The purchase of a home is perhaps the biggest financial responsibility you will incur in your young adult life. There are many big signals that it could be time for your family to make the big jump, including but not limited to, a new addition to the family, an upgrade in income, or just the human desire to upgrade from an apartment. However, this step does not happen overnight. In fact, it can take weeks and months of planning. The key is to get everything right the first time, because if you don’t, you could be staring at a mountain of debt with unsatisfactory results. Here are a few things you should know before entering the housing market for the first time.
The Amount of House You Can Afford
You may be able to determine on your own how much of a monthly house payment you can afford by taking a look at your monthly income, expenses, debt, and savings. If you are still unsure of how much house you can afford, you should talk to a financial expert. This expert should not be a banker you might consider for a mortgage because they have a financial interest to issue loans that are as large as possible.
Generally speaking, you should not spend more than 30 percent of your gross income on monthly house payments. You will also need to save money for a downpayment.
Many homeowners mistakenly believe that the amount they pay each month will only include the cost of the loan. They are often shocked to see that the total they must pay includes things like homeowner’s insurance and property taxes. Depending on the size of your down payment, you may also be required to pay private mortgage insurance. You will also face the possibility of paying closing costs of up to three percent or more. This money will be used to pay attorney fees and other costs associated with the transferral of homeownership. All of these things should be considered when you are financially planning for this dramatic step.
Find a Realtor You Can Trust
Some potential homebuyers are reluctant to seek the services of a realtor for fear the fees paid to the realtor will drive up the potential price paid for their new home. This fear is unfounded since it is the seller who is responsible for the commission earned by a realtor. A savvy realtor will also pay dividends by helping to guide you through every part of the home buying process. The value of a realtor can go underappreciated, but their knowledge and resources of the area are an intangible that you simply cannot afford to miss.
Think Beyond The Present
The financial commitment involved with buying a house makes it necessary to consider the long-term plans you have for your life long before pulling the trigger on a purchase. Issues like your current and future marital status, plan for kids, and career goals are all extremely important. Mortgage and market terms may make it necessary for you to pay on your mortgage for a few years before you begin to build substantial equity. You would not want to commit to a home you will not live in for very long if this is the case.
Look Past Aesthetics
It is not uncommon for you to have a favorite room in a home before you make a purchase. It is also no stretch of the imagination to think you will spend much time thinking of how you will upgrade the space. However, make sure you think of more than just the cosmetic work that must be completed in a home. For example, it is one thing to consider the cost of the perfect cabinets or countertops for a new kitchen. But it is something entirely different to foot the bill for the supplies and labor to complete these upgrades. The cost to upgrade a home does not have to be a reason not to make a purchase. However, you should purchase a home with a full understanding of how much money you will need for repairs and upgrades.
Understand the Closing Process
A meeting will take place between your lender, attorney, and realtor when it is time to close on your new home. A lot of paperwork will need to be completed and you will be walked through the process to ensure you understand all that is happening. You will need to sign and initial all the paperwork you are given. Once you are done, you will be given your copies of all the paperwork along with the keys to your home.
The first-time purchase of a home can be both a nervous and exciting time in your life. It is important to remain as calm and focused as possible throughout the process in order to ensure you make the best decisions possible. The six tips above should help you understand a few things you should know before buying your first home.
THE END OF YEAR TAX CHECKS THAT COULD SAVE YOU THOUSANDS
Charlie Reading, Founder and MD of Efficient Portfolio
After HMRC’s tax return deadline at the end of January, it can be tempting to drop your guard, believing that your new tax bill is a long way away.
It’s true, you’ve got a whole year until the next bill is due. What most don’t consider, however, is that there is a range of checks that you can do reduce that bill significantly.
Astute investors make use of their tax-free allowances every year and save thousands of pounds in the process. With such massive savings on the line, it’s a strategy to certainly consider.
With that, here are some easy checks and tips from Charlie Reading, Founder and Managing Director of Efficient Portfolio chartered financial planners, that could start you on your way to a much leaner tax bill:
1. Maximise Your ISA Allowances
Good returns, flexibility, diversity and tax efficiency should be key components in your financial strategy, and the ISA helps to deliver all of these. Historically, ISAs have been at the cornerstone of tax-efficient saving and are often referred to as one of the essential steps in your strategy, as they can help your wealth grow without you being penalised by heavy tax charges. They are an incredibly useful way of saving, and, as such, it is generally encouraged that people take advantage of their benefits. However, the ISA allowance is offered on a ‘use it or lose it’ basis, so if you fail to maximise it, you can’t make up the funds later on.
Up until 5th April 2020, you can contribute up to £20,000 into an ISA, and a further £20,000 from 6th April 2020, thereby sheltering up to £40,000 per person, as long as you’re over 18.
2. Top Up Your Pension While You Still Can
At the time of writing, the highest level of State Pension you can receive is £129.20 a week, which is frankly a paltry sum to live on. That’s why saving for the future is so important. It might seem wise to enjoy life now and worry about retirement later, but you’d only be damaging your future quality of life.
Pensions are a highly tax-efficient way of saving and now offer a great deal of flexibility in retirement, as when you retire you can gain access to 25% of your pension pot as a tax-free lump sum, with the remainder taxed at your marginal rate.
The current pension annual allowance is set at £40,000, so if saving for your future is a priority, it is worth investigating which pension is right for you, sooner rather than later.
3. Protect Your Estate from Tax
Inheritance Tax (IHT) is a concern for people from all walks of life. If you are hoping to leave a legacy to your loved ones, the last thing you would want is for that legacy to be taxed at 40% and lost to the Government.
One simple way of combatting this is to consider using your annual IHT allowance. During your life, you are allowed to give away £3,000 per year without incurring any IHT charges upon your death. There are of course downsides to this, in that you lose all access and control over the money, but it may be a tax-efficient strategy to consider.
4. Don’t Overpay Your Capital Gains Tax
The final tax consideration at this time of year is Capital Gains Tax, which is also given on a ‘use it or lose it’ basis and is currently set at £12,000. The issue of Capital Gains Tax is most acute if you hold investments which have grown above your tax-free allowance.
To ensure you make the most of your Capital Gains Allowance, it is generally recommended to sell down a portion of your portfolio to realise the growth made, but only enough to maximise your allowance, is the most prudent strategy.
These funds can then be used to fund any outstanding allowance on your ISA, for example. The advantage of doing so is that by placing your money from a taxable to non-taxable environment you have the potential for further growth, and you benefit in the longer term by potentially reducing a future bill.
There’s plenty of time left before the taxman comes knocking once again, but there’s no better time than the present to start looking into how you can save you and your business thousands of pounds simply through tax allowances you might not have previously been aware of.
HOW TECHNOLOGY IS FUTUREPROOFING STOCK MARKET TRADING
Tony Shaw, Executive Director, London Office and Head Sales UK & Ireland at the Swiss Stock Exchange
Markets are shifting, there’s no doubt. Amid all the disruption and volatility from the past year, the Swiss Stock Exchange asked traders about what they expected in 2020 and beyond in our industry survey. The findings point to a rise in digital to help traders content with external forces.
First and foremost, traders are enthusiastic about what digital assets can offer.
Two thirds of traders polled said they’d had a marked rise in interest from their clients for digital assets and crypto-products. Given the interest, traders are increasingly bullish about the potential of these products – so much so that 80% have predicted an increase in overall demand in the long term. Market users believe these assets will help generate cost synergies and streamlining trading and settlement processes by creating efficiencies and ultimately reducing costs.
Our 2019 results reflect what traders have told us when it comes to digital assets and products. Last year, we saw significantly higher trading volumes from products with crypto currencies as underlyings. Overall volumes grew by +8.5% over 2018, but the increase in crypto products alone was +17%, reaching CHF 518.2 million ($534.54 m). There was a year-on-year increase in the number of transactions, as well (+21%): 19,636 trades in total.
The potential digital assets hold is clear – evidenced by the building of the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets.
According to traders, artificial intelligence (AI) is expected to bring further benefits to market operations.
Two thirds of our survey respondents anticipate AI will create more opportunities for the traditional equities business, while a similar number expect it to reduce the cost of trading. Innovation in AI is already – and will continue to be – a key driver in making our industry more effective at withstanding future risks and challenges both within and beyond the market itself.
In Europe, there is growing momentum behind calls for shorter trading hours – this trend was reflected in our survey as well.
Industry groups such as the Investment Association are advocating for stock market trading hours to be cut from 8.5 to 6.5 hours to open the industry to working parents and women who cannot commit to such long workdays. We found traders were largely supportive of this, with many saying that it could even facilitate operational benefits. The roll of AI is clear here in improving efficiency while minimising time wastage: 36% of traders said the introduction of shorter trading hours would prompt greater market liquidity.
Beyond the market itself, geopolitics continue to shape wider market sentiment.
It comes as no surprise that four fifths of traders said their strategies have been – to some extent – influenced by Donald Trump’s tweets. Interestingly, only 39% of those polled viewed Brexit as an influencing factor in trading activity, while three quarters believe the US election will drive trading activity in 2020 and 65% acknowledged trade wars would also have an impact.
More broadly, traders are split on the state of the global economy – 58% are bracing for a global recession while 42% predict stable macro-economic conditions over the next three years. What seems clear is that whatever happens in the wider economy, traders are making headway with new technologies that can improve their strategy, efficiency, and overall market health.
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