Real estate option contract: advantages for sellers For sellers, real estate option contracts can secure a high-profit investment with relatively low risk. Let’s say, for instance, an investor chooses a plot of land as a prime location for further development for a shopping center or a subdivision. Instead of buying the land and selling it … [Read more…]
Your home equity can come in handy when you’re in a financial pinch. Whether you need to take care of home repairs, consolidate high interest credit card debt or cover a number of other potential expenses, your home equity could be the solution to your financial blues. Home equity loans are generally easy to access and typically come with far lower interest rates than personal loans and credit cards. Moreover, the average American homeowner has quite a bit of equity available.
Although home equity loans are widely available and come at a relatively low cost compared to unsecured lending options, they can have a negative impact on your financial stability if you use them improperly. But what should you, and shouldn’t you, do with home equity loans? Below, we’ll break down some important home equity dos and don’ts that owners should know.
Find out how much home equity you can tap into now.
Home equity loan dos and don’ts to know
“A home equity loan can be a great financial tool,” explains Derek Miser, investment advisor and CEO at Miser Wealth Partners in Knoxville, Tennessee. However, “it’s important to understand the dos and don’ts prior to using one.” Here are some of the most important home equity loan dos and don’ts to know:
Do: Review your financial needs
“First and foremost, you need to review your financial needs,” explains Miser. “Understand why you need the funds from a home equity loan and determine how much you need. Typically, home equity loans are used for home improvements, debt consolidation, emergency expenses, etc.”
For example, say you need to replace your roof. Rather than blindly taking out a home equity loan for what you think a roof replacement might cost, reach out to contractors for quotes. Since quotes aren’t always 100% accurate it’s a good idea to take out a loan for 10% more than the quote. So, if you expect your new roof to cost $10,000, you should consider an $11,000 home equity loan.
Use your home equity to access the money you need now.
Don’t: Borrow more than you need
“You want to ensure you don’t borrow more than you need,” says Miser. “Doing so can lead you to overextend yourself, ending in financial strain or even foreclosure, if payments cannot be made.”
Sure, it’s OK to borrow 10% more than you’ve been quoted for a job, but you shouldn’t borrow simply for the sake of borrowing. Using the example above, if you need $10,000 for a new roof, it’s OK to take out a home equity loan for $11,000. But you shouldn’t take one out for $20,000 for the sake of filling your pockets with additional spending cash.
Do: Compare lenders
“As with any large financial decision, shop around and compare rates and terms to find the option that works best,” explains Austin Niemiec, chief revenue officer for Rocket Mortgage.
Miser agrees, saying, “often, banks, credit unions and online lenders offer different rates, fees and repayment terms. Those should all be taken into consideration.”
Don’t: Forget your regular mortgage payment
“You’ll also want to make sure you don’t forget to pay your regular mortgage payment. This will still be required on top of the home equity loan payment,” explains Miser. Be sure to consider this before you apply, too. You wouldn’t want to take out a loan, only to find that when the payment is added to your current mortgage, you struggle to afford it.
Do: Understand the equity in your home
“It is important that homeowners fully understand the equity in their home – specifically the current value and the equity prior to applying for this type of loan,” explains Niemiec. So, you may want to start with an appraisal and compare the results to the remaining balance on your mortgage to determine how much home equity you actually have.
Don’t: Fail to have a repayment plan
Miser says it’s important to know how you’ll pay your loan back before you apply. “If you don’t have a clear plan for repaying the loan, then you probably shouldn’t get it. Make sure you can comfortably manage payments for the entire loan term prior to borrowing.”
Do: Use the funds for their intended purpose
“Finally, ensure you only use the funds for the intended purpose,” says Miser. “If you’re taking out money for an emergency, don’t apply the funds towards something that isn’t part of that emergency.” After all, if you spend the money on something other than what you took the loan out for, you’ll find yourself in the same position as you were before, but with a new loan payment on top of the existing financial hardship.
Find out how affordable home equity loans can be today.
The bottom line
Your home equity can be a valuable financial tool. But if you use it incorrectly, it can be a dangerous proposition. It’s important to consider your financial goals and how a home equity loan might fit into those goals when you decide whether or not to borrow against your home’s equity.
Joshua Rodriguez
Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.
Rent is a universal expense — almost everyone pays either rent or a mortgage. In fact, rent usually takes up about 30 percent of your salary but in some cases, it is even more. If you’ve found yourself facing hard times financially and are struggling to make ends meet, you may want to create a rent reduction letter to give to your landlord.
It may seem nerve-wracking to ask your landlord to reduce the cost of your rent. After all, you signed a lease and agreed to the price. However, you’ll never know if you don’t ask.
We’ve created a thorough guide that’ll walk you through reasons to ask for a rent reduction, how and when to ask your landlord and what to do if you’re denied. If you’ve found yourself in this situation, we’ve got you covered with detailed information.
7 scenarios to ask for a rent reduction
Everyone’s financial history is different. Some people are struggling to pay rent because of a low-paying job while others have had an unexpected emergency pop up that negatively impacted their budget.
Here are some examples of different reasons you could write a rent reduction letter to your landlord.
1. Financial trouble
If you’ve found yourself in a situation where money is suddenly tight, this could qualify for a rent reduction. Life happens and it’s common for unexpected bills to pop up. Perhaps you were in an accident and now have medical bills to pay for or your car broke down and needs repairs.
Regardless of the circumstance, if lowering your rent would help ease your financial burden, even for a short period, it’s worth asking for. Just remember to clearly explain the situation and let your property manager know that this was out of your control and not a result of poor financial management.
2. Loss of job
When you signed your lease, you may have had a steady job that paid well. Now, you’ve lost your income and can’t make your monthly rent until you secure another job.
If this is your situation, you could write a rent reduction letter and explain the scenario to your landlord because they might work with you until you find new employment.
3. Took a pay cut
While you may still be employed, sometimes, you’ll be faced with a pay cut. If this happens, your income is suddenly less and bills are harder to pay. This scenario may qualify you for a rent reduction.
It is up to the landlord, but if you clearly explain your situation, they may negotiate with you.
4. Neighboring properties have lower rent
Generally, apartment complexes in the same neighborhoods have similar prices for rent. But, if you begin to notice that neighboring properties pay significantly less in rent compared to you, you could bring this up to your property manager in your rent reduction letter.
Landlords want to stay competitive with their pricing and have all of their apartments occupied and if they’re not, you can potentially leverage this for a lower rent.
5. Lacking common amenities
If your apartment complex lacks basic amenities like a laundry facility or covered parking stalls, you could use this to negotiate a reduction in rent.
Often, rent is more expensive when the property includes amenities like a playground, gym, on-site laundry and covered parking. If your apartment complex lacks these things, you could talk to your landlord about adjusting rent to reflect this.
6. Poor property upkeep
Everyone wants to live in a facility that is safe and clean. In fact, landlords are legally obligated to ensure that each apartment is habitable.
If you think your apartment is lacking general safety and sanitary measures, first, talk to your landlord about addressing that and second, use this to negotiate the price of rent.
7. The lease agreement is not being met by property managers
A lease is a legal contract that binds tenants and property managers to certain terms. Tenants agree to pay rent and keep their apartment clean and landlords agree to provide a safe and clean living environment.
If you believe this contract is not being met, you can talk to your landlord and ask for a rent reduction if the lease agreement is not being held up by both parties.
How much to reduce in rent?
So, you’ve decided that you will ask for a rent reduction but need to determine how much is reasonable to reduce. Well, this depends on a few factors like the city, neighborhood, amenities offered and your situation.
You need to assess how much would ease up your financial load while also being reasonable with your request. For example, you probably won’t get your landlord to reduce your rent in half and will likely get shot down immediately if you ask for that.
To determine a fair amount to ask for in your rent reduction letter you need to do your research. You can see what neighboring apartments are renting for; you can ask your neighbors how much they are paying and you can see what the average cost of rent in your city and state are.
If you come prepared with this information, you’ll likely have an easier time negotiating a fair rental reduction rate.
When and how to ask for a rent reduction
Once you’re ready to write a rent reduction letter, it’s all about when you send it and how you ask for what you need. The best time to ask for your rent reduction is right away because you don’t want to get behind on payments and then ask. When you first realize that you need a lesser rent payment, it’s time to start drafting your rent reduction letter.
The next best time to ask for a rent reduction rate is when your lease is up for renewal. It’s easier to draft up an entirely new lease than it is to rewrite an existing lease.
Ways to make a good case in a rent reduction letter
To make a good case for yourself, showcase that you are an outstanding tenant to your landlord. Here are some ways you can vouch for yourself to better your chances of getting a rental reduction.
Steady payment history
Have you always paid your rent on time, or even early? Have you had a steady payment history in the past? If this is the case, your property manager is more likely to sympathize with you and understand that you’ve truly fallen on hard times and could use a little wiggle room on your rate.
Show them your payment history and use this to your advantage.
Some money is better than no money
If you can still pay rent but just a lesser amount, some money is still better than no money. You can talk to your landlord and help them understand that you’ll still be paying rent and that they’ll still get an income, albeit a bit less than before.
Longer lease
Do you plan on staying at your current location long-term? If so, you can compromise and sign a longer lease at a lower rate.
Property managers want to keep their apartments occupied, so if you can sign a longer lease instead of month-to-month, they may reduce your rental rate.
Sample rent reduction letter
You can send the rent reduction letter via email or mail. Check and see how your landlord likes to receive communication and tailor your letter to that.
Follow our template below to create your rent reduction letter. Simply update everything in ( ) and you’ll be good to go.
Download the sample rent reduction letter PDF
Download the sample rent reduction letter Word Doc
(Your Name) (Current Address of Your Apartment with Unit Number) (City, State, Zip Code)
(Date)
(Landlord or Apartment Company’s Name) (Address as Printed on Your Lease) (City, State, Zip Code)
Re: Request to Lower Rent Payment for (Unit)
Hello (Landlord name),
This is (Your name) and I am a tenant in (Building #, Unit #). I’m reaching out to you because I’d like to discuss lowering my monthly rent moving forward. I enjoy living here and would like to continue renting from you, but my financial circumstances have changed and a reduction in rent would be incredibly helpful for me.
I’d like to highlight that I’ve lived here for (insert tenure) and in that time, I’ve always paid my rent on time, kept the apartment in great condition and have been a courteous neighbor and tenant. I believe I’m a great fit for this community and an exemplary tenant.
To make sure my request was reasonable, I’ve done research to see what similar complexes are renting for and what others are paying in rent. This makes me believe that a minor reduction in rent is reasonable and fair with the market.
I’d like to ask for a (insert dollar amount) reduction to my monthly rent, however, I’m open to negotiate and compromise. If you accept this request, I’d be able to continue my lease and call this home.
Can we schedule a time to meet and discuss this in more detail? I’m eager to find a way to make this work for both of us and find a compromise that meets both of our needs. Please let me know when we can chat.
Thank you,
(Signature) (Your Name) (Current Apartment Address and Unit Number) (Phone Number) (Email Address)
What to do if you can’t reduce your rent
Because it’s up to the landlord whether or not to reduce your rental rate, they may say no. If that’s the case, don’t get too stressed because there are still other options available to you.
Look for a new place
If you need to, you can find a new place to rent at a lower cost. You may have to wait until your lease ends or pay to break your lease but it may save you money in the long run to find a less expensive place to rent.
You can compare rental prices in different areas here.
Adjust your budget
It’s smart to reassess your budget to find out where you can save extra money. Maybe it’s something small like cutting back on your daily coffee habit or something more substantial like consolidating credit cards for a lower interest rate.
Either way, taking an honest look at your budget and seeing where you can save can help you make your payments and ease financial stress.
Pay rent bi-weekly instead of monthly
Sometimes, it’s a matter of adjusting your payment due dates that’ll make things a bit easier. For example, instead of paying your rent monthly in a large sum, ask if you can pay every other week so the payment itself is a bit smaller and leaves you with more money to pay your utilities and other bills.
Advocate for yourself
You have to advocate for yourself. No one else knows your struggles and if you don’t ask for what you need, you’ll never get it.
By writing a rent reduction letter to your landlord, you may get what you need which will enable you to get back on your financial feet.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Investing is more than just saving for the future. It’s about creating a wealth-building strategy to truly make your nest egg grow. That’s because investing typically earns you a higher interest rate than if you put all of your money in a traditional savings account.
While historically low rates are great for when you need to borrow money, they’re pretty dismal when you’re ready to start saving. Investing does come with a higher risk, but you can generally mitigate it with diversified holdings and long-term positions. Plus, it’s easier than ever.
You’re not limited to working with an expensive brokerage or saving a huge amount to reach a minimum investment threshold. Now you can even invest by using an app on your smartphone with the leftover change from your checking account.
Ready to learn how to invest? We’ve got you covered with everything you need to know.
What is investing, and why is it important?
Investing is the act of putting money into financial instruments, such as stocks, bonds, or mutual funds, with the expectation of earning a profit. It allows individuals to save and grow their wealth over time, and can provide a financial cushion for the future, such as during retirement.
The Benefits of Investing
The reason money grows so aggressively through investing is that it’s powered by compound returns. Investments are typically meant for a long-term strategy, rather than taking out money every few months.
When you leave your money untouched in an investment vehicle that offers greater returns than a savings account, your gains continue to compound.
No matter what age you are, it’s a good time to start investing. If you’re younger, you can create a strong foundation to truly accumulate wealth over the coming years.
Even if you’re older, you may be able to catch up faster because of those higher returns. Don’t worry about getting started — even if you can only contribute a small amount each month, you’ll set up the infrastructure and challenge yourself to contribute more as you begin to earn more.
How to Reduce Your Risks in Investing
When investing long-term, you can’t think about your everyday gains and losses; instead, think about how your allocations are performing in the long run. You do want to review your investment choices as you reach different stages in your life; in particular, becoming less aggressive as you get older.
In fact, most investors don’t partake in volatile day trading. They spread their money over diversified investment types to help reduce risk and maximize returns over time.
There will always be economic cycles with highs and lows. But even downturns can be mitigated in your investment portfolio by spacing out your money over different product categories as well as different economic sectors. This can go a long way in protecting your money over time.
If you do want to try out some riskier investments, make sure you view that money as discretionary risk capital, meaning your livelihood and well-being won’t be impacted if you lose it all.
How to Invest Your Money
Diversification is essential, as is setting reminders to review the performance of your picks, such as a quarterly review. It also helps you adjust your asset allocation based on your own financial goals. Are you trying to retire earlier than you initially planned? Are you able to contribute more each month?
With these strategies in mind, here is a comprehensive review of different investment vehicles you can take advantage of to accumulate wealth over time.
Retirement Accounts
Retirement accounts are probably the most common and accessible types of investment accounts. You may be able to open a retirement account through your employer or open one on your own. Each type comes with a different tax treatment, so review the details carefully.
Traditional IRA
A traditional IRA is a tax-advantaged account that allows you to deduct your contributions each year. Once you start making retirement withdrawals, you’ll pay the IRS based on the tax bracket you’re in at that time.
They do have annual contribution limits. For 2024, it’s $7,000 unless you’re 50 years or older, in which case you can contribute up to $8,000.
If you want to take a distribution before you reach the age of 59 ½, you’ll have to pay a 10% penalty on top of your taxes. There are a few exceptions to the penalty, such as when you use the funds for a down payment on a house or qualified college expenses.
Another plus is that there is no income limit for qualifying, unlike other IRA options.
Roth IRA
A Roth IRA is another tax-advantaged retirement account. However, it comes with a few key differences compared to a traditional IRA. You don’t get a tax deduction when you make your contributions, but you do get to deduct your withdrawals once you reach retirement age.
If you think you’ll be in a higher tax bracket once you hit retirement, this could be a useful tool to save on your taxes later in life. For Roth IRAs, the contribution limit is between $7,000 and $8,000, depending on your age.
However, there’s another qualification you’ll have to meet: the income limit.
The more you earn, the less you’re able to contribute. Your contribution limit is reduced when you earn more than $230,000 for those married filing jointly and more than $146,000 for those filing single or as head of household.
Rollover IRA
A rollover IRA is one way to transfer an existing 401(k) from your employer once you decide to leave the company. Sometimes an employer lets you leave it there or transfer your funds to a retirement plan at your new place of work. Whether those two scenarios don’t apply to you or you prefer the flexibility of an IRA, a rollover may be a suitable option for you.
Both traditional and Roth IRAs generally allow you to bring in transfer retirement accounts. Just be sure to check your eligibility for either type, as well as any relevant fees you may incur during the transfer process.
SEP IRA
This type of IRA is designed specifically for self-employed individuals. While traditional and Roth IRAs are often used to supplement retirement savings accrued through employer plans, a SEP IRA allows for higher contribution limits when you work for yourself. The contribution is the lesser of either 25% of your income or $69,000.
Its tax treatment is the same as traditional IRAs. If you have employees, however, you must provide each one with their own SEP IRA and contribute the same salary percentage as you contribute to your own. Still, this can be a strong option to speed up your retirement investments, particularly if you don’t have employees or only have a few.
Stocks
Investing in stocks is typically best for active investors, and ideally, someone who already has experience in the stock market. If you’re just getting started, consider your stock investments as play money rather than something you need to rely on to meet your future financial goals. Because individual stocks are riskier, be sure to diversify the ones you choose to invest in.
Buying and selling stocks can result in hefty commission fees. Consider a buy-and-hold approach to avoid accumulating too many expenses, especially when you’re first getting started.
While you no longer need an established broker to execute trades, you can instead create a brokerage account with one of the larger brokerage firms. Your best bet is to compare fees as well as available research to help you make informed trading decisions.
Mutual Funds
Mutual funds combine your money with other investors to purchase securities for the entire group. The portfolio is professionally overseen by a manager, who then selects different types of stocks, bonds, and other securities on your behalf.
You can gauge the performance of a particular mutual fund by comparing it to its chosen benchmark, such as the S&P 500. If it regularly performs better over the course of a three to five-year period, then it could be a good investment choice.
Mutual funds are a popular choice because you generally don’t need a lot of money to get started. You can often choose one within your retirement account to get around any minimum requirements, or even set up a recurring investment amount.
Plus, mutual funds are extremely diversified, often holding as much as 100 securities in each one. This helps to minimize your risk as well as the amount of time you spend managing your portfolio.
Index Fund
An index fund is a popular type of mutual fund that follows a predetermined investment methodology rather than having a portfolio manager pick the included securities.
For example, you could choose a Dow Jones Industrial Average index fund, which includes 30 powerhouse companies in the U.S. Whiles that’s a large-scale example, different investment firms create their own index funds for investors to conveniently choose from.
Another benefit of investing in an index fund is that transaction costs are often lower, as are their mutual fund expense ratios. Many index funds are also geared toward investors with lower balances. While some firms have high minimum opening balances of $100,000 or more, you can get started with much less when you pick an index fund.
Exchange-Traded Funds (ETFs)
An exchange-traded fund, or ETF, trades the same way a stock does while tracking a certain basket of assets. There are countless types of ETFs to choose from based on your investment goals.
Common options include market, bond, commodity, foreign market, and alternative investment ETFs. They’re bought and sold like stocks throughout the day, but a major difference is that ETFs can issue and redeem their shares at any point.
There are many benefits that go along with an ETF. For starters, you have more control over when you pay your capital gains tax. There are also lower fees, although you’ll still pay brokerage commissions. Finally, while mutual funds can only be settled after the stock market closes for the day, an ETF allows you to trade at any time.
Bonds
Bonds are a good tool to have in your investment portfolio because they are a low-risk option. Different types of bonds include corporate, municipal, and Treasury bonds. Bonds are fixed-income investments, so you know exactly what to expect when those payout dates come throughout the year. Such predictability does come with a few downsides, though.
First, bonds come with a fixed investment period. If you invest in a longer-term bond, then you’re stuck with it until it matures — unless you decide to sell. But there’s a bit of risk involved there, involving the interest.
Bond rates aren’t locked in, so yours could be devalued if the same issuer bumps up the interest rate at a later time. So if new investors get a better interest rate than you did, you’re still locked into your lower rate. In general, bonds generally come with lower growth than other investments, but that’s considered the trade-off for a lower-risk vehicle.
Real Estate
People always need a place to live, so real estate investing can be an attractive option for investors. There are several ways to do this that account for your desired risk tolerance as well as your desired level of involvement.
Investment Properties
If you feel the drive to own property, an investment property is one way to make a real estate investment. Depending on how you choose to manage your property, this can amount to a steady stream of passive income.
Over time, you could also benefit from market appreciation, although that’s not necessarily guaranteed. There are risks involved with investment properties. Unlike investing in a stock or fund, a physical property involves expenses, such as upkeep, marketing, and a management firm if you want a hands-off experience.
You’ll also need some cash to get started, since most investment property loans require at least a 25% down payment. Moreover, the mortgage is considered part of your debt-to-income ratio, which could affect your future financing opportunities.
If you ever want to cash out on your investment, you’ll be subject to the market value of that moment. Plus, it’s a cumbersome, illiquid way to invest money. Still, the returns can be much greater than traditional investments, making investment properties an attractive option to some people.
REITs
If you would like to invest in real estate without the hassle of acting as a landlord, consider a real estate investment trust, or REIT. These are traded on the stock exchange and can also be offered in the form of a mutual fund or ETF.
Returns can increase as property values rise and generally focus on a portfolio of commercial properties. Shareholders also benefit because REITs don’t pay corporate tax, which helps boost returns as well.
You can pick what sector you want to invest in, such as healthcare, residential, hotel, or industrial REITs. Each comes with separate risks that should be weighed thoughtfully. REIT shares can be purchased through a broker, and each one will have its own fee structure to review as well.
Crowdfunding
Real estate crowdfunding is a type of peer-to-peer lending that is growing traction among investors of all levels. New fintech companies are popping up to compete with REITs, claiming better returns. So, what’s the difference between REITs and real estate crowdfunding sites?
The most significant difference is that instead of choosing a portfolio of properties within a certain asset class, you can choose specific commercial properties in which to invest. While individual investors traditionally wouldn’t be able to invest directly in projects like these, crowdfunding lets you enter these markets with a much smaller amount of cash.
One of the benefits is that you can do much more specialized research to determine what property to invest in. The process is much less passive than REITs. On the downside, however, the risk potential could be higher since your money is riding on one single building rather than a diversified portfolio.
See also: How to Build Generational Wealth
Platforms for Investing Your Money
There are many ways to start investing your money. A financial advisor, though charging extra fees, may provide you with much-needed guidance and education, especially if you’re a beginner. But if you prefer a little less hand-holding, you can consider two other options as well.
Online Brokers
Online brokerages give you the convenience of investing online with the added benefit of controlling what you invest in. So, it’s definitely a more hands-on process than the robo-advisor. Like robo-advisors, however, most online brokers don’t have a minimum balance requirement, so they’re still quite accessible to all types of investors.
Instead of paying a percentage of your funds, online brokers usually charge transaction fees for trades, as well as one-off fees. On the plus side, you’re not limited to your choosing certain funds, as you are with a robo-advisor. If you’d like, you can even select individual stocks. Online brokers and robo-advisors cater to two different types of investors, so the best choice depends on your specific goals.
Robo-Advisors
Enlisting the help of a robo-advisor can be helpful for beginning investors or anyone who wishes to utilize a “set it and forget it” mentality for their portfolio.
Robo-advisors don’t use human financial advisors; instead, they rely on computer algorithms to determine your portfolio allocations. Many of them also use tax harvesting strategies to decrease your tax burden at the end of the year.
Service fees are low and generally charged as a percentage of your invested funds. The transparency is excellent for new investors, and you can also benefit from the low minimum balances. Different robo-advisors offer different investment vehicles you can choose from. You can also pick one based on their investing strategy; most, for instance, pick from ETFs and index funds.
Bottom Line
There are a slew of intricacies for building your investment strategy and making your money work for you. Start with a plan that makes sense for your risk tolerance while still leaving room for growth.
You can access countless resources, from free online tutorials to paid financial advisors, to ensure you have a robust investment plan that will generate a passive income strategy to meet your goals.
How to Invest FAQs
What are the different types of investments?
There are many types of investments. The most popular investments include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and real estate. Each type of investment carries its own level of risk and potential return.
What are the risks of investing?
Investing involves risk, including the potential for loss of principal. The value of investments can fluctuate and may be affected by market conditions, economic events, and other factors.
It’s essential to understand the risks associated with any investment and to consider your risk tolerance before making any investment decisions.
How do I choose the best investments for me?
The best investments for you will depend on your financial goals, how much risk you can tolerate, and other personal factors. It can be helpful to consult an investment advisor or do your own research to determine which investments are suitable for you.
It’s also wise to diversify your portfolio, or invest in various assets, to spread risk and potentially maximize returns.
How much money do I need to start investing?
There is no minimum amount required to start investing. In fact, you can get started investing with $500 or less. However, you should first have a sufficient emergency fund in place before investing. Some investments may have minimum investment requirements, such as mutual funds or certain types of brokerage accounts.
What is a brokerage account?
A brokerage account is a type of investment account that allows you to buy and sell assets such as stocks, mutual funds, ETFs, and bonds. When you open a brokerage account, you typically do so with a financial institution, such as a bank, a credit union, or an online brokerage firm.
To open a brokerage account, you will generally need to provide some personal information, such as your name, address, and Social Security number. You will also typically need to make a deposit of money into the account, which you can use to buy investments.
Once you have a brokerage account, you can place orders to buy or sell investments online, over the phone, or through a broker. The brokerage firm will execute the trades on your behalf and will typically charge a commission or fee for the service.
Brokerage accounts offer a convenient way to manage your investments and to buy and sell assets easily and quickly. They also provide a range of tools and resources to help you make informed investment decisions, such as market research, news and analysis, and educational materials.
Can I invest in stocks with just $100?
Yes, it is possible to invest in stocks with a relatively small amount of money, such as $100. Many brokerage firms have no minimum initial deposit requirement and allow you to start investing with whatever amount of money you have available.
How do I diversify my investment portfolio?
Diversification is the process of investing in various assets to spread risk and potentially maximize returns. This can be achieved by investing in different types of assets, such as stocks, bonds, and real estate, or by investing in different sectors or industries within a particular asset class. To maintain a diversified portfolio, review and adjust it periodically.
What is a financial advisor and do I need one?
A financial advisor is a professional who provides advice on financial matters, such as investing and saving for retirement. Whether you need a financial advisor will depend on your financial goals, risk tolerance, and investment experience. Some people may prefer to handle their own investments, while others may benefit from the guidance of an investment advisor.
How do I determine my risk tolerance?
Risk tolerance is an individual’s willingness to accept financial risk in pursuit of potential returns. Factors that may affect how much risk you’re willing to take include age, financial goals, and personal comfort level with risk.
Can I lose money by investing?
Investing always carries some level of risk, as the value of your investments can fluctuate and be impacted by various market conditions and economic events. It’s crucial to understand the risks associated with any investment and to consider your risk tolerance and investment objectives before making any investment decisions.
Diversifying your portfolio and not investing more money than you can afford to lose can help mitigate potential losses. Always be sure to do your research and consider seeking investment advice from a financial advisor before making any decisions.
FHA loans have been making homeownership more accessible for decades. Tailored to borrowers with lower credit, the FHA makes it possible to buy a house with a credit score of just 580 and only 3.5% down.
But home buyers aren’t the only ones who can benefit. For current homeowners, an FHA refinance may let you access low rates and home equity, even without great credit.
Not sure whether you’ll qualify for a mortgage? Check out the FHA program. You might be surprised.
Verify your FHA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA).
FHA insurance protects mortgage lenders, allowing them to offer loans with low interest rates, easier credit requirements, and low down payments (starting at just 3.5%).
Thanks to their flexibility and low rates, FHA loans are especially popular with first-time home buyers, home shoppers with low or moderate incomes, and/or lower-credit home buyers.
But FHA financing isn’t limited to a certain type of buyer — anyone can apply.
Verify your FHA loan eligibility. Start here
How does an FHA loan work?
The first thing to know about FHA mortgages is that the Federal Housing Administration doesn’t actually lend you the money. You get an FHA mortgage loan from an FHA-approved bank or lender, just like you would any other type of home mortgage loan.
The FHA’s role is to insure these mortgages, offering lenders protection in case borrowers can’t pay their loans back. In turn, this lets mortgage lenders offer FHA loans with lower interest rates and looser standards for qualifying.
The one catch — if you want to call it that — is that you pay for the FHA insurance that protects your mortgage lender. This is called “mortgage insurance premium” or MIP for the life of the loan or until the FHA home loan is refinanced into another type of mortgage. We go over this in detail below.
Types of FHA loans
FHA loans offer various options to meet different home buying needs. These government-backed loans are designed to make homeownership more accessible, especially for those with less-than-perfect credit scores or limited savings.
Each type of FHA loan is tailored to different financial situations and home buying needs. Here’s what you can expect.
Compare FHA loan quotes from multiple lenders. Start here
FHA mortgage loan
An FHA mortgage is ideal for first-time home buyers, requiring a minimum credit score of 580 for a 3.5% down payment. Those with credit scores between 500 and 579 can still qualify for a 10% down payment. These loans are popular due to their lenient credit score requirements and low-down payment options.
FHA rate-and-term refinance
An FHA refinance loan is suited for borrowers looking to improve their loan terms or lower interest rates, especially if their credit scores have improved since obtaining their original mortgage. It offers a way to adjust loan terms to better fit current financial situations.
FHA Streamline Refinance
For current FHA loan holders, the FHA Streamline Refinance provides an efficient way to refinance with minimal documentation and underwriting. It often results in lower interest rates and can potentially reduce mortgage insurance premiums. This option is advantageous for those who want to refinance without a complicated process.
FHA cash-out refinance
An FHA cash-out refinance allows homeowners to tap into their home equity, converting it into cash. It requires a minimum credit score of 620, and borrowers must leave at least 15% equity in their home after the refinance. It’s suitable for those needing extra funds for expenses or investments.
FHA Home Equity Conversion Mortgage (HECM)
HECM is a reverse mortgage for homeowners aged 62 and older, allowing the conversion of home equity into cash. It provides financial flexibility for seniors by enabling access to their home equity without selling the home.
FHA 203(k) loan
The FHA 203(k) loan is designed for home purchases requiring renovations. It combines the cost of the home and renovation expenses into one loan. Borrowers must meet specific credit score requirements and ensure that renovations are completed within six months.
FHA Energy Efficient Mortgage
This loan type allows borrowers to include energy-efficient upgrades in their FHA loan. It’s aimed at reducing utility costs and increasing the home’s environmental friendliness, thereby potentially increasing its value.
Section 245(a) loan
The Section 245(a) program is for borrowers expecting an increase in their income. It offers a graduated payment schedule that starts low and increases over time, aligning with anticipated income growth. This loan is particularly beneficial for young professionals expecting career advancement.
Check your FHA loan eligibility. Start here
FHA loan requirements
Homeownership can be a liberating experience, especially for first-time buyers. With their flexible guidelines and government backing, FHA home loans provide a welcoming path.
Understanding FHA loan requirements can make the process much easier, opening the door to a future in your ideal home.
Check your FHA loan eligibility. Start here
To be eligible for an FHA loan, applicants must adhere to specific guidelines:
The property must undergo a home appraisal by an FHA-approved appraiser.
The property must serve as the applicant’s primary residence; investment properties and second homes are not eligible.
Occupancy of the property is required within two months following the closing.
A mandatory inspection is conducted to ensure the property meets FHA’s basic standards.
There are a few more specific conditions to qualify, such as a down payment amount, mortgage insurance, credit score, loan limits, and income requirements.
FHA loan down payment requirements
FHA loans require a minimum down payment, which varies based on credit score. For credit scores of 580 and above, a minimum down payment of 3.5% is required. Borrowers with credit scores between 500 and 579 must make a 10% down payment.
FHA mortgage insurance premiums
FHA mortgage insurance premium (MIP) is what makes the FHA program possible. Without the MIP, FHA-approved lenders would have little reason to make FHA-insured loans.
There are two kinds of MIP required for an FHA loan. One is paid as a lump sum when you close the loan, and the other is an annual premium, which becomes less expensive each year as you pay off the loan balance:
Upfront Mortgage Insurance Premium (UFMIP) = 1.75% of the loan amount for current FHA loans and refinances
Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount for most FHA loans and refinances
MIP is split into monthly payments that are included in your mortgage payment. You’ll have to pay FHA insurance for the life of the loan or if you refinance into another type of mortgage loan.
The good news is that, as a homeowner or home buyer, your FHA loan’s MIP rates have dropped. Today’s FHA MIP costs are now as much as 50 basis points (0.50%) lower per year than they were in previous years.
Also, you have ways to reduce what you’ll owe in FHA MIP.
Depending on your down payment and loan term, you can reduce the length of your mortgage insurance to 11 years instead of the entire loan.
Loan term
Original down payment
MIP duration
20, 25, 30 years
Less than 10%
Life of loan
20, 25, 30 years
More than 10%
11 years
15 years or less
Less than 10%
Life of loan
15 years or less
More than 10%
11 years
Or, you could refinance out of FHA MIP at a later date.
With FHA interest rates as competitive as they are today, refinancing could reduce your monthly mortgage payments and cancel your mortgage insurance premium if you have enough equity in the home.
Check your FHA loan rates. Start here
FHA loan credit score minimums
The minimum credit score requirement for an FHA loan is 500. However, a score of 580 or higher allows for a lower down payment. Credit scores directly impact loan terms and down payment amounts.
Debt-to-income ratio
FHA loans consider the borrower’s debt-to-income (DTI) ratio, a measure of monthly debt payments against monthly income. The FHA prefers a DTI ratio of no more than 43%, though exceptions can be made for higher ratios with compensating factors.
Income and employment requirements
There is no specific income threshold for FHA loans, but borrowers must demonstrate steady employment history. Verification includes pay stubs, W-2s, tax returns, and bank statements.
FHA loan limits
Loan limits for FHA loans vary by county. However, starting January 1, 2024, the new FHA loan limit will be $498,257 for a single-family home in most parts of the country. Limits increase for 2-, 3-, and 4-unit properties.
FHA loan rates
Interest rates for FHA loans are competitive and can vary based on factors such as prevailing market rates, borrower’s credit score, income, loan amount, down payment, and DTI ratio. Government backing often enables lenders to offer lower rates compared to conventional mortgages.
Compare your FHA loan rates from multiple lenders. Start here
Today’s rates for a 30-year, fixed-rate FHA loan start at % (% APR), according to The Mortgage Reports’ daily rate survey.
Thanks to their government backing, FHA loan rates are competitive even for lower-credit borrowers. But interest rates can vary a lot from one lender to the next, so be sure to shop around for your best offer.
FHA loan benefits
Check your FHA loan eligibility. Start here
1. Lower down payment: Just 3.5 %
For today’s home buyers, there are only a few mortgage options that allow for down payments of 5% or less. The FHA loan is one of them.
With an FHA mortgage, you can make a down payment as small as 3.5% of the home’s purchase price. This helps home buyers who don’t have a lot of money saved up for a down payment along with home buyers who would rather save money for moving costs, emergency funds, or other needs.
2. FHA allows 100% gift funds for the down payment and closing costs
The FHA is generous with respect to using gifts for a down payment. Very few loan programs will allow your entire down payment for a home to come from a gift. The FHA will.
Via the FHA, your entire 3.5% down payment can be a gift from parents or another family member, an employer, an approved charitable group, or a government homebuyer program.
If you’re using a down payment gift, though, you’ll need to follow the process for gifting and receiving funds.
3. FHA loans allow higher debt-to-income ratios
FHA loans also allow higher debt-to-income ratios.
Your debt-to-income ratio, or DTI, is calculated by comparing two things: your debt payments and your before-tax income.
For instance, if you earn $5,000 a month and your debt payment total is $2,000, your DTI is 40%.
Officially, FHA maximum DTIs are as follows.
31% of gross income for housing costs
43% of gross income for housing costs plus other monthly obligations like credit cards, student loans, auto loans, etc.
However, a 43% DTI is actually on the low end for most FHA borrowers. And FHA will allow DTI ratios as high as 50%. Although to get approved at such a high ratio, you’ll likely need one or more compensating factors — for instance, a great credit score, significant cash savings, or a down payment exceeding the minimum.
In any case, FHA is more lenient in this area than other mortgage loan options.
Most conventional mortgage programs — those offered by Fannie Mae and Freddie Mac — only allow debt-to-income ratios between 36% and 43%.
With down payments of less than 25%, for example, Fannie Mae lets you go to 43% DTI for FICOs of 700 or higher. But most people don’t get conventional loans with debt ratios that high.
4. FHA loans accept lower credit scores
Officially, the minimum credit scores required for FHA mortgage loans are:
580 or higher with a 3.5% down payment
500-579 with a 10% down payment
High credit scores are great if you have them. But past credit history mistakes take a while to repair.
FHA loans can help you get into a home without waiting a year or more for your good credit to reach the “excellent” level. Other loan programs are not so forgiving when it comes to your credit rating.
Fannie Mae and Freddie Mac (the agencies that set rules for conventional loans) say they accept FICOs as low as 620. But in reality, some lenders impose higher minimum credit scores.
5. FHA even permits applicants with no credit scores
What if an applicant has never had a credit account? Their credit report is, essentially, blank.
FHA borrowers with no credit scores may also qualify for a mortgage. In fact, the U.S. Department of Housing and Urban Development (HUD) prohibits FHA lenders from denying an application based solely on a borrower’s lack of credit history.
The FHA allows borrowers to build non-traditional credit as an alternative to a standard credit history. This can be a huge advantage to someone who’s never had credit scores due to a lack of borrowing or credit card usage in the past.
Borrowers can use payment histories on items such as utility bills, cell phone bills, car insurance bills, and apartment rent to build non-traditional credit.
“Not all lenders who are FHA approved offer these types of loans, so check with your loan officer individually,” cautions Meyer.
6. FHA loans can be up to $ in most of the U.S.
Most mortgage programs limit their loan sizes, and many of these limits are tied to local housing prices.
FHA mortgage limits are set by county or MSA (Metropolitan Statistical Area), and range from $ to $ for single-family homes in most parts of the country.
Limits are higher in Alaska, Hawaii, the U.S. Virgin Islands, and Guam, and also for duplexes, triplexes, and four-plexes.
7. FHA also allows extended loan sizes
As another FHA benefit, FHA loan limits can be extended where home prices are more expensive. This lets buyers finance their home using FHA even though home prices have skyrocketed in certain high-cost areas.
In Orange County, California, for example, or New York City, the FHA will insure up to $ for a mortgage on a single-family home.
For 2-unit, 3-unit and 4-unit homes, FHA loan limits are even higher — ranging up to $.
If your area’s FHA’s loan limits are too low for the property you’re buying, you’ll likely need a conventional or jumbo loan.
8. If you have an FHA loan, you can lower your rate with an FHA Streamline Refinance
Another advantage for FHA-backed homeowners is access to the FHA Streamline Refinance.
The FHA Streamline Refinance is an exclusive FHA program that offers homeowners one of the simplest, quickest, and most affordable paths to refinancing.
An FHA Streamline Refinance requires no credit score checks, no income verifications, and home appraisals are waived completely.
In addition, via the FHA Streamline Refinance, homeowners with a mortgage pre-dating June 2009 get access to reduced FHA mortgage insurance rates.
Verify your FHA loan eligibility. Start here
FHA loan disadvantages
What is the downside to an FHA loan? Among the numerous benefits of FHA loans, there are certain disadvantages that potential borrowers should be aware of. These drawbacks can impact the overall cost and flexibility of the loan.
Here are the downsides that you should know about FHA home loans.
FHA loan mortgage insurance premiums
One of the primary drawbacks of FHA loans is the mandatory mortgage insurance premiums. These include an upfront premium at closing, generally 1.75% of the loan amount, and ongoing monthly payments. This additional cost can make FHA loans more expensive over the long term
Loan limits
One notable limitation of FHA loans is the lower loan limits compared to conventional loans, which can be restrictive for higher-income buyers. The FHA mortgage limit for a one-unit property ranges from $ to $ for single-family homes in most parts of the country, which may not be sufficient in areas with higher property values.
Strict property requirements
FHA loans come with stringent property requirements. The purchased home must be the borrower’s primary residence and must meet specific safety and condition standards. This requirement can limit the types of properties that qualify for an FHA loan.
FHA loan alternatives
Alternative loans, like USDA and VA loans, offer distinct advantages, such as no down payment requirements, but come with specific eligibility criteria. Understanding these alternatives ensures you make a well-informed decision about the type of mortgage that’s right for you.
Conventional 97
The Conventional 97 program comes with a down payment requirement of just 3%. It stands out due to the absence of income limits and mandatory home buyer education, making it accessible to a broader range of homebuyers.
Check your conventional loan eligibility. Start here
HomeReady Mortgage by Fannie Mae
The HomeReady mortgage program is designed for low- to moderate-income families, allowing a home purchase with only a 3% down payment. Furthermore, this program permits the entire downpayment and closing costs to be covered by gifts or grants, offering significant financial flexibility.
Freddie Mac Home Possible
The Home Possible loan is notable for its reduced mortgage insurance costs compared to other similar programs. With a 3% down payment requirement and lower ongoing costs, Home Possible is an attractive alternative for those looking to save on mortgage insurance.
USDA loans
USDA loans, backed by the U.S. Department of Agriculture, are an attractive alternative, especially for moderate-income buyers in rural areas. They don’t require a down payment, which is a significant advantage. However, eligibility for USDA loans is restricted based on income and geographical limits, and not every property qualifies for this type of financing.
VA loans
VA loans are another viable alternative, particularly for U.S. military service members, veterans, and certain surviving spouses. Like USDA loans, VA loans also require no down payment. However, eligibility for VA loans is exclusive to the military community, limiting their accessibility to the general public.
FAQ: FHA loans
Can I choose between a fixed rate and an adjustable-rate FHA loan?
Yes, FHA loans offer both fixed-rate and adjustable-rate (ARM) options. A fixed-rate FHA loan provides a consistent interest rate and monthly payment for the life of the loan, ideal for those who prefer stability. An adjustable-rate FHA loan, on the other hand, has an interest rate that can change over time, typically offering lower initial rates.
Do FHA loans have lower interest rates?
FHA loans often have lower interest rates compared to many conventional loan options. This is largely due to the government backing of FHA loans, which reduces the risk for lenders. As a result, lenders are generally able to offer more competitive mortgage rates to borrowers. However, the actual interest rate you’ll receive on an FHA loan can vary based on several factors, including your credit score, loan amount, and the current market conditions. It’s always a good idea to compare rates from multiple lenders to ensure you’re getting the best deal possible for your situation.
Are FHA loans assumable?
Yes. A little-known FHA benefit is that the agency will allow a home buyer to assume the existing FHA mortgage on a home being purchased. The buyer must still qualify for the mortgage with its existing terms but, in a rising mortgage rate environment, it can be attractive to assume a home seller’s loan. Five years from now, for example, a buyer of an FHA-insured home could inherit a seller’s sub-3 percent mortgage rate. This can make it easier to sell the home in the future.
Can you buy a rental property with an FHA loan?
While you can’t buy a true rental property with an FHA loan, you can buy a multi-unit property — a duplex, triplex, or fourplex — live in one of the units, and rent out the others. The rent from the other units can partially, or even fully, offset your mortgage payment.
Are closing costs higher for FHA loans?
Closing costs are about the same for FHA and conventional loans with a couple of exceptions. First, the appraiser’s fee for an FHA loan tends to be about $50 higher. Also, if you choose to pay your upfront MIP in cash (instead of including this 1.75% fee in your loan amount), this one-time fee will be added to your closing costs. Additionally, the fee can be rolled into your loan amount.
What credit score do I need for an FHA loan?
Most borrowers will need a minimum credit score of 580 to get an FHA loan. However, home buyers who can put at least 10% down are eligible to qualify with a 500 score. Yet, each lender may have their own credit score minimums, separate to those established by the Federal Housing Administration.
What is the loan-to-value ratio requirement for FHA loans?
The loan-to-value (LTV) ratio for FHA loans typically cannot exceed 96.5%, meaning you can borrow up to 96.5% of your home’s value. This high LTV ratio is part of what makes FHA loans accessible, especially for first-time homebuyers who might not have substantial savings for a down payment.
How does PMI work with FHA loans?
For FHA loans, the equivalent of private mortgage insurance (PMI) is the mortgage insurance premium (MIP). MIP is required for all FHA loans, regardless of the down payment or loan-to-value ratio. This insurance protects lenders from losses in case of borrower defaults and is included in both upfront and ongoing mortgage costs.
What happens if I default on an FHA loan?
If you default on an FHA loan, the lender can initiate foreclosure proceedings. The FHA loan program, backed by the Federal Housing Administration, is designed to minimize the risk of defaults by offering more lenient qualification criteria. However, consistent failure to make mortgage payments may lead to foreclosure, impacting your credit score and homeownership status.
Today’s FHA loan rates
Now is an opportune time to consider an FHA loan, with current mortgage rates being historically competitive.
FHA loan interest rates are typically among the most competitive. To capitalize on these favorable rates, start by comparing offers from FHA-approved lenders.
Finding the most affordable loan could be just a few clicks away. Begin your journey towards homeownership today by exploring your options and discovering the best rates available for your financial situation.
Time to make a move? Let us find the right mortgage for you
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
If you overpay your credit card, you won’t lose the money, and your credit won’t take a hit. You’ll just have a negative credit card balance, which you can use toward future purchases, or you can request a credit balance refund.
With so many things to keep track of in your financial life, it can be easy to make an occasional mistake. And while mistakes like a late payment can have negative effects on your credit health, there are other slip-ups that aren’t necessarily a bad thing—and overpaying your credit card is one of them.
If you overpay your credit card, perhaps due to an automatic payment and a manual payment overlapping, there’s no need to worry. You won’t lose the money, and your credit score won’t take a hit. You’ll know you’ve overpaid if you have a negative credit card balance.
What is a negative credit card balance?
A negative card balance means that something has happened to cause your balance to dip below zero. Your first thought may be that something is wrong—but a negative balance means that your credit issuer owes you money.
Common ways negative balances happen
Negative credit card balances are fairly common and are nothing to fret over. If you notice a negative balance, you may wonder what triggered it. Below are five common causes.
Your manual payments and autopay overlapped. If you manually paid an amount greater than your balance, you would have a negative balance. Alternatively, if you made a payment around the same time that an automatic payment happened, your balance could dip below zero.
You received a refund on a purchase. If you made a purchase with your credit card and then paid off your full balance, you would show a balance of $0. If you then returned the purchase and received a refund on the card, you would have a negative balance.
You earned rewards or statement credits. Some credit card companies offer welcome bonuses or cashback rewards in the form of statement credits. If you received credit when your balance was already zero, you would have a negative balance.
You reversed fraudulent charges. If you were the victim of credit card fraud or someone used your card without authorization, your card issuer would reverse the transaction. This could result in a negative balance, depending on how much was charged and your previous balance. If the fraud is reflected on your credit report, you can address it by filing a dispute.
You negotiated fees. If you can successfully negotiate with your credit card issuer to waive fees, you may end up with a negative balance if you’ve already paid off those charges.
What to do if you overpay your credit card
No matter the cause of your negative balance, you have two options:
Do nothing. Any future purchases you make will bring your account back to positive. If you don’t make any purchases on the card after six months, creditors must refund the full negative balance.
Request a credit balance refund from your credit card issuer. Since a negative balance means the credit issuer owes you money, many people opt to file for a refund to bring their account back to zero.
How to submit a credit refund request
Each credit card issuer has its own policy on how credit balance refunds work, so check with your financial institution for step-by-step instructions.
Typically, you can request a credit refund online, via mail or over the phone. A refund may be issued as cash, check, direct deposit or money order.
The Federal Trade Commission requires creditors to send you a credit refund within seven business days of receiving a written request. If you haven’t heard from them after seven days, follow up to ensure it was issued and processed correctly.
Fraud triggers
While credit balance refunds are usually executed without difficulty, there may be instances where your financial institution is suspicious of fraud. This typically happens if the negative balance is significant—like if you added an extra zero to your payment amount.
Large negative balances are a warning signal of refund fraud or money laundering. To combat this, creditors may freeze your account or even shut it down as a measure of consumer protection. If fraud is suspected due to a mistake, it may cause some inconvenience.
As soon as you become aware of a large negative balance, call your credit card company and explain the mistake. They’ll make your account right again.
How overpaid balances show up on your credit report
A negative credit card balance isn’t bad for your credit. In fact, it doesn’t show up on your credit report at all, so the three major credit bureaus will never know you have a negative balance—it will simply show up as zero.
Perhaps more important than the balance itself is the credit utilization rate. According to FICO®, this plays into the “amounts owed” category of your credit score, which accounts for 30 percent of the total score. When you have a negative balance, your utilization rate is zero percent, which works in your favor—typically, the lower your utilization rate is, the better.
4 tips to prevent overpaying your credit card balance
While there’s virtually no harm in overpaying your credit card balance, it may be a hassle to request a balance refund in the event of overpayment. Also, dealing with potential fraud triggers could prove frustrating. Here are four tips to help you avoid overpaying your credit card balance.
1. Check your statements regularly
Checking your credit card statement and knowing your balance is a great way to ensure you won’t overpay your credit card balance. Carefully review your statement before making a payment and note if there are any discrepancies.
Returns and refunds can also result in overpayment if they come through after you pay off the balance, so make sure you check that for any recent refunds.
2. Set up automatic payments
Automatic payments are extremely helpful—especially for avoiding late fees. Often, you can set up an automatic payment for a specific amount or to pay off the current balance. Just ensure you have enough in your checking account to cover the payment to avoid overdraft.
3. Avoid manual payments right before a scheduled payment
Manual payments that are soon followed by automatic payments can result in an overpayment. If possible, consider waiting until the automatic payment goes through and then pay the remaining balance.
4. Use account alerts
Banking and credit card companies often allow you to set up automatic alerts based on specific criteria. These alerts can come as a text, email or phone notification. You may consider setting up an alert when your card balance reaches a specific threshold.
Negative credit balance FAQ
There tends to be a bit of confusion related to negative credit card balances that may cause people to purposefully overpay in hopes of receiving a benefit. Let’s answer the following commonly asked questions to clear up any misconceptions.
Will overpaying my credit card increase my credit score?
Overpaying has no more impact on your credit score than paying the full balance does. Paying down your credit card to a zero balance is good for your credit, but you won’t see an extra boost by purposefully overpaying because it will still show up as a zero balance on your credit report.
If you’re looking to improve your credit score, try these tips:
Make all loan and credit card payments on time
Lower your credit utilization
Avoid closing old credit cards (even if you don’t use them)
Open a secured credit card
Become an authorized user on the credit card of someone with good credit
Apply for a credit building loan
Consider sending a pay for delete letter
Dispute inaccuracies on your credit report
Include rent and utilities on your credit report
Will overpaying my credit card increase my credit limit?
While having a negative balance may provide a little extra wiggle room for a future large purchase, it won’t increase your actual credit limit. If you have a balance of negative $100 on a card with a limit of $3,000, your official limit is still $3,000—it will just take you a bit longer to reach that limit since you have a $100 credit.
If you’d like to increase your credit card limit, try one of these three options:
Apply for a new credit card with a higher limit.
Request a higher limit from your credit card issuer.
Check to see if your credit card issuer will automatically boost your limit in the future.
Does overpaying my credit card allow me to profit from interest?
Overpaying your credit card isn’t the same as depositing money into an interest-earning savings account. You don’t earn interest on a negative credit balance—the money simply sits there until it is refunded or until purchases bring the account back to a positive balance.
Take control of your credit today
Lexington Law Firm has a team that can help you understand your credit and address any errors that may be negatively affecting it. Lexington Law Firm also offers continuous credit monitoring services to protect you from fraud and credit-related discrepancies. Ready to take control of your credit? Learn how we can help by getting your free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Sarah Raja
Associate Attorney
Sarah Raja was born and raised in Phoenix, Arizona.
In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.
Traditionally, one third of all homes get a price cut before they sell and when demand gets weaker, this percentage increases, which we saw in 2022 when prices were falling in the second half of the year. However, as home sales stabilized in 2023, so did this data line. While the percentage of price cuts is still much higher than 2021 levels, this explains why prices were stable in the second half of 2023 versus the second half of 2022.
Now that mortgage rates have fallen and as we start the brand new year, we need to focus on this data line more. I believe we should get more sellers in 2024 than in 2023, but that doesn’t necessarily mean home prices will fall.
Price cut percentages
As you can see in the chart below, if we continue the current seasonal trend, we are going to surpass the price-cut percentage lows of 2023 by this spring. This is why following the housing market tracker tied to the 10-year yield, mortgage rates, and purchase application data will be as critical as last year to tell you what’s going on in the housing market. That way you don’t need to wait for stale sales data. If mortgage rates increase or supply grows faster than expected, this data line is critical to telling the truth.
Here are the year-over-year price-cut percentages from the first week of the year:
2024 32.8%
2023 36.5%
2022 22.6%
It’s 2024! Time to get this party started!
Of course, my main wish during the crazy COVID-19 period was to try to get total active listings back to pre-COVID-19 levels, which was a functioning marketplace with more choices. It’s been challenging as only a few parts of the U.S. have returned to pre-COVID-19 levels. However, one key for 2024 is finding the seasonal bottom in housing inventory sooner rather than later. We want to see active inventory bottom out in January and February — not March and April.
Weekly housing inventory data
Here is a look at the first week of the year:
Weekly inventory change (Dec. 29-Jan. 5): Inventory fell from 513,240 to 499,143
Same week last year (Dec. 30-Jan. 6): Inventory fell from 490,809 to 471,349
The inventory bottom for 2022 was 240,194
The inventory peak for 2023 is 569,898
For context, active listings for this week in 2015 were 959,028
New listings data
This is the year we should all be rooting for new listings data to grow. Last year, It was great to see that new listing data didn’t take a new dive lower no matter how high mortgage rates got. While working from the lowest levels, 2024 should show year-over-year growth: I’d like to see new listings data get back to 2021 and 2022 levels. Both these years were the lowest new listing levels before rates rose, so it’s not asking for much. I talked about this on CNBC a few months ago.
The year-over-year data is meaningless late in the year or very early: we need to get back to 2021 and 2022 levels during the spring period entering the summer. Hopefully, this will occur in 2024.
Mortgage rates and the 10-year yield
In my 2024 forecast, the 10-year yield range is between 4.25%-3.21%, with a critical line in the sand at 3.37%. If the economic data stays firm, we shouldn’t break below 3.21%, but if the labor data gets weaker, that line in the sand — which I call the Gandalf line, as in “you shall not pass,” will be tested. This 10-year yield range means mortgage rates between 7.25%-5.75%. If the spreads get better, mortgage rates can be lower than this.
Last week was jobs week, and some of the data was good, while some showed softness. Starting from Tuesday, mortgage rates starting didn’t move too much even though the bond market had some wild swings.
However, from the previous week, we went from mortgage rates of 6.61% to a high of 6.76%. Right now, I am watching for 3.80% on the 10-year yield, and if the economic data gets better and the Federal Reserve makes another mistake by getting too hawkish, 4.40% on the upside. However, one big positive now is that the spreads are improving. We have the CPI inflation report coming up this week, so that should be a market mover. Always remember, the Fed presidents can say something hawkish and mess things up daily.
Purchase application data
I will keep this very short and sweet: we never care about the last two weeks of the year with purchase applications because nothing happens during Christmas and New Year’s Eve. Traditionally don’t track the first week of the year either, but for the tracker purposes, starting next week, I will.
The truth is that mortgage demand has collapsed, and it has a tough time growing with rates above 6%. With that said, last year, we had 23 positive and 24 negative prints, and two flat prints for the year. Before Christmas came, we had an excellent six-week positive growth trend as mortgage rates fell almost 1.5% from 8%.
Purchase apps are seasonal; we focus on the second week of January to the first week of May. Traditionally, volumes always fall after May, so we will get a good idea of how the year will look soon. Remember, context is vital we are working from the lowest levels ever, so it doesn’t take much to move the needle higher, but we want to see real growth, not a low-level bounce. A sub-6% mortgage rate with duration should do the trick, but we aren’t there yet. So, for now, we will be very mindful of the weekly data.
The week ahead
We have two inflation reports coming out this week: The all-important CPI report on Thursday and the PPI report on Friday. The growth rate of inflation has cooled down enough to stop the rate hike cycle and now we want to see rate cuts. The one good thing about the CPI report is that the most significant component of CPI, shelter inflation, hasn’t had its big move lower yet. Also, it’s impossible to have core CPI accelerate higher without shelter inflation taking off again since it’s 44.4% of the index.
Even though it’s a large city, San Francisco still retains a very welcoming and neighborly vibe, and much like San Diego, New York and Los Angeles, there’s a certain charm here that draws in many new residents each year. The cost of living in San Francisco scares many off, but there are plenty of secrets to discover within this picturesque city.
All of these incredible amenities come with a steep monetary price. Even in the area’s most affordable neighborhoods, estimated monthly costs are high. In fact, the cost of living in San Francisco is a whopping 84.2 percent higher than the national average.
This is how San Francisco’s cost, as a whole, all breaks down.
San Francisco housing prices
When searching for apartments in San Francisco, you’ll face a lot of competition, even where the median rent is high. Despite the infamous San Francisco cost of living, though, people still want a San Francisco home.
As one of the hottest markets in the country, San Francisco housing is 242.3 percent above the national average. Although there are some affordable neighborhoods, many properties have an average apartment rent that’s sky-high. Not surprisingly, this greatly affects your estimated monthly costs and raises your living index. It’s also the primary reason this is such an expensive city.
To break down what this cost means, the average monthly rent for a one-bedroom in San Francisco is $3,554, up 4 percent over last year. For a two-bedroom, rent averages out to $5,007, an increase of 10 percent over last year. This is mind-boggling when you look at nearby cities like San Jose, where the average monthly rent is almost $1,000 less for both one- and two-bedroom units.
For those looking to buy, home prices vary widely depending on the neighborhood, but the median sale price in San Francisco is $1.525 million. This is up only 1.2 percent over last year, but homes often sell quickly. The median days on the market is less than three weeks.
Apartment hunting in San Francisco
Whether living a life of luxury or trying to keep things affordable in San Francisco, there’s a neighborhood for you. Even in expensive cities, you can find those hidden gems if you’re willing to look.
If you want to live in one of the more popular downtown neighborhoods like Rincon Hill and Nob Hill, prepare to pay (or find a roommate.) The average rent for a one-bedroom apartment is between $3,595 and $4,505.
For a neighborhood geared more toward young families, the average rent for a two-bed in Bernal Heights is only $2,800. For those wanting to live in California on a budget and still stay safe, the average rent for a two-bed in Outer Richmond is only $3,195.
San Francisco food prices
San Francisco is the epicenter of delicious food — more than 30 restaurants have garnered 44 Michelin stars. But, having such fantastic options does not often come cheap. Thankfully, when you’re on a budget, just go for that bread bowl, whatever is in it. In fact, you can get an entire meal at an inexpensive restaurant for $20.
For those who like to cook at home, San Francisco grocery costs are 29.8 percent higher than the national average. The data isn’t all bad, though, as this total is down by 0.6 percent compared to the past year.
Although there’s obviously variation by brand and store, there are some standard product prices that shed a light on grocery costs. For example, a dozen eggs will cost you $3.47, and a half-gallon of milk rings up at $3.55. For those who can’t get enough of that sourdough (or any kind of bread,) the average loaf will run you $4.81.
While there are plenty of locally-crafted, small-batch breweries, you’ll pay a premium price for your lager — the average six-pack is $10.19.
San Francisco utility prices
Utility rates in San Francisco neighborhoods won’t help keep your cost of living index low. While they’re 33.8 percent higher here than the national average, the saving grace is the year-round mild Bay Area weather.
As a result of the mild temperatures, there’s little need to turn on the apartment air conditioner during the summer. And during the wet winter months, a sweatshirt indoors will usually suffice. That said, the average energy bill is still high, at $275.58.
This makes utilities in San Francisco a cost of living concern, compared with most other cities. Even the companion California cities of Los Angeles and San Diego have lower utility averages.
San Francisco transportation prices
Transportation costs in San Francisco are 41.6 percent higher than the national average, which is actually 3.4 percent less than last year. The most expensive city for transportation in California behind San Fran is Oakland, San Francisco’s next-door neighbor, which has an average that’s 39.2 percent above.
What’s great about San Francisco is that the city comes with the advantage of multiple public transit options. There are the famous cable cars, the bus and rail systems and an abundance of ride-share services.
To travel in style, an iconic cable car is a great way to experience the city. Offered through San Francisco Municipal Railway (MUNI), riders can pay $8 per ride. The MUNI buses take your transportation expenses down a notch with single-ride fares at only $2.50. You can also purchase a monthly pass, which includes busses and cable car rides, for $81.
To take the train in, out and around the city, use BART (Bay Area Rapid Transport). Stops include the airport, as well as an assortment of East Bay cities. Six lines are available, with easy color-coded routes. The best way to verify the price of your one-way fare is to use the BART fare calculator. To save a little, get a Clipper Card and buy in bulk.
Thanks to its extensive public transit network, San Francisco leaves you with plenty of ways to explore where you don’t have to own a car.
Biking and walking
Biking, a popular way to get around the city, is cheap but arduous thanks to the many famously steep hills that San Francisco neighborhoods are known for. With a bike score of 77, you’ll often see bright green, bike-only lanes running next to busy streets — plus, plenty of bike-share stalls located throughout the city.
San Francisco is also ideal for walking, especially for renters in city-centric apartments. With so many amenities in proximity to area housing, this city earned itself a walk score of 93.
San Francisco healthcare prices
At 33.9 percent higher than the national average, the data says that San Francisco is an expensive market when it comes to healthcare. However, the upside to living in San Francisco is that renters do have access to some of the nation’s top doctors and treatment facilities.
It’s difficult to calculate an average for healthcare expenses, as prices are dependent on personal needs and other factors. That being said, the price for healthcare issues in San Francisco is more than in most places. Overall prices are 18.9 percent more than in Los Angeles and 26.7 percent more than in San Diego, and these other cities have their own reputations for being high-end.
Looking at medical costs in the Bay Area, a routine visit with your doctor averages out to $177.33. For an eye exam, you’ll see an average bill of $156.75 from your optometrist, while a trip to the dentist will set you back $150. These prices are without medical insurance, so the total cost could be very different depending on your plan.
San Francisco goods and services prices
Whenever your cost of living includes something you want more than you need, it’s most likely a good or service. Many of these expenses are optional, unlike housing costs, so it’s easier to keep them in check.
That said, this is an expensive item on the list. The cost of goods and services in San Francisco is 24.3 percent higher than the national average, up 2.4 percent over last year. This means you’ll most likely spend more for that movie ticket ($15), yoga class ($24.17) or a trip to the salon ($85.71) than friends in other cities.
Taxes in San Francisco
California has the highest state sales tax in the nation at 7.25 percent, and localities can add an additional tax on top of it. This makes the minimum combined sales tax rate for San Francisco 8.625 percent.
What this means is when you purchase $1,000 worth of clothing and home goods, as you browse around Union Square, you would pay $86.25 of that in sales tax.
California also has a progressive income tax, with rates between 1 percent and 13.3 percent, separated into nine brackets. Making less money means paying lower income taxes while those with a higher salary should expect to sit in the upper end of the tax bracket.
How much do I need to earn to live in San Francisco?
The price to rent a San Francisco apartment is not cheap, but it’s a huge factor in working out your own cost of living. If you’re not sure how much apartment you can afford on your annual salary, you can figure it out using our rent calculator.
You can also do a little estimating using the current standard cost of a one-bedroom apartment. The monthly rent for this unit is $3,621. If you apply 30 percent of your annual income to rent, as many experts suggest, you’d need a job that pays at least $134,720 to live on your own.
This isn’t always possible, given that the median household income in the city is $119,136. You may have to spend a little more than that 30 percent of a more average salary to live alone or consider other options. This may mean finding a monthly rent that’s lower, spending less money on those goods and services or even living with roommates. All of these options can bring San Francisco costs down and improve your own cost of living in this expensive city.
Living in San Francisco
San Francisco is full of unique beauty and charm. With its many parks, perks, great schools and happy people, this is a city for dreamers and doers — one of the best in all of California. The trick is to not let the high cost of living deter you from calling this great city home. You can do it if you watch costs carefully and budget well.
The Cost of Living Index comes from coli.org.
The rent information included in this summary is based on a calculation of multifamily rental property inventory on Rent. as of August 2022.
Rent prices are for illustrative purposes only. This information does not constitute a pricing guarantee or financial advice related to the rental market.
Columbus, Ohio, stands out as a stellar city to Buckeyes and folks from all over the Midwest. This article aims to highlight just a few of the many attributes that make Columbus a unique and appealing place to lay down roots, especially for those on the hunt for an apartment in the city. But what is Columbus, Ohio, actually known for? Let’s take a look beyond the stereotypes and find the heart of this underrated gem.
Whether you’re a theater aficionado hoping to stay plugged into the live performance scene or a sports nut looking to spend all Saturday tailgating in a frozen parking lot, Columbus has something special for everyone, including you.
Employment opportunities
Columbus is a hub for employment opportunities in Ohio. It’s a powerhouse in a range of industries, including education, healthcare, technology and finance, just to name a few. The city is the headquarters of several major corporations, like Nationwide Insurance and L Brands. Additionally, The Ohio State University, located here, is not only a major employer but also a center for research and innovation.
The five largest employers in Columbus
Entertainment
Let’s talk entertainment. To put it simply, Columbus has a lot to offer. The city has a thriving arts scene, with performances and exhibitions year-round. Sports nuts can cheer on the Columbus Crew soccer team and Columbus Blue Jackets hockey squad. The city also has a lively nightlife with plenty of bars, clubs and restaurants.
Five great spots to see a live show in Columbus
History
Columbus has an interesting history that is worth getting to know. This history is represented in its architecture and can be found in its many museums. The Ohio History Center and the Columbus Museum of Art house exhibits that showcase the state’s past. The city’s German Village neighborhood, with its well-preserved 19th-century buildings, offers a small but delightful glimpse into its past.
Natural resources
The city is blessed with some beautiful scenery as well. The Scioto River runs through Columbus, providing a picturesque backdrop and opportunities for activities like kayaking and fishing. The city’s parks, like the Franklin Park Conservatory and Botanical Gardens, offer beautiful green spaces for kicking back and unplugging from the urban sprawl.
Food scene
Columbus’s food scene is, in a word, exciting, with a range of cuisines to choose from on any given night. From food trucks to fine dining, the city caters to all tastes. North Market, a local landmark, is a food lover’s paradise with a smorgasbord of culinary masters selling everything from artisan bread to international dishes.
Five of the best bars and restaurants in Columbus
More highlights
Columbus is also known for its commitment to education and community. The presence of The Ohio State University contributes to an atmosphere of learning and intellectual exchange. The city is also involved in more than a few sustainability and green initiatives, showing a strong commitment to environmental stewardship.
Columbus is a cool spot
For anyone moving to Columbus, it’s easy to see that the city offers a whole heck of a lot. From employment opportunities to live entertainment and more, there’s something for everyone in Columbus, you just have to know where to find it.
Columbus, Ohio is a city where history, nature, art and innovation come together, making it an ideal place for renters seeking the perfect apartment in the perfect place.
Another strong jobs report finished off a remarkably solid year for labor in 2023. Among the highlights:
Job growth continued. The Bureau of Labor Statistics data shows the U.S. economy once again beat expectations for jobs gains at 216,000 for December, the latest in a 36-month trend of growth. For 2023, job growth came in at 2.7 million, with an average monthly gain of 225,000. By comparison, 4.8 million jobs were added in 2022, with an average monthly gain of 399,000.
Unemployment remained low. The unemployment rate stayed steady at 3.7%, and rates are on a streak of 23 months below 4% — a stretch unseen since the late 1960s, Bureau of Labor Statistics data shows.
Wage growth remains elevated. Wage growth came in at 4.1% over the prior 12 months — that’s good news for workers, but higher than the Federal Reserve might like as it determines when it begins cutting rates in 2024.
A tight labor market, falling inflation and persisting economic growth all form a strong economic picture heading into 2024. But high interest rates remain, as do elevated prices. NerdWallet spoke with Jared Bernstein, chair of the White House Council of Economic Advisers to get his take on Friday’s jobs report, consumer sentiment and the economic look ahead.
The following interview has been edited for length and clarity.
NerdWallet: In 2023, inflation fell, the labor market steadily cooled, we saw higher-than-expected GDP growth and avoided a recession. Many economists seem surprised that the Fed was able to ease inflation without tanking the job market or tipping us into a recession. Are you surprised at where we stand right now?
Jared Bernstein: I wouldn’t say I’m particularly surprised. And in fact, we’ve long argued publicly that the goal was to maintain the tight labor market while easing inflationary pressures. I think President Biden views that as a key way to both empower workers with the maintenance of the tight job market while giving families some breathing room with easing inflation and even some lower prices. Substantively, an important piece of this is recognizing that supply chain normalization and the improvement of the economy’s supply side — whether it’s logistical supply chains or the increase in labor supply — have also helped in that regard. And that’s a good way to reduce inflationary pressures without dinging the demand side of the equation.
NerdWallet: Last year, job gains were mainly in three areas: health care, government, as well as leisure and hospitality. How much of the 2023 job growth can we attribute to a rebound from the pandemic, and how much can we attribute to underlying economic growth?
Jared Bernstein: I think by the time you’re in 2023 a chunk of the rebounding is behind you. Certainly the biggest numbers. One way to think about this is that in ’21 the average monthly job gain was 600,000 a month — so that’s huge and it has some rebounding clearly embedded in it. And in ’22 the analogous number that’s the average monthly job growth was about 400,000. And in ’23 it was around 200,000 and 225,000. So there’s kind of a stepladder there that gets you more into a steady, stable growth path.
I think by the time we got into ’23, we really executed on the president’s plan to maintain a tight job market and to get wages rising. That is such a key — real wages beating prices. Look, in an economy that’s 70% consumer spending like this one, if American consumers are facing a tailwind of a strong job market and easing prices, rising real pay, that’s a pretty good forward-motion machine. I think that’s a lot of what we saw in ’23.
NerdWallet: So is there some economic vulnerability in having growth concentrated in so few sectors? Some of the more interest-rate-dependent industries, for example, have shown little to no growth. And other areas like transportation and warehousing that boomed during the pandemic are now seeing some decline.
Jared Bernstein: Well, I get paid to worry about everything, so I’ll never say, ‘Oh, nothing to see there,’ but I think that caution has been somewhat overplayed. Lots of industries created jobs. I think 70% of the industries contributed in ’23, some more than others, as you say. If you think interest rates are more likely to be down than up next year, then that should be helpful to some of the interest rate-sensitive sectors that you mentioned, upwardly speaking.
If I look at the sectors that did create the most jobs, some of them are very large and significant sectors — private services, for example. We saw some great manufacturing numbers this year, more in the first half than in the second half of the year.
We also know that we had good construction numbers, and not so much in residential buildings, but more in nonresidential. And I think some of that really links up to factories that are being built. There’s hundreds of billions of capital that’s come in from the sidelines supported by the Inflation Reduction Act and the Chips Act. We’re actively building manufacturing facilities in this country to stand up the domestic industry of chips with electric vehicles, batteries and that should lead to more manufacturing jobs once those factories come online.
“ Executing on the president’s agenda has led to a situation where things are looking a lot better than people thought they would. And I think as time goes on, we’ll see more positive reporting when it comes to consumer sentiment.”
Jared Bernstein, chair of the Council of Economic Advisers
NerdWallet: I want to shift to consumer sentiment and approval of President Biden’s economic management — both slumped for most of the year, but at least one recent poll shows that the tide may be turning in that respect. How do you understand the disparity between the economy’s many objective strengths and consumer discontent?
Jared Bernstein: Well, I think it takes some time for the dynamics that you and I have been talking about to reach into people’s lives, and there’s a consciousness deep enough that it shows up in some of these indices of confidence and sentiment. And that’s why the December numbers, as you suggest, are a positive glimmer there. It’s one month, so it’s not a new trend, but the consumer confidence survey was up 10%; the University of Michigan sentiment survey was up a whopping 14%; there was some other polling that began to show this morphing in the way you suggested.
I think one of the things that’s going on there, again, has to do with this intersection of the very strong job market while inflation is easing. So we see real wage gains; wages are beating prices now for 10 months in a row for middle-wage workers. A lot of economists and I think it was 90% of CEOs a year ago said we would be in a recession. So executing on the president’s agenda has led to a situation where things are looking a lot better than people thought they would. And I think as time goes on, we’ll see more positive reporting when it comes to consumer sentiment.
NerdWallet: Interest rates are something that’s obviously on the mind of the market and consumers. Can you comment on the effect today’s jobs report might have on the timing of Fed’s rate cuts?
Jared Bernstein: Yeah, no I can’t. We have much respect for the independence of the Federal Reserve. So I’m certainly not going to talk about that. But I can talk to you a little bit about inflation because, of course, it’s relevant.
At the end of the day, inflation is going to drive a lot of the result of that kind of question. So we know that inflation is down two-thirds from its peak. We know that the six-month annualized rate of one of the inflation gauges the Fed watches most carefully, the core PCE, is growing at just below 2%. So that’s a good sign for them.
We also know that actual prices probably get more into sentiment than the Fed. And we know that actual prices — not lower inflation, actually lower prices — are in place whether we’re talking about gas or bread, milk, eggs, toys, TVs, airfares, used cars, a lot of things that really spiked in price have come down in price. So we’ve had some deflation there. That helps with breathing room and, of course, that helps on the inflation side as well.
NerdWallet: Can you talk a little bit about the populations that fueled labor force growth in the last year, specifically women?
Jared Bernstein: When President Biden talks about empowering workers — and that’s a key pillar of Bidenomics — one of the things he’s really thinking about is the benefit of running a tight labor market, and the way they cascade to groups that have historically been underserved or even left behind.
So here’s a number you haven’t probably heard too much today, but it comes out of the report: If you look at the average Black unemployment rate for 2023, it’s 5.5% — that’s the lowest Black unemployment rate on record for an annual average going back to 1972, when the Bureau of Labor Statistics started collecting that data. If you look at the employment results for disabled workers, they’re shooting up very nicely. And, of course, women, in what we call prime age: 25 to 54. If you look at folks in their prime working years, women’s labor force participation broke records in 2023.
This is just what happens when you have a persistently tight labor market with the unemployment rate below 4% for 23 months in a row, 14.3 million jobs, 36 months in a row of job creation. It’s a great labor market. And it’s reaching folks who too often are left behind under weaker conditions.
Photo by Kevin Dietsch/Getty Images News via Getty Images