4 Financial Prerequisites For Buying A Home (Especially In 2021)

Buying a home is one of the largest purchases that most individuals will make in their lifetime. And if you’re like many new homebuyers, this may not be your first or last home purchase. Americans are moving homes at quicker rates than ever. With the housing market hot after the pandemic slump, knowing if you have the proper financial prerequisites is even more essential.

If you’re considering buying a home in the next few months, keep reading to learn all about what you need to guarantee you successfully close on the house of your dreams.

Qualifying For A Mortgage
The first, and most important step in home buying is qualifying for a mortgage. The mortgage is how you will pay for your home over time, so qualifying for a sustainable, low interest rate and payment is essential. To determine if you qualify, lenders will look at your monthly income, savings accounts, current level of debt, and your credit score.

Monthly Income
To prove your monthly income, you’ll need to prove at least two years of steady monthly employment, either through paystubs (for employees) or with business documents and tax papers (for self-employed loan applicants). Loan programs usually don’t have a minimum income needed in order to qualify for a mortgage, but there may be a maximum income allowed, so be sure to research this before you apply.

Savings Account
Along with showing that you are reliable with your money, your savings account will prove that you are able to cover any applicable down payment and closing costs for your new home. Not all loan programs require you to make a down payment, though, and many sellers will help to cover the closing costs, so low savings balances do not necessarily disqualify you from a loan.

High amounts of personal debt can be a make-or-break factor in qualifying for a loan. This is because mortgage lenders estimate that your monthly payments should be no more than 30 percent of your monthly income. If you have outstanding debts to pay, you may already be reaching a 30 percent threshold without an additional payment. Regardless of your circumstance, your lender will calculate a debt-to-income ratio to determine how much additional debt you are able to take on.

Credit Score
Your credit score is one of the most important pieces in qualifying for a loan, and a history of late payments or bankruptcy can automatically disqualify you for a certain time period afterward. That being said, many lenders offer loans for credit scores as low as 580 by looking at other factors. If you, like many Americans, paid down a significant amount of credit card debt during the pandemic shelter-in-place mandates, then now may be the perfect time to buy.

If you have questions about the financial prerequisites of buying a home, Donohoo Accounting Services can help! We have been preparing tax returns and helping clients with their financial issues for more than 20 years. Contact us today for a free consultation with one of our experts! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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5 Tips To Save For Retirement If You Started Later In Life

Mornings on the beach, golfing with friends, picking up an old hobby… retirement is an exciting life stage for many Americans. However, if, for whatever reason, you started later than most in your retirement savings, you may feel like you’ll never be able to achieve that much-deserved reprieve.

If this applies to you, don’t worry. If you’re starting late, you’re not alone, and there are countless strategies out there to help maximize savings in the time you have left. Above all, know that it’s not too late to save — and the best time to start is now.

Figure Out How Much Savings You’ll Need
Experts suggest withdrawing no more than 3-4 percent of your savings for each year of your retirement. Calculate your year budget and expenses, and multiply that by the number of years you’ll be in retirement to determine a baseline savings amount. For example, if your yearly budget is $30,000, and you expect to be in retirement for 20 years, you should set a goal of $600,000 for your savings.

Use Compounding Interest To Play Catch-Up
When you start saving in your first years of employment, it’s harder to contribute more than the minimum amount. This is because your income and wages are usually at their lowest. If you’re starting later, your presumably higher income can help you to contribute more per month, which will help you in the long run due to compounding interest.

Don’t Take On Too Much Risk
Traditional retirement accounts offer a 7 percent return on your investment. While there are other investment options that may offer you more return on your investment, you may also lose your principal at a time when it is incredibly risky. Consider diversifying your portfolio and, if you do invest in more risky options, make sure you have enough saved in other places to protect you in case of emergency.

Pay Down Your Debts Now
Though it may be tempting to focus all your extra income on saving for retirement, it’s important not to forget about your present-day debts. These balances will only increase over time, so paying them down now will save you money and hassle in the long run. Improving your credit score will also allow you to (hopefully!) pay less interest if you decide to purchase a new home during your retirement.

Take On A Balanced Approach
As stated before, there are many tempting ways to make a quick buck that may be tantalizing if you are starting your retirement savings later. However, losing your principal investment at this point could be devastating. Remember that along with your own investment, you may be eligible for Social Security from the federal government, and you can continue to collect on other investments even after retirement.

If you’re still feeling confused or conflicted about saving for retirement, an expert at Donohoo Accounting Services can help. We’ve been assisting our clients with their financial and tax needs for more than two decades. Contact us today to schedule your free consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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6 Financial Steps To Take Before Starting A Business

The thought of starting a business is exciting. For many, it’s the American Dream. Entrepreneurs want the freedom of setting their own hours, being their own boss and leaving a legacy for their children. It’s important to note that while exciting, starting a business also can be stressful. According to the Small Business Administration, one-third of all businesses fail within two years, and two-thirds of all businesses fail within 10 years. Considering these stats, it’s important to have a plan in place to be successful. Here are six financial steps we think you should take before starting a business.

Do Your Research
Make sure you thoroughly understand the industry you are entering and the need for your products or services. Do a complete market analysis or feasibility study to determine who the major players and competitors are. The Southwest Ohio Small Business Development Centers are a great resource for help with this.

Know Your Purpose
Spend some time reflecting on why you want to start your business. There will be bumps in the road, so it’s important that you have a mission and purpose to ground you during trying times. What goals are you trying to accomplish? What does success look like? What are you willing to risk?

Identify Your Target Audience
Understand who needs the products you sell or the services you provide. You can’t earn a profit without your customers, so know them well. What is their age, geographic location, income or profession? What are their pain points?

Choose A Legal Structure
Determine which business structure is right for your business. Will you be a sole proprietor? An LLC or an S Corp? You may want to consult with an attorney or the Small Business Administration for advice. And while you’re thinking about the legal aspect of your business, make sure you know the laws that apply to your business. Will you need a permit or some type of license?

Decide How You Will Finance
You will need money to start your business because you probably won’t make a lot of money right away. Will you be self-funding? Applying for loans or grants? Seeking out angel investors or venture capitalists? Research all of your options and determine the one that’s best for you.

Create A Working Business Plan
A business plan is your business’s roadmap, and will include such things as your mission statement, description of your business, market analysis, key players, budget and more. It should be a working document, not just an exercise that is filed in a drawer. One of the first questions most consultants will ask you before working with you is if you have a business plan.The Southwest Ohio Small Business Development Centers can also help with this.

Once your business is up and running, you’ll need a partner to help handle your payroll, tax help and other concerns. Donohoo Accounting Services is here to support you. From financial issues to tax concerns, we can answer your business questions that will help to make you a success. If you would like to learn more about the services we provide, schedule a complimentary consultation with us by calling 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

8 Tips To Help Your College Student Budget While At College

College life is full of opportunities and experiences, and your child may be tempted to indulge in all of them. While it’s important to make the most of the college years, you don’t want your child going broke or buried in debt while doing it. Fortunately, there are a few budgeting strategies and tips you can teach your kids that will help them manage their money now and in the future.

Have The Money Talk
Keep the lines of communication open so your child knows how her education is being paid for. Whether it’s a 529 plan, scholarships or loans, make sure your student has transparency as to how much money they have and the approximate expense.

Anticipate Your Expenses
Make a list of the expenses your student can expect to have during his years in college. Tuition, room and board, and textbooks and not the only things to consider. There is also transportation, clothing, rent and utilities (if she is living off campus), and spending money for items including her cell phone, dining out with friends, travel, gym memberships or entertainment purchases.

Determine Fixed Versus Variable Expenses
Help your child understand that his fixed expenses are those he usually can’t avoid, such as room and board and tuition. Variable expenses are typically wants instead of needs, and can be reduced or eliminated if money is tight. 

Establish An Average Monthly Cost For Each Expense
Take a look at your child’s past bills to help her figure out how much each expense costs every month. If a particular expense fluctuates from month to month, calculate the average and plug that into your student’s budget.

Track Your Spending
Encourage your child to set aside some time each month to record his spending and compare it to the money he has coming in.

Adjust As Needed
If your child is outspending his income, he will need to adjust those variable expenses to keep everything in line. That may mean reducing spending on fun activities, like dining out with friends, concert tickets, or other entertainment. It’s not pleasant to pass on those things, but it’s good self-discipline for later in life. If he complains, explain how he can work additional hours at his job or apply for additional scholarships to cover unnecessary expenses.

Use An App
Have your child research free budgeting or money-management apps. These tools are an easy way to track his spending.

Take Advantage Of Student Discounts
Many businesses will provide special pricing and deals for college students, such as discounts on computer software, shipping, food, clothes and more. Always ask a business if student discounts are available.

If you have questions about saving for college or helping your child budget, contact Donohoo Accounting Services. We are dedicated to helping our clients with their financial and tax issues, and would be happy to get your child on the right financial foot. Contact us today to schedule a free consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!