Thursday, February 21, 2008

Planning for the Future's Hard - Because the Future Hasn't Happened Yet

Ha, ha! I love that title. When you get done reading, take a look at the link below to see where I found it...

I think it is an apt title for this post because it is obvious and oh so true. It is hard to plan for the future, not only because it hasn't happened yet (obviously), but because it is hard to find the time, motivation, and guidance to do it in a productive manner (true).

How does this apply to real estate, especially for you first-time home buyers? Simple...You need a financial plan in place before you even consider making an offer on a new home. It takes time, personal honesty, and the motivation to see the plan through to implementation to make it a success.

What should you consider in this financial planning? You need to accurately assess your income from all sources, determine your credit scores and correct your credit report (see the post below), and you need to analyze your expenses. You need to determine your short and long-term budget, plus you may need to consider adjusting spending habits. You should seriously consider speaking with a professional financial planner.

The reason for all of this planning is because a home is a tremendous asset, probably the largest asset you will control, but it is very hard to quickly turn into cash. In other words, if you are committed to a mortgage, you will have to continue making those payments regardless of any other unexpected changes to your financial status and risk negative effects if you fail to do this as promised.

Yes, you could borrow against the equity in the home if you have any, but this will most likely serve to make your financial situation worse. So, it is extremely important that you have planned not only for your normal budget, but added extra as a buffer.

Something else to consider when planning your finances for buying a new home is there will be unexpected and possibly new expenses that you will experience for the first time. Yard maintenance, exterior maintenance like the roof, gutters, windows, and landscaping, plus all other mechanical and electrical components in the house will now be solely your responsibility. And...You have to keep up with these things. If you let the maintenance go, it could cause at least minor financial troubles leading up to major damage to the home.

I suggest getting out a piece of paper (or firing up the computer) and making lists of all of your current expenses, plus your expected new expenses. Call around to your friends and family who are already homeowners and ask them what they pay for routine maintenance and upkeep. Add a buffer to this. Be realistic and make sure when you are finished, you have enough money left over to pay for the mortgage you think you want. You may be surprised, but at least you will have that surprise behind you, the adjustments made, and your budget planned before you enter into a contract to purchase your new home.

Most of all, I suggest the guidance of a professional financial planner. A very small investment to save or earn potentially substantial sums of money in the future.

Okay, now the inspiration for the title: Frank Caliendo as GWB. Note that this is not considered political commentary by me, just a guy trying to be funny.

If you have any questions, or would like to discuss buying or selling real estate, contact me through my website, Louisville Homes.

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