Minimalist LIfestyle Archives - Hanover Mortgages

February 3, 2021

How To Make an Offer on a House: A 9 Step Guide

You’ve found your dream home and you’re ready to take the next step toward making it yours. After preparing and saving for your big purchase, it’s time to learn how to make an offer on a house. Offer letters are sales contracts and are legally binding, so it’s important to take this process seriously.

Find out everything you need to know about making an offer on a house with this guide. Below is a quick overview of the offer process. Feel free to click on each one to jump to everything you need to know about that step.

Steps for Making an Offer on a House:

Determine you can afford the house and decide to make an offer.
Talk with your real estate agent about comparable homes before making an offer.
Your real estate agent compiles a written offer.
The written offer is sent to the seller’s agent.
The seller replies and your offer is accepted, countered, or declined.
Learn how to compete with multiple buyers.
The closing process begins when your offer is accepted.
Remember to negotiate before finalizing if contingencies reveal flaws with the house or deal.
Once your offer is accepted, you finalize the contract.

What to Know Before Making an Offer on a House

In addition to researching the process of making an offer, learn these key tips to keep in mind throughout.

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Try to sell first and buy after. If you aren’t a first-time homebuyer, it’s a good idea to sell your current home before buying a new one. This is important if you’re using the sale of the old home to purchase the new one.
Scope out the local market. Your real estate agent will use information on similar houses for sale in the area to put together your offer.
Ask about other offers. Your agent does this for you. Sometimes the seller’s agent won’t disclose this, but this information can inform your offer.
Learn about the house. If there are problems with the house, you’ll want to find out and keep them in mind when you make an offer.
Know what the seller wants. Have your agent find out what appeals to the seller and try to include it in your offer. If the house still has a mortgage, offering an early payment can help tip the balance in your favor.
Act fast. For the best chance at your dream home, submit an offer quickly. Don’t wait around because someone else will likely snap it up if you hesitate.

Step 1: Determine Affordability of the House

Finding your dream house is the easy part. Figuring out if you can afford it takes a hard look at the numbers. Set a home budget beforehand and be strict about sticking to it when looking at houses. To gauge what your budget should be, a majority of lenders advise that you shouldn’t spend more than 28 percent of your monthly pre-tax income. Be sure to include your estimated monthly payment plus other costs like the down payment, HOA fees, home insurance, and property taxes in your budget.

When you go through the lending process, lenders can help you determine what is affordable. If you’re not there yet, use this home affordability calculator to see if your dream house is in your budget.

Step 2: Talk with Your Real Estate Agent

Making an informed offer is the key to giving you the best chance of getting the house you want. Speak with your real estate agent about what comparable homes in the area are going for and use this information to guide your offer.

Step 3. Compile an Offer Letter

After comparing similar houses for sale, you’ll work with your agent on your offer. There are many components to an offer letter. We discuss everything that is included, how to navigate your offer price and contingencies, and tips for making an offer they can’t refuse.

What’s Inside an Offer Letter

Offer letters are legally binding sales contracts, and it’s important to be thorough about what you include.

Typical Components of an Offer Letter:

Offer price: This is the amount of money you are willing to pay for the house.
Contingencies: Conditions that the seller must abide by if and when they accept your offer. Standard contingencies include a home inspection and appraisal. Jump down to learn more about contingencies.
Down payment: The amount paid for the home upfront. This can be anywhere between 3 to 20 percent when paired with a conventional loan.
Earnest money: This is a deposit made by the buyer to demonstrate good faith on a contract to buy a home. It’s generally a small percentage of the price and is held in escrow until the offer is closed. It’s usually applied to the down payment or closing costs once the offer is accepted.
Closing costs: These include all costs associated with purchasing a home. Read more on some of the common closing costs like inspection and loan origination fees.
Timeline: You’ll include your preferred closing date, as well as the closing date of your current home if you aren’t a first-time buyer.

How Much Should You Offer?

Figuring out how much you should offer depends on what you can afford and what kind of market you’re dealing with at the time of the purchase. Your real estate agent should guide you through making an offer, but ultimately, you are the one who decides what you’re willing to pay. A good rule of thumb is that your first offer should leave some room for negotiation, so don’t give away what you’re willing to pay right away.

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Making an Offer in a Buyer’s Market

In a buyer’s market, you have more power to negotiate because there is more supply than demand. With the bargaining advantage on your side, you can feel more comfortable making an offer below the asking price. If you do offer below asking price, negotiation is a typical response.

When offering less, it’s also important to be respectful of the seller. Offending them with an outrageously low offer could result in them rejecting and you losing your dream house.

Making an Offer in a Seller’s Market

A seller’s market is when the housing demand exceeds the supply. In this situation, you will not have the bargaining advantage, and you will be competing with others for attractive properties. If you can afford it, exceeding the seller’s asking price can help you stand out among other offers. Remember to keep your budget in mind when negotiating and don’t offer an amount you can’t afford.

Contingencies

Contingencies are conditions of the purchase that get outlined in your offer and must be met for the sale to go through. If they aren’t met, based on the contingency, either the buyer or seller can cancel the sale. About 74 percent of buyers include contingencies in their offers, so let’s discuss the standard ones below.

Home Inspection Contingency
A home inspection contingency exercises your right to have the property inspected before closing the sale. If the inspection reveals problems with the house like faulty plumbing or a compromised structure, there is room to remedy any issues before you close. You can negotiate for a lower price, ask the seller to make repairs, or even back out of the offer.

It’s not advisable to forego a home inspection contingency to make your offer more attractive. This could cause you to pay more for a damaged property and could cause financial problems down the line if you find out there are major issues with the house that are costly to fix. Home inspections prior to closing are always recommended.

Home Appraisal Contingency
A home appraisal contingency verifies that the price you are paying is fair compared to the home’s market value. In the event that the house you are buying is appraised as lower than the selling price, you are able to negotiate with the seller or cancel the contract. This is recommended to prevent you from paying more than you should for a house.

Home Sale Contingency
In case you need to sell your current home in order to finance a new one, you can make a home sale contingency. This contingency stipulates that the current house must be sold before the new purchase can close.

Home sale contingencies aren’t attractive for sellers, as they cause delays and discourage other offers. A clause can be attached to this contingency by sellers to include a sell-by date. If your house hasn’t sold by the date in the clause, the seller is legally able to move on with other offers.

Financing/Mortgage Contingency
A financing or mortgage contingency allows the buyer time to secure financing from a lender. For buyers, this provides insurance that they can cancel the sale and recover their earnest money in case their financing options fall through.

This contingency is usually given a specific timeline, and the buyer can end the contract before time expires. If the buyer has not secured a mortgage and fails to cancel the contract before the allotted time is up, they will still be obligated to purchase the property.

Tips For Making an Offer They Can’t Refuse

When making an offer on a house, remember to appeal to the seller by using these tips to make an offer they can’t refuse.

Make an offer in cash. If you have the savings and can afford to make an offer in cash, you can forego the financing contingency. This means less delay in the sale, and it can also help you compete with higher offers with more contingencies.
Propose a short closing period. If you’re willing to move quickly, offering a short closing period can appeal to a seller who needs to sell fast.
Pay some of their closing costs. All sellers will have closing costs when the sale goes through. Paying off some of those costs can help sweeten the deal for them.
Offer up more earnest money. More earnest money shows you’re serious about the home. It’s also more money in the seller’s pocket upfront.
Write a personal letter. Homes are very personal and sellers may be emotionally attached to them. Make an emotional appeal by writing a personal letter to tell them the home will be in good hands.

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Step 4. Submit Your Offer

Once you have decided on an offer, your real estate agent will write up a purchase and sale agreement. You will sign this agreement and then they will submit it to the seller’s agent. This agreement is legally binding if the seller agrees.

Step 5. Review Seller’s Reply

A seller can reply in a couple of ways. They can accept, counter or decline. Let’s walk through what to do with any of these three responses and what to do when there’s another buyer.

What to Do When They Accept

Congratulations — they’ve accepted your offer! You can now move on to Step 7 of the offer process. As long as all contingencies are met, you are buying a house.

What to Do When They Counter

The seller might not have liked your offer exactly how it was written and they can counter. It’s then up to you to accept that offer or to start negotiating by countering again. You are also free to back out of the offer if you aren’t happy with the seller’s counteroffer.

If you do end up negotiating, it’s normal for there to be a back and forth of counteroffers. You are both working to come to an agreement on price, timeline, and contingencies, and this takes time.

What to Do When They Decline

Unfortunately, if the seller declines, you won’t be buying that particular house for what you offered. If there is room in your budget, you could attempt to make a more attractive offer. About 45 percent of buyers end up making multiple offers during the buying process. However, not every budget allows for a better offer.

A declined offer is a disappointing outcome, but it’s important to be respectful of the seller’s decision. Take the time to talk to your real estate agent and learn about what can be done differently when the next opportunity comes around.

Step 6: How to Compete With Multiple Buyers

In a competitive housing market, desirable properties will attract many buyers. Here are a few potential scenarios that can play out if a seller receives multiple offers.

Multiple Buyer Scenarios:

If your offer didn’t compare with the others, they may decline you and pursue other offers.
If your offer was one of the better offers, they may ask each buyer to return with their best offer and make a decision among those final offers.
They may allow a bidding war to see who will come up with the best offer.

Strategies for Competing With Multiple Offers:

Be flexible with your contingencies. Keep important ones like the home inspection and appraisal, but figure out which ones aren’t necessary for you.
If there is room in your budget, add an escalation clause. This notifies the seller that you will outbid the highest offer up to a maximum amount. This shows you are serious and keeps you competitive price-wise.
Mention preapproval for a mortgage if you have it. The more likely you are to obtain financing, the more attractive you are as a candidate.
If you can afford it, increase your down payment or earnest money deposit.

To keep everything professional, remember that your real estate agent should facilitate negotiations directly with the seller’s agent.

Step 7: Start the Closing Process

The closing process begins when a buyer accepts your offer. This process includes all necessary actions that must be done to move the transaction forward like reviewing what you owe, authorizing documents, and transferring the title. For an in depth walkthrough of this process, check out this guide for closing on a house.

Step 8. Negotiating After Your Offer is Accepted

When a seller accepts your offer, you will first move forward with any contingencies. If anything is wrong with the house or deal, you have the ability to negotiate or even walk away. Here are some examples of negotiations based on contingencies:

If a home inspection reveals flaws with the house, you can ask for repairs to be made by the seller before the deal is closed so that the financial burden doesn’t fall to you.
If the home is appraised to be lower in value than the accepted offer price, negotiate for a lower, more appropriate sale price.

Step 9: Finalize Your Contract

When negotiations have ended and you are satisfied with your contract, you will sign to finalize your purchase. Once you sign, the contract is legally binding.

After you make it through the final step, it’s time to celebrate! Revel in the excitement of purchasing your dream home, and know that you just took a big step toward a new life. Keep up good saving and budgeting habits so you can continue to hit your financial goals in the future.

Sources: Investopedia

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January 24, 2021

Lessons Learned from 6 Years Without a Car

If you’ve ever considered going car-free, I’m here to tell you to take the plunge.

Over the last 6 years I’ve lived in 3 different cities, sans car (much to my suburban mother’s amazement). I got rid of my car in my early 20s, the moment I found a job that was walking-distance from my first studio apartment in Seattle.

Being car-free isn’t always easy. Little trips can be a hassle, and getting out of town for the weekend is more complex. But I’ve found it makes day-to-day life more carefree. If you’re walking, biking, or bussing around your city, you get to discover things you never would in your car, save a ton of cash, and live a little greener.

Here’s what I’ve learned from years without a vehicle:

Designing your life, car free

When you don’t have a car, you’ll consider drastically different factors when you look for a place to live.

Here are the top priorities I looked for in a new place, in order of importance:

Grocery store proximity – I can get a new job that’s closer, but I can’t build a new grocery store. Sure, you can get food delivered, but I prefered to save money and get a little exercise doing my own shopping. I tried to keep my grocery runs to a 10 minute walk or less.
Neighborhood walkability – You can get a general idea of how walkable things are on Walkscore. If you browse a few neighborhoods, you’ll quickly see the difference between suburban sprawl and easily areas where you can cover most of your errands on foot or bike.
Commute options – Are you close to a bus line or, better yet, a transit hub? Limited transit options may not be a dealbreaker, but you should at least be sure your regular routes are covered.

These criteria often led me to centrally located spots—downtown hubs, or neighborhoods that are fairly self-contained. That meant higher rent, but the money and time I saved not driving made it worthwhile.

Enjoy that extra $$

When you get rid of your car, suddenly you’ll notice hundreds more dollars in your pocket every month (surprise!). I owned my vehicle outright, but was still paying ~$300 per month in parking, gas, and insurance. Gross.

I chose to put that cash in savings. Even as an entry-level receptionist, I suddenly had extra money to add to my retirement and my emergency fund.

Getting rid of the car built my cash cushion in two ways — lower monthly expenses, and less risk. An accident or a mechanical failure could set you back at any time, making it tough to plan. A flat monthly bus pass is a much more predictable expense than car ownership.

Creative transportation options

One of the lovely parts of not having a car? You get really creative about transportation. Here are the best resources I’ve used in my time without a car:

Cycling/Bikeshare – Biking isn’t for everyone, but if you’re brave, it’s a beautiful way to get around the city and stay crazy fit. Many cities are jumping in on the bikeshare trend – so you don’t even need to know how to change a tire. Wear a helmet!
Fancy bikes – Too tired to ride? Electric bikes. Need to take it on the metro? Foldable bikes. Need to haul stuff? Cargo bikes.
Carpooling – As a formerly car-free person, I’m now living my values as a carpool mom. See if your company can connect you to a pool through Zimride, or hop in a carpool through the Waze app.
Car2Go – Car2Go is a pretty cool alternative car sharing service. Free parking, you don’t need to find designated spots. Just leave it wherever! Perfect for one-way trips.
Scooters – Don’t hate, those little scooters littering the sidewalks are a really fun solution for the last mile of your trip. You can buy your own if sharing hasn’t hit your town.
Trains – We may not have amazing bullet train service, but Amtrak is still a wonderful way to see the scenery. It’s more comfortable than the bus (dining car!) and not much more expensive.
Car rental – If you’re keeping a car for rare weekends away, you’d save a ton of money just renting instead. Bonus: no maintenance, and you always drive a late model.
Peer-to-Peer car rental – This is kind of a wild thing, now you can rent cars from people on the internet with Turo. It’s cheap, but I’ve had mixed luck with the vehicles there. Rent at your own risk.

If you need to test the car-free waters, give some of these alternate transportation methods a try. That way you can find out what works before you take the plunge. Even if you keep your wheels and reduce the amount of time you spend driving alone, that’s a win for the planet, and for a more connected city. Happy non-driving!

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January 24, 2021

Home Ownership vs Renting As A Minimalist Lifestyle Decision

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When it comes to buying a home or renting, there are many things to consider. While there are tons of resources on the financial implications of both options, I’d like to share my thoughts on buying versus renting from an intentional living and minimalist perspective. The decision to buy or rent is just as much a lifestyle decision as it is a financial one. Ultimately, if the decision to buy is made, a home affordability calculator is a great resource to get started.

Longevity and Flexibility

It’s important to consider how long you’re planning to be in a certain area and how much location flexibility you need when you’re making the decision to buy or rent. When renting, the leases are typically 12 months or less and there may be options to work out a more flexible move-out date with the landlord or management company. If you end up needing to move to a different area, you have more flexibility to do so.

It becomes a lot more complicated if you need to move away from a home you own. You’ll likely need to sell the house or rent it out—options that require more time and resources than if you were renting an apartment. With the amount of investment and time that a house requires, it’s probably best to stay in a location for at least a few years if you’re going to buy.

Personal Values

Think about how you want to spend your time. Similarly, it’s also important to consider how much responsibility you’re willing to take on. During the time I lived in an apartment, I barely changed a light bulb. There were no repairs, no additional investment and no worries.

For the past five years I’ve owned a home, it’s a whole different experience. I spend time cleaning the gutters, mowing the lawn, buying and fixing appliances and other maintenance activities that you never have to think about when you’re renting. Regular or unexpected repairs can quickly add up to large sums when you own a home. Part of the benefit of renting is that you don’t have to deal with or budget for anything like that.

Customization

Another thing to think about is how much customization and control you’d like to have. A home you own can be customized to your exact liking, a rental on the other hand has more limitations. From painting the wall a different color to making bigger changes to your living space, you’ll have greater control if it’s your home. With a rental, any customizations would need to be approved by the owner.

Amenities

Amenities are another lifestyle consideration when it comes to buying or renting.

Most likely, an apartment will have more amenities than a typical home, such as a workout room, pool, large party room or even a concierge service. Of course, you may have the option of building or adding similar amenities to a home you buy, but it can be pricey and impractical investment. If you want a pool without the cost and maintenance that owning one would require, then renting an apartment with a community pool is the way to go.

From my perspective, whether you buy or rent has a significant impact on your lifestyle, particularly over the long-term. Thinking about what’s important to you and how you want to spend your time will help you determine what best fits your desired lifestyle.

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January 23, 2021

How to Travel Like a Minimalist and Save Money

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If you want to travel more, it doesn’t have to be more expensive. There are many ways to travel like a minimalist— travel lighter while saving money for future traveling. Here are my six recommendation for traveling like a minimalist.

# 1 Sign up for travel deal alerts

There are many airfare deal websites where you can subscribe for updates on the latest deals. This is a way to be in the know about cheap flights on certain dates and take advantage of them. Since one of the biggest costs of traveling is usually airfare, this is a way to save up to hundreds of dollars.

#2 Look for alternative hosting arrangements

With options such as Airbnb and hostels, you can look for accommodations that work best for your traveling needs. For example, if you’re staying a bit longer and would like the ability to eat in a few times, perhaps you can find a small apartment or room to rent with a kitchen. The cost can be cheaper than more traditional options, especially if you look for locations outside of the main attraction area.

#3 Invest in a durable, carry-on friendly travel backpack

To save you luggage fees and time, I’d encourage you to invest in a durable travel backpack if you don’t already have one. If you’re checking a lot of luggage, the fees for that will add up to more than the cost of a high-quality backpack in just a few trips. Traveling lighter will not only save you luggage fees, it will save you time as you won’t need to wait for checked luggage. This also ensures that you never lose your luggage as well. If a travel backpack doesn’t appeal to you, there are plenty of luggage choices that can fit in the overhead bin of the plane or under your seat.

#4 Ask locals for suggestions on things to do

One of the best ways to get to know an area is to ask locals for recommendations on where to go and what to see. Whether it’s your taxi or rideshare driver, your accommodation host, or local people at the market or a café, this is a way to bypass the usually more expensive touristy attractions and go to some cool places you wouldn’t know about otherwise.

#5 Download Google maps using Wi-Fi

If you don’t have cell service where you’re traveling, you can download Google maps for the area through Wi-Fi at a café or where you are staying. This way, you can still use GPS to get around even without cell service. You can also search for information on free walking tours that are tip-based if you’re looking for a more cost-friendly way to experience the area. With these tours, there is usually a meeting location where you’ll meet up with other people who are also traveling and the guide will take you around.

#6 Eat one meal per day from a local grocery store

You can cut down on some expenses by eating a meal from the local market or a grocery store. This is also a way to experience more of the local scene, people and foods, while having more money to spend at restaurants and other places you’d like to experience.

By following one or a few of these tips, you’ll be able to travel more, travel longer, or just save money as you experience new places all around the world.

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January 23, 2021

How to Save for a House in 8 Steps

When you buy a home, you’re making an investment in yourself and your future. You’re building financial stability, equity, and experience. You have a place to call your own and you can customize the space just how you want. Yet, you might be wondering how to get to that point — this is why saving up is so important.

There are some upfront costs to owning a home — primarily a down payment. Find out how much you should budget using a home loan affordability calculator and figure out how to save the amount you need. After all, the best way to save for a house is to formulate a budget that helps you work towards your house saving goals step by step. Soon enough, you’ll be turning the key and stepping into a home you love.

How to save for a house

Step 1: Calculate Your Down Payment and Timeline

When figuring out how to save for a house, you may already have a savings goal and deadline in mind. For instance, you may want to save 20 percent of your home loan cost by the end of the year. If you haven’t given this much thought, sit down and crunch the numbers. Ask yourself the following questions:

What is your ideal home cost?
What percentage would you like to contribute as a down payment?
What are your ideal monthly payments?
When would you like to purchase your home?
How long would you like your term mortgage to be?

Asking yourself these questions will reveal a realistic budget, timeline, and savings goal to work towards. For instance, say you want to buy a $250,000 house with a 20 percent down payment at a 30-year loan term length. You would need to save $50,000 as a down payment; at a 3.5 percent interest rate, your monthly payments would come out to be $898.

Step 2: Budget for the Extra Expenses

Just like a new rental, your home will have fees, taxes, and utilities that need to be budgeted for. Homeowners insurance, closing costs, and property taxes are a few examples of cash expenses. Not to mention, the cost of utilities, repairs, renovation work, and furniture. Here are a few more expenses you may have to save for:

Appraisal costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere from $312 to $405 for a single-family home.
Home inspection: A home inspection typically costs $279 to $399 for a single-family home. Prices vary depending on what you need inspected and how thorough you want the report to be. For instance, if you want an expert to look at your foundation, there will likely be an additional cost.
Realtor fees: In some states, the realtor fee is 5.45 percent of the home’s purchase price. Depending on the market, the seller might pay for your realtor fee. In other places, it might be more common to contract a lawyer to look over your purchase agreement, which is usually cheaper than a realtor.
Appraisal and closing costs: Appraisals assess the home’s value and are usually ordered by your mortgage lender. They can cost anywhere between $300 and $400 for a single-family home.

Step 3: Maximize Your Savings Contributions

Saving for a new home is easier said than done. To stay on track, first create a savings account that has a high yield if possible. Then, check in on your monthly savings goal to set up automatic contributions. By setting up automatic savings payments, you may treat this payment as a regular monthly expense.

In addition to saving more, spend less. Evaluate your budget to see what areas you could cut down or live without. For instance, creating your own workout studio at home could save you $200 a month on a gym class membership.

Step 4: Work Hard for a Raise

One of the best ways to boost your savings is to increase your earnings. If you already have a job you love, put in the extra time and effort to earn a raise. Learning new skills by attending in-person or virtual training seminars or learning a new language could increase your earning potential. Not only could you land a raise, but you could add these skills to your resume.

Sometimes, putting in the extra effort doesn’t always land you a raise, and that’s okay! When getting a raise is out of the question, consider looking at other opportunities. Figure out which industry suits you and your skillset and start applying. You may end up finding your dream job, along with your desired pay.

Step 5: Create More Streams of Income

Establishing different income streams could help your house savings budget. If one source of income unexpectedly goes dry, having other sources to cut the slack is helpful. You won’t have to worry about the sudden income change when paying your monthly mortgage.

For example, creating an online course as a passive income project may earn you only $5 this month. As traffic picks up, your monthly earnings could surpass your monthly income. To create an abundant financial portfolio, there are a few different ways to do so:

Create an online course: Write about something you’re passionate about and share your skills online. Sell your digital products on Etsy or Shopify to earn supplemental income.
Grow a YouTube channel: Start a YouTube channel and share your skills to help others within your industry of expertise. For instance, “How to start a YouTube channel” could be its own hit.
Invest in low-risk investments: From CD’s to money market funds, there are a few types of investments that could grow your cash with low risk.

Paying down debt

Step 6: Pay Off Your Biggest Debts

Before taking on more debt like a mortgage, it’s important to free up your credit usage. Credit utilization is the percentage of available credit you have open compared to what you have used. If you have $200 in debt, but $1,000 available on your credit card, you’re only using 20 percent of your credit utilization. A higher credit utilization could potentially hinder your credit score over time. Not only can paying off debts feel satisfying, but it could also increase your credit score and prepare you for this next big purchase.

To pay off your debts, create an action plan. Write out all your debt accounts, how much you still owe, and their payment due dates. From there, start increasing your payments on your smallest debt. Once you pay off your smallest debt in full, you may feel more motivated to pay off your next debt account. Keep up with these good habits as you take on your mortgage account.

Step 7: Don’t Be Afraid to Ask For Help

Whether your touring homes or want help adjusting your budget, don’t hesitate to ask for help. If you’re trying to figure out what your budget should look like, research budgeting apps like Mint to build a successful financial plan.

If you’re curious about additional mortgage expenses, your budget, or investment opportunities, reach out to a trusted professional or utilize government resources. Not only are they able to help you prepare for your next big step, but they could also help you and your finances in the long term.

Step 8: Store Your Savings in a High Yield Saving Account

While you may have a perfect budget and a home savings goal, it’s time to make every dollar count. Before you add to your account, research different savings accounts and their monthly yields. The higher the yield, the more your savings could grow as long as your account is open.

In September of 2020, the national average interest rate on savings accounts was capped at 0.8 percent. If you were to deposit only $100 into a high yield savings account with an APY of 0.8 percent, you could earn $80 off your investment over the year. This helps you save extra money by just putting your money into a savings account.

In Summary

First, set a savings goal to match your estimated down payment and mortgage monthly payments. Then add your contributions to a high yield savings account to grow your money overtime.
Don’t forget to budget for extra mortgage expenses like appraisal costs, home inspections, realtor fees, or closing costs. Keep in mind, your monthly utilities and fees may also be more expensive than your current living situation.
Prepare for the additional costs by increasing your earning potential and optimizing additional income stream opportunities.
Free up your credit utilization by paying off as much debt as possible before buying a house. Keep up these good habits throughout the length of your mortgage term.

When you purchase a home, you’re building a piggy bank for your future. Every month you pay your mortgage, you pay part of it to yourself because you own the home. Instead of paying rent to someone else, you reap your own investment when you sell. Most importantly, though, you’ll have a place that’s truly your own.

Sources: Interest

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January 23, 2021

Get Paid to Recycle While Saving the Earth and Your Wallet

To make extra cash, you normally have to put in time and effort. But what if you could make a profit off everyday items you otherwise throw away? You may think this sounds too good to be true, but you actually can! You can get paid to recycle lots of things that you put in your disposal bins. Not only are you helping the earth while recycling, but you’re also giving back to your wallet. Contributing your earnings, even if it’s a few dollars, could free up a few extra spending dollars in your budget each week.

With little effort, you could make up to hundreds, if not thousands, a year on useless items. From your empty cans to used cooking grease, you could rack up some serious side hustle earnings. Keep reading to see what trash items you could earn the most from or skip to our infographic below. Don’t forget to track your earnings using our app.

How Can I Make Money by Recycling?

Now, recycling may not replace your full-time job, but it can earn you some extra “fun” money. For instance, your used cans may earn you about $5 a pound. That $5 a week could add up to an extra $260 a year. Below is a list of items you’re able to get paid to recycle:

Bottles and Cans
Old Books
Wine Corks
Trash
Cardboard Boxes
Ink Cartridges
Unused Gift Cards
Cooking Oil
Old Electronics
Scrap Metals
Junk Cars and Batteries
Clothing, Accessories, and Household Items

Turn Trash Into Cash

1. Recycle Empty Cans

Most of us have plenty of canned pet food, vegetables, and soups. Instead of throwing out each can you use, trade them in for cash. If you stockpile enough cans, you could make up to $100 a week on used can packaging. To earn some extra cash, check out your local recycling center or Reuseplastics.com.

2. Profit Off Books Collecting Dust

Calling all the bookworms — this is your time to shine. If you love to read your books in hand, you probably have a stockpile of books lying around. Once you finish a book, consider selling or trading on Amazon, AbeBooks, Decluttr, or Letgo. Each of these apps allows you to take a picture and list your used items at a discounted price. Take into consideration the cost of shipping before you calculate your earnings.

3. Sell Wine Corks Online

Oddly enough, every time you crack open a new bottle of wine, you could be making a profit. Save your corks and then trade them into companies like Yemm & Hart Green Materials that pay the market value for every 10 pounds of pure cork. Corks can be refurbished into various crafts, flooring, tile, and fishing rods products.

4. Your Trash Could Be Your Money-Maker

Simply stated, you could earn cash from your trash can. Companies like TerraCycle pay for trash people produce daily — eliminating the idea of waste. Similarly, Boxcycle collects used cardboard boxes, packing materials, pallets, and mailers in return for cash. Even your ink cartridges can be recycled, reused, and bought off you from companies like Cartridges for Kids, Funding Factory, US Recycling, and Need Empty.

3 Shopping Apps to Reduce Your Carbon Footprint

5. Swap Your Unused Gift Cards For Cash

Especially around the holiday season, you may accumulate gift cards from loved ones. As thankful as you may be for the gift, frequently forgetting to use them is a common occurrence. Around $3 billion worth of gift cards goes to waste each year. Instead of losing track of your gift cards, Cardpool allows you to swap your gift cards for cash.

6. Get Paid To Cook a Greasy Dish

Your regular cooking oil could be recycled into biodiesel — a great money maker. Whether you own a restaurant or regularly cook for your large family, you could profit off greasy food. Biodiesel and Craigslist buyers will pay around 44 cents per gallon for used cooking oil. After you’re done cooking, pour your oil into a used gallon milk jug or a bucket. Once it’s filled to the brim, trade it in for cash.

7. Make Money Off Your Pre-Loved Electronics

Whether you actually want a new tech device or just some spare cash, make a profit off what you don’t use. Companies like Best Buy, Gazelle, SellCell, and Maxback buy and recycle preloved tech devices. Payments for these items may be paid out via check, gift card, or through PayPal. Be sure to backup everything you’d like to keep on another device before turning in your old tech for cash.

8. Make a Profit Off Metal Scraps

Old batteries, steel, iron, and rare metals can be recycled into day-to-day products. Cars, appliances, file cabinets, and much more contain everyday metals manufacturers are always on the hunt for. Trade-in any scrap metal you have laying around and turn them into Scrap Metal Buyers for cash.

9. Car Troubles? Make a Profit off the Unfixable

For junk cars that aren’t resellable or reliable, consider turning them in for cash at the junkyard. Compare junk car buyers like Junk Car Medics and Cash Cars Buyer to see how much you could earn from your vehicle.

10. Spring Clean Your Living Area

When cleaning your living area, list your preloved items on second hand online stores. Poshmark, ThredUp, Swap, Instagram, eBay are a few second hand websites that attract valuable buyers. As you post items to your virtual shop, bundle items to cut your cost of shipping for each item.

11. Turn Unused Lights Off

If you’re already strict about turning the lights off at home, turns out you could earn more than a utility bill decrease. For instance, OhmConnect is an app that pays you to save money on a more frugal lifestyle. Once you set up the app, you earn points when you use less electricity during the peak usage timeframes. Not only are you able to save cash on your monthly bill, but you also accumulate points you’re able to cash out later.

For additional tips and tricks to earn money from recyclables, check out our infographic below.
Recycle Your Money: How to Save the Earth and Your Wallet

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January 23, 2021

How Long Does It Take to Refinance a House (+ 5 Ways to Speed Up the Process)

We’re all looking for ways to cut down on expenses — especially fixed expenses that lock us into a contracted bill month after month. One common way to spare your budget is to decrease your living expenses, including your house payment. Refinancing your loan could help cut down on your mortgage payments and could update your loan terms, saving you money. If you’re considering refinancing, you may ask, “how long does it take to refinance a house?”

Refinancing your home can be tedious but it could help your budget in the long run. Luckily, we’re here to help by sharing the typical refinancing process and detailing how to make it as efficient as possible.

How Long Does It Take to Refinance?

Typically, refinancing a house takes 45 days, but it may vary depending on your financial situation and your lender vetting process. Preparing your financials early and picking the appropriate lender for your case are a few factors that could help the timeline of your updated mortgage loan. To speed up the refinancing application process, skip to our section below or keep reading to refinance your home in seven steps.

Steps to Refinance Your Home

Refinancing your mortgage has its positives and potential negatives. You could decrease your monthly mortgage payments, get a shorter loan period, or lock in a better interest rate. But you could also end up spending more on application fees or face prepayment penalties. Before speaking with a lender, research the refinancing process, requirements, and added costs that could deter your ideal result.

The 7-Step Home Refinancing Timeline

Step 1: Define Your Financial Goals

Start by asking yourself what you’d like to get out of a refinancing loan agreement. Do you want to shorten your loan term? Do you want to secure an interest rate lower than your current rate? Or, do you want both? Determine your ideal end result, verify your investment choice, and seek a lender that supports your goals.

Step 2: Compare Lenders (and Reviews)

Ask around or search online to find the right lender for you and your goals. Pick out a few professionals you’d be interested in working with and ask them their rates, terms, and requirements. To help narrow down your lender options, seek out reviews online or ask for referrals in your network to ensure you pick the right choice.

Step 3: Double-Check for Additional Fees or Costs

Refinancing a loan can rack up a bill you may not be aware of until after you start the loan process. Attorney, application, inspection, appraisal, and title searches are a few refinancing tasks that you could be charged for. To budget for these expenses, save a bit extra from each paycheck or assess your current savings account using our app. If you have enough saved, start inquiring about this loan. If you don’t, put extra cash into savings each month until you have enough to cover the extra charges.

Mortgage Refinancing Documents

Step 4: Apply for Your Best Loan Estimate

Once you’ve found the right loan for your financial goals, the next step is to fill out your application.. To submit your application, you may have to provide proof of income, assets, debts, and other forms that complete your financial portfolio. These documents may be helpful in the application process:

Proof of income: W2 earnings statements, 1099 DIV income statements, Federal tax returns for the last two years, bank statements for the last few months, recent paycheck stubs.
Credit information: your credit score and your credit reports from the last three years will be pulled for you, upon your approval.
Proof of assets: reports from your checking, savings, retirement, and other investment accounts.
Proof or insurance: providing evidence of your homeowners and title insurance.
Debts statements: statements of any debt accounts open — student loans, credit cards, current home loan, auto loans, etc.

Step 5: Start the Loan Process and Appraise Your Home

It’s now time to begin the loan process and appraise the value of your home. Once you’re approved for your loan, it’s time to get your home inspected, appraised, and conduct a title search. To ensure you’re on track with your timeline, prepare all your documents ahead of time. Skip to our section below for more ways to speed up this process.

Step 6: Wait for Underwriters to Cross-Reference

Now, the underwriters take it from here. Underwriters double-check your financial information to ensure everything is accurate before approving your loan. Your creditworthiness and debt-to-income ratio are generally the key factors underwriters will look at. Your property details, including when you bought your house and your home’s value, are a few other determining factors. This process may be the longest time constraint, taking a few days up to a few weeks.

Step 7: Close Your Loan to Lock in Your Interest Rate

Once your loan is approved and you’ve agreed upon your terms, it’s time to lock in your rate. This stage is commonly known to stretch your timeline as well. It can take your lawyer anywhere from one day to two months to settle your current loan and redeem your property. Keep in mind, this is typically where you pay the brunt of your fees whether you’re approved or denied. These fees may include closing costs and application fees.

Ways to Speed up the Application Process

If refinancing your loan benefits your budget, you may be eager to get your new loan. Luckily, there are a few tricks to speed up this process:

Round up your paperwork ahead of time: Just like you would gather your paperwork before heading to get a new license, do the same for your lender. Look up your state’s refinancing loan requirements and create a checklist to double-check your documents.
Double-check your credit: As most lenders require a credit score of 620 or higher, it may be the right time to check in on your score. Use our app to see your credit score, your credit history, and helpful tips to boost your ranking.
Avoid taking on more debt: Your credit score is impacted by your debt. Maxing out your credit card could negatively impact your credit score and cost more in the long run. Focus on paying off debts and only spending your readily available money to free up more credit utilization.
Stay away from applying for new credit: Additionally, inquiring about new debt opportunities could drop your credit score up to eight points. Next time you’re offered a new credit card or a deal on a car loan, take a few days to analyze the potential credit changes that could impact your refinanced mortgage.
Do what you can to accommodate your appraiser and lender: During this process, you may run into a couple issues — such as needing different paperwork or extra signatures. While life can get busy, do your best to make your appraisers and lenders live’s easy. Doing so could speed up your process and earn you a better home loan in no time!

Refinancing your home takes time, but it can be well worth it in the long run. Getting a lower interest rate and a shorter term length could lessen your payments going towards interest. Use our app and our loan calculator to see what refinancing could do for your budget.

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January 22, 2021

10 Minimalist Lifestyle Tips to De-Stress and Save Money

Minimalism has become a popular practice in recent years. When you live as a minimalist, you strive to only use things that serve a purpose. It’s about living simply and having only what you need to go about your daily life. For instance, some people may start a no-spend challenge or only fill their home with items they absolutely need. Not only could you save money, but you can also save time on cleaning and organizing.

Practicing minimalism is an ongoing process. You’ll always find ways to improve and modify your minimalism. To start, evaluate what currently serves a purpose in your life and what may be superfluous. When you practice a minimalist mindset, you’re choosing to live a more focused life. You may start with cleaning up your budget and then move on to organizing your home. Taking the first steps to declutter your life is a big move, but you might need a game plan to make these habits stick.

Many of us may have too much stuff, and may even be spending too much on unnecessary purchases. Establishing a consistent and healthy budget should help you cut down on the things you don’t need and may even reduce your anxiety and stress. To keep track of your minimalist budget, download our app for easy accessibility. If you’re considering doing some decluttering this season, skip to our infographic or keep reading for in-depth tips on practicing a minimalist lifestyle.

Minimalist Lifestyle Starter Tips

When first starting out your journey, it’s important to start small. From changing your shopping habits to going strictly digital, there are lots of ways to switch up your routine. Here are our go-to tips for kickstarting your minimalism journey.

1. Shop Quality, Not Quantity

Minimalism doesn’t mean you never go shopping, it just means you’re more intentional with your purchases. Whether you’re in need of a new pair of running shoes or work pants, invest in quality pieces that will last you a long time. Even though a higher price tag may be less than ideal at the time, you’ll likely save money in the long run by cutting down on frequent purchases. Not to mention, you’ll cut down on waste — one garbage truck of clothes is discarded every second.

2. Digitize Movies and Books

If you’re a big reader or movie watcher, consider going digital with your collection. This will save space in your home and make sure you can always find what you want. Instead of having to go to the store for your next read, you could get it at your fingertips in a couple of clicks. If you like to physically feel the book pages every time you flip the page, consider checking out your local library. You can find all sorts of books at no charge.

3. Eliminate, Eliminate, Eliminate

One of the most important parts of minimalism is cutting down on things you don’t need. To start decluttering, identify what serves a purpose in your life and what doesn’t. From there, start to see how you can cut down items that don’t add value to your life, and then get rid of them entirely. You could test the waters by doing a mindful money challenge before decluttering your whole life.

4. Invest In Reusables

As you start to declutter your home, consider what products could be reused. One simple change could be swapping out your disposable water bottles for a glass reusable one. Or, even bring your reusable takeaway coffee cup with you every time you visit your local cafe. Not only could you get a discount for bringing your own cup, but you’re also helping cut down on single-use products!

5. Give Everything a Place

Once you get into a rhythm, give every item a place. Get creative with storage bins and organizers to ensure you’re able to store exactly what you need. If you don’t have a spot for some of your extras, it may be time to consider if they are items you really need to keep. As your minimalist space falls into place, hold yourself accountable for putting away items once you’re done using them.

5 Money-Saving Minimalism Best Practices to Follow

It’s one thing to start out your minimalism journey, but another to keep your practice going. To live an intentional life, there are some easy practices to follow. Keep reading to see where this could help save you more time, money, and stress.

1. Invest in Experiences

A popular practice in minimalism is prioritizing experiences over buying material items. Some people value the memories created from trips or classes over having the latest gadgets or fashions. Determine where you stand and spend intentionally.

As minimalism may cut down on your “extra” budget expense, you may also have more leeway to spend on other things. With this extra budget, be intentional with where you choose to put your money. Save up your takeaway coffee budget to invest in a weekend away with your family. You may find yourself saving more and spending less time on things that drain your budget.

2. Re-Audit Your Life Frequently

Take time to assess your current spending habits and then consistently review them. Always cut out things that take up space or events that drain your energy. As you get more comfortable, you may find yourself wanting to get rid of things you thought you couldn’t live without. For instance, your cluttered kitchen may be useless if you reach for the same items every time you cook — cut down on the things you haven’t used to make more room to cook.

3. Cut Meaningless Expenses

Turns out, the average American spends $18,000 a year on unnecessary purchases. As you review your budget, you may be able to cut out a large portion of these expenses. For things you may not want to completely eliminate, find inexpensive alternatives. You may swap a vacation across the county for a staycation in the comfort of your backyard.

4. Let Go of What You Can’t Control

Letting go of things you can’t control may seem easier said than done. To find that balance, start by focusing on things you love to do or have. Once you have narrowed down what’s most important to you, focus your energy on that. Being thankful for what you do have may even cut down on your budget. You may find yourself reusing what you do have rather than wanting more.

5. Appreciate What You Have

Practice gratitude and focus on the positives. Instead of scrolling through social media, write out three to five things you’re grateful for. Practicing gratitude first thing in the morning may put you in a positive mood and help you prepare for the day ahead of you. Being grateful for what you have might even cut your urge to overspend on things you don’t need.

Living like a minimalist may take some time to get used to, but the payoff can be worth it. When decluttering your life, you may find yourself less stressed over little things. You may even discover your budget is easier to maintain and gain more clarity when making decisions. Minimalism may shed light on what you do and don’t want to focus your time and energy on. Many areas of life may feel the effects of minimalism, like your budget, home, and your relationships.

Do you think you could be a minimalist? If so, check out our top TED Talk tips for practicing minimalism and how it may benefit you. Turns out, sometimes living with less could mean so much more.

Sources: Making Sense of Cents | CNBC 1, 2

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January 22, 2021

8 Ways to Spring Clean Your Entire Life

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Spring is here and it’s time to open the doors, shake out the rugs, and let some of that fresh air into your life again. Whether or not you’ve just endured a brutal, snowy winter, spring is a great time to make some positive changes that will help keep your momentum up all year long.

Here are 8 ways that you can spring clean your entire life, starting right now as we head into summer.

#1 Get started on your taxes and finances for next year

Yes, I know you probably just finished doing your taxes for last year, but there’s no better time to get everything in order for this year. If tax time is particularly stressful for you, get a jump start on entering your expenses and income into your favorite financial tracker Mint to make next year’s tax season a breeze. The first quarter of the year is already over, so don’t wait to get on top of your finances.

#2 Cut the monthly recurring clutter

If you have your bank and credit accounts linked up together with Mint, take a moment to review any monthly recurring expenses that you aren’t still using. You might be able to save hundreds of dollars by cutting out an unused gym membership now that the weather is nicer outside. To take full advantage of the beautiful weather, try pausing or canceling a streaming video subscription for a few months; you can always go back to it later when you want to spend more time inside again.

#3 Declutter one item or more per day

A big part of spring cleaning is clearing out the clutter that might have accumulated over the winter in your home. The best part is, decluttering doesn’t have to be terrible. You can make a fun game out of it by donating, selling, or recycling one thing every day for the entire month. Feeling ambitious? Try playing The Minimalist Game, which starts on a new month and ramp up the number of items you declutter as you go. One on the first day, two on the second day, three on the third, and so on.

#4 Clear out the closet and donate any clothes you’re not wearing

Especially if you live in a colder climate, it’s probably time to change over your wardrobe to a more seasonally-appropriate selection. Instead of packing all of winter clothes away, donate any sweaters and winter wear that didn’t get used over the last four months or so, then pack away the rest for when you’re ready to use it again. If you want to give a capsule wardrobe a try, check out Project333—33 items of clothing for three months.

#5 Eat a salad as a meal every day

While winter is the perfect time for hearty soups and stews, it’s time to break out the salad tongs and lighten up your fare. Try replacing one of your meals with a big salad each day and see how it makes you feel after a few weeks. It doesn’t have to be lettuce in a bowl either, you can get creative with your vegetables, toppings and dressings. Not only is this a great way to eat more greens, but you can save a bunch of money by preparing a lunch like this in advance instead of buying lunches out while at work.

#6 Dust the surfaces and corners in your home

If you’re going to do some spring cleaning, it should probably include some actual cleaning, right? Grab the duster and vacuum and pay special attention to the corners, nooks, and crannies around your home. A little attention to some often ignored areas can go a long way in making your space feel clean, open, and inviting. Now is a great time to pull your furniture and appliances out from the wall, wipe down cabinets, and dust the blinds.

#7 Check in on all of your credit cards, bank accounts, and monitor your credit score

About once a year, it’s good to make sure you actually have all of your credit and debit cards. Have you been locked out of your online savings account for a while? Call the company and get it figured out. Locate all of your physical credit and debit cards and make sure they’re all securely stored in your wallet or somewhere safe.

Most importantly, check your credit profile to make sure everything is on point and there aren’t any issues you weren’t aware of. You can use your Mint.com account to check your credit score without impacting your credit, and regularly monitor it completely free. It’s a great option that doesn’t require pulling your full report or paying for active monitoring.

#8 Change your passwords and enable 2-factor authentication when possible

Yes, it’s totally a pain but the best time to change and update any old or duplicated passwords is right now. Especially if you use the same password across several different sites, it’s important to change them up and use proper, secure passwords for each site. I highly recommend using a password manager like LastPass or Dashlane, they both streamline the process and make it easy to manage a huge number of proper passwords.

Even if you just pick a few of these ideas, you’ll surely reap the rewards of doing some spring cleaning this month. The more space you create for all the right things, the more easy and fun the rest of your year will be. Let’s get cleaning!

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January 22, 2021

FHA vs. Conventional Loans: Which Is Better?

When it comes to affording a new home, you have a few types of home loans to choose from. Prospective homebuyers often compare the FHA vs. the conventional loan when researching loans. Each loan type has certain stereotypes associated with them, but we are here to give you the facts about both FHA and conventional loans. This post will help you understand what each loan is, familiarize you with the differences between them, and provide some guidelines for how to pick which one is best for you.

What Is An FHA Loan?

An FHA loan is insured by the Federal Housing Administration (FHA). These loans are issued by private lenders, but lenders are protected from losses by the FHA if the homeowner fails to repay. FHA loans are generally used to refinance or buy a home.

What Is A Conventional Loan?

A conventional loan is supplied by a private lender and isn’t federally insured. Requirements for obtaining a conventional loan vary depending on the lender. When used to buy property, conventional loans are typically known as mortgages.

What Is A Conventional Loan?

Differences Between FHA and Conventional Loans

The main difference between FHA and conventional loans is whether or not they are insured by the federal government. Conventional loans aren’t federally backed, so it’s riskier for the lender to loan money. On the other hand, FHA loans are protected by the government, and as a result of less risk, they can typically offer better deals.

This difference in federal insurance is the reason why FHA and conventional loans vary when it comes to the details of the loan. Keep reading to learn the differences regarding credit requirements, minimum down payments, debt-to-income ratios, loan limits, mortgage insurance, and closing costs.

	FHA Loan	Conventional Loan
Minimum Credit Score	500	620
Minimum Down Payment	3.5%	3%
Maximum Debt-to-Income Ratio	Credit score of 500: 43% Credit score of 580+: 43-50%	Credit score of 620: 33-36% Credit score of 740+: 36-45%
Loan Limits	Low-cost counties: $356,362 High-cost counties: $822,375	Contiguous US: $548,250 High-cost counties, AK, HI, and US territories: $822,375
Mortgage Insurance	Mortgage insurance premiums required.	Private mortgage insurance required with down payments less than 20%.
Property Standards	Stricter standards, property purchased must be a primary residence.	Flexible standards, property purchased doesn’t have to be a primary residence.

Credit Score

Your credit score is a determining factor in your loan eligibility. Your credit score is measured on a scale of 300 (poor credit) to 850 (excellent credit). Good credit helps you get approved for loans more easily and at better rates. FHA and conventional loans differ in their credit score requirements and represent financial options for individuals at either end of the credit spectrum.

Minimum Credit Score for FHA Loan: 500

Accepts a credit score as low as 500, but usually with a 10% down payment
These loans accept lower credit scores because they are insured
Note: Some lenders may only issue FHA loans with higher credit scores

Minimum Credit Score for Conventional Loan: 620

Accepted score may vary from lender to lender
These loans are usually offered to individuals with strong credit because they present less risk to lenders

Minimum Down Payment

A down payment is the sum of money that is paid as a percentage of your purchase up-front.

Minimum Down Payment on an FHA loan:

10% of your purchase with 500 credit score
3.5% of your purchase with 580+ credit score

Minimum Down Payment on a Conventional Loan:

3% of your purchase can be put down with good credit
5% to 20% of your purchase price is typical

Debt-to-Income Ratio

Your debt-to-income ratio is the amount of money paid toward debt each month divided by your total monthly income. To be eligible for a loan, you must be at or below the maximum debt-to-income (DTI) ratio.

Maximum DTI Ratio Guidelines for FHA loans:

43% with a credit score of 500
43–50% with a credit score of 580

Maximum DTI Ratio Guidelines For Conventional Loans:

33-36% with a credit score lower than 740
36-45% with a credit score of 740 or higher
50% highest allowed through Fannie Mae

Loan Limits

Both FHA and conventional loans have limits on the amount that you can borrow. Loan limits vary based on your location and the year your loan is borrowed. Find 2021 loan limits specific to your county through the Federal Housing Finance Agency.

2021 FHA Loan Limits

High-cost counties: $822,375
Low-cost counties: $356,362

2021 Conventional Loan Limits

Contiguous US (excluding high-cost counties): $548,250
Alaska, Hawaii, US territories, and high-cost counties: $822,375

Mortgage Insurance

Mortgage insurance is taken out to protect the lender from losses in case you fail to repay your loan. Whether you will pay private mortgage insurance or mortgage insurance premiums is based on your loan type and down payment percentage.

FHA Loan

Mortgage insurance is required for all FHA loans.
It is paid to the FHA in the form of mortgage insurance premiums and includes an up-front and monthly premium.
MIP payments last the entire life of your FHA loan.
To get rid of MIPs after paying 20% of your loan, you can choose to refinance into a conventional loan.

Conventional Loan

Private mortgage insurance (PMI) is only required when a down payment below 20% is made.
PMI comes in different forms: monthly premium, up-front premium, and split premiums.
PMI requirements stop once you have met one of three requirements:
1. Principal loan amount is reduced to 80% before the loan term ends.
2. At least 78% of the principal balance is scheduled to be paid down.
3. The halfway point of your loan term has passed.

Property Standards

There are different property standards that must be met to use each loan. FHA loans have stricter requirements, while conventional loans have more flexibility.

FHA Loan

Property purchased with FHA loans must be your principal residence, meaning the borrower has to occupy the residence
FHA loans can’t be used to invest in property (e.g., renting out or flipping)
Title must be in the borrower’s name or name of a living trust

Conventional Loan

Property purchased with a conventional loan doesn’t have to be a principal residence — second or third residences are allowed
Conventional loans can be used to purchase investment properties

Pros and Cons of FHA vs. Conventional Loans

As a result of the various differences between FHA and conventional loans, each type has its respective pros and cons.

	FHA Loan	Conventional Loan
Pros	Qualify with low credit and high DTI Smaller down payments overall More affordable with low credit	Lowest option for down payments with good credit PMI cancellable More affordable with good credit Property doesn’t have to be your main home
Cons	Mortgage insurance premiums required for life of loan Property purchased must be your main home	Need higher credit and lower DTI to qualify Typically has larger down payments PMI required with a down payment less than 20%

Pros and Cons of FHA Loans

FHA loans are government-regulated and insured to extend flexible opportunities for homeownership. They’re flexible regarding credit and DTI, but stricter about insurance and property standards.

Pros

Flexible qualification with low credit and high DTI
Smaller down payments overall
More affordable with low credit

Cons

Mortgage insurance premiums required for life of loan
Property purchased must be your primary residence

Pros and Cons of Conventional Loans

Conventional loans can also offer flexibility, but generally only if you have good credit and demonstrate reduced risk to the lender. These loans have stricter qualifications, but flexibility in other areas.

Pros

Lowest option for down payments (3% with good credit)
Private mortgage insurance can be canceled (must meet requirements)
More affordable with good credit
Property purchased doesn’t have to be a primary residence

Cons

Strict qualifications require higher credit and lower DTI
Larger down payments are typical
Private mortgage insurance required with a down payment less than 20%

Which Loan Is Better For You?

Both FHA and conventional loans have their advantages and disadvantages. Here are some general guidelines for when to use an FHA loan or a conventional loan.

When To Use an FHA Loan

You have a low credit score (500–619)
Your DTI ratio is on the higher side (between 45–50%)
You can only afford a small down payment
You plan to use the property as your primary residence

When To Use an FHA Loan

When To Use a Conventional Loan

Your credit score is fairly good (620 or above)
Your DTI ratio is on the lower side (33–36%)
You can afford a larger down payment
You want flexibility with insurance and repaying your loan

When To Use a Conventional Loan

It’s important to thoroughly research your options before choosing a loan. A key takeaway when comparing FHA vs. conventional loans is that FHA loans are federally insured and conventional loans aren’t. This distinction results in different qualification and payment requirements for each loan.

Use the information in this post to carefully compare the differences in accepted credit scores, minimum down payments, loan limits, maximum debt-to-income ratios, mortgage insurance and property standards. In doing so, choose the loan that works for your circumstances and helps you best afford the home of your dreams.

Sources: FHA Single Family Housing Policy Handbook | US Dept. of Housing and Urban Development | Federal Housing Finance Agency | Freddie Mac

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