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Can You Afford to Buy a Home on Your Salary?

afford a house

57 percent of Americans feel buying a house has become less appealing, reflecting a widespread belief that fewer people can afford to buy homes, according to a Hart Research Associates survey. Ray Martin of CBS MoneyWatch says this reflects property costs rising faster than wages, coupled with economic challenges for consumers trying to save down payments and afford mortgages. Given these conditions, you might be wondering how to go about determining whether you can afford a home on your salary.

Estimating What You Can Affordafford a house

As the Federal Home Loan Mortgage Corporation explains, a number of key factors determine whether you can afford a home. These include annual gross income, credit history, and down payment availability.

To evaluate how these factors translate into your ability to afford a home, lenders consider two key ratios. The first is your housing expense ratio, relating your mortgage payment costs to your gross income. Lenders recommend your mortgage payment should be no more than 28 to 36 percent of your monthly gross income.

The second key is debt-to-income ratio. This compares your obligations on mortgage and other debts such as student loans and car payments to your gross income. Your monthly debts should not exceed 30 to 43 percent of your gross income.

For a precise estimate of what you can afford, Bank of Little Rock Mortgage Senior Vice President Lee Maris recommends that first-time home buyers get pre-approved for a mortgage before shopping for homes.

Searching for Affordable Homes

With a sense of what you can afford, you can gather information about homes within your range. Online databases such as those provided by the U.S. Department of Housing and Urban Development and Socialserve can help locate homes fitting specific criteria. Geographical search tools can also help you find locations with homes you can afford. For instance, as of July 2014, Trulia’s national homes price page shows that the median listing price of a home in New York’s Queens County is $419,000, compared to $839,000 for San Francisco County, $189,500 for Cook County, or $142,500 for St. Louis County. Another way to find a more affordable home is to purchase a less expensive residence to renovate. For instance, you might buy a home and then install energy-efficient windows, both improving the value of the property and lowering your long-term energy costs. Realtor recommends that if you buy a home to renovate, the most cost-efficient strategy is to look for these types of potential cosmetic renovations to windows, paint, wallpapers, carpets, tiles, doors, kitchens, bathrooms, and fixtures. Do a home inspection and count the cost before considering more expensive renovations such as upgrading roofing, heating, or air conditioning.

Exploring Down Payment and Financing Options

When it comes to paying for your home, nearly eight out of 10 first-time home buyers use savings to raise their down payment, while a third receive a gift from family or friends, and about one in 10 draw from investments or retirement savings, according to the National Association of Realtors. Traditionally your down payment should equal 20 percent of your home’s price, but some options allow this to go as low as 3 to 5 percent. As for financing, the NAR reports that over nine out of 10 first-time buyers go with a fixed-rate mortgage, four out of 10 use a low down payment FHA mortgage, and nearly one in 10 go with no down payment using the VA’s loan program. HUD’s site can point you towards online resources and housing counselors and other resources to help explore financing options.

The Ins & Outs of Avoiding Bad Credit Pitfalls for College Grads

cit bank savings account review\

When it comes to credit score, there’s no such thing as throwing out the lowest test grade or offering a chance for extra credit. That’s why college students need do their homework early on so they can pass the credit test during those vital first few years in the “real world.”

The first rule of credit: Use it or lose it.

In other words, in order to create a strong credit profile (and qualify for future auto or home loans), you have to demonstrate that you’re able to use credit responsibly. You’ll likely have to start out slow, like opening your first credit card account, making small but manageable purchases with it, and paying your bill on time every month. From there, whether you have an auto loan or a cell phone bill, the key is to make on-time payments.

Need a Bail Out? Transfer Your Credit Card Balance

You’ll have to pay your dues.

As is the case with breaking into a new field right out of college, sometimes your youth goes against you and you have to prove yourself. In other words, you won’t get the best credit card rates in the early years of your credit history because you haven’t earned them. But you can and should still shop around for a card that has terms you can live with for a while (for starters, look for cards with no annual fee). The reason being you want to keep your first major accounts active for a few years to establish a strong history. Opening and closing new accounts all the time will negatively affect your credit score.

Don’t screw up your parents’ credit.

If your parents put you on as an authorized user on any of their accounts or co-sign to help you open a credit account or car loan, that’s an additional reason to be responsible with payments. If you don’t, it will ding their credit scores as well as yours.

Late payments are not “no big deal.”

As soon as you are late — even one day — on a credit card payment, your lateness is reported to one or all of the credit bureaus (Equifax, TransUnion, and Experian). The longer it takes you to pay, the worse it is (being 90 days overdue is worse than 30 days, for instance). To avoid being late, be sure you don’t spend beyond your means, and set an email, text, or calendar alert so you have a reminder to make your payments on time.

Minimum payments will keep you in debt for decades.

Paying your bills on time is the easy part; paying your balance in full is the challenge. If you run up your accounts and begin carrying large balances, paying just the minimum won’t do much to bring down your debt thanks to interest that keeps accumulating. And when it comes to credit scores, how much debt you have as compared to how much credit you have available is a big part of the equation. So if you have a $1,000 credit limit and a $700 balance, you have a 70 percent debt utilization (not good!). Experts say to keep it under 30 percent, or even better, pay your balance in full each month.

A healthy credit start takes discipline, especially for college grads who are just beginning to deal with financial independence. But it’s a much easier road than trying to dig out from under a credit score that tanks.

Todd Hills is the CEO of Pawngo , the first full-service online pawn shop intodd pawngo hills the United States. After more than 25 years owning and operating brick and mortar pawn shops, Hills decided to bring this 3,000 year-old industry online. 

Save Money This Summer: Adopt These Habits Around the House

summer savings

summer savingsFrom summer camps to family vacations and soaring cooling costs, summer is full of expenses. Do your wallet a favor and adopt these six habits to save money around the house:

Close Closet Doors

Leaving the closet doors open isn’t just a bad habit that makes your home look disheveled; it costs you more, too. By simply shutting closet doors after you get what you need, you’re decreasing the square footage of your home that is actively air conditioned. This is especially important to do for closets along the exterior walls of your home, as they act as extra insulation.

Skip Artificial Lighting

Make the most of the longer days of summer and use the natural lighting that comes with them instead of flicking on the light switch. Open all of the blinds upon rising and avoid turning on lights until after the sun goes down. Be sure to close the curtains or blinds before leaving for work to minimize cooling costs while you’re out. To continue saving after dark, switch all light bulbs in your home to a lower wattage. You can also use less energy by installing dimmers throughout the house to avoid using the lights on full power.

Turn Down the Water Heater

Lower the temperature of your water heater to 120 degrees, recommends the Department of Energy. While 120 degrees is plenty hot to take a steamy shower, most manufacturers set the thermostat to 140 degrees by default, which costs you much more to heat over time. Going on a trip? Turn it down to 80 degrees to save even more while you’re away.

The same goes for the water heater in your pool or spa. You can save 20 percent in energy costs just by turning the temperature down 10 degrees, according to

Plug into a Power Strip

Use power strips instead of standard outlets in high-powered areas of the home such as your office or media room. Get a surge-protected power strip with a switch ($9.97 at so you can easily switch off the power at the press of a button when your gadgets aren’t in use. Powered items like the TV, DVD player, printer and computer suck up energy when plugged in, even if they aren’t in use, so it pays to turn them off.

Replace Air Filters Regularly

Help your AC do a little less work this summer by replacing the air filters every other month. Not doing so causes your air conditioner to work harder and use more power to cool your home to the same temperature. Over time this causes premature wear and tear on your unit, reducing its lifespan and leading to costly repairs.

Get a Time-of-use Energy Plan

Many electricity providers offer time-of-use plans that offer lower energy rates for electricity consumed at off-peak times during the day and night. Contact your local providers to shop around for the best plan that suits your needs. In addition to saving money, this also helps lessen the load on the power grid.

Planning Romantic Outings With Your Special Someone

couples dates money

For everyone in America, it’s been hard times as far as the economy is concerned. Budget is everyone’s top priority, especially considering that many families that were once duel income now live on a single family income. These economic realities are making it difficult for couples to get by and even harder to keep going in the face of such adversity. There’s been a lot of belt tightening lately, but in order to weather this storm, it’s important that we keep our focus on what’s most important, our spouse and family.

In order to keep things going and morale high, it’s important that you don’t neglect your husband or wife, and continue look at this current struggle as a team effort. That’s why it’s so important to plan special outings and events with your loved one, and doing so doesn’t have to break the bank in the process. Great ways to treat each other include: couples dates money

First Date

Consider reliving your first date. It can be as simple as a dinner out, but if you still live in the same area, make it a special occasion by retracing the first steps that you took together as a couple. It can be a way for you to rediscover the foundation of what brought the two of you together.

If you’re lucky enough to live near by, then start from the beginning and, given the fact that most first dates are inexpensive, you can do this affordably. If the restaurant is now closed down, go to another place with the same kind of atmosphere and try to recreate it as best as you can.

Renewed Commitment

If you can’t afford an expensive vacation, try to think of ways that you can renew your vows to one another with matching jewelry or promise rings with personalized engravings. We often take the symbols that we wear everyday for granted. After years of living with someone, it’s easy to let the spark die down. Don’t let this happen to you.

Consider going in together and picking something that the two of you can share that you’ll keep on you at all times. It doesn’t have to be jewelry. It could be anything. It just has to mean something to the couple.

The Great Outdoors

Camping or having a picnic is an excellent way to get away from the kids and spend a few nights together underneath the stars. It doesn’t really matter where it is because it’s all about sharing your time together. The focus is all about the time you’re spending together.

Camping out is also really cheap and many camping grounds charge close to nothing. All you need is a few camping supplies and you’re set to lie out and sit around the campfire while spending some quality time together.

In all honesty, when planning something special with your spouse, it doesn’t really matter what it is. What makes an evening or gift special is when it’s from the heart. Doing something special together can renew your resolve, even when you can’t afford to backpack across Europe or take a super expensive vacation. You don’t have to be rich to enjoy life because enjoying each other doesn’t cost anything.

Photo Credit: flyskyfrp