March 2, 2016 Leave a commentbudgeting, Los Angeles Mortgage, Los Angeles Real Estate, mortgage rates, Santa Monica Mortgage, Santa Monica Real Estate, UncategorizedBy Randy Kirk

Three Steps to Affording $100,000 More on Your Next Home Purchase

You can afford $500,000, but the one you really want is $600,000. Maybe you can afford $900,000, but alas, your dream home is now $1 million bucks.

You have many options to get into the better property: Earn more; take in borders; barrow from Mom or Dad; pick the right lottery ticket. You could undoubtedly add to this list. But if those methods are not really available or you don’t really choose to go that route, how could you get into that perfect place.

The following three step process will include things that might not apply to you. But in most cases, enough of these will apply that you can get to the magic extra $100,000. The process might also take up to two years, but some might get it done in under a year.

In order to afford another $100,000 in the purchase price, you will need another $20,000 down (unless you use FHA or PMI), and you will need around $500 a month more for the mortgage, taxes, and insurance. This method will generate the $20,000 and the $500 per month.

For the purposes of this exercise, we will assume you have $15,000 in credit card debt and are paying 18% interest on that amount. Therefore, if the debt stays even, you are paying almost $200 a month in interest.

For those of you who have no credit card debt or much less, you will see that there are other ways to still accomplish the goal.

Step 1 – Zero based budgeting.
If you already know how to create a budget, fantastic! If you don’t, there are many online resources that can quickly teach you. Here is my oversimplified method.

Keep track of every penny spent for 60 – 90 days.
Break that into categories that make sense to you.
Review the categories, and decide if you should be spending that amount on that expense.
Review once again, and imagine that you spent -0- in that category. Could you do it? Would you want to?
How much above -0- would it be possible to get by on for two years.

My estimate is that anyone considering buying a home for over $400,000 will find that they have a minimum of $100 per month that they can slice off with almost no loss of comfort. Why so confident? That is only $3.30 per day. In reality, most of us can easily cut out $30 per day and never miss it. But, I’m only going to count this as $100.

Next is the most fun part of the process. You are going to save huge amounts without any loss of luxury or comfort at all.

Call your cable TV provider. Tell them you are considering going off grid or switching to satellite. If you have satellite, call the provider and tell them you are thinking of switching to cable. Watch the dance begin. You are very likely to end up with at least $20 or more in savings. Now call the competition with your new rate and see what they will do. You are likely to end up with the same or better rate and a $200 gift card for switching.

Go off the grid on cable. Between Apple TV, On Demand, Hulu, NetFlicks, RedBox, Amazon Prime, and other TV offers, it is hard to justify any upgrades to basic service on cable or satellite.

On to your cell phone, internet, and land line providers. This gets a bit more complicated, but the cost of all of this is dropping fast. By changing providers, bundling, unbundling, and just shopping, you are very likely to end up saving another $30 a month and improving MBPS. Recently I tried to end my land line service, but the bundle cost less with a land line that without.

Saving on your utilities. The water company (at least in California) will be happy to help you cut down your water use. Check with your supplier to find out how to get free or reduced costs products to reduce use in bathrooms and irrigation. Then check to see what the recommended water needs are for your yard. The electric company will help you with lighting and other ways to save on electricity. LED lights are fantastic and save a huge amount of money.

Switch appliances to natural gas to save even more.
You will save at least $100 a month from this process. And there is no loss to you at all. Maybe even gains. Now we are saving at least $200 per month

Shop your car insurance. I recently was able to chop $350 a month on my policy by switching carriers. We have 4 drivers on the policy, so your results may vary. I went with Costco. You should also review your other insurance policies annually to make sure you have the coverage you need, and to see about savings on rates.

Speaking of Costco. The savings by purchasing your groceries and other items at Costco are real and significant. Costco marks up all items by 15%. What they buy for $10.00, you pay only $11.50. Most discount department stores mark up from 50% to double. So you would pay $15.00 – $20.00. I know you have to buy huge quantities. I have found nooks all over the house for storing commodities. I have an extra freezer, too. Small cost for huge savings.
Amazon Prime. When it isn’t a Costco item, why not buy on Amazon Prime?!? Pricey toothpaste, supplements, household items and more are almost always cheaper on Amazon than at Target or CVS. And there is no freight and no auto expense. When you need more, you have a record of what you bought.

Get rid of one expensive, useless or worse, habits. Smoking, buying booze in bars, fast food, gambling (including lotto.)

You will save at least $100 a month from these four. I believe that the average household would save $400 or more just from these four. I’ll count it as $100.

Step 2 – Eliminate credit card debt

Use the $300 per month to pay down your credit cards. During the course of the first year you will cut total credit card debt by $3600, which will save you another $45 per month. Add this to your payments. So that now you are paying off $4100 the second year. Your payments have now dropped by $100 per month. Now you are at $400 total savings.

Speed up the process of paying off the credit card debt. Apply for zero interest credit cards. If you are turned down today, try again in 6 months. We will assume that you are able to get one zero interest credit card for $3000, which will save you another $40 per month. We are now at $440 per month.

Step 3 – Clean up your credit rating with the credit bureaus

As you pay down your credit cards, your credit rating will improve. I have written about a great tool called CreditKarma.com here. If you find issues on your credit that have not been resolved, attempt to resolve them. As your credit rating improves, apply for more zero interest or low interest credit cards or other loans to pay off the higher interest loans. There isn’t the slightest doubt in my mind that if you have done all of the above, you will be able to get better financing of your debt within one year of starting.

You may be able to use other collateral, such as your car, to secure lower interest rates. You could also borrow against the cash value of insurance policies at low rates. This should give you that last $60.

BONUS
But something else just happened. Your better credit score will almost always help you in several ways with your mortgage. It will make it more likely that you qualify for the amount you need. It will make it more likely that you qualify for FHA or PMI if you want to do a low 3.5% or 5% down payment. And it will reduce your interest cost on the mortgage. If you save only another 1/8% on that mortgage, the savings per month will be $283 per month, every month for the term of the loan.

Now your savings are up to $783 per month. Since you only need $500 of that to pay the additional $100,000 on your perfect home, use the other $283 to continue to pay off the credit cards.

If you are in the market for a mortgage for a new home or investment property in the Los Angeles area, call Bill Rayman. There are no fees or obligations when you call a mortgage broker. Bill will help you through every step of the way, and can find you the very best loan on the market based on your specific needs and circumstances.

Call Bill Rayman today – (424) 354-5325