The Debt Advice Online Blog

There is no denying that the housing market is very… shall we say: volatile these days. Every since the subprime mortgage meltdown, the slowing economy, and the slump in home prices, it has been a veritable minefield of dangers for first time buyers. So, what can you do to insure you make it safely to your dream home?

Do your Homework

First off, do some research regarding the area you want to live in. Make a list of the amenities you want, and prioritize them. Are you a young couple just starting out? Do you plan to have kids soon, or already have several? Always keep in mind that you can’t always get everything you want in a home and its neighborhood. That is why prioritizing is vital! What are the really important issues for you? If good schools are more important that a convenient commute to work, make sure to look for homes in those areas.

Assess your Income

Next, look at your income. So often, first time buyers will go out, look at homes, and then fall in love with one. Then, after they see the price, they try to figure out how in the world they can afford the payments! That is the totally wrong way to buy a house. No, you and your spouse need to sit down, look at your income, and figure out what you can reasonable afford for a monthly mortgage payment. Be sure to make allowances for property taxes, homeowner’s insurance, and other household expenses. Then, once you have a handle on what you can afford, start looking for homes in that range.

Look Beyond the Obvious

When looking at a house, do not let its outward appearance dissuade you from considering it. A house with some seriously ugly wall-to-wall carpet may make you gag. Yet, if you but peel up a corner of the carpet you may find beautiful terrazzo floors, or maybe long forgotten hardwood flooring! A house that is pink with purple trim may make you want to reach for a bottle of Pepto-Bismol, but remember that something as simple as a paint job can change that. An overgrown backyard with dead trees and a shed that is falling down could be a deal-breaker, until you think about how easy it would be to clear it all away. One weekend’s labor and you could have a lovely play area for the kids.

Then there is always the “fixer-upper”. If you are all approved for a mortgage, you have your down payment, and you are ready to go, you may find a house in the perfect location, and with everything you want. But, it is in rather poor shape. Here is what you do: ask a contractor to give you an estimate for fixing the place up. If he can do it for a good price and the seller is willing to take a little less in view of the repairs needed, you can buy the house, get it fixed, and have you dream home!

Also, never underestimate the value of good, old fashion hard work. In the case of that home we just looked at. Whatever the contractor says it will cost to make the repairs, and you can only get the seller to take the price down a little bit, consider doing some of the work yourself. Look the place over and make a list of all the improvements needed. Then, assess what would be involved in each job. Things like: clearing the garden, painting the bedrooms, pulling up the old carpeting etc. are small jobs that you can do yourself over time. Granted, the house will not be perfect right from the get-go, but many first time buyers face the prospect of their house being less than ideal. Consider carefully before jumping into anything; or passing up what could be a golden opportunity.

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If you are from Eastern Europe, mainly the Czech Republic, then Iva is a woman’s name, or maybe a character in a book. But, in the United Kingdom, an IVA is what is known as an Individual Voluntary Arrangement; and it is a way for a person to avoid bankruptcy. First created in 1986 by the Insolvency Act, an IVA is a way for someone in debt to propose a repayment plan to his or her creditors. It is a formal agreement, usually drawn up and presented to the creditors by an Insolvency Practitioner, and it only applies to the debt a person owes to unsecured creditors.

The IVA plan has several key advantages to it, not the least of which is its flexibility. So long as the creditors are satisfied, the person can build it around their unique conditions: their income, their resources, and any help from a third party (friends, family etc.). Then there is the issue of bankruptcy. If an IVA works out – if it is acceptable to all concerned parties – the person can sometimes avoid bankruptcy. Think of all of the positive aspects of that! A bankruptcy will affect you credit, your ability to organize a business, and there is a certain stigma associated with it. Setting up an IVA is cheaper than the cost of discharging a bankruptcy, and you can be assured of keeping your home. That right there is a major reason for making use of an IVA. Finally, all of your creditors are bound to adhere to the IVA, even if they do not like it (that part will be explained in the next section), which means you will not be hounded by individual creditors trying to get their money from you faster than you have agreed.

The Insolvency Practitioner plays a key series of roles in the IVA process. First they are an advisor. They will look at all of your debt, draw up a list of possible solutions: re-financing, debt consolidation, bankruptcy etc. and then discuss the pros and cons of each. If you elect to go with an IVA, they will then draw up the formal agreement. They will look at your income, your debt, and figure out how much you can pay into the IVA, and when. You may do it monthly (the most common), quarterly, weekly etc. The proposal will also include some background information to explain how your financial difficulties arose. They will also list all of your assets, and break them down as to which ones will be included in the agreement, and those to be excluded.

Next, the Practitioner will act as the Chairman of the creditors’ meeting. This is where the IVA is formally presented to them, and they vote on it. Now, here is the tricky bit: the creditors do not vote as individuals, they vote according to how much you owe each of them. Sort of like shares of stock in a company. So, if you owe Mr. Smith a thousand pounds, and nine other people each a hundred, even if the nine all vote “no” on the IVA, if he votes “yes” – it is accepted!

After that, the Insolvency Practitioner then becomes the Supervisor of the plan. They will make annual reports to everyone – including the court, they will monitor everything to insure all payments are made on time, and the monies distributed as per the IVA, and report to the court of the debtor misses three or more payments. This is the critical bit; because failure to make regular payments could mean a judgment of bankruptcy against you, and then the creditors take the lot! So, if used properly, an IVA can be an excellent means of getting out of debt.

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Define Your Monthly Income

If you are going to draw up a monthly budget planner, step one in the process is figuring out what your income will be. Your most basic income will be your salary, and your spouse’s salary, if you’re married. Then there are things like bonuses, dividends, interest, and any sort of investment income you might have. If you work for a company that reimburses you for various expenses, include that in your monthly budget planner. Gifts might not be a regular source of income, but it doesn’t hurt to include those, plus a column for “Other” as there always seems to be something that doesn’t fit into another category on a monthly budget planner.

List all of these headers in one column, then make a second column labeled “Expected” and a third called “Actual”. This way your monthly budget planner can keep track of what you expect your income to be, and what it actually is. The trick for good money management is in living within your means, i.e. not spending more than you can afford to pay each month. We all know that for big purchases like houses and cars, that may not be possible and may necessitate you getting a loan. But if you do need a loan, then try to get one on which you can afford to pay the monthly repayments in full each time; that way you are not building up further debts. If you have to pay back interest on a loan and on top of that you acquire late payment penalties, the only one who is benefiting is your credit company.

Outline Your Expenses

The next step in putting together your monthly budget planner is to figure out what money you need to cover your expenses. So, you make a column of everything you pay out on a regular basis. That will be things like mortgage/rent, home insurance, auto insurance, auto payment(s) (if any), auto expenses (gas, oil etc.), bank charges, groceries, clothing, childcare (if you have any), and then your utilities bills.

It is important to break these costs down individually: gas, phone, water, electric, cable TV, Internet, sewage, garbage, and any others you might have. If your monthly budget is out of control and something needs to give, you will find it easier to look for small savings you might make on utility bills if they are itemised. This might be turning if lights in empty rooms; adjusting central heating thermostats and timers to save on heating bills or being more careful in your telephone use.

Then there are the little things that you may not have every month, but you need to keep track of. This can be things like eating out, visits to the barber/salon, medical/dental, entertainment and recreation, household repairs, gifts you give, travel expenses, subscriptions to magazines, spending money, club membership dues, and taxes. These are things which are usually not essential, and so some room for savings can be found in these when planning your monthly budget, but remember not to cut back on these things completely; after all, they are often the thing that make life worth living!

If you have credit cards or student loans which you need to make repayments on, or some other long-term bills, list them on your monthly budget planner too. As with your income, then put down a column for the expected expense, and one for the actual.

An Expense You Don’t Expect

One thing that many people overlook when drawing up a monthly budget planner is the “expense” of savings. Too often people don’t think about saving; they put it off thinking they can do it another time. Yet, it is something you need to be aware of, and should include in your monthly budget planner.

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