Sunday, December 26, 2010

Guest Post: First Generation White Collar

Today's guest post was written by PF blogger L. Marie Joseph. She has recently published the book First Generation White Collar: A practical guide on how to get ahead and not just get by with your money. As a fellow blogger, I have corresponded with Marie for nearly four years and have gotten to know her through her blog, Moneymonk. It is my pleasure to present her guest post on PFStock.

In the excerpt below, L. Marie Joseph discusses her views on Housing:

So now you’re making a great salary and have a college degree under your belt. Now your eyes are getting bigger. You want a house! That apartment you have is starting become a prison cell.

A home is usually the biggest expense we have. That being said, try your best to qualify for a mortgage that has a fixed rate, you don’t want any surprises down the road. You want to also have a payment that is under 30 percent of your income. You know this is going to be your biggest expense, so try to make it as low as possible. Your loan should also be limited to a fifteen- to thirty-year debt sentence.

For example if your take-home pay is $5,000 a month, your monthly house payment should be no more than $1,500 a month. So let’s not get house fever and buy something $2,000 a month because it looks better. Get what you can afford! You want to be able to pay for house payment AND save and invest comfortably. Not just pay your house payment and expenses. You always want to build wealth while you are paying your home off. Stick to renting if your payments will be more than 30 percent of your income. You do not want to own anything that will jack more than 30 percent of your income.

Ideally, you’re the price of your home should be two and one-half times your salary (two times if you want to be wealthy). Don’t fall for what the mortgage company tells you can afford. They do not know your personal situation. Divorce, sickness, and layoffs can all happens during the life of the loan. Always think of these factors when agreeing to a contract for so long. No one is immune to Murphy’s Law. Mortgage Brokers will not discuss these issues with you. It is your responsibility to education yourself.

"Education is when you read the fine print. Experience is what you get if you don’t."
-Pete Seeger

So if you make $50,000 a year, and the mortgage company approves you for $200,000 —RUN. This is four times your income, and you cannot afford it.

Depending on where you live, this can vary; I have friends in Washington, DC, and New York, and they cannot comfortably make this happen. If you live in a large, high-expense state, such as California or New York, your percentages may be slightly different.

Interest only and adjustable rate mortgages (ARMs) should always be avoided. ARMs almost always adjust higher not lower. You should always get a fixed-rate mortgage. You don’t want any surprises down the line.

Rule of thumb:
  • Take out a fifteen- to thirty-year mortgage
  • Make sure the payment is under 30 percent of your income, if you want to be wealthy.
  • Having a mortgage payment that’s below 30 percent of your household income gives you more room to save and invest.
  • Seek financing through a credit union or your local community bank.
  • Interest only and ARMS mortgages should be avoided.

About the Author
L. Marie Joseph is the author of First Generation White Collar. Visit her blog and you can also follow her on twitter.

Moneymonk had a post offering a free Apple iPad drawing to people who purchase her book. However, that offer has ended. Sorry for the inconvenience.

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