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Downsides of Cosigning a Home Loan

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In many cases individuals are pressured into cosigning home loans for family members, friends or significant others. The results can be less than desirable, to put it as nicely as possible. Before you make this very serious financial decision carefully review the downsides and put the situation into the proper perspective.

Issues with Non-Payment

The first most pressing risk of cosigning a home loan is the chance that the other signer will fall into difficult financial times and stop making regular payments. As the cosigner you have to pick up the slack unless you want your credit to be destroyed as well. If the loan goes 30 days overdue the mortgage lender can begin reporting negative information to your credit report.

Getting Another Home Loan

Starter HomeIf you cosign on a home loan with another person now you may have trouble getting another home loan for yourself later. For instance, say you cosign a mortgage loan for your child then need to buy a condo for yourself in a few years. Some lenders might not approve you for a new home loan when one is currently open. It depends mostly on your debt-to-income ratio (should ideally be 28% or less, meaning your home expenses should not exceed 28 percent of your gross monthly income). Even if you don’t have to make payments on the loan you consigned, the lender might still consider it in your debt-to-income ratio.

Selling the Home

When you cosign with another person on a home loan in many cases both names are listed on the deed. That means you must get the agreement of the other person to proceed with a sale. If that person is not ready to sell or has disagreements regarding terms you can find yourself stuck in a difficult situation or possibly a legal dispute. In some cases one borrower does not want to leave the home but cannot make payments, so the cosigner is forced to continuing paying or risk defaulting on the loan.

Take Your Time

If you do decide to cosign on a mortgage loan make sure that you and the other person are on the same page from the very beginning. Approach it like a business partnership — draw up an agreement outlining every possibility and explaining how you will handle each situation that may arise. Also, consider your own future plans before signing on the dotted line; you might decide that it is just too risky at the moment. Finally, do not let anyone rush you into your decision.

Posted by Jade

 

Photo Credit: Flickr/part 3

 

4 Simple Tips to Save Money on a Tight Budget

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Many Americans today live above and beyond their means. Learning how to save money is a can be a challenging lesson to learn. You have to ask yourself why you need the latest tech gadget, biggest sports utility vehicle (SUV) and the latest high-end fashion accessories – especially when it puts you in debt. Instead, investigate ways to save money on a tight budget!

Maintain the Vehicle You Have

Front of Car
© Melking | Dreamstime Stock Photos

This is the usual course of action for the average American consumer: pay monthly for an auto loan for five to seven years only to then purchase another automobile, pay for another five to seven years and basically continue a never ending cycle of payments. If you’re paying for a $15,000 car with an average car loan length of 60 months (five years) with about 7 percent interest, you’re giving up about $18,000 during that period of time, which includes interest. Instead of committing to plunking down another $18,000, maintain the vehicle you’ve already paid for instead.

Ask yourself three questions to decide if you need a new vehicle:

1)      Is the current vehicle safe and reliable?

2)      Is the current vehicle good on gas?

3)      Were you happy and excited when you initially purchased you vehicle?

If you answered yes to all three questions, re-evaluate the desire for a new vehicle. Maybe it’s not necessary. Maybe you can invest just $2,000 or $3,000 in your car during that next five years to keep it in tip-top shape and looking like it’s brand new.

Make Your Home a Constant Vacation Spot

The average American expects to spend an average of $1,200 per person while on vacation, according to a 2012 American Express survey. Does spending that amount make sense when you already spend hundreds or thousands per month on your home? Why not make your home your vacation paradise since that is where you invest a large portion of your salary every month?

For the cost of a week-long vacation for the family, you can purchase an indoor pool for your yard to enjoy for years to come. Besides the enjoyment, it may also enhance your property value—that means that your luxurious vacation pool could be making you money while providing you with a getaway. You could also have a deck or a screened-in porch, Jacuzzi or game room built in your home for your continual pleasure that may cost less than a vacation for a family of four. Once again, these improvements might add to the value of your property.

Get Your Cable and Entertainment Costs Under Control

According to a study by the NPD Group, the average monthly cable television bill was around $86 as of 2012, and could rise to as much as $200 per month. This is a compelling argument for subscribing to a less expensive option such as Netflix, Hulu or Amazon Instant Video starting today. Netflix, Hulu and Amazon Instant Video cost significantly less (around $8 to $10 per month as of 2014) and provide just as must entertainment value as cable. Even if you were to opt for all three services it would cost under $25 per month, which is a savings of over $60 per month.

Make Your Own Detergent

It may seem like a small issue at first, but if you look at the cost of the leading brands of laundry detergent, it is clear that an alternative could save you a lot of money each year. There have even been stories of people stealing laundry detergent and trying to resell it due to its high value. Luckily, you can make your own laundry detergent to save yourself some money.


According to the EPA, the average American family washes about 400 loads of laundry per year, which works out to about 7.5 loads per week. An average 50 ounce, $15 bottle of leading brand detergent covers about 30 loads.

If instead you make your own detergent you can yield enough laundry detergent to take care of as much as three years of laundry for around $10 by buying Borax Natural Laundry Booster, Arm & Hammer Baking Soda, a bar of Ivory Soap and combining it with three gallons of water. Experiment with a bit of each to find the right mixture for your clothes.

The idea of making even small changes to your daily routine can be difficult to grasp at first, but once you see the amount of weekly, monthly and yearly dollars you can keep in your pocket on average by making minor changes to your household habits, you will probably want to learn about even more ways to save.

 

Sources:

money.cnn.com/2012/05/10/pf/expert/vacation-spending.moneymag/

epa.gov/greenhomes/Basement.htm

huffingtonpost.com/2012/04/11/cable-bill-200-dollars-2020-study_n_1418779.html

Is Living a Debt-Free Cash-Only Lifestyle Possible?

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Before the economic crisis of 2008, credit was doled out so freely that getting into debt was an accepted way of life. It was almost considered normal for a family to carry multiple credit cards with balances reaching into the thousands or to withdraw all of the equity from a home in exchange for regular interest-heavy payments.

Fifties
© Hixnhix | Dreamstime Stock Photos

But since credit became more difficult to secure an increasing number of consumers have had to learn how to live a cash-only lifestyle.

What does that mean? Simply put it means that if you can’t afford to pay cash for what you want to buy you cannot have it.

So if you don’t have $2,000 for a brand new 42-inch flat screen television you must enjoy it in the store and then go home to your trusty 27-inch. If you don’t have $15,000 sitting in a savings account to pay for the brand new car you want, you buy the beater for $800 that reliably transports you from point A to point B.

It means no loans. No credit cards. No “buy now pay later” deals. Cash-only is a serious lifestyle adjustment, but it is possible to live a fruitful life without relying on credit to get by?

Make Cuts

The first step to living a debt-free cash-only lifestyle is to revamp your budget. Your budget should allow you to pay your required bills and also have enough discretionary cash leftover to take care of your basic needs—that way you do not have to look to a loan or credit line to get by from week to week or month to month. If you take a close look at your budget, chances are that you’ll identify one or more places where you can make some cuts.

Use Envelopes

Once you have your budget in place you need a way to manage the cash that you’ll be spending throughout the week or month. The envelope system is a reliable method. Withdraw the cash you need for your other living expenses from your account (avoid using debit cards because it is too easy to overspend) and divide it up into individually labeled envelopes. For instance, use one envelope for groceries, one for entertainment and another for car expenses.

Saving Cash

If you do have a large purchase in mind, such as a car or television, you have to save cash for it. That is the name of the game when you live a cash-only lifestyle. You cannot always receive what you want immediately — you may have to wait and save.

Remember the good old days when you had to save up your allowance to buy that bike you wanted? Well you have to go back to that way of thinking. Credit was designed to give you immediate satisfaction but it also gives you long-term pain. When you save money toward your goal you may have to wait a while for the pleasure, but you get the long-term satisfaction of knowing that you bought it cash and no one can come after you for interest.

Cut Up Those Credit Offers

As you continue your cash-only lifestyle you may find that over time credit card companies will come calling with offers. That’s because they desperately want a piece of your income, which you’ve finally learned how to manage responsibly. Cut up those offers immediately and contact all three major credit bureaus to request to have your name removed from all of their marketing lists.

When you live a debt-free cash-only lifestyle you put yourself in a position of power. You are not a slave to interest and collections on the items you’ve purchased in order to live a normal lifestyle. You (and you alone) are in full control of your financial future.

Managing Personal Finances: The Envelope Method

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For many people using debit cards on a daily basis has become the norm. A debit card is convenient, handy and keeps your cash safe. However, cards also tend to cause overspending.

How? Well, with cash when the last dollar is spent the shopping trip is over. With a credit or debit card you don’t really have anything to stop you from continuing to spend. Of course, you do have a limit (either your credit card limit or the amount in your bank account) but the temptation to spend outside of your personal spending budget is very strong.

One of the best ways to avoid overspending with cards is to use the envelope method of managing your personal finances.

What Is It?

The envelope method is just a simple and “old school” way of managing your money. Before credit and debit cards, people had to buy things using cash and checks. When you use envelopes you are reverting back to that mentality — simply withdraw cash when you get paid and divvy it up into envelopes labeled by spending category, such as food, entertainment, and gas. When the money in each envelope is spent, the spending stops. It forces you to be more fiscally responsible with your hard-earned money.

How to Do It

You can start using the envelope method starting today. First look at your budget to determine the different expenditure categories. Grab a stack of standard mailing envelopes and label one for each of those categories.

When your pay comes, take the total designated amount out of the bank and divide it up into each envelope according to your budget. Stash the envelopes away in a very safe place (think of it as a personal bank) and only go to that place when you need to make a “withdrawal” to take care of those needs.

Many people prefer to keep large amounts, such as rent and car payments in the account to pay online with an ACH draft or personal check. Also, try to find a bank that won’t charge you an expensive monthly maintenance fee for falling under a certain amount in your checking account.

Leave the Cards at Home

The next requirement of using the envelope method is that you make a personal commitment to leave all of your debit cards at home when you shop and run errands. Eliminate the temptation completely. The only time you may need your debit card is when you need to withdraw cash at an ATM for your envelopes.

Final Thought

The obvious downside of the envelope method is that you have to handle a lot of cash during the month. There is always a risk of losing the cash and you can’t trace or recover it the way you would trace an amount charged to a bank account. But if you are someone who has a problem with overspending with debit cards the benefit — better money management and decreased temptations to fall outside of your budget — should outweigh the potential downsides. Just keep a close eye on your money and only carry what you need for the day.