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Alternative investments, or alts, are assets like cryptocurrency, options, private equity, real estate and art. Alternative investments are typically defined as investments aside from stocks, bonds, mutual funds and other investments that traditionally make up the core of a portfolio.
While the “alternative investments” classification encompasses lots of very different types of investments, most share a few characteristics: Many alternative investments are less regulated by the U.S. Securities and Exchange Commission (SEC) than traditional investments, they tend to be more difficult to sell, and they may not have a high correlation with the stock market. That means if the overall market is down, it doesn’t make it more likely for your alternative assets to be down too.
Another commonality is that they tend to carry more risk than traditional investments. All investments should be approached with scrutiny, but alts deserve an extra degree of caution. One guideline is to invest no more than 10% of your overall investment portfolio into higher-risk investments.
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There are a handful of ways to invest in the alternative investments covered here, but buying alts typically boils down to one of three options: Buying the asset itself, investing in a company that invests in the asset or is involved in its production, or investing in a fund that holds lots of those companies. For example, you can buy raw gold, stock in companies related to gold, or a gold ETF.
If you want to buy alts themselves, it may be trickier than buying traditional assets. While some alts can also be purchased from a brokerage, others, like futures and forex, typically require a special account. Crypto can be found on crypto exchanges, real estate crowdfunding can be accessed through individual platforms, and collectibles are often purchased at auctions or private sales.
If you want to gain exposure to an alt through a stock or fund, you need to have a brokerage account to do so.
Here are seven alternative investments that are worth exploring.
Derivatives are investments that are linked to an underlying asset, commodity or index. There are several types of derivatives, including futures and forex.
Investing in derivatives can often involve complex strategies. If you’d like to try out some advanced trading strategies, you can practice with paper trading before you risk your real money.
Futures are derivative contracts that outline an agreement to buy or sell a particular asset at a set date in the future for a particular price. Futures contracts may obligate the buyer to take physical delivery of the asset at the set date, so to avoid having a truck of corn show up on your doorstep, you may have to sell at a significant loss.
Forex trading is a speculative investment through which you buy and sell different currencies. For instance, if you believe the U.S. dollar will rise and the euro will fall, you could exchange euros for U.S. dollars. Most traditional brokerages don’t offer access to forex, so you’ll need to look into a forex broker if you want to start trading international currencies.
Digital assets, such as cryptocurrencies and nonfungible tokens (NFTs), are supported by blockchain technology.
Cryptocurrency is a form of digital currency. There are many different crypto coins, such as Bitcoin or Ethereum. You can use crypto to pay for things, like you would with a regular currency, or you can use it as an investment by buying it in the hope that it will increase in value over time (like pretty much any other investment).
If you’re looking to purchase crypto directly, there are a few ways you can do it. Some online brokerages allow you to purchase crypto through them.
Some people may opt to store their crypto in a more secure fashion than an online exchange: a crypto wallet. Storing your crypto yourself makes you less vulnerable to security breaches, but comes with some risks. Learn more about how to buy cryptocurrency.
If you’re looking to get exposure to the crypto market without directly investing in crypto itself, you can consider crypto stocks. These stocks don’t include actual crypto, but rather companies that are involved in the wider crypto market, such as those that create equipment used to mine cryptocurrencies or operate crypto exchanges.
You can also look into Bitcoin ETFs. These ETFs track the price of Bitcoin by holding a large amount of the currency itself.
Nonfungible tokens, or NFTs, let you have a record as being the owner of an original digital file. That file can be a piece of digital art or an item from a video game, and each NFT is unique. NFTs have largely declined in value since 2021 when they were making headlines.
» Learn more about NFTs
Unlike many of the investments in this list, precious metals, such as gold and silver, have been considered valuable since humanity’s early days. That’s particularly helpful because it provides a long track record to assess their values. Precious metals can also sometimes function as a hedge against inflation in a well-diversified portfolio.
There are several ways to invest in precious metals. You can buy the metal itself, typically in the form of bullion (think bars or coins) or jewelry. Bullion may be tempting — who doesn’t want a bunch of gold bars or necklaces lying around? But it’s difficult to store and sell. You can also invest in gold stocks or other precious metal stocks, or gold ETFs.
Investing in collectibles, such as wine or fine art, comes with many of the difficulties of investing in bullion: It can be difficult to secure and store, and it can be difficult to sell. Unless you’re well-connected in a particular collector’s industry, finding a buyer for your antique sculpture or vintage muscle car when you’re ready to cash in may be challenging.
Commodities are raw, physical products such as oil, wheat, gold or corn. Investing in commodities may have some overlap with a few of the other categories listed here. For instance, you can invest in commodity futures, or you can purchase precious metals, which are technically commodities. You can also buy commodity stocks or commodity ETFs.
There are several ways to invest in real estate, including REITs, or real estate investment trusts, utilizing a real estate investing platform or purchasing actual property.
REITs are similar to mutual funds in that they are companies, but they specifically own, operate or finance income-producing properties, such as apartment complexes that generate rent. REITs must pay out at least 90% of their taxable income to shareholders in the form of dividends, creating a potential revenue stream for investors. As with stocks, you can purchase publicly traded REITs through a brokerage account.
Real estate crowdfunding investment platforms have made investing in real estate far more accessible for the everyday investor. These platforms combine your money with other investors’ money so you can access private REITs and private property investments that historically have only been available to accredited investors (though some of these platforms are also only open to accredited-investors).
If you have the capital, you can invest in actual real estate properties. This option may be attractive to those who can afford the startup costs (such as a down payment and any upgrades) and prefer to invest in something physical. The downsides include the risk of putting so much capital into one property, having to pay someone to manage and maintain the property, or having to do it yourself.
Private equity is exactly what it sounds like — equity that comes from private investors. Typically, the only way to access private equity is through a private equity firm, and the investments are often only open to accredited investors who can meet a very high minimum investment.
Diversification. Diversification helps spread your risk out across different industries, sectors and geographies. If the tech sector is up and the oil industry is down, and you’re invested in both, you can smooth out the highs and lows of each. Alternative investments provide investment diversification, especially because they may have lower correlation to traditional investments.
Potential reward. This is obviously one of the most attractive parts of alternative investments: They have the potential to bring in big financial gains. But in order to realize those large gains, you have to pick the right investment at the right time. And people, even investing professionals, often get it wrong and lose money.
Access. Until recently, alternative investments were only available to accredited investors or those with a high net worth. Now, there are more ways than ever for everyday investors to get access to some of these investments.
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High Risk. Alternative investments almost always carry more risk than traditional investments such as stocks or bonds.
Illiquid. With many types of alternative investments, you may not be able to get your money out right away.
Less regulation. Many alternative investments are less regulated by the SEC than traditional assets.
Storage. Some alternative investments, such as precious metals, crypto, and collectibles, come with the added difficulty of storing them.
The best alternative investment for you will depend on your existing portfolio. For most people, a well-diversified stock-based portfolio can help you build wealth over time. If your portfolio is already in good shape, and you’re looking for something more exciting to supplement with a small percentage, you can start to look at alternative investments’ historical returns in comparison to the standard market.
For example, the average stock market return, as measured by the S&P 500 index, is about 10% per year for the last 30 years. Some years are higher and some years are lower, but over time, S&P 500 index funds have returned about 10%, not accounting for inflation.
Knowing that, you can start to compare that to the performance of alternative investments. Since 1972, on average, the FTSE NAREIT All Equity REITs index has returned an 11.3% total annual return. That’s not to say that REITs always outperform the S&P 500, but it does show over fifty years of strong performance. If you were to add a REIT to your investment portfolio, it would also help diversify your holdings.
Since 1969, gold has had a median average closing price of about $384 per ounce, and in 2024, gold’s average closing price has topped $2,000 per ounce. That sounds great, but gold’s average annual return from the last 30 years was 6.7% — significantly less than either the S&P 500 or REITs. Gold can, however, serve as a hedge against inflation. Every investment has pros and cons. That’s why it’s so important to consider potential alternative investments against your existing portfolio.
Alternative investments can be exciting, and they can help diversify your portfolio, but they also come with particular challenges and risks. If you’re curious about alternative investments, it’s worth doing your homework to see how they might complement your existing investment portfolio. If you don’t already have an investment portfolio composed of more traditional assets, it may be better to focus on building that first.
Source: nerdwallet.com
While builder confidence in the market for new residential construction improved in March, it remained flat in April and residential construction numbers showed a decline in momentum as well.
Residential construction starts, which had surged in February, gave back all of those gains in March. The U.S. Census Bureau and the Department of Housing and Urban Development (HUD) report that construction began at a seasonally adjusted annual rate of 1.321 million housing units during the month, a decline of 14.7 percent from February’s level of 1.549 million units. Starts were 4.3 percent lower than their level in March 2023.
Single-family starts fell 12.4 percent to an annual rate of 1.022 million and multifamily starts dived 20.8 percent to 290,000 units. The two categories were down 21.2 percent and 43.7 percent respectively year-over-year.
Permits also declined. The annual rate was 4.3 percent lower at 1.458 million units compared to 1.523 million in February. Permits increased 1.5 percent on an annual basis. Single-family authorizations dropped from 1.032 million to 973,000, a 5.7 percent decline. This was still a 17.4 percent improvement from March of last year. Multifamily permits were unchanged at 433,000 units, down 22.1 percent year-over-year.
Analysts polled by Econoday had forecast starts at 1,480 million and permits at 1.510 million, substantially overshooting both numbers.
The National Association of Home Builders (NAHB) said the NAHB/Wells Fargo Housing Market Index (HMI) broke a four-month string of gains this month, remaining at the 51 level, unchanged from March, but still above the key breakeven point of 50.
Robert Deitz, NAHB’s chief economist, said the flat reading suggests the potential for demand growth is there, but buyers appear to be waiting until there is more clarity on the direction of rates. “With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year, and that mortgage rates will moderate in the second half of 2024,” he said.
The HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor” and asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The HMI index charting current sales conditions in April and the index gauging buyer traffic each increased 1 point to 57 and 35, respectively. The component measuring sales expectations in the next six months fell 2 points to 60.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased 4 points to 63, the Midwest gained 5 points to 46, the South rose 1 point to 51 and the West registered a 4-point gain to 47.
The April survey also showed that 22 percent of builders cut home prices this month, down from 24 percent in March and 36 percent in December 2023, while the average price reduction held steady at 6 percent for the 10th straight month. Fifty-seven percent of builders used some form of sales incentives. The share was 60 percent in March.
On an unadjusted basis, the Census/HUD report shows housing starts in March are estimated at 110,900 including 87,100 single-family units. The totals in February were 110,100 and 81,700. There were 123,500 permits issued during the month compared to 119,100 in February. The single-family totals rose from 79,400 to 84,300.
Homes were completed during the month at an annual rate of 1.469 million units. This was a decline of 13.5 percent from February and 13.9 percent from the previous March. Single-family completions dropped 10.5 percent and were 8.5 percent lower than a year earlier while multifamily completions were down 19.9 percent.
For the year to date (YTD) housing starts total 318,800, up 1.3 percent from the same period in 2023. Single-family starts have risen 27.1 percent to 239,100 while multifamily starts have fallen by 38.0 percent to 76,400 units.
YTD permits are up 3.8 percent, entirely due to a 24.9 percent increase in single-family permits which helped offset a drop of 25.2 percent in the multifamily sector.
Completions total 347,300 thus far in 2024, an increase of 4.3 percent from 2023. There have been 5.8 percent fewer single-family homes completed but multifamily completions have risen 27.4 percent.
At the end of the reporting period, there were 1.646 million homes under construction, 689,000 of which were single-family homes. in addition, there were 273,000 permits available 141,000 for single-family houses.
Starts dropped by double digits in three of the four major regions and permits also drifted lower.
Starts In the Northeast were down 36.0 percent compared to February and 56.8 percent on an annual basis. Permits dropped 20.8 percent but increased 8.1 percent for the year.
In the Midwest, starts were down 23.0 percent for the month but were 18.0 percent above the March 2023 pace. Permits dropped 14.7 percent from February and 3.4 percent on an annual basis.
The South’s starts fell by 17.8 percent and 11.0 percent from February and from March 2023, respectively. Permits fell 0.6 percent but increased by 0.4 for the year.
The only positive changes were in the West, up 7.1 and 48.1 percent for the month and year. Permitting increased 5.1 percent and 4.1 percent from the two earlier periods.
Source: mortgagenewsdaily.com
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A post-occupancy agreement, also known as a post-closing possession agreement, allows the seller to remain in the property they just sold to the buyer for a set period after closing. This can be a win-win for both parties in some situations, but it comes with major risks for the buyers. I have personally bought many houses with post-occupancy agreements and some worked out great while others ended in a costly eviction. A post-occupancy agreement may be needed in some cases but as a regular home buyer, I would be very careful ever accepting one.
In a typical home sale transaction, the seller and buyer agree to a closing date and time, and possession of the home transfers when that closing takes place. The sellers bring the keys and hand them to the buyers if they are both at closing. Or the buyers can pick up the keys or their agent can give them the keys if both parties are not at the closing table (my preference).
In some cases, a seller may want extra time to move out after closing. They may be waiting for their new house to close, or for a house to be built, or they might just want more time to move. This sounds like a reasonable request for the seller but it can come with major risks for the buyer. This is why I try to avoid post-occupancy agreements if possible.
The video below was a nightmare after a post-occupancy agreement went bad:
Many people have heard the stories on the news of a seller who will not move out of their home are they sell. Almost all of these situations come from post-occupancy agreements. During a typical sale, the buyer does a walk-through of the home to make sure it is clean, all the seller’s stuff is moved out, and the property is in the same condition as when they put a contract on it (unless the contract says otherwise). If there is anything wrong, the buyer can delay or even not buy the home.
When the seller is still living in the home and the buyer closes on it (completes the purchase), they cannot make sure it is clean, all the seller’s stuff is gone, or the seller is out. Some sellers want the money that is in their home but want to stay! If the seller does not leave after a post-occupancy agreement, the buyer cannot simply kick them out, they must go to court and evict them.
An eviction can take months or even years in some states like New York.
I am a real estate investor who works hard to get the best deals I can. I buy a lot of distressed properties that need work and many sellers have unique situations. I also buy from many wholesalers who make deals with sellers that I must agree to. In a perfect world, I would never do a post-occupancy agreement but in some cases, it is a take-it-or-leave-it situation and the deal is good enough for me to take the risk.
I would estimate I have some kind of problem with 30 percent of the post-occupancy agreements I do. For me, it is not as big of a problem as it can be for inexperienced homeowners or people who need to move into the home. I also have a YouTube channel that helps me recoup some of my losses with the crazy situations that occur. I also know how to handle evictions, squatters, and other situations where someone not as experienced could be completely lost on what to do.
There are also risks with how post-occupancy agreements are structured. Some people just agree to let the seller stay and maybe pay a little rent. The problem with this is there is no motivation for them to move out. When we do a post-occupancy agreement we try to make it painful if the seller does not hold up to their obligations and move.
The post-occupancy agreement should always be in writing and money should be held back in escrow from the seller proceeds. I like to hold back at least $10,000 on houses below $400k and if they do not move by a certain date, I get that $10,000 as the buyer. That may seem like a lot but an eviction and a few months of house payments can eat through that very fast. If you are buying a more expensive home, I would hold back much more.
I have seen many agreements that can be wishy-washy and not work out for either party. Some will charge a per diem if the seller does not move like $200 a day. It can be confusing when they are officially out, and when the dates officially start and proving when they are out. I have seen some people create a lease with rent charged and a deposit. You have to be very careful with this as many states have laws on how much the deposit can be compared to rent, how a deposit is paid back or kept, and the rights of the tenant after the lease is started. It is usually easier to evict a seller who does not move than a tenant with a lease.
Another crazy situation:
If you are a regular home buyer looking for a place to move into, be very careful agreeing to a post-occupancy agreement. I would make sure you love that house and have no other options. If you do agree, make sure there is a large enough penalty to make it worthwhile to you if the seller does not move. You also need to make sure your insurance is set up correctly, there is an agreement for who pays for utilities and there is recourse if the house is damaged during the extra time the seller lives there. It also helps if you have a YouTube channel where you can post crazy stories if something goes bad.
I am okay doing post-occupancy agreements if everything is set up correctly and that is my only option. But even as an experienced investor, I try to avoid them if at all possible. If you happen to live in a state with long eviction timelines I would be really careful agreeing to any post-occupancy agreement.
Source: investfourmore.com
If you’re ready to shop for a new home, a mortgage preapproval letter shows sellers that you’re a serious buyer who can secure financing from a lender. It also gives you a clear idea of how much you may be eligible to borrow.
To show lenders that you’re a qualified borrower, you’ll need personal identification, pay stubs, bank account statements, a list of your monthly debts, tax returns, W-2 statements and information about your down payment. You’ll also need to submit to a credit check. Most lenders require a credit score of at least 620 for a conventional mortgage, but a higher score will increase your chances of getting preapproved and can lead to lower rate offers.
The lender may also verify your history of making your rent or mortgage payments on time. Depending on whether the lender has additional questions and how much of its preapproval process is automated, accepted borrowers can expect to receive a preapproval letter anywhere from a few hours to a few days after applying.
Even if you have all of the required documentation and a qualifying credit score, don’t take the application process for granted. Lenders will be scrutinizing your financial readiness. Avoiding potential pitfalls will help keep your homebuying goal on track.
Lenders want to see that your finances are stable, including your obligations to creditors. Avoid making large purchases on credit or opening additional credit lines, including new credit cards.
“Making large purchases, such as buying a car or expensive furniture on credit, can significantly impact your debt-to-income ratio” says Matt Vernon, head of consumer lending at Bank of America in Charlotte, North Carolina. “By taking on more debt before obtaining preapproval, you could potentially exceed the debt-to-income ratio threshold that lenders are comfortable with, making it harder to qualify for the mortgage amount you need or to obtain favorable terms.”
“Lenders prefer borrowers with stable employment and income histories because they view them as less risky,” says Vernon. He adds that changing jobs or having irregular streams of income can alarm lenders and jeopardize your application, even if your income is higher as a result.
If your income fluctuates or is unpredictable — for instance, if you’re in a commission-based role or self-employed — you will also need to demonstrate that your earnings are consistent enough to make your monthly mortgage payment, says Steve Kaminski, head of U.S. residential lending at TD Bank, also based in Charlotte.
“Large, unexplained deposits might raise questions about the source of funds or suggest undisclosed debts, which could impact the borrower’s ability to repay the mortgage,” says Vernon. If you’ve received money from a family member toward a down payment, be prepared to provide the lender with a signed letter from your relative that confirms the funds are not a loan. The lender may also ask for additional documentation, such as withdrawal and deposit slips.
Even if you’re eager to shop for homes, it’s imperative to take your time with your mortgage preapproval application. “If anything’s off or missing, it could slow down or even hurt your preapproval process. Take a little extra time to double-check everything to avoid any delays,” Vernon says.
It’s worth your while to look at multiple lenders. Comparing quotes could get you the lowest rate and save you thousands in interest. Researching and narrowing your lender options during preapproval will help you act quickly once you’ve found a home and are ready to move forward with a mortgage application.
Kaminski says, “There is a lot to consider, and it can be overwhelming when combined with the emotion of home shopping and potential stress of low housing inventory and competitive offers.”
While you can’t control the market, you can present the strongest possible personal financial profile. In addition to providing the right information at the right time, you want to avoid any moves that could damage lenders’ perception of your ability to make loan payments. By getting preapproved, you’ll have successfully completed an important step in your homebuying journey.
Source: nerdwallet.com
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As we head into peak home-buying season, signs of life have begun to spring up in the housing market.
Even so, still-high mortgage rates and home prices amid historically low housing stock continue to put homeownership out of reach for many.
Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Still subject to court approval, the settlement requires changes to broker commissions that will upend the buying and selling model that has been in place for years.
Elevated mortgage rates, out-of-reach home prices and record-low housing stock are the perennial weeds that experts say hopeful home buyers can expect to contend with this spring—and beyond.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in an emailed statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast.”
Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower rise in home prices this year compared to recent years, but price fluctuations will continue to vary regionally and depend strongly on local market supply.
U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022.
Chief economist at First American Financial Corporation Mark Fleming predicts a “flat stretch” ahead.
“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his 2024 forecast.
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
And, of course, mortgage rates would need to cool off—which experts say is imminent despite rates edging back up toward 7%. For the week ending April 11, the 30-year fixed mortgage rate stood at 6.88%, according to Freddie Mac.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.
“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew.
Following years of litigation, the National Association of Realtors (NAR) has agreed to pay $418 million to settle a series of antitrust lawsuits filed in 2019 on behalf of home sellers.
The plaintiffs claimed that the leading national trade association for real estate brokers and agents “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
Though the landmark settlement is subject to court approval, most consider it a done deal.
The settlement requires NAR to enact new rules, including prohibiting offers of broker compensation on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings. The rule is set to take effect in mid-July, once the settlement receives judge approval.
Moreover, sellers will no longer be required to pay buyer broker commissions and real estate agents participating in the MLS must establish written representation agreements with their buyer clients.
NAR denies any wrongdoing and maintains that its current policies benefit buyers and sellers. The organization believes it’s not liable for seller claims related to broker commissions, stating that it has never set commissions and that commissions have always been negotiable.
Per the settlement’s terms, the costs associated with buying and selling a home are set to change dramatically.
“The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS,” says Rita Gibbs, a Realtor at Realty One Group Integrity in Tucson. “It’s gonna cause some chaos.”
While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations. Because of this, Gibbs suspects buyers and sellers will continue offering broker compensation off the MLS.
The Department of Justice confirmed it will permit listing brokers to display compensation details on their websites. However, buyer agents will need to undergo the tedious task of visiting countless broker websites to find who’s offering what.
Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling.
“We often work with buyers for many months and sometimes years before they find exactly what they’re looking for,” Gorkowski says. “So in a case where a seller isn’t offering a co-broker commission, we will have to negotiate that the buyer pays an agreed-upon commission prior to starting their search.”
“In the short term, it is absolutely going to injure buyers, especially FHA and VA buyers,” Gibbs says. “With rare exception, these buyers are not in a position to pay for their own agent.”
Gibbs says that if sellers don’t offer compensation, many buyers who can’t otherwise afford to pay a broker will choose to go unrepresented.
Gorkowski notes that veterans taking out VA loans face a unique challenge under the new rules. “[P]er the VA requirements, buyers cannot pay so it must be negotiated with the seller for now.”
As a result, NAR is calling on the U.S. Department of Veterans Affairs to revise its policies prohibiting VA buyers from paying broker commissions. Even so, there’s skepticism that the federal government will be able to implement changes in time for the July deadline.
Gibbs and Gorkowski are among the many agents especially concerned about first-time home buyers. After July, first-time and VA buyers will be required to sign a buyer-broker agreement stating that they will compensate their broker—but Gibbs says many won’t have the means to do so.
In this situation, agents would likely only show buyers homes where sellers are offering compensation.
“This is a very troubling situation,” Gorkowski says.
With many homeowners “locked in” at ultra-low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while—even as some homeowners may finally be forced to sell due to major life events such as divorce, job changes or a growing family.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices. Here’s what the latest home values look like around the country.
Yet, some hopeful housing stock signs have begun to sprout:
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, saw a fourth consecutive monthly rise, surpassing a crucial threshold with an increase from 48 to 51 in March. A reading of 50 or above means more builders see good conditions ahead for new construction.
At the same time, new single-family building permits ticked up 1% in February—the 13th consecutive monthly increase—according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).
Though some housing market data indicates signs of growth are in store this spring home-buying season, persistently high mortgage rates may hinder activity from fully flourishing.
Here’s what the latest home sales data has to say.
Existing-home sales came to life in February, shooting up 9.5% from the month before, according to the latest data from the NAR. Sales dipped 3.3% from a year ago.
Experts attribute the monthly jump to a bump in inventory.
“Additional housing supply is helping to satisfy market demand,” said Lawrence Yun, chief economist at NAR, in the report.
Existing inventory rose 5.9%—logging 1.07 million unsold homes at the end of February. However, there are still only 2.9 months of inventory at the current sales pace. Most experts consider a balanced market falling between four and six months.
Meanwhile, existing home prices continue to soar to unprecedented heights, reaching $384,500, which marks the eighth consecutive month of yearly price increases and a February median home price record.
Sales of newly constructed single-family houses ticked down by a nominal 0.3% compared to January, but outpaced February 2023 sales by 5.9%, according to the latest U.S. Census Bureau and HUD data.
Amid a high percentage of homeowners still locked in to low mortgage rates, home builders have been picking up the slack.
“New construction continues to be an outsized share of the housing inventory,” said Dr. Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.
Sturtevant notes that declining new home prices are coming amid a recent trend of builders introducing smaller and more affordable homes to the market.
The median price for a new home in February was $400,500, down 7.6% from a year ago.
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
NAR’s Pending Homes Sales Index rose 1.6% in February from the month prior even as mortgage rates approached 7% by the end of the month. Pending transactions declined 7% year-over-year.
A pending home sale marks the point in the home sales transaction when the buyer and seller agree on price and terms. Pending home sales are considered a leading indicator of future closed sales.
The Midwest and South saw monthly transaction gains while the Northeast and West saw declines due to affordability challenges in those higher-cost regions.
“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said Yun, in the report.
Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values. As a result, home buyers continue to face affordability challenges.
According to data from its first-quarter 2024 U.S. Home Affordability Report, property data provider Attom found that median-priced single-family homes remain less affordable than the historical average in over 95% of U.S. counties.
For one, the data uncovered that expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income.
At the same time, home prices and homeownership expenses continue to outpace wage growth.
Consequently, the latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters.
“Affording a home remains a financial stretch, or a pipe dream, for so many households,” said Rob Barber, CEO at Attom.
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.
Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.
“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
This outlook aligns with what other housing market watchers expect.
“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.
Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.
Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.
“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.
In February, total foreclosure filings were down 1% from the previous month but up 8% from a year ago, according to Attom.
“These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices,” said Barber, in a report.
Lenders began foreclosure on 22,575 properties in February, up 4% from the previous month and 11% from a year ago. Meanwhile, real estate-owned properties, or REOs, which are homes unsold at foreclosure auctions and taken over by lenders, spiked year-over-year in three states: South Carolina (up 51%), Missouri (up 50%) and Pennsylvania (up 46%).
Despite foreclosure activity trending up nationally and certain areas of the country seeing notable annual increases in REOs, experts generally don’t expect to see a wave of foreclosures in 2024.
“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.
The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low unemployment and steady wage growth—along with excellent loan quality.
Massive home price growth in homeowner equity over the past few years has also helped reduce foreclosures.
Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”
Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.
Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.
If you’re in a financial position to buy a home you plan to live in for the long term, it won’t matter when you buy it because you will live in it through economic highs and lows. However, if you are looking to buy real estate as a short-term investment, it will come with more risk if you buy at the height before a recession.
Source: forbes.com
The average long-term mortgage rate has risen once again this week, with the average 30-year fixed loan now at 7.08 per cent, according to Bankrate’s latest survey of large lenders.
Another mortgage buyer, Freddie Mac, said the average rate on a 30-year mortgage rose to 6.88 per cent from 6.82 per cent last week. In comparison to a year ago, where the rate averaged 6.27%, this is having a genuine impact on American homeowners.
Average 30-year mortgage rates in the 10 largest metro areas ranged from 7.56% in Los Angeles to 6.85% in Chicago.
Rates are slightly higher now compared to the start of this year, keeping some borrowers waiting as the spring begins, which is typically known as the most popular time to buy a home.
The national median family income for 2023 was $96,300, according to the U.S. Department of Housing and Urban Development. The median price of an existing home sold in February 2024 was $384,500, according to the National Association of Realtors (NAR).
The initial impact of this change was felt in the stock market, with Wall Street sending shares sharply lower, as expectations that the Fed would be cutting rates proved to be premature.
Mortgage rates are influenced by the Fed benchmark rate, although they also reflect other factors, like bond yields and inflation. However, according to Lawrence Yun, chief economist at the NAR, rates for home loans are likely to be unchanged in the near-term due to factors like the strong job market and housing demand.
But that is no consolation for those already with mortgages. When mortgage rates rise, they can prove to be hugely damaging for families struggling to get by, as they add hundreds of dollars a month in costs for borrowers.
With this rise, based on a 20 per cent downpayment and a 7.08 per cent mortgage rate, the monthly payment of $2,063 amounts to 26 per cent of the typical family’s monthly income.
Source: marca.com
American renters are fearful that their home-owning aspirations are increasingly getting out of reach, according to a recent survey by the real-estate platform Redfin, amid an environment of high home prices and elevated mortgage rates.
Almost 40 percent of the renters polled told surveyors they did not believe they would own a home of their own, up from 27 percent in a similar survey Redfin conducted in May and June. Part of the struggle for these Americans is that homes are beyond what they can afford. Securing a down payment can prove elusive, and high mortgage rates may discourage them from acquiring property.
Read more: How to Get a Mortgage in 2024
The Redfin survey sampled about 3,000 U.S. residents in February, and its analysis of renters’ expectations came from a 1,000 renters in the poll.
Mortgage rates in particular have stayed elevated over the past six months. After hitting a peak of 8 percent—the highest level since the turn of the century—mortgage rates declined to the mid-6 percent range at the end of the year and into 2024. In recent weeks, however, the cost of home loans have ticked up to above 7 percent, depressing activity in the mortgage market.
On April 11, the 30-year fixed rate rose to almost 7.4 percent, Mortgage News Daily reported, the highest levels since November 2023. The rise follows news that suggests borrowing costs may stay elevated for longer than economists initially anticipated.
High mortgage rates now mean that first-time buyers must earn about $76,000 to afford what the industry describes as a starter home, which is an 8 percent increase from a year ago and almost 100 percent higher than it was before the pandemic, Redfin said. It added that home prices have soared more than 40 percent since 2019, as buyers took advantage of low borrowing costs during the pandemic to acquire houses, increasing demand, escalating competition and pushing up prices.
Read more: Compare Top Mortgage Lenders
“Buying a home has become increasingly out of reach for many Americans due to the one-two punch of high home prices and high mortgage rates,” Redfin wrote.
Renters being unable to buy homes has in turn contributed to increased competition and price jumps in the rental market. The median asking rent is at $2,000 in the U.S., close to the record high it reached in 2022, Redfin said. Still, despite the elevated cost of rent, renting may be a more affordable option than homeownership.
“Housing costs are high across the board, but renting is a more affordable and realistic option for many Americans right now—especially those who have never owned a home and aren’t able to tap into equity from a previous sale,” said Daryl Fairweather, Redfin’s chief economist. “While owning a home is usually a sound long-term investment, the barriers to entry and upfront costs of buying are higher than renting.”
To purchase a house, a buyer would need about $60,000 as a down payment for a home loan, an amount that is out of reach for many Americans.
Fairweather added, “The sheer expense of purchasing a home is causing the American Dream of homeownership to lose some of its shine.”
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
A central counterparty clearing house (CCP), or Central Counterparty, is a financial institution that facilitates trading activities in European equity and derivative markets. Regional banks typically operate CCPs which are an important part of the international financial system.
CCPs maintain stability and efficiency across financial markets and reduce risks including counterparty, default, and market risks. In the United States, CCPs are called Derivatives Clearing Organizations (DCO) and are regulated by the Commodity Futures Trading Commission (CFTC).
The Bank for International Settlements (BIS) defines a CCP as “a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts.” The Eurex is a well known CCP.
Central Counterparty Clearing Houses act as intermediaries between buyers and sellers in financial transactions. They handle clearing and settlements in various types of securities and derivatives transactions to reduce credit risk in the markets. Clearinghouses have existed for more than a century, and act as a way to reduce the risk of OTC derivative transactions.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
Central Counterparty Clearing Houses guarantee trade terms for buyers and sellers. They help reduce risk for investors by taking on credit risk involved in transactions, so even if a buyer or seller defaults on a transaction the other party doesn’t have as much loss as they might have without the CCP.
When buyers and sellers enter into transactions, they each deposit money with the CCP to cover the amount of the transaction. All CCP users must have a margin account.
In a process called “novation,” the CCP enters into two different contracts, one with the buyer and one with the seller. This provides a guarantee to the other party that if one side doesn’t follow through with the agreement the other side will still receive payment. CCPs typically use margin calls to settle trades if one party does not have the funds in their account.
If the trade falls through, the CCP completes the trade at the current market price. CCPs are for-profit businesses that generate revenue from their members and their transactions. They also work with parent exchanges that require them to remain profitable. Just like other types of businesses, CCPs each operate differently and have different business strategies to attract customers and earn revenue.
For instance, there are different types of derivative products that a CCP might choose to offer. One common business model for CCPs is to cross-margin products in a single netting pool. Parent exchanges place obligations on CCPs, so they need to earn enough revenue to meet those.
The specific financial products offered by a CCP, as well as its risk level, fee structure, and other features lead to different types of members, organizational structure, regulations, and rules for margin balances.
CCPs continue to evolve, offer new products, and become more sophisticated over time. Regulations are also evolving for CCPs which may change how they operate in the future.
CCPs maintain the anonymity of investors’ identities to protect their privacy. They also maintain the privacy of trading firms from buyers and sellers by using electronic order books and protect brokerage firms from the risk of buyers and sellers defaulting on their end of options such as calls or puts.
Another use of CCPs is to lower the number of transactions settled in order to move funds efficiently between investors.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Financial institutions that want to clear trades through a central counterparty can become members of a particular CCP. Membership allows them to reduce credit risk for their customers and themselves. There are CCPs for different types of financial transactions, so financial institutions can choose the appropriate CCP to apply to for their needs.
CCPs want members that have a significant transaction volume, are creditworthy, and have a trading operation that works efficiently with the system run by the CCP. CCPs also want members to contribute funds to their default fund and secure collateral for their transactions. Each CCP has somewhat different criteria and requirements for membership, and membership information is not always publicly available.
There are benefits and drawbacks to CCPs. Here are a few important ones to understand:
CCPs benefit investors in the following ways:
• Reduce counterparty risk
• Maintain stability in financial markets
• Increase efficiency of transactions
• Maintains privacy of customers
There are also some drawbacks to CCPs for investors, including the following:
• Participation fees
• May not be able to process non-standard transactions
• Some CCPs may not have adequate scale
CCPs are now being used with blockchain technology, made popular in cryptocurrency markets, to further reduce risk and costs. An international group of clearing houses launched the Post Trade Distributed Ledger Group launched in 2015. The group studies ways to use blockchain technology for transactions.
Since its formation, the group has expanded to include about 40 global financial institutions collaborating to bring CCPs together with blockchain. The goal of using blockchain technology with CCPs is to reduce margin requirements and risk, reduce operational costs, improve regulatory oversight, and increase the efficiency of trade settlements. Ideally blockchain can help support better settlements, clearing processes, and reporting.
Decentralized exchanges already operate similarly to CCPs as a third party that handles transactions.
Central counterparty clearing houses help reduce the risk of trading derivatives and securities. They became more popular after the financial crisis as a way for investors to minimize counterparty risk.
While CCPs may help maintain stability in financial markets and increase efficiency, they may also involve participation fees, or may not be able to process non-standard transactions. Understanding the ins and outs of CCPs can be helpful to investors as they learn to navigate the markets.
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While a CCP acts as a clearing house for transactions, it has an additional step involved before doing so. The two parties involved in a transaction agree upon transaction terms, then the CCP must agree to the terms before they clear the transaction.
CCPs require customers to make collateral deposits, known as margin deposits, before entering into transactions. This provides them with funds they can use to guarantee trades in the event that one party defaults on an agreement. The initial margin required depends on the customer, the type of financial product, and the particular trade agreement.
Central clearing reduces counterparty risk by guaranteeing trades for buyers and sellers. They take on the credit risk involved in transactions by becoming the buyer to every seller and the seller to every buyer.
Photo credit: iStock/vm
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0124099
Source: sofi.com
Mortgage rates dropped to 6.74%, on average for 30-year mortgages. (iStock)
Mortgage interest rates on the 15-year and 30-year mortgages are down from last week, Freddie Mac reported.
“The 30-year fixed-rate mortgage decreased again this week, with declines totaling almost a quarter of a percent in two weeks’ time,” Freddie Mac Chief Economist Sam Khater said.
For 30-year, fixed-rate mortgages, the average interest rate was 6.74% this week, a decent drop from last week when rates averaged 6.88%. Rates aren’t down quite as much as last year when they were 6.6%, on average.
Additionally, 15-year mortgages averaged 6.16%, down slightly from last week when they averaged 6.22%. These mortgages also aren’t as low as last year when they averaged 5.9%.
“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” Khater said. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”
If you want to take advantage of lowering interest rates, consider using Credible to help you easily compare interest rates from multiple lenders in minutes.
HOMEBUYERS FEEL GOOD ABOUT WHERE MORTGAGE RATES ARE HEADED: FANNIE MAE
Warmer weather tends to bring a booming housing market as more homebuyers start looking for homes and inventory grows.
Sellers who list their homes in the spring and summer months often make more money when their home sells because the market is more competitive. A Zillow study found that June was the most profitable month for sellers. Homes listed in the first half of June sold for 2.3% more, on average, putting about $7,700 more in the pocket of sellers.
Location matters when it comes to selling power. In San Francisco, the best time to list is the second half of February, but the first half of July is the best time to sell in New York and Philadelphia.
Certain locations also boast even higher profits during warmer months. During the hottest time of the year, homes in San Jose sold for 5.5% more, boosting profits by $88,000 on an average home, according to Zillow. However, homes in San Antonio sold for just 1.9% more during the same time frame.
“Most sellers don’t have the luxury of timing the market,” Zillow Chief Economist Skylar Olsen said. “The best time to list is when it makes the most sense for their lives.”
“Regardless of the month, sellers who list their home for sale this spring can expect plenty of interest if their home is marketed and priced right.,” she contined. “That’s why it’s more important than ever to hire a real estate agent with the experience to localize your strategy when comparable sales might be further afield.”
If you’re looking to compete with other buyers this spring, you can explore your mortgage options by visiting Credible to compare rates and lenders and get a mortgage preapproval letter in minutes.
HOMEBUYERS GAINED THOUSANDS OF DOLLARS AS MORTGAGE INTEREST RATES FALL: REDFIN
Buyers are facing a tougher market than they did a few years ago. To comfortably afford a home, buyers need to make more than $106,000 annually, another Zillow study showed. This income requirement is 80% higher than in 2020.
Monthly mortgage payments are higher than ever and have doubled since 2020. Payments average $2,188, assuming the buyer puts 10% down. With such high prices, affordability has become a major issue. In 2020, households earning $59,000 annually could afford the median-priced home without spending more than 30% of their income.
The $106,000 income needed today is well above the average household income in the U.S. The average household earns about $81,000.
Some areas are more affordable than others and require a much lower income to afford the average-priced home. Pittsburgh buyers need to earn just $58,232 to afford the average home. Memphis residents need $69,976 and Cleveland residents need $70,810.
Costlier cities like San Jose and San Francisco require much more in annual income to afford a home. San Jose requires an average annual income of $454,296 while San Francisco requires $339,864, according to Zillow.
To see if you qualify for a mortgage based on your current credit score and salary, consider using Credible, where you can compare multiple mortgage lenders at once.
15% OF AMERICANS HAVE CO-PURCHASED A HOME WITH A NON-ROMANTIC PARTNER, EVEN MORE WOULD CONSIDER IT
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Source: foxbusiness.com