If your car were in need of repair or you unexpectedly became unemployed, how would this affect you? When you don’t have a financial safety net in place, such as an emergency fund, those unexpected events can set you back. Fortunately, with an emergency fund, you don’t have to take a financial hit that may be difficult to recover from.
What is an emergency fund?
Unlike your regular savings account where you might be saving a portion of your paycheck for a new car, refrigerator or other large purchase, an emergency fund is a savings account that is used to cover the cost of unexpected expenses. When rainy days occur, you can easily use the money in the fund to cover medical bills, home improvements and more.
Like others who have planned for the unexpected, if your financial security is a priority, you can benefit from an emergency fund in a number of ways.
A personal loan, payday loan, auto title loan or credit card is a viable option when people need quick cash to cover an expense. But with either of these options, you are adding to your debt. An emergency fund keeps you from accruing debt because you will have the money to cover your expenses, unexpected and expected, without having to seek assistance from a bank, credit union or online lender.
Protect your credit score
Things like a missed payment or hard inquiry can negatively impact your credit score. Rather than charging a large purchase that you might not be able to repay by the due date or applying for a personal loan, you can use your emergency fund. Ultimately, you’ll see no change in credit utilization, debt, hard inquiries or other areas that impact your score, which will keep your credit score safe.
Peace of mind during a period of unemployment
An unexpected change in your income can make anyone worry. The bills don’t stop coming just because you longer have a job, so you need to make sure you are safe during an unexpected period of unemployment. Your emergency fund can be used to pay bills and give you peace of mind even though you are uncertain about when you’ll return to the workforce.
Maintain your lifestyle
Not everyone has the same lifestyle, so when you have expenses that take money out of your pocket, cutting back may be out of the question. Things like going out to dinner or taking a vacation may be important to you, and you may want to ensure you maintain your lifestyle should you find you have to factor in an additional expense this month. You have the option to use your emergency fund to take care of the expenses and enjoy the luxuries that you deem a priority in your life.
Provide assistance to a loved one
There may come a time when a loved one needs financial assistance. Your emergency fund is for the unexpected, and while you may want to use the money for yourself, it can be used to help someone who is important to you. Of course, if you don’t want to just give them the money, both parties can consider it a loan and work out the terms of the agreement.
No one can predict the future, so you need to be ready for anything. People may not always consider how one unexpected expense, big or small, can negatively impact them until it happens. Rather than let something like this ruin you financially, have a financial safety net in place and have peace of mind knowing that you can survive the unexpected if and when it happens.
Getting Pre-Approved for a Home Loan-The Ins and Outs
The process of obtaining a mortgage loan and purchasing a property is lengthy and involves a large number of steps. You’ll need to have the funds for a down payment on hand, as well as prepare your financial documentation for submission to your lender. You’ll need to ensure that your credit score is good enough to inspire confidence in your lender, and if it isn’t, you’ll need to begin improving it.
While finding a home that you and your family adore is a vital initial step in the home-buying process, it is far from the first. It’s critical to be prepared in today’s more competitive housing market. Unless you’ve been pre-approved for a loan, you may be disappointed if you locate a home you adore, even if it’s within your budget.
The first and most important step in purchasing a home is to conduct research. If you’re new to the process, you’re sure to have a lot of questions, such as what pre-approval entails and how it differs from actual approval. You may also be curious about the difference between pre-approval and pre-qualification, as well as the paperwork required. To assist you in your home purchasing process, we asked lending specialists to address some frequently asked issues about acquiring the mortgage for your dream home.
What is pre-approval, and how is it different than loan approval?
When you are approved for a loan, the lender will send you a commitment letter outlining the conditions of your mortgage agreement and loan, including the monthly payment and annual percentage rate on your loan. Additionally, you’ll learn about any conditions that must be met prior to the sale being finalized, such as obtaining homeowner’s insurance.
However, before you may obtain permission, you must obtain a pre-approval.
Consider the pre-approval process as an annual physical examination for your financial health. When you go through the pre-approval process, your lender will examine your income, credit score, assets, and obligations to determine whether you qualify for a loan and, if so, the maximum loan amount and monthly payment that you may qualify for. The specific documents you will need to submit and the loan amount you may qualify for will vary depending on your condition and the lending business you choose.
“Not all pre-approvals are created equal,” according to Peter Boomer, a PNC Bank mortgage official. “There are pre-approvals that demand little detail and simply a soft credit pull,” which is a brief examination of your credit history that does not temporarily decrease your score, “but do not require verification of critical buyer information.”
Consider that mild form of pre-approval as a means to run your financial status by the numbers. It may be beneficial if you’re just getting started in the home market and want to get a sense of what’s realistic for you. Once you have a feel of that, you can proceed with a more comprehensive pre-approval. “A full pre-approval is a more thorough examination of the buyer’s credit history and demonstrates the buyer’s ability to repay the mortgage, which includes a comprehensive underwriting evaluation of income, employment, and assets necessary for the down payment, as well as reserves,” Boomer continues. “This demonstrates to the seller that the prospective buyer possesses the financial resources to make the acquisition and has the mortgage in hand.”
Additionally to serving as a provisional promise from your lender when you find the proper home, Boomer notes that a pre-approved will expedite the rest of the process, including the eventual complete approval.
“Frequently, a pre-approval implies that the closing process can be accelerated, with only the appraisal and inspection remaining,” he explains. “Being pre-approved for a mortgage makes the bidder a more attractive homebuyer to the seller, which is critical in today’s competitive housing market when homes frequently receive multiple bids.”
What is the difference between pre-approval and pre-qualification?
While the terms “pre-approval” and “pre-qualification” are sometimes used interchangeably, they are not synonymous. Pre-qualification is a considerably simpler process than pre-approval.
You will be prompted to provide information about your income, debt, and the amount of money saved for a down payment, but this information will not be checked. Following that, your lender will inform you of the types of loans for which you may be eligible. Because there is often no obligation on either end, this is an excellent method for you to evaluate your lending company and see whether they are a suitable fit for you.
“One of the most beneficial things a prospective buyer can do—long before they begin touring homes—is to locate a reputable lender and obtain pre-approval,” says Ryan Dibble, COO of real estate company Flyhomes. “Pre-qualification provides an estimate of how much you can afford based on the information you provide regarding your down payment, assets, credit score, and income, and might reveal any barriers you may face in receiving your financing. Bear in mind that pre-qualifications are based on educated guesses.”
What about pre-subsidy?
The underwriting procedure is sometimes the longest and most stressful portion of the home buying process. This is when the lender will thoroughly vet your finances to ensure that everything is in order and that you are not at excessive risk. If you made any errors or omitted any critical information, the underwriting procedure is likely to trip you up.
If you choose a pre-underwriting method, you may begin this potentially lengthy process early and avoid any surprises down the road. This also makes you a more attractive prospect to homeowners looking to sell, since it demonstrates that you’re a safe bet and serious about concluding a sale.
“Getting pre-underwritten is the first step that all homebuyers should do to completely understand their budget, strengthen their offers, and ensure a smooth closing process,” Dibble explains. “With pre-underwriting, the lender thoroughly evaluates your ability to repay the loan before involving a property. Simply said, pre-underwriting is the only way to obtain an accurate response to a significant question: ‘how much can I spend on a home?’ It is a formal confirmation from a mortgage lender of the loan amount and program for which you are qualified.”
Dibble continues, “once pre-underwritten, you may purchase a home instantly and quickly close within 30 days in the majority of markets.”
When is the best time to obtain a pre-approval?
Once you’ve determined that you’re serious about purchasing a home, you should begin the process of obtaining a pre-approval before proceeding. If you decide to pursue a loan after finding a home that you like, you risk setting yourself up for disappointment.
“If you are considering homeownership, begin the pre-approval process immediately – even if you are thinking six to twelve months in advance,” advises Kim Chichester, Division Manager at Geneva Financial. “Do not go out looking at houses until you have been pre-approved. You are setting yourself up for disappointment or possibly the inability to make an offer on the home of your dreams in a timely manner.”
“What if you find the ideal home for sale for $400,000 only to discover that your maximum loan amount is $350,000?” adds Chichester. “No matter how many homes you inspect, none will ever compare. What if you are not pre-approved for a mortgage, find the home of your dreams, and the sellers will accept offers only from fully pre-approved purchasers until 6 p.m. that evening?”
Why it’s Always a Bad Idea to Borrow Money from a Family Member
If you’ve ever borrowed money from a family member, then you’re probably familiar with all or most of what we’re about to discuss.
Indeed, many people assisted family members with the expectation of being reimbursed. The unfortunate reality is that you may never see that lent money again. What’s more, your relationship with that family member may suffer as a result.
The following are some of the most frequently cited reasons why you should never lend money to a family.
It Can Put Relationships Under Stress
When you lend money to a family member, the borrower may have a less favorable attitude toward the loan than they do toward loans from banks and other lenders. The two parties may have divergent expectations, which may not work out well for everyone.
Money may complicate relationships, and there are times when the resulting harm becomes unmanageable. The tension in the relationship may even result in its termination.
It May Affect Your Financial Situation
When you lend money to family members, your relationship with them is seldom the only thing that suffers. Your credit and bank accounts may potentially suffer significant damage.
As previously said, there is a good probability you will never see that money again. Due to your strong relationship, your family member may view the funds as a gift rather than a loan.
Even if they are aware that it is a loan, they may believe that there is no reason for them to repay it immediately. While this may not be a concern with minor loans, it may jeopardize your future plans and money if larger sums are involved.
Enables Bad Habits
There are occasions when lending money to family members is not the greatest way to assist them, particularly if they are having difficulty managing their finances. While this may provide a temporary solution, it will never resolve their long-term problems.
While you may need to provide them a hand in repairing their roof, for example, and a loan may be necessary, you would want them to develop healthier and more responsible money habits. When kids understand how to manage their money, the likelihood of borrowing becoming their permanent answer decreases, while also maintaining your relationship with them.
It May Leave You Cash-Strapped
If you obtained the funds to lend to a family member, there is a possibility that you intended to spend them for anything else. It could be a portion of your emergency money or savings. Always consider your own financial situation first before lending money to anyone, family member or not, especially if the funds are already designated for personal needs and aspirations. For all you know, you may not have had the spare cash, to begin with.
How Much Should You Save for Retirement? Find Out Here
When you start saving for retirement, you may have a lot of questions. As you search for the answers to the unknown, the one thing you may really want to know is how much money you’ll need to live comfortably during this phase of your life.
Although it is suggested that every year people save between 10% and 15% of their annual income for retirement, you want to be sure that you have enough, and that can be done by examining certain factors.
Examine your current income and expenses
What is your current source of income? How much of that income do you spend every month? As you make your plan for retirement, it is important to know where your current finances stand.
Estimate your future income and expenses
Your current income and expenses can actually be used to estimate your future income and expenses. Yes, retirement is years away, but you should be able to determine your future income and expenses if you know what to expect. If you know your home and student loans will be repaid by the time you retire, then you’ll know that you won’t have to save enough to continue to make monthly payments on these debts during retirement.
Additionally, depending on your source of income at the time, you may be able to calculate how much money you’ll have coming in every month. For example, you can estimate your Social Security payments just to get an idea of all or a portion of your future income.
Consider the potential cost of the unexpected
Retirement does not mean you don’t have to be prepared for the unexpected. You can expect to pay a monthly bill when it arrives, but what about those little surprises that life will throw at you? At any point in time, your car could break down, your roof could need replacing or an accident can leave you with a high medical bill.
Your retirement fund should allow you to live comfortably, but it should also protect you from financial hits that are hard to come back from. If you don’t plan for the unexpected, a good portion of your retirement fund can be wiped out.
Consider your preferred lifestyle and spending habits
People’s lifestyles vary, so what one person may find necessary another may not. If you wish to maintain your current lifestyle and spending habits when you retire, it will be important to consider this fact when you are trying to determine how much to save.
For example, if your annual income of $70,000 allows you to take a few vacations every year, and that is something you would like to continue to do when you retire, then you’ll want to ensure you have the money necessary to afford these vacations.
Consider the amount you currently have in your retirement fund
Have you already started saving for retirement? Whether the answer is yes or no, the amount that you currently have saved should, of course, be factored into the amount you will need to save. However, not having anything in your retirement fund could be a problem because this means that you may have to put a larger amount away when you start to save.
Say you plan to retire in 30 years, if you do not have anything in your retirement fund, rather than saving $300 a month, you’ll have to save $500 a month to ensure you reach your goal.
Saving for retirement is not a priority for everyone. However, not saving for this phase of your life can negatively impact you. As you plan for your retirement, be sure you are considering the right things, so you don’t find yourself re-entering the workforce during a time when you should be relaxing.
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