Seven New Rules For The First Time House Buyer

Are you a first time buyer jumping into the housing market? Confused by the conflicting advice from realtors, mortgage brokers, bankers, as well as well-meaning friends and family members?

The New York Times columnist, Ron Lieber's latest column, Seven New Rules For The First Time House Buyer sets out to debunk a long-standing but underexamined maxim of real estate, "you should always stretch financially when buying your first home," which got many first time buyers into hot soup in the first place, straight into the clutches of realtors and lenders who were only too willing to lend them the extra needed to finance that extra stretch.

It's now back to the basics, since the myth that housing prices only go up and up has been shattered by the recent financial downturn. To summarize, here the seven new rules:

1. Get a fixed rate mortgage, put 20% down and borrow 80%, and aim to spend between 35%-45% of your pretax monthly income on your monthly mortgage payment.


2. The best case for people stretching their income are those in their 20s and 30s, who are starting out in their careers, rather than those in their 40s and 50s.


3. Before buying a house, do a realistic projection of future income flow, asking oneself: what if one spouse loses a job? what if there are children? etc.


4. Too many people forget to factor in the costs of maintaining a house into their calculations on affordability.


5. Buy either the cheapest or the best, but not in the middle. Why? If you can't afford the best, buy a cheap starter home and diligently save up for the best.


6. Consider stretching out the home over time (i.e., making renovations or expansions over time) rather than stretching up to buy an expensive home


7. The 8-hour rule: can you sleep soundly at night or will you stay up worrying about monthly payments? If it's the latter, than the house isn't for you.

As a homeowner who is still living in a house that I bought 6 years ago, here are the rules that guided my own home purchase:

1. I put 20% down and borrowed 80% on a 30-year fixed mortgage.


2. I budgeted for the home based on one income (mine) instead of the combined income of my spouse and I. This turned out to be prescient because my wife chose to leave the workforce to look after our kid, making me the sole breadwinner. Our monthly mortgage payment is comfortably within 40% of my monthly income. I'm glad that we fended off bankers, mortgage brokers and realtors who suggested that we used our combined income to buy a bigger home--no income stretching for us.


3. I aim to accelerate the paydowm of the mortgage by making a 13th monthly payment.

Link: Seven New Rules For The First Time House Buyer (New York Times)
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More on Credit Cards

Credit cards have been in the news for the past two weeks. CNN Money has a recent article that credit card satisfaction has hit a new low. I have blogged about my recent frustrations with credit card companies closing my inactive card without notice and lowering my credit on an underused card.

Because of the risks associated with debit cards, I see myself continuing to use credit cards for the foreseeable. For tips and strategies on how I use my credit cards, see: Credit Cards & Frugal Living and Careful Use of Credit Cards (My Frugal Living Tip #2).

On the one hand, if you want to swear off credit cards, you might find Walletpop's 6 ways to destroy a credit card securely very handy.

But if on the other hand, you want to continue using your credit cards, American Public Media's Marketplace (which I listen to daily on my commute home) has its list of 10 purchases not to put on credit cards.

See my other blog postings on credit cards.

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Target beats Walmart at cheap grocery prices

Everyone knows that Aldi's has rock bottom grocery prices, but Target beating Walmart at grocery prices?

Walletpop's grocery pricing survey suggests that Target beats Walmart by a small margin: Comparing grocery prices, Aldi wins overall, but Target beats Walmart. Not surprisingly, traditional full service supermarkets like Safeway, Kroger, Albertsons didn't fare as well as Walmart and Target in Walletpop's study, which also finds that Aldi has the lowest prices, but as anyone who has shopped there would know, selection is limited.

My own admittedly unscientific study, borne from my own weekly grocery routine, suggests that Target and Walmart are extemely close in pricing, especially if they are near to each other. Both Target and Walmart give the managers of their local stores some flexibility in pricing to compete with neighboring stores. Where I live, there is a Walmart, Target and Aldi within a one-mile radius and you can see my local Target and Walmart competing on the pricing of groceries and household items. In fact, prices on many household and grocery items are lower at my local Target than at Target in other neighborhoods.

My personal preference is to do my grocery shopping at my local Trader Joe's, which is about 5 miles away. Both Trader Joe's and Aldi's are owned by the same German parent company and they reflect that German ethos of frugal pricing. I shop for household necessities at Target, which gives me the opportunity to browse their close-outs and clearances too.

Link: Comparing grocery prices, Aldi wins overall, but Target beats Walmart
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Saving Money When Buying Software

Are you looking for tips on how to save money when buying software? This online article, How to buy genuine software online for less gives excellent advice on how buying software without paying retail, from comparison shopping for discounts, searching for coupon codes, and buying software at academic prices.

It would still cost you some money, but at least it is legit.

Link: How to buy genuine software online
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Are Free Checking Accounts Going the Way of the Dodo Bird?

Do you use a free checking account? I do. In fact, I have free checking accounts from three different banks, one national and one regional brick-and-mortar bank, as well as one online bank (ING Direct Electric Orange Checking). Why do I like free checking accounts? For one thing, they don't have minimum balances. I'm also one of the very few who religiously balance their checkbooks every night to the one cent and I'm proud to say that I have never had an overdraft. I also avoid ATM fees by withdrawing at my banks' ATMs. Better yet is a free checking account with tiered interest, which is the case with my ING Direct Electric Orange Checking.

How long will free checking accounts be around? This walletpop.com blog article, "Free Checking Accounts Aren't Long For This World" suggests that free checking accounts are slowly but surely vanishing. The main premise in this article is that banks need to make money in this new business environment and free checking isn't going to cut it if folks keep only a bare minimum in their free checking accounts and start being more careful about avoiding overdraft and fees.

What do you think? Do you use free checking accounts? Are you able to avoid the various fees (overdraft, ATM, etc) that banks use to make a profit off free checking accounts?

Article Link: Are Free Checking Accounts Vanishing?
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My Frugal Living Tip #7: Try Freecycling

One way to live frugally is to take advantage of Freecycle, a grassroots non-profit movement of people who are giving away and getting stuff for free. By freecycling your unwanted gently used stuff, you not only help others who could make use of those stuff, but also keep them out of landfills. In return, you could request for stuff that others are offering, thereby saving you money.

Check out Freecycle's main website for more information and links to your local freecycle group.

Link: www.freecycle.org

Read the other entries in my Frugal Living Tips Series.

A Penny Saved is A Penny Gained #04

Today's roundup of my favorite money-saving tips:

1. I filter my tap water (using Brita filters) instead of buying bottled water.


2. I save on gas by consolidating all my shopping into as few trips as possible. This helps me cuts down on impulse purchases and forces me to plan my meals in advance.


3. I buy generics rather than brand-name drugs (both over-the-counter and prescriptions). Whenver possible, I try to take advantage of the $4-per-prescription/refill generic prescription drugs at Walmart or Target.


4. I replaced my landline with my cellphone.


5. I borrow my DVDs from my neighborhood public library for free instead of paying for DVD rentals from Netflix, Blockbuster or Redbox.


6. I drop my cable subscription in favor of over-the-air broadcast, watching free movies via Hulu.com and boxee.tv and borrowing DVDs from my neighborhood library.


7. I comparison-shop to find the best prices.


8. I mow my own lawn instead of using a lawn mowing service.


9. I plug all my vampire adapters on a power-strip and turn off the master switch when I am not using those appliances.


10. I lower my premiums on my car and homeowners' insurance by raising my deductible.

Read my other blog entries in A Penny Saved Is A Penny Gained Series.

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