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June 8, 2018Jun 8, 2018

7 Things to Do Before Applying for a Mortgage

Buying a house is a major endeavor. To ensure the process goes as smoothly as possible, here are a few things you need to do to prepare to apply for a mortgage.

If you’re at the stage of your life where you’re considering buying a home, you’ll need to secure a mortgage to make your payments affordable and reasonable over the next few decades. A mortgage is a considerable loan and perhaps the biggest financial hurdle you’ll ever undertake, and due to the size and complexities of applying for one, you’ll need to prepare your financial situation and take a few key steps leading up to the application itself.

1. Monitor Your Credit Score
Likely the most important determining factor for lenders is a potential borrower’s credit score and history. A lower credit score can impact the amount a lender is willing to give you in addition to the interest rate you’ll pay over the duration of the home loan. Checking your credit score with the three major credit bureaus (TransUnion, Equifax, and Experian) before applying is highly recommended.

2. Check for Errors in Your Credit Reports
In addition to checking your score and taking steps to improve it, you’ll want to check for any errors or discrepancies in these reports and check for signs of failed payments, incorrect transactions, and signs of potential identity theft.

3. Settle Any Debts or Delinquent Accounts
If you’re sitting on a large amount of debt from credit cards, vehicle loans, or student loans, you may have a more difficult time applying for a home mortgage. Before you set aside money for a down payment, consider reallocating those assets toward reducing your debt and delinquent accounts.

4. Reduce Your Debt-to-Income Ratio
One thing lenders look for in a borrower are their monthly gross income and ability to make a mortgage payment reliably and consistently. Loan risk professionals consider debt-to-income ratios a crucial factor in whether your loan is approved or not, so trying to reduce that number to 43% or less should be a priority.

5. Don’t Apply for More Credit for at Least One Year
Applying for increased lines of credit, new credit cards, vehicle, personal, or student loans can have a negative impact on your credit score. To avoid a disappointing result during the mortgage application process, don’t apply for any new forms of credit while you’re saving for a down payment.

6. Save, Save, Save
Once you start thinking about the home-buying process, you’ll want to begin saving your extra income toward the down payment. A larger down payment may help reduce your interest rates and improve your chances for qualification, so working toward a larger lump payment at the beginning will only help.

7. Get Pre-Approved
If you have your financial house in order, you can help streamline the home-buying process by getting pre-approved for a mortgage loan and lock in your interest rate. This shows home sellers that you’re serious, qualified, and ready to close on a home, making you more attractive as a potential buyer.

If you’re planning to buy a home and need help getting started, contact Desiree Smith to learn more about the mortgage application process and discuss your plans to become a homeowner.
April 19, 2018Apr 19, 2018

Do You Know the Difference Between a Roth IRA and a Traditional IRA?

When preparing for retirement, the general rule of thumb is to plan far ahead - even if retirement doesn’t seem remotely feasible to your current situation.

There are two major types of individual retirement accounts (IRAs) that are offered at Bank of Bozeman: traditional IRAs and Roth IRAs. Let’s define both accounts.
  • Traditional IRAs - A traditional individual retirement account allows people to contribute to investments without tax penalty until that money is withdrawn. Investment professionals typically recommend a traditional IRA to those who expect to have a lower tax rate after retirement than it is right now.
  • Roth IRAs - Roth IRAs are retirement plans in which the contributions made are included on your taxes, meaning you can’t deduct any contributions on income taxes. The upside is that future withdrawals (pre or post-retirement) are tax-free. If you expect your tax rate to be higher post-retirement than your current rate, a Roth IRA might be for you.
Although a brief explanation, IRS requirements for investment savings accounts usually necessitate a bit more planning and careful navigation of tax code in order to keep on the straight and narrow and to avoid unintended penalties, both now and post-retirement. Before you call up your financial institution of choice and inquire about an IRA, let’s go into more depth into the differences:

When a Roth IRA Might be Right for You
If you’re in a low tax bracket (anything in the low 20th percentile or below), you’re likely either in the early stages of your career or have recently changed careers and a Roth IRA might be the right choice. This is because withdrawals from Roth IRAs aren’t subject to income tax, allowing you to take money from the account without tax penalty in the event of a financial emergency. But once you retire, you’ll be able to draw income from those accounts without paying Uncle Sam even if your tax rate has gone up.

When a Traditional IRA Might be Right for You
If you’re close to retirement age or are in a higher income tax bracket, a traditional IRA allows you to take a tax deduction to maximize your income from a retirement savings account. Once a person reaches retirement age, they tend to move to a lower tax bracket due to moving to a lower-paying job, a part-time employment status, or drawing income from other sources (such as other savings, investment, or pension accounts). Though withdrawals from traditional IRAs are taxable as income once you reach 59 ½ years of age, you’ll save during tax season due to your lower income tax bracket during retirement.

Our investment professionals here at Bank of Bozeman are here to help with all of your retirement preparation questions and concerns. Committed to serving the community with local investments that stay right here in Gallatin County, we can help guide you through the differences between Roth IRAs and traditional IRAs no matter what stage of life you’re in. Contact us today to schedule an appointment or visit us right here in Bozeman to learn more.

December 13, 2017Dec 13, 2017

8 Tips to Achieve Better Spending Habits and Save More Each Time

Sometimes the hardest thing about saving money is simply getting started. Especially when you’re young and have extra cash for the first time in your life, spending money can be an exhilarating activity. However, what most people don’t realizeis that establishing - and maintain - good spending habits is just as important to your financial security as saving money or reducing your debt. With that in mind, these tips can help put you on solid financial footing and help you change your bad financial habits into positive, effective savings habits to build on the rest of your life.
Simplify Your Budget

With so many apps and tools designed for personal finance, it can be easy to over-complicate your savings efforts. Start with a pen and paper and add more techniques as you go. A more minimalist approach could help sticking to your budget easier. After all, you don’t necessarily need to account for every single penny to maintain good personal finance habits.

Develop Passive Spending Barriers

By creating a few personal rules for yourself, you can help keep more money in your bank account and prevent unnecessary spending. Things like 30-day lists for your “wants” vs. basic needs, allowing only so much spending for frivolous purchases like coffee, shopping, and eating out, or establishing a “two items out for every item in” could help you reduce your clutter and make purchases only on things you really want. Furthermore, identifying bad spending habits (such as indecision between buying multiple items) as triggers and deciding not to buy anything at all could be beneficial to your wallet.
Utilize Automatic Savings Deposits

Just as you’d use for paying bills, some banks support setting up automatic deposits to a savings account, so if payday rolls around and the temptation to splurge arises, you can always ensure you’re moving in the right financial direction without having to manually make a deposit to savings.

Maximize Your Retirement Savings

While the general rule of thumb is that you can’t start saving for retirement too early, there are significant advantages in saving even more through retirement accounts. Both major types of investment account types have contribution limits, so if you can maximize those savings each year it’ll go a long way to help your personal wealth grow. Consult with your tax professional regarding these limits before you make any changes to your savings and investment habits.
Cook at Home

Busy people infamously don’t make time to eat properly - especially when you’re young and so many social events are tied to dining out or having drinks with friends. Not only will cooking at home save you an incredible amount of money -as much as $2,000 per year by simply packing your own lunches - it’s healthier for you. While the temptation to order takeout or delivery will certainly arise after a long,stressful day, resisting that with tasty leftovers and pre-cooked meals willhelp keep your budget in line.

Reconsider Savings Habits That Don’t Add Up

How often do you drive across town to save 3 cents at the gas pump? Or purchase some groceries at one store, but make an extra trip to buy things at another? And when was the last time you sat down and figured out if these habits were actually saving you money? To determine the efficacy of these frugal tasks, calculate your hourly income, how much you value your time, and what your actual savings are. Here’s a handy tool that can help you rethink some of your old savings habits.
November 8, 2017Nov 8, 2017

DETERMINE WHAT TYPE OF SAVINGS ACCOUNT IS RIGHT FOR YOU

Saving money can be difficult - especially if you’re in school or just starting your career. Keeping a small nest egg in case of an emergency car repair, unexpected bills, or planning for a large, future purchase is a wise financial strategy. But getting started with a savings account is often the biggest hurdle - and the most common question we get from our clients looking to be smarter with their money.
 
Bankof Bozeman offers three options for personal savings accounts, in addition to our healthcare-related savings options:
Personal Savings Account
 
A personal savings account from Bank of Bozeman offers competitive interest on your balance and quick access to funds when you need them. These accounts are not for everyday spending, (see our personal checking account options for that) and are actually regulated to limit online or card-based withdrawals or transfers to six per month, though you can avoid these restrictions by making in-person requests at the bank itself. You’ll need to keep a minimum balance/month of $100 to avoid monthly fees, but it’s a great way to keep your money safe and growing.
Money Market Account

Money market accounts
 garner higher interest rates than personal savings accounts, but carry a further restriction: you’ll need to maintain a minimum balance of $1,000/month to avoid monthly fees. While more cash up front is required, your money will grow faster and you’ll have the ability to use these funds with an ATM or debit card, though the six transactions per month limit applies here.
Certificate of Deposit (CD) Account
 
Certificate of deposit(CD) accounts tend to earn the highest interest rates of the three majors savings account types, but with a condition: you can’t withdraw funds from the CD for an agreed-upon period of time, or “term.” Early withdrawals will carry penalties, but terms can range anywhere between six months to five years or more.The longer the term, the better your interest rates will be, and most financial institutions will offer better interest rates depending on the size of the account. With a minimum opening balance of $5,000, you’ll need to shore up a bit of cash before considering a CD. Ask one of our personal savings professionals for more information if you’re interested in opening a CD account.

Ultimately, as with any financial decision, it’s up to you, but Bank of Bozeman is here to help. With the right insight and guidance to shape your financial picture into the short or long-term future, we can recommend a personal savings account and develop a strategy you can follow for years to come. Contact us today to schedule a meeting with a local personal savings expert or stop by our Bozeman location today to learn more.
January 26, 2016Jan 26, 2016

Making Compound Interest Work For You

Compound interest is interest paid on interest already earned on a deposit or loan. Think of it as ‘interest on interest’. For those of you who struggle to pay off credit cards, compound interest is likely the culprit. Interest from the prior month is added to the principal you owe and you’re being charged interest on interest. Before long that $200 pair of shoes can end up costing you $600 or more. That is why many financial advisors recommend eliminating credit card debt.

Saving money is a way to turn the tables and have compound interest work for you rather than against you. To gain an understanding of how powerful compound interest can be, let’s look at an example of four hypothetical individuals: Karl, Joanne, Kylie and Branson. We’ll assume an average savings interest rate of 5% over their lifetimes, monthly compounding of interest, and they all stop depositing additional funds at age 70.
Karl is leading a very busy life and feels he has always had too many near- term obligations to save money. First it was buying a car, then paying off his own student loans, then getting married and buying a house, then paying for all the expenses raising kids, then their college....but he has resolved to start saving when the last kid is out of school. So at age 55, Karl starts regularly saving $1,000 every month.

Joanne spent all her money in her youth and incurred many expenses during and right after college that kept her from saving. But at age 25, Joanne starts saving $200 per month.
Kylie started saving as soon as she got her first job at age 15. She and her Dad walked down to her local community bank and opened a minor account for her and she has deposited $150 per month ever since.

Branson’s grandparents opened an account for him the month he was born. They took advantage of the bank’s referral program for new accounts and deposited $100 per month until Branson became 15, then Branson took over the tradition and made the monthly $100 deposits.

The lesson from the illustration (refer to the Investment Growth chart) is obvious: it’s never too late to start saving, but starting early can make a huge difference in achieving financial security. Saving regularly is practicing delayed gratification, and many psychologists view the practice of delayed gratification as a way to help develop emotional maturity.

And unlike the swings of the stock market, your bank account never goes down unless the money is withdrawn. Your money slowly and steadily grows with the assurance that it’s safe because it is covered by the Federal Deposit Insurance Corporation up to $250,000. No one has ever lost money with an account that was FDIC insured - even if the bank went out of business - no one.

Why start saving for your future with a community bank? Local community banks reinvest your money in the community. Start saving with a local community bank, your future self will thank you!
About the Author: Clinton Gerst is the President of Bank of Bozeman, an Independent Community Bank in Bozeman, Montana.
This article is provided for educational and informational purposes only, without any express or implied warranty of any kind, and should not be considered legal or financial advice. All expressions of opinion reflect the judgment of the author as of the date of writing and are subject to change.

You should consult with an attorney or other professional to determine what may be best for your individual needs.
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