By Harold Copher • Willowbend Mortgage
There are two things most homebuyers seem to have in common — they want to get the most home they can for their money and they believe their household income will increase over time. Let’s use these realities to build better lives.
So, you bought as much house as you could, focusing on the monthly payment —without budgeting for unforeseen or scheduled maintenance and repairs. Seasoned real estate investors refer to this line item as a “deferred maintenance reserve.”
First, you need to determine how much to allocate for your deferred maintenance reserve. It’s not a one-size fits all proposition, but a little research can help you structure a monthly payment plan to fund your deferred maintenance account. To find a starting point, consider saving one percent of the sales price per year. Sure, that would depend on the age and condition of your house, right? Let’s say you want a fund of five percent of the selling price as a reserve; once your monthly contribution reaches that balance, your reserve fund is established. When you need to spend some of it, you replace that amount in your fund.
Congratulations, you’ve funded your reserve, Here’s a thought: Maybe you could keep saving, investing for your children’s education, retirement, awesome vacations or unexpected medical expenses.
As your lender and friend, I suggest that you focus on ways to reduce your current monthly payment schedule to help fund your new deferred maintenance reserve and other savings.
Almost all of us have some student loan balances, vehicle installment loans and/or credit card debt. Restructuring those may really benefit you. Let’s face it, you’ve probably got a much higher income and credit score now than you had when you applied for those loans. Let’s look at restructuring some loans to reduce your payments.
The Department of Education portfolio has over 70 different student loan offerings. Many of them have flexible repayment terms that could include loan subsidies and forgiveness clauses.
Once you have a loan active within the federal system, you can move that loan within the system to a program that provides more favorable terms. As you can imagine, navigating the system may require some assistance, but there are firms with consultants available to do just that.
There are also many private entities that offer student loan programs. A common thread among private student loan offerings is the requirement to credit and income to qualify for their potentially better rate and term options. If you’re considering refinancing a federal student loan with a private sector loan, remember that once you are out of the federal system, you are in the private sector to stay.
Another way to increase your monthly cash available is refinancing your vehicle loan. There should be little to no cost to refinance this type of loan, and many times you can improve your monthly cash available by obtaining a lower interest rate or changing the remaining term. I’ve seen clients who were able to lower their interest rate simply because their credit history had improved since they purchased the vehicle. If you originally chose an incentive or just agreed to dealer provided financing, that may not have been at the most competitive rate available. Most banks and credit unions offer installment loan refinancing, as well as a few insurance companies and direct lenders that specialize in this type of loan.
Credit card debt. Everybody knows about the costs associated with minimum payments on high balance credit cards. Even if you have great credit and the best interest rates available for your charge cards, consolidating those credit card balances into one amortized loan will likely lower your monthly payment obligation and may lower your overall interest cost. In addition, some credit card companies offer a low, one-time interest rate to transfer balances. These programs can be used effectively to reduce balances and pay less interest if you stay committed to the task at hand. There are unsecured personal loans available for those that qualify, as well as personal lines of credit that can be a better option than letting monthly interest accrue on your high interest rate balance.
You have credit and you’re making payments; structured wisely, perhaps you can spend the same and accomplish more. RL