Inflated home prices and elevated mortgage rates have made affordability a challenge for many homebuyers. Fortunately, joint home loans combine financial resources and can make qualifying for a home loan significantly easier.
If you’re thinking about buying a home with someone else, you’ll want to understand how joint mortgages work. While joint mortgages have many benefits they have some potential downsides to consider, as well.
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What is a joint loan?
A joint mortgage is when two or more individuals apply for a home loan with the purpose of buying a house. Each applicant’s income, credit history, and financial situation and factored into determining the eligibility for the mortgage and the loan amount.
This type of mortgage loan is commonly used by couples, family members, friends, or even business partners who want to purchase a home together.
An important distinction is that a joint mortgage does not equate to joint ownership.
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Joint mortgage borrowers share the responsibility for repaying the loan with the other applicants. However, unless there is joint tenancy or full joint ownership – meaning all parties are on the loan and the title – only one party may truly own the property.
On a joint mortgage, both you and the other mortgage borrower’s credit scores will come into play. Your lender will review each of your credit scores from all three of the major credit bureaus and see which one is the “lower middle” score.
If you decide on a joint mortgage, the best idea is to check your credit scores early. Taking steps to improve your credit scores can result in a better mortgage rate and lower payment.
If you find that your co-borrower has bad credit, you may want to consider finding a different co-borrower, or seeing if you can qualify on your own.
Who qualifies for joint mortgage loans?
Most lenders accept joint mortgage applications. Rarely do lenders have specific requirements as to who is allowed on a joint mortgage.
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Commonly, joint mortgages are obtained by married couples. When two people enter a marriage, or similar commitment, finances are often shared. So, it may make sense to share the obligation of home ownership, including the mortgage.
Qualifying criteria for a joint mortgage application is like those for individual mortgage applications. For conventional loans, while lender guidelines may vary slightly, most require the following:
Credit score of 620 or higher
Minimum down payment of 3% – 5%
Debt-to-income ratio of 40% – 50%
Employment history and verifiable income
Loan amount that is at or below the conforming loan limits (currently $726,200 in most areas)
Some lenders are more flexible than others so it’s wise to shop around and compare.
Pros of joint mortgages
Joint mortgages can have many advantages. They bestow homeownership on individuals who may otherwise not qualify for a loan due to insufficient credit or income.
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Because the financial burden of monthly mortgage payments is shared, it can make it more affordable and manageable for all parties. Joint mortgages can also offer tax advantages, such as shared deductions for mortgage interest and property taxes.
Business partners or friends may pursue a joint mortgage as a way to get into real estate investing. Pooling your resources could potentially generate rental income or profit from the home’s appreciation.
Another advantage to a joint home loan is that you may be able to borrow more than you’d be able to if borrowing individually. Lenders combine all incomes on joint mortgage applications to determine how much you may qualify for.
Cons of joint mortgages
Joint mortgage can also come with potential challenges. These disadvantages should be carefully considered prior to entering into a joint mortgage agreement.
Even if you do everything right, make your portion of the shared payments on time, etc. there’s no guarantee that your co-borrower will do the same. If there’s a breakdown in communication or unexpected changes in circumstances, such as divorce or unemployment, all parties could be affected.
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It’s important to remember that all borrowers are on the hook in the event of default. If one borrower fails to make their share of the payment, the remaining borrowers must cover the shortage.
Not only can defaulting negatively impact everyone’s credit and potentially lead to legal consequences, professional and/or personal relationships can be impacted should either person fail to hold up their end of the bargain.
Moreover, important decisions regarding the property need to be agreed upon by all parties. These shared decisions include putting an addition on the home, when to sell and for how much. Coming to a mutual agreement on such big issues could be tough.
How to know if a joint mortgage is right for you
One of the main benefits of getting a joint mortgage is it means you may be able to purchase or own more home than you could on your own.
But it’s important that each party is in full agreement when it comes to the decisions about the home, as well as the shared responsibilities.
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Bear in mind that being a co-borrower on a joint mortgage could impact your ability to obtain other loans. Typically, when applying for other forms of credit, the entire mortgage payment is considered your obligation. This is regardless of how the monthly mortgage payments are shared.
Ideal candidates for joint mortgages include those who already share financial responsibilities. Spouses or life partners — or people who currently cohabitate and share financial interests — tend to be “safer” co-borrowers.
If you can afford to purchase a home with great loan terms, it may make more sense to eliminate the potential risks of adding co-borrowers and just go at it alone. Your lender could assist you and answer any questions you may have.
The bottom line on joint mortgage loans
Joint mortgages come with the advantage of combining the income and assets of multiple borrowers, potentially increasing your borrowing power and affordability.
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A joint mortgage also involves shared liability, however. Prior to entering a joint mortgage agreement, all parties should carefully consider all the advantages and potential disadvantages. Open communication and trust are key.
Don’t forget to speak with your lender about whether you qualify on your own, or if a joint mortgage is your best option.
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If you’re curious why so many Americans fell behind on their mortgage payments, you need to look beyond the mortgage itself.
Between 1996 and 2006, all major categories of homeowner expenses increased faster than related incomes, according to a new report from the Center for Housing Policy.
In the new study titled, “Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters,” the group found that mortgage payments increased 46 percent, utilities 43 percent, property taxes 66 percent, and property insurance 83 percent.
During the same time period, homeowner income only increased by 36.3 percent, putting considerable strain on mortgage-holders over the last decade (debt-to-income ratio).
“Housing expenses increased by an average of $5,314 or 64.9 percent over the study period, substantially more than other major expenses such as food at $1,412 or 30.1 percent, transportation at $2,126 or 33.3 percent, and even outpacing healthcare at $996 or 56.3 percent. Median incomes rose 35.8 percent over the same period,” the report said.
That may explain why mortgage lenders chose to increasingly offer loan programs that reduced monthly payments and offset principal payments, while banking on rapid appreciation to mask any worry of default.
But when home prices peaked, and then began their precipitous fall, it left many with little or no home equity (thanks to all the cash out during those low-interest rate days), which is why we’re seeing so many underwater borrowers nowadays.
Renters aren’t exempt from the pain either, with rents increasing 51 percent between 1996 and 2006, while renter incomes only increased 31.4 percent.
Sprinkle on top of it rising energy costs, including the costs to heat the home and purchase gas, and you’ve got a big problem, one looser underwriting guidelines won’t solve.
Nearly one in six households, or nine million homeowners, and nine million renters spent more than half their income on housing costs in 2006, far above the 30 percent threshold typically deemed affordable.
Minneapolis is a thriving city in the state of Minnesota. It’s known for its parks, lakes, trails and outdoor activities, as well as its indoor attractions like the Walker Art Center. Unique indie and vintage shops line its streets, and it’s home to the University of Minnesota.
Career-driven professionals flock to Minneapolis for its ample opportunities, whereas families and retirees enjoy quieter suburb communities with museums, premier school districts and free movies and concerts in the park. As of Jan. 2022, the average cost of a two-bedroom apartment in Minneapolis, Minnesota was $1,806.
Where to live in Minneapolis
There are multiple neighborhoods to choose from if you’re wondering where to live in Minneapolis, MN, and each one has something unique to offer. Some are more affordable and family-centered, whereas others are expensive and provide easy access to cultural and social events. Though choosing one may seem overwhelming, you can easily narrow your neighborhood choices by completing our multiple-choice quiz below!
Who’s coming with you?
Which one neighborhood characteristic can you not live without?
What’s your idea of quality downtime?
Which of these best describes your current life stage?
Your personal style could be best described as:
Which of the following is most important to you in choosing an apartment?
Where to Live in Minneapolis
Uptown
Uptown Minneapolis is a coveted area due to its relaxed, fun atmosphere. Its choice of bars, restaurants, entertainment venues and specialty shops portrays its vibrancy. For example, Uptown features a 20,000-square-foot store called Kitchen Window that sells wares, ingredients, appliances and other items procured locally, nationally and internationally. Uptown Theatre is a popular favorite among locals, who can see foreign, indie and avant-garde films. Residents enjoy rooftop dining at Stella’s Fish Café & Prestige Oyster Bar, bowling and theatrical performances at Bryant Lake Bowl & Theater and live acoustic music at Troubadour Wine Bar. Uptown is the prime destination for singles, night owls, partygoers and social butterflies. It attracts individuals who enjoy food, shopping, movies and live entertainment. This trendy area appeals to a younger crowd who wants to have fun.
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Loring Park
Loring Park is a hip location characterized by large festivals and modern art. Home of the Twin Cities Gay Pride Festival, it’s an inclusive neighborhood with one of the lowest crime rates in Minneapolis. The Minneapolis Sculpture Garden is an expansive urban sculpture park famous for approximately 40 works of modern art. Loring Park is also the site of recent construction, including the renovation of Alden Smith Mansion, which is becoming a 124-unit apartment complex. There are pet-friendly apartments nearby, and spots like Lakes & Legends Brewing Company let you bring your dog indoors. It’s a great neighborhood for those with pets or significant others. It’s also perfect for individuals looking for a safe, inclusive community. Its quirky vibe attracts hipsters, and its new, stylish spaces make it a premier location.
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Linden Hills
Image Source: 2719 W 43rd St
Linden Hills provides families and retirees opportunities to canoe and kayak. It’s common to see individuals ice fishing or gathering for the Lake Harriet Winter Kite Festival. When warmer weather strikes, people flock to the beach. This family-friendly neighborhood has a prolific past well-documented by the Minnesota Streetcar Museum. Linden Hills is known for its delectable food, ranging from the Argentinian-inspired menu at Martina to stir-fries and curries at Naviya’s Thai Brasserie. Its shopping centers feature antiques and collectibles, and individuals can catch free movies and concerts at Lake Harriet Bandshell Park. Linden Hills has affordable and luxurious apartments. It’s known for its history, outdoor activities, shopping and food. It’s popular with families and retirees who wish to spend time outdoors while being close to everything they need.
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North Loop
Hipsters and young professionals inhabit the North Loop, where they enjoy proximity to cultural events. It’s sometimes referred to as the “Warehouse District” since many of its trendy restaurants and shops were originally warehouses. If you’re searching for rare or out-of-print books, James & Mary Laurie Booksellers has over 120,000 to choose from. The North Loop is also home to Target Center, where the Minnesota Timberwolves and Lynx play. In addition, the Minnesota Twins occupy Target Field. Basketball and baseball fans enjoy going to a game before grabbing a drink with friends. The North Loop is expanding and ripe with construction. It’s well-suited for cultural enthusiasts, hipsters and young professionals. It’s not far from work, great food, a pub or a sporting event.
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Downtown East
Downtown East is a professional neighborhood that has gained a reputation for its live entertainment venues. Significant sporting events and concerts take place in the U.S. Bank Stadium. Nearby, the Minneapolis Armory attracts clubbers looking for live music and events. The trend-setting neighborhood is home to a cutting-edge skate park in Elliott Park. Interestingly, the same company that designed the skate park at the 2020 Tokyo Olympics constructed it, and the park is complete with rails, ledges, quarter pipe and a seat wall for skaters and spectators. Downtown East is the perfect destination for singles and young professionals who want close proximity to work and have fun things to do on the weekend. It has some great pet-friendly apartments for those who wish to bunk with furry friends.
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Dinkytown
Image Source: The Knoll Dinkytown
Dinkytown is known for its proximity to the University of Minnesota. Single college students and those with roommates are likely residents. It’s a smaller neighborhood with convenient locations. Students enjoy affordable bars, dining options and social venues, such as Huntington Bank Stadium, Williams Arena, Maturi Pavilion, 3M Arena at Mariucci and Ridder Arena. From football to basketball to hockey, students enjoy going to games and nearby bars. There are excellent accommodations for parents who come to visit or catch a game. The quirky neighborhood also demonstrates its appreciation for art with the Frederick R. Weisman Art Museum. Dinkytown is a quirky college town with affordable apartments. With activities to attend on and off campus, Dinkytown is constantly in motion.
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St. Anthony
St. Anthony became a city in 1945 and belongs to the metropolitan area of Minneapolis. Locals call it “The Village” due to its tight-knit community, and the University of Minnesota campuses in St. Paul and Minneapolis are 10-15 minutes away. It’s also known for its premier K-12 independent school district. The city prioritizes easy access to parks, bike trails, golf courses and Silver Lake. It’s a “GreenStep City Level 5,” meaning it has demonstrated devotion to efficiency, resiliency and a healthy environment. St. Anthony is close to downtown Minneapolis and residents can reap the advantages before retreating to a smaller community setting. Families and college students are likely residents and enjoy quality relationships while receiving a good education. Weekends filled with picnics, golfing, walking and biking provide relief from hectic schedules.
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Golden Valley
Image Source: Hello Apartments
Golden Valley became a city in 1972 and is near downtown Minneapolis. It’s a welcoming suburb community committed to diversity, equity and inclusion. One of its characteristics is its relationship to nature. Over 1,035 of its acres compromise open spaces and parks. The city cares for approximately 50 miles of trails where individuals walk, hike and maintain their health. Due to the accessibility of these parks and trails, Golden Valley is a “Parkinson Friendly Community” by the National Parkinson Federation of Minnesota, and it has events for all ages. Individuals who prioritize nature and relaxation are good Golden Valley candidates. Retirees enjoy community events designed for their age group and activities like birdwatching, walking and fishing. The welcoming community also makes a beautiful couples’ destination.
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Rebecca Green is a content editor and writer for RentPath. She enjoys interior design, dogs and can tell you where to find the best pizza in Brooklyn. You can see some of her other published work on Apartment Guide.
A significant portion of the millennial generation now believes they will not have the opportunity to be a homeowner, indicating that mortgage originators may need to provide more education as part of their marketing.
Affordability remains the big hang-up, a Redfin survey found. But it’s not just millennials that are being impacted; besides the 18% of this cohort no longer thinks they will buy a house, 12% of the up-and-coming Gen Z, one already described as the largest and most diverse to enter the housing market, believe similarly.
First-time buyers already have a significant share of purchases this year, Zillow previously reported.
Breaking the list of affordability-related responses down further, high home prices, which have endured even as the U.S. economy has slowed, was the most cited reason why both groups felt this way.
A separate Redfin report issued on Thursday found that home prices gained 4.5% year-over-year for the four-week period ended Sept. 3.
As a result, the typical monthly mortgage payment of $2,612 is $18 below the all-time high set in May.
“If folks can figure out a way to buy instead of rent, they will,” Redfin agent Niko Voutsinas said in the home price release. “Some buyers are cutting back on other expenses to up their housing budgets because they believe home prices are only going to increase.”
Negative perceptions about their ability to save enough to make a down payment was cited by 46% of millennials and 33% of Gen Z. More than a third of both groups said mortgage rates are currently too high.
Meanwhile paying off student loan debt will take precedence for 21% of Gen Z and 16% of millennials over the purchase of a home, the survey found.
Of those survey participants that are planning to buy in the next 12 months, 36% of millennials and 41% of Gen Z members are working a second job in order to fund the down payment.
A cash gift from a family member is expected to help contribute to the down payment from 23% of millennials and 28% of Gen Zers.
Over 20% of both groups said they will tap into their investment portfolios by selling stock, while 15% will divest cryptocurrency.
“Many young people don’t have a choice between renting and buying,” said Daryl Fairweather, Redfin chief economist, in a press release. “They’re renting their home because even though rent payments have increased, too, it’s still more affordable than buying in much of the country–and renters don’t need a down payment.”
In turn, with private mortgage insurance, consumers can get a conforming loan with only 3% down. For first-time and other buyers, various forms of down payment assistance programs are available. Yet awareness of these alternatives has been lacking among the target audience.
“We’re very proud of the fact that we can enable people to buy a home with less than 20% down, we’ve been doing that for a long time,” Radian Group CEO Rick Thornberry said in an interview. “But it’s also something that we feel a strong corporate purpose to do, not just for the sake of volume, but to do it responsibly and sustainably from a borrower perspective.”
The Redfin survey was conducted in May and June; this portion of the study just concentrates on responses from 1,340 Gen Z and 1,973 millennial participants.
As of the end of the second quarter, it was cheaper for households to rent versus owning both on a nationwide basis and in 27 of the top 50 U.S. markets, a First American Financial analysis found.
But there’s no blanket answer to this challenge.
“Given current dynamics, more young households may choose to rent in the near term as the cost to own, excluding house price appreciation, has unequivocally increased,” a posting from First American Economist Ksenia Potapov said. “Yet, once you factor in house price appreciation, or depreciation in some markets, to the cost of homeownership, the decision to rent or buy will depend on local real estate market dynamics, which will determine if a home is likely to cost more or less in the near future.”
The conundrum about the housing market in general is recorded in Fannie Mae’s Home Purchase Sentiment Index for August, which at 66.9 is 0.1 higher than it was in July. Compared with August 2022, the HPSI was up 4.9 points.
“The overall HPSI is maintaining the low-level plateau set a few months back, and we don’t see much upside to the index in the near future, barring significant improvements to home affordability, which we also don’t expect,” Fannie Mae Chief Economist Doug Duncan said in a press release. “While renters are slightly more pessimistic than homeowners, for two years now a large majority of both groups have told us that it’s a bad time to buy a home, and they’ve continuously cited affordability concerns as the primary reason.”
Only 18% of those surveyed said August was a good month to buy a home, unchanged from July. But those that called it a good time to sell increased by two percentage points to 66%.
Ironically, the shares of respondents that believe rates will go up in the next year increased by 1 percentage point to 46%, while those that think they will move lower gained two percentage points to 18%.
That is because fewer respondents, 34% versus 38% in July, now think rates will remain unchanged.
A popular state grant program to help low- and moderate-income California homeowners build accessory dwelling units may end up with $25 million in new funding following a tussle over dollars in the state budget.
The California Housing Finance Agency’s ADU Grant Program offered up to $40,000 to qualified homeowners to cover pre-construction costs of an ADU, including planning and permit fees for the structure. The program exhausted its initial $100 million months ago, and since then, Gov. Gavin Newsom and lawmakers have gone back and forth over $50 million in additional funding for ADU financing that had been included in a previous year’s budget.
For the record:
12:21 p.m. Sept. 5, 2023An earlier version of this story stated that the $50 million in last year’s budget for ADUs was for the grants program. It was for ADU financing, with grants as one of several possible uses.
In July, lawmakers approved and Newsom signed a budget bill that would restore the $50 million for the grants. On Aug. 30, the Assembly Budget Committee advanced a budget bill for fiscal years 2022 and 2023 that would take back the $50 million. Now, however, Chairman Phil Ting (D-San Francisco) says an amendment will put half of the money for ADUs back, specifically to restart the grants program, before the bill moves on this month.
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The ADU money is in flux because of a disagreement between lawmakers and CalHFA over how to use it.
In an interview Friday, Ting said one of the hurdles for ADU construction has been the reluctance of California lenders, and particularly major banks, to develop attractive ADU loans. So two years ago, he said, lawmakers provided $50 million to CalHFA to create a loan loss reserve fund that would backstop ADU loans from private lenders.
The goal was to bring about systemic change in the industry, rather than just provide more grants for individual ADUs, Ting said. But after CalHFA studied the issue, “there was still a significant amount of hesitancy” at the agency to start a loan loss reserve program, he said.
Meanwhile, as homeowners built more ADUs, more lenders took an interest in the field. So after initially agreeing to redirect all $50 million to other programs, Ting said, he’s proposing to put $25 million into the existing ADU grant program and redirect the remainder.
Under the current income limits for borrowers, homeowners earning up to $194,000 in Los Angeles County would qualify for a grant. Ting said he may propose a lower limit to make sure the grant program is “much more targeted” on lower-income Californians who could not otherwise afford to build ADUs.
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Supporters of the grant program argue that it does, in fact, direct help to borrowers who need it. For example, a joint letter from the California Community Economic Development Assn. and Homeplex, which helped the association distribute ADU grants for the state, notes that more than 60% of the recipients they’ve helped have been low-income households making less than 80% of the median income in their area.
“Many of these homeowners would not have been able to move forward with their ADU to build financial security for their families, if not for the support of the State Legislators and your support,” their letter to Ting and Senate Budget Committee Chair Nancy Skinner (D-Berkeley) stated. “These projects employ hundreds of workers and provide affordable rental housing for the local communities we serve. ADUs are the least expensive and quickest housing to build in the State.”
More aid for first-time home buyers
Ting’s latest proposal would steer $20 million of the $50 million to the California Dream for All Shared Appreciation Loan program. The Legislature initially provided $500 million for the popular program, which provides no-interest loans to first-time home buyers, but Newsom put $200 million of that on hold to help manage the state government’s budget crunch. Lawmakers and Newsom agreed to restore the $200 million in July.
The extra funding hasn’t translated yet into new loans, however.
The California Dream for All Shared program launched in late March, offering qualified first-time home buyers loans worth up to 20% of the purchase price of a house or condominium. The loans were especially attractive because they carried no interest and required no monthly payments.
If it sounded too good to be true, it was — but only because the program hit its application limit (and the number of people it could help, an estimated 2,300) in only two weeks and was effectively halted.
In the initial rollout, the loans were available only to households with earnings below CalHFA’s income limit for low- and moderate-income borrowers.
The loans, which can be used for down payments and closing costs, are structured as a second mortgage, which means they aren’t repaid month by month. Nor do they accrue interest the way an ordinary loan does. Instead, when the mortgage is refinanced or the house is sold again, the borrower pays back the original amount of the loan plus 20% of the increase in the home’s value.
If the home is ultimately sold for the same amount it was purchased for or less, the buyer won’t need to pay the additional 20%.
To receive a loan, borrowers must complete a home buyer education and counseling course (there are options for online and in-person classes on the CalHFA site) and a free online course specifically for shared appreciation loans.
The agency said it will provide an update on the Dream for All Shared Appreciation Loans program this fall that will include a timeline for applications. It’ll do so through email updates and newsletters you can sign up for.
Lately, there’s been a lot of talk about a lack of affordability, even a potential housing bubble.
And it comes as no surprise, given the massive shock of a near-tripling of mortgage rates over just a year and a half.
The 30-year fixed could be had in the low 3s, maybe even high 2s back in early 2022, and today is closer to 7%.
At the same time, home prices haven’t come down, despite a slowing rate of appreciation.
Together, this has brought the housing market to its knees and pushed many prospective buyers onto the sidelines. But those who sell are still reaping massive profits.
Home Buying Is the Least Affordable Since 1984
Remember those 1980s mortgage rates that were in the double-digits? Well, today’s mortgage rates are nowhere close.
However, due to sky-high home prices and elevated interest rates, home buying is the least affordable it has been since 1984.
That’s right, it hasn’t been this bad in about 40 years, which illustrates just how challenging this housing market has become.
Per Black Knight, it now requires 38.3% of the median household income to make a monthly mortgage payment on an average-priced home.
Using Freddie Mac’s 7.23% average for a conforming 30-year fixed mortgage as of August 24th, the monthly principal and interest payment climbed to $2,423.
And this assumes the buyer comes in with a 20% down payment, when in reality many borrowers can only muster 3-5%.
To the point of it being a bubble, it would take some heavy lifting to bring affordability back to its 25-year average.
We’re talking some combination of a ~27% decline in home prices, a 4%+ reduction in 30-year mortgage rates, or a whopping 60% increase in median household.
Which of those three do you think are likeliest to transpire? Probably none of them barring another massive housing crash.
But a combination of the first two is reasonable, whether it’s a 10% drop in home prices and a 2% drop in mortgage rates. Or some other combination.
It’s unclear if wages are going to see much improvement from here on out, certainly nowhere close to 60%.
For perspective, the 30-year fixed averaged about 13.2% the last time housing affordability was this bad.
This tells you home price growth has far outpaced wage growth, essentially demanding low interest rates bridge the gap.
Despite this, home sellers are racking up massive gains, thanks to double-digit home price appreciation over the past several years.
The Few Home Sellers Out There Are Raking in Big Profits
Redfin reported today that 97% of home sellers sold for a profit during the three months ending July 31st.
And the typical property that sold went for a whopping 78.4% more than the seller paid, or $203,232.
While there is a severe lack of affordability in today’s housing market, there seems to be an even bigger shortage of homes to purchase.
As such, home prices remain on the up and up, allowing the few sellers out there to take in a tidy profit.
The majority of sellers purchased their homes well before property values skyrocketed, making it pretty easy to snag a six-figure gain.
San Jose leads the nation in median capital gain at a staggering $755,000. It’s also 108.6% higher than what the seller paid.
San Francisco isn’t far behind at $625,500 and 70.5%, respectively, followed by Anaheim at $470,000 and 88.7%.
Even Detroit, which ranked last in terms of dollar gains of the 50 metros analyzed saw a median $80,500 capital gain.
If we consider percentage gains, Fort Lauderdale topped the list with a 122.2% cap gain, followed by San Jose and Miami.
Some Home Sellers Are Losing Money, Especially in San Francisco
While most sellers are making out like bandits, Redfin did note that some home sellers are parting with their properties at a loss.
This is especially true in San Francisco, which has struggled with falling property values and tech layoffs.
San Francisco’s median home sale price fell a record 13.3% year-over-year from April 2022 to April 2023, more than triple the nationwide decline of 4.2% at that time.
But as of July, prices were down just 4.3% year-over-year, somewhat closer to the national gain of 1.6%.
This might explain why 12% of home sellers in San Francisco sold for a loss during the three months ending July 31st.
Put another way, one of every eight homes that sold during this period went for less than what the seller paid.
And the typical seller sold for about $100,000 less than what they paid, tying New York for the largest median loss in dollars.
Nationwide, the typical homeowner who sold for a loss only sold for $35,538 less than what they paid.
Other major metros that had a high percentage of sellers taking a loss included Detroit (6.9%), Chicago (6.5%), New York (5.9%), and Cleveland (5.8%).
One Redfin Premier agent said some condos in the Bay Area are selling below 2018/2019 purchase prices because commuting into downtown San Francisco is no longer “a thing anymore.”
Meanwhile, an agent in Boise said some clients will need to sell at a $100,000 loss as they move back to Seattle because work-from-home (WFH) has ended and they bought the properties recently.
But the price point on such transactions is generally above $750,000, which probably isn’t your typical home in that part of Idaho.
And as you can see from the chart above, very few homes are selling for below what the seller originally paid.
So before we get excited about another short sale wave, as seen in the early 2000s, we may want to temper our expectations.
Of course, market conditions can change fast. For example, a year ago only 0.2% of Austin homes sold at a loss versus 3% in the same period this year.
Austin had the lowest share of home sales at a loss of the top 50 metros. Not so anymore.
July saw inflation rise once again, and interest rates are still rising. In fact, the average rate on credit cards is now nearly 21%, up from just 15% a little over a year ago. With these economic headwinds, you might find yourself in need of extra funds — to repair your home, to cover unexpected costs, or maybe just as a financial safety net.
Either way, if you’re a homeowner, you may think about tapping your home equity. Home equity loans and HELOCs both allow you to turn your equity into cash, which you can then use however you wish.
Is now a good time to do that, though? And what should you consider before tapping your home equity in today’s market? We asked experts for their opinion to help you decide.
Start by exploring your home equity loan options here to learn more.
Is home equity worth using now? Here’s what experts think
Thinking of using your home equity today? Here’s how the experts we spoke to recommend homeowners proceed.
Know what you’ll use it for
Tapping your home equity means putting your home at risk, so having a clear idea of what you need the money for is key before making a decision.
“Why do you need the money? Is it really necessary? Are you investing in your future or in something that strays away from your financial goals?” asks Jim Black, executive director of lender strategy at mortgage lender Calque. “Some things, like vacations, might not be the best reason.”
In short: Make sure the risk is worth it. Fixing the roof on your house or putting money into your business likely fall within that category. But pulling out equity to pay for new clothes or buy a new couch may not.
Using your home equity might also be smart if you’re eyeing a new home but currently have an ultra-low mortgage rate. In this scenario, selling your house and buying a new one would mean trading up for today’s 7%-plus rates. You might consider leveraging your equity and improving your existing house instead.
“Homeowners have the unique opportunity right now to tap into an incredible amount of home equity that’s built up over the past few years,” says Bill Banfield, executive vice president of capital markets at Rocket Mortgage. “They can use this cash to do home renovations and make their space better fit their life — without having to pick up and move to a new house.”
Get started with a home equity loan here now.
Weigh it against other options
You’ll also want to weigh all your options before turning to home equity. Depending on what you’re looking to pay for, you may be able to use a credit card, personal loan, student loan or one of many other financial products.
Typically, home equity loans and HELOCs are going to have lower rates than credit cards and personal loans, but they’re higher than rates you’d see on first mortgages and refinances. Because of this, it’s important to get quotes for several different products (and from different lenders) to ensure a home equity product is the most affordable path forward.
“Do you have other options?” Black asks. “Look at different ways to get the financing you want and compare them.”
If you do opt to tap your home equity, you should also compare your options within that realm. Home equity loans and HELOCs are the most commonly used products, but depending on your age, you may also consider a reverse mortgage (these are only for seniors). Home equity investments — which give you an upfront payment in exchange for part of your home’s future value — are an option, too.
“These provide funds upfront with no monthly payments or debt accrual, but in exchange for the some future value of your home — or its appreciation over time — or both,” says Sarah Dekin, president of Hometap, a home equity investment platform. “The potential disadvantage here, of course, is that you may miss out on some part of the future value of your home down the line when you settle.”
Think long term
Finally, think about your long-term financial picture before you tap your equity. Calculate the total cost of tapping your equity — the interest, closing costs, or lost appreciation you could see — and make sure those costs are worth it.
As Black puts it, “Banks are in the business of making interest, and this means you need to see the worst-case amount of equity you will be losing by borrowing. You also need to evaluate the cost of attaining the additional debt.”
Consider your employment and income prospects, too. Is your job stable? Do you expect your income to be the same or higher 10 years down the road? You want to be sure you can afford your payments not just now, but throughout your entire loan term (and some home equity loans are as long as 30 years).
Keep in mind that if you use a HELOC or another product with a variable rate, your payments could rise over time, too, so make sure you’ll have the capability to make those higher payments should they come about. If not, you could lose your home to foreclosure.
“The most important consideration is affordability,” says Adam Boyd, executive vice president of home equity, credit cards, and unsecured lending at Citizens Bank. “Since the borrower is using the home as collateral, it is critical they ensure they can afford the loan. If there’s any concern that rising rates will impact your ability to afford the loan in the future, it may not be the best option.”
Learn more about your home equity options here now.
Other home equity benefits to know
Home equity products can be smart tools when used in the right scenarios. They may be able to save you on interest compared to other loans and financing options, and they allow you to spread your costs out over many years. You may even get a tax deduction, depending on how you use the funds.
Just remember: Using your equity means putting your home on the line as collateral. If you’re not sure this is the right move for your finances — or you want help evaluating your full range of options — consider talking to a financial professional first. They can point you in the right direction.
Maryland realtor Bill Armstrong says now could be the time to get into an adjustable-rate mortgage.
He also recommended that new buyers find a realtor that isn’t actively looking for a property.
If looking for appreciation, he said single-family properties are best.
With mortgage rates back above 7% and home prices still high, it’s not necessarily the greatest time to buy a rental property. Payments on new mortgages have skyrocketed, meaning it can be more difficult to cover expenses through rent payments alone.
But in every kind of market, there are opportunities, says Bill Armstrong, a realtor in Frederick, Maryland.
In an August 25 episode of the National Association of Realtors’ “Real Estate Today” podcast, Armstrong, who says he invests in real estate himself, laid out two tips for new investors navigating the current market.
The first piece of advice he gave is to consider getting an adjustable-rate mortgage as opposed to a fixed-rate mortgage.
Rates on 30-year fixed mortgages are at their highest levels in over two decades. Since they’re already elevated, rates are likely to come down in the years ahead to some degree. Market odds say so, at least, with investors betting that the Federal Reserve will cut rates by early next year, according to the CME’s FedWatch Tool.
Since there’s more risk associated with adjustable-rate mortgages as the Fed could hike, their rates are typically lower for the initial years than fixed ones. For example, according to Bankrate data, the average 30-year fixed-rate mortgage is 7.53% right now, while the average 5/1 adjustable-rate is 6.5%. In this context, a 5/1 adjustable-rate mortgage would mean the buyer pays a 6.5% rate for the first five years (though rates are determined by other factors as well, like income and credit score), and that rate changes every year after based on what the market rate is at the time.
“If interest rates are now in the 7% range, that’s unfortunate, but this may be the perfect time to look at an adjustable-rate product,” he said. “If you can get a preferred interest rate that’s a little bit better than market right now, on the front end, it makes a lot of sense to consider that.”
When rates do come down, one can refinance into a fixed-rate mortgage, he said.
Second, Armstrong said to find a realtor who invests in real estate themselves, but isn’t actively looking for a new property.
This means they know the market you’re looking in well, but aren’t considering deals for themselves first, he said.
If the realtor says they’re looking for properties for themselves at the moment, “you have to understand that you’re going to get something that’s been looked over for their account first,” Armstrong said.
Single-family, multifamily, or condo?
When it comes to the types of properties that new investors should look at, Armstrong said to be aware of the pros and cons of each and to base a decision on your own wants and needs.
If an investor is looking for appreciation, he said single-family properties tend to appreciate the most, followed by townhomes and then condos.
Single-family houses are also less likely to have maintenance or homeowners association fees. Of course, condos usually offer the cheapest price of entry of the three options, however.
When it comes to risk, multifamily properties have an advantage, Armstrong said. If one tenant moves out of a unit, there are still other tenants to cover at least part of the building’s mortgage payment, he said. Or if the building is paid off, at least part of your cash flow is still there.
“I just sold a four-unit not long ago, and I explained to these folks that if one person goes down, you still have 75% of your income still coming in. If two go down, you still have 50% of your income,” he said. “Well, if you own a single-family home and it becomes vacant, you’ve got 100% vacancy.”
Inside: Looking for information on what a typical Christmas bonus in the US is? This guide will help you calculate how much you can expect and what to do with it.
Are you waiting eagerly for that year-end surprise called the Christmas bonus? Like Clark in National Lampoon’s Christmas Vacation?
Or maybe you’re an employer wondering about giving out festive bonuses?
This guide is a jingle bell away with everything you need to know about Christmas bonuses in the United States.
You’ll discover how these additional pays work, what the typical bonus amounts are, tax implications, the benefits of giving a bonus, and wisely spending your bonus. In other words, it decodes everything from the employer’s perspective, right to how it impacts an employee’s pocket and spending decisions.
So, buckle up – you’re about to become a little richer in knowledge. Stay tuned!
What is a typical Christmas bonus?
A Christmas bonus, often referred to as a “13-month-salary,” is a special gift you might receive from your employer at the end of the year.
It depends largely on your company’s resources and financial standing, meaning not everyone will get one.
However, if you’re lucky, you might expect a bonus ranging from 2% to 5% of that, discretionary to your employer.
Thus, the average Christmas bonus would be you could be looking at an additional payout of around $1144-2860, assuming an average income of $57,200.
Does everybody get a Christmas bonus?
Not all employees in the US typically receive a Christmas bonus.
The giving of bonuses varies between companies and roles within those companies.
Personally, I have only had one company that gave out Christmas bonuses. Most companies tend to give their annual year-end bonuses, which may be based on factors like performance or tenure, during the first quarter of the new year.
While a Christmas bonus would be nice as it often serves as an appreciation gesture for hard work throughout the year.
Understanding the concept of Christmas Bonus
A Christmas Bonus is essentially a little financial gift from your employer during the holiday season. Think of it as an extra dollop of icing on your annual salary cake.
It’s typically a percentage of your salary and serves to show appreciation for your hard work throughout the year.
For instance:
Let’s say you earn $80000 a year and your boss awards a Christmas bonus of 5% would then receive an extra $4000 just in time for the festivities.
Your company elects to give all employees a flat $1000 Christmas bonus regardless of seniority.
Note that a Christmas bonus isn’t legally required and varies greatly between businesses.
History of Christmas Bonuses
Woolworth’s birthed this tradition back in 1899, offering a cash bonus of $5 for each year of service with a limit of $25.
In Woolworth’s early years, they established a pattern of rewarding their employees with a generous Christmas bonus.
This practice was seen as an annual tradition and was appreciated by their staff, instilling a sense of loyalty within the workforce.
Over time, Christmas bonuses have evolved not just in amount but in form as well. Besides cash, you could also receive gifts or even lavish holiday parties.
Despite the more modern trend of diminishing Christmas bonuses, this part of Woolworth’s history highlights the positive potential of such incentives.
Factors influencing the amount of Christmas Bonus
Considering factors on the Christmas bonus is crucial because it ensures fair distribution, tailored to individual employees’ performance, length of service, or their specific needs.
We all know that bonuses adequately demonstrate appreciation and recognize the hard work of their employees, increasing their job satisfaction and driving productivity.
So, let’s look into whether or not a Christmas bonus is viable for you or your company.
1. Company policy on Christmas Bonus
A company’s policy about Christmas bonuses is typically laid out in the employee handbook and company policies.
Policies may stipulate that Christmas bonuses are issued under certain circumstances, like when the employee has met specified targets or when the company has performed exceptionally well during the year.
Also, the board of directors may elect to give out one-time Christmas bonuses.
However, if these bonuses are not incorporated into the employee’s employment contract, they are typically subject to the employer’s discretion. Employers must take extra caution to ensure that these bonuses are presented as discretionary and not part of a contractual agreement.
Remember, these factors may vary from one company to another. Always refer to your employer’s specific policies and handbooks for accurate information.
2. Amount of Salary
Your annual gross income might influence the amount of your Christmas bonus, as some employers factor in their employees’ base pay when determining bonus amounts.
However, not all organizations adopt this practice, with some opting for a fixed, equal distribution amongst all staff members regardless of their earnings.
Therefore, depending on your contractual agreement and your employer’s policies, your salary could influence your bonus, but this isn’t a universal rule.
3. Type of Bonus
The types of bonuses vary greatly as companies have the discretion to decide the nature of the bonus, with the decision often driven by the organization’s performance, the individual’s job role, and the overall economic conditions.
They can be incentive-based, linked to performance targets, holiday-exclusive like Christmas bonuses, or tagged to specific business milestones, leading to significant variability.
Here are different types of bonuses you should know about:
Discretionary bonuses: These are given at your employer’s will. They might consider factors like company performance or your personal performance reviews. However, there’s no guarantee you’ll receive one.
Non-discretionary bonuses: These are part of your employment contract. As long as you meet certain criteria, you’ll receive this bonus on top of your salary during the Christmas season.
Non-holiday bonuses: Given outside of the holiday season, these can be extra pay or an item like a company car.
Remember, your bonus type dictates how much you could get for Christmas. Be sure to check your contract!
4. Company Culture
Company culture significantly affects bonuses as it underpins how employees perceive their value and recognition within the organization.
If the culture fosters transparency, fairness, and goal-oriented behaviors, bonuses can effectively serve as an incentive and boost morale. Statistics show that employee loyalty increases when they feel appreciated, which can often be demonstrated through financial bonuses.
Moreover, a culture encouraging open communication assures employees of fair dealing when it comes to awarding bonuses.
Hence, bonuses, when tied to clear goals, become more than just monetary rewards, ensuring employees understand their role in the company’s success.
5. Recipients of the Bonus
In the US, Christmas bonuses are usually gifted to all employees, irrespective of their role or position.
Some of the roles that may receive a Christmas bonus include:
Full-time employees: Usually part of the main workforce, these individuals are often at the receiving end of holiday bonuses.
Part-time employees: Even though they may work fewer hours, many companies consider them for bonuses.
Temporary workers: Though their roles are for a limited time, they are generally excluded as part of the company’s bonus scheme.
Contracted employees: If their contract includes a clause for a holiday bonus, they are quite likely to receive a Christmas bonus. If it does not, they will not receive one.
Remember, the goal is inclusivity, a policy aimed at making every employee feel rewarded and appreciated during the festive season.
6. Holiday Season
Christmas bonuses are commonly offered by employers during the holiday season in the United States. This bonus is seen as a way to show appreciation and respect to employees, which can help to mitigate feelings of burnout.
Companies may elect to give bonuses at other times of the year to motivate their employees and boost their job performance. These bonuses can incentivize individuals to achieve specific company goals, with the promise of additional monetary compensation driving their hard work.
Aside from motivation, off-season bonuses also serve as a token of appreciation, illustrating a company’s recognition and value of their employees’ efforts.
It’s worth noting that a bonus doesn’t necessarily have to be monetary. Examples can also include extra vacation days or other perks.
7. Amount Given to Employees
A Christmas bonus is an extra payment given to employees during the holiday season as a gesture of gratitude for their commitment and hard work.
Factors influencing the Christmas bonus amount include:
Length of service: Employees who’ve been with the company longer might receive a higher bonus. For instance, an employee with a decade of service might receive $1,000 at a rate of $100 per annum.
Based on Salary: Many companies may opt to give a flat percentage related to the salary of their employees.
Flat Amount: Others may give the same amount to all employees across the company.
8. Company’s Financial Resources & Performance
A stronger performing company is more likely to give more bonuses as it typically correlates with higher profits, enabling them to be more generous with employee rewards.
On a company level, if overall performance benchmarks are hit, Christmas bonuses may increase across the board.
In fact, the incentive of bonuses can create a highly driven workforce that pushes towards achieving and even exceeding business goals. Furthermore, companies that distribute bonuses, particularly holiday bonuses, can significantly boost employee morale, fostering both loyalty and a positive company culture.
How to Calculate Your Potential Christmas Bonus
Calculating your Christmas bonus can often seem nebulous, leaving many uncertain about the amount they should expect.
The elusive nature of the Christmas bonus can largely be attributed to the fact that unlike salary, it isn’t typically fixed and may vary based on several factors such as an employee’s performance, the length of their service, or the financial health of the organization.
Despite this, there are a few pointers that can shed light on how to calculate this anticipated festive season reward.
Step 1: Check if you are Eligible for a Christmas bonus
Figuring out your potential Christmas bonus firstly entails a careful examination of the terms of your employment contract, alongside other supporting documentation such as your employee handbook or job offer letters.
These documents accurately establish the contractual relationship between you and your employer and often contain crucial clues about bonus calculations.
For instance, if your contract states that you are entitled to an equivalent of one week’s salary as a Christmas bonus, then you can confidently expect that amount.
Keep in mind the discretion of the employer in case of confusion. Some bonuses might not be contractual but discretionary. Consult your HR department for clarification if needed.
Step 2: Calculate your percentage of the total bonus amount
To calculate your bonus based on your salary, you need to know the exact percentage your employer uses, which usually ranges from 2-5% of your annual earnings.
Multiply your annual salary by the bonus percentage to determine your possible holiday bonus.
For instance, if you earn a yearly salary of $100,000 and your employer gives a 2% bonus, you’ll receive a $2,000 bonus.
Step 3: Is my Christmas Bonus Taxable?
So, if you’re anticipating a hefty holiday bonus, remember, it might be subject to taxes.
Bonuses are often considered supplemental income.
As such, the Internal Revenue Service (IRS) requires a 22% federal income tax on this income, which can reduce your bonus significantly.
State laws also have a part to play. Your holiday bonus is taxed according to your state tax rate, which is another cut from your bonus.
For example, your bonus amount is $5000 after federal taxes of $1100 and state 4% taxes of $200 are deducted, your take-home bonus is $3700.
How to Spend Your Holiday Bonus
The anticipation of receiving that extra lump sum has many employees daydreaming about that eye-catching new car, an extravagantly relaxing vacation, or perhaps the latest tech gadget.
Although it’s tempting to indulge in the pleasure of immediate gratification, there are more finance-savvy alternatives to consider for the effective utilization of your annual bonus.
1. Invest your Christmas Bonus
Getting that skip in your heartbeat when you receive your Christmas bonus is a feeling like no other.
However, the real magic happens when you decide to invest this bonus, making it grow over time instead of spending it all at once.
Here are the top four ways to invest your Christmas bonus:
Wealth Creation: When you invest your bonus, you’re setting yourself up for future wealth. Learn how to invest 10k.
Earn Additional Income: Use your bonus as a kick-start to a side hustle. Many Americans already secure supplemental income this way. In fact, many people are interested in how to make money online for beginners.
Professional Growth: Investing your bonus into professional development is another smart move. Enrolling in online courses that build your technical skills or lead to certifications can enhance your earning potential. Learn to invest 100 to make 1000 a day.
Financial Security: Finally, investing your bonus helps to secure your financial future. Whether it’s putting money into retirement funds or investing in a high-yield savings account, every bit helps set you up for stability and freedom. This sets you up to become financially independent.
Your Christmas bonus could be the first step towards a future of financial growth and security.
2. Consider your financial needs for the coming year
Before you rush to spend your holiday bonus, consider your financial needs for the coming year.
Start by:
Assessing your monthly expenses. How much do you need for essentials like housing, utilities, and food? Compare with the ideal household budget percentages.
Evaluating your emergency fund. Remember, experts recommend at least $1000 in an emergency fund. Plus having three to six months’ worth of expenses stored away in a rainy day fund.
Big expenses coming your way: Do you have any costly expenses like home repairs or car replacement in your future?
You may want to set aside money for those future needs, so you will be financially stable when they happen.
3. Pay Off Bills
Don’t run to the stores before analyzing your debt.
If you have high-interest loans or credit card debt, prioritize paying these down. Our expert tip at Money Bliss is to tackle the highest interest debt first.
Use your bonus to pay off debts: Since a bonus is usually an unexpected sum of money not factored into your annual budget or salary, you can make significant headway in paying off your debts, particularly those with high-interest rates.
Save on interest charges by reducing debt: The bonus can help reduce your debt balance, leading to less interest accruing over time. This move could save you hundreds, even thousands, over the long term.
Consider debt management apps: Apps like UndebtIt help you find a debt free date. Platforms like Tally† can simplify your debt payoff journey with automated payments using a lower-interest line of credit.
Reconsider splurging your holiday bonus: Rather than spending it all on that coveted item or trip, you might want to consider other financially beneficial options.
4. Buy Christmas Gifts
Utilizing your holiday bonus wisely to purchase Christmas gifts can be a smart and rewarding way to use your end-of-year windfall.
Instead of splurging on high-cost items, consider thinking through your holiday gift list and budgeting accordingly.
Bear in mind that enjoying the holiday season doesn’t have to break the bank; as Christmas on a budget is possible.
Don’t forget to spoil yourself with a gift every now and then. You’ve worked hard for this bonus and deserve a treat too.
5. Splurge on Fun Things
It’s absolutely okay to treat yourself with a holiday bonus – after all, you’ve earned it! Using it wisely can add a dash of fun and pure enjoyment to your life.
Now, what do I want for Christmas?
Here are a few fun ways to splurge your holiday bonus:
Dream vacation: The bonus could be your ticket to the vacation you’ve been fantasizing about. Plan carefully to make the most out of it.
Invest in hobby: Whether it’s photography, painting, or gardening, investing in a hobby can prove to be quite rewarding.
Spoil yourself: Get that TV you’ve been eyeing or make a down payment for that new car you fancy.
Remember, pleasure is a great aspect of well-being. So, it’s great to treat yourself once in a while. Just balance it with other financial responsibilities.
6. Invest in Long-Term Goals
Ditch the instant gratification of spending your holiday bonus all at once. Instead, consider investing it towards long-term goals for an even greater payoff.
Here are some easy steps to set you on the right path:
Identify your long-term financial goals. Be it a dream home, kids’ education, or retirement, a clear goal will help you stay motivated.
Assess your current financial situation to gauge how much of the bonus you can invest.
Choose the right investment vehicle. Stocks, bonds, or real estate can be profitable, depending on your risk appetite and time horizon.
Remember, spending wisely today makes for a secure tomorrow.
7. Give Back to the Community
Giving back to your community during the holiday season is a fantastic way to share your fortunes. Not only does it bring joy to those in need, it fosters appreciation, empathy, and understanding.
Here are some thoughtful ways to use your holiday bonus:
Donate to a Local Charity: Identify a local charity that resonates with your values. Every donation counts and your contribution could make a substantial impact.
Sponsor a Family’s Holiday: Many organizations connect sponsors with families in need. Your bonus could help provide them with essential groceries, clothes, toys, and a memorable holiday experience.
Contribute to a Fundraiser: Participate in your community or workplace fundraisers. Your financial support could contribute towards a noble cause, be it medical aid, education, or relief work.
Volunteer Your Time and Skills: Although not a direct use of your bonus, volunteering can be another way to give back. Maybe your bonus might allow you some additional free time to offer.
Remember, volunteering often reflects individual happiness and improves overall well-being.
Do You Expect the Average Christmas Bonus?
Remember, Christmas bonuses can be diversified: from additional checks or sums of money to extra vacation days or tangible gifts.
Everyone always wants a Christmas bonus! So now, you can determine if yours is above or below the average Christmas Bonus!
Based on research, less than a quarter of employers offer a performance-based holiday bonus, so if you’re fortunate enough to receive one, consider investing it to reap greater returns in the future.
The best decision depends on your unique financial situation, so use the above tips to make a smart choice with your bonus money.
Know someone else that needs this, too? Then, please share!!
A new report from RealtyTrac revealed that overall foreclosure activity was down a sharp 23% year-to-date through October, but it’s a different story for the priciest properties nationwide.
For homes worth $5 million and above, the foreclosure rate was actually up 61% during the same time period.
Of course, the volume is nowhere close to that of more modest homes. In fact, less than 200 properties with price tags north of $5 million have received a foreclosure notice so far this year.
That compares to 1.2 million properties in all value ranges through October.
Miami Mansions Finally Getting Foreclosed On
The biggest surge was seen in the Miami-Ft. Lauderdale metropolitan area, where 47 properties valued at more than $5 million received foreclosure notices, a 488% increase from a year ago.
The Los Angeles metro had the second highest number of super jumbo foreclosures with a total of 35, but the foreclosure rate was up only 3% from a year earlier.
Third was the Atlanta metro, where a total of 18 $5 million plus foreclosures translated to a 260% year-over-year increase.
The Orlando metro was the fourth most active with 12 high-end foreclosures representing a 500% increase in activity. Put another way, just two $5 million homes got notices last year.
Rounding out the top five was the New York-Northern New Jersey metro area, which saw a 29% year-over-year increase thanks to its nine $5 million+ foreclosures.
[How Long After Foreclosure Can I Purchase a Home?]
What the Increase Could Signal
So clearly the volume isn’t that large, which makes the percentage increases less significant, but it does mean banks are changing their tune somewhat.
RealtyTrac VP Daren Blomquist noted that it could mean lenders are more financially stable to handle these large losses now. And that a stronger housing market comes with more prospective buyers, which translates to higher prices for these expensive properties.
A few years ago, foreclosing on these behemoths may have meant multi-million dollar losses.
Today, the damage may be a lot less substantial thanks to renewed demand and a lack of supply relative to the buyer pool.
This new analysis reminded me of a post I wrote two and a half years ago, in which ForeclosureRadar founder Sean O’Toole argued that larger loan balances equated to longer foreclosure timelines.
In other words, borrowers with enormous loan balances, such as those with $5 million properties, were more likely to be severely underwater, which would cost the banks big if they foreclosed.
It’s one thing for a homeowner to be $20,000 underwater on a $200,000 property. But when a homeowner is $1 million deep, the lender might pause before pursuing that loss.
Another possibility is that most of the states that saw major percentage increases are judicial states, meaning foreclosures are handled through the courts and take a lot longer to process, so starting with the smaller ones might make more sense.
It could also be that these states are finally seeing a turnaround, whereas other states have already scored major appreciation since hitting bottom.
For the record, Florida and California accounted for more than 60% of all “ultra high-end foreclosures” so far this year, though activity is actually down in the Golden State compared to a year ago.