MONEY buying a home

Countdown to Buying Your First Home: Our Checklist

Get ready for one of the biggest financial moves you'll ever make: Buying your first home.

First-time home buyers have it tough. The supply of homes for sale is tight, and lenders are tightfisted.

Student debt, at an all-time high of nearly $30,000 per grad, is getting in the way of saving for a down payment, says David Stevens, president and CEO of the Mortgage Bankers Association. But it’s a great time to get your foot in the door.

“Interest rates remain the envy of even your grandparents,” says Keith Gumbinger, vice president of mortgage publisher First, make your finances sparkle.


12 months in advance

Make sure the time is right. Use’s rent or buy calculator to see if you’d really come out ahead, based on loan rates, taxes, and where rents and prices are headed in your area. Nationwide it’s 38% cheaper buying vs. renting.

Clean up your act. Devote this year to saving money and paying down debt. You’ll need at least 3.5% down for an FHA loan, or 10% to 20% for a conventional mortgage. Lenders also like to see job stability, so settle in for now.

Learn what you like. When a home catches your eye—a listing, say, or a photo—pin it to a board on Pinterest. Or try Swipe, a new app from the site Doorsteps, which lets you browse listing photos and mark them pass or save.

Six months out

Look better to lenders. To boost your credit score, order your free credit reports at and fix any mistakes. Pay bills on time, chip away at credit card balances, avoid new debt, and don’t close any accounts or apply for new credit. The average credit score for approved mortgage applicants is 755.

Figure out what you can buy. Use an online calculator like the one at to estimate how much house you can afford based on your income, savings, and debts. That’ll help you research homes and drill down on costs.

Forecast future bills. With an idea of how big a house you can buy, you can do a more detailed budget. Scan listings for property taxes on homes you like. Get a homeowners insurance quote at Call local utility companies for the typical bills. And tack on 1% of the home’s value for yearly maintenance.

Related: Baby on the Way? Time to Make a Budget.

Three months out

Pick your loan. Fixed mortgage rates, now 4.4%, may edge up to 5% this year, forecasts If you are confident this is a starter home, you can save with a 7/1 adjustable-rate loan, now 3.5%. The risk: You end up staying longer than seven years and rates rise sharply. Most—92% of mortgage borrowers—opt for fixed-rate loans.

Prove you’re a serious shopper. Based on your income and credit, a bank will give you a mortgage pre-qualification. “It’s the No. 1 thing you want in your back pocket when you go shopping,” says Svenja Gudell, an economist with Zillow.

Even better in a hot market: Pay a few hundred to go through underwriting upfront.

Find a guide. Look for a realtor who has worked in the neighborhood where you hope to live. And in a tight market like today’s, ask candidates what their strategies are for unearthing listings and handling potential bidding wars.


Budgeting for a New Home, and a Disability

Kinzie+Riehm The Crosbys, with son Owen, are eager to move to a bigger home.

Tim and Jennifer Crosby are ready to trade up from their 2,000-square-foot suburban Orlando home. They’d like more space — maybe even a pool — in a district with better schools for their son, Owen, 7.

Expected cost: $450,000.

With real estate in the area recovering, the Crosbys’ house is worth close to their 2004 purchase price of $268,000.

Between equity of more than 20% and savings, they can foot a bigger down payment; plus, they have $2,000 a month after savings and bills for higher carrying costs. (Combined, they earn $147,000 from his job as a network administrator and hers as a business analyst.) But they’d like to be sure it all pencils out.

“We want to enjoy what we have now without blowing it for later,” says Jennifer, 42.

Related: Baby on the way? Time to make a budget

They’re also dealing with a major unknown: Tim, 43, has Charcot-Marie-Tooth disease, a neurological disorder that could one day affect his mobility.

“I’d like to work into my sixties,” he says, “but don’t know what my condition will bring into play.”


Real estate value: $243,000
Retirement savings: $189,500
Cash: $80,000
Cash value of life insurance: $23,000
Stocks/other investments: $15,500
TOTAL ASSETS: $551,000

Student loan: $50,000
Mortgage: $180,000


Fix retirement first. The Crosbys save $16,000 a year for retirement. At that rate, they’ll have around $1 million in today’s dollars by their mid-sixties, estimates Jacksonville financial planner Carolyn McClanahan.

A great start, but not enough to maintain their lifestyle in the best of circumstances — and definitely not if Tim has to leave the workforce before 67. (The disability insurance he has through work will replace only 60% of his income.

McClanahan wants them to stash $8,000 more a year, preferably in Roth IRAs.

Related: Don’t let divorce wreck your finances

Downscale the dream. Figuring a 20% down payment, a 30-year mortgage on a $450,000 house adds $650 to their monthly nut, not including higher taxes, insurance, utilities, and maintenance. Adding the higher retirement contributions, along with $3,000 a year that McClanahan would like them to save for Owen’s college, the Crosbys will nearly erase their monthly surplus.

McClanahan would rather they dial back their budget to, say, $350,000, so that they can …

Speed-pay the debt. McClanahan wants the Crosbys to get a 30-year mortgage, but put their leftover funds each month toward the debt. Erasing the loan early will reduce their retirement income needs and give them leeway if Tim is forced to retire early.

Plus, it’s a “backdoor college savings plan,” she says. “If you can’t fund tuition through cash flow, you can use a HELOC to help.”

MONEY turning points

Don’t Let Divorce Wreck Your Finances

Illustration: Anna Parini The breakup of your marriage doesn't have to threaten your financial security.

The average divorce today costs $15,000, according to legal guidance site Avvo, but that’s pocket change compared with what it could cost in the long term.

“The money you’d put away to fund retirement together now has to cover two separate retirements,” says New York City financial planner Dawn Brown. “This will be more expensive because it requires running two households.”

Meanwhile, for many of the newly single, living costs rise relative to income, while discretionary spending remains the same — leaving less room for the savings needed to catch up.

These steps can help you get to stable financial ground.


Well before the divorce

Know the score. Gather investment and bank statements, going back at least a year. Copy tax returns for income history. Pull your credit report to know what debts you have.

Consult a lawyer. In case you require counsel later and to learn about state laws. In nine “community property” states, assets acquired during marriage are owned fifty-fifty. In the rest, the court decides the split if it goes to litigation.

Open accounts in your name. Start stockpiling a cash stash for emergencies and legal fees. Apply for a credit card, too, while household income is higher.

Once the process is under way

Get the right help. Working out a settlement with a mediator may save money. But if your finances are complex or your relations contentious, an attorney can help you avoid mistakes or costly concessions.

Be strategic in getting your share. You may love the house, but if you give up investments of equal value, you lose the benefits of a balanced portfolio. You’re often better off selling the house. In divvying up retirement funds, specify percentages vs. amounts, in case the market soars or tanks.

Related: How to tell your kid you can’t afford her dream college

Take care of the kids. Be sure to specify in the settlement how you’ll handle big costs, like braces, summer camp, and college. If you’ll receive child support or alimony, insist that the provider get life insurance to ensure payments.

After the split is official

Stay insured. If you were on your spouse’s health plan, the next cheapest option is likely your employer’s offering. But if your ex’s job has 20-plus employees, you can also continue coverage via COBRA — so long as you notify the plan administrator within 60 days of the divorce. Or you can sign up through the Health Insurance Marketplace within 60 days.

Related: Baby on the way? Time to make a budget

Review your taxes. Usually only the custodial parent can claim kids as dependents. Give or get alimony? It’s deductible to the payer, and taxable to the payee.

Make a new financial plan. Base it on your new income and household costs. You may have to up your retirement savings, both to rebuild what you gave up and to cover continued higher living costs in retirement. Use the T. Rowe Price Retirement Income Planner to revise your savings goal.

Restate your estate. Draft a new will to prevent your ex from inheriting, and name new beneficiaries on retirement accounts, pensions, and life insurance.

Sources: Family-law attorneys Jennifer Brandt of Philadelphia, Kelly Chang Rickert of Los Angeles, and Mark Chinn of Jackson, Miss.; Cheryl Jamison of the Association for Conflict Resolution;; divorce financial adviser Jeff Landers of New York City

MONEY College

How to Tell Your Kid You Can’t Afford Her Dream College

Photo: Shutterstock A child who is fixated on a particular college 'will go through all the grieving stages, including denial, rage, and acceptance.'

You meant it when you said, "Study hard in high school, and we'll send you to the best college you get into." But now you're looking at the cost of Dream U -- and panicking.

Sticker prices at the top private colleges exceed $60,000. Even with scholarships, typical middle-class families face bills totaling $24,500 a year at private colleges, and $16,500 at public ones, the Department of Education reports.

Think you’ll have to tell your kid that her top prospect isn’t a possibility? Better to do it sooner than later. “Ideally, parents would have the affordability conversation when the child is starting high school so he or she can be realistic,” says Mark Montgomery, a college-admissions adviser in Denver.

The Ground Rules

Get the facts. Prepare a summary of your family’s financial situation along with the amount you can afford to contribute to college expenses vs. the net prices provided by the colleges’ aid letters or their net price calculators, says Deborah Fox, a college-funding adviser in San Diego.

Be the grownup. Don’t let your kid’s anger and disappointment cause you to do something you’ll regret, like fighting back or taking loans you can’t afford. “Hold your line,” says Mashpee, Mass., social worker Beth Wechsler.

When You’re Face to Face

1. Show, don’t tell: “Honey, we are so proud of you. But you’ve heard how the prices of some colleges have gone crazy. Let’s look at our family finances to see whether your top picks are in our reach.”

Why this works: “Saying no without explanation may cause kids to shut down,” says Nathan Dungan, a Minneapolis family wealth consultant and founder of Instead, treat your child as the adult he or she is becoming: Explain what you can afford, what the school will cost, and the impact of any gap.

Related: How to ace your annual review

2. Apologize: “We’re sorry. We should have looked at the numbers before promising that you could go to any school you wanted.”

Why this works: Some children will become upset at parents who change the terms of a commitment, says psychologist Laura Markham, author of Peaceful Parent, Happy Kids.

You won’t be able to move the conversation forward until you acknowledge the mistake, she adds. Apologize without getting defensive about past spending. “Don’t say, ‘But the old car was breaking down.’ Say, ‘I know how you had your heart set on going there. I understand why you’re so upset,'” Markham advises.

3. Allow for grief: “Let’s take a break and reconvene later.”

Why this works: A child who is fixated on a particular college “will go through all the grieving stages, including denial, rage, and acceptance” when that dream dies, Markham says. To have a productive conversation, wait until the emotions on both sides calm down.

Related: Baby on the way? Time to make a budget

4. Ask open-ended questions: “What about this school made it so attractive to you?”

Why this works: By pinning down what the student is seeking, families can focus on lower-cost alternatives that still match the student’s dreams, says Wechsler.

5. Make a game plan: “Let’s figure out what our options are.”

Why this works: “You’re getting the family working together as a team” while nudging the child to take responsibility for charting his own future, says Montgomery. Offer help with options that won’t harm the family’s finances, such as applying for more aid, starting out at a lower-cost school, or deferring for a year to allow Junior to work and save.

MONEY career

Ace Your Annual Review

The single hour of your annual review can have long-lasting impact on your financial well-being.

No two words inspire more dread in managers and employees alike than these: performance reviews. Rather than letting your annual checkup get you down, though, consider the upside. This is one of the few times of the year you get to chat with your boss about your career. And with a bit of strategizing, you can set the stage for a big raise or promotion in the year to come.

Show you’re a top performer

Your supervisor probably doesn’t recall your every accomplishment over the past 12 months, so jog his or her memory. Richard Klimoski, a management professor at George Mason University, suggests submitting a one-page self-evaluation before the review. That way you draw the baseline from which your performance is measured. Sum up the year in three to five major contributions — with evidence. Highlight, for example, that you increased sales by 20% and share a testimonial from a new client. You’ll seem more genuine if you also identify skills or knowledge you must gain to take your performance to the next level.

Request a real critique

“Even when you don’t agree with it, feedback is useful,” Steve Miranda of Cornell University’s Center for Advanced Human Resource Studies says. “It provides insight as to how you’re being perceived.” You’ll need this information to clear hurdles standing between you and your career goals.

Related: Baby on the Way? Time to Make a Budget

Unfortunately, managers are often as uncomfortable giving negative feedback as subordinates are at receiving it. So you may have to drill down to get real advice. You might say, “I understand my presentations could be better. Perhaps I should work with a public-speaking coach?” Respond positively to criticism, owning up to problems and offering solutions; if you really disagree, ask for examples, so you can separate fact from perception.

Plan your compensation

Even if your review is tied to a pay increase, this generally isn’t the time to fight for more money — budgets are typically set by the time of the review, says Lori Holsinger, a principal at New York HR consulting firm Mercer.

Related: From Real Estate Exec to Laundromat Owner

What you can get: details on the salary review process to help you prep for next year. Find out how and when your raise was decided and who was consulted. Did you get a big bump? Ask what actions you can take to repeat the result. Vice versa if you got pennies.

Get on board with the boss

End the conversation by asking for measurable short- and long-term goals, advises Dallas career coach Jean Casey. Align at least a few of these objectives with your supervisor’s. You might say, “I know our department is dealing with a budget deficit. What can I do to help?” Your efforts to get on the same page will most likely make your manager happy, which will in turn keep your career moving forward. As Casey puts it, “You want to work with the boss — not for the boss.”


Baby on the Way? Time to Make a Budget

Making a budget can help you understand and plan for the expenses of baby's first year.

Congratulations! There is nothing quite as exciting as having your first child — or as expensive.

Assuming your household earnings exceed $105,000, your precious bambino will set you back nearly $400,000 by the time he reaches age 18, the U.S. Department of Agriculture reports.

Then you’ll probably end up paying big, big bucks — gulp! — for baby’s BA.

Fortunately, while you can’t prepare for the sleepless nights ahead, there’s a lot you can do to get ready financially for the newest member of your family.



First Trimester

Make a post-baby budget. Disposable diapers alone can run $900 the first 12 months. Figure out what other costs to expect with the First-Year Baby Costs Calculator at
Investigate child care. It’s often the biggest line item, with day care averaging $4,900 to $16,400 a year depending on location. One of you planning to stay home? Account not just for loss of pay but also for perks like 401(k) match.
Sew up a cash cushion. Start knocking away credit card debt and aim to bank at least three months’ living expenses — more if only one of you will work.
Estimate health bills. In a typical employer-sponsored health plan, prenatal care and delivery cost a patient $2,244. Contact your insurer to see what it will cost you so that you can plan for the outlay.

Second Trimester

Protect your paycheck. Use the tools at to estimate your life and disability insurance needs. Term life will be most affordable. See if you get disability through work before buying.
Make a will. You’ll need one to appoint a guardian. Get it made now — you can DIY with software like Quicken WillMaker Plus ($43) — while you have time. No need to know the name of your offspring.
Check your benefits. Only 16% of companies offer paid maternity leave. Want to take time off without pay? Be sure you have savings to cover expenses.

Related: How to Tell Your Kid You Can’t Afford Her Dream College

Last Trimester and Beyond

Get the gear. Talk to other parents about what you need — and don’t (e.g., a wipes warmer). Ask your BFF to throw you a shower. Register to avoid repeat gifts.
Set up a 529 …and deposit any cash gifts. All 529 plans offer tax-free growth and withdrawals for college, and many states let you deduct a portion of contributions.
Enroll baby. You have 30 days after the little one’s birthday to put your child on your health plan and to sign up for flexible spending accounts that let you save pretax for health care and dependent care.
Celebrate your tax break. In 2014, the exemption you get for having a child is $3,950. Use the Withholding Calculator at to see if you can reduce what you’re paying to Uncle Sam each paycheck.

Related: Ace Your Annual Review

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