What’s a Jumbo Mortgage?

Believe it or not, but the economy is actually getting better.  Property values are increasing and mortgages rates are starting to go up.  In fact, home prices in some areas of the country are increasing at such an alarming rate that it is reminiscent to the pre housing crash of 2008.  Nevermind that for now, because I want to focus on an interesting problem for those of you thinking about buying a new house in these newly expense housing districts.

An interesting thing happens to mortgages when they cross the magical threshold of $417,000, they gain the title of Jumbo.  What does this mean?  Well, here are some things to take into consideration if you decide to obtain a jumbo mortgage.

-          Jumbo mortgages have higher interest rates than non-jumbo mortgages.  If you think about, mortgage companies are taking a big risk by giving you a whole bunch of money with the hopes of you paying it back over time.  We won’t even discuss the concept of interest rate risk.  With that in mind, if a mortgage financer gives you even more money, you are now considered even more risky, so interest rate increases are inevitable. 

-          The next issue with jumbo mortgages is that they are harder to get.  A $416,999 mortgage is much easier to obtain than a $417,000 mortgage, and because of this arbitrary dollar cut-off, you’ll likely have a much harder time convincing a bank to loan you that high amount of money.  You will need a higher credit score, and most likely a much lower LTV on your home. 

Unfortunately, this classification can really harm people who just happen to live in higher cost of living areas.  Places like DC and NYC often have regular 2-3 bedroom homes well north of this dollar amount, and so those of us looking to own our home will have a rougher go.  With that in mind, do everything you can to get your mortgage below that $417,000 threshold.  The easiest way is to pay a larger down payment up front.

Wonderful Moment of the Day: While being new to this whole baby thing, I’ve found the resources online to be invaluable.  It’s actually made my research very enjoyable.

102 Thrifty Ways to Save

In my quest to provide you with personal Finance and smart money-sense guides, I've scoured the Internet looking for some helpful household tips.  This site called "Thrifty Fun" has an interesting article on 102 tried and true ways to save. The list includes a whole slew of simple ways to make your dollar go that extra distance.  Below is a sample of my favorite tips from reach category:

Laundry Room:

- Pre-treat stains as soon as you notice them - why have to throw away your nice work shirt when a little scrubbing can save you big bucks.  Another helpful tip is to keep a "Tide Pen" at work in case you spill there.

Bathrooms:
- Re-use bath towels - You really need to only use about 2 towels per person per week if you are just drying yourself with them.  Just make sure to keep them hung up in a way to fully dry out.

Kitchen and Pantry:
- Learn to cook - It's amazing how much you can save by cooking your own meals versus buying out, not to mention how much healthier it can be.
- Bring leftovers to work for lunch - I do this every day, and not only do I eat better food, it's also way cheaper.

Bedrooms and Living Areas:
- Buy the highest quality sheets, furniture, etc. you can afford.  They will last for years.  In today's IKEA culture, this may not be widely though of.

Entertainment:
- Use your library for books, movies, music, and books on tape.  This is such a great and under-utilized source.

Shopping:
- Make a list for everything you need to purchase.  This will prevent all those impulse buys.

Clothing:
- Put on a sweater when you are cold.  My house is never more that 65 degrees F in the winter.

Holidays:
- Buy items on sale AFTER the holidays.  This requires a little more planning and forethought.

Crafting:
- Save your scraps and combine for interesting projects.  This is a really good option especially if you have kids.

Miscellaneous:
- Clean your own carpets with a rented or borrowed machine.  Really, how many times a year do you wash your carpets; once?  Renting a high end carpet washer will do a better job and cost less in the long run.

You can see the types of easy information that can make you into a handy, frugal, and overall better person.

Wonderful Moment of the Day: The sound of rain on your roof at night.

Home Buying Programs

The Spring time is not all just about chirping birds and the renewal of life back to the earth.  There is also another rebirth, and that is of the housing market.  Chances are, the next time you will be looking for a home (whether it be your first or seventh), it will be in the Spring.  There are a 101 different aspects of your home you need to think of before you buy, but allow me to suggest one you may not have thought of: buyer programs.

Most people are not aware of this, but many towns and municipalities offer home buying programs to incent enterprising families to move in their districts.  The long term goal is to reap the benefits of their income and property taxes.  When making your home buying decision, try looking at the different towns in your area and see if they offer any kind of incentives.  The easiest way to find out this information is to go to each town's website and doing some simple digging around.  If that doesn't turn anything up, try calling the town office and talk to someone who might know.  You'd be surprised of the many programs available.  In one of my neighboring towns, there are home buying programs that offer big discounts and incentives on buying a home.  In this particular case, it had some stipulations that you had to remodel a dilapidated home and then live in it for at least 10 years.  It also had to be your primary residence.  For some enterprising families, this would be a great idea.

If the town or city you live in does not provide a good incentive, then usually a community bank of creit union offers home buying programs; especially if you meet certain income requirements.  For my Wife and I, we met one of these requirements and through our bank, were able to get a free $7,500 with a pro-rated 5 year live-in requirement.  This money was more than enough for all the closing costs, and really helped us get situated.  All we had to do was attend a couple basic personal finance classes. 

If you're not taking advantage of your area's home buying programs then you could be leaving money on the table.  Do you due diligence and research all your possibilities, and you should come out ahead.

Wonderful Moment of the Day: 70 degrees and sunny!

Things to do Instead of Spending Money

If you're trying to keep a strict budget, one of the chief problems that can throw your whole life out of balance is that of boredom.  You might be saying to yourself "that's not such a bad problem".  In fact, some people might even consider the lack of having to do anything as a major luxury.  In our fast paced and busy world we live in, this can often be true, but if you are bored too often, this could spell a disaster for your finances.

Let me elaborate:

Often times, boredom is a rather unpleasant state we find ourselves in.  We try to find ways to avoid being bored, and we usually have "go to" methods for at least doing something.  If you're not careful, your "go to" boredom fix could be something very expensive such as eating out, going shopping, or other entertainment venues.  Before you know it, you find yourself spending way more money than you should have.  So how do we relieve our boredom in a fugal way?  If you're a home owner like myself, there are always an innumerable amount of tasks that should be done, but sometimes I like a little spice in my life.

This blog here suggests at least 56 things you can do that cost very little to nothing.  Most of them are pretty good ideas, however I would argue that they are not all cheap.  Entertaining friends can be pretty expensive if you're not careful.  That said, it's at least a good start to having you think outside of the "proverbial box" and come up with some different ideas.  For me, writing this here blog is often a nice hobby and keeps me thinking.  If I was a better writer, it could even be a source of income.  Either way, look to your own environment for some entertainment, and you'll be surprised at what you find.

Wonderful Moment of the Day: My impatiens seedlings have all sprouted and will be ready to plant soon enough!

Less Accounts to Manage = Easier Saving

I mentioned it briefly here that having only one credit card makes it easier to track your expenses and balance your budget, but the concept can be expanded upon more than just your credit cards.  Consolidating all of your accounts into just a few with one financial institution will make it easier for your to manage your finances, balance your budget, and track your financial future.

Does this sound familiar to you?  To pay my bills and check my account balances, I first log into my account to see how much I have in my checking account, then I go to my paper account register and see if any checks are pending.  Next, I pay a few bills by hand writing checks from one checking account.  I then go online, check my other bank account, and pay some online bills through that bank.  Next I pay 2 of my 6 credit cards by checking the online statements and paying with a variety of checking accounts.  Finally, I log into my brokerage and see how my retirement funds are doing.

Wow!  That seems like a whole bunch of work.  No wonder why personal finances can seem daunting an people can get in trouble.  Well, here's a little trick that I use which has been great for my financial future...use just one bank for all your financial needs.

One of the keys towards getting your financial life together is to have all of your accounts and money in one spot.  This way, you'll know exactly how much you are spending and saving.  To do all of this, you will need a bank that provides all of the following services; checking, saving, lending, and brokerage accounts.  My own personal favorite bank is Schwab.  On just one page, I can see all of my savings, borrowing, and investing.  The only thing I have with a separate company is my credit card, and they only reason why it is with another company is that Schwab sold off its credit card business line to Bank of America about 2 years ago.  If they offered another credit card, I'd probably go back.

If you have many accounts in a multitude of places, the best way to start your financial plan may be to consolidate or close some of your accounts.  This will give you a firm foundation to get the rest of your financial life in order.  Check to see if your financial institution provides all of the aforementioned services, and if they do (for a good price), keep them and get your financial life in order!

Wonderful Moment of the Day: My flower seedlings are just coming up and are currently about an inch high.  I'm starting to get excited for the garden season to come back.

What do I do with my Tax Refund?

With all the curses and frustrations that come with filing your taxes this time of the year, there also comes a blessing (at least for some of us) in the form of a tax refund.  With that in mind, your tax refund can be quite a benefit to your finances if handled appropriately.  It's easy to say that you now have the money to purchase that TV you've always wanted, but it's far wiser to put it towards benefiting your long term financial situation.  Here are my own suggestions:

1.) Adjust your deductions - If you're receiving a refund of more than $500, you should probably adjust your weekly deduction so that you are receiving a little more money throughout the year.  There are better uses of your money such as paying down credit card debt and saving for your future than letting the government take it.  That said, from a budgeting perspective it's always better to receive a refund than having to pay more.  It's a fine balance that you will only really master over time.

2.) Pay Down Credit Card Debt - Now is a perfect time to pay down your credit card debt and get that burden off of your shoulders.  With some interest rates around 20%, paying off this debt will mean more net income for you and your family throughout the year.

3.) Pay Down Other Debts - If you mortgage, student loans, private loans, etc... have interest rates of more than 4%, it probably makes sense to pay these off more quickly than contribute to a retirement account.  You could use your money to make an extra payment on your mortgage.  Over time, doing this every year could reduce the timing on your mortgage by a couple years.

4.) Make a Catch-up Contribution to your Retirement Accounts - If you are not maxing out your 401k contributions to $17,500/year, or your IRA contributions at $5,500 per person, then here is yet another opportunity to improve your future financial situation. 

5.) Make Home Repairs - Besides being mostly likely your biggest asset, your home is where you spend a vast amount of time in so it makes sense keeping it working and in top shape.  Use your money to repair a window, reinsulate a room, and put a new paint job on.  If you plan on moving soon, you might even get a small return on your investment.

6.) Finally, if you've done all this stuff and are in a good financial situation, you should take the family out for dinner and celebrate each other.  Too many families don't acknowledge how special each other are, and a tax refund is a good opportunity to do this.

Try to take the emotion out of your spending habits, especially when small windfalls such as a tax refund come into play.  If need be, give yourself a week to think about the money before spending it.  You'll likely make a wiser financial judgment with some time under your belt.

Wonderful Moment of the Day: Happy Good Friday!

Unit Costing your Food Purchases

Everyone has experienced the difficulty in deciding which is the better deal when shopping at the grocery store.  The seemingly endless choices in dish soap or cereal are enough to make a frugally determined person quite frustrated.  Do I choose the generic brand, or do I go with the name brand that is conveniently on sale?  I’ve seen time and time again, price conscious consumers falling for the sale signs and “reduced priced” glamour only to still be paying more for a product in which they are not very brand conscious for. 

There is a very easy strategy to compare all the cereals, or dish soaps; look for the unit cost information just to the left of the price.  All products are required to have this information, and it essentially puts every like-minded product on the same playing field.  For example, what is the better deal, the generic dish soap that is $1.99 or the name brand soap that is on sale at $1.79?  Many people might pick the name brand soap, but what do the unit costs say?  The generic is $8/gallon and the generic even after the sale is $8.75/gallon.  You know that you are getting more product for your money if you went with the generic soap.

Product packaging and design is a multi-billion dollar business and one of the main goals (besides enticing you to buy the product), is to make the product look larger than it really is.  No wonder you might have a hard time comparing product prices when all the containers have slightly different amount in them.  This is the beauty of unit costs though; it doesn’t matter the sizes, because you can compare them all just in the same manner. 

Today, my Wife and I hardly ever even look at the actual price of a product, but instead look at the unit cost.  One word of caution though; sometimes the units may be a little different.  On the rare occasion, I’ve seen the unit cost listed (for example) as $/gallon and $/liter.  This may through things way out of whack, but this is usually a rare occurrence.  I’m not promising you that your grocery bills will be smaller with this shopping tactic, but I can guarantee that you will be getting much more for your money if you follow it.

Wonderful Moment of the Day: Been having a relatively easy week at work given that I just came back from a week long vacation.

Are You Living Beyond Your Means

Piggy bank getting squeezed, care of Yahoo Finance.

I came across this article the other day on Yahoo (yes, it is still around), which summarizes some nice points on whether you are living beyond your means.  After reading it over, I think many people would be quite surprised to know that they are not preparing themselves for retirement.  I recommend reading the article, but here are my own thoughts and the main points.

1.) You couldn't financially survive without your job's income for at least six months. - Otherwise known as an emergency fund, saving 6 months worth of spending in a liquid account is just a good gauge for how much you should have.  Generally speaking, it might take someone about 6 months to find a job.  Another good use of this fund is if some sort of "emergency" occurs in your household.  For example, say your laundry machine breaks down; do you have at least $1,000 bucks on hand to take care of this.  With an emergency fund, this becomes a non-event.

2.) You are saving less then 10% of your current pay - This one scared me a little just because I don't think some people realize just how much they need to put away for retirement.  My own employment has a 401k that matches 4.5% if you put in 6%.  Most people just put in the minimum 6%.

3.) Your mortgage payment is more than one week's salary - If anything, I think this is a good gauge on how much house you can afford.  Make sure to take into consideration all the costs that go into a mortgage payment; principle, interest, property taxes, and home insurance.

4.) Your credit card balance has remained the same for the past year - you have essentially become what the credit card companies love...a source of fees and interest.  If you have an emergency fund saved up, then the need for a credit card balance becomes less, so this shouldn't even be a problem in my opinion.

5.) You buy big ticket items on low or 0% interest, because you think you'll be able to afford them next year - This type of living is too stressful for me.  Why would you want that kind of obligation hanging over your head.  Step back and think about it for a minute; do you need that huge LED TV or that new Lay-z-boy recliner.  Why?  If you absolutely must buy it, then save up for it.

6.) You use one credit card to pay off another balance - A savvy credit card person could get away with this, but then again, if you were that savvy then you wouldn't have credit card debt.

7.) You pay an overdraft fee on your checking account every 3 to 4 months - First, if this ever occurs, then you need to become better at keeping track of your account balance.  Secondly, you may need to reexamine your spending habits.

8.) Before buying something, you often think "I know I shouldn't, but..." - This goes hand-in-hand with the idea of "I'll treat myself", or "I deserve this".  These are dangerous phrases and can really mess you up down the road.

Ultimately, you have to ask yourself if you want to retire at some point in your life, or do you want to work until you drop dead?  The choice is yours, but these few rules are some good advice all around.

Wonderful Moment of the Day - The cat my Wife and I are cat sitting has finally warmed up to me and is currently sleeping in my lap as I write this.

Save Some Money on your Cable Bill

We all have frustrations with the cable company.  In fact, back in June Yahoo Finance posted an article listing the top 15 most hated companies, and cable companies racked some of the top spots.  What make this so?  My own opinion is that consumers feel like they're trapped.  With municipalities contracting with certain cable providers, you almost experience a sudo sanctioned monopoly in your area.  What's a smart consumer like yourself supposed to do.  Well, I have one option that saved me a few bucks.

Before you even begin, you need to examine what you really need as far as cable.  Are you really watching the 500 channels you are subscribed to?  Do you just need local access?  Maybe a pair of bunny ears is a better investment?  Do you need cable TV at all?  For me, the last question is a no brainer.  My Wife and I hardly ever watch TV, and so we use bunny ears to get the local channels, and pay for a basic Internet plan.  Needless to say, my cable provider decided to pull a fast one on us a month ago by charging an arbitrary $5 fee per month for renting a modem.  We've had a modem for years, and now the company was just looking for a new source of revenue.  Well, here's what I did:

Cable Company: Good morning, how can I help you?
Me: Hi, I'd like to cancel my Internet subscription.  The price is too high?
Cable Company: OK, well let me just see if we have a promotion for you.

....a minute goes by....

Cable Company: Good news, you qualify for a $7/month discount on your subscription for the next year.
Me: Great, let's do that.  Have a great day!

There you have it.  I just saved an additional $84 in the next year.  It's not alot, but every little bit helps.  What's key in this discussion is that you say you will cancel your Internet.  If you say something like "I see one of your competitors has a lower rate", you probably won't get anywhere.  Cable companies know their competitor's rates, and can probably call your bluff.  If the cable operator starts going through the process of cancelling your subscription, just say no thank you, "I've changed my mind", and get off the phone.  Nothing will happen if you do this.

Hopefully, your experiences with your cable provider will be pleasant, and this article will bring you a little discount in the new year.

Wonderful Moment of the Day: Cat loves new Cat Tower!

Blizzard Survival

Living in the Northeast US has its advantages and disadvantages: yesterday was one of those disadvantage days.  I'm referring to the huge snowstorm that came through town and dumped about 10 inches on my house over the course of about 12 hours.  Armed with just 1 shovel, my wife and I were ready to tackle the job.  Needless to say, here's a recollection of our successes and failures through this event, and some tips for your own snow adventure.

1.) Do some prep work ahead of time.  The night before the storm, I did a real quick shovel job just to make the job a little easier in the morning.  It probably only reduced the amount of snow I had to shovel by 2 inches.  Multiplying that by hundreds of square fee of sidewalk and driveway, and you've literally saved your morning from lifting another ton of snow.

2.) Give yourself plenty of time:  I woke up at 5:30am and was out shoveling by 6:00am which was good thinking since it took me about 45 minutes just to clear out our little city path.  I still had plenty of time to get to work.

3.) City dwellers don't need a snow plow.  I grew up in the country where you had 500 foot driveways, so a snow plow makes sense if you want the job done in less then an hour.  Living in the city, I can shovel a foot of snow from every piece of concrete in less that time, so a snow plow definitely does not seem worth it.  When you also figure in the cost, how may times you actually use it per year, and the fact that I would not be able to park my car in the garage if we put it in, and you can see why I don't have one.  I'm also healthy enough to deal with the exercise, and find it to be kind of relaxing.

4.) Good neighbors.  I did say we had one failure and that was my wife was not able to get our car onto the road since the plows didn't come through yet.  She had to call in to work, but our neighbors helped us dig her car out and for that we are most grateful.  Make sure to stay friendly with the people who are going through the same experiences.

5.) The wonders of public transportation.  I did make it to work fine since we are walking distance to my local subway station.  There were no problems on my commute and far less stress.

6.) Know when to call it quits.  Don't be stubborn and think you or your car are invincible.  As in my wife's case, the car wasn't going anywhere so it was better to be safe then risk it.

Buying a snow plow is one of those decisions that people just jump to the conclusion on.  They figure that everyone needs to own one.  This is my second winter in my new house, and I haven't had any problems with just a shovel.  Just think; $500 you would have spent on a snow plow invested in a security that returns on average a 4% inflation adjusted return will net you $1,559 over the course of 30 years.  That snow just got a whole lot more expensive!

Wonderful Moment of the Day: Snow man!

Save Some Money: Take Care of Your Teeth

This past Friday, I had to go back to my dentist and fix a chipped tooth that looked a little worse for the  are, and I have to admit I was a little worried on how the procedure would go.  I sat in the dental chair, relaxed as I usually did, and was reassured by my dentist that the procedure was rather simple and would only take about 20 minutes.  Events progressed, saliva and tooth particles flew out as the slight drilling progressed, and before I knew it, my tooth was fixed.  It was actually a pretty interesting process, because the catalyst used to make the tooth clay harden was a little wand that emitted ultraviolet light.  He even gave me a demonstration on how it works which was also pretty neat.  

So, what's my point and what am I trying to demonstrate here.  Well, this whole experience got me thinking about dental hygiene and personal finances.  I've always been avid about my tooth care, and have only had 1 cavity in my adult life, so the thought of not taking care of my teeth was never there.  That said, one can save a bunch of money if you do the normal preventative maintenance associated with dental care. 

A quick search around the Internet lead me to discover that the average root canal costs anywhere between $500-$900 if you don't have dental insurance.  Much of this medical treatment is entirely avoidable if you take the time to brush your teeth at least twice per day, floss at least once per day, and use mouth wash at least once per day.  Not only will those preventative maintenance steps save you from future financial distress, but it will definitely save you from physical and emotional sense.  Also, let's not forget the good breath, and general good health that comes from regular maintenance.  If you have bad breath or some other oral problem, you are essentially breathing in all that harmful bacteria and gunk every time you take a breath. Your chances for pneumonia, and getting sick shoot up much higher if you don't take care of yourself.

Finally, if the option presents itself, I would highly encourage you to purchase dental insurance from your employer or even on the open market.  This is something you will use at least twice per year for your regular cleanings, and it can go a long way to keep you a healthy individual.  Generally, dental insurance is also very cheap.

Wonderful Moment of the Day: Sweet, sweet Nutella sandwich!