3a. Transportation and Household Purchases
This is my detailed strategy to manage and plan large purchases of a car and major household items that include carpet, TV, beds, washer, and dryer. I have just gotten a job with a good salary that can sustain me with my wife and one kid.
Buying a car
I need a Toyota corolla car for a start since its fuel consumption is very much economical and has affordable insurance premiums. After scouting around the city, I found out that many several car finance loans get offered by some lenders and garages and are actually n hire purchase agreements. I have other long term and short term goals that I need to consider in my budget as much as I have planned for a car. I decided to buy a second hand Toyota Corolla car from a garage which is still in good condition, and finance it through hire purchase agreements because it is convenient for me, the seller garage is arranging for my finances hence saving me the time of visiting my bank. I chose second had a car instead of a new car because it was affordable, was still in good condition, and was for only minimal movements around the city, to go to a job, shopping and these were short distances.
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Under the agreement with the garage through the hire purchase, the garage acted as an agent to my bank and earned a commission for arranging the finance for me. In this scenario, they were acting as a credit intermediary and got authorization from my bank to act on my behalf. Under the hire purchase agreement, the garage or the motor dealer sold the car to my bank and then my bank rented the car to me for a specific period of time agreed to a set of monthly repayment for a specific number of years.
I will be able to get and use the car but my bank will actually own it. By the time I shall have completed my total payments at the end of the agreement, the ownership will be passed from my bank to me.
I opted for hire purchase agreement terms from my garage to finance my purchase since they were flexible, convenient, and of low cost compared to personal loans from my credit bank which had high-interest rates and was inflexible. Moreover, it minimally affected by long term and short term goals compared to when I could have taken a personal load to finance my car, or leased a car.
The main difference between personally financing my car through a hire purchase agreement compared to a lease is that at the end of my full repayment, the car will be mine. On the other hand, leasing a car will still be owned by the owner. Moreover, leasing is a bit expensive in the long run and this would negatively affect my budgetary plans and long-term goals which need savings and huge budgetary allocations from my salary.
Household items
The household items that I need to purchase include carpet, TV, beds, washer, and dryer. My strategy is to buy quality household items at affordable prices or even cheaper so as not to affect my budget on other items. My strategy for finding good bargains is that I will time end seasons, offseasons, and seasons when new models force down prices of other models down. For the carpet, I will buy the year-end because of slow sales during that period and there are many discounts. Moreover, for the washer and dryer, my timing will be when new models arrive in the market probably around September and October. Moreover, my other strategy for washer and dryer will be on holiday weekends, president’s day, Labor Day where goods have good deals and will make me save some hundreds.
For the bed, it is very much necessary when I move into my new house therefore it will not need any timing. However, I will scout around for the best deals around. However, for good television which is available throughout the year, I will also consider timing. For instance, I will plan to buy one after New Year’s Day, or after Christmas, Black Friday, and also before the super bowl around May and June.
3b. Home Purchase
There are many issues related to qualifying to buy a home. New South Wales (2003) advises that a person should not just start hunting for a house until they are serious that they can afford to pay. To qualify for buying a home, several factors need to be considered
How much house an individual can afford
According to New South Wales (1997), the formula developed to determine the house an individual can afford should be worth approximately three times the total (gross) annual income. However, he further cautions that individuals should not over-rely on the formula but reexamining their own budget and determining how much they have spared and what the monthly payments on the new house will be. This does not only include the mortgage but also other factors such as insurance, taxes, remodeling plans, maintenance, and many others.
New South Wales (2003) indicated that institutional lenders require an individual to be able to make all the monthly payments towards the house in addition to other debt obligations. This should not be more than 28%-44% of an individual’s monthly income
Checking credit history
Credit history is always gotten from Transunion, Experian, and Equifax and it shows the credit score of an individual. According to Weston (2005), a credit score number represents an individual’s statistical summary of their information in their credit report. These include things like an individual’s history of bill payments on time and the level of their outstanding debts.
An individual with a higher credit score will find it easy to get a loan. Given that credit history has a significant effect on the amount and type of mortgage loan an individual is offered, it is important to check the credit report and clean up the files before applying for a mortgage (Weston, 2005).
Loan preapproval versus loan prequalification
Giannamore & Osach (2009) stated that once an individual have completed the basic calculations and financial statement, they can ask the loan broker or the lender for a prequalification letter that states that approval of a loan for a specified amount is likely based on an individuals credit history and their income
Prequalifying lets an individual determine how much they will need to borrow and the amount they will need for closing and down payment costs (DeSimone, 2014). When prequalifying an individual for a loan, Giannamore & Osach (2009) pointed out that the lender will review an individual’s credit report or even make verification of their financial information. However, they will provide simply an estimate of the amount an individual might eventually be approved for based on an individual’s finances overview including debts, assets, and income.
According to DeSimone (2014), it is significant also to go beyond loan prequalification. An individual need also to try preapproval for a specific amount of loan. This implies that the already the lender has indicated approval willingness of a loan after checking the credit and evaluated an individual’s financial situation. Giannamore & Osach (2009) asserted that preapproval is not a guarantee that eventually the lenders will fund the loan. However, it is as close as going to get one, and in most instances, the seller of the home will want to see it.
Advantages and disadvantages of homeownership.
The advantages include:
- Greater privacy
- The costs are more stable and predictable than renting because homeownership is based ideally on a fixed-rate mortgage
- Typically homes increase in value
- Property tax and interest portion of the mortgage payment is a deduction of tax
- There is homeownership pride that closely ties an individual to their community
- Appreciation potential
- Hedge against inflation
- Helping building good credit
- Flexibility in having garden, pets, make noise
- The owner can change the home or remodel it as they see t fit
- Garage or storage space (New South Wales, 2003).
The disadvantages include;
- Ownership of homes is a long term financial commitment
- With homeownership, an individual is wholly responsible for all the maintenance at home such as repairs
- Owning a home ties an individual to their community and this makes it difficult for them to pick up suddenly and depart from a location
- Despite the fact payments of mortgage are fixed usually, they are generally higher compared to rent payments
- If the buyer does not make their mortgage payments, a bank can actually take away the home
- Buying a home requires moving expenses, closing costs, and down payments
- During the first few years, the house value may not increase
- Risk of having to sell it at the wrong time
- No amenities like swimming, park, gym, pool (New South Wales, 1997).
I plan to buy a house in Fresno that costs $230,000. The purchasing terms for the house require a down payment of 20% and the remaining amount payable for an agreed period of time of which in my case is 30 years. A down payment of 20% is equivalent to $46,000. Therefore, my strategy for purchasing the home is to save for the first down payment for the first five years. This implies that for 5 years, I will need to save $9,200 per year and approximately $ 770 per month for the home.
After paying the first down payment, I will need to offset the remaining balance in 30 years. The remaining balance after the first down payments have been paid will be $184,000. When this is paid in a span of 30 years will mean that yearly I will need to pay $6134 which translates to $512 per month after my first installments. Moreover, other charges need to be paid like the homeowner’s insurance, PMI, escrow accounts, and local property taxes since I will purchase the home through a mortgage loan
PITI
Since I will pay for the house through a mortgage loan, the mortgage has four elements which include principal, interest, taxes, and insurance.
- The principle will be the amount I will borrow and I will have to repay over time totaling to $184,000.
- The interest is the costs the lender will charge me for use of their money during the schedule of repayment. It varies between different financial institutions. The average interest rate in the Fresno area is 4.135%.
- Taxes are the assessment that the Fresno local governments collect from the property for payment for the local services. in the Fresno area, the property tax varies
- Insurance will be required to make a replacement of the loan value n an event of a disaster like an earthquake, fire, and floods.
Additionally, insurance, real estate taxes, and the Private Mortgage Insurance (PMI) will be required to be placed in escrow for payment of insurance taxes, PMI, and other items when they come due on my behalf.
Escrow payments
According to Warner et al (2013), escrow account s created by the lenders to pay the hazard insurance and the property tax as they become due during the year on your home. An escrow account is used in safeguarding investments by the lender, which is the home. The aim of the escrow account according to Warner et al (2013) is to have enough money for paying insurance and taxes when becomes due. Therefore, In the Fresno area, to realize this, the lenders add 1/12 of the tax and the amount of insurance to an individual’s mortgage payments monthly. Moreover, the Real Estate Settlement Procedures Act (RESPA) allows the lender to add amount to the annual amount of two months of extra payments and is prorated every month
3c. Insurance
My asset protection and insurance plan will include insurance for life, property, and liability insurance throughout my life. I will insure things that I cannot self-insure only like my house, car, and life
Car insurance
I will get my auto insurance coverage from Liberty Mutual Insurance. This is because of their affordable costs and has additional coverage to cars apart from liability coverage. This additional coverage from Liberty Mutual Insuranceincludese superior protection which can replace your car, numerous discounts, and unlimited rental coverage.
Home insurance
I will go for home insurance after five years when I have acquired my new home. I will also opt for Liberty Mutual Insurance services because they have numerous benefits to their policyholders in managing home insurance policies very simple and stress-free. For instance, Liberty Mutual Insurance has the following benefits, online policy management, hour’s policy services, additional living expenses from damage or on safety issues, emergency services on home repair, multiplicity discount, and personal property replacement (Liberty Mutual Insurance, 2014).
Life insurance
I will also get a life insurance cover from Liberty Mutual Insurance because it has different plans and policies. For instance, term life insurance for a specific period of time with an option of converting to permanent protection. Other plans which they have that make them attractive to me incudes the permanent life insurance and the life insurance product comparison. Would opt for permanent life insurance which will offer me lifelong protection, is flexible, and has cash value options (Liberty Mutual Insurance, 2014)
Since we have a kid and willing to have two more kids, I will need 20 years of fixed-term life insurance that worth $500,000 so that if anything happened to me, my wife and children get that $500,000. And how much I will be paying for that monthly and annually (Boone, Kurtz, & Hearth, 2003).
Health insurance
I will get health insurance for myself, my wife, and a kid from St. Agnes Medical Center. I preferred their health insurance coverage because it is comprehensive since it covers doctor visits, wellness care, hospital stays emergency services, prescriptions, and many more (SAMC, 2014). Technically they cover almost everything and that is what I wish for my family, full coverage. They cover 15 preventive care services and 10 essential health benefits (SAMC, 2014)
General Liability Insurance
I will also go for liability insurance for my property and breast cancer. Ann has been a staunch Christian since childhood just like the rest of her family to protect them from different things. The liability insurance will be customized to create a policy and include the following in the coverage; fire, theft, vandalism, bodily injury, terrorism coverage, property damage, and claims due to. These services and coverage will be offered by New Horizon insurance services (NHIS, 2014).
References
Boone, L. E., Kurtz, D. L., & Heath, D. (2003). Planning your financial future. Mason, Ohio: Thomson/South-Western.
DeSimone, B. (2014). Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling. New York: Changing Lives Press.
Giannamore, R., & Osach, B. B. (2009). Navigating the mortgage minefield: Your complete guide to avoiding costly problems and finding the right loan in today’s market. New York: American Management Association.
Liberty Mutual Insurance (2014). Liberty Mutual Insurance. [ONLINE]
New South Wales. (1997). Financing your home purchase. Sydney: Home Purchase Assistance Authority.
New South Wales., & New South Wales. (2003). The A-Z of a home purchase. Sydney: Home Purchase Assistance.
NHIS (2014). New Horizon Insurance Services. [ONLINE]
Saint Agnes Medical Center (2014). Affordable Health Insurance is Here. [ONLINE] Available at http://www.samc.com/aca. [Last Accessed 19th November 2014].
Warner, R. E., Serkes, I., Devine, G., & Bray, I. M. (2013). How to buy a house in California. Berkeley, CA: Nolo.
Weston, L. P. (2005). Your credit score: How to fix, improve, and protect the 3-digit number that shapes your financial future. Upper Saddle River, N.J: Pearson Prentice Hall.

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