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Tips for Families Going From Two Household Incomes to One

The decision to move from two household incomes to one can be a challenging one. Many people face it when they’re having their first child, or when they’re contemplating a career change that will require going back to school.

Sometimes, it’s not a decision at all, as a life change can force you into this type of situation. Perhaps one partner becomes disabled, or they face job loss in the coronavirus economy. (Sometimes, this can happen abruptly, with the unexpected passing of your partner.)

For Sarah and I, the moment that triggered our choice to move to a single income household was the moment we discovered that our third child was on the way. With two other preschool-aged children at home already, child care was becoming so financially demanding that we were questioning whether it was worth it anyway, and the desire to simply have a tighter knit family for a time while the kids were so young cinched our decision.

Here are seven strategies that worked very well for us in planning for a transition from two incomes to one.

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How to transition from two household incomes to one income

1. Create a budget for life after the change

If you’re considering the possibility of moving to a single income household, your first step is to figure out the financial feasibility of it. Is it even possible to pull this off?

The easiest way to do that is to assemble a budget that incorporates both your reduced income level after the shift as well as the changes in your expenses. You’ll have to make some estimates as to how many of your expenses will change. For example, you’ll likely see a drop in commuting costs, professional clothing, and meals eaten outside the home, and you’ll probably see a natural drop in overall food costs. However, you’ll likely have to supplement that with additional belt-tightening.

How does one even start assembling a budget?  Begin by figuring out where all of your money is actually going, tracking it down with bank and credit card statements.  Organize all of those expenses into categories that make sense for you, and total up how much you spent in those categories.  Then, figure out sensible cuts within each of those categories.

When Sarah and I assembled our one-income budget we realized we would have to drastically cut our entertainment and food expenses to make things work. We decided that strictly adhering to eating at home and cutting back heavily on spending for entertainment and travel would have to happen, but it was still possible and realistic to make it work.

2. Consider your health insurance options

In an ideal situation, the person who is remaining in the workforce already has the best health insurance package, which the whole household is already using. However, sometimes you may find that the person leaving the workforce is the one with the better option, meaning that you either need to switch to the other health care plan or, if one isn’t available, shop for one on the open market.

3. Consider long-term FMLA leave or a sabbatical

Some workplaces offer unpaid leave through Family Medical Leave Act (FMLA) that can last for up to a year in some situations, and other workplaces offer sabbaticals in the form of periods of unpaid leave. These options can help you retain access to some workplace benefits while you are away from the workplace.

4. Do a trial run on one income first

Now that you have a clear picture of the expenses that you’ll face after moving to one income, do a “trial run” on that income. Commit to living as though you had just one income as closely as possible, sticking to your reduced expenses in areas like food, entertainment and hobbies to see what problems expose themselves.

If you find that you cannot sustain your household on one income, try revisiting your budget to find other areas where you can cut back on expenses. In the case that you find you can’t cut back any more expenses, consider some work-from-home jobs to pick up a side gig or increase your income while staying home.

5. Build a healthy emergency fund

An emergency fund is a pool of cash that is set aside for unexpected events, typically in a savings account. One of your major goals during the time leading up to transition to a one-income household should be to build up that emergency fund, so that you’re able to handle unexpected events easily once you go from two incomes to one. If you’re executing the trial run strategy, then the extra income from the second income earner during that trial run period provides the funds you need to build that emergency fund.

Ideally, all families should have a healthy emergency fund, but it’s even more important when you’re transitioning to a single income, as there’s more financial risk involved. The truth is that life contains a lot of risk and emergencies will happen, and while there are many things you can do to avoid debt in an emergency, the best one is to simply be prepared for it. Aim to have at least a couple of months of living expenses set aside, so that things don’t fall apart if the single income earner loses their job as well.

6. Pay off high-interest debts

If you have a healthy emergency fund in place, the next step is to get rid of as much of your high-interest debt as possible. As with the emergency fund, this is much easier to do if you’re doing a trial run of transitioning from two incomes to one income.

Start by assembling your own debt repayment plan, which will help you organize your debts in a sensible way and will naturally prioritize high-interest ones.

The advantage of paying off debts during your trial run period is that it reduces your expenses when you’re living with a single income. That’s one fewer bill that you have to deal with, meaning it’s easier to make ends meet.

7. Develop home economics skills

As you’re preparing to switch to a single income household, one very useful tool to have in your repertoire is basic frugal household skills, like food preparation, household management and basic repair skills. Use this trial run as an opportunity to really hone your skills in those areas when you have a financial safety net of a second income to help clean up any mistakes along the way.

For example, you might completely burn dinner as you’re learning to cook at home, but this is much less of a crisis if you can afford to order pizza, an option that might not work as well later when you’re on a much tighter budget.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

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Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Posted on February 24th, 2020

Mortgage rates can be pretty volatile. Just like stocks, they can change daily depending on what’s happening in the economy.

Beyond that, mortgage rates can move based on news that doesn’t involve a report on the economic calendar, such as a jobs report, GDP, housing starts, inflation, etc.

Even if there isn’t a direct financial implication to a news story, mortgage rates can go up or down.

Just consider the recent conflict with Iran, which may have pushed mortgage rates down a little lower, even though it was unclear what the outcome would be.

It turned out to be a short-lived situation, despite any obvious conclusion or resolution, but that’s just one of many recent examples.

How the Coronavirus Could Affect Mortgage Rates

  • Fear of a global economic slowdown has hit financial markets
  • Dow Jones off nearly 1,000 points, Nasdaq down 350 points
  • Investors fleeing market for safety of alternatives like bonds
  • This has pushed the 10-year bond yield down near its all-time low

Now we’re dealing with what could be seen as a global pandemic in the spread of Novel Coronavirus (COVID-19).

It may or may not have originated in Wuhan, China, but it has rapidly made its way across the globe, with Italy just confirming a fifth death from the virus.

The World Health Organization (WHO) hasn’t yet declared the coronavirus outbreak a pandemic, but did say it has “pandemic potential.”

In other words, there’s a lot to fear due to the unknown and the very real loss of life, and that explains the recent pullback in the stock market.

At the time of this writing, the Dow Jones was off nearly 1,000 points and the Nasdaq was down over 350 points. And that’s after a bad Friday as well.

Part of that has to do with the fact that large companies like Apple have already warned of profit hits due to global supply chain issues, which may affect sales.

The trillion-dollar company acts as a bellwether to other large corporations and the economy at large.

In short, when bad news happens, stocks go down. This is the market’s natural tendency to flee the volatility of the stock market for the relative safety of the bond market.

Some investors may also seek out “safe haven assets” such as gold, which tend to perform well in times of fear and despair.

There is typically a negative correlation between stocks and bond prices, and so today we’re seeing a big drop in the 10-year bond yield.

Long story short, when bond yields drop, so too do mortgage rates.

The Coronavirus Has the Ability to Push Mortgage Rates to All-Time Lows

  • 30-year fixed rates are only about .25% above all-time lows
  • Won’t take much for mortgage rates to test new records
  • Impact will depend on whether coronavirus spreads or slows
  • Watch out for a quick reversal if any good news surfaces

We know investors are quick to ditch risk when there’s uncertainty in the air. But the bigger question is will this pullback be meaningful?

Will it actually matter in a few months (or even a few weeks), or will it turn out to be just another headline that goes away once things settle down?

Hopefully it does get resolved soon for the sake of anyone affected.

But because we don’t have those answers yet, there’s a good chance stocks will continue to fall, at least in the short term.

As such, expect increased downward pressure to apply to mortgage rates too, which might be good news for those looking to refinance a mortgage or purchase a home.

Of course, mortgage rates are already pretty rock-bottom, and not necessarily holding anyone back. It’s the sky-high home prices that are causing affordability issues.

And really, lower rates may just exacerbate an already hot housing market, which is ushering in a return to bidding wars.

With regard to how much rates might move, it’s not totally clear since the coronavirus outlook can change in an instant.

As it stands now, the 30-year fixed is averaging 3.49%, which is just 18 basis points (0.18%) above its all-time low, per Freddie Mac data.

It wouldn’t take a whole lot for rates to test new historic lows given the fear and uncertainty at the moment.

Conversely, mortgage lenders will be quick to adjust their rate sheets higher if there’s any glimmer of good news on the topic.

Remember, with rates already so low, it’s harder for them to move even lower than it is for lenders to stand put or simply increase them.

Read more: Why It Might Be Better to Apply for a Mortgage When Things Are Slow

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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Is Your Mortgage Forbearance Ending Soon? What To Do Next

Millions of Americans struggling to make their monthly mortgage payments because of COVID-19 have received relief through the Coronavirus Aid, Relief, and Economic Security Act.

But mortgage forbearance is only temporary, and set to expire soon, leaving many homeowners who are still struggling perplexed on what to do next.

Enacted in March, the CARES Act initially granted a 180-day forbearance, or pause in payments, to homeowners with mortgages backed by the federal government or a government-sponsored enterprise such as Fannie Mae or Freddie Mac. Furthermore, some private lenders also granted mortgage forbearance of 90 days or more to financially distressed homeowners.

According to the Mortgage Bankers Association, 8.39% of loans were in forbearance as of June 28, representing an estimated 4.2 million homeowners nationwide.

So what are affected homeowners to do when the forbearance goes away? You have options, so it’s well worth contacting your lender to explore what’s best for you.

“If you know you’re going to be unable to meet the terms of your forbearance agreement at its maturity, you should call your loan servicer immediately and see what options they may be able to offer to you,” says Abel Carrasco, mortgage loan originator at Motto Mortgage Advisors in St. Petersburg, FL.

Exactly what’s available depends on the fine print in the terms of your mortgage forbearance agreement. Here’s an overview of some possible avenues to explore if you still can’t pay your mortgage after the forbearance period ends.

Extend your mortgage forbearance

One simple option is to contact your lender to request an extension.

Homeowners granted forbearance under the CARES Act can request a 180-day extension, giving them a total of 360 days of forbearance, according to the Consumer Financial Protection Bureau.

The key is to contact your lender well before your forbearance expires. If you let it expire without an extension, your lender could impose penalties.

“If you just stop making regular, scheduled payments, you could have a late mortgage payment on your credit,” warns Carrasco. “That could severely impact refinancing or purchasing another property in the immediate future and potentially subject you to foreclosure.”

Keep in mind, though, a forbearance simply delays payments, meaning they’ll still need to be made in the future. It doesn’t mean payments are forgiven.

Refinance to lower your mortgage payment

Mortgage interest rates are at all-time lows, hovering around 3%. So if you can swing it, this may be a great time to refinance your home, says Tendayi Kapfidze, chief economist at LendingTree.

Refinancing could come with some hefty fees, however, ranging from 2% to 6% of your loan amount. But it could be worth it.

A lower interest rate will likely lower your monthly payment and save you thousands over the life of your mortgage. Dropping your interest rate from 4.125% to 3% could save more than $40,000 over 30 years, for example, according to the Consumer Financial Protection Bureau.

“Lenders have tightened standards, though, so you will need to show that you are a good candidate for refinancing,” Kapfidze says. You’ll need a good credit score of 620 or higher.

As long as you’ve kept up your end of the forbearance terms, having a mortgage forbearance shouldn’t affect your credit score, or your ability to refinance or qualify for another mortgage.

Ask for a loan modification

Many lenders are offering an assortment of programs to help homeowners under hardship because of the pandemic, says Christopher Sailus, vice president and mortgage product manager at WaFd Bank.

“Lenders quickly recognized the severity of the economic situation due to the pandemic, and put programs into place to defer payments or help reduce them,” he says.

A loan modification is one such option. This enables homeowners at risk of default to change the terms of their original mortgage—such as payment amount, interest rate, or length of the loan—to reduce monthly payments and clear up any delinquencies.

Loan modifications may affect your credit score, but not as much as a foreclosure. Some lenders charge fees for loan modifications, but others, like WaFd, provide them at no cost.

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Watch: 5 Things to Know About Selling a Home Amid the Pandemic

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Put your home on the market

It may seem like a strange time to sell your home, with COVID-19 cases growing, unemployment rising, and the economy on shaky ground. But, it’s actually a great time to sell a house.

Pending home sales jumped 44.3% in May, according to the National Association of Realtors®’ Pending Home Sales Index, the largest month-over-month growth since the index began in 2001.

Home inventory remains low, and buyer demand is up with many hoping to jump on the low interest rates. Prices are up, too. The national median home price increased 7.7% in the first quarter of 2020, to $274,600, according to NAR.

So if you can no longer afford your home and have plenty of equity built up, listing your home may be a smart move. (Home equity is the market value of your home minus how much you still owe on your mortgage.)

Consider foreclosure as a last resort

Foreclosure may be the only option for many homeowners, especially if you fall too behind on your mortgage payments and can’t afford to sell or refinance. In May, more than 7% of mortgages were delinquent, a 20% increase from April, according to mortgage data and analytics firm Black Knight.

“When to begin a foreclosure process will vary from lender to lender and client to client,” Sailus says. “Current and future state and federal legislation, statutes, or regulations will impact the process, as will the individual homeowner’s situation and their ability to repay.”

Foreclosures won’t begin until after a forbearance period ends, he adds.

The CARES Act prohibited lenders from foreclosing on mortgages backed by the government or government-sponsored enterprise until at least Aug. 31. Several states, including California and Connecticut, also issued temporary foreclosure moratoriums and stays.

Once these grace periods (and forbearance timelines) end, and homeowners miss payments, they could face foreclosure, Carrasco says. When a loan is flagged as being in foreclosure, the balance is due and legal fees accumulate, requiring homeowners to pay off the loan (usually by selling) and vacating the property.

“Absent participation in an agreed-upon forbearance, deferment, repayment plan, or loan modification, loan servicers historically may begin the foreclosure process after as few as three months of missed mortgage payments,” he explains. “This is unfortunately often the point of no return.”

For more smart financial news and advice, head over to MarketWatch.

Source: realtor.com

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