LexChoice Finance

Financial News and Information

Can the middle class still get a home loan?

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As many of you know it is getting more difficult to get a loan for anything, especially a home. Even the middle class population is seeing a great increase in the number of loan applications declined. Why are banks being so tight with their money, even though many of them accepted millions of dollars from the government bailout program? The fear of loaning money in a declining market, fear of bank failure, and wanting to cover future loans has cause tighter restrictions on home loans even for the upper and middle class.

As home values continue to decline handing out a mortgage loan to just anyone becomes a big risk for a bank. Just a few year ago home values were rising faster than grandma’s yeast rolls. Banks were lending money to just about anyone because the value of the home was sure to increase and even if the loan fell through the bank wouldn’t lose a lot of money from foreclosure. Today home values continue to drop so banks require 10% and sometimes 20% equity in a home before they will finance or refinance the mortgage.

A second reason banks have decided to filter loan is because of other bank failures. I just visited the FDIC website and counted 63 banks that have failed since January 1, 2008! Banks are scared to make “bad loans” where they won’t get their money back. If they make too many bad loans they’re not going to have enough capital to keep the doors open. The last thing a bank want right now is to be placed on the FDIC website as a failed bank.

A final reason banks have tightened lending practices is for short-term and long-term business reasons. Banks want to keep some of the cash for short-term investments in order to recoup some of their tremendous losses.  Banks also want to stash away some of the bailout money to cover future losses.  No matter how careful banks are with their lending practices they are still going to make some bad loans. Things happen and people can’t make their payments. Banks want to ensure they have enough money saved themselves to cover these losses in the future.

Even though there are many new lending restrictions placed on home mortgages, it is still possible for the average middle class family to get a home loan. Keep an eye on your credit score and save money for a down payment. As the economy starts to progress lending restrictions will loosen up and banks will start lending money again!

Saving on Food Versus Eating Healthy

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It’s pretty obvious that making the choice to eat healthy is more expensive than eating cheap. Last night I drove through McDonald’s to pick up a quick dinner for my 3 year old, my wife and myself. Trying to eat a little healthy I ordered a grilled chicken sandwich for my wife and myself. I ordered a plain cheeseburger for my daughter and 2 large french fries for us all to share. I skipped the drinks trying to save another buck. My total bill was still about $13! The chicken sandwiches were $3.65 each. After thinking about it I could have bought almost 4 double cheeseburgers for the price of one chicken sandwich!

It’s not only the fast food restaurants that have inflated prices for healthier eating. At the grocery store there are tons of food items that are dirt cheap but can hurt your overall health if you eat too much. Take for instance the popular food choice of college students, Roman noodles. Roman noodles only cost about $0.15 per pack and sometimes even cheaper if you buy in bulk, but how healthy are they? After a quick glance at the nutritional facts I found that 1 block of noodles is actually two servings and I always eat the whole block. There is 1420 mg of sodium in a pack of Roman noodles, that’s 60% of your recommended daily sodium intake! On top of that is 24 grams of fat or 24% of your recommended daily fat intake!

More examples of cheap food that is unhelathy is canned meats and canned soups. All of these items contain large amounts of sodium which can lead to high blood pressure and heart disease. Looking for cheap cereal? Most cereals that are cheap and always on sale are high in sugar and calories where their healthy counterparts can sometimes cost up to $4 and $5 per box.

The best solution to eating healthy is to have a diet filled with fresh fruits and vegetables. Add in fresh lean meats such as fish and chicken while eating very little sugar. The only problem is this greatly increases your monthly grocery bill. How can you balance a healthy diet with a healthy grocery bill? Stay tuned!

Get to the bottom of overspending

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For years I have heard the phrase the more money you make the more money you will spend. Sadly enough a large portion of people believe this myth and follow down the path of brokenness. If you ever plan to be financially successful you have to stop spending every penny you earn each month. It’s an easy concept to tell people, but a very hard concept to follow. Let’s get to the bottom of why we overspend and what we can do to solve the problem.

For most people the problem starts with the easy access to credit. Everyday I check the mail there is at least one and sometimes up to 5 new credit card offer from a different bank or financial institutions. Most of them offering 0% balance transfers for 12 months or a very low fixed rate for the life of the loan. They also offer no interest on purchases for up to one year, this is the worst. You can buy anything you want (up to your credit limit) and not pay any interest on the borrowed money. Sound like a great until the one year is up and you have racked up thousands of dollars in credit card charges that you no longer have to money to pay for. What do you do, open up one of the 0% interest balance transfers for one year credit cards and start the process over.

The next problem for overspending is temptations from friends, family and coworkers. Brother Jim just got a new HD television to hang on the wall over the fireplace. You start thinking about how hard you work everyday and don’t have a new HD television set, so what do you do? You get in your head that you can afford to go buy yourself a new tv, but you need a bigger one than Jim because you work harder. You do need to enjoy your life, but enjoy your life as much as you can afford, debt is not fun!

Finally, overspending is very similar to overeating. Some people buy a new pair of shoes just to feel better about themselves. If you’ve had a bad at work or had a fight with your spouse what can make you feel better than spending some money? We sometimes spend money and buy something that will please us to take our minds off something that is bothering us.

Don’t get caught up in these financial traps. Be sensible about spending your money. Think before you jump into any financial transaction. Ask yourself is this really what I need to do or am I doing this for a dumb reason? Stop overspending your hard earned money and get to the bottom of overspending!

Consider other expenses when buying a bigger house.

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So you’re ready to upgrade your home and buy a bigger house? You have lived in the starter home for a few years, got a little equity in your house and think it’s time to upgrade. You’ve got it all planned out and found the perfect house and have some money to pay down on your dream home. Only one problem, you haven’t thought about all the extra expenses that come with a larger home.

There is nothing wrong with buying a bigger home if you can really afford the price tag as well as all the extra expenses. From personal experiences here are some extra expenses to consider before purchasing that new home.

  • Larger home means a larger heating and cooling bill. No matter if your new home has electric or gas you’ll be guaranteed to pay some extra cash for the utility bills. The larger the home the more you will pay.
  • More furniture or new furniture. Most of the time when you move into a different house you will want at least a couple of new pieces of furniture. If you are purchasing a larger home with more rooms to fill you will probably have to buy even more furniture and furniture isn’t cheap.
  • Home maintenance will increase. From cleaning to yard work to structural upkeep you’ll pay more the bigger the home.
  • Property taxes will increase. Property taxes are based on a percentage of the value of the home. Buying a bigger home will increase your annual property tax bill.
  • Insurance costs will increase. Just like property taxes insurance costs are based on the value of the home. A bigger home will cost a little more to insure. Don’t forget you will also have to increase the value of the valuables inside the home, since you just bought more.

Before you decide to buy your next home make sure you consider all these expenses. Many times people calculate exactly how much money they can spend on their monthly mortgage payment and these extra unplanned expenses can push you over you budget.

Just bought some land to build a future home

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Most of my blog entries on this site are not very personal, but this one is all about me. It’s related to finances of course so it still fits into the site. It’s one of those situations where I’m not 100% convinced that I did the right move but from most viewpoints it seems financially logically to me. Let me give you the rundown and let you decide.

Background information: My wife and I have always wanted to own about 1 acre of land to build our home, but with living in the “city” land doesn’t come at a cheap price. We live in Kentucky so the cost of living is low compared to major cities such as New York, LA, and San Francisco, but for an acre of land here you’ll pay about $100,000. With that said we purchased our first home just before we were married about 6 years ago, a starter home for about $112,000. Two years later we sold that home for a profit and purchased a slightly bigger home in a little nicer neighborhood for about $150,000. Two years later we sold that home for a little profit and buit our current home for just over $200,000. The only problem is that it sets on less than .125 acres of land, not much of a yard for a backwoods Kentucky boy.

We started looking around for some land to build another home in the futre and found the perfect plot of land just a few minutes from our current home. Only problem…. it was listed at $80,000 for 1 acre, not a bad deal for the area but still out of our price range with already owning a home. We talked to the selling realtor but pretty much wrote off the land.

About a week later the realtor called us back and said they had dropped the price of the land $10,000 and told us the land was a forclosed property owned by a bank that was struggling. He suggested we make an offer on the land for what we could afford and see what happens. Remember the land was still listed at $70,000 but we sent him off with an offer for $54,000. The next day the realtor called us and told us our offer had been accepted! The land is appraised at $92,000 so I know we got a great deal, but I’m still not 100% sure we did the right financial move.

We recently paid off a car freeing up $400 per month, about what the payment on the land will cost us, but should we have used that extra $400 per month to pay off our mini van we just purchased a few months ago? Or did we do the right move by buying this land at a big discount and having almost $40,000 in a piece of property that we just bought? My financial instinct tells me it was a great investment, but in the back of my head I hear Dave Ramsey saying we should have passed, any thoughts????