Monday, June 9, 2014

Our Vehicle Buying Strategy

Our current vehicle is near the end of its useful life.  While we’ve been doing our best to keep it in safe running condition, after 11 years, we know the end will likely be coming soon.  While we’re hoping for the best in our vehicle situation, we’re planning for the worst.  However, there is hope.  According to a recent MSN Money article, “Used car prices have been falling since 2011…”  Therefore, we’ve come up with a strategy for planning our new vehicle purchase.

Gauging repair costs on current vehicles and trying to wait things out
I have a feeling that the “Cash for clunkers” program back in 2009 sopped up much of the used car inventory.  We’ve been trying to wait things out since then in order to let some of those with newer vehicles get to the point where they’re ready to trade them in and upgrade.  According to that same MSN Money article, “The average retail price of a used car fell by $1,000 per car in the last half of 2012.”  Therefore, we’re currently in “wait-and-see” mode.  We’re gauging potential issues with our current vehicle and watching repair costs, while at the same time watching for deals in the newer used car inventory.

Bolstering emergency savings
We don’t know exactly when our current vehicle will become more costly to maintain than it’s worth, but we know the day will eventually come.  Therefore, we’re trying to set money aside a little bit at a time month by month so that we can bolster our emergency fund for when our current vehicle is finally kaput.

Much like a car payment structure, just setting an extra $50 or $100 aside each month adds up overtime, and being able to stretch our savings timeframe by a year or two could add an extra $1,200 to $2,400 to our available car-buying budget. 

Watching available options and knowing good buys
We scan the “cars” section of the local newspaper regularly for deals and pricing.  We also visit area used car dealerships online and review the inventory at our local CarMax location to see what’s selling in the new and newer used car categories.  In this way, we stay apprised of current pricing levels, have a background upon what is selling and any great deals out there, and generally increase our education on what vehicles might be right for our family’s needs.

Doing a gas cost analysis
As vehicles become more fuel efficient, this also plays a role in our decision of what sort of vehicle to buy.  Being a family of four in the Chicagoland area means that it’s nice to have a larger vehicle, but city driving and lower fuel mileage rates can hit us where it hurts…the wallet.

Over the years, I’ve gauged our own vehicle’s fuel consumption rates when it comes both to city and highway driving.  In this way, I can have a better idea when it comes to looking at new or newer vehicles of how much we’ll spend on gas based upon their estimated fuel mileage compared to what we spend now.  Even just $400 a year in fuel savings can add up when we’re talking about having a vehicle for seven or eight years or longer.

And in these ways, we are better prepared for buying our new vehicle when the time comes and we aren’t left scrambling to make a decision and just buying something to fill the vehicle void.


Disclaimer:

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, June 3, 2014

Forecasting Long-term Housing Costs

Having a longer-term outlook can open your eyes to many of the housing expenses that might not be easily recognizable when you first purchase a home.  Up front, a home owner might see things like the price of a home, the cost of obtaining a mortgage, the expense of having a home inspection, and the time, money and effort involved in finding the right home.  However, forecasting for those longer-term expenses that won’t arrive – or won’t arrive in full – until long after the home is yours can help better prepare you for the full financial ramifications of homeownership.

Mortgage interest costs
Sometimes it might seem like getting the lowest monthly payment on a home could be the best result as a homeowner.  However, lowering that payment by extending it out over additional years can make the cost of interest on a mortgage skyrocket.

According to creditloan.com, “After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.”

In the case of our first home, taking our $165,000 mortgage over a 30-year year term at 6.375 percent would have totaled nearly $209,000 in interest along.  This amount however, came closer to $76,000 in interest for our loan based upon a 15-year payoff term at 5.375 percent. 

Maintenance and repairs
Many times, people don’t fully consider the cost of the new roof that will be needed in five or ten years.  The HVAC system that will need to be replaced in five or six years or the driveway that will need to be repaved in a year or two; that’s stuff that “will just need to be done later”.  However, it’s also stuff that can be expensive and that can add significant costs to the overall cost of homeownership.

Doing a long-term budget with forecasted timeframes on major repairs can better prepare homeowners for repair and maintenance costs.  As homeowners, we had a list that included items such as new appliances, hot water heater replacement, HVAC replacement, front walk repair, and garage roof replacement over a five-year period.  This helped us spread our budget out over this timeframe, and helped us avoid having to cover the costs of all such replacements at once while being able to tackle one big project each year or when we could afford it.

Closing costs
Closing costs might seem a distant consideration when you’re buying a home, but they can be an expensive consideration too.  Things like real estate agent commission, back property taxes, title insurance and title company costs, credits to buyers, and other fees can add thousands or even tens of thousands of dollars to the cost of selling a home, which with staging, repairs, and other preparations which in themselves can be costly.
According to Zillow.com, “Typically, home buyers will pay between about 2 and 5 percent of the purchase price of their home in closing costs. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.”

Creating a closing cost budget can help you ready yourself for the eventual costs of selling a home and outline just how much additional funds will be put toward the process of homeownership.  Closing costs and amounts can vary from state to state.  To get a better idea of how much you might one day be paying, consider seeing if a friend or family member who owns in your area would be willing to share their closing statement with you so that you can see the breakdown of costs ahead of time.


Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  This article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.