10 States With the Highest Sales Taxes

Before you embark on a shopping spree in any of the 10 worst states for sales taxes featured here, you’ll want to make extra room in your budget. Our biggest offender clocks in at 9.55% once both state and local sales taxes are factored in (continue reading our round-up to find out which state is the priciest culprit).

However, retirees and other relocators shouldn’t judge a state by its sales tax alone. While this expense may be costlier in some areas, residents in states with a high sales tax may be able to reap the benefits of other tax-related perks, such as not having to pay state income tax.

Got your attention? Take a look at our list to find out which states will nickel-and-dime you the most on everyday purchases.

Sales tax values are for 2020 and were compiled by the Tax Foundation. Income tax brackets are for the 2020 tax year. Property tax values are for 2019.

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10. New York

The state of New York.The state of New York.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 4% state levy. Localities can add as much as 4.875%, and the average combined rate is 8.52%, according to the Tax Foundation. In the New York City metro area, there is an additional 0.375% sales tax to support transit. Clothing and footwear that cost less than $110 (per item or pair) are exempt from sales tax. Groceries and prescription drugs are exempt, too. Motor vehicle sales are taxable, though.

Income Tax Range: Low: 4% (on up to $8,500 of taxable income for single filers and up to $17,150 for married couples filing jointly); High: 8.82% (on taxable income over $1,070,550 for single filers and over $2,155,350 for married couples filing jointly).

Starting in 2021, the top rate is 10.9% on taxable income over $25 million (regardless of filing status).

New York City and Yonkers imposed their own income tax. A commuter tax is also imposed on residents of New York City, as well as on residents of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester Counties.

Property Taxes: In the Empire State, the median property tax rate is $1,692 per $100,000 of assessed home value. 

For details on other state taxes, see the New York State Tax Guide for Middle-Class Families.

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9. California

The state of California.The state of California.

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.68%, according to the Tax Foundation. Groceries and prescription drugs are exempt from these taxes, but clothing and motor vehicles are taxed. 

Income Tax Range: Low: 1% (on up to $17,864 of taxable income for married joint filers and up to $8,932 for those filing individually); High: 13.3% (on more than $1,198,024 for married joint filers and $1 million for those filing individually).

Property Taxes: If you’re planning to buy a home in the Golden State, the median property tax rate is $729 per $100,000 of assessed home value. 

For details on other state taxes, see the California State Tax Guide for Middle-Class Families.

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8. Kansas

The state of Kansas.The state of Kansas.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.69%, according to the Tax Foundation. These rates also apply to groceries, motor vehicles, clothing and prescription drugs. 

Income Tax Range: Low: 3.1% (on $2,501 to $15,000 of taxable income for single filers and $5,001 to $30,000 for joint filers); High: 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers).

Property Taxes: Kansans who own their homes pay a median property tax rate of $1,369 per $100,000 of assessed home value. 

For details on other state taxes, see the Kansas State Tax Guide for Middle-Class Families.

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7. Illinois

The state of Illinois.The state of Illinois.

Overall Rating for Middle-Class Families: Least tax-friendly

State Sales Tax: 6.25% state levy. Localities can add as much as 4.75%, and the average combined rate is 8.82%, according to the Tax Foundation. Food and prescription drugs are taxed at only 1% by the state. Clothing and motor vehicles are fully taxed.

Income Tax Range: There is a flat rate of 4.95% of federal adjusted gross income after modifications.

Property Taxes: For homeowners in Illinois, the median property tax rate is $2,165 per $100,000 of assessed home value — the second highest in our round-up.

For details on other state taxes, see the Illinois State Tax Guide for Middle-Class Families.

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6. Oklahoma

The state of Oklahoma.The state of Oklahoma.

Overall Rating for Middle-Class Families: Not tax-friendly

State Sales Tax: 4.5% state levy. Localities can add as much as 7%, and the average combined rate is 8.95%, according to the Tax Foundation. Prescription drugs are exempt and motor vehicles are taxed at a rate of 1.25% (a 3.25% excise tax also applies). Grocery items and clothing are taxable at 4.5%, plus local taxes. 

Income Tax Range: Low: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers); High: 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers).

Property Taxes: For Oklahomans who own a home, the median property tax rate is $869 per $100,000 of assessed home value. 

For details on other state taxes, see the Oklahoma State Tax Guide for Middle-Class Families.

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5. Alabama

Photo of AlabamaPhoto of Alabama

Overall Rating for Middle-Class Families: Tax-friendly

State Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%, according to the Tax Foundation. Prescription drugs are exempt. Groceries and clothing are fully taxable, while motor vehicles are taxed at a reduced rate of 2% (additional local taxes may apply).

Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others); High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others). 

Some Alabama municipalities also impose occupational taxes on salaries and wages.

Property Taxes: In Alabama, the median property tax rate is $395 per $100,000 of assessed home value — the lowest on our list.

For details on other state taxes, see the Alabama State Tax Guide for Middle-Class Families.

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4. Washington

The state of Washington.The state of Washington.

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 6.5% state levy. Municipalities can add up to 4% to that, with the average combined rate at 9.23%, according to the Tax Foundation. Grocery items and prescription drugs are exempt. Clothing is taxable, as are motor vehicles. However, there’s an additional 0.3% tax on sales of motor vehicles.

Income Tax Range: Washington has no state income tax.

Property Taxes: Home buyers in the Evergreen State can expect to pay a median property tax rate of $929 per $100,000 of assessed home value. 

For details on other state taxes, see the Washington State Tax Guide for Middle-Class Families.

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3. Arkansas

The state of Arkansas.The state of Arkansas.

Overall Rating for Middle-Class Families: Mixed tax picture

State Sales Tax: 6.5% state levy. Localities can add as much as 5.125%, and the average combined rate is 9.51%, according to the Tax Foundation. Prescription drugs are exempt. Grocery items are taxed at 0.125% (additional local taxes may apply). Motor vehicles are taxed if the purchase price is $4,000 or more (7% tax rate in Texarkana). However, starting in 2022, the rate on sales of used motor vehicles priced between $4,000 and $10,000 will only be 3.5%. Clothing is taxed at the standard rate.

Income Tax Range: Low: 2% (on taxable income from $4,500 to $8,899 for taxpayers with net income less than $22,200), 0.75% (on first $4,499 of taxable income for taxpayers with net income from $22,200 to $79,300), or 2% (on on first $4,000 of taxable income for taxpayers with net income over $79,300); High: 3.4% (on taxable income from $13,400 to $22,199 for taxpayers with net income less than $22,200), 5.9% (on taxable income from $37,200 to $79,300 for taxpayers with net income from $22,200 to $79,300), or 6.6% (on taxable income over $79,300 for taxpayers with net income over $79,300). Beginning in 2021, the top rate for taxpayers with net income over $79,300 will be 5.9% (on taxable income over $8,000).

A “bracket adjustment” of between $40 and $440 is subtracted from the amount of tax due for taxpayers with net income from $79,301 to $84,600.

Property Taxes: For homeowners in the Natural State, the median property tax rate is $612 per $100,000 of assessed home value. 

For details on other state taxes, see the Arkansas State Tax Guide for Middle-Class Families.

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2. Louisiana

The state of Louisiana.The state of Louisiana.

Overall Rating for Middle-Class Families: Tax-friendly

State Sales Tax: 4.45% state levy. Localities can add as much as 7%, and the average combined rate is 9.52%, according to the Tax Foundation. Groceries and prescription drugs are exempt from the state’s sales tax, but localities may tax these. Clothing and motor vehicles are taxable.

Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers); High: 6% (on more than $50,000 of taxable income, $100,000 for joint filers). 

Property Taxes: The median property tax rate in Louisiana is $534 per $100,000 of assessed home value. 

For details on other state taxes, see the Louisiana State Tax Guide for Middle-Class Families.

 

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1. Tennessee

The states of TennesseeThe states of Tennessee

Overall Rating for Middle-Class Families: Most tax-friendly

State Sales Tax: 7% state levy. There’s also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined rate of 9.55%, according to the Tax Foundation. Groceries are taxed at 4% by the state, in addition to any additional local taxes. Clothing is taxed at the standard rate. Motor vehicles are taxed at the basic 7% rate, plus the additional 2.75% on purchases between $1,600 and $3,200. There’s no tax on prescription drugs. 

Income Tax Range: There’s no state income tax in Tennessee. However, dividends and some interest are subject to the Hall Tax at a 1% rate in 2020. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. 2020 is the last year for this tax, which is being phased out. Also, the tax is waived if you’re over the age of 100.

Property Taxes: In Tennessee, the median property tax rate is $636 per $100,000 of assessed home value. 

For details on other state taxes, see the Tennessee State Tax Guide for Middle-Class Families.

Source: kiplinger.com

What Is a Mortgagee? Hint: It’s Not a Typo

Are You a Mortgagee or Mortgagor?

It’s mortgage Q&A time! Today’s question: “What is a mortgagee?”

No, it’s not a typo. I didn’t leave an extra “e” on the word mortgage by mistake, though it may appear that way.

Despite its striking appearance, it’s actually a completely different word, somehow, simply with the mere addition of the letter E.

Don’t ask me how or why, I don’t claim to be an expert in word origins.

Seems like a good way to confuse a lot of people though, and it has probably been successful in that department for years now.

You can blame the British English language for that, or maybe American English.

Anyway, let’s stop beating up on the English language and define the darn thing, shall we.

A “mortgagee” is the entity that originates (makes) and sometimes holds the mortgage, otherwise known as the bank or the mortgage lender.

They lend money so individuals like you and I can purchase real estate without draining our bank accounts.

It could also be your loan servicer, the entity that sends you a mortgage bill each month, and perhaps an escrow analysis each year if your loan has impounds.

The mortgagee extends financing to the “mortgagor,” who is the homeowner or borrower in the transaction.

So if you’re reading this and you aren’t a bank, you are the mortgagor. It’s as simple as that.

Another way to remember this rather confusing word jumble; Who is the mortgagee? Not me!!

Mortgagor Rhymes with Borrower, Kind Of

mortgagor

  • Here’s a handy way to remember the word mortgagor
  • It kind of rhymes with the word borrower…
  • Or even the word homeowner, which is also accurate if you hold a mortgage on your property

I was trying to think of a good association so homeowners can remember which one they are, instead of having to look it up every time they come across the word.

I believe I came up with a semi-decent, not great one. Mortgagor rhymes with borrower, kind of. Right? Not really, but they look and end similar, no?

Anyway, the real property (real estate) acts as collateral for the mortgage, and the mortgagee obtains a security interest in exchange for providing financing (a home loan) to the mortgagor.

If the mortgagor doesn’t make their mortgage payments as agreed, the mortgagee has the right to take possession of the property in question, typically through a process we’ve all at least heard of called foreclosure.

Assuming that happens, the property can eventually be sold by the mortgage lender to a third party to pay off any attached liens, or mortgages.

So if you’re still not sure, you are probably the mortgagor, also known as the homeowner with a mortgage. And your lender is the mortgagee. Yippee!

What makes this particular issue even more confusing is that it’s the other way around when it comes to related words like renters and landlords.

Yep, for some reason a landlord is known as a “lessor,” whereas the renter/tenant is known as the “lessee.” In other words, it’s the exact opposite for renters than it is for homeowners.

But I suppose it makes sense that both landlord and mortgage borrower are property owners.

What About a Mortgagee Clause?

mortgagee clause

  • An important document you may come across when dealing with homeowners insurance
  • Stipulates who the lender (mortgagee) is in the event there is damage to the subject property
  • Protects the lender’s interest if/when an insurance claim is filed
  • Since they are often the majority owner of the property

You may have also heard the term “mortgagee clause” when going through the home loan process.

It refers to a document that protects the lender’s interest in the property in the event of any damage or loss.

It contains important information about the mortgagee/lender, including name, address, etc. so the homeowners insurance company knows exactly who has ownership in the event of a claim.

Remember, while you are technically the homeowner, the bank probably still has quite a bit of exposure to your property if you put down a small down payment.

For example, if you come in with just a 3% down payment, and the bank grants you a mortgage for 97% of the home’s value, they are a lot more exposed than you are.

This is why hazard insurance is required when you take out a mortgage, to protect the lender if something bad happens to the property.

Conversely, if you buy a home with cash, as opposed to taking advantage of the low mortgage rates on offer, it’s your choice to insure it or not.

But more than likely, you’ll want insurance coverage on your property regardless.

In summary:

Mortgagee: Bank or mortgage lender
Mortgagor: Borrower/homeowner (probably you!)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Do You Own the Land Under Your Home?

Do your due diligence to ensure you know about liens, easements or land grants made on property you’re thinking about purchasing.

When you buy a home, you probably assume that you own everything in and around it within the property lines. But in some parts of the country, homeowners are discovering the property they’re buying does not fully include the land beneath it.

For example, in Tampa Bay, FL a family realized at closing that their home builder had already signed away the rights to the land underneath their home to its own energy company. The “mineral rights” grant gave the energy company the freedom to drill, mine or explore for precious minerals beneath the home.

How is this even possible, and how can it be avoided? Who really owns the land beneath your home? Here’s what you need to know.

You probably own the land

Generally speaking, it’s likely that you own the property underneath and around your house. Most property ownership law is based on the Latin doctrine, “For whoever owns the soil, it is theirs up to heaven and down to hell.”

There can be exceptions, though. On occasion, a buyer will uncover an easement for a driveway or walkway that goes through their property. This is why it’s important to carefully review contracts and disclosures.

Contract and disclosures

A seller, be it a home builder or a homeowner, can’t claim any sort of rights to the property without first disclosing those rights in the real estate contract or in some sort of disclosure statement.

Each state is different with regard to how things are disclosed. Many disclosure statements require the seller to tell the buyer whether or not someone else has laid claim to the property or if the buyer is limited to claims in the future. If the seller is unaware, or the home you’re purchasing is in a state that doesn’t require the seller to disclose, then you should carefully review the property’s title report before signing off.

Preliminary title report

There can be a situation in which a seller doesn’t know that someone else has laid claim to the property. For example, this could happen in the case of a resale in a newer subdivision where the current owner bought from a homebuilder directly.

Throughout the years, there have been instances when an easement, encroachment or even a small mechanic’s lien sits on a title unbeknownst to the current seller. When this happens, all parties must work together to determine the best course of action. Access to the land below your home would have to be granted via a deed and, as such, it would show up on the preliminary title report.

The title report provides ownership information and acknowledges loans, deeds or trusts, easements, encroachments, unpaid property taxes or anything else that has been recorded against the property. If a homebuilder deeded mineral rights to themselves, for instance, they would have had to record that deed. If so, it stays on the title report until they and the current owner agree to take it off.

How to avoid last-minute disclosures

In Tampa Bay, unsuspecting homeowners signed over to the builder’s holding company the “eternal rights to practically anything of value (found) buried underground, including gold, groundwater and gemstones,” according to the Tampa Bay Times. If that weren’t enough, homeowners who didn’t realize they had signed over the mineral rights, or who did so at the last minute under duress, could have trouble selling their home later to wary buyers.

With any home purchase, you should give yourself enough time so that you can do your due diligence, either as a contingency to the contract or in the period leading up to the contract before you sign it.

When buyers think about due diligence, they immediately think “property inspection.” And in the case of new construction, it’s uncommon to do an inspection. But there is so much more to due diligence than a simple property inspection.

Never wait until the closing to discover such a big disclosure, as the unfortunate buyers in Tampa Bay experienced. It’s common practice for a good listing agent or seller, in states where disclosure is required, to raise something like mineral rights as a red flag to all buyers from the get-go.

Deeding access to the land below your home isn’t simply some “fine print” buried in the closing papers that could be easily overlooked. Such a disclosure would require paragraphs, if not pages, of documentation.

Best course of action: Review all documentation, disclosures and title paperwork prior to signing a real estate contract or during a due diligence period. If you’re uncertain, ask your agent for help reviewing the documents or hire a real estate attorney to pore through the paperwork on your behalf.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: zillow.com

Understanding Single-Family Home HOAs

Before you buy a home in an HOA-governed community, make sure you review the rules thoroughly.

What does HOA mean?

HOA means homeowners association. It can also be referred to as HOD or Home Owners Dues. HOAs can exist in planned housing developments, town homes, and condos. It is generally billed on a monthly basis.

Most people think of homeowners associations (HOAs), legally known as Common Interest Developments, as related to attached housing structures like condominiums or town homes. But this is not always the case.

Around the 1980s, developers started building communities of single-family homes that were actually Common Interest Developments. These communities came with their own sets of rules, regulations and HOA fees.

The reason builders starting developing communities in the HOAs structure was to maintain order and the aesthetics of a community. Their rules keep home paint colors and front yards in harmony, restrict building additions that don’t fit into the neighborhood, and stop owners from parking broken-down vehicles in their driveways or front yards. Such regulations assure new and existing owners that a neighbor’s behavior and choices will not diminish property values.

But they also mean that you must follow the rules yourself, and typically contribute monthly fees to manage and run the HOA for the benefit of all owners. When residents violate these rules — which can cause stress for other owners and hurt property values– the HOA will typically step in and enforce them with violation notices, fines and possibly litigation, if the issue gets that far.

The root of the issue

Often, the problem is not the rules, it’s that people don’t read the rules and regulations before they buy into a community, and then they violate the rules. But ignorance is no excuse — those rules are recorded on the property title, and likely given to every buyer to review before they purchase a home in a standard transaction. Owners are still bound by those rules whether they received and read them or not.

If you are buying into an HOA-governed community, be sure to read the rules and regulations before you buy. Once you’ve read them, if you don’t like them, then you should avoid buying a property in that community.

What if you already own in an HOA, and don’t like the rules or how the elected HOA board of directors interprets and enforces them? Luckily, an HOA is a democracy and the owners can vote out the board of directors and change the rules!

Any member-owner can try to get elected to the board and change the regulations. They just have to get enough other community members to support their opinion and vision for the community.

Unfortunately, most community members never go to a board meeting and never get involved. They just complain about the board — who are all volunteers, by the way — and complain about HOA fees, rules, and special assessments, etc.

If you are one of those owners who doesn’t like the rules, then get involved and take the time to campaign in your community, get on the board, and change the regulations.

Do Renters Pay HOA Dues?

“The landlord cannot force you to pay the HOA unless that is what is required in the lease. If it is part of the lease, then you have to pay. If not, you don’t, but the owner may decide to find another tenant when the lease is up.

If the HOA is not doing their job in clearing snow, I would write them a letter and send copy to the landlord. You are not the owner so they may not listen, but it gives you proof of the issue and may prompt the owner to act.”

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: zillow.com

What is PMI and How Can I Get Rid of It? – Lexington Law

private mortgage insurance
For prospective homeowners, there are many things to learn before you even begin the process of searching for a home, especially for first time buyers. One of the most important lessons to learn for those who have less than 20 percent to put down on their home is that of private mortgage insurance (PMI).

What is PMI?

PMI is a type of insurance your lender solicits from you in the event that you buy a home without a 20 percent down payment. It usually ends up affecting Federal Housing Administration (FHA) loan applicants, because these applicants are only required to put down 3.5 percent of their total purchase price.

For any buyer who was unable to put down a full 20 percent, you should expect mortgage insurance premiums of roughly .05-1.00 percent of your total loan amount per year. There are several factors that affect the cost of your PMI:

  • Down payment size – The larger your down payment, the lower your PMI premium.
  • Credit score – Higher credit scores earn a lower PMI rate.
  • Loan appreciation potential – If your home is expected to appreciate in value rather than depreciate, your PMI will be lower.
  • Borrower occupancy – If you plan to rent your new home rather that occupy it yourself, expect to pay higher PMI premiums.
  • Loan type – The greater the risk to your lender, the higher your PMI will be. Anyone applying for a loan with a low credit score (500-650) and the minimum down payment might expect to have a higher PMI premium.

Why do I need PMI?

You may be wondering: why would anyone elect to get PMI? The short answer is they would not.

PMI is not the same as car insurance or homeowners insurance. The aforementioned types of insurance are designed to protect consumers in the event of catastrophe, such as a house fire or car accident. PMI, on the other hand, only protects your lender in the even of loan default. Not only will they take over possession of your home, but they will have the additional money you paid into your PMI policy.

How do I get rid of it?

If you are like many FHA loan applicants, there might not be much you can do about avoiding PMI altogether, but you can keep a close eye on your loan balance and request to remove it as soon as possible. Lenders are required by law to remove PMI automatically when you have paid enough to have 22 percent equity in your home. However, when you reach 20 percent, you can call your lender and request to have it removed, and they are required to comply with your request.

There are a few other ways to remove PMI:

  • Refinance your home
  • Get a new appraisal
  • Pay extra on your loan (any extra amount will be applied directly toward your principal loan amount)
  • Consider making additions to your home, which may increase its value.

Ultimately, you should try to remove PMI as soon as you possibly can. It does not benefit you as a homeowner, and you can save thousands of dollars over the life of your loan if you have it removed. For more information on how to improve your finances, including credit repair after buying a home, contact the experts at Lexington Law at 1-833-333-2281 .

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Source: lexingtonlaw.com

Here are 5 Ways 2021 Will Try to Rip You Off, and 5 Ways to Fight Back

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The pandemic has changed how we shop, and that’s expected to carry over into 2021. More of us are shopping online now — including nearly 70% of Americans, according to a new NPR poll. Of those, more than 90% have bought something from Amazon.
Prices don’t normally go down. But in 2020, car insurance companies cut their rates because the market demanded it. Customers who were quarantined in their homes figured that, because they were driving so much less, they should be paying less.
Source: thepennyhoarder.com

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2. Don’t Get Ripped Off While Shopping Online

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You don’t have to take that! That’s why 2021 will require you to shop around for car insurance like never before.
Credit card debt is the most expensive kind of debt because of the high interest rates. Unfortunately, the pandemic and its shutdowns and its job losses have forced more Americans to fall back on their credit cards to pay their bills and pay for necessities like food. That’s carrying over into 2021.
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3. Watch Out for Rising Food Prices

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4. Don’t Overpay for a Mortgage

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Try using a free website called Credit Sesame. Within two minutes, you’ll get access to your credit score and personalized tips to improve it. You’ll even be able to spot any errors holding you back (one in five reports have one).
In summary: Hopefully 2021 will be better than 2020. At the very least, you’re likely to get a COVID-19 vaccination at some point.

5. Beware of Expensive Credit Card Debt

When it comes to money, we’re firm believers that it’s better to be safe than sorry.
Ah, but it’s a whole new year. And as Americans gravitate back to their old driving patterns, auto insurance rates are expected to climb back up, according to industry observers.
Here are five ways 2021 will try to rip you off — and five ways to fight back.

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AmOne will match you with a low-interest loan to pay off all your credit cards at once. Its interest rates start at 3.99% — way lower than the 20% or more you’re probably paying your credit card company. That could save you thousands in the long run. Plus, you’ll be debt-free that much faster.
Just watch out for all the other ways that 2021 will try to rip you off.
We’ve got a way for you to get some of the money back. A free app called Fetch Rewards will reward you with gift cards just for any of hundreds of items at the grocery store. Right now, it’s even offering shoppers a gift card when they spend on dozens of Unilever products at the grocery store. You can do this five times, or up to . <!–

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Sure, it’ll be convenient to have boxes of stuff appear on your doorstep all through 2021. But no matter what you’re buying online, you may be paying too much for it. In many cases, there might be a better deal somewhere else. It just feels like a pain to look for it.

5 Mortgage Misconceptions Set Straight

Looking for a home loan? Get your facts straight so you can proceed with confidence.

Getting a mortgage can be a breeze or a slog, depending on what you know about the process. To get organized and set your expectations properly, let’s debunk some common mortgage myths.

1. Lenders use your best credit scores

If you’re applying for a mortgage jointly with a co-borrower, logic suggests that your lender would use the highest credit score between both of you.

However, lenders take the middle of three credit scores (from Equifax, TransUnion and Experian) for each borrower, and then use the lowest score between both borrowers’ “middle scores.”

So, if you had a middle score of 780, and your co-borrower had a middle score of 660, most lenders would qualify and approve you using the 660 credit score.

Rates are tied to credit scores, so in this example, your rate would be based on the 660 credit score, which would push your rate up significantly — or potentially even make you ineligible for the loan.

There are exceptions to this lowest-case-credit-score rule. Most notably, if you have the higher credit score and are also the higher earner, some lenders will allow your higher credit score on the file — but this is mostly for jumbo loans above $417,000.

Ask your lender about exceptions if you have credit score disparity between co-borrowers, but know that these exceptions are rare.

2. The rate you’re quoted is the rate you’ll get

Unless you’re locking in a rate at the moment it’s quoted, that rate quote can change. Rates are tied to daily trading of mortgage bonds, so most lenders’ rates change throughout each day.

Refinancers can often lock a rate when it’s quoted — as long as you’ve given your lender enough information and documentation to determine if you qualify for the quoted rate.

You typically receive a quote when you’re beginning your pre-approval process, but a rate lock runs with a borrower and a property. So until you’ve found a home to buy, you can’t lock your rate. And while you’re home shopping, rates will be changing daily, so you’ll need updated quotes from your lender throughout your home shopping process.

Rate quotes also come with an annual percentage rate (APR), which is a federally required disclosure that shows what your rate would be if all loan fees are incorporated into the rate.

This can make you think that APR is the rate you’ll get, but your loan payment will always be based on your locked rate, and the APR is just a disclosure to help you understand fees.

3. Fixed-rate mortgages are always better than adjustable-rate mortgages

After the 2008 financial crisis, many borrowers started preferring 30-year fixed loans. For good reason too: The rate and payment on a 30-year fixed loan can never change. But the longer the rate is fixed for, the higher the rate.

So before settling on a 30-year fixed, ask yourself this question: How long am I going to own this home (or keep the loan) for?

Suppose the answer is five years. If you got a five-year adjustable rate mortgage (ARM) instead of a 30-year fixed, your rate would be about .875 percent lower. On a $200,000 loan, you’d save $146 per month in interest by taking the five-year ARM. On a $600,000 loan, the monthly interest cost savings is $438.

To optimize your home financing, peg the loan term as closely as you can to your expected time horizon in the home.

4. Real estate agents don’t care which lender you use

A federal law enacted in 1974 called the Real Estate Settlement Procedures Act (RESPA) prohibits lenders and real estate agents from paying each other fees to refer customers to each other. So as a mortgage shopper, you’re always free to use any lender you choose.

But real estate agents who would represent you as a buyer do care which lender you use. They’ll often suggest that you use a local lender who’s experienced with your area’s nuances, such as local taxation rules, settlement procedures and appraisal methodologies.

These areas are all part of the loan process and can delay or kill deals if a nonlocal lender isn’t experienced enough to handle them.

Likewise, real estate agents representing sellers on homes you’re interested in will often prioritize purchase offers based on the quality of loan approvals. Local lenders who are known and respected by listing agents give your purchase offers more credibility.

5. Mortgage insurance is always required if you put less than 20 percent down

Mortgage insurance is a lender-risk premium placed on many home loans when you’re putting less than 20 percent down. In short, it means your total monthly housing cost is higher. But you can buy a home with less than 20 percent down and avoid mortgage insurance.

The most common way to do this is with a combination first and second mortgage — often called a piggyback — where the first mortgage is capped at 80 percent of the home’s value, and the second mortgage is for the balance of what you want to finance.

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Originally published January 12, 2016.

Source: zillow.com