What Is Estate Planning?
Updated August 3, 2016 . AmFam Team
You’ve probably heard of the term “estate planning,” but maybe you’re wondering what it is, and why it could be important to you.
No worries — we’ve got you covered. Here’s a quick and easy overview of estate planning basics, and why it’s a good idea to create an estate plan.
What’s an estate? To some, the word “estate” may conjure images of palatial mansions, ornate topiary gardens, and perhaps even fox hunting, if you’ve got a vivid imagination. Actually, it’s simpler than that. An estate is simply everything you own — your car, possessions, property, savings and checking accounts, investments and more. Virtually everyone has an estate.
Why do you need an estate plan? Having an estate plan gives you control over who will get your stuff, and how they’ll get it, after you’re gone. If you don’t have an estate plan in place, the laws in your state will designate which family members will inherit your estate, which may not necessarily be according to your wishes. Estate plans also allow you to choose a guardian for your children, in case the unexpected were to occur. Without an estate plan, a court would make that decision.
Wills vs. Trusts. An estate plan can take the form of a will, a trust or both. A will indicates how and when your estate will be distributed, and to whom. Wills also allow you to name an “executor” — that’s the person who will manage the distribution of your assets. Additionally, wills involve naming a guardian for your children. Trusts also allow you to designate how, when and to whom your estate will be distributed, but it’s done under a special arrangement in which a “trustee” is given responsibility for overseeing the distribution of the estate to “beneficiaries,” typically the spouse and children. Trusts offer a big advantage: they can save you time and money by helping you avoid probate — when courts handle the process of finalizing and distributing your estate.
No matter how wealthy you are or how old you might be, setting up an estate plan is a smart way to make sure what you leave behind goes to the right people at the right time. It’s about managing your legacy, so the people you love can benefit the most from it.
This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.
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Can Student Loans Affect Buying a House?
Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.
Buying a house with defaulted student loans
If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.
Getting a home loan with student loan deferment
If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.
Should You Pay Off Student Loans Before Buying a House?
Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.
Signs You Should Pay Off Student Loans
When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.
Your debt-to-income ratio is too high
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You’ve defaulted on your loans
Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.
You’re struggling to make payments
If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.
You haven’t saved for a down payment or emergency fund
Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.
