Purchasing your first home is a tremendous financial commitment. There are a number of factors to consider before signing off on that long-term mortgage.

So, you’re looking to purchase your first home. Congratulations! It’s an exciting time, creating a safe and secure home for yourself (and perhaps family) while building equity in a long-term asset.

While selecting the right neighborhood and house are critical for long-term enjoyment, there also are a number of financial factors you should consider.

First, assess any prospective home purchase as a lifestyle investment. The real estate market can be volatile, with home prices fluctuating from year-to-year. If you’re not ready to settle down for more than a few years, you might want to consider postponing a home purchase as it might not generate the return on investment that you’re expecting.

Ready to settle down? Let’s first determine a price range.

How Much Can You Afford?

If you’re like most first time home buyers, you’ll be taking out a mortgage to purchase your home. In order to qualify for a mortgage, you should meet two common metrics: a housing expense ratio and a total obligations ratio.

• Housing expense ratio: This compares basic monthly housing costs (mortgage, insurance, property taxes) to the applicant’s gross monthly income (before taxes and deductions). The income includes anything you earn from work, along with pensions, child support, or alimony payments. As a very general rule, to gain approval for a mortgage, your monthly housing costs should not exceed 28% of your monthly gross income.
• Total obligations ratio: This is the percentage of the applicant’s income that is necessary to cover their total monthly payments — debt payments plus basic housing costs. These payments include student loans, installment loans, and credit card balances that exceed 10 months, all of which are added to the applicant’s basic housing costs and then divided by their gross income. This ratio should not exceed 36%.

Additionally, you will most likely need to make a down payment on your purchase, which can vary up to 20% of the home sale price. Generally, if you are able to put down 20% or more, you will receive a more favorable interest rate and avoid having to pay private mortgage insurance (PMI).

Closing Costs

That 20% down payment is significant, but that’s not all; there are closing costs, too (the amount necessary to finalize the purchases). These vary widely between 3% and 8% and include home inspection costs, prepaid interest (points), application fees, appraisal fee, survey, title, title insurance, attorney fees, among many others (some depend on the mortgage company). Depending on the home location, you may also have to pay transfer taxes.

Sample Costs

Operating Costs

Owning a home carries far more financial responsibility than renting. In addition to your mortgage payments and annual property taxes, you’ll pay for utilities, repairs, insurance, landscaping, trash removal, appliance replacement, repairs, and other items and services.

As for repairs, this is where the home inspection can be so important — it can point out any major infrastructure or appliance issues before you finalize a purchase price, allowing you to negotiate with the seller to address the concerns.

Once you’ve determined your price range and preferred neighborhood, the fun can begin and you’ll visit for sale properties. Remember: Just because you can afford a house doesn’t mean that is what it’s worth. It’s important to survey the values of nearby homes, especially those with similar layouts (bedrooms, bathrooms). The more informed you are as a purchaser, the more financially sound your decision will be in the future.

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You’re finally ready to move up from your rental unit to your own home. Before you start searching for a home, understand how much money you’ll really need. Be prepared for the myriad expenses that you must add to the purchase price to see the whole picture.

Home ownership has several advantages over renting, including lower monthly payments, deductible mortgage interest, and the accumulation of equity. But there is a definite price to pay for these benefits, including the expenses we detail here.

• Owning a Home Has Financial Advantages, but Comes with Significant Costs
  While owning a home can be financially beneficial in the long term due to lower monthly payments compared to rent, mortgage interest deductions, and equity accumulation, there are substantial upfront and ongoing costs to consider. Buyers should be aware that these expenses extend far beyond the initial purchase price.
• Upfront Costs Include Earnest Money and Down Payment
  The two primary initial expenses are earnest money, which shows your commitment to buying the home, and a down payment that ranges between 3.5% and 20% of the purchase price. The mortgage will cover the rest of the cost, but buyers must be financially prepared for these substantial upfront payments.
• Numerous Fees Add Up Quickly
  Buyers must anticipate a variety of fees associated with purchasing a home, such as broker fees (up to 3%), mortgage origination fees (around 1%), inspection fees, and more. Prepaid interest, title company fees, and potential homeowner association fees are also common. All these extra charges can significantly increase the total cost of purchasing a home.
• Insurance and Taxes Are Unavoidable Ongoing Costs
  Homeowners are required to purchase insurance, including homeowners and potentially flood insurance, depending on the location. Additionally, private mortgage insurance (PMI) is often required if the down payment is less than 20%. Property taxes also factor in as another major, recurring expense.
• Move-in Costs and Immediate Repairs Can Be Costly
  Moving costs and unexpected repairs can add thousands of dollars to the expense of buying a home. Structural repairs, replacing systems like HVAC, or even expanding the home can incur major costs, which may not always be identified during the inspection phase. Planning for these potential costs is crucial.
• Financial Planning Is Essential Before Buying
  The article emphasizes the importance of having a solid financial plan before making the commitment to buy a home. It’s essential to know how much home you can afford while still being able to save for retirement and other major life expenses. Proper financial preparation will help ensure that buyers don’t overextend themselves.

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If you’re expecting your first child, establishing a budget that includes your growing list of expenses is important for helping you manage your finances.

Starting a family is one of life’s most rewarding experiences. However, it will also profoundly impact your financial picture, with a list of expenses that grows by the year. (One estimate pegs the total expenses for a child’s first 17 years at $336,616.)

As you begin planning for your first child, consider these key areas and their associated expenses.

Healthcare

One of the first steps you are likely to take prior to welcoming your child is to modify your healthcare plan to make sure that your baby is covered. You can choose a managed care plan, such as a health maintenance organization (HMO), which offers lower up-front costs but limits you to specific doctors and hospitals. A preferred provider organization (PPO) plan typically has higher monthly premiums than an HMO, but offers you the freedom to see any doctor or specialist—at any hospital—and often has lower co-pays than an HMO.

Deductibles, coinsurance amounts, copayments and monthly premiums vary greatly. Review the options available to you carefully before making your selection.

For those expenses not covered by health insurance, consider a medical reimbursement account (MRA) or health savings account (HSA), if available from your employer. These can pay for items such as deductibles, copayments, and orthodontics.

Childcare

You may be eligible to receive tax benefits as a parent, with the Child Tax Credit providing a credit of up to $2,100 per child under age 17 (as of 2022).[2] Part of the credit is refundable, which means that you could receive a tax refund (up to $1,400 per qualifying child) even if you don’t owe any tax.

To qualify, your child must have a Social Security number before you file your tax return.

Note that the credit is reduced for married taxpayers filing jointly if their adjusted gross income (AGI) exceeds $400,000, and for other taxpayers if their AGI exceeds $200,000.

Insurance

As you enter parenthood, consider the value of purchasing disability insurance or life insurance.

A financial professional may be able to provide guidance as to the recommended amounts of coverage for each. Some general guidelines include a disability policy that covers at least 60 percent of your income and a life insurance policy that equals 5 to 10 times your family’s annual income.

Check to see if your employer offers these policies because they are often less expensive than those that you purchase independently.

Estate Planning

Consider drawing up a will that designates a legal guardian for your child, in the event that you and your spouse die together (or if you are a single parent, if you should die). Without a will, if you and your spouse die together, a court will decide whom to appoint as your child’s guardian.

The will should apply to your future children, too.

By carefully budgeting for your baby, you can help secure the financial futures of both you and your child.

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A divorce can have a profound impact on your finances. We outline key considerations for maintaining your financial health as you proceed through the process.

No matter whether your divorce is amicable or contentious, it can have a profound impact on your finances. There are myriad rules and regulations to consider. We outline some of the most significant and how they could impact your assets.

Who Gets What

No matter where you reside, generally any assets or property that you acquired while married will be divided when you divorce.

There are a few exceptions. For instance, if you inherited assets or received gifts individually, the division rule may not apply. Also, you may be able to keep the assets and property that you acquired before you got married.

However, your state law will set out how to divide your assets and property, and it will follow one of two routes:

1. Common law property states include those states where the judge has discretion to listen to individual circumstances before dividing assets and property. Those factors include: earning ability for each spouse; the duration of the marriage; and the amount that each spouse contributed to building the marriage’s assets. All but nine states follow this format.

2. Community property states, on the other hand, are those in which courts generally equally divide assets and property acquired during the marriage. The states that observe this law are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, residents of Alaska can choose to opt in to a community property agreement.

What About Debt?

Debt survives a divorce, and states differ as to how they allocate which spouse is responsible for which debt.

1. Common law states (see above) assign debt acquired in individual accounts to the account holder, while debt in joint accounts is generally treated the same way as assets and property.

2. Community property states typically divide debt equally between spouses, no matter whether it was from an individual or joint account.

You should close all joint accounts post-divorce to avoid being responsible for debts that your spouse incurs. Once the divorce is finalized, have them reclassified as individual accounts by your creditors.

If you and your spouse have a mortgage for a home that has appreciated in value, consider selling it before the divorce is finalized, as the IRS allows you to take advantage of $500,000 in realized capital gains if you are a married taxpayer, an amount that is cut in half for single filers. We recommend consulting a tax advisor to navigate these rules.

Retirement Assets

If you or your spouse have money in a 401(k) or pension plan, it may also be divided during a divorce. You can seek a share of your spouse’s 401(k) or pension plan benefit if you obtain a Qualified Domestic Relations Order (QDRO) and present it to your spouse’s plan sponsor before distributions have been completed.

If your efforts are successful, you may decide to roll them over into an IRA to defer taxes. Discuss this option with a financial professional who is familiar with the divorce process.

Estate Planning

If you have already drafted a will, make sure that you review it (and if you don’t have one, work with an estate planning attorney to draw one up). The attorney will work within your state’s estate laws to distribute your assets properly.

Review your beneficiary designations for any pensions, 401(k)s, and insurance policies. Note that a spouse is required under federal law to be the sole beneficiary of pension and 401(k) benefits unless that spouse waives such rights.

With so much at stake financially as you proceed through a divorce, don’t do it alone; it’s best to work with an attorney or financial professional who specializes in the process to help protect your assets to the greatest extent possible.

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With so many credit cards available, it’s not surprising that careful thought is required to decide which one to select. Here are some factors to consider when choosing the card that suits you best.

Many millennials have a cautious attitude towards credit, perhaps due to large student loans. Nonetheless, the right credit card, responsibly managed, can provide you with beneficial perks. Even if you have no credit history, most people can qualify for some kind of credit card.

Your first card might be basic. If you have no credit history or a low credit score, your first card will probably offer few frills and a modest credit limit. The good news is that there are cards that match this description and charge no annual fee. You can use your first card to establish your creditworthiness by making timely payments.

Cash back, points, or miles? Many cards offer rewards when used to make purchases. Cash back cards offer cold hard cash, the most versatile reward. You’ll find cards that offer 3% to 5% back (or more) on selected purchases and at least 1% cash back on all other purchases. If you like to travel, you might consider cards that offer frequent flier miles on one or more airlines. The third type of reward, points, can be exchanged for cash or miles or can be used to purchase selected items directly.

Cards compete by offering introductory bonuses to new members. Some cards may offer to pay you a lump-sum bonus if you use your card for a set amount of purchases in the first few months after opening the account. You might also be offered an introductory period of 0% interest on purchases and balance transfers. The period might run from 6 to 18 months. After that, you’ll be assessed interest at a specified annual percentage rate (APR) on any remaining balance that you don’t fully pay by the due date for the current billing cycle.

Understand all the card’s features. Some cards offer high bonus rewards on purchases from selected types of merchants, and some of these cards rotate the merchant type each quarter. If you accept a card with rotating merchants, remember to activate your participation each quarter if you want to earn the high rewards. Some cards that charge an annual fee will waive it for the first year. Annual fees might range from $49 to $500 or more. Cards can offer all type of benefits, such as free car rental insurance and free baggage check-in. Read all the fine print before choosing which card to get.

Your credit card usage should fit into your savings and investment plans. It’s important to avoid chronic large credit card balances that compromise your ability to save for your retirement. But it’s also important to establish a positive credit history. Call or email me today to review your savings and investment plans. Together, we can refine your monthly budget to accommodate credit cards without shortchanging your important financial goals.

The post Is owning so many credit cards is beneficial for you? first appeared on Georgopoulos Wealth Management.

Retirement Planning With Your Spouse or Partner

Are you in the phase of life where you are closer to retirement than to the start of your career?

If so, now is a great time to begin planning for life after work with your spouse or partner, including your mutual hopes, dreams and financial goals. Here are a few questions to ask to help you both get the retirement you want:

1. When do you both want to retire? Do you want to do it at the same time or does one of you want to keep working a bit longer? Factors like your respective ages, levels of career satisfaction, pension eligibility and Social Security claiming options can all affect your retirement timeline.Knowing when you plan to stop working will influence other financial preparations. Discuss your hopes and intentions openly with each other. If your preferred retirement ages differ significantly, look for compromise.

2. Where would you like to retire?You may be perfectly happy in your current home and neighbourhood or you may have a desire to move to a completely different location (such as a beach or maybe somewhere international). Also, do you want or need to be closer to children or other relatives? If you’re considering relocation, visit the area to get a sense of what living there will be like. In addition, research the tax implications as well as the trade-offs between renting and buying a home.

3. What does your future lifestyle look like? Now is the time to discuss things like how much travel you both want to do, hobbies that you want to begin (that may require a financial investment) and how much financial support you want to offer to grandchildren or other family members.

4. When will you start taking Social Security? You get your full retirement benefit when you reach full retirement age (67 for people born in 1960 and later). You can claim as early as age 62, but your monthly payment will be reduced by as much as 30%. If you wait past 67, you’ll get an additional 8% for each year you delay until you turn 70. Consider your age difference, health, life expectancy, income needs and more as you determine each of your best ages to claim Social Security.

5. How will you manage healthcare costs? Honestly evaluate your current states of health and family histories and discuss how you’ll save and budget for medical expenses, both planned and unplanned. Talk about steps you can take now to potentially reduce future health care costs, like focusing on diet, fitness and preventative care. And take time to understand what your options will be when you turn 65 and become eligible for Medicare — what it does and doesn’t cover, and whether a supplemental plan will make sense.

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