Roughly 72% of potential homebuyers say homeownership would be financially feasible if mortgage rates fell below 5%, according to a recent survey from Realtor.com. That means mortgage rates would need to drop by at least 2% to unlock today’s unaffordable housing market.
But there’s a problem. Major forecasts don’t call for mortgage rates to slip under 6% until 2025.
Between last November and early January, the average rate for a 30-year fixed mortgage, the most popular home loan type, fell from a high of 8.01% to the mid-6% range, according to Bankrate, CNET’s sister site. However, throughout February, rates have gone up and kept steady at around 7.25%.
Though mortgage rates aren’t expected to fall dramatically this year, any dip is good news for homebuyers. If home loan rates manage to reach the low-6% range by the end of the year, it would increase housing affordability for a large number of families who have been stuck on the sidelines.
Will 6% be the magic mortgage rate to kick-start the housing market? Or will we need to wait for 5% rates a year from now? Here’s what experts are saying.
Mortgage rates: Rise like a rocket, fall like a feather?
The recent surge in mortgage rates was fueled by hotter-than-expected inflation and labor data, which sent the 10-year Treasury yield (a key benchmark for the 30-year fixed mortgage rate) higher. But in some ways, rates were just recalibrating to an appropriate level.
“Investors got a little ahead of themselves in terms of expectations for lower rates this year,” said Keith Gumbinger, vice president of mortgage site HSH.com. Given the state of the economy — like sticky inflation and the Federal Reserve’s reactive monetary policy — financial markets may have been overly optimistic in projecting when interest rate cuts would start.
After nearly two years of aggressive interest rate hikes to tame inflationary pressures, the Fed signaled in December it would likely cut rates three times in 2024. Though the Fed doesn’t directly set mortgage rates, a lower federal funds rate, combined with cooler inflation, would help mortgage rates go down.
Overall forecasts still project mortgage rates to decline, but exactly when and by how much is murkier. Before adjusting the federal funds rate, the central bank wants to see inflation steady at its 2% year-over-year target.
Even if economic data points to a slowdown, mortgage rate movement will likely be slow and gradual, so 5% rates aren’t in the cards this year.
Read more: Mortgage Predictions: How Labor Data Could Impact Mortgage Rates in 2024
Will mortgage rates go below 6% this year?
Mortgage rates tend to be volatile and preemptive. Rate movement depends not on what’s happening now, but on what investors and lenders believe will happen in the future, according to Orphe Divounguy, senior economist at Zillow Home Loans.
“Today’s mortgage rates, to some extent, already reflect expectations of slowing economic growth and future Fed rate cuts,” Divounguy said.
While next month’s economic data could change the equation, expectations for mortgage rates haven’t changed much. Rates in the low-6% range are still possible in 2024, just not in time for the spring homebuying season.
What the experts are saying
“If we’ve learned anything over the past few years, it is that mortgage rates and other financial conditions can shift rapidly as conditions change. My base expectation is that mortgage rates will decline more gradually and not break below 6% in 2024.”
“As the Federal Reserve holds interest rates steady before beginning to slowly cut rates in May, the spread on the 30-year fixed-rate loan and the 10-year Treasury bond will normalize, and mortgage rates gradually will fall. That said, forecasting mortgage rates is challenging, and near-term volatility is likely. While the rate will trend lower, there is uncertainty in the month-to-month movement in rates.”
“A 6-8% range can be a possible outcome if inflation remains stickier and higher than expectations, and the Fed does not cut until much later than the second half of this year. If the soft landing scenario occurs, then we could see a range closer to 5-7% once the Fed starts to cut rates later in 2024.”
“I don’t think present conditions change the overall forecast for mortgage or other interest rates all that much, but sustained higher economic growth or more persistent inflation would.”
Is 6% an affordable mortgage rate?
Today’s mortgage rates feel high, even if they’re not in a broad historical sense.
Most prospective first-time homebuyers have witnessed low rates over the past decade, especially when they hit rock bottom in the 2% to 3% range during the pandemic. Current buyers likely weren’t on the market for a home in the 1980s, when rates peaked above 18%.
What’s considered an affordable mortgage rate depends on your financial situation. Broadly speaking, a good mortgage rate is generally at or below the national average. The median 30-year mortgage rate since 1971 is 7.4%, according to Freddie Mac.
For many homeowners, the mortgage rate they start with is only temporary: They refinance to a lower rate when mortgage rates drop.
Mortgage rates feel so high nowadays because of the housing market’s overall affordability crisis. Home prices keep rising, inflation is cutting into wages, and debt from credit cards and student loans continue to chip away at savings. All those factors combined have put homeownership out of reach for middle-income and low-income Americans.
Comparing 6% vs. 7% vs. 8% mortgage rate
If you’ve been waiting for rates to plummet before buying a home, doing some basic calculations might change your perspective. Yes, a 6% mortgage is higher than just four years ago. But it’s still a better deal than an 8% or even 7% mortgage rate.
What difference does 1% or 2% make?
Does a 1% drop in mortgage rates make a difference in your monthly payment? The answer is yes. What about a 2% drop? Even more.
Using CNET’s mortgage calculator, we did the math to demonstrate what a 1% or 2% difference can make on your home loan payment. In the chart above, we assumed a 20% down payment on a $500,000 home, making a total loan amount of $400,000 with a 30-year fixed term comparing a 6%, 7% and 8% rate.
Getting a home loan at a 6% interest rate versus a 7% rate gives you savings of $263 a month. That’s $3,156 a year and $94,683 in total interest over the life of your loan.
The savings are even bigger when comparing a 6% interest rate with an 8% rate: The lower rate saves you $537 per month, $6,444 per year and $193,267 in total interest paid.
Pro Tip: Even if you’re getting a lower interest rate, pay attention to lender fees and other costs. Excessive fees or mortgage “discount” points are often hidden and can offset the savings.
For example, a lender might advertise a below-average rate, let’s say 6%. But that’s often based on the borrower having an excellent credit score and paying discount points in exchange for that low rate, which can cost thousands of dollars upfront. Each mortgage discount point results in a 0.25% decrease in your rate but will typically cost 1% of the loan amount.
How to get a lower mortgage rate
While it’s important to keep track of current mortgage rate trends, the best thing to do is focus on doing things like improving your credit score, paying off debt and saving for a bigger down payment.
Many mortgage lenders advertise lower-than-average interest rates. But to qualify for those low rates, you’ll need to have excellent credit, a low debt-to-income ratio and (typically) a down payment of at least 20%.
Experts also recommend comparing loan offers from at least two different mortgage lenders to help you secure the best deal.
Your credit score is a three-digit number that reflects your credit history. It’s not the complete financial picture, but lenders consider it when evaluating you for lines of credit and insurance.
But there are multiple versions of your credit score.
For the majority of lending decisions most lenders use your FICO score. Calculated by the data analytics company Fair Isaac Corporation, it’s based on data from credit reports about your payment history, credit mix, length of credit history and other criteria.
Some lenders use another scoring model, VantageScore, especially credit card companies.
But if you’re applying for a mortgage, the score on your application might be different from either of them.
Here’s what you need to know about credit scores if you’re looking to buy a home.
What we’ll cover
Compare offers to find the best mortgage
The credit score used in mortgage applications
While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage:
FICO® Score 2 (Experian)
FICO® Score 5 (Equifax)
FICO® Score 4 (TransUnion)
All the credit reporting agencies use a slightly different version of the FICO score. That’s because FICO tweaks its model to best predict creditworthiness in different industries. You’re still evaluated on the same core factors — payment history, credit use, credit mix and the age of your accounts— but they’re weighed a little differently.
That makes sense — paying off a mortgage is different than using a credit card responsibly.
The FICO 8 model used by credit card companies is more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models have proven to be reliable when evaluating candidates for a mortgage.
Mortgage lenders pull all three credit reports
According to Darrin English, a senior community development loan officer at Quontic Bank, mortgage lenders request your FICO scores from all three bureaus — Equifax, Transunion and Experian. But they only use one when making their final decision.
If all of your scores are the same, the choice is simple. But what if your scores are different?
“We’ll use the median as the qualifying credit score,” English said. “It’s called a tri-merge.”
If two of the three scores are identical, lenders use that one, he added, regardless of whether it’s higher or lower than the third.
If you are applying for a mortgage with a co-signer, like a spouse, each applicant’s FICO 2, 4 and 5 scores are pulled. The lender identifies the median score for each of you, and then uses the lower of the two.
How your credit score affects interest rates
Knowing your credit score is the first step in getting the best rates on your mortgage.
According to FICO, a borrower with a credit score of 760 can expect an interest rate of 6.47% on a 30-year fixed mortgage. For a borrower with a score between 620 and 639 (considered subprime), that rate would be 8.05%.
A 1.58% APR savings may seem negligible, but it could save you hundreds each month and thousands over the life of the loan.
How to improve your credit
Your credit score reflects your history of paying off debt. A higher score can save you thousands in interest payments over the life of your mortgage. If you want to improve your score:
Make on-time payments in full, especially on revolving credit like credit cards.
Ask to increase your credit limit on existing cards
Keep your credit utilization rate under 30%
Avoid opening new lines of credit
Try to get credit for utility payments
*Experian Boost™ is a free service that updates your Experian credit report with on-time payments to your mobile carrier, power company and other utilities not usually linked to credit-reporting agencies. According to the company, users whose FICO scores improve see an average increase of 13 points.
Experian Boost™
On Experian’s secure site
Cost
Average credit score increase
13 points, though results vary
Credit report affected
Experian®
Credit scoring model used
FICO® Score
Results will vary. See website for details.
How to monitor your credit
Since the mortgage industry looks at all three credit reports, consider a paid credit monitoring service that pulls more comprehensive data than a free version would.
In addition to providing regular updates on your FICO score, Experian IdentityWork℠ Premium examines data from all three credit bureaus and informs users about score changes, new inquiries and accounts, changes to your personal information and suspicious activity.
Experian IdentityWorks℠
On Experian’s secure site
Cost
Free for 30 days, then $9.99 to $19.99 per month
Credit bureaus monitored
Experian for Plus plan or Experian, Equifax and TransUnion for Premium plan
Credit scoring model used
Dark web scan
Identity insurance
Yes, up to $500,000 for Plus plan and up to $1 million for Premium plan*
Terms apply.
*Identity Theft Insurance underwritten by insurance company subsidiaries or affiliates of American International Group, Inc. (AIG). The description herein is a summary and intended for informational purposes only and does not include all terms, conditions and exclusions of the policies described. Please refer to the actual policies for terms, conditions, and exclusions of coverage. Coverage may not be available in all jurisdictions.
The most accurate way to keep tabs on your mortgage-specific credit score is with the advanced version of MyFICO®, which shares versions of your FICO score calculated for credit cards, home and auto loans and more for $29.95 a month.
You’ll also have access to $1 million in identity theft insurance and 24-hour expert help if your identity is compromised.
FICO® Basic, Advanced and Premier
On myFICO’s secure site
Cost
$19.95 to $39.95 per month
Credit bureaus monitored
Experian for Basic plan or Experian, Equifax and TransUnion for Advanced and Premier plans
Credit scoring model used
Dark web scan
Yes, for Advanced and Premier plans
Identity insurance
Yes, up to $1 million
Terms apply.
Bottom line
Mortgage lenders use a specific version of your credit score to determine if you’re a good candidate for a home loan. Make sure to monitor the credit score that matters to mortgage lenders if you’re looking to buy a home soon.
Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Darrin English, a senior community development loan officer at Quontic Bank.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of credit monitoringproducts. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn investment and tax strategies to help you achieve financial security and prepare for a prosperous retirement.
How can you balance saving for emergencies and investing for the future? What strategies can you employ to maximize your tax benefits and build a secure financial future? NerdWallet’s Kim Palmer and Alana Benson discuss investment strategies and tax planning to help you understand how to navigate your financial journey effectively. They begin with a discussion of investment strategies, with tips and tricks on understanding different investment accounts like 401(k)s and IRAs, leveraging compound interest, and the importance of starting investments early. Then, Alana discusses tax planning and filing in-depth, covering the intricacies of different tax forms like W-4s and W-2s, the significance of estimated taxes for freelancers, and strategies for managing capital gains taxes.
Kim and Alana delve into retirement planning and the challenges of active versus passive investing. They provide a framework for prioritizing your finances, emphasizing the creation of an emergency fund, taking advantage of employer 401(k) matches, and understanding the role of asset allocation based on age and risk tolerance. Additionally, they tackle the decision-making process in personal finance, such as choosing between paying off debt and investing, and the pros and cons of having a financial advisor.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Hey listener, we’ve got a special episode in store for you today. Our investing and tax Nerds recently hosted a webinar going deep into how you can level up your investing and tax strategy. So we packaged that up into a podcast episode for you. The Nerds talk about what you need to know about different investing accounts, how to get help with your taxes and more. So here’s the webinar.
Kim Palmer:
Welcome everyone. I am Kim Palmer. I’m a personal finance writer at NerdWallet where we help people make smart decisions. One important note, we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. NerdWallet Inc is not an investment advisor or broker and does not provide personal financial advisory services. Today we are excited to talk to you about the basics of investing and taxes and we think we have some helpful info to share with you. You can always find more at nerdwallet.com or on the NerdWallet app. Our goal today is to kick off a helpful discussion about investing and tax information and tools. Alana Benson writes about investing topics including stocks, funds, and ethical investing. And now I will hand it over to Alana.
Alana Benson:
Thanks Kim. Hi everyone. Thank you for joining us today. So before we start, I just want to say a couple of things that often get forgotten when we’re talking about investing. So first, investing usually comes second to some other goals. If you’re having a hard time paying for necessities or you don’t have an emergency fund, it’s really important to focus on those things before we even start worrying about investing. Second, instead of scrimping, try to increase your income. So I didn’t start investing until I was in my late 20s, and that’s because one, I didn’t work at NerdWallet yet, so I literally didn’t know anything. And two, I was making around $25,000 a year, so I didn’t have much expendable income. And when you don’t have extra income, it’s really hard to prioritize investing and it just might not even be a good idea to do that.
When I started making more money, it was suddenly a lot more possible for me to invest for retirement. So if it’s possible for you and you want to be investing more, look for jobs that will pay you more or look into side hustles, but cutting back on your streaming services probably will not save you enough money for retirement. And finally, if you don’t have the money to invest now, that’s totally fine. Some people have serious money anxieties and others just don’t have the cash. Whatever your reason is, don’t stress too much about it. Just keep learning and when you’re able to, you can start investing. So why do we invest? What is the point of all this? And the answer is that it’s because we like money and that’s okay. There’s no shame in admitting it, I like money, most people like money. It’s because money isn’t just money. It’s not like Scrooge McDuck diving into pools of money and buying Maseratis. It’s not that.
It’s about not being stressed about your money all the time and it’s about being able to buy everything that you need and some stuff that you want comfortably without having money stress take up all of your energy. Money allows us to thrive instead of just survive and investing helps you make more money than you could ever possibly make just by working at a job. So okay, what actually is investing? This whole process is very strange. Okay. Investing is the process of money that you already have making additional money for you. And this works through what’s called compound interest. Compound interest means that your gains get a little bit bigger every year and that’s also why starting when you’re younger gives you a huge advantage and more money in the long run. So for example, you just start at that little number one in the box up there. Say you buy an investment for $100, if it goes up the average stock market return of 10%, it could then be worth $110, meaning that you’ve made $10.
Then that $10 that you earned also starts earning compound interest on top of the $100 you initially invested. That doesn’t sound like much of a profit, but imagine if you were doing it with way larger amounts of money over a way longer period of time. Now that 10% is an annualized rate, which means that you’re not going to get 10% every single year. In all likelihood, some years you’re going to finish up, some years you’ll finish down. But over the course of decades when you average all that out, you tend to get about 10%. The way you actually start investing is through an investing account. And there’s a couple of different types, but the type of investment account you have is actually really, really important because a lot of them have some pretty significant tax benefits that you want to take advantage of. So you’ve got your 401(k)s and these are offered through your employer. You add money to it and sometimes your employer matches it. So it’s basically free money. If you have a 401(k), you’ll likely choose your investments from a pre-selected list or a fund that will automatically adjust itself over time.
So this means 401(k)s are typically very hands off. IRAs on the other hand are investment accounts that you open up yourself. IRAs can be opened online through brokerages and actually at a lot of large banks, they also do that. So it’s likely you can open up an investment account just through your bank. Unlike with a 401(k), IRAs you’ll have to choose your own investments in those accounts. You may have heard about a thing called a Roth IRA or a Roth 401(k) and it’s good if you know the difference. So with a Roth, you pay taxes on your money now just like any other money that you earn and then the money you have invested inside that account grows tax-free and you can take it out tax-free in retirement. With a traditional IRA or 401(k), the money you contribute today is pre-tax.
So that is you get to deduct it from your income taxes this year. So it’s like a nice little treat this year, but then when you cash it out in retirement, you’ll owe income taxes on it. This is really, really important. I’ve seen a lot of people make this mistake. Your investment account is not an investment, so a Roth IRA, a 401(k), not an investment. So if you have a Roth IRA, that’s great, but that doesn’t mean you’re actually invested in anything. So you fund your investment account and then you buy investments from there. But I’ve heard of people opening a Roth IRA, putting in a bunch of money and then wondering why it didn’t grow over the last 10 years. So you have to purchase investments for your money to actually grow and if you don’t do it, you’ll miss out on all of those years of growth, so very important.
And there’s a couple different types of investments that you can choose from once you open and fund your investment account. So you’ve got stocks, I’m sure everyone’s heard of that, these are shares of ownership in companies and the way you make money from them is if they go up in value and some pay you a cut of the company’s profits on a regular basis. Then you’ve got bonds. This is when you loan money to companies or the government and they pay you interest. Funds, now these are very exciting because they’re basically just baskets of stocks and bonds that you buy all at once. So a fund is still a stock or bond based investment depending on the type of fund that you get. And there’s a lot of different kinds such as index funds or exchange traded funds and mutual funds, but they’re all collections of investments that you buy at one time.
And I think funds are pretty awesome because if you own a stock and that company goes out of business, you lose all of your money. But if you invest in a fund that covers 100 stocks and that same stock goes out of business, your investment is buoyed up by the other 99 companies. So again, all of these investments, stocks, bonds and funds, you buy them from your investment account and then you own them in there. All right, so let’s talk about the stock market, it’s this weird nebulous term that’s hard to understand. But the stock market is just where people buy and sell investments, but now people just trade investments online. So the stock market is made up of several what are called market indexes. Now these are basically just predetermined lists of companies and the performance of that overall list can tell us a lot about the health of the US economy.
So for example, the S&P 500, something you probably have all heard of, that’s just the list of 500 of the largest publicly traded companies in the US and it includes companies like Apple and Amazon. So when we say the stock market is down today, that means that on average most of those companies aren’t doing well. And you can’t invest in the literal stock market, but you can invest in funds that include all the same investments. So these are called index funds because they track a market index. So again, if you have an S&P 500 index fund, it should perform pretty closely to how the S&P 500 itself is actually performing. The S&P 500 goes up 10% a year on average and 6.5% after inflation. And this is just an average, so some years the market goes up more, some years it goes down less, but when done well, investing can potentially mean doubling your money every few years for doing basically nothing, which is my favorite way of earning money, by doing nothing. It’s great.
So let’s talk strategy. This is all about the way that you invest, when you put your money in and when you take your money out. So passive investing is where you buy that S&P 500 index fund and you keep adding money into it until you retire. It’s very boring, but it’s effective. So it can give you that 10% return on average over the long haul, but a lot of people want to make more than that 10%, and they do so by actively buying and selling stocks, crypto options and other high risk investments. They try to predict when they’ll be low, then they buy them and then they turn around and try to sell them when they’re high. So these people are called active traders or day traders. Only 20% of active traders make money over a six-month period. That is not a lot of people.
There have been a lot of studies over the years that show that active investing is a way less lucrative fashion than boring old passive investing with that index fund. Plus active investing is a lot more work, you have to do all kinds of research and you keep an eye on the markets and you can hypothetically earn more by actively trading versus passively earning the same amount as that historical return of 10%. But most people end up making less when they actually try it, and that’s because people are really bad at predicting things. And in order to make money on the overall stock market over the long term, you have to be really good at predicting things all the time. So maybe you make it big on one stock, but the odds of that happening again and again are very low. So let’s put all of this information together, the accounts, the actual investments and the strategy.
Here’s how financial advisors suggest you prioritize your money when you’re starting to invest. So the first thing you want to do is you’re not actually going to invest at all. The first thing is that you’re going to have an emergency fund. So this is money that you won’t actually put in the stock market, and that’s because when your money is invested, its value can change day by day. So say you have $1,000 and you want to use it for an emergency fund, but you invest it, when you have to fix something on your car suddenly, you go to check your money and its value could be $600 instead of $1,000 and that’s not good. If you put it in a high yield savings account, you can access that money at any time without risking its value. Plus right now the interest rates are really high.
So your money could be earning 4 to 5% just by sitting there. So next, you want to get that 401(k) match if it’s available to you because it’s free money. After that, it’s a good idea to look into IRAs. Both IRAs and 401(k)s have what’s called a contribution limit, which is just the maximum amount of money you can put in each of them every year. If you’re able to max out an IRA, then it’s a good call to move back to your 401(k). And the reason you switch around like that is because of the way the tax benefit works. So it’s likely more beneficial to invest in an IRA over a 401(k) if you’ve already gotten your match, if you have to choose between the two. Then if you max out your 401(k), you can move to a standard brokerage account. And this is not a list of everything you have to be doing right now.
You might be thinking, “Whoa, maxing out an IRA is $6,500, I cannot afford that”, and that is totally fine. So I like to picture it as a waterfall. So when you fill up your emergency fund, then you can start working on getting that 401(k) match. Only after that bucket is full should you then move on to investing in an IRA and so on. And wherever you’re at in your bucket filling journey is okay. It’s just nice to know what to do next when you’re ready for it. So we already talked about what accounts to invest from and the investments you can buy, but then do you just start buying a bunch of index funds or stocks or bonds? How do you know how much of each investment to get? And that is all about risk tolerance. And to understand that we have to understand how risk works over time.
If you’re investing for retirement and you’re in your 20s now, that means you have a ton of time for your investments to grow and then drop dramatically and then rise back up. So financial advisors would say you can afford to take on a bit more risk, AKA invest in riskier investments, because you have time for your investments to bounce back. Now, if you’re investing for your retirement and you’re 65, you don’t want to risk all the money you’ve been investing for years and years because you’re going to actually need to use it to pay for stuff in retirement pretty soon, so you want to protect it. And figuring out how much of each investment you should have is a fancy term called asset allocation, but it just means how much of your portfolio is in which of these investments.
And age is just a number, but typically when you’re younger, you may be able to afford to take more risk because you have more time for the stock market highs and lows to even out. So stocks, and okay, remember index funds and mutual funds are often made up of stocks so those count too, but those tend to carry more risk than investments like bonds. And an example of a 20-year-old’s investment portfolio, which includes all of your accounts so your 401(k), your Roth IRA, all of that together, that could be 100% stocks. And that’s fairly risky, but those 20 year olds are not going to retire for a long time. Now, a 65-year-old might have way more bonds because they don’t want to risk all that money they’ve earned over time. And one thing some investors do to mitigate risk is to slowly shift their asset allocation from high risk investments to low risk investments over time.
And again, I’m not a financial advisor and this is not personalized investment advice, but how much of each investment it’s good to have will usually depend on how much risk you are willing to take. And an investment portfolio can be really simple or really complicated. So you could have that one S&P 500 index fund and you purchase it from a Roth IRA, and that’s just all you do. Just if you want to keep it really simple or you can make it more complicated. So maybe you explore several stock-based funds such as international stocks and healthcare stocks and technology stocks, and you could invest in those types through a fund. So instead of buying 30 technology stocks, you just have one technology stock fund, then a small slice in bonds, and then an even smaller slice is crypto or other high risk investments. Though financial advisors have varying opinions on the safety of crypto.
So keep in mind, this is just an example and not necessarily what you should do personally, but it is really helpful to look up asset allocation portfolios through an online brokerage and see what they recommend for your specific age and when you plan on retiring. You can also talk with a financial advisor who can help guide you through those decisions. And investing is great because it can help you earn wealth, which you could spend on a boat, but more than likely one of your biggest investing goals will be retirement. And the sad truth is that in some things like retirement, they just cost so much that you’ll probably never afford them just by putting money in a savings account. And that’s why we say we have to invest for retirement. And the truth is that most people just aren’t saving enough for retirement.
So you’ll probably have a lot of expenses and you have to pay for that in retirement and some of it’s necessary like food or housing or medical care and some of it is travel or bucket list stuff, but you may not be working anymore or at least not as much as you were. And once you factor in inflation, it’s likely that a dollar today will be worth way less when you’re in retirement. And saving for retirement has gotten even more difficult because you can’t necessarily afford to live on social security. Medicare doesn’t always pay for your health needs and pensions aren’t really as common as they used to be. And because of all this, it’s really important to start investing for retirement sooner rather than later.
And if you’re early in your career, it might seem silly to worry about retiring right now, but if you start investing sooner, you actually spend less on retirement than if you start investing later in life overall and that’s because of compound interest. So our retirement calculator shows that if you start putting away $100 per month, that could grow to nearly $400,000 in 35 years. And it’s always good to know how much you should be trying to invest. When you have a long-term goal in mind, you want to know what that number is. So a retirement calculator can be a big help to figure that out, including NerdWallet’s retirement calculator. No shame, I’m going to plug it, but some financial advisors recommend saving 15% of your pre-tax income for retirement. So okay, let’s break that down. What does that look like?
So if you make $100,000 a year, again just because easy math, that would be $15,000 annually that you’re trying to save for retirement. But if you had a 5% match on your 401(k), you’d already be saving $10,000 a year between the $5,000 you make and the $5,000 your employer puts in. And then if you contributed another $5,000 to your Roth IRA, you’d already meet your target goal of saving $15,000 a year for retirement. You should also think about how much you can make during those peak earning years. If you’re younger, what career are you looking to have? You can look up what those wages tend to look like on a site like Glassdoor or ask someone in your life who is in that career path, and maybe do that tactfully because you’re asking about money. But figuring out what you want to be when you grow up may not be something you want to think about right now.
But to be honest, I studied English in college and no one told me about my job prospects. I figured that I would have to write a super famous book or be a teacher and you don’t have to have everything figured out now, but it doesn’t hurt to see how much a potential field could earn and figure out what careers are open to you. And just keep in mind that relationship between your earnings and investing like we talked about in the beginning. And if you’re later in your career, it is harder to take advantage of compound interest, but some of those investment accounts have those catch up contributions that we talked about so you’re able to contribute more after a certain age. Thank you all so much for listening to me talk very fast for a long time, and now I will hand it back over to Kim to talk about taxes. Thanks so much.
Kim Palmer:
Great, thank you so much, Alana. That was great. Someone actually asked in a pre-submitted question, “Why do I have to pay taxes?” Well, here is why. Taxes are used to pay for a lot of different things like clean water, roads, schools, healthcare, and the military. And your tax return is due every year in mid-April to the IRS. We’ll talk a little bit later about what to do if you need an extension, but in general that is the deadline. But first, let’s back up a little bit. When you file taxes, there is so much paperwork. One really important one is the W-4. That is the document that your employer asks you to fill out when you start a new job. And it plays a really big role in telling your employer how much in taxes to take out of each paycheck. It asks you things like your filing status, dependents, how much tax to withhold, and if you get a really big tax bill or a big refund, then you might want to go back and revisit your W-4 just to make sure you’re withholding enough but not too much.
There’s also the W-2, which is a document that your employer sends you to summarize how much in total they took out of your paycheck the previous year, and you’ll need to reference all those numbers when you file your tax return. If you are self-employed or you work a side hustle, then taxes won’t be automatically withheld from your paycheck, and that means you might have to pay something called estimated taxes, which is typically four times a year. In January, you’ll get something called a 1099 form that outlines how much money any company paid you, and then you’ll use that information when you file your return. And then finally, the 1040 is the main form you use when you file taxes, and we’ll drop a link in the chat for more about that. Okay, so you have all of your forms set. How do you actually file your taxes?
You can do it yourself through the IRS. You can use an online tax prep software or you can use a tax professional like an accountant or a tax preparer. If you do it on your own, you can either use paper forms or get access to brand name tax prep software through an IRS service called Free File. But it’s important to know that only people who make below a certain income qualify for the Free File program. If you use tax software like TurboTax, H&R Block or NerdWallet Taxes powered by Column Tax, many of these providers use a Q&A style to help you do your taxes and some even offer paid upgrades that connect you directly to a tax professional. If your finances are really complicated and you want some extra help, then you can also work with a tax preparer such as a certified public accountant.
You do want to make sure to ask them lots of questions and check their credentials before you agree to share your financial information. And you also want to check to see if they have a prepared tax identification number, which is an ID that’s required for anyone who files tax returns for compensation. The US does not have a flat tax system, and that means that portions of your income can be taxed at different rates. There are currently seven tax rates for federal income taxes that run from 10% to 37%. And which tax rate applies to you depends on your income and your filing status. So you might hear people say, “I’m in the 12% bracket” or “I’m in the 22% bracket”, but being in a tax bracket doesn’t mean you pay that tax rate on everything you make. And in reality, people’s income can fall into several different tax brackets depending on how much they make.
Portions or chunks of your income are taxed at different rates and some of those different taxes are then added together. So for example, some of your income could be taxed at a rate of 10%, another chunk could be at 12%. The more you make, the higher the tax rate might be on some of your income. And depending on the state where you pay your income taxes, you might pay a flat rate or a progressive rate similar to the federal structure. A small handful of states have no state income tax. If you want to pay less, you can look for tax breaks. Tax credits and tax deductions are two tools that can help you potentially minimize your tax bill, but they do work in different ways. Tax deductions reduce your taxable income. As a simplified example, a $25,000 tax deduction on $100,000 of taxable income means that only $75,000 of that income will get taxed.
Tax credits directly reduce your tax bill by the value of their credit. So this means if you owe $2,000 in taxes and you’re eligible for a $1,000 tax credit, you’ll end up owing $1,000. Tax credits tend to be more valuable because they have the potential to pack a bigger punch, so you definitely want to try to take all the tax credits you qualify for, and you could even get money back if a credit is refundable. Common tax credits include the earned income tax credit, the child tax credit, the lifetime learning credit, and the American opportunity credit and savers credit.
All right, I alluded to this at the beginning, but what happens if you’re not going to be ready by mid-April? What do you do? If you know you won’t be able to file on time before tax day, you can file for a free extension with the IRS and that gives you until mid-October to file your return. But you want to make sure that at least 90% of what you think you’ll owe in April is covered by an estimated tax payment or your withholdings. Otherwise, the IRS can hit you with a penalty for late payment. The failure to pay penalty is really no joke. It’s 0.5% of your unpaid taxes each month your payment is late plus interest. If you file late and you did not file an extension, you could also get hit with a failure to file penalty, which is 5% of your unpaid taxes each month that your payment is late. There is some good-ish news, if you file late but you don’t owe anything, you won’t get penalized but that doesn’t mean you’re not still obligated to file.
If you don’t, the IRS could file a return on your behalf and you might miss out on a refund if you’re owed one. And if your tax bill is so high that you can’t pay it off, you do have options. You can set up a long-term or short-term payment plan with the IRS.
I know that was a whole lot of information and taxes can seem scary, but we break down lots of popular tax questions and terms on nerdwallet.com. We have some time to address some pre-submitted questions from the audience ranging from about Roth IRAs to the pros and cons of having a financial advisor. And I do want to give a reminder here as we answer these questions that we are not tax or investing advisors. We are writers who focus on these fields and what we say is not investing or tax advice. So with that said, let’s dive into these questions. A question that came to us in an email was: how do you choose between paying off credit card debt and investing in saving for emergencies?
I really love this question because I think it speaks to some of the biggest challenges of personal finance, navigating these choices. And the answer is it’s really up to you. Many financial advisors say that the first step is to create a starter emergency fund, and you can read more in our article that we’ll link to, Should I Pay Off Debt Or Save? And you’ll see most people think about saving $500 to $1,000 first and then after that to consider contributing enough to a workplace retirement plan if they have access to one, and then contributing 3% to 5% of income to an IRA or a Roth IRA. And then financial advisors say people can consider focusing on paying off high interest debt and amp up investing efforts once they have paid that off. And now Alana, I’ll turn over to you. Perhaps you can answer the questions about Roth IRAs.
Alana Benson:
Absolutely. So a couple folks were wondering, before we went over everything, what a Roth IRA is and how does it work and when is it worth it to open one? So we already covered this a little bit, but again, it’s an individual retirement account and it lets you contribute money that you’ve already paid taxes on. So think about when you get your paycheck. That money has already had taxes taken out of it. So once you hit age 59 and a half and you have held the Roth IRA for at least five years, you can withdraw your contributions and any earnings, which is a fancy word for money that you earn from investing, without paying taxes again. And whether it’s worth it is up to you, especially if you’re trying to decide between a Roth IRA and a traditional IRA because it’s about when you pay those taxes and if you have a traditional IRA, you do get that tax break right now.
So that’s a personal decision. But you can also take out money tax-free from your Roth IRA later in life. So if that’s something that you are really trying to parse out, it might be good to talk to a financial advisor because they can help you with that question. We had two other questions. The first one is: how do you calculate how much money to put in your Roth IRA if you make over the maximum amount? So we didn’t actually cover this, so Roth IRAs do have income limits, but there is something called a Backdoor Roth that lets you contribute money first to a traditional IRA, pay taxes on it and then roll that money into a Roth IRA. And then our last question is: what are the pros and cons of having a financial advisor and how do you find one?
This is such a good question. The pros and cons really depend on your situation. The catchall term ‘financial advisor’ is used to describe a wide variety of people and services, including investment managers, financial consultants, financial planners. First and foremost, you always want to verify a financial professional because financial advisor doesn’t require people to be vetted. Certain things like a certified financial planner or a CFP, those actually have a very high level of education and have a certification that you can verify online. So anyone that you are talking about money with, you want to make sure that you are vetting them. And some of these people can just talk to you about your finances and some of them can actually manage your investments for you if you want that. Financial advisors, depending on the kind that you choose, can be pretty expensive. A robo-advisor is like an AI version of a financial advisor.
You just set up an account for one and then they charge you a pretty modest fee. And based on your age and your risk tolerance, it will manage your investments for you. An online financial advisor can offer more services and you can actually talk to a human being, but those do tend to cost a little bit more. And then you could go to an in-person financial advisor, depending on their credentials, that might cost even more, but sometimes it’s really nice to talk to somebody that you know and you can grow that relationship with them over time.
Kim Palmer:
Great. Thank you, Alana. And I think, actually, I can squeeze in one more question that we received. How do taxes work with investment accounts? How much do we set aside so we aren’t surprised by a tax bill? Which is a great question. If you’re selling stocks from a brokerage investment account, then you should be aware of three words, capital gains taxes. Those are the taxes you’ll pay when you sell assets for profit. Assets that you have owned for more than a year are subject to long-term capital gains tax, and the capital gains tax rate is 0%, 15% or 20% on most assets. Capital gains taxes on assets held for a year or less are subject to short-term capital gains. If you regularly trade stocks or other investments, you might be subject to short-term capital gains.
Those profits are taxed as ordinary income based on your tax brackets, which we went over before. Your final tax bill depends on a number of different factors. If you don’t want to be surprised, estimate what you’ll owe using tools such as a tax calculator or IRS worksheets. If needed, consider setting aside enough to cover the tax bill or paying estimated taxes and as always, your specific situation will differ and we are not tax professionals. We hope that you enjoyed this webinar and learned something today. If you’d like to get even more clarity on your finances and continue learning with NerdWallet, consider signing up for an account with us at nerdwallet.com. Thank you so much for joining us.
Sean Pyles: And that’s all we have for this episode. To send the Nerds your money questions, call or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. Here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. This webinar episode was produced by Alikay Wood, Sheri Gordon, and me. We had editing help from Liz Weston, Sara Brink mixed our audio, and a big thank you to NerdWallet’s editors for all their help. And with that said, until next time, turn the Nerds.
We have a job opportunity to share from a member of GEM Diamond, EasyKnock, an institutionalized sale-leaseback residential platform.
Company Description
EasyKnock is a equity solutions platform giving homeowners flexible, quick solutions for their financial needs. Whether paying off debt, purchasing a new home, or funding a business, EasyKnock helps homeowners to convert their equity to cash without strict lender qualifications through their suite of sale-leaseback solutions. Customers sell their homes to them and remain as renters while working toward their goals.
Role Description
As a Senior Product Manager at EasyKnock, you’ll play a vital role in leading the development and execution of their data-driven products and services.
In this pivotal role, you’ll lead the digitization of complex internal processes and the creation of cutting-edge data products. Your efforts will power multiple customer and business-facing processes, expanding their comprehensive customer view and providing valuable insights that drive strategic decisions across the company.
You’ll have the opportunity to tackle unexplored problem spaces, brainstorm innovative solutions, collaborate with various internal stakeholders, and work with external partners to enhance our integrations, decision engines, and customer insight infrastructure. This is the place for you if you thrive in creating from scratch and painting a compelling vision for data products.
Responsibilities
Manage the product roadmap for internal data, aiming to boost transparency and efficiencies across the business
Prioritize next-generation data products based on internal stakeholder feedback, customer input, and industry trends
Collaborate cross-functionally with software engineering, data engineering, Salesforce developers, and other internal stakeholders to build scalable, reusable data pipelines
Utilize large data sets, data pipelines, and data warehouses to power critical processes and applications
Requirements
Minimum of 5 years of Product Management experience
Proven ability to act decisively and execute efficiently
Exceptional communication and listening skills, with the ability to articulate complex problems to both technical and non-technical audiences
Strong stakeholder management skills, with proven ability to influence internal and external stakeholders, negotiate timelines, and navigate complex situations
Experience with viability experiments and testing product hypotheses with limited resources
A track record of successfully launching data platform products and capabilities, preferably from inception with limited resources
Experience or certifications in the real estate or property management industry preferred
Startup experience is preferred, given the high degree of ambiguity and responsibility inherent in the role
Benefits
Remote-friendly environment or hybrid-friendly (2 days per week in office) if you live near their offices in the NYC or Washington, DC area
Competitive base salary commensurate with experience and geographic location. Range: $150,000 – $180,000
Bonus eligible position
Full benefits and unlimited PTO
Generous stock options
Opportunity to be part of a fast-growing company in the financial technology industry
The US housing market should experience a warm return this spring, thanks to calming economic data.
The average rate for a 30-year loan declined to 6.63% from 6.69% the week prior, according to Freddie Mac on Thursday. Mortgage rates dropped for the second time in 2024 and are expected to retreat further as inflation moderates, which could help spark a housing rebound.
As most indicators point to interest rate cuts this coming year, housing experts are predicting a busier spring buying season starting in the next couple of months as more supply and demand return to the housing market thanks to the mortgage rate drop.
“So long as core inflation and economic activity continue to moderate, mortgage rates aren’t expected to rise further,” said Orphe Divounguy, senior macroeconomist at Zillow. “If layoffs remain low, and mortgage rates ease, housing market activity should rebound modestly this spring — meaning more listings coming on the market and more sales.”
Read more: Mortgage rates below 7% — is this a good time to buy a house?
Mortgage applications fall
The likelihood of a bustling spring housing market will depend heavily on where mortgage rates head next. Homebuyers have proven again they are rate-sensitive amidst today’s elevated home prices. After last week’s slight rate increase, the volume of mortgage application activity retracted 7.2% on a weekly basis, according to an application survey tracked by the Mortgage Bankers Association (MBA) for the week ending Jan. 26.
“Low existing housing supply is limiting options for prospective buyers and is keeping home price growth elevated, resulting in a one-two punch that continues to constrain home purchase activity,” said Joel Kan, MBA’s deputy chief economist.
Affordability challenges also worsened due to last week’s rate bump. The average loan size for purchase applications increased to $444,100, the largest since May 2022, according to the MBA.
Low application rates and hardship don’t mean homebuyers have disappeared, though. Redfin’s Homebuyer Demand Index — measuring buyers’ requests for home tours and other buying services on Redfin — showed that interest increased 6% over the last seven days in the week ending Jan. 28.
“I believe this year’s market will launch in the spring, once 6% rates are even more entrenched in buyers’ psyches, and more homeowners list their houses,” said Hal Bennett, a Redfin Premier agent.
Wall Street banks and industry experts expect cuts. Wells Fargo said in its 2024 annual outlook that the economy will moderate by mid-2024, prompting the Fed to cut rates by 225 basis points by early 2025. Housing experts at Fannie Mae are predicting mortgage rates will decline below 6% by the end of 2024, leveling off at about 5.8%.
During yesterday’s Federal Open Market Committee meeting, the Fed announced it is keeping its benchmark rate steady in an effort to suppress inflation to 2%. Even so, Fed Chair Jerome Powell expressed optimism that rates have peaked and a cut could come soon. But any drop is not a guarantee.
“Inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain,” Powell said during the FOMC conference.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
The latest Personal Consumption Expenditures (PCE) index — the Fed’s preferred inflation measurement — increased 2.6% annually in December, falling below 3% for the first time since March 2021. More importantly, though, is that an annualized PCE using data from the prior three to six months is now below 2%.
“The lower inflation readings over the second half of last year are welcome,” Powell added, “but we will need to see continuing evidence to build confidence that inflation is moving down sustainably toward our goal.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more
Read the latest financial and business news from Yahoo Finance
Whether it’s a 5% increase or a 20% bump, a pay raise at work is an opportunity to take charge of your financial priorities. A small raise might not seem like much when it’s broken down into a biweekly paycheck, but over time, that difference in income could provide a boost to your lifestyle or be put toward other financial goals.
Whether you decide to pay off debt, pad your safety net, invest, give back, improve your quality of life or treat yourself, a raise is a good time to think about the direction of your financial life.
Keep an eye on lifestyle creep
Many personal finance experts warn against “lifestyle creep,” which is when you begin to spend more as you earn more. Lifestyle creep can take the form of buying more conveniences — like ordering food in more often — or buying more expensive or higher-quality items, like sturdier hiking boots or a better brand of skin care products.
“If you get a raise and use it to buy a new car or a new home or go out every weekend, your rate of spending might surpass your new income,” says Mabel Nuñez, founder of the investing education site Girls on the Money.
Nuñez says that it’s good to reward yourself, but she advises clients to avoid buying more expensive things.
“Think about an expense that’s going to be a one-time purchase or something that’s going to make you better, like traveling somewhere new or taking a cooking class,” Nuñez says. “Don’t spend just for the sake of spending.”
Once you’ve looked at your financial situation, you might find that it’s not in your best interest to increase your spending on nonessentials. But if you’re feeling good about the status of your consumer debt and savings, then you might choose to spend more money on things that will make life more enjoyable.
For example, maybe you’ve been washing dishes by hand because you don’t have a dishwasher or yours is broken. You could put part of your raise toward a new appliance that’s going to save you a lot of time and energy. Or maybe you’ve been driving the same car for the past 20 years or living in a too-small house with your growing family. If you’ve planned for the increased costs, an upgrade that brings you increased functionality and comfort is a raise well-spent.
Focus on high-priority financial goals
Liz Carroll, a financial life and wellness coach at Mindful Money Coaches, says that paying off consumer debt with an 8% annual percentage rate or higher should be a top priority, especially if you have more income that you can put toward it.
Beyond debt payoff, Carroll suggests people have a financial safety net of at least a month’s worth of expenses, with the goal of working toward three to six months’ worth. This could be done through regular recurring transfers from your paycheck to your savings account.
“Give your future self a share,” Carroll says. “I tell my clients to be mindful and pause before the quick reaction of, ‘I got a raise, now I can spend money.’ Instead, you should think, ‘What’s in alignment with my values?’”
Investing for retirement is another priority to consider, such as contributing to your 401(k) to earn any matching funds offered by your employer or putting your money in a Roth IRA. You could also consider an index fund, which allows you to invest in a wide range of stocks all at once.
“You want money in savings for an emergency, but anything above that that you don’t need in the next few years could be invested in a conservative way, like an index fund,” Nuñez says. “Learn how to invest it in a smart way, and it’ll get you to the next level of financial life.”
Treat yourself and give back
Beyond debt, savings and other future financial planning, Carroll says you should feel comfortable celebrating your accomplishments. Just keep in mind that you may want to put up some guardrails around the way you reward yourself so that you can maximize the financial benefits of a raise. Carroll says something that equals 5% of the total raise is a good amount to aim for if you want to treat yourself but are also paying off debt. If you don’t have debt, she says, 10% of the total raise is a good benchmark.
Another thing you may choose to do with your raise is to give back to your community. Whether you donate money to your favorite charity or surprise a loved one with a random act of kindness, it can make you feel good to share your good fortune.
More income means having more resources to achieve your goals. By creating a plan for important financial milestones — as well as for fun splurges — you’ll get the most out of your money.
This article was written by NerdWallet and was originally published by The Associated Press.
Reverse mortgages can be an attractive option for seniors who want to supplement their retirement income, pay off debts, or make home improvements. However, they should be carefully considered as they can have significant financial and legal implications.
Here’s how reverse mortgages work, the pros and cons, and what to consider before deciding if it’s right for you.
What is a reverse mortgage?
A reverse mortgage offers a unique financial option for homeowners aged 62 and older, enabling them to utilize the equity in their home without the obligation to make monthly mortgage payments.
Through this arrangement, homeowners have the flexibility to receive funds in several ways: a single lump sum, as ongoing monthly payments, or through a line of credit that can be accessed as needed. The defining characteristic of a reverse mortgage is its payment structure; rather than the homeowner paying the lender, the lender pays the homeowner based on the equity built up in the home.
This type of loan is specifically designed for seniors looking for additional income streams during retirement, leveraging the equity they have accumulated in their property over the years. The loan balance, including interest and fees, is deferred until the home is sold, the homeowner permanently relocates, or in the event of the homeowner’s death, at which point the estate is responsible for repayment.
Understanding How a Reverse Mortgage Works
Reverse mortgages enable senior homeowners to access their home’s equity in a flexible and strategic manner. This financial tool is especially beneficial for those who wish to remain in their home while supplementing their retirement income, covering healthcare expenses, or funding home improvements, all without the requirement to make monthly loan repayments. The process is straightforward and designed to provide seniors with financial relief by tapping into the value of their most significant asset—their home.
Step 1: Assess Your Eligibility
To kick things off, confirm your eligibility for a reverse mortgage. Requirements include being at least 62 years old, owning your home (or at least having a significant amount of equity in it), and using the home as your primary residence. You’ll also need to demonstrate that you can handle ongoing costs like property taxes, homeowners’ insurance, and regular maintenance.
Step 2: Calculate Your Home Equity
Your home’s equity is central to determining your reverse mortgage potential. Simply, it’s the difference between your home’s market value and any outstanding mortgage balance. The greater your equity, the more you might receive from a reverse mortgage.
Step 3: Select the Right Reverse Mortgage Product
Explore the different types of reverse mortgages available, including the federally insured Home Equity Conversion Mortgage (HECM), proprietary reverse mortgages for higher-value homes, and single-purpose reverse mortgages from certain state and local governments. Each type caters to specific needs and financial scenarios.
Step 4: Get a Professional Home Appraisal
An essential step in the process is obtaining a professional appraisal of your home. This assessment determines your home’s market value based on factors such as location, condition, and the sale prices of similar homes nearby.
Step 5: Undergo Counseling
A crucial step is to undergo counseling from a HUD-approved agency. This ensures you fully understand the reverse mortgage process, its financial implications, and how it fits into your overall estate planning.
Step 6: Decide How You’ll Receive the Funds
Reverse mortgages offer several options for receiving your funds: as a lump sum, in monthly payments, as a line of credit, or a mix of these methods. Your choice should align with your financial objectives and needs.
Step 7: Know When and How Repayment Works
No monthly payments are required with a reverse mortgage. The loan is repaid when the last borrower dies, sells the home, or the home is no longer used as the primary residence. Typically, the home is sold, and the proceeds are used to pay off the loan balance, including interest and fees.
Real-Life Example: Maximizing Loan Amount Through Equity
Imagine homeowners John and Mary, who own a home worth $300,000 clear of any mortgage. They qualify for a reverse mortgage that grants them access to $150,000. Opting for monthly payments, they supplement their retirement income, demonstrating how equity determines borrowing capacity and the flexibility in receiving funds.
Choosing the Right Type of Reverse Mortgage
When considering a reverse mortgage, it’s crucial to understand the different types available to you. Each type comes with its own set of features, benefits, and limitations.
Here, we’ll delve into the three primary types of reverse mortgages: the Home Equity Conversion Mortgage (HECM), proprietary reverse mortgages, and single-purpose reverse mortgages. By comparing these options, you can make a more informed decision that aligns with your financial situation and retirement goals.
Home Equity Conversion Mortgage (HECM)
Pros:
Federally insured, offering a layer of security.
Flexible payout options, including lump sum, line of credit, or fixed monthly payments.
Can be used for any purpose, without restrictions.
Cons:
Higher upfront costs, including mortgage insurance premiums.
Requires counseling from a HUD-approved agency, which may be seen as an extra step.
The loan amount is capped, which may limit access to equity for homeowners with higher-valued properties.
Proprietary Reverse Mortgages
Pros:
Designed for higher-valued homes, potentially offering access to more significant loan amounts.
May have lower upfront costs than HECMs.
Not subject to the same insurance and borrowing limits as HECMs, offering more flexibility.
Cons:
Not federally insured, which might pose additional risks.
May come with higher interest rates and fees.
Less regulatory oversight, requiring thorough due diligence by the borrower.
Single-Purpose Reverse Mortgages
Pros:
Typically the lowest cost option available.
Offered by state and local government agencies and some non-profits, intended for a specific purpose like home repairs or property taxes.
Interest rates may be lower than other reverse mortgages.
Cons:
Limited availability, as not all states and municipalities offer them.
The loan must be used for a specific, lender-approved purpose.
Not suitable for those looking for flexibility in how they use their funds.
Making the Right Choice
Choosing the right type of reverse mortgage depends on several factors, including your financial needs, the value of your home, and how you plan to use the funds. HECMs offer flexibility and security, but come with higher costs.
Proprietary reverse mortgages can provide access to larger sums for those with high-value homes but lack the insurance and sometimes the stability of HECMs. Single-purpose reverse mortgages are cost-effective for specific needs but offer limited flexibility.
Before deciding, it’s recommended to consult with a financial advisor or a HUD-approved counselor. They can provide personalized advice based on your financial situation and help you navigate the complexities of each option, ensuring you choose the reverse mortgage that best fits your retirement planning needs.
Eligibility Criteria for Reverse Mortgages
The FHA insures certain reverse mortgages, as long as borrowers meet certain requirements:
Be at least 62 years of age.
Live in the home as a primary residence (or your spouse, listed on the mortgage, must live in the home.)
Be capable of paying property taxes and homeowners insurance, as well as other maintenance costs and fees while you live in the home.
Meet FHA property requirements for the home.
Are you willing to attend a counseling session about home equity conversion mortgages (HECMs).
There are no delinquent federal debts on your account.
You’re more likely to get the money you need if you own your home outright, or if your loan balance is small so that you have a great deal of equity.
Reverse Mortgage Borrowing Limits
When you apply for a reverse mortgage loan, your lender will consider a few factors that will influence the amount of money you receive, including:
Your age
Value of your home
Equity available in your home
Interest rate
FHA mortgage limit for home equity conversion mortgages
Whether your fees are rolled into the loan
How you choose to receive your money
The older you are, and the more equity you have in your home, the more you’re likely to be approved for. Keep in mind, too, that fees associated with reverse mortgages are often much higher than fees for other types of home equity loans. That’s going to eat into how much you actually receive — even if you have a lot of equity in your home.
One of the perks of FHA-insured reverse mortgages is the fact that you don’t have to pay back more than the home is worth. So, if the value drops, and you owe more than it’s worth, you (or your heirs) might have to sign a deed in lieu of foreclosure turning it over to the bank. This is one reason many reverse mortgage lenders won’t actually lend you the entire amount of your equity.
You can use the money for whatever you want, whether it’s paying off debt, covering living expenses, or going on a vacation.
Accessing Your Reverse Mortgage Funds
If you get a fixed-rate reverse mortgage, you’ll receive a lump-sum payment. You can then take that money and do whatever you want with it. However, when it runs out, it’s gone. Some retirees use a lump sum to fund a retirement investment portfolio or purchase an immediate annuity. Others use the money to pay off debts or cover other expenses.
With an adjustable-rate HECM, you have different options available. You can choose to receive set monthly payments for a specific period of time or get payments for as long as you or an eligible spouse live in a house.
If you choose an open-ended payment schedule, you’ll likely get a smaller amount each month. However, you can be reasonably sure that you’ll continue to receive money until you pass on or move into a long-term care facility. With a fixed-term payment schedule, you could see higher cash flow every month. However, you run the risk of outliving the payments and trying to figure out what to do next.
Finally, you can also choose to use your reverse mortgage as a line of credit. You can withdraw funds as needed, up to the credit limit. This is a little more flexible and can be useful if you have other sources of income, and just want the HECM in case you need to fill a gap on occasion.
Pros and Cons of a Reverse Mortgage
If you’re considering a reverse mortgage, it’s a good idea to start with an FHA-approved lender so you receive protection. You can use an online locator to find a counselor who can help you with the process, or you can call 800-569-4287.
Carefully consider the pros and cons, too.
Pros
There are some ways to benefit from a home equity conversion mortgage that you wouldn’t see with a more “traditional” home equity loan.
No monthly payments as a borrower
Improve monthly cash flow
Pay off debt (including an existing mortgage on the home)
Non-borrowing spouse can remain in the home
Loan is paid off by selling the house when you pass on or move out
Cons
While a home equity conversion mortgage might seem like a no-brainer, there are some downsides to consider before you proceed.
High closing costs and other fees
You might not be able to pass the home on to your heirs
Costs associated with property taxes, mortgage insurance, and maintenance must still be paid
You’re draining a major asset—and you might still outlive your money
How to Spot and Avoid Reverse Mortgage Scams
Scams related to reverse mortgages are a serious concern, as they often target vulnerable seniors who may be seeking financial relief or have cognitive impairments. These scams can come in the form of dishonest vendors or contractors who promise home improvements in exchange for a reverse mortgage. However, they then either fail to deliver quality work or outright steal the homeowner’s money.
Similarly, family members, caregivers, and financial advisors may use a power of attorney to obtain a reverse mortgage on a senior’s home and then steal the proceeds. They may also try to convince seniors to buy financial products that they can only afford through a reverse mortgage, which may not always be in the senior’s best interest.
It’s important to be cautious and do thorough research to protect yourself from these types of scams.
Is a reverse mortgage right for you?
With a reverse mortgage, you can use your home as an asset if you know you’ll stay in it for a long time and need a little extra income for retirement. Borrowers who don’t intend to pass the home to heirs may benefit financially from the home during retirement. That is, as long as you can keep up with the costs of maintaining the home and pay property taxes.
In contrast, getting a reverse mortgage loan might not make sense if you can’t afford home maintenance or if you wish to leave your home to your heirs. When you’re no longer living in the home, your heirs will need to sell the home to pay off the loan. If not, they’ll have to pay the loan themselves to keep the house. If there’s enough money in the estate to pay it off, it will reduce how much ready cash they receive when you pass on.
Carefully consider your situation and your priorities before you decide to get a reverse mortgage. Then, make the decision most likely to benefit you in retirement and increase the chance that you’ll outlive your money.
The average rate for a 30-year mortgage loan roseto 6.69% from 6.60% a week prior, according to Freddie Mac on Thursday. Mortgage costs have retreated more than 110basis points over the last three months since the peak of 7.79% in October.
That trend is boosting hopes for improved affordability as rates are poised to drop despite this week’s minor climb.
While rates are still hovering around mid-6% — significantly higher than the average in 2021 and 2022 — consumers are becoming increasingly active in the housing market. More buyers are applying for mortgages, signifying a belief that home prices will retreat along with mortgage rates.
“We do have home sales, and particularly existing home sales, [forecasted] to pick up around 4% this year,” Mark Palim, vice president and deputy chief economist at Fannie Mae, told Yahoo Finance. “We have a little bit higher of a pickup in 2025, by nearly 14%, because by then, the lower mortgage rates would have worked their way through the system.”
Read more: Mortgage rates below 7% — is this a good time to buy a house?
Homebuyers see a glimmer of hope
Homebuyers are trickling back into the housing market as the level of mortgage applications increased by 3.7% from a week prior, according to the Mortgage Bankers Association (MBA) in its weekly survey ending Jan. 19.
The seasonally adjusted purchase index — measuring new home loans — jumped 8% week over week. However, the unadjusted purchase index remains 18% lower than the same week a year ago, and refinance activity is also 16% lower than the previous week.
“Conventional and FHA purchase applications drove most of the increase last week as some buyers moved to act early this season,” said Joel Kan, MBA’s vice president and deputy chief economist. “Refinance applications declined over the week and remained at low levels. There is still little incentive for homeowners to refinance with rates at these levels.”
Read more: Mortgage refinancing: How to get started
An upswing in buyers’ mortgage activity paralleled an increase in homebuyers’ confidence. Americans are feeling more optimistic about the housing market, according to the latest Home Purchase Sentiment Index (HPSI) surveyed by Fannie Mae in December. The share of respondents believing now is a “good time” to buy a home increased three percentage points to 17% from 14% a month earlier.
Economists attributed the growing positivity to consumers’ belief that mortgage rates will fall — bringing home prices with them.
“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” Palim said. “A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024.”
Rates projected to drop below 6% by year-end
Economists at Fannie Mae predicted that slowing economic growth in 2024 will bring rates down to around 5.8% by the end of the year.
“Part of [the rate cut] is the slow growth that we see across this year, and part of it is the Fed easing,” Doug Duncan, Fannie Mae chief economist, told Yahoo Finance. “We do have [the expectation of] the Fed cutting rates four times this year.”
But the first cut may come later than expected. Consumer prices increased 0.3% month-over-month and 3.4% annually in December. Overall price growth remained higher than the Fed’s targeted 2% even after last year’s rate hikes, suggesting that inflation is stickier than previously thought.
“With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past,” Christopher Waller, Federal Reserve governor, said last week in a speech at the Brookings Institution in Washington.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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Inside: Learn what 11 an hour is how much a year, month, and day. Plus tips to budget your money. Don’t miss the ways to increase your income.
We are going to under the cover and discover $11 an hour is how much per year.
For most Americans, this is hovering near minimum wage.
Let’s get this straight… This is not a livable wage.
If you are in high school or college and have support from your parents, then this is great spending money for you.
However, if you are making it on your own, $11 per hour will not make ends meet each month.
For most people, being at minimum wage is common and the goal is to make your way up the payscale and quickly!
In this post, we’re going to detail exactly what $11 an hour is how much a year. Also, we are going to break it down to know how much is made per month, bi-weekly, per week, and daily.
That will help you immensely with how you spend your money. Because too many times the hard-earned cash is brought home, but there is no actual plan for how to spend that money.
When living close to minimum wage, you must know how to manage money wisely.
More than likely, you are living paycheck to paycheck and struggling to survive to the next paycheck. Take a deep breath and make this minimum wage just a season.
The ultimate goal is to make the most of your hourly wage with inspirations to make more money.
If that is something you want to do, then keep reading. You are in the right place.
$11 an Hour is How Much a Year?
When we ran all of our numbers to figure out how much is $11 per hour is as annual salary, we used the average working day of 40 hours a week.
40 hours x 52 weeks x $11 = $22,880
$22,880 is the gross annual salary with a $11 per hour wage.
As of June 2023, the average hourly wage is $33.58 (source).
This you are making WAY LESS than the average wage.
Let’s breakdown how that number is calculated
Typically, the average work week is 40 hours and you can work 52 weeks a year. Take 40 hours times 52 weeks and that equals 2,080 working hours. Then, multiply the hourly salary of $11 times 2,080 working hours and the result is $22,880.
That number is the gross income before taxes, insurance, 401K, or anything else is taken out. Net income is how much you deposit into your bank account.
Work Part Time?
But you may think, oh wait, I’m only working part time. So if you’re working part time, the assumption is working 20 hours a week at $11 an hour.
Only 20 hours per week. Then, take 20 hours times 52 weeks and that equals 1,040 working hours. Then, multiply the hourly salary of $11 times 1,040 working hours and the result is $11,440.
How Much is $11 Per Month?
On average, the monthly amount would average $1,907.
Annual Amount of $22,880 ÷ 12 months = $1,907 per month
Since some months have more days and fewer days like February, you can expect months with more days to have a bigger paycheck. Also, this can be heavily influenced by how often you are paid on and on which days you get paid.
Work Part Time?
Only 20 hours per week. Then, the monthly amount would average $953.
How Much is $11 per Hour Per Week
This is a great number to know! How much do I make each week? When I roll out of bed and do my job, what can I expect to make at the end of the week?
Once again, the assumption is 40 hours worked.
40 hours x $11 = $440 per week.
Work Part Time?
Only 20 hours per week. Then, the weekly amount would be $220.
How Much is $11 per Hour Bi-Weekly
For this calculation, take the average weekly pay of $440 and double it.
$440 per week x 2 = $880
Also, the other way to calculate this is:
40 hours x 2 weeks x $11 an hour = $880
Work Part Time?
Only 20 hours per week. Then, the bi-weekly amount would be $440.
How Much is $11 Per Hour Per Day
This depends on how many hours you work in a day. For this example, we are going to use an eight hour work day.
8 hours x $11 per hour = $88 per day.
If you work 10 hours a day for four days, then you would make $110 per day. (10 hours x $11 per hour)
Work Part Time?
Only 4 hours per day. Then, the daily amount would be $44.
$11 Per Hour is…
$11 per Hour – Full Time
Total Income
Yearly (52 weeks)
$22,880
Yearly (50 weeks)
$22,000
Monthly (173 hours)
$1,907
Weekly (40 Hours)
$440
Bi-Weekly (80 Hours)
$880
Daily Wage (8 Hours)
$88
Net Estimated Monthly Income
$1,455
**These are assumptions based on simple scenarios.
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Paid Time Off Earning 11 Dollars an Hour
Does your employer offer paid time off?
As an hourly, close to minimum wage employee, more than likely you will not get paid time off.
So, here are the scenarios for both cases.
For general purposes, we are going to assume you work 40 hours per week over the course of the year.
Case # 1 – With Paid Time Off
Most hourly employees get two weeks of paid time off, equivalent to 2 weeks of paid time off.
In this case, you would make $22,800 per year.
This is the same as the example above for annual salary making $11 per hour.
Case #2 – No Paid Time Off
Unfortunately, not all employers offer paid time off to their hourly employees. While that is unfortunate, it is best to plan for less income.
Life happens. There will be times you need to take time off for numerous reasons – sick time, handling an emergency, or even vacation.
So, let’s assume you take 2 weeks off without paid time off.
That means you would only work 50 weeks of the year instead of all 52 weeks. Take 40 hours times 50 weeks and that equals 2,000 working hours. Then, multiply the hourly salary of $11 times 2,000 working hours, and the result is $22,000.
40 hours x 50 weeks x $11 = $22,000
You would average $88 per working day and nothing when you don’t work.
$11 an Hour is How Much a year After Taxes
Let’s be honest… Taxes can take up a big chunk of your paycheck. Thus, you need to know how taxes can affect your hourly wage.
This is why you always wondering why your take-home pay is so much less.
Also, every single person’s tax situation is different.
On the basic level, let’s assume a 12% federal tax rate and a 4% state rate. Plus a percentage is taken out for Social Security and Medicare (FICA) of 7.65%.
Gross Annual Salary: $22,880
Federal Taxes of 12%: $2,746
State Taxes of 4%: $915
Social Security and Medicare of 7.65%: $1,750
$11 an Hour per Year after Taxes: $17,469
This would be your net annual salary after taxes.
To turn that back into an hourly wage, the assumption is working 2,080 hours.
$17469 ÷ 2080 hours = $8.40 per hour
After estimated taxes and FICA, you are netting $8.40 an hour. That is $2.60 an hour less than what you planned.
This is a very highlighted example and can vary greatly depending on your personal situation. Therefore, here is a great tool to help you figure out how much your net paycheck would be.
$11 an Hour Budget – Example
You are probably wondering can I live on my own making 11 dollars an hour? How much rent can you afford at 11 an hour?
Using our Cents Plan Formula, this is the best case scenario on how to budget your $11 per hour paycheck.
When using these percentages, it is best to use net income because taxes must be paid.
In this example, we calculated $11 an hour was $8.40 after taxes. That would average $1455 per month.
According to the Cents Plan Formula, here is the high level view of a $11 per hour budget:
Basic Expenses of 50% = $728
Save Money of 20% = $291
Give Money of 10% = $146
Fun Spending of 20% = $291
Debt of 0% = $0
Obviously, that is not doable when living so close to minimum wage. So, you have to be strategic on ways to decrease your basic expenses and debt. Then, it will allow you more money to save and fun spending.
To further break down an example budget of $11 per hour, then using the ideal household percentages is extremely helpful.
recommended budget percentages based on $11 per hour wage:
Category
Ideal Percentages
Sample Monthly Budget
Giving
10%
$76
Savings
15-25%
$114
Housing
20-30%
$572
Utilities
4-7%
$114
Groceries
5-12%
$153
Clothing
1-4%
$19
Transportation
4-10%
$114
Medical
5-12%
$191
Life Insurance
1%
$16
Education
1-4%
$10
Personal
2-7%
$29
Recreation / Entertainment
3-8%
$48
Debts
0% – Goal
$0
Government Tax (including Income Taxes, Social Security & Medicare)
15-25%
$451
Total Gross Income
$1,907
**In this budget, prioritization was given to basic expenses. Thus, some categories like giving and saving were less.
Living on $11 Per Hour
Living close to minimum wage can be a very difficult situation.
Is it doable? Probably not for long.
You just have to be wiser (or frugal) with your money and how you spend the hard-earned cash you have been blessed with.
A lot of times when people are making under the minimum wage mark, they feel like they are in this constant cycle that they can never keep up (which completely makes sense it is hard!).
When your thoughts are constantly focused on how you are struggling to keep up with bills and expenses, that is all you focus on.
You need to do is change your money mindset.
This is what you say to yourself… Okay, I am making near minimum wage for now. I have aspirations and goals to increase how much I make. For now, I am going to make sure that I am able to live on my 11 dollars per hour. I’m going to try and avoid debt and payday loans at all costs.
Other Tips to Help You:
Check your minimum wage for your state and city. You might find a higher minimum wage in a nearby city.
Look to living in a lower cost of living area to stretch your money.
Find ways to minimize your basic expenses.
Thrive with a minimalist lifestyle.
Decide if a roommate or moving back with your parents would help.
Bike or walk to work.
In the next section, we will dig into ways to increase your income, but for now, you must focus on living on $11 an hour.
5 Ways to Increase Your Hourly Wage
This right here is the most important section of this post.
You need to figure out ways to increase your hourly income because I’m going to tell you…you deserve more. You do a good job and your value is higher than what your employers pay you.
Even an increase of 50 cents to $11.50 will add up over the year. Even better $12 an hour!
1. Ask for a Raise
The first thing to do is ask for a raise. Walk right in and ask for a raise because you never know what the answer will be until you ask.
If you want the best tips on how specifically to ask for a raise and what the average wage is for somebody doing your job, then check out this book. In this book, the author gives you the exact way to increase your income. The purchase is worth it or go down to the library and check that book out.
2. Look for A New Job
Another way to increase your hourly wage is to look for a new job. Maybe a completely new industry.
It might be a total change for you, but many times, if you want to change your financial situation, then that starts with a career change. Maybe you’re stressed out at work. Making $11 an hour is too much for you and you’re not able to enjoy life, maybe changing jobs and finding another job may increase your pay, but it will also increase your quality of life.
3. Find a New Career
Because of student loans, too many employees feel like they are stuck in the career field they chose. They feel sucked into the job that they don’t like or have the potential they thought it would.
For many years, I was in the same situation until I decided to do a complete career change. I am glad I did. I have the flexibility that I needed in my life to do what I wanted when I needed to do it. Plus I am able to enjoy my entrepreneurial spirit.
4. Find Alternative Ways to Make Money
In today’s society, you need to find ways to make more money. Period.
There is no way to get around it. You need to find additional income outside a traditional nine-to-five position or typical 40 hour a week job. You will reach a point where you are maxed on what you can make in your current position or title. There may be some advancement to move forward, but in many cases, there just is not much room for growth.
So, you need to find a side hustle – another way to make money.
Do something that you enjoy, turn your hobby into a way to make money, turn something that you naturally do, and help others into a service business. In today’s society, the sky is the limit on how you can earn a freelancing income.
5. Earn Passive Income
The last way to increase your hourly wage is to start earning passive income.
This can be from a variety of ways including the stock market, real estate, online courses, book sales, etc. This is where the differentiation between struggling financially and being financially sound happens.
By earning money passively, you are able to do the things that you enjoy doing and not be loaded down, with having a job that you need to work, and a place that you have to go to. And you still make money doing nothing.
Here is an example:
You can start a brokerage account and start trading stocks for $50. You need to learn and take the one and only investing class I recommend. Learn how the market works, watch videos, and practice in a simulator before you start using your own money.
One gentleman started with $5,000 in his trading account and now has well over $36,000 in a year. Just from practice and being consistent, he has learned that passive income is the way for him to increase his income and also not be a slave to his job.
Tips to Live on $11 an Hour
In this last section, grasp these tips on how to live on $11 an hour. On our site, you can find lots of money saving tips to help stretch your income further.
Here are the most important tips to live on $11 an hour. Highlight these!
1. Spend Less Than You Make
First, you must learn to spend less than you make.
If not you will be caught in the debt cycle and that is not where you want to be. You will be consistently living paycheck to paycheck.
In order to break that dreadful cycle, it means your expenses must be less than your income.
And when I say income, it’s not the $11 an hour. As we talked about earlier in the post, there are taxes. The amount of taxes taken out of your paycheck is called your net income which is $11 an hour minus all the taxes, FICA, Social Security, and Medicare is taken out. That is your net income.
So, your net income has to be less than your net income.
2. Living Below Your Means
You need to be happy. And living on less can actually make you happier. Studies prove that less is better.
Finding contentment in life is one thing that is a struggle for most.
We are driven to want the new shiny toy, the thing next door, the stuff your friend or family member got. Our society has trained you that you need these things as well.
Have you ever taken a step back and looked at what you really need?
Once you are able to find contentment with life, then you are going to be set for the long term with your finances.
Here is our story on owning less stuff. We have been happier since.
3. Make Saving Money Fun
You need to make saving money fun. Period.
It could be participating in a no spend challenge for the month.
Check out the 200 envelope challenge (which is doable on your income)
It could be challenging your friends not to go to Target for a week.
Maybe changing your habits and not picking up takeout and planning meals.
Whatever it is challenge yourself.
Find new ways of saving money and have fun with it.
Even better, get your family and kids involved in the challenge to save money. Tell them the reason why you are saving money and this is what you are doing.
Here are 101 things to do with no money. Free activities without costing you a dime. That is an amazing resource for you and you will never be bored.
And you will learn a lot of things in life you can do for free. Personally, some of the best ones are getting outside and enjoying some fresh air.
4. Make More Money
If you want if you do not settle for less, then find ways to make more money. If you want more out of life, then increase your income.
You need to be an advocate for yourself.
Find ways to make more money.
It could be a side hustle, a second job, asking for a raise, going to school to change careers, or picking up extra hours.
Whatever path you take, that’s fine. Just find ways to make more money. Period.
5. No State Taxes
Paying taxes is one option to increase what you take home in each paycheck.
These are the states that don’t pay state income taxes on wages:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
It is very interesting if you take into account the amount of state taxes paid compared to a state with income taxes.
Also, if you live in one of the higher taxed states, then you may want to reconsider moving to a lower cost of living area. The higher taxes income tax states include California, Hawaii, New Jersey, Oregon, Minnesota, the District of Columbia, New York, Vermont, Iowa, and Wisconsin. These states tax income somewhere between 7.65% – 13.3%.
6. Stick to a Budget
You need to learn how to start a budget. We have tons of budgeting resources for you.
While creating a budget is great, you need to learn how to use one.
You do not have to budget down to every last penny.
You need to make sure your expenses are less than your income and that you are creating sinking funds for those irregular expenses.
Budget Help:
7. Pay Off Debt Quickly
The amount that you pay interest on debt is absolutely absurd.
Unfortunately, that is how many of these companies make their money from the interest you pay on debt.
If you are paying 5% to even 20-21% or higher, you need to find ways to lower that debt quickly.
Here’s a debt calculator to help you. Figure out your debt free date.
Paying off debt fast is your target and main focus. I can tell you from personal experience, that it was not until we paid off our debt that we finally rounded the corner financially. Once our debt was paid off, we could finally be able to save money. Set money aside in separate bank accounts and pay for cash for things.
It took us working hard to pay off debt. We needed persistence and patience while we had setbacks in our debt free journey.
Here are resources now for you to pay off your debt:
Jobs that Pay $11 an Hour
You can always find jobs that pay $11 per hour. Polish up that smile, fill out the application and be prepared with your interview skills.
Job Search Hint: Always send a written follow-up thank you note for your interview. That will help you get noticed and remembered.
First, look at the cities that require a minimum wage in their cities. That is the best place to start to find jobs that are going to pay higher than the federal minimum wage rate. Many of the cities are moving towards this model so, target and look for jobs in those areas.
Possible Ideas:
Cashiers
Back of the house restaurant staff
Landscape Laborer
Retail jobs
Paraeducators at schools
Janitors
Farm help
Warehouse workers
$11 Per Hour Annual Salary
In this post, we detailed 11 an hour is how much a year. Plus all of the variables that can impact your net income. This is something that you can live off.
$22,800
In this post, we highlighted ways to increase your income as well as tips for living off your wage.
Use the sample budget as a starting point with your expenses.
You will have to be savvy and wise with your hard-earned income. But, with a plan, anything is possible!
Try one of these ways to make money quickly to help you in the interim.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Pennymac proudly supports our nation’s heroes by offering Department of Veterans Affairs (VA) loans. We service over 445,000 VA loans on behalf of service members, veterans and their families – over 43,000 of which originated in the first 9 months of 2023.*
If you’re connected with the United States military, you may be eligible for VA loans, such as no down payment purchase loans and low-interest refinance loans. In this guide, we’ll look at what a VA loan is, the qualification criteria, the benefits and how to find the one that could be right for you.
*As of 9/30/2023
What Is a VA Loan?
A VA loan is a mortgage loan guaranteed by the United States Department of Veterans Affairs. It’s available to eligible veterans, service members and surviving spouses and offers numerous benefits, including:
No down payment on home purchase loans
Competitive interest rates
More flexible credit requirements than conventional non-VA loans
Lifetime benefit — you can use your VA loan entitlement multiple times
VA loans are specifically designed to meet the needs of veterans and their families, opening up increased opportunities for homeownership and building equity.
How Does a VA Loan Work?
VA loans are government-backed loans that offer veterans and service members more flexible borrower criteria than conventional loans. The VA guarantees the loans, reducing the risk for lenders and enabling lower credit scores and down payment requirements.
Not Just For First-Time Homebuyers
While you can use a VA loan for your first home, you can take advantage of the VA loan benefit again if you sell or refinance.
Navigating the VA Purchase Loan Process Step by Step
VA loans and the process to obtain them are similar to other types of Pennymac mortgage loans, with some key differences. Here’s a breakdown of the steps involved in applying for and securing a VA home purchase loan.
1. Start your application online or talk to a Pennymac Loan Expert. One of the unique aspects of a VA loan is that we’ll use your Certificate of Eligibility (COE) to confirm that you meet the basic VA loan requirements, but you don’t need it to begin your application.
You can visit the eBenefits section of the U.S. Department of Veterans Affairs website to request your COE online or obtain VA Form 26-1880 to make your request through the mail. If you prefer, your Loan Expert will be happy to guide you through the steps involved to verify your eligibility and obtain your COE.
2. Receive a Pennymac BuyerReady Certification. The BuyerReady Certification is Pennymac’s unique loan certification process that confirms how much of a mortgage you will likely qualify for based on submitted financial documents. While it doesn’t guarantee a loan, BuyerReady Certification can help you house-shop with confidence so you’ll know which homes will fit your budget.
BuyerReady Certified homebuyers also qualify for Pennymac’s Lock & Shop program,* which allows you to lock in a rate before locating a property. Protect yourself from future rate increases and potentially save thousands of dollars in the lifetime cost of your mortgage.
3. Look for homes. Meet with a real estate agent and begin looking for homes. Once you’ve found a home you’d like to purchase, you can continue with the VA loan process. Pennymac Home Connect can assist in finding a reputable real estate agent in your area.
4. Complete underwriting and loan process. Since you’ve already submitted most of the documentation and information you’ll need for the mortgage through the BuyerReady Certification process, loan processing is typically smoother and faster.
5. Close and get the keys! Once your loan is approved, you’ll have your closing, where all necessary paperwork will be signed.
At this time, you’ll get the final details of your loan terms and required closing costs, which are the extra fees buyers and sellers pay to close on a real estate transaction beyond the home’s purchase price. One of the fees unique to the VA loan is the funding fee, which can be paid in full at closing or rolled into the total loan amount.
About the VA Loan Funding Fee
The funding fee is a one-time charge, typically between 1.25% and 3.3% of the loan amount. The fee goes to the U.S. Department of Veterans Affairs to support the VA loan guaranty program, which helps keep VA mortgages low-cost and available for future veterans to achieve homeownership.
Funding Fee Exemptions
The following individuals are exempt from paying the VA funding fee:
Purple Heart recipients
Veterans eligible for compensation for service-connected disabilities or who would be eligible if they didn’t receive retirement pay
Veterans eligible for compensation based on a pre-discharge exam or review
Veterans eligible for compensation but not receiving it due to being on active duty
Surviving spouses eligible for VA loans
If the borrower’s exemption status is unclear, the VA will make the final decision on funding fee exceptions.
How to Qualify for a VA Loan
VA loans are available to active-duty service members, veterans and their surviving spouses. If you meet one or more of the following criteria, you may be eligible for a VA home loan:
Service totaling 181 days or more of active service during peacetime
Service totaling 90 consecutive days or more of active service during wartime
Service totaling six years or more in the National Guard or Reserves or served 90 days (at least 30 of them consecutively) under Title 32 orders
You suffered a service-connected disability
You are the spouse of a military member who died while on active duty or from service-connected causes
VA Loan Benefits
VA home loans are valuable financing solutions to help qualified service members and veterans achieve their homeownership aspirations. The primary benefits of VA home loans include:
No down payment requirement on home purchase loans. Buy your home sooner or use your savings for other expenses.
Lower interest rates. Interest rates are lower than conventional loans, making homeownership more affordable.
No monthly mortgage insurance premiums. Purchase a home and start building equity without the extra expense of monthly mortgage insurance.
Less stringent credit requirements. While there are specific financial criteria you’ll need to meet, perfect credit isn’t required, making homeownership more attainable and accessible.
Types of VA Loans
Veterans and service members have access to several types of VA loans, whether you’re buying a home or refinancing.
VA Purchase Loan
Buy a home with zero down payment and a competitive interest rate.
Who is it for? Qualified first-time or repeat homebuyers who are purchasing a primary residence.
Benefits:
No down payment, unlike conventional or FHA loans*
No private mortgage insurance (PMI) or upfront mortgage insurance premium (UFMIP) to keep your monthly payments low
Lower interest rates
Borrowers can choose to finance the VA funding fee into the loan
*As long as the sales price does not exceed the appraised home value.
VA Interest Rate Reduction Refinance Loan (IRRRL)
An IRRRL, also known as a Streamline Refinance Loan, allows you to refinance your existing VA loan to a lower interest rate, which may potentially lower your monthly payments. You may also be able to refinance an ARM into a fixed-rate mortgage.
Who is it for? Individuals who already have a VA loan.
Benefits:
Lower interest rates compared to conventional loans
Designed to be easy to apply and quickly close
Flexible loan terms — there’s no need to extend your current payment schedule
Minimal paperwork and income documentation required
No appraisal
More flexible eligibility requirements
No out-of-pocket cost refinance options are available to qualifying borrowers. Does not apply to taxes, insurance or pre-paid interest.
Option to reduce mortgage term without significant payment increases
Your rate and monthly payment after refinancing must be lower than your current payment, except when refinancing an ARM to a fixed-rate mortgage.
VA Cash-Out Refinance
VA cash-out refinance loans allow you to refinance your existing loan — which doesn’t have to be a VA loan — for a higher balance and receive the difference as cash. Use the funds for any purpose, such as paying off debt, funding education or making home improvements.
Who is it for? Qualified veteran homeowners who want to use their equity in their homes.
Benefits:
Pay off higher interest rate debt, such as credit cards
It can be used to refinance a non-VA loan into a VA loan
Pennymac will lend up to 90% of the value of your home*
Low-to-zero out-of-pocket costs
Only one monthly mortgage payment to make
Access cash from your equity and potentially lower your rate at the same time
Roll your closing costs into the loan
*Loan limits are established by the VA and can vary by county.
By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
VA Loan Funding Options
A VA loan is a versatile, flexible financing option designed to empower veterans, service members and their families.
VA Purchase Loans
VA purchase loans can be used to finance a primary residence, including:
Single-family home, up to four units
Condominiums in a VA-approved project
A home that needs improvement
Manufactured home or lot
A new home build
Energy-efficient upgrades
VA Interest Rate Reduction Refinance Loan (IRRRL)
VA IRRRL loans are used to replace an existing VA loan at a lower interest rate. This can potentially reduce your monthly payments, freeing up money you can use for other expenses, such as home renovations, college tuition or credit card debt. You can refinance:
Single-family homes, up to four units
Condominiums
Manufactured homes
The home must be your primary residence, and you must already have a VA loan. You can also refinance an ARM into a fixed-rate mortgage.
VA Cash-Out Refinance
With a VA cash-out refinance, you may be able to obtain funds for:
Home improvements, repairs and renovations
Education
Consolidating debt
Managing other large expenses
You can also use a VA cash-out refinance to replace a non-VA loan with a VA loan. The home you are refinancing must be your primary residence.
Apply for a VA Loan
As part of our nation’s military, you’ve dedicated your life to serving our country. Pennymac is proud to serve you. We provide VA purchase loans and refinancing options that can make homeownership more attainable and affordable for America’s heroes. Contact a Pennymac Loan Expert today to learn more.
*Lock & Shop Program allows consumers who have a Pennymac BuyerReady Certification for a purchase loan with Pennymac to lock a rate prior to locating a property. The program requires a non-refundable fee of $595 due at the time of the rate lock. Consumers with a Pennymac BuyerReady Certification for a purchase loan with Pennymac must meet appropriate underwriting conditions to obtain a mortgage loan. Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees. After the rate lock and subject to favorable market conditions, consumers may be eligible for a one-time reduction in rate once the loan application for a specific property has been initiated (0.50 % maximum reduction in interest rate allowed). Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed. Program excludes Jumbo, refinance, third-party and in-process loans. Program subject to termination in Pennymac’s sole discretion and without notice.