Thursday, July 28, 2005
How to Attain Your Dreams on a Single Income
Kathryn Spencer, who specializes in household budgeting tips, offers up these thoughts for recently-single parents who see their once-bright dreams fading away in the land of "singledom".
If you recently became a single parent and see your dreams being washed away because you feel all alone, you aren’t alone. There are single parents that face future endeavors alone like dating again, living on one income, and buying the home they’ve always imagined. It is possible to do things on your own, be successful, and enjoy every bit of getting to where you want to be in life.
Being a single parent can be an everyday struggle but don’t feel you have to give up your goals in life just because you are on your own. At some point in life, people think about moving whether it is into an apartment, condo, or type of house. With raising children you usually need a little more space than living alone so a house is an ideal spot for many families either single parent families or both parent families. Don’t feel as a single parent that you wont be able to afford a house on your own. Here are a few guidelines to get you started on fulfilling your dreams.
Mortgage Lenders 3 Preferred Tests to Use to Determine House Budget
First you need to figure out how much money you can spend on a house. Look for prices of houses two and a half times your annual income. Mortgage lenders normally use these three tests so they make a good starting point to follow:
Test 1: The monthly house payment, including property taxes and insurance should not exceed 26 percent of your gross monthly income.
Test 2: All monthly debt payments plus the house payment should be no more than 38 percent of your gross monthly income.
Test 3: As the homebuyer you should have two to three months worth of paychecks in an emergency fund.
Lets look at an example to get a better understanding. Let's assume your annual income is $26,000. This would qualify you for approximately a $60,000 mortgage. The monthly principal and interest payment would add up to about $400 a month; taxes and insurance would then add up to another $100 to $150, depending on the area. Lastly if you put less than 20 percent down, you'll have to pay private mortgage insurance as well, making your total monthly payment come out to be around $575.
Your Cash Flow
Once you figure out how much of a mortgage you can qualify for your next step is to know your own cash flow. It's up to you to make sure you can make the monthly house payment, pay for child care and still look out for your long-term goals such as your retirement fund and your children's education. Be sure to track your spending for several months so you'll know how much you can spend on a house that really fits into your budget.
Houses don’t come cheap and you’ll have to figure the next expense, which is figuring in your taxes. Houses are often known as great tax breaks because mortgage interest and property taxes are deductible, but that is true only if you itemize.
Save!
Of course you are going to want to make sure to save wisely. Let's assume you find the house of your dreams and it just so happens to be a $64,000 house. You figure that you can put 5 percent down, or $3,200. With closing costs and not washing out your emergency fund, you'll need to save about $5,000. If you invest $100 a month in a conservative no-load mutual fund, you should reach your goal of $5,000 goal in five years.
So if you need to start saving up money to be able to afford a house, with a five-year timeframe, the best place to invest the money is in a mutual fund within a Roth IRA. Usually after five years, first-time homebuyers can pull out all their initial investments plus all the earnings of up to $10,000 tax-free.
Alternatives to Single Mother’s Dream
Be sure to consider all alternatives. Five years may be too long to wait or $64,000 may or may not buy the house you’ve always dreamed of having. If you simply can’t afford a house in the desired time you might like to consider other ways to obtain a home such as buying a home along with another family member or someone you can trust. You then could divide all costs, childcare, and chores that come with owning a home.
Take advantage of any tax breaks. If you are filing as the head of the household, claiming childcare expenses and the $500 tax credit for each child under the age of 17, you can save up to hundreds of dollars off your federal tax bill. With the assumed income bracket of $26,000 used before, it will make you eligible for an $850 earned income credit. Keep in mind this is one of the few times the IRS will pay you.
Last but not least keep in mind funding for your retirement.
With these guidelines in mind and examples given of how much money you need having a certain income, you can achieve purchasing the home you’ve always dreamed of. Stay motivated, don’t lose hope and you and your children will live the dream you’ve always dreamed of having, your very own home!
Kathryn Spencer specializes in household budgeting tips and has long authored educational and support pieces for women and single mothers. Kathryn is a contributing author and editor to a variety of international and domestic web sites, and free newsletters. Kathryn lives in the southeastern United States with her two children Dylan and Kalie.
