. Avoid getting into debt for purchases that fall in value
  3. Challenge yourself – set some ambitious saving and investment goals
  4. Education – don’t stop learning
  5. Protect your most important asset

These are some great recommendations for those just entering the workforce. When I started my first real job after college, I wasn’t used to receiving a steady paycheck every two weeks that was larger than any paycheck I’d received before. I didn’t know anything about investing for retirement, putting aside money for emergencies, or strategies for paying off debt. It was very tempting to “reward” myself by getting some new clothes, furniture, or gadgets.

Luckily, my dad taught me a little about saving as a child and encouraged me to stay out of debt, so I didn’t enter the workforce with crushing levels of debt. I started reading everything I could about personal finance and learned everything I could about how to handle finances.

One of the most important things a new grad can do is to set up an automatic savings plan. Have a portion of your income taken out each month and put into a 401(k) or IRA. If you set this up to happen automatically, you won’t even see the money and thus won’t be tempted to spend it. Because of the power of compound interest, it’s so important to start saving right away. You can think of retirement savings as “paying yourself first”, before the bills and everything else gets paid.

Some types of debt may be necessary because you’re just starting out. A low-interest car loan or mortgage fall into this category. On the other hand, going into debt to acquire the latest gadget or fashion is a bad idea. For this type of purchase, it’s best to save up beforehand to avoid paying a 20% or higher interest rate on your credit card.

Many new grads are burnt out on reading or learning after graduation. But it’s a good idea to educate yourself on the basics such as investing, how loans and interest rates work, and other personal finance topics that are relevant to your situation. A little work now will benefit you tremendously in the long run.

Consider your future needs and wants. Where do you want to be 5 or 10 years down the road? Make a plan to get there, and put it into action.

Your career is your most important asset. Without it, you won’t bring in money to make your future wants and dreams a reality. For this reason, you need to have some level of short- and long-term disability insurance in case you’re unable to work for a period of time. You also need life insurance if you have anyone who depends on your income for survival.

You don’t have to start big. Take just one of these ideas and go from there. Your future self will thank you!

Photo by michaelcrane123

How to Rebuild Your Credit

In a time where millions of people are looking for work — some for months or years at a time — it’s not always easy to stay on top of mortgage payments, credit card payments or other bills. Sometimes there’s just too much month left at the end of your money. Maybe you’ve fallen behind on a bill or two, and it’s reflected in your credit score.

How do you rebuild your good credit standing after something bad happens? There are a few ways, but my favorite is to start at your credit union.

It’s easy to join a credit union. You qualify based on your geographic location, employment, military service, or some other attribute. The best thing to do is talk to them about opening a small-limit credit card in exchange for putting a deposit in a savings account. Your deposit will normally be a little more than your credit limit to cover the risk the credit union is taking on your behalf. As you use the card and pay off the balance each month, you continue to have access to the credit on your card up to your limit. You’ll start to slowly see your credit score improve. In this scenario, the card you receive is a regular credit card, as opposed to a secured card, which I’ll talk about next.

A secured credit card is the second best way to rebuild your credit. Secured cards have an annual fee — usually around $50 or $60 each year– and limits of up to $1,000. Like the method above, you must put down a cash deposit, and your deposit becomes your credit limit. As you make regular purchases with the card and pay off the balance, your credit will start to slowly improve.

Banks as well as some credit unions offer secured credit cards. The best secured cards don’t have any fees (other than the annual fee) and will graduate to a regular credit card within 12 to 18 months. Also, make sure the card will be reported to each of the 3 credit bureaus. If not, your efforts to improve your score won’t be recognized.

With either of the above methods, make sure your balance never goes above 30% of your available credit. So if you have a $1,000 limit, don’t go above $300. It’s a good idea to be safe by paying the balance in full when the bill comes each month.

To improve your score, you’ll also have to change your spending habits. Start by spending less than you earn. Then, look for ways to cut your daily expenses as well as your monthly expenses. Save the rest for retirement, or put it in your emergency fund. By having a credit card and using it responsibly, you’ll rebuild your credit over time.

When the chips are down, don’t lose hope. Using these methods will have you back on your feet sooner than you think.

Photo by natloans

Do You Have Tablet Envy?

Ever since Apple introduced the first iPad in early 2010, Americans have gone tablet-crazy.

According to the LA Times, 18 million tablets were sold in 2010. That number is expected to be 250% higher in 2011. Clearly, this is a trend that shows no signs of slowing down.

With their portability, decent battery life and endless apps, tablets are becoming the device of choice for the media-consuming masses. For those of us without one, tablet envy is starting to become very real. An interesting thought:

Chronic tablet envy notwithstanding, the good ones are still too darn expensive, and the not-so-good ones are, well, not so good. Given a little more time, I’m sure, there’ll be cheaper and better tablets available. But we’re not there yet.

By “the good ones,” he means the iPad. I agree that the $500 price tag of the iPad 2 is out of reach for a lot of people. But you have to consider what you’re getting for that price. The iPad’s two closest competitors, Barnes & Noble’s  Nook and Amazon’s Kindle Fire, cost less than half the iPad 2 price, but their lack of features and available apps are major downsides for a lot of people, myself included. Neither one has even come close to enjoying the level of success that the iPad has.

I admit that when tablets first came out, I was skeptical. I thought, “What could this thing do that I couldn’t do just as well with my smartphone or laptop?” As the months wore on though, I began to see people using their tablets in new and fun ways. In all sorts of settings. Some would sit on the couch and browse their favorite websites from their lap. Others would use it to stay updated with their friends on Facebook. Still others would watch a movie while laying in bed. It occured to me — these tablets are pretty cool. I began to picture myself sitting on the couch with a new tablet, playing Angry Birds or checking the latest sports scores.

The LA Times sums up the tablet craze pretty well:

They’re the perfect marriage of power and portability, enabling on-the-go access to books, magazines, newspapers, music, video and the Net, all in a slick, look-how-cool-I-am package.

Back in 2010, Apple introduced us to a product we didn’t know we needed. They convinced us to drop as much as $800 on an item that’s essentially a luxury. A luxury that might just be a laptop replacement and make the things we do everyday more enjoyable and accessible.

So yes, I have tablet envy. But i’ll wait until the next iPad comes out, and the iPad 2’s price is reduced a little, to make my move.

Photo by khawkins04

Join a Credit Union for Friendlier Service and Better Rates

I recently opened up a checking account at a credit union. Why did I do this? Because we’re no longer in an era where you can show up at any bank and open a free checking account. These days companies (banks included) are trying to squeeze every dollar they can out of us. Bank of America demonstrated this when they recently announced a $5 monthly fee for using their debit card, only to retract after customer outrage.

Credit unions are similar to banks in that they offer checking and savings accounts, loans of all types, and often credit cards. But the key difference is that credit unions are owned and run by their members, while banks are not. When you open up any type of account or loan, you automatically become a member. You “own” a small piece of that credit union. Theoretically, credit unions exist only as a benefit to their members. For this reason, borrowers and savers alike will often find the best interest rates at credit unions.

At most credit unions there are certain qualifications you have to meet to be able to join. For example, you might have to live in a certain geographic area, work at a certain place, or have someone in your family who’s a member.

While credit unions are in business solely to benefit their members, they differ in both size and scope. I actually belong to two different credit unions — one small and one large. The small one is a county-wide entity with 4 or 5 branches spread out across the county. It’s here that I have my car loan. The larger one is state-wide, with branches all over the state. Because I have my checking account here, fee-free access to ATMs is important. Not only do they have their own network of ATMs across the state, but you can also find one at certain gas stations.

Credit unions also differ in scope. Some only offer a few basic services such as loans and checking accounts, while others also offer insurance and retirement planning, among other things. You might even find discount tickets or free workshops. I once attended a workshop on mortgage basics geared towards first-time home buyers.

One thing I like about credit unions is that the atmosphere is often friendlier than what you’d get at a cold, impersonal bank. Because credit unions are owned by their members and aren’t required to act in the interests of shareholders (as are banks), they’re able to make choices that benefit the customer.

I have a story which illustrates the superior customer service you can expect at the majority of credit unions. A few months back I was in the process of switching to a new bank, and I was setting up the bill-pay feature at my new bank to automatically send payment for each of my bills every month. I must have entered in the wrong amount for my car payment, because the following month I got a call from the credit union saying that my payment was one cent short. They called me about one cent! Instead of charging me a fee as the big banks would for a late payment, they did the right thing and called to report it to me before the due date.

Before joining a credit union, it’s important to consider your needs. Whether you’re looking for an auto loan, a CD (Certificate of Deposit) or something else, be sure to compare the rates of competing credit unions in your area. To find a credit union near you, use the Credit Union Locator at NCUA.gov.

Photo by RikkisRefugeOther