Where Are Young Buyers Relying on Older Co-Signers to Buy Homes?

Couple making a mortgage payment
fizkes / Shutterstock.com

Editor’s Note: This story originally appeared on Porch.

After two years of high competition and fast-rising prices in residential real estate, the market is at last seeing signs of cooling off.

While many buyers may be starting to feel relief, younger buyers have had an especially difficult time in this market and may continue to struggle. The Millennial generation — Americans aged 26 to 41 — are currently in their peak homebuying years, representing 43% of buyers according to recent data from the National Association of Realtors.

Because they are earlier in their working lives, young shoppers may have less saved up to put toward a home, and they also tend to be first-time buyers, which means they do not have existing home equity available to help finance a purchase.

To overcome these challenges, some young buyers have relied on older friends and family members with more financial resources to support a home purchase. Co-signers are people who agree to be responsible for loan payments if the primary signer defaults.

To determine the states with the highest percentage of young homebuyers with an older co-signer, researchers at Porch analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. The researchers ranked states by the percentage of young homebuyers (34 years old or younger) with an older co-signer (55 years old or older). In the event of a tie, the state with the higher median property value for young homebuyers with an older co-signer was ranked higher.

Following are the states where young buyers are most likely to rely on an older co-signer.

15. Illinois

Modern farmhouse
Hendrickson Photography / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 0.919%
  • Median property value for young buyers with an older co-signer: $225,000
  • Median property value across all young buyers: $245,000
  • Median down payment for young buyers with an older co-signer: $30,000
  • Median down payment across all young buyers: $20,000

14. New Mexico

Santa Fe, New Mexico
Sean Pavone / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 0.969%
  • Median property value for young buyers with an older co-signer: $215,000
  • Median property value across all young buyers: $215,000
  • Median down payment for young buyers with an older co-signer: $50,000
  • Median down payment across all young buyers: $30,000

13. Nebraska

Nebraska city scene
Katherine Welles / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 0.997%
  • Median property value for young buyers with an older co-signer: $195,000
  • Median property value across all young buyers: $205,000
  • Median down payment for young buyers with an older co-signer: $20,000
  • Median down payment across all young buyers: $20,000

12. Rhode Island

Home in Providence, Rhode Island
Laura Stone / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.002%
  • Median property value for young buyers with an older co-signer: $315,000
  • Median property value across all young buyers: $295,000
  • Median down payment for young buyers with an older co-signer: $50,000
  • Median down payment across all young buyers: $30,000

11. Massachusetts

Provincetown, Massachusetts
Lewis Stock Photography / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.018%
  • Median property value for young buyers with an older co-signer: $435,000
  • Median property value across all young buyers: $445,000
  • Median down payment for young buyers with an older co-signer: $70,000
  • Median down payment across all young buyers: $60,000

10. Oregon

Oregon rural home in the country
Rigucci / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.059%
  • Median property value for young buyers with an older co-signer: $365,000
  • Median property value across all young buyers: $385,000
  • Median down payment for young buyers with an older co-signer: $50,000
  • Median down payment across all young buyers: $40,000

9. New Jersey

Morristown, New Jersey
mandritoiu / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.079%
  • Median property value for young buyers with an older co-signer: $365,000
  • Median property value across all young buyers: $375,000
  • Median down payment for young buyers with an older co-signer: $60,000
  • Median down payment across all young buyers: $50,000

8. Vermont

House in Derby Line, Vermont, in fall
Richard Cavalleri / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.080%
  • Median property value for young buyers with an older co-signer: $215,000
  • Median property value across all young buyers: $265,000
  • Median down payment for young buyers with an older co-signer: $40,000
  • Median down payment across all young buyers: $30,000

7. Utah

House in 1991
Matthew Thomas Allen / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.081%
  • Median property value for young buyers with an older co-signer: $335,000
  • Median property value across all young buyers: $335,000
  • Median down payment for young buyers with an older co-signer: $40,000
  • Median down payment across all young buyers: $30,000

6. Nevada

MaxFX / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.159%
  • Median property value for young buyers with an older co-signer: $325,000
  • Median property value across all young buyers: $325,000
  • Median down payment for young buyers with an older co-signer: $50,000
  • Median down payment across all young buyers: $30,000

5. Montana

Missoula, Montana
Jon Bilous / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.176%
  • Median property value for young buyers with an older co-signer: $295,000
  • Median property value across all young buyers: $295,000
  • Median down payment for young buyers with an older co-signer: $50,000
  • Median down payment across all young buyers: $30,000

4. New York

Buffalo New York homes
Richard Cavalleri / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.317%
  • Median property value for young buyers with an older co-signer: $425,000
  • Median property value across all young buyers: $335,000
  • Median down payment for young buyers with an older co-signer: $70,000
  • Median down payment across all young buyers: $40,000

3. California

Homes in Sacramento, California
Emmy Bersa / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.358%
  • Median property value for young buyers with an older co-signer: $535,000
  • Median property value across all young buyers: $545,000
  • Median down payment for young buyers with an older co-signer: $100,000
  • Median down payment across all young buyers: $100,000

2. Colorado

Centennial, Colorado
Faina Gurevich / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.361%
  • Median property value for young buyers with an older co-signer: $385,000
  • Median property value across all young buyers: $405,000
  • Median down payment for young buyers with an older co-signer: $60,000
  • Median down payment across all young buyers: $50,000

1. Hawaii

1960s home interior in Hawaii
jr.gardiner / Shutterstock.com
  • Percentage of young buyers with an older co-signer: 1.752%
  • Median property value for young buyers with an older co-signer: $545,000
  • Median property value across all young buyers: $555,000
  • Median down payment for young buyers with an older co-signer: $100,000
  • Median down payment across all young buyers: $80,000

Methodology

Man analyzing data on a laptop
fizkes / Shutterstock.com

To determine the states with the highest percentage of young homebuyers with an older co-signer, researchers at Porch analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. Only conventional, non-commercial, home purchase loans that originated in 2020 were considered in the analysis.

Additionally, data on median home values are from Zillow’s Zillow Home Value Index. The researchers ranked states by the percentage of young homebuyers (34 years old or younger) with an older co-signer (55 years old or older).

Researchers also calculated the median property value for young homebuyers with an older co-signer, median property value across all young homebuyers, median down payment for young homebuyers with an older co-signer, and median down payment across all young homebuyers. In the event of a tie, the state with the higher median property value for young homebuyers with an older co-signer was ranked higher.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

The Average Homeowner Now Has $207,000 in Tappable Equity: The Question Is How Do You Tap It?

While prospective home buyers continue to grapple with high mortgage rates and limited supply, existing owners are getting richer.

A new report from Black Knight revealed that the average American homeowner is sitting on more than $207,000 in tappable equity.

The phrase “tappable equity” means an amount that leaves a 20% equity buffer in place, aka 80% loan-to-value (LTV).

This is generally what banks and mortgage lenders will allow homeowners to borrow to ensure they have some skin in the game.

The question though is how do you tap into that equity, especially in a rising rate environment?

Does a Cash Out Refinance Still Make Sense?

tappable equity

  • Mortgage holders withdrew more than $75 billion in the first quarter of 2022 via cash out refinances
  • The cash out refinance share jumped to 75% during Q1 as rate/term refis waned
  • Early Q2 data suggests higher mortgage rates will dampen demand going forward

As noted, American homeowners are sitting on a staggering amount of available home equity.

At last glance, it was over $11 trillion, or roughly $207,000 per mortgage holder.

That figure is up from $127,000 at the start of the pandemic, and more than 2X the levels seen back in 2006 during the prior market height.

Here’s the problem though – mortgage rates have also basically doubled since the start of the pandemic, making a refinance a tough sell.

Still, cash out refinance volume doubled over the past 12 months, with such loans accounting for 75% of all refinances in the first quarter of 2022.

That was up from a 61% share in the fourth quarter of 2021 and 36% from a year earlier.

Of course, refinance lending overall was down 54% in the first quarter from the same period a year earlier, thanks to an 80% drop in rate/term refis.

Meanwhile, cash-out refis were off just 4% on an annual basis. However, the number of transactions fell for the second consecutive quarter, and growth in overall equity withdrawals slowed.

Ultimately, a cash out refinance won’t make sense for a lot of homeowners if their existing mortgage rate is in the 2-3% range.

Sure, it’s nice to tap into that equity, but not if you have to replace your first mortgage rate with a 5-6% interest rate.

What About a Second Mortgage, Such as a HELOC or Home Equity Loan?

The alternative a lot of borrowers are looking at now that mortgage rates are no longer on sale is a second mortgage.

Banks and mortgage lenders are also ramping up their offerings to account for this trend.

There are basically two main options available to homeowners; a home equity line of credit (HELOC) and a fixed-rate closed second.

The HELOC works similarly to a credit card in that you can borrow only what you need, pay it back over time, or simply keep it open for a rainy day.

The downside to the HELOC is that it features an adjustable interest rate, which is tied to the prime rate.

Whenever the Fed moves rates higher, the prime rate will go up by the same amount.

The Fed is expected to raise rates .50% in June and July to tame inflation. This will translate to a 1% increase in HELOC rates.

Of course, they might be done after that, and if the economy goes into a recession, they could turn around and lower rates too.

So HELOCs might have a somewhat telegraphed price assumption over the next year or so.

If you are risk averse, there’s the home equity loan, which allows you to borrow the full amount at closing.

You get a lump sum of your equity, but no additional draws in the future. The upside is that the interest rate is typically fixed.

The downside is that the interest rate is likely higher than a HELOC to account for the fixed rate advantage.

And as noted, you borrow the full amount, whether you need it or not. This means paying interest on the full amount.

Still, either option may be advantageous to a cash out refinance, which disrupts your first mortgage.

Use a Home Equity Sharing Company?

There are also so-called “home equity sharing companies” where you trade a portion of future home price appreciation for cash today.

One such company in this emerging industry is Point, which allows you to get payment-free cash.

However, you do give up a share of your (hopefully) rising property value in exchange, and they charge an upfront transaction fee that is deducted from your proceeds.

The cost of borrowing then depends upon when you pay it back, via home sale, refinance, or simply buying them out. And how much your property appreciates during that time period.

There was a similar company called Noah, which paused applications a while back. It’s unclear if they’ll resume lending at some point.

Other names in the nascent field include Hometap, Unison, and Unlock.

Personally, I don’t love the idea of giving up future gains, especially when they’re unknown. But it’s an option nonetheless.

Seniors Can Consider a Reverse Mortgage to Tap Available Home Equity

One final option to consider, assuming you’re a senior (62+) is the reverse mortgage.

Not only does it allow you to tap your available home equity, but it also comes with no monthly payments.

This is obviously a plus if you’re retired or close to retirement and want to keep your home, but need cash.

It may also be easier to qualify for a reverse mortgage versus a traditional mortgage, especially for fixed income borrowers.

Like the options discussed above, it’s possible to take out a reverse mortgage as a line of credit, or opt for a lump sum payout.

Additionally, you can opt for an adjustable-rate mortgage or a fixed-rate mortgage. So there’s lots to consider.

There are pros and cons to all those options, and which one you choose will be based on your individual needs and risk appetite.

Reverse mortgages can be more complicated than a traditional mortgage, so shopping around could come with the added benefit of education.

It may also allow you to see more loan program options and scenarios to choose from, including proprietary offerings.

To sum things up, it’s not nearly as cheap as it was just a few months ago to tap your home’s equity, but there are still opportunities on the table.

Take the time to educate yourself about each to determine which, if any, is best for you.

Source: thetruthaboutmortgage.com

The Average Homeowner Now Has $207,000 in Tappable Equity: The Question Is How Do You Tap It?

While prospective home buyers continue to grapple with high mortgage rates and limited supply, existing owners are getting richer.

A new report from Black Knight revealed that the average American homeowner is sitting on more than $207,000 in tappable equity.

The phrase “tappable equity” means an amount that leaves a 20% equity buffer in place, aka 80% loan-to-value (LTV).

This is generally what banks and mortgage lenders will allow homeowners to borrow to ensure they have some skin in the game.

The question though is how do you tap into that equity, especially in a rising rate environment?

Does a Cash Out Refinance Still Make Sense?

tappable equity

  • Mortgage holders withdrew more than $75 billion in the first quarter of 2022 via cash out refinances
  • The cash out refinance share jumped to 75% during Q1 as rate/term refis waned
  • Early Q2 data suggests higher mortgage rates will dampen demand going forward

As noted, American homeowners are sitting on a staggering amount of available home equity.

At last glance, it was over $11 trillion, or roughly $207,000 per mortgage holder.

That figure is up from $127,000 at the start of the pandemic, and more than 2X the levels seen back in 2006 during the prior market height.

Here’s the problem though – mortgage rates have also basically doubled since the start of the pandemic, making a refinance a tough sell.

Still, cash out refinance volume doubled over the past 12 months, with such loans accounting for 75% of all refinances in the first quarter of 2022.

That was up from a 61% share in the fourth quarter of 2021 and 36% from a year earlier.

Of course, refinance lending overall was down 54% in the first quarter from the same period a year earlier, thanks to an 80% drop in rate/term refis.

Meanwhile, cash-out refis were off just 4% on an annual basis. However, the number of transactions fell for the second consecutive quarter, and growth in overall equity withdrawals slowed.

Ultimately, a cash out refinance won’t make sense for a lot of homeowners if their existing mortgage rate is in the 2-3% range.

Sure, it’s nice to tap into that equity, but not if you have to replace your first mortgage rate with a 5-6% interest rate.

What About a Second Mortgage, Such as a HELOC or Home Equity Loan?

The alternative a lot of borrowers are looking at now that mortgage rates are no longer on sale is a second mortgage.

Banks and mortgage lenders are also ramping up their offerings to account for this trend.

There are basically two main options available to homeowners; a home equity line of credit (HELOC) and a fixed-rate closed second.

The HELOC works similarly to a credit card in that you can borrow only what you need, pay it back over time, or simply keep it open for a rainy day.

The downside to the HELOC is that it features an adjustable interest rate, which is tied to the prime rate.

Whenever the Fed moves rates higher, the prime rate will go up by the same amount.

The Fed is expected to raise rates .50% in June and July to tame inflation. This will translate to a 1% increase in HELOC rates.

Of course, they might be done after that, and if the economy goes into a recession, they could turn around and lower rates too.

So HELOCs might have a somewhat telegraphed price assumption over the next year or so.

If you are risk averse, there’s the home equity loan, which allows you to borrow the full amount at closing.

You get a lump sum of your equity, but no additional draws in the future. The upside is that the interest rate is typically fixed.

The downside is that the interest rate is likely higher than a HELOC to account for the fixed rate advantage.

And as noted, you borrow the full amount, whether you need it or not. This means paying interest on the full amount.

Still, either option may be advantageous to a cash out refinance, which disrupts your first mortgage.

Use a Home Equity Sharing Company?

There are also so-called “home equity sharing companies” where you trade a portion of future home price appreciation for cash today.

One such company in this emerging industry is Point, which allows you to get payment-free cash.

However, you do give up a share of your (hopefully) rising property value in exchange, and they charge an upfront transaction fee that is deducted from your proceeds.

The cost of borrowing then depends upon when you pay it back, via home sale, refinance, or simply buying them out. And how much your property appreciates during that time period.

There was a similar company called Noah, which paused applications a while back. It’s unclear if they’ll resume lending at some point.

Other names in the nascent field include Hometap, Unison, and Unlock.

Personally, I don’t love the idea of giving up future gains, especially when they’re unknown. But it’s an option nonetheless.

Seniors Can Consider a Reverse Mortgage to Tap Available Home Equity

One final option to consider, assuming you’re a senior (62+) is the reverse mortgage.

Not only does it allow you to tap your available home equity, but it also comes with no monthly payments.

This is obviously a plus if you’re retired or close to retirement and want to keep your home, but need cash.

It may also be easier to qualify for a reverse mortgage versus a traditional mortgage, especially for fixed income borrowers.

Like the options discussed above, it’s possible to take out a reverse mortgage as a line of credit, or opt for a lump sum payout.

Additionally, you can opt for an adjustable-rate mortgage or a fixed-rate mortgage. So there’s lots to consider.

There are pros and cons to all those options, and which one you choose will be based on your individual needs and risk appetite.

Reverse mortgages can be more complicated than a traditional mortgage, so shopping around could come with the added benefit of education.

It may also allow you to see more loan program options and scenarios to choose from, including proprietary offerings.

To sum things up, it’s not nearly as cheap as it was just a few months ago to tap your home’s equity, but there are still opportunities on the table.

Take the time to educate yourself about each to determine which, if any, is best for you.

Source: thetruthaboutmortgage.com

Swimming Pool Financing: What to Know and Best Pool Loans

Who doesn’t love a relaxing dip in the swimming pool on a sweltering, hot day? And when that swimming pool is in your backyard, it’s even better.

You could bring your friends together over the summer by hosting pool parties. You could teach your kids to swim right at home. If you rent out your place on Airbnb or Vrbo, you could fetch top dollar for the additional amenity.

Sounds like a dream.

If your house didn’t already come with a pool when you moved in, there’s still a possibility of turning your pool fantasies into reality if you have enough space.

And if you don’t have tens of thousands of dollars upfront to spend on a pool construction project, there’s always pool financing.

What Is Pool Financing?

Pool financing is when you borrow money from a financial institution or lender to cover the costs of building a pool. Pool construction typically costs anywhere from $17,971 to $46,481 with the average cost being around $32,059, according to HomeAdvisor.

Of course, the cost will vary based on the size, the type of pool, your location and where you plan to build the pool on your property. Adding a small plunge pool to a cleared, flat space in your backyard will cost considerably less than adding a resort-style pool with waterfalls and a jacuzzi to your property that requires you to cut down multiple trees and level the land.

Besides the personal enjoyment that comes along with having a pool, this addition to your home could boost your property value and make your home more desirable to future buyers, renters or short-term guests.

The high cost to install a pool means that many people rely on pool financing. There are several ways to go about getting a loan for a pool.

Options for Pool Financing

If you want to add a pool to your property, but don’t have the cash upfront, you have several options.

You could get a personal loan (sometimes referred to as a pool loan), a home equity loan, a home equity line of credit or a cash-out refinance. Some pool builders or retailers offer in-house loan programs through their partner lenders. You might also consider using a credit card as your method of financing.

Personal Loans (AKA Pool Loans)

Pool loans are unsecured personal loans offered by banks, credit unions and online lenders. You may be able to get a pool loan through the financial institution where you already have existing accounts, or you might choose to get financed from an online lender or financing consultant company that deals exclusively with pool loans and home improvement loans.

One of the benefits of personal loans is that you don’t have to offer up any collateral. If you stop making payments and default on your loan, you don’t have to worry about your house being foreclosed — though the lender still could sue you. If approved for an unsecured personal loan, you can usually receive funds within a couple of days, much quicker than some other financing options.

Because you don’t have any collateral backing the loan, however, these financing options can come with higher interest rates. Interest rates can start around 3% and go up to about 36%.

A borrower’s credit score, credit history, income and existing debt load all affect the interest rate.

Personal loan terms generally range from about two to 12 years — though some pool loans can have terms up to 20 years or more. You can get loans from $1,000 to over $200,000 to fund simple above-ground pools or elaborate in-ground pool projects.

Home Equity Loans

Home equity loans are essentially when you tap into the equity you have in your home and take out a second mortgage. If you have a significant amount of equity, you could finance your pool project this way.

Home equity loans generally have lower interest rates than personal loans because your home is used as collateral. If you default on your loan, the lender could foreclose on your home.

Also, with home equity loans you’ll face additional fees, like a home appraisal cost and closing costs, so be sure to factor that into your decision making.

Home Equity Line of Credit (HELOC)

A home equity line of credit or HELOC also taps into the equity you have in your home, but it’s a revolving line of credit that you can use for several years instead of a loan that provides you with one lump sum of cash.

With a HELOC, you can pull out funds as needed to finance your pool construction and other home improvement projects. While you’ll only pay back what you borrow, the interest on HELOCs are usually adjustable rates rather than fixed rates. That means your monthly payments can increase during your repayment period.

Cash-Out Refinance

A cash-out refinance is essentially when you replace your existing mortgage with a new mortgage that exceeds what you owe on the house and you take out the difference in cash.

You can then use that lump sum to pay for your pool, and you’ll pay it back throughout the course of your new mortgage — over the next 10 to 30 years depending on your loan terms.

A cash-out refinance might make sense if you’re able to get a lower interest rate than your current mortgage. However, just like with a home equity loan or HELOC, your home is being used as collateral, and you’ll face additional fees involved in the refinancing process.

In-House Financing from the Pool Builder

Some pool companies may directly provide you with pool financing offers, so you don’t have to search for financing on your own. The pool companies typically aren’t offering the loan to you themselves, but they’ve partnered with a lender or network of lenders to provide you with financing options.

This type of financing is the same as applying for a personal loan or pool loan. The benefit is that you get a one-stop-shop experience instead of having to reach out to lenders individually. Your pool contractor may even be able to assist you through the loan process.

The downside is that you could potentially miss out on a better deal by only getting quotes from the pool company’s partnered lenders.

Credit Cards

Because of their high interest rates, credit cards are usually not recommended as options for financing a new swimming pool. However, there can be situations where it’d make sense.

If you’re able to open a zero-interest credit card and pay the balance back before the zero-interest period expires, paying with a credit card can be a great option — especially if it’s a rewards card that’ll give you points, airline miles or cash-back for spending or a bonus just for opening the account.

If you choose this financing option, be sure that you’ll be able to pay off the balance in a relatively short period of time. Most credit cards only offer zero-interest periods for the first 12 to 21 months. After that your interest rate could go up to 18% or more.

Pool Loan Comparisons

Getting quotes from multiple lenders will help you select the best deal for your pool construction project. Here’s what a few top lenders are currently offering.

Lyon Financial

Best for Long Loan Terms

4.5 out of 5 Overall

Key Features

  • Pays the pool contractor directly
  • 600 minimum credit score
  • Offers military discounts

Lyon Financial is a financing consultant that has been in business since 1979 and works with a network of lenders to provide loans for pool and home improvement projects. Unlike personal loans that provide the borrower with the funds upfront, Lyon Financial disburses the funding directly to the pool builder in stages as the project progresses.

Lyon Financial

APR (interest rates)

As low as 2.99%

Maximum loan amount

$200,000

Loan terms

Up to 25 years

HFS Financial

Best for Large Pool Loans

4 out of 5 Overall

Key Features

  • Provides loans up to $500,000
  • Most loans are funded within 48 hours
  • No prepayment penalties

HFS Financial is a financing company that partners with third-party lenders to provide homeowners with the money to construct pools on their property. Use their “60 second loan application” to kick off the loan process. Funds are typically dispersed within 48 hours.

HFS Financial

APR (interest rates)

As low as 2.99%

Maximum loan amount

$500,000

Loan terms

Up to 20 years

Viking Capital

Best for Customer Service

4.5 out of 5 Overall

Key Features

  • Supports a network of pool builders
  • 650 minimum credit score
  • Offers military discounts

Viking Capital is a family-owned business that has been in operation since 1999. The company acts in the capacity of a financial consultant, and partners with a network of lenders to provide multiple loan offers for pool construction projects.

Viking Capital

APR (interest rates)

As low as 5.49%

Maximum loan amount

$125,000

Loan terms

Up to 20 years

5 Steps to Securing Pool Financing

Follow these steps to secure a loan for your pool.

1. Determine What Monthly Payments You Can Afford

Before you dig into your pool financing options, you should be clear on what monthly payment you can afford. Having a pool is a luxury. You don’t want a pool construction project to jeopardize your ability to pay your bills and meet your needs.

Figure out how much disposable income you have to work with by comparing your monthly earnings to how much you typically spend each month.

Don’t forget to factor in maintenance and additional utilities usage when estimating how much you can afford to go toward pool costs.

2. Check Your Credit History

When you’re financing a pool, having a good or excellent credit score will help you secure a loan with a low interest rate. Ideally, your credit score should be 700 or above.

Some lenders may offer you financing if you have fair or poor credit, however you may have to pay a lot more over time due to higher interest rates.

To boost your credit score before applying for a pool loan, follow these steps.

3. Get Cost Estimates for Your Pool

Talk with pool builders to get estimates on the total cost of your desired pool project. Get estimates from multiple pool companies so you have a better idea of what options exist.

If the estimates come in higher than you expected, consider scaling down the size of your pool project or using different materials.

Make sure any additional work — like constructing safety fencing — is included in your estimate.

4. Choose What Type of Financing Your Prefer and Shop Around For Lenders

After you figure out what options are available within your budget, it’s time to decide on what type of financing you prefer.

Will you be applying for an unsecured loan or do you plan to tap into your home equity or refinance your mortgage? Are you going to purchase a small above-ground pool that you could pay off in 15 months using a zero-interest credit card?

Once you know what type of financing you’ll go with, reach out to multiple lenders so you can compare offers and choose the best deal. You may be able to use a competitor’s lower offer to get a lender to reduce their offer even further.

5. Complete Loan Application and Sign Off on All Paperwork

The final step to get your pool project financed is to complete any additional paperwork and sign off on the dotted line. Expect to provide information about your income and other existing debt.

Your credit score may take a dip after taking on new debt, but it should rebound as you make regular, on-time payments.

Alternatives to Pool Financing

Taking on debt for a new pool doesn’t have to be your only option.

You could put off your pool construction project for a few years and save up for the expense in cash. Open a high-yield savings account to use as a sinking fund and don’t make withdrawals from the account until you’ve reached your savings goal.

If you think you’re outgrowing your current home — or are looking to downsize — wait until you’re ready to move and then look for a new home with an existing pool.

Or if you’re okay with not having a pool in your backyard, you’ll save money by visiting public pools or renting private pools from Swimply on occasion. This is a good option if you think you wouldn’t get much regular use of having your own pool.

Frequently Asked Questions

How many years can you refinance a pool for?

You can finance a pool over 20 to 30 years, depending on the type of financing you secure. If you need decades to pay back the loan, you might consider refinancing your mortgage or taking out a second mortgage. Private, unsecured loans typically need to be repaid sooner, however some have loan terms of 20 years or more.

What is the best way to finance a pool?

It all depends on your individual circumstances and preferences. If you’ve built up a ton of equity in your home and want to spread your debt payments over a lot of time, you might lean toward a home equity loan or HELOC. If you’ve got excellent credit and would qualify for a low-interest personal loan (unsecured loan), that might be the better option.

What credit score do you need for pool financing?

Ideally, you’ll want to have a credit score of 700 or higher to get the best interest rates for pool financing. Some companies, however, will accept lower credit scores. As a result, your loan may have a higher interest rate.

What is a good interest rate for a pool loan?

An interest rate around 5% is a good deal for a pool loan. You may be able to find rates even lower if you have excellent credit.

Nicole Dow is a senior writer at The Penny Hoarder.

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Source: thepennyhoarder.com

Loan-to-Value (LTV) Ratio – What It Is & How It Affects Your Mortgage Rate

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In the fourth quarter of 2021, the median home sold for just over $408,000. 

Could you afford to pay that out of pocket? Probably not. That’s why most homebuyers wind up applying for mortgage loans.

Getting a mortgage can be a long process and lenders look at a lot of factors when deciding whether to approve your application. You also have to go through a similar process when refinancing.

One thing that lenders look for when making a lending decision is the loan-to-value (LTV) ratio of the loan.


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What Is a Loan-to-Value Ratio?

The loan-to-value ratio of a loan is how much money you’re borrowing compared to the value of the asset securing the loan. In the case of a mortgage, it compares the remaining balance of your loan to the value of your house. On an auto loan, it compares the balance of your loan to the value of your car.

Lenders use LTV as a way to measure the risk of a loan. The lower a loan’s LTV, the less risk the lender is taking. If you fail to make payments and the lender forecloses, a lower LTV ratio means the lender has a higher chance of fully recovering their losses by selling the foreclosed asset. A higher LTV means more risk the lender loses some money.

Lenders may have maximum LTVs that they’ll approve. For example, FHA loans require at least 96.5% LTV. Conventional loans require at least 97% LTV, but only for the best-qualified borrowers — most require 95% LTV or lower. Your loan’s LTV can have other important impacts on your borrowing experience, including your interest rate and monthly payment.


Calculating the Loan-to-Value Ratio

Because LTV plays a big role in the overall cost of your loan, it’s a good idea to calculate it before you apply. 

LTV Formula

To calculate the LTV ratio of a loan, you divide the balance of your loan by the value of your home.

The formula is:

(Loan balance / Home value) = LTV

LTV Calculation Example 

Imagine that you want to purchase a home that appraises for $300,000. You apply for a mortgage and get approved for a $270,000 loan.

The LTV of that loan is:

$270,000 / $300,000 = 90%

If you choose to make a larger down payment and only borrow $240,000, your mortgage’s LTV will be.

$240,000 / $300,000 = 80%

As you pay down your mortgage or as your home’s value changes, the loan’s LTV ratio moves away from this initial value. Typically, as you pay off your mortgage, the LTV ratio drops.


How LTV Affects Your Mortgage Rates

Lenders use LTV as a way to measure the risk of a loan. The higher the LTV of a loan, the higher its risk.

Lenders compensate for risk in a few ways. 

One is that they tend to charge higher interest rates for riskier loans. If you apply for a loan with a high LTV, expect to be quoted a higher interest rate than if you were willing to make a larger down payment. A higher rate raises your monthly payment and the overall cost of your loan.

Another is that lenders may charge additional fees to borrowers who apply for riskier loans. For example, you might have to pay more points to secure an affordable rate, or the lender might charge a higher origination fee. A larger down payment might mean lower upfront fees.

One of the most significant impacts of a mortgage’s LTV ratio is private mortgage insurance (PMI). While PMI does not affect the interest rate of your loan, it is an additional cost that you have to pay. Many lenders will make borrowers pay for PMI until their loan’s LTV reaches 80%. 

PMI can cost as much as 2% of the loan’s value each year. That can be a big cost to add to your loan, especially if you have a large mortgage.


LTV Ratio Rules for Different Mortgage Types

There are many different mortgage programs out there, each designed for a different type of homebuyer.

Different programs can have different rules and requirements when it comes to the LTV of a mortgage.

Conventional Mortgage

A conventional mortgage is one that meets requirements set by Fannie Mae and Freddie Mac. While these loans are not backed by a government entity, they must meet Fannie or Freddie’s minimum credit score and maximum loan amount thresholds, among other criteria. Otherwise, they can’t easily be repackaged and sold to investors — the fate of most mortgage loans after closing. 

Conventional mortgages have a maximum LTV of 97%. That means your down payment will need to equal at least 3% of the home’s value. If your LTV is higher than 80% to begin with, you’ll have to pay PMI until your LTV drops below 78%.

Refinancing Mortgage

Refinancing your mortgage lets you take your existing loan and replace it with a new one. This gives you a chance to adjust the interest rate or the length of your loan.

Most lenders aren’t willing to underwrite refinance loans above 80% LTV, but you might find lenders willing to make an exception.

FHA Loans

Federal Housing Administration (FHA) loans are popular with homebuyers because they allow low down payments and give people with poor credit the opportunity to qualify.

If you’re applying for an FHA loan, the maximum LTV is 96.5%, meaning you’ll need a down payment of at least 3.5%. If the LTV value of your mortgage starts above 90%, you’ll have to pay PMI for the life of the loan. If your LTV is less than that amount, you can stop paying PMI after 11 years.

VA Loans

VA loans are secured by the Department of Veterans Affairs. They’re only available to veterans, service members, members of the National Guard or Reserves, or an eligible surviving spouse.

These loans offer many benefits, including the option to get a loan with an LTV as high as 100%. That means that you can borrow the full amount needed to purchase your home. The only upfront costs you need to pay are the fees associated with getting the loan.

USDA Loans

USDA loans, guaranteed by the US Department of Agriculture, are designed to help people purchase homes in designated rural areas. Borrowers also have to meet certain maximum income requirements.

USDA loans can have LTV ratios of 100%, letting borrowers finance the entire cost of their home. The LTV of the loan can exceed 100% if the borrower chooses to finance certain upfront fees involved in the loan.

Fannie Mae & Freddie Mac

Fannie Mae and Freddie Mac are government-backed mortgage companies. Neither business offers loans directly to consumers. Instead, they buy and offer guarantees on loans offered by other lenders.

Together, the two companies control a major portion of the secondary market for mortgages, meaning that lenders look to offer loans that meet their requirements.

For a single-family home, Freddie Mac has a maximum LTV of 95% while Fannie Mae sets the maximum at 97% for fixed-rate loans and 95% for adjustable-rate mortgages (ARMs).


Limitations of LTV

There are multiple drawbacks to the use of LTV ratios in mortgage lending, both for borrowers and lenders.

One disadvantage is that LTV looks only at the mortgage and not the borrower’s other obligations. A mortgage with a low LTV might seem like it has very little risk to the lender. However, if the borrower has other debts, they may struggle to pay the loan despite its low LTV.

Another drawback of LTV is that it doesn’t consider the income of the borrower, which is an essential part of their ability to repay loans.

LTV ratios also depend on accurate assessments of a home’s value. Typically, homeowners or lenders order an appraisal as part of the mortgage process. However, if a home’s value increases over time, it can be difficult to know the home’s actual worth without ordering another appraisal.

That means that you might be paying PMI on a loan without realizing that your home’s value has increased enough to reduce the LTV to the point that PMI is no longer necessary. You can always order another appraisal, but you’ll have to bear the cost — typically around $500 out of pocket.


LTV vs. Combined LTV (CLTV)

When looking at a property, lenders often use combined loan-to-value (CLTV) ratios alongside LTV ratios to assess risk.

While an LTV ratio compares the balance of a single loan to the value of a property, CLTV looks at all of the loans secured by a property and compares them to the home’s value. It’s a more complete way of assessing the risk of lending to someone based on the value of the collateral they’ve offered.

For example, if you have a mortgage and later get a home equity loan, CLTV compares the combined balance of both the initial mortgage and the home equity loan against your home’s appraised value.


LTV Ratio FAQs

Loan-to-value ratios aren’t easy to understand. If you still have questions, we have answers. 

What Is a Good LTV?

What qualifies as a good LTV ratio depends on the situation, the loan you’re applying for, and your goals.

An LTV over 100% is pretty universally seen as bad because you wouldn’t be able to repay your loan even if you sold the collateral asset.

In general, a lower LTV ratio is better than a high LTV ratio, especially if you want to avoid paying for PMI on top of your mortgage loan payment.

The 80% threshold is a particularly important breakpoint, especially for conventional loans. If you have an LTV of 80% or lower, you can avoid PMI on conventional mortgages, saving hundreds of dollars per month early in the life of your loan. At 80% LTV, you’ll qualify for a good interest rate, though dropping to 70% or even 60% could drop your rate further.  

How Can I Lower My LTV?

There are two ways to lower the LTV of your mortgage: pay down your mortgage balance or increase the value of the property.

Your loan’s LTV will naturally decrease as you make your mortgage payments. You can speed up the process by making additional payments to reduce your balance more quickly.

If you make improvements to your home, it can increase your home’s value. Real estate prices may also rise in your area, bringing your home’s value up too. However, to formally update the value of your home, you’ll need to pay a few hundred dollars to get it appraised again.

What Does a 50% LTV Ratio Mean?

A 50% LTV ratio means that you have 50% equity in your home. In other words, the total loan balance secured by the home — whether it’s a first mortgage, home equity line of credit (HELOC), home equity loan, or some combination of the three — is half the appraised value of the property.

As an example, your loan-to-value ratio is 50% if your home is worth $200,000 and you still owe $100,000 on your mortgage.

What Does a 75% LTV Ratio Mean?

A 75% LTV means that your loan balance is three-quarters of your home’s value. For example, if your home is worth $200,000 and your remaining mortgage balance is $150,000, your LTV is 75%.


Final Word

LTV ratio is one way that lenders look at the risk of making a loan based on the value of the collateral securing it. In the real estate world, LTV is a very important measure because it impacts things like private mortgage insurance and mortgage interest rates.

If you’re looking to avoid paying PMI or trying to get out of paying PMI on your loan, you’ll want to take steps to lower your mortgage’s LTV ratio. You can do this by investing in home improvements that increase the value of your home, then ordering a professional appraisal, or by paying extra principal each month to reduce your mortgage balance faster.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

Source: moneycrashers.com

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What Is a Bank and How Do These Financial Institutions Work?

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Imagine what the world would be like if there were no banks. Every time you got paid, you’d have to pick up a big wad of cash and carry it around. If you lost your wallet or purse, you’d lose it all. 

If you wanted to make a big purchase, like buying a home, you couldn’t go to a bank for a loan. You’d have to either find a private lender or save your money until you had enough. But with no bank account, you’d have to stash those savings in your home somewhere. A burglary or a house fire could wipe them out overnight.

Clearly, banks make life easier in many ways. But how do they work? What exactly is a bank, and what does it do?


What Is a Bank?

A bank is a financial institution that helps transfer money among people and businesses. It moves money from people who have extra cash to spare to others who need some now. 

In exchange for the use of the money, borrowers pay interest on the loans they receive. Those who provide the money, called depositors, earn interest on their deposits. In this way, everyone benefits — including the bank, which takes a share of the interest for itself.

Banks can also provide a variety of other financial services in addition to handling deposits and loans. For instance, they can provide credit cards, currency exchange, safe deposit boxes, and wealth management services. However, not every bank offers these services.


How Do Banks Work?

A bank isn’t just a big box that cash goes into and out of. In fact, most of the money in your bank account isn’t in the bank building at all. It’s on loan to borrowers who are paying interest on the loan. A portion of that interest goes to you, while the rest goes to the bank. 

Usually, it’s not a problem that most of a bank’s deposits aren’t stored at the bank. Most depositors don’t need their money at any given moment. Banks only need to keep a small portion of their deposits in cash for people who want to make withdrawals.

But what happens if a whole bunch of depositors want to withdraw their money at once? Can the bank actually run out of money? 

Bank runs like this used to be a serious problem. Depositors might hear a rumor that their bank was unstable. They’d all run to the bank to withdraw their funds at once, and the bank wouldn’t have the money to pay them all. Then the rumor would be true even if it wasn’t before.

To fix this problem, the government created the Federal Deposit Insurance Corporation (FDIC). It grants charters to banks across the country and insures the deposits held at those banks. If one of them fails, the FDIC pays its depositors all the money they held there, up to a maximum of $250,000. 

Thanks to the FDIC, bank runs almost never happen today. Because depositors know their money is insured, they don’t panic at the first hint that their bank might be unstable. 

But in the unlikely event that too many depositors demand their money at once, the bank can either shut down temporarily or put a limit on withdrawals. This gives it time to get more cash by borrowing from another bank or from the Federal Reserve.


What Do Banks Do?

A bank is more than just a place to keep your money. Banks provide a wide variety of financial services for their customers, both in physical bank branches and online.

Provide Bank Accounts

The banking service people are most familiar with and use most often is a bank account. These accounts provide a safe place to keep your money and earn a little interest at the same time.

Types of Bank Accounts

There are several types of bank accounts with different features. They include:

  • Checking Accounts. This type of deposit account gives you easy access to your money. In addition to withdrawing cash at a branch or ATM, you can make purchases directly from your balance using a debit card or a paper check. Banks also offer business checking accounts with extra features like invoicing.
  • Savings Accounts. Like checking accounts, savings accounts can be for individuals or businesses. They generally pay more interest than checking accounts, but they provide less access to funds.
  • Money Market Accounts. A money market account is a special type of savings account that also includes paper checks or a debit card. They pay more interest than other accounts but usually require you to maintain a large balance.
  • Certificates of Deposit. A certificate of deposit, or CD, is like a fixed-term loan you make to the bank. It pays the most interest, but it ties up your money for a set amount of time. If you cash it in early, you pay a penalty.
  • Taxable Brokerage Accounts. Some banks have a separate division that serves as an investment brokerage. At these banks, you can open a taxable brokerage account to hold stocks, bonds, and other investments
  • Merchant Accounts. This type of bank account is for businesses only. They can use it to accept credit and debit card payments from their customers.

Provide Loans

When you open a deposit account, you’re letting someone else use your money in the present in exchange for more money — interest — in the future. When you take out a loan, it’s just the opposite. You’re promising to pay money later in return for the use of money right now.

Banks can offer loans for a variety of purposes, including:

  • Home Loans. A mortgage loan is money you borrow to buy a new home. A home equity loan or home equity line of credit is like a mortgage you take out on a home you already own. 
  • Auto Loans. When you buy a car, you can borrow money from the dealer to pay for it. However, car loans from banks and credit unions tend to offer better interest rates.
  • Personal Loans. You can take out a personal loan to pay for anything from a wedding to medical expenses. These are typically installment loans that don’t require collateral (something of value you must give the bank if you don’t pay back the loan).
  • Business Loans. Businesses often take out loans for costs like new premises or equipment. Large companies usually borrow from business-centered commercial banks. Smaller ones can take out small business loans from retail banks.
  • Credit Cards. Some banks offer credit cards for their customers. Every time you use one, you’re borrowing from the bank to pay for your purchases. However, you can avoid paying interest by paying the money back in full when you get your monthly bill.

Provide Banking Services

Banks can provide a variety of other banking services in addition to deposit accounts and loans. However, banks don’t have to offer all these services. They can choose which ones to provide, and they can charge fees for them.

Banking services can include:

  • Debit cards for making purchases
  • Direct deposit of paychecks
  • Online banking and bill payment
  • Electronic money transfers from your account to someone else’s
  • Safe deposit boxes for storing valuables and important papers
  • ATMs for withdrawing money outside of business hours
  • Paper checks for checking account users
  • Official checks, such as cashier’s checks, for secure financial transactions
  • Check cashing services for account holders
  • Money orders, which work like a prepaid check
  • Overdraft coverage in case you spend more money than you have in your account
  • Rolls of coins for machines like parking meters or coin laundries
  • Foreign currency exchange, usually available only at large banks
  • Notary public services for registering an official document
  • Free access to your credit score
  • The ability to redeem a savings bond from the government
  • Wealth management services such as investment advice, accounting, and estate planning

What Are the Four Types of Retail Banks?

There are several types of banks that serve different types of customers. For instance, corporate or commercial banks cater to businesses. Investment banks also work with businesses and provide more complex services.

But the banks most people are familiar with are retail banks, which serve the general public. These fall into four categories based on size.

National Banks

National banks are the largest banks in the country. They typically have large networks of branches and ATMs spread across most if not all U.S. states. Some of them operate outside the U.S. as well.

These banks offer the widest wide array of banking products and services for both business and the general public. The best national banks offer good interest rates, strong mobile banking apps, and features like sign-up bonuses for new accounts.

Some national banks, such as Bank of America and Chase, have both physical branches and an online presence. Others are purely online banks, as discussed below.

Regional Banks

Regional banks are the next largest kind. Their branch and ATM networks are concentrated in a specific part of the country, sometimes within a single state. Their borrowers and account holders all live in or near that region. 

Regional banks vary widely in size. For instance, PNC Bank has more than 2,600 locations across more than half the states in the country. Capital One Bank has around 450 locations concentrated in six states and the District of Columbia. But both are considered regional banks.

Community Banks

The smallest banks in the nation are community banks. They focus their business within a narrow area — often in a single state and no more than one or two major cities. In some areas, especially rural areas, they’re the only bank around.

Community banks don’t offer as many services as larger banks. Their hours, as well as their branch networks, are limited. But because they serve fewer customers, they can get to know them and provide more personalized service than big banks.

Online Banks

Although online banks operate nationwide, they don’t have any physical branches. Instead, customers make most transactions through a website or mobile app. Most online-only banks partner with ATM networks to give customers access to cash without a surcharge.

Online banks can offer higher interest and lower fees than most banks because they have fewer expenses. However, many don’t offer the same range of services as traditional banks. Major online banks include Discover Bank and Ally Bank.


Banks vs. Credit Unions

You can also receive banking services from a credit union. These financial institutions provide deposit accounts, loans, and other services just like a bank. But banks and credit unions differ in a few key ways.

  • Membership. Credit unions are nonprofits owned and operated by a particular group of people. These could be employees of a company, members of a labor union, or residents of a town. To join the credit union, you must belong to this group.
  • Better Rates. Because they’re nonprofits, credit unions can offer their members higher interest rates on savings accounts than most banks. They can also provide lower interest rates on loans.
  • Limited Services. Most credit unions are small institutions. They generally can’t provide the same range of services as large banks.
  • Branches. Credit unions typically have few branches and ATMs of their own. However, many are part of a shared branch network provided by Co-Op Solutions. It allows members of any of its credit unions to receive banking services from any other one across the country.
  • Deposit Insurance. Credit unions can’t be members of the FDIC. Instead, they belong to the National Credit Union Administration, or NCUA. This organization insures all credit union accounts up to $250,000, just as the FDIC does for banks.

How Are Banks Regulated?

There are several different organizations that govern banks in the U.S. Some are at the national level of government, while others are at the state level.

National banks are under the control of the Office of the Comptroller of the Currency (OCC). It grants charters to these banks and sets rules about how they operate. It examines banks regularly to make sure they are keeping customers’ money safe and treating them fairly.

Smaller banks are under the control of state banking departments. Each state banking department, or agency, grants charters to banks within its borders and sets rules about their practices, such as how much interest they can charge. It audits and inspects banks to make sure they are following these rules.

However, state banks also receive some supervision at the national level. Some state banks are members of the Federal Reserve, or Fed. These banks are subject to oversight from the Fed as well as the state. 

State banks that do not belong to the Fed are supervised by the FDIC. The FDIC is also a backup supervisor for other banks. It ensures that banks follow federal consumer protection laws such as:


What Does the Federal Reserve Do?

There’s one other institution that controls the banking system: the Federal Reserve. This body serves as the central bank of the U.S. But rather than being a single bank, it’s a group of 12 banks spread across the country, all governed by a central board.

The Fed is responsible for:

  • Setting Monetary Policy. The Federal Reserve aims to prevent both inflation and recessions by controlling the nation’s money supply. Its main method for doing this is raising and lowering interest rates.
  • Supervising Banks. Many state banks are members of the Federal Reserve system. The Fed authorizes, inspects, and regulates them. In addition, it stress tests large banks to make sure they have the funds to handle a financial crisis.
  • Banking for the Government. The Fed performs banking services for the government. Its member banks collect taxes, process government checks, and sell government securities, such as Treasury bills.
  • Banking for Other Banks. The Fed distributes paper money to banks. It processes checks and electronic payments for them. And it makes loans to banks if they can’t borrow enough from other banks to meet their needs for cash.
  • Doing Research. Federal Reserve Banks conduct research on the economies of their region, the nation, and the world. They distribute this information through publications, websites, speeches, and educational workshops.

Banking FAQs

Read on for answers to other commonly asked questions about banks.

What Is a Central Bank?

A central bank, also called a national bank, serves other banks rather than the general public. Its job is to keep the country’s financial system running smoothly. 

The central bank controls the nation’s money supply and aims to keep the currency stable. It also regulates banks under its control. One of its jobs is to make sure banks hold enough cash in reserve to cover a sudden surge in withdrawals.

The Federal Reserve serves this role in the U.S. Other central banks around the world include the Bank of England, the Bank of Japan, the People’s Bank of China, the Swiss National Bank, and the European Central Bank.

Is a Bank a Safe Place to Keep My Money?

In a word, yes. Putting your money in the bank protects it from theft, fire, and all the other mishaps it could face if you kept it at home. 

Even though the bank lends out most of the money it receives, it keeps enough in reserve to let you withdraw your funds at any time. And even in the unlikely event that your bank shuts down, FDIC insurance guarantees that you’ll get your money back.

How Do Banks Make Money?

The main way banks make money is by making loans at a higher interest rate than they pay on deposits. If a bank charges an average of 8% interest on its loans and pays an average of 1% on checking and savings account deposits, it earns a profit of 7%. 

Banks also make money from banking fees. For instance, they can charge you a fee for overdrawing your account, for using another bank’s ATM, for making too many transactions, or for making no transactions at all. 

What Is the FDIC?

The Federal Deposit Insurance Corporation, or FDIC, provides insurance for bank deposits. It guarantees all deposits held at its member banks up to a maximum of $250,000 per account.

The FDIC also plays a role in regulating the banking system. It supervises all state banks that aren’t members of the Federal Reserve and serves as a backup supervisor for other banks. It regularly examines banks to make sure they comply with consumer protection laws. And if a bank fails, the FDIC is in charge of selling its accounts to other banks.


Final Word

Banks make our economy work better. They make it easier to save by giving you a safe place to store your money, and they make it easier to spend by making loans that provide liquidity. They make it possible to go to college or buy a house without saving for decades first.

Banks perform these same services for business, as well. Loans made to companies allow them to expand by building new factories or hiring more workers as demand for their products grows. That helps the economy as a whole grow faster.

To learn more about banks and how to use them wisely, check out our banking archives.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

Source: moneycrashers.com

SoFi Relay Review – Free Financial App With Credit Insights

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SoFi Relay Credit Insights is the latest innovation from SoFi, a diversified financial services provider that offers student loan refinancing through SoFi Loans, a low-cost brokerage and investing platform (SoFi Invest), and a banking platform (SoFi Checking and Savings), among others.

SoFi Relay Credit Insights is a full-bore financial app and budgeting tool that helps you track your spending, monitor your credit, set financial goals, and see all your financial accounts in a single dashboard. It’s totally free to use and doesn’t obligate you to apply for any other SoFi product.

Think SoFi Relay Credit Insights might be just what you need to stay on top of your financial life? Read on to learn more about its key features, strengths, and drawbacks.

Key Features of SoFi Relay Credit Insights

SoFi Relay Credit Insights takes a holistic approach to helping you manage your finances and credit score.

These are its most important components. Just create a free SoFi account to access Relay Credit Insights in the SoFi mobile app or desktop site.

Account Opening Bonus

For a limited time, new SoFi Relay Credit Insights users can earn up to 1,000 rewards points after signing up and registering for the product. That’s worth $10 toward:

  • Converting points into fractional crypto shares with SoFi Active Invest
  • Converting points into dollars deposited in a SoFi Bank account, where eligible balances earn 1.25% APY
  • Redeem rewards points into cryptocurrencies

See the SoFi Rewards page for a complete list of redemption options.

Central Dashboard for Linked Accounts and Assets

At SoFi Relay Credit Insights’s core is a mobile-friendly dashboard that shows all your linked financial accounts and assets at a glance.

Relay Credit Insights links up with most of your SoFi accounts automatically, if you have any. The sole exception at the moment is SoFi’s home loan product. If you have a mortgage or home equity loan with SoFi, you’ll need to link it manually to see the current balance. You can see your home’s appraised value, however.

Not that setting up manual links to SoFi Relay Credit Insights is difficult. SoFi uses Plaid to securely connect with your financial accounts and periodically pull in up-to-date balance information. The types of financial products and accounts you can link include but may not be limited to:

  • Bank accounts, including savings accounts and checking accounts
  • Credit cards, although rewards points or cash-back balances may not be visible in the dashboard
  • Personal loans and other unsecured credit products
  • Secured loans such as mortgages and auto loans
  • Investment accounts
  • Your primary residence and any investment properties you own
  • Other potentially valuable assets, such as your car

Access to Your Credit Score and Ongoing Monitoring

As a SoFi member, you get complimentary access to your VantageScore 3.0, an alternative credit score developed by the three major credit reporting bureaus.

Your score updates weekly with no action required on your end, but you can pull it even more frequently if you wish. Doing so doesn’t affect your credit score, and your most recent number is always visible in your SoFi Relay Credit Insights account dashboard.

Financial Tracking

Once you’ve linked your financial accounts to SoFi Relay Credit Insights, you can track your spending patterns and balance histories over time. This makes it easy to see how and where you’re spending money, whether you’re keeping pace with your budget, and how it’s all affecting your net worth.

Targeted Financial Insights and Tips

As a SoFi Relay Credit Insights user, you’ll receive targeted financial insights and suggestions based on your financial behaviors, credit score, net worth, and other factors. This information may include offers to sign up or apply for certain SoFi products and services, but you’re under no obligation to do so.

Complimentary Financial Planner Consultation

Once you create your SoFi Relay Credit Insights account, you’re entitled to one complimentary 30-minute consultation with one of SoFi’s in-house financial planning professionals.

This consultation is your chance to discuss big-picture financial goals with someone whose job it is to think about them. You can discuss topics like your general financial health, how to manage your debts, whether and when to buy a home or have children, and your longer-term plans for retirement or financial independence.


Advantages of SoFi Relay Credit Insights

SoFi Relay Credit Insights has a lot going for it. It’s totally free, doesn’t affect your credit score, offers a comprehensive view of your financial situation, and comes with a free financial planner consultation — just to name a few of its benefits.

  • Free to Use. SoFi Relay Credit Insights is totally free for users. You don’t have to pay a subscription fee, monthly maintenance fee, or any other one-off or recurring levy to use this service.
  • No Effect on Your Credit Score. Checking your credit score with SoFi Relay Credit Insights doesn’t affect your credit. You can check your score as often as you’d like without temporarily depressing it, as generally happens when you apply for a new loan or line of credit.
  • See Your Regularly Updated Credit Score at a Glance. If you’re a SoFi Relay Credit Insights user, you don’t need to pay for a credit monitoring service to stay on top of your credit score. You have access to a free VantageScore 3.0 as often as you’d like, right alongside all the financial accounts you’ve linked to SoFi Credit Insights.
  • See All Your Accounts in a Single View. SoFi Relay Credit Insights makes it easy to see all your assets, liabilities, and financial accounts at a glance. It’s a one-dashboard view of your entire financial life, or at least as much of your financial life as you’d like to share with SoFi.
  • Get Targeted Insights About Your Financial Behaviors and Goals. SoFi Relay Credit Insights delivers targeted insights and suggestions about your financial behaviors, including suggestions for SoFi products that might align with your needs or goals. Think of it as a digital financial coach, without the obligation to pay for any services you don’t want.
  • Comes With a Complimentary Financial Planner Consultation. As a SoFi Relay Credit Insights customer, you’re entitled to a complimentary 30-minute consultation with one of SoFi’s financial planners. This is an open-ended opportunity where you can ask burning financial questions or drill down on specific goals, like paying down your student debt or setting a long-range retirement plan in motion.

Disadvantages of SoFi Relay Credit Insights

SoFi Relay Credit Insights isn’t perfect. Potential drawbacks include no access to your FICO score and no direct link (yet) with SoFi’s home loan product.

  • Doesn’t Provide Your FICO Score. SoFi Relay Credit Insights uses VantageScore 3.0, an alternative credit score developed by the three major credit reporting agencies. While VantageScore has the same numerical scale and considers similar factors as the more popular FICO score, it’s not an apples-to-apples comparison. Perhaps more importantly, VantageScore isn’t as widely used by lenders as FICO, so it may not have the predictive power you need when determining if the time is right to apply for new credit.
  • Not Yet Linked With SoFi Home Loans. If you have a home loan with SoFi, SoFi Relay Credit Insights doesn’t yet link to the account directly. This means you can’t see your current mortgage balance in the app. However, you can see your home’s appraised value and other important details about the property.

How SoFi Relay Credit Insights Stacks Up

SoFi Relay Credit Insights isn’t alone in the money management and credit monitoring game. It has a number of competitors, including Credit Sesame. Here’s how the two stack up.

SoFi Relay Credit Sesame
Credit Scores Available VantageScore 3.0 FICO 9/10
Pricing Free Pricing varies but can range up to about $20 per month
Other Features See all your financial accounts at a glance, complimentary financial planning consultation Identity theft protection, credit monitoring, credit and debt analysis

Final Word

If you’re liable to feel like your financial life is out of control, SoFi Relay Credit Insights has your back. It’s a totally free, no-obligation service from a diversified financial services provider that offers a slew of loans, financial accounts, and value-added services for folks at every stage of life. And with a complimentary financial planning consultation in the offing, SoFi Relay Credit Insights could just help you chart a sustainable course to a more prosperous future.

Disclosure: SoFi’s Relay Credit Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery, or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Advisory services are offered through SoFi Wealth, LLC an SEC-Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

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Editorial Note:
The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com