Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data
Congratulations on becoming a homeowner! Embarking on this journey marks a significant milestone in your life. As you step into your new abode, it’s essential to lay down the groundwork for a smooth transition and a happy home. To help you navigate this exciting time, we’ve curated a comprehensive checklist of essential first steps for settling into your new home.
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Change the Locks
Your home’s security should be a top priority. Change all exterior door locks and consider installing a smart lock system for added convenience and peace of mind.
Update Address and Utilities
Notify relevant parties, including the post office, banks, subscription services, and utility companies, of your new address. Set up new accounts or transfer existing ones for essential utilities like electricity, water, gas, internet, and cable. Make sure to receive the key to your community mailbox to access your mail if needed.
Inspect and Clean
Before moving in your belongings, conduct a thorough inspection of your new home. Look for any damages or issues that need immediate attention. Plan a deep cleaning session to ensure a fresh start in your new space.
Familiarize Yourself with Safety Features
Locate fire extinguishers, smoke detectors, carbon monoxide detectors, and emergency exits. Test each device to ensure they are in proper working condition. If your home lacks these safety features, consider installing them as soon as possible.
Organize Important Documents
Keep all essential documents, including mortgage papers, insurance policies, warranties, and home improvement receipts, in a safe and easily accessible place. This ensures that they don’t get lost during your move-in and that they are always there when you need them.
Set Up Home Maintenance Schedule
Create a schedule for routine home maintenance tasks such as HVAC servicing, gutter cleaning, and lawn care. Staying on top of maintenance will help prevent costly repairs down the line.
Get to Know Your Neighborhood
Take some time to explore your new neighbourhood. Locate nearby amenities such as grocery stores, schools, hospitals, and recreational facilities. Introduce yourself to your neighbours and start building connections within the community.
Make It Your Own
Personalize your space by unpacking and arranging your belongings to reflect your style and preferences. Consider adding a fresh coat of paint, hanging artwork, or incorporating decorative elements to make your house feel like home.
Plan for Emergency Preparedness
Develop an emergency plan for your household, including evacuation routes and designated meeting points. Stock up on emergency supplies such as non-perishable food, water, first aid kits, and flashlights.
Celebrate Your New Home
Finally, take a moment to celebrate this significant milestone in your life. Host a housewarming party to share the joy with friends and family, or simply enjoy a quiet evening in your new home, savouring the sense of accomplishment and the beginning of a new chapter.
Are you looking to own a home this spring? Give us a call today! Our real estate agents are more than happy to help you move into your new home!
Buying your first home is a thrilling milestone, marking a significant step towards independence and stability. However, it’s also a substantial financial commitment that can lead to buyer’s remorse if not carefully considered. To help you navigate this exciting yet daunting journey, here are some essential tips to ensure you make a confident and informed decision:
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Know Your Budget Inside Out
Before you even start browsing listings, take a thorough look at your finances. Understand what you can comfortably afford, factoring in not just the mortgage payments but also taxes, insurance, utilities, maintenance, and unexpected expenses. Being realistic about your budget sets a solid foundation for your home search and reduces the risk of overspending.
Do Your Research
Arm yourself with knowledge about the local real estate market. Research property values, recent sales, and trends in the areas you’re interested in. Understanding the market dynamics will empower you to make informed decisions and negotiate effectively when the time comes.
Get Professional Guidance
Enlist the help of experienced professionals, such as real estate agents, home inspectors, and mortgage brokers. A reputable agent can guide you through the buying process, offer valuable insights, and advocate for your best interests. Likewise, a thorough home inspection can uncover potential issues that might not be apparent to the untrained eye, saving you from costly surprises down the road.
Take Your Time:
While it’s natural to feel eager to find your dream home, resist the urge to rush the process. Take your time exploring different properties, attending open houses, and asking questions. Don’t feel pressured to make an offer unless you’re genuinely confident it’s the right choice for you.
Visualize Your Future
Imagine yourself living in the homes you’re considering. Picture your daily routines, envision family gatherings, and think about how the space will evolve with your needs over time. Connecting emotionally with a property can help you determine if it’s truly the right fit for you.
Sleep On It
Before making a final decision, give yourself some time to reflect. Sleep on it, discuss your thoughts and concerns with trusted friends or family members, and weigh the pros and cons objectively. A good night’s sleep can provide clarity and prevent impulsive decisions that you might later regret.
Negotiate Wisely
Don’t hesitate to negotiate terms that are favourable to you, whether it’s the price, closing costs, repairs, or contingencies. Be assertive yet respectful in your negotiations, and be prepared to walk away if the deal doesn’t align with your expectations.
Checklist Items
If you work from home, ensure that your workspaces are big enough. A small workspace, especially if you have to use it every day can get crammed and can lead to being unproductive. Also, if you’re planning to keep the existing appliances, take the time to test them out and make sure they are working properly. Don’t settle on anything that will make the home less functional for your needs.
Trust Your Instincts
Ultimately, trust your instincts. If something doesn’t feel right or if you have lingering doubts, it’s okay to step back and reassess. Buying a home is a significant decision, and it’s essential to feel confident and at peace with your choice.
Are you looking to buy your first home with confidence? Give us a call today! Our experienced real estate agents will ensure you buy without regrets!
It was an interesting day for the bond market. Yields dropped to the lowest levels in more than 3 weeks amid several apparently valid motivations. But upon closer inspection, most of the improvement happened far enough away from those motivations to give them much credit. On a day with JOLTS (job openings data) and a Powell testimony, the most obvious market mover was a series of headlines and trading halts surrounding NYCB, although those ultimately canceled each other out. We’re left with modest but important improvement ahead of Thursday’s ECB announcement and Friday’s jobs report.
ADP Employment
140k vs 150k f’cast, 107k prev
Job Openings
8.863m vs 8.9m f’cast, 9.026m prev
09:00 AM
Sideways to slightly weaker overnight, but gains kicked in at 7am. 10yr down 2.8bps at 4.123. MBS up an eighth. ADP and Powell’s prepared remarks doing no damage.
10:01 AM
Minimal reaction to JOLTS. 10yr down 4.7bps at 4.104. MBS up 9 ticks (.28).
12:31 PM
Gains on NYCB circuit breaker at 11:53am ET. MBS up 10 ticks (.31). 10yr down 6bps at 4.092
02:50 PM
Some volatility surrounding NYCB headlines. MBS off highs, up a quarter point on the day. 10yr down 4.3bps at 4.108.
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
Pre-Qual, TPO, Lead Gen Tools; STRATMOR on Vendor Relationships; Disaster News; HECM, Ginnie, FHA News
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Pre-Qual, TPO, Lead Gen Tools; STRATMOR on Vendor Relationships; Disaster News; HECM, Ginnie, FHA News
By: Rob Chrisman
Wed, Feb 28 2024, 11:09 AM
At the TMBA’s Secondary Conference in Houston a topic is obviously interest rates and the economy… And the fact that the nation’s interest payment expense now exceeds our defense expense! It’s also a fact that Texas’ business climate is very friendly for companies. The #1 state in the nation for residential lending, California, not so much. Overheard here in the hallway: “California is a blue state wrapped up in red tape.” That said, permit process aside, California gets a lot of flak for its high cost of living, but that is for income tax rather than property tax, as exhibited in “Property Taxes by State in 2024” comparing home and vehicle taxes across the nation. Californians pay the 34th highest annual taxes on homes priced at state median value. New Jersey, Illinois, and Connecticut have the highest annual taxes on homes. Each year, the average American household spends $2,869 on real-estate property taxes plus another $448 for residents of the 26 states with vehicle property taxes. (Found here after 8:30AM ET, this week’s podcast is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Interview with SoFi’s Liz Young on the need for Treasury auctions and how supply and demand at those auctions impacts consumer interest rates.)
Lender and Broker Services, Products, and Software
“If you’re heading to ICE Experience, there’s never been a better time to catch up with the Optimal Blue team. Our PPE clients are actively upgrading to the Encompass Partner Connect integration and enjoying new features and benefits. On average, loan officers experience a 60% reduction in the time it takes to request a lock and see it auto-confirmed within Encompass through this upgraded integration. This means users can continue with disclosures and other loan-processing activities faster, which shortens turnaround times and increases efficiencies. If you’re an existing Optimal Blue client and interested in hearing about the other benefits of upgrading, or if you’d like to further discuss your business strategy, consider scheduling a meeting with the Optimal Blue team at our private poolside cabana. We will also be set up at the Optimal Blue booth throughout the event and ready to chat at your leisure. See you in Vegas!”
Compliance Experts Report on 2024 Mortgage Servicing Outlook! Watch the 30-minute webinar that recently launched with ACES’ EVP of Compliance, Amanda Phillips and Reid Herlihy of Ballard Spahr as they discuss the most recent mortgage servicing news, CFPB Supervisory Highlights, and expectations and predictions for 2024 and beyond. Watch the recording.
Guaranteed Rate has chosen Evocalize to enhance the digital marketing capabilities of its mortgage loan officers. Evocalize, renowned for powering leading mortgage and real estate industry tech platforms, is partnering with Guaranteed Rate to revolutionize lead generation and referral partner engagement. Through Evocalize, loan officers can execute targeted digital marketing campaigns across various platforms including Google, Facebook, Instagram, TikTok, Gmail, and YouTube instantaneously. This collaboration empowers loan officers to leverage local data for lead generation amidst changing regulatory landscapes. Evocalize will leverage real-time data and machine learning algorithms to optimize ad management. Guaranteed Rate anticipates significant benefits from this partnership, including enhanced lead generation, reduced marketing costs, and streamlined compliance efforts, ultimately improving the overall customer experience. Learn more here.
“Welcome to the new AFR Wholesale® (AFR)! Change can be good. Our team has been relentlessly pursuing better execution. This exercise has led to great program enhancements, operational improvements and of course, better pricing. Non-Delegated and Wholesale clients have commented on our aggressive pricing across all programs. Notably our new expanded note rate adjusters in conventional and government. We’ve also revised pricing for our Down Payment Assistance Program going into purchase season. AFR is dedicated to offering not only competitive rates but also a customer-centric approach, ensuring that you and your borrowers have the tools and options needed for a beneficial experience. Delegated Correspondents have also seen sharper pricing and incredible turn times (under 48 hours). Ensure you’re leveraging all AFR benefits by reaching out to our Account Executives, 1-800-375-6071, or explore our enhancements through our Quick Pricer tool. Not a client? Partner with AFR today!”
When Al Gore invented the internet, he envisioned a world where borrowers and Realtors could stand in a home, pull out their phones, and update pre-approval letters on demand. Make him proud and check out QuickQual by LenderLogix.
STRATMOR on Lender-Vendor Communication
We in the industry know that there is often a massive disconnect between mortgage lenders and their technology partners, so why isn’t “business relationship therapist” a thing? In STRATMOR Group’s February Insights Report, Senior Advisor Sue Woodard takes on the role of “therapist” to help both lenders and vendors unpack the key areas of disconnect. If you need guidance in breaking down these communication barriers, contact STRATMOR and don’t miss “Step into Our Office: Couples Therapy for Mortgage Lenders and Tech Vendors” for suggestions for both parties and to learn how STRATMOR is already working with technology providers to hear, understand and better respond to the needs of the lending community.
Disaster News
Given that 20-25 percent of the nation’s mortgages come from California, exposed to earthquakes, fires, and flooding, seeing a disaster declared there is worth noting for lenders and servicers alike. FEMA announced that federal disaster assistance has been made available to the state of California to supplement recovery efforts in the areas affected by severe storms and flooding, January 21-23, 2024. The President’s action makes federal funding available to affected individuals in San Diego County.
“Assistance can include grants for temporary housing and home repairs, low-interest loans to cover uninsured property losses and other programs to help individuals and business owners recover from the effects of the disaster. Federal funding is also available on a cost-sharing basis for hazard mitigation measures statewide. Individuals and business owners who sustained losses in the designated areas can begin applying for assistance by registering online at www.DisasterAssistance.gov, by calling 1-800-621-3362 or by using the FEMA App.”
But up in Washington we have wildfires: FEMA DR-4759-WA.
On 2/19/2024, with DR-4758, Release Number HQ-24-024, FEMA declared federal disaster aid with individual assistance has been made available to San Diego County California affected by severe storms and flooding from 1/21/2024 to 1/23/2024. See AmeriHome Mortgage Disaster Announcement 20240206-CL for inspection requirements.
On 2/15/2024, with DR-4759, Release Number HQ-25-025, FEMA declared federal disaster aid with individual assistance has been made available to a county affected by wildfires from 8/18/2023 to 8/25/2023. See AmeriHome Mortgage Disaster Announcement 20240208-CL for inspection requirements.
FHA, VA, Ginnie Mae, HECM, and USDA Developments
Ginnie Mae’s mortgage-backed securities (MBS) portfolio outstanding grew to $2.53 trillion in January, including $28.1 billion of total MBS issuance, leading to $10.8 billion of net growth. January’s new MBS issuance supports financing for more than 91,000 households, including more than 46,000 first-time homebuyers. Approximately 77.6 percent of the January MBS issuance reflects new mortgages that support home purchases, because refinance activity remained low due to higher interest rates.
The January issuance includes $27.4 billion of Ginnie Mae II MBS and more than $674 million of Ginnie Mae I MBS, including nearly $558 million in loans for multifamily housing. For the 2024 calendar year to date, Ginnie Mae supported the pooling and securitization of more than 46,000 first-time homebuyer loans. For more information on monthly MBS issuance, unpaid principal balance (UPB), real estate investment conduit (REMIC) monthly issuance, and global market analysis, visit Ginnie Mae Disclosure.
In USDA news, an Unnumbered Letter (UL) dated February 13, 2024, has been issued which increases the appraisal fee to $775 and the conditional commitment fee to $850 under the rural development direct programs. The fee increases are effective March 14, 2024. The increased fees reflect market research for origination appraisals in rural areas and incorporates the average cost of appraisals under the programs’ nationwide contract with the Appraisal Management Companies.
With the current market trends of rising interest rates, the Single-Family Housing Guaranteed Loan Program (SFHGLP) Rural Development announced a Stand-Alone MRA ratio waiver; to remove the 55 percent and 31 percent limitations from the requirements in the regulation for the Stand-Alone MRA.
FHA published Frequently Asked Questions, FHA (FAQs), that address inquiries received from stakeholders regarding its final rule, Changes in Branch Office Registration Requirements published in the Federal Register on February 2, 2024. This regulation eliminated the current requirement for lenders and mortgagees to register branch offices where they originate FHA Title I or Title II loans. This new rule, which becomes effective on March 4, 20 is not applicable for those institutions whose fiscal year ended on December 31, 2023, and are required to recertify by March 31, 2024. Recertification fees for those lenders will be calculated based on the number of registered branches as of the last business day of their fiscal year-end certification period. Refer to the rule and accompanying FHA INFO 2024-01 dated February 2, 2024, for information on the rule.
Effectively immediately, AmeriHome is removing the existing $100,000 maximum cash-to-borrower overlay on VA Cash-Out Refinance transactions, to align with VA guidelines. For additional information, see Product Announcement 20240207-CL.
Big news for the “Empire State” of New York! Plaza Home Mortgage excitedly shared that borrowers can now utilize a reverse mortgage for purchasing a home. This is a great option for “buying up” or keeping key cash liquidity vs paying all cash. Plus, FHA now allows borrower concessions up to 6% of the Principal Limit. So, what does that mean for your borrower? When discussing the HECM product, these interested party contributions [or concessions] may include REALTORS®, builders, developers, lenders, and others with an interest in the transaction. Now, interested parties may contribute up to 6% of the sales price toward the borrower’s origination fees, closing costs, prepaid items, and more.
Weary about adding reverse mortgages into your business plan? Although there are lower LTVs caused by the higher rates, keep in mind that the acceleration of equity often offsets all of that. While your senior borrowers may get 47 percent instead of 57 percent LTV, their house may have appreciated $150K or more. Contact Plaza Home Mortgage for more information.
Pennymac Announcement 24-07 provides updates to Government LLPAs effective for all Best-Efforts Commitments taken on or after Friday, February 09, 2024.
The Single-Family Housing Guaranteed Loan Program (SFHGLP) announced upcoming revisions to technical Handbook 1-3555, Chapter 12, Property and Appraisal Requirements. Changes are expected to be implemented on April 1, 2024. View USDA Rural Development Bulletin for more information.
Per Pennymac Announcement 24-13, Government LLPAs were updated, effective for all Best-Efforts Commitments taken on or after Friday, February 23, 2024, as follows: Improve values on the ‘Government FICO Price Adjustments’ LLPA Grid.
Capital Markets
There are competing narratives emerging around the strength of the U.S. economy. Weaker consumer spending of late calls into question whether the economy can avoid a recession, consumer confidence has fallen and remains shaky, economic activity pulled back in January as storms and cold weather disrupted day-to-day activity, and markets received a disappointing Durable Orders report yesterday. However, employment has remained resilient, homebuilder confidence has improved, and Treasury auctions this week have not indicated any sort of flight to quality. On balance, the data suggests that the economy should pick up as the weather improves.
Home prices continue to hold steady as demand greatly exceeds supply. The FHFA Housing Price Index rose 0.1 percent month-over-month in December after increasing a revised 0.4 percent in November, while the S&P Case-Shiller Home Price Index was up 6.1 percent in December after being up 5.4 percent in November. However, local markets are seeing some price easing. Supply and demand may be a greater determinant: Despite high rates, home prices rose 5.1 percent in January, year over year, and while still painfully low, inventory is up 3.1 percent year over year and new listings rose year over year for the fourth straight month.
Today’s economic calendar kicked off with mortgage applications from MBA decreasing 5.6 percent from one week earlier. Later today brings the second look at Q4 GDP and January advanced indicators: the goods trade deficit, retail inventories, and wholesale inventories. Three Fed speakers are currently scheduled: Atlanta President Bostic, Boston President Collins, and New York President Williams. We begin the day (an early travel day for me) with Agency MBS prices, the 10-year yielding 4.28 after closing yesterday at 4.32 percent, and the 2-year at 4.67.
Jobs and Transitions
Looking to expand in CA or NV? Licensing in both states is now taking nearly a year. Opportunity for immediate licensing in either or both states. New established small Mini-Corr/Broker shop located in Northern NV for sale. The operation was established by an industry veteran with two immediate family members. Some circumstances with the family have changed and the principal believes it would be better to continue forward becoming a part of a larger entity. The company is licensed in NV, CO, TX, FL, and CA; banking license should be completed within 6 – 8 weeks. If interested, please contact Chrisman LLC’s Anjelica Nixt to forward your note to the owner.
Movement is providing its loan officers, and the agents they work with, a unique way to highlight their impact. Powered by the company’s new proprietary sales and marketing tool MORE, every Movement LO and the agents they closed loans with in 2023 recently received a personalized “Highlight Reel,” featuring an email, web page, and social media content showcasing the work they did together last year and how that work impacted their respective communities. Movement has also released its annual Impact Report, which also looks back on the previous 12 months. Check out all the ways Movement helps its loan officers stand out with unique storytelling, content, technology, and yes, MORE, at MovementLO.com.
New American Funding is pleased to announce the addition of industry leader Mosi Gatling as SVP Strategic Growth and Expansion. Gatling is renowned for her expertise in serving previously underserved communities and her commitment to increasing Black homeownership in the U.S. and will help to reshape the industry’s approach towards minority communities and effect positive change across the mortgage industry.
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how to utilize a tax advantaged 529 plan to help your or a friend’s children save for future education expenses.
This Week in Your Money: What are the risks of purchasing a home without an inspection? How can you plan for major expenses when healthcare providers can’t tell you how much their services will cost? Hosts Sean Pyles and Sara Rathner share their hot takes on unexpected financial challenges, with tips and tricks on handling surprise expenses, understanding the importance of home inspections, and dealing with healthcare industry inefficiencies.
Today’s Money Question: What are the benefits of a 529 college savings plan? Can you contribute to a friend’s 529 plan to support their child’s future? NerdWallet writer Elizabeth Ayoola joins Sean and Sara to discuss the essentials of 529 college savings plans. They discuss the types of educational expenses covered, the tax benefits associated with 529 plans, and the flexibility of choosing different state plans. They also answer a listener’s question about how to approach the sensitive topic of financial gifts for education with parents, sharing methods for contributing to a loved one’s 529 plan without overstepping boundaries. Then, they discuss the implications of the Secure Act 2.0 on 529 plans, methods for estimating necessary savings for a child’s education, and tactful ways to discuss educational contributions with parents.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sara Rathner:
Hey Sean, has money ever made you mad?
Sean Pyles:
Yeah, it has, especially when I get a bill that I don’t expect to pay but have to anyway. So yeah, why?
Sara Rathner:
Yeah. Yeah, those surprise major expenses are a huge pain. I just had to replace my washing machine because the fun never stops in my house.
In this episode, we are going to let off a little steam about what makes us mad in the world of money.
Sean Pyles:
Welcome to NerdWallet’s Smart Money Podcast. Our job today is to help you be smarter with your money, one money question at a time. I’m Sean Pyles.
Sara Rathner:
And I’m Sara Rathner.
So listener, this show is all about you and your money questions. So, whatever financial decision you’re pondering, whatever’s making you mad about your money, let us know.
Sean Pyles:
Leave a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email your questions to podcast@nerdwallet com.
Sara Rathner:
In this episode, Sean and I answer a listener’s question about contributing to 529 accounts for your loved ones. But first, we’re going to yell into the void in our semi-regular Money Hot Takes segment.
Sean Pyles:
So here’s how this works. Sara and I just rail against whatever we feel like in the world of money. And let’s put, say, 100 seconds on the clock. That’s what? A second for every penny in a dollar. I don’t know, it’s just an arbitrary number really.
Sara Rathner:
That works for me. It’s a nice round number.
Sean Pyles:
All right, Sara, are you ready?
Sara Rathner:
Sean Pyles:
I’m starting my timer. Go.
Sara Rathner:
All right. I hate the trend where home buyers feel pressure to completely waive getting a home inspection before buying a property. That’s different from the type of waiver where you’ll still do the inspection, but then you’re assuming the cost of anything you find. It’s when you just do without the inspection entirely.
I live in a block of houses that are like 107 years old, and two houses on my block sold with waived inspections where the buyers had to put tens of thousands of dollars unexpectedly into problems in their house that they didn’t know about. I just had a neighbor text me asking for a roofer because the first time it rained since she moved in her house, it started raining on the inside of her house, which means that the seller just lived with that for however long before selling the house and passing the problem onto somebody else.
So especially if you’re a first-time home buyer, if you are going to drain your savings to buy your house, and then you’re not going to have much money left for repairs, be really careful about this. And as a society, can we just make inspections mandatory? That’s more consumer-friendly, honestly. People need to know what they’re getting into, and frankly, people should feel pressure to keep their houses well maintained before sale. There I said it.
Sean Pyles:
You’ve got 40 more seconds if you want to keep on railing.
Sara Rathner:
Oh man, I do? Well, if you haven’t bought a home yet, what’s nice about getting an inspector involved is they’ll look at all the major systems of the house, the appliances, the roof, all sorts of stuff, the electrical, the plumbing, and they will tell you the lifespan of some of those major things like a furnace or a boiler, your roof, your HVAC system. And even if something is going to go in the next year or two, at least you have this laundry list of things and when they’ll probably need to be replaced, and you can begin to budget for those replacements.
Sean Pyles:
Okay, that’s 100 seconds.
Sara Rathner:
Boom. All right, Sean, you got any reaction?
Sean Pyles:
Well, I totally feel that, because buying a house without knowing what’s wrong with it is very risky financially. Buying a house can be financially risky in and of itself, depending on how expensive the home is. But imagine getting into the house, it’s your first day, you’re super happy to be a homeowner, and then you realize, oh, it’s raining inside the house, or the crawl space is infested with termites. You don’t know what you’re getting into if you don’t have an inspection. And even if it may make you a more competitive buyer, it isn’t worth it, in my opinion, to get yourself into something like that because you just don’t understand the risks you could be taking on. And I’m all about mitigating risks as much as possible.
Sara Rathner:
All right, Sean, I have had my turn, and now it is your turn. I have set my timer for 100 seconds. And go.
Sean Pyles:
Okay. Today I am mad about industries that are designed to extract money from us while making our lives miserable or at least really frustrating. And I have one, maybe two, examples depending on how far 100 seconds takes me.
First step is healthcare. Americans spend far more on healthcare than other wealthy nations. Nearly 18% of our GDP in 2021 went to healthcare. And what are we getting for it? An incompetent extractive industry that exploits nearly everyone that engages with it. Among wealthy nations, the US has the highest rates of infant and maternal mortality and excess deaths, not to mention the daily indignities that come with trying to access healthcare.
I have a recent example that is a microcosm of these larger issues. I recently got a bill in the mail for some regular lab work, and the thing is, I have these labs done every few months, and they’re always covered by my insurance. But this time I got a surprise bill for nearly $200, and I’d already had an expensive month with some car repairs, and I was not excited about the prospect of an additional $200 to cover. So I called my doctor, and they said, “Oh yeah, the company that does the lab work just messed up. Oops, just disregard the bill.”
So if I hadn’t called my doctor, I would have been on the hook for this bill. This was a relatively small bill as far as medical bills go, and it was fairly easy for me to clear up. I’m obviously very fortunate in this case, but for so many people, especially those with chronic illnesses or complex medical conditions, the onslaught of navigating insurance, verifying that you’re being billed correctly and then somehow coming up with the money to cover bill after bill is just totally exhausting and can make achieving financial goals nearly impossible.
So why am I going on and on about things that we already know too much about?
Sara Rathner:
Just so you know, you’re over time.
Sean Pyles:
Oh, God. I’m going to keep going. I’m almost done.
Sara Rathner:
Keep going, Sean. Let’s do this.
Sean Pyles:
All right. I am going on and on about this because I think it’s important to remind people that it does not have to be this way. We are in an election year, people, so I don’t know, let’s try to do something about it.
Okay, Sara, how many seconds was that?
Sara Rathner:
Oh, well I stopped timing it the second it hit the clock, so that might’ve been just an extra 10 seconds, honestly.
Sean Pyles:
Okay. It’s hard to fit so much into such a small amount of time.
Sara Rathner:
You know what? Your rage is such that it cannot be fit into a tiny container and that is valid. It’s okay to let the rage out and give it some more space.
I agree with you. What’s annoying is, for example, this past year I had a baby, and that is expensive to the tune for me of $7,000 out of pocket after insurance. Hi. $7,000 is a lot of money, people.
And what was annoying about that, and this is something for anybody who maybe is facing a planned medical procedure like a surgery or childbirth or anything like that, or who takes medication for chronic illnesses, I tried to call the billing department at the hospital to talk to my insurance company to say, “Can you at least give me an idea of how much money I will be out?” I knew going into it that I would be having a C-section. So I could say, “I’m having a C-section, that means I have to work with an anesthesiologist, which is an extra expense. Can you tell me ballpark, even if you’re off by a grand, how much should I budget for this?” And everyone’s like, “We don’t know.” Shrug emoji.
Then the bills just fly in for months and you think you’re done. So you’re like, “Okay, we’re done paying for the hospital bill. Now we can put our money into other stuff.” And then you get another bill for like, $1,100.
Sean Pyles:
And you have to question, was this billed correctly? Was it coded correctly? You don’t know. And it just flies in the face of all the things that we try to talk about in the personal finance space, which is around anticipating big expenses, budgeting for it, saving up for it if you can. It’s impossible when you don’t know what you’re going to be paying.
Sara Rathner:
Right, and if you’re facing surgery, what, are you just going to not have anesthesia to save money? Do not recommend.
Sean Pyles:
That is not a money-saving tip that we would recommend. No.
Sara Rathner:
No, that’s a place where you should spend good money, get good and numb.
But really it is an extra expense. And that’s so, so frustrating because you are not only out a lot of money, but you’re feeling kind of vulnerable because you’ve just gone through some medical stuff, even if it’s just blood work or something, and you want to take good care of your health, and it’s sometimes financially impossible to do that.
Sean Pyles:
Yeah. Not to mention completely demoralizing.
Sara Rathner:
Yeah, and some people just don’t go to the doctor because of the cost, or the dentist. And then years later, they’re faced with really serious health issues because they’ve been neglecting their health because of the cost.
Sean Pyles:
Yeah. I don’t know, it’s really tough in this space to talk about medical expenses because at NerdWallet and in the personal finance realm, we try to give actionable advice, and a lot of the time the advice is reactive. If you get a medical bill, you do have to ensure that it’s coded correctly. Maybe try to work out a payment plan with your medical office if you can’t cover the bill in one go. But it’s so hard to be proactive like you were just describing and understand what you’re going to have to pay if you want a routine procedure like blood work or something more significant like having a baby, makes me want to yell into the void all day every day.
Sara Rathner:
Yeah. Well, we took more than 100 seconds about this. If you have a body, then this is something that affects you, and it is really hard to deal with those extra unexpected costs.
Sean Pyles:
All right, so that is what we are mad about this week, listener. I know there’s a lot to be mad about in the world of money, so do not keep it in. Let us hear what you’re mad about, and we might just share it on a future episode.
You can text your Money Hot Take to us or leave a voicemail on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or you can email it to podcast@nerdwallet com.
Sara Rathner:
All right, I don’t know about you, but my heart rate is starting to come down from all of that. Ooh, deep breaths, everyone. This episode’s money question is up next. So calm down too and stay with us.
Sean Pyles:
This episode’s money question comes from Lauren, who wrote us an email. Here it is.
“Hi nerdy Nerds. I’m not a parent. I’m never going to be a parent. Because of that, I have made it part of my financial plan to contribute to the 529 plans of kids around me. Because I don’t have nieces and nephews, I’m contributing toward the savings of my friend’s three-year-old. How much needs to go into a 529 starting at age two or three to cover a four-year private college?”
“I got the details on this kid’s 529 plan from his dad and started contributing about $100 a month. We didn’t talk about it. I intend to keep chipping in until the kid is done getting formal education 20 to 25 years from now. How do I talk to the parents? I want to understand if I’m helping enough without becoming privy to their private financial details. I also don’t want to make it seem like I have any vote whatsoever in how the kid charts an educational path. How do I broach this with the parents?”
Sara Rathner:
To help us answer this listener’s question, on this episode of the podcast, we are joined by NerdWallet writer Elizabeth Ayoola. Welcome.
Elizabeth Ayoola:
Hello, and hi.
Sean Pyles:
Elizabeth, so good to have you on.
So let’s start by setting some groundwork. Can you please describe what a 529 college savings plan is, how they work, and why they’re such a big deal?
Elizabeth Ayoola:
A 529 plan is a huge deal indeed to me anyway. I wish I had one when I went to college because I was left with a huge bill. But anyways.
529s are tax advantaged college savings plans, and they allow people to save and invest money for education expenses. So, with that said, the money gets to grow, and it gets to compound, which can mean beneficiaries have a nice education pot to pull from when they need the money. And for those who don’t know what compounding is, it’s essentially when your interest earns interest.
Sara Rathner:
It’s the eighth wonder of the world.
Elizabeth Ayoola:
Sara Rathner:
So you mentioned education expenses and that’s what the purpose of this account is, but what kinds of education expenses can you use a 529 to fund?
Elizabeth Ayoola:
Funds in a 529 account can be used to cover a vast range of qualified expenses, and that can range from tuition to computers and education related equipment. The expenses can also be used to pay for education needs of your beneficiaries. And the good thing that I like is that the beneficiaries can be in anywhere from kindergarten through grade 12. So that said, it’s not only for college students.
Sean Pyles:
Right, that is a really good point because people hear about 529 accounts, and they think they may be specifically for people going through a traditional four-year education, but people can also use the funds in the 529 college savings plan to cover things like trade schools too. So it really isn’t only for that traditional four-year higher education route.
Sara Rathner:
So earlier you mentioned that 529s are tax advantaged accounts. Can you talk a little bit about the tax treatment of them, and what should people know when they’re considering opening a 529?
Elizabeth Ayoola:
Well, one thing that I personally like about these accounts that some people don’t know also is that some states offer a tax deduction if you contribute to their plan. And when I say their plan, I mean the state that you live in. But there is no federal tax deduction for a 529 contribution. So it’s only at a state level. The tax deduction is usually capped. So no, you can’t just deduct your entire contribution. The deduction amount varies from state to state. So it’s best that you check in your state what the amount may be, if they offer it.
And a little bit off-topic, but I also like that the IRS doesn’t set a cap on your contributions to a 529 account, although some states do set a limit.
Sean Pyles:
And I’ll call out two other tax benefits of 529 college savings plans. The first is that investment growth in this account is tax-free, and second, distribution for qualified expenses like tuition or books are also tax-free.
Elizabeth, another important thing to know about 529 college savings plans is that each state has their own, and you don’t have to choose the 529 plan from the state that you live in. And this can all get a little bit confusing because there are so many states to choose from. So, at a high level, can you outline the main differences between a 529 from one state to the next, and how would someone go about choosing which state’s 529 plan to use?
Elizabeth Ayoola:
One of the major differences that people should know and a reason that people may cheat on their state’s 529 plan is lower fees. I personally have a 529 from a different state than my current home state for that very reason. So people should consider shopping around and comparing fees before opening an account. Ultimately, the goal should be to do some math and see whether the deductions and the credits that you’re going to get in the state that you live in are worth more than the lower fees that you could get in another state in the long term.
Also, note that you can open multiple 529 accounts. I have multiple 529 accounts. I recently opened a second one in my home state, Florida, because my son was awarded a grant and it could be transferred to a 529 account, but the catch was it had to be a Florida 529 plan.
Sara Rathner:
So 529s have some flexibility, which we talked about before, not just for four-year educations, but also for trade schools and for K to 12 expenses as well. And interestingly enough, 529s were just made even more flexible. Can you talk about recent changes around the ability to roll 529 funds into a Roth IRA, and what that means for folks who maybe aren’t considering going to college?
Elizabeth Ayoola:
The Secure Act 2.0 was recently passed, and if I can be honest, that’s what motivated me to open up my first 529 account, and I just opened it last year. I was always on the fence and only saved money in a brokerage account because I was afraid of what would happen if my son decided not to go to college in 15 years. He’s six, by the way.
I decided to get off the fence when the Secure Act 2.0 made it possible for people to roll at least a portion of the unused funds into a Roth account. However, you do have to wait until 15 years after you’ve opened the 529 account before you can roll those funds over. And you can also only roll up to a certain limit starting in 2024. It may be ideal to read the IRS’s rules, they have a lot of fine print around the conversion or speak to a finance professional about it.
I think Roths are also awesome because they aren’t subject to required minimum distributions and withdrawals. They’re also tax-free when you meet certain requirements like waiting until 59-1/2, amongst other rules.
Sara Rathner:
All right, well thank you for that great summary of the tax rules surrounding this new change. We just want to let you all know that we are not investing or tax professionals, and if you have any specific questions to your own situation, definitely consult a professional who can give you guidance.
Now let’s turn to the fun stuff. The math, Sean. I know that you are in the midst of your certified financial planner coursework. I have slogged through that myself. It is a lot. It is a lot of math.
Sean Pyles:
Sara Rathner:
And now that you know how to do it, I’m sure you’re eager to show off your chops. So are there any insights you can share that will help our listener figure out how much they need to save every month or every year to help their friends reach their savings goals?
Sean Pyles:
As a matter of fact, yes. And you’re right, I have been waiting for an opportunity to show off what I’ve been learning about because often I’m just doing calculations in silence and this is a time for me to be loud and proud about hitting buttons on a calculator. So let’s do it.
I’ll spare you and our listeners the specifics of the calculation, but I plugged the listener’s situation into a time value of money calculation and got a rough estimate for how much they will need to save.
Sara Rathner:
All right, drum roll. What’s the number?
Sean Pyles:
For our listener to meet the savings goal that they outlined in their question, remember, they want to save for four years of education at a private college starting now-ish and saving until the kid finishes school. They would need to save around $8,000 per year. Obviously, that’s a lot of money to contribute to a 529 account, no less for a kid who isn’t your own. And this is why 529s are often just part of the picture when it comes to paying for college, which usually includes some combination of scholarships, grants and loans and generous gifts from family friends.
Sara Rathner:
That is definitely more than a hundy a month.
Sean Pyles:
Yeah, that’s for sure.
All right, so all of that math out of the way, I want to talk about the other part of our listener’s question. They seem to be concerned about how much they should contribute and also how to talk about this with their friends. I am not a parent, so I would love to hear from both of you who are parents, how you would approach the situation if you had such a generous friend. Would you welcome the money, or say get out of my business? Or if you are going to accept this money, if you want to have this conversation with your friend, how would you want them to communicate that with you?
Elizabeth Ayoola:
Honestly, I would welcome the money, especially because I’m a single mama. So as a matter of fact, my friends always contribute to my son’s savings account in London for his birthdays or holidays and I really, really appreciate it. It can be a better gift to me than toys that stab me in the foot within a few days.
Sean Pyles:
Elizabeth Ayoola:
I would also appreciate a friend asking me what my savings goals are, so they know how to support that goal. However, I do think, for the sake of boundaries, I would like my friend to ask me my comfort level with the topic before they dive in and start trying to give advice.
I think it’s also important to note that not everyone is comfortable discussing money or financial goals. But with that said, here’s an example of maybe how somebody could say it. So you may say, “Hey, I want to help you reach John’s college savings goal. Are you comfortable discussing that target number you have in mind, and can you tell me how I can support that?” Or another option could be you saying, “Hey, would you like to do the math yourself and then let me know how I can support that goal?” So those are just a couple of options.
Sara Rathner:
Yeah, I mean, I’m not going to look a gift horse in the mouth. College is expensive now, and it’s only going to become even more expensive in the future. Even in-state tuition, where I live in Virginia, is often over $20,000 a year. That used to be the economical way to get a four-year degree, and now it’s also very, very expensive. So what’s it going to be like by the time my kid’s in college? I don’t know. A lot.
Sean Pyles:
I think we can confidently say more money.
Sara Rathner:
Confidently, we can say a whole lot more money.
I would want my friends to decide for themselves what they feel comfortable giving, because I don’t feel comfortable telling another person how they should allot their money because they have other competing financial goals and obligations. And I never want to tell another person what they can do with their money unless they specifically ask me to tell them what to do with their money, which nobody ever asks me.
Sean Pyles:
And you also don’t want to give the impression that your friends can’t look after their own family’s finances, right? That’s a bit of the awkwardness underlying the question, is you want to help someone that you care about and this child that you’re seeing grow up in the world, but you don’t want to impose your will upon them. It seems like our listener is being very thoughtful about that. And you don’t want to make it seem like you think they aren’t doing enough.
Sara Rathner:
Right, or you think their kids should go to a four-year private university because that’s what you value, but maybe the parents have other values that they want to impart upon their child as the kid grows up, and then the kid will go off and do their own thing as a young adult.
In my case, we have a 529 for our son. We have family members who’ve contributed money. They’ve just written checks to us, and then we deposit it into our account that is tied to our 529 and then deposit the money into the 529.
Ultimately, when you contribute, you do go through the account owners, and that’s oftentimes parent or guardians. You are going to have to communicate with them because they’re ultimately the gatekeeper of that account. They are the owners, and then the child is the beneficiary.
Sean Pyles:
That actually brings up something that I wanted to talk about, which is who would own this account? The listener could in theory open up a 529 account on their own for this kid. But long-term, it’s probably going to be easier if the parents are the owners of the account, because that way when the kid is eventually ready to go to college or trade school or what have you, the parent can be the one managing those distributions.
Personally, I know as a friend, as much as I love my friends and my friends’ kids, I don’t want to have to manage that down the road. So that’s something else that they should think about when they’re talking about this with their friends.
Sara Rathner:
I definitely agree with talking to the parents and ultimately contributing to an account that the parents or guardians are in charge of.
Sean Pyles:
Well, Elizabeth, do you have any final thoughts around 529s and helping your friend’s kids afford college?
Elizabeth Ayoola:
I think we have given some very juicy tips here and only two more things come to mind, which is one, while it’s noble to contribute to your friend’s kids or loved one’s kids’ 529 account, please take advantage of any state income tax deductions that you might be eligible for. The rules around this can be muddy. And I know the original listener who asked this question lives in a different state than where he’s contributing, but sometimes you’re able to get a deduction depending on the state that you live in. So if you can get money back, I mean, why not?
My second thing that I’ll say is that if your loved one doesn’t have a number in mind, guide them to a college savings calculator or run the numbers together over coffee if they’re open to doing that.
Sean Pyles:
Great. Well, thank you so much for coming on and talking with us.
Elizabeth Ayoola:
I loved it. Thank you for having me.
Sean Pyles:
And that is all we have for this episode. If you have a money question of your own, turn to the Nerds and call or text us your question at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected].
Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate, and review us wherever you’re getting this podcast.
Sara Rathner:
This episode was produced by Sean Pyles and myself. Kevin Berry and Tess Vigeland helped with editing. Sara Brink mixed our audio. And a big thank you to NerdWallet’s editors for all of their help.
And here’s our brief disclaimer:
We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Construction loans are short-term loans that you can use to build a new home.
Some construction loans can be converted to mortgages after your home is finished.
Construction loans typically have tougher criteria than conventional mortgages for existing homes.
If you can’t find the right home to buy, you might be thinking about building a house instead. Financing this type of project is somewhat different than getting a mortgage to move into an existing property. Instead of a mortgage, you take on a construction loan (also known as a construction mortgage). Here’s what to know about construction loans.
What are construction loans?
Construction loans are loans that fund the building of a residential home (aka a stick-built house), from the land purchase to the finished structure. Common types are a standalone construction loan — a short-term loan (generally with a year-long term) — which only finances the building phase, and a construction-to-permanent loan, which converts into a mortgage once the construction is done. Borrowers who take out a standalone construction loan often get a separate mortgage to pay it off when the principal falls due.
You can use a construction loan to cover such costs as:
The land
Contractor labor
Building materials
Permits
How do construction loans work?
The initial term on a construction loan generally lasts a year or less, during which time you must finish the project. Because construction loans work on such a short timetable and are dependent on the project’s progress, you (or your general contractor) must provide the lender with a construction timeline, detailed plans and a realistic budget. Based on that, the lender will release funds at various phases of the project, usually directly to the contractor.
Construction loan statistics
Construction loans typically require 20 percent down, at minimum.
As of the second quarter of 2023, commercial and non-commercial construction loan volume totaled $488.54 billion, according to S&P Global Market Intelligence.
Currently, the top five construction loan lenders, in terms of number of loans, are (in order): Wells Fargo, JP Morgan Chase, Bank of America, U.S. Bank and Bank OZK, reports S&P.
Construction loans vs. traditional mortgages
Beyond the cost and repayment timeline, construction loans and mortgages have a few main differences:
The funds distribution: Unlike mortgages and personal loans that provide funds in a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the new home progresses. These draws tend to happen when major milestones are completed — for example, when the foundation is laid, or the framing of the house begins.
The repayments: With a mortgage, you start paying back the principal and interest right away. With construction loans, your lender will typically expect you to make interest payments only during the construction stage. Additionally, borrowers are typically only obligated to repay interest on any funds drawn to date until construction is completed.
Inspection/appraiser involvement: While the home is being built, the lender has an appraiser or inspector check the house during the various construction stages. As the work is approved, the lender makes additional payments to the contractor, known as draws. Expect to have between four and six inspections to monitor the progress.
Requirements: Construction loan requirements include being financially stable and having the ability to make a down payment. Lenders also want to see a construction plan, which you can read more about below.
Interest rates: Construction loan interest rates are typically higher than traditional mortgage rates. This is often because you’re not providing collateral to back the loan, which means the lender is taking on more risk.
Types of construction loans
There are different types of construction loans available to borrowers, which are designed to suit various financial needs.
Construction-to-permanent loan
With a construction-to-permanent loan, you borrow money to pay for the cost of building your home. Once the house is complete and you move in, the loan is converted to a permanent mortgage.
In essence, the loan becomes a traditional mortgage, typically with a loan term of 15 to 30 years. You can opt for a fixed-rate or an adjustable-rate mortgage.
Then, you start making payments that cover interest and the principal. (During the construction loan phase, your lender disburses the funds based upon the percentage of the project completed, and you’re only responsible for interest payments on the money drawn). While many construction loans are conventional loans — entirely privately originated and financed — there are government versions as well. Your other options include an FHA construction-to-permanent loan — with less-stringent approval standards that can be especially helpful for some borrowers — or a VA construction loan if you’re an eligible veteran.
Whatever the type, the big benefit of the construction-to-permanent approach is that you have only one set of closing costs to pay, reducing your overall expenses. “There’s a one-time closing so you don’t pay duplicate settlement fees,” says Janet Bossi, senior vice president at OceanFirst Bank in New Jersey.
Construction-only loan
A construction-only loan provides the funds necessary to build the home, but the borrower is responsible for repaying the loan in full at maturity (typically one year or less). You can settle the debt either in cash or by obtaining a mortgage to pay it off.
Construction-only loans can ultimately be costlier than their construction-to-permanent cousins, especially if you have to finance the repayment. That’s because you complete two separate loan transactions and pay two sets of fees. Closing costs tend to equal thousands of dollars, so it helps to avoid another set. And, of course, you have to invest time and energy shopping for a mortgage.
Another consideration: Your financial situation might worsen during the construction process. If you lose your job or face some other hardship, you might not be able to qualify for a mortgage later on — and might not be able to move into your new house.
Renovation loan
If you want to upgrade an existing home rather than build one, you can compare home renovation loan options. These come in a variety of forms depending on the amount of money you’re spending on the project.
“If a homeowner is looking to spend less than $20,000, they could consider getting a personal loan or using a credit card to finance the renovation,” says Steve Kaminski, head of U.S. Residential Lending at TD Bank. “For renovations starting at $25,000 or so, a home equity loan or line of credit may be appropriate, if the homeowner has built up equity in their home.”
Another viable option in a low mortgage rate environment is a cash-out refinance, whereby a homeowner would take out a new mortgage in a higher amount than their current loan and receive the extra as a lump sum. As rates tick up, though, cash-out refis become less appealing.
With any of these options, the lender generally does not require disclosure of how the homeowner will use the funds. The homeowner manages the budget, the plan and the payments. With other forms of financing, the lender will evaluate the builder, review the budget and oversee the draw schedule.
Owner-builder construction loan
Owner-builder loans are construction-to-permanent or construction-only loans in which the borrower also acts in the capacity of the home builder.
Most lenders won’t allow the borrower to act as their own builder because of the complexity of constructing a home and the experience required to comply with building codes. Lenders typically only allow it if the borrower is a licensed builder by trade.
End loan
An end loan simply refers to the homeowner’s mortgage once the property is built, says Kaminski. You use a construction loan during the building phase and repay it once the construction is completed. You’ll then have a regular mortgage to pay off, also known as the end loan.
“Not all lenders offer a construction-to-permanent loan, which involves a single loan closing,” says Kaminski. “Some require a second closing to move into the permanent mortgage, or an end loan.”
Construction loan rates
Unlike traditional mortgages, which carry fixed rates, construction loans usually have variable rates that fluctuate with the prime rate. That means your monthly payment can also change, moving upward or downward based on rate changes.
Construction loan rates are also typically higher than traditional mortgage rates. That’s partially because they’re unsecured (backed by an asset). With a traditional mortgage, your home acts as collateral — if you default on your payments, the lender can seize your home. With a home construction loan, the lender doesn’t have that option, so they tend to view these loans as bigger risks.
On average, you can expect interest rates for construction loans to be about 1 percentage point higher than those of traditional mortgage rates.
Construction loan requirements
The companies that offer construction loans usually require borrowers to:
Be financially stable. To get a construction loan, you’ll need a low debt-to-income ratio and proof of sufficient income to repay the loan. You also generally need a credit score of at least 680.
Make a down payment. You need to make a down payment when you apply for the loan, just as you do with most mortgages. The amount will depend on the lender you choose and the amount you’re trying to borrow to pay for construction, but construction loans usually require at least 20 percent down.
Have a construction plan. Lenders will want you to work with a reputable construction company and architect to come up with a detailed plan and schedule.
Get a home appraisal. Whether you’re getting a construction-only loan or a construction-to-permanent loan, lenders want to be certain that the home is (or will be) worth the money they’re lending you. The appraiser will assess the blueprints, the value of the lot and other details to arrive at an accurate figure. For construction-to-permanent loans, the home will serve as collateral for the mortgage once construction is complete.
How to get a construction loan
Getting approval for a construction loan might seem similar to the process of obtaining a mortgage, but getting approved to break ground on a brand-new home is a bit more complicated. Generally, you should follow these four steps:
Find a licensed builder: Lenders will want to know that your chosen builder has the expertise to complete the home. If you have friends who have built their own homes, ask for recommendations. You can also turn to the NAHB’s directory of local home builders’ associations to find contractors in your area. Just as you would compare multiple existing homes before buying one, it’s wise to compare different builders to find the combination of price and expertise that fits your needs.
Find a construction loan lender: Check with several experienced construction loan lenders to obtain details about their specific programs and procedures. If you have trouble finding a lender willing to work with you, check out smaller regional banks or credit unions. Compare construction loan rates, terms and down payment requirements to ensure you’re getting the best possible deal for your situation.
Get your documents together: A lender will likely ask for a contract with your builder that includes detailed pricing and plans for the project. Be sure to have references for your builder and any necessary proof of their business credentials. You will also likely need to provide many of the same financial documents as you would for a traditional mortgage, like pay stubs and tax statements, that offer proof of income, assets and employment.
Get preapproved: Getting preapproved for a construction loan can provide a helpful understanding of how much you will be able to borrow for the project. This can be an important step to avoid paying for plans from an architect or drawing up blueprints for a home that you will not be able to afford.
Get homeowners insurance: Even though you may not live in the home yet, your lender will likely require a prepaid homeowners insurance policy that includes builder’s risk coverage. This way, if something happens during the construction process — the halfway-built property catches on fire, or someone vandalizes it, for example — you are protected.
Construction loan FAQ
Construction loans cover the costs of building a home. Typically, that means the expenses associated with construction, such as contractor fees, labor and permits. But you can also use the funds to purchase land. However, construction loans do not cover design costs. If you want to hire a professional to design your home, you’ll need to cover that cost on your own.
Ask your lender how money gets disbursed from your loan amount. Some lenders allow for monthly draws, while others will only authorize a draw after a passed inspection. Inquire about any processes or documentation required to pull money from your construction loan so that you can pay the bills in a timely fashion as they come in.
Understanding this process — and ensuring your contractor does, too — can help to avoid delays because of insufficient funds.
There are benefits and drawbacks to construction loans. These types of loans tend to have higher interest rates than those associated with a mortgage, for instance. In addition, the funds provided by a construction loan are only released in stages as work on your home progresses rather than in a lump sum upfront. However, construction loans often only require interest payments while your home is being built, which can be easier on your budget. The loan terms may also be more flexible than those that come with a traditional loan.
Talk to your contractor and discuss the timeline of building the home and what sort of factors could slow down the job. Delays could result in changes to your loan’s interest rate, which can lead to higher payments. Delays can also lead to delays in fund disbursement for construction-only loans.
If your project takes longer than expected, work with your contractor to try to resolve any bottlenecks. You should also keep in touch with your lender to let them know what’s going on. Clear and consistent communication can help avoid major issues with the loan.
In general, it is harder to qualify for a construction loan than for a traditional mortgage. Most lenders require a credit score of at least 680 — which is higher than what you’d need for most conventional, VA and FHA loans. It’s also typical for lenders to ask for a minimum down payment of 20 percent on construction loans, so you may have trouble qualifying if you can’t get that much money together upfront.
I don’t usually dive into odd niche topics like this, but I just spent 12 hours car shopping over the weekend. That’s a lot of test drives and awkward conversations with over-enthusiastic salespeople. Sorry, Clayton, I can’t picture myself driving this car off the lot today…why do you ask?
Long story short, I’ve compared tons of cars recently. Hybrids, as you might know, are always more expensive than their all-gas counterparts. But…aren’t hybrids cheaper to operate? Which means…could they save us money in the long run?! This got my finance brain whirring to life.
I wrote an article in 2020 and updated it in 2023 that covers the real, total cost of car ownership. The cost of car ownership can be broken down into 6 main categories:
Purchase/Depreciation
Financing
Maintenance and Repair
Fuel
Registration/Inspection
Insurance
Financing rates, registration costs, and inspection costs are universal for all cars. There’s no difference between a traditional gas car and a hybrid on those axes.
But we know (or at least suspect) purchase costs, maintenance, fuel, and insurance costs will vary between hybrids and all-gas cars.
A Bird in the Hand…
Aesop wrote in 600 BC that “a bird in the hand is worth two in the bush.” Or, in modern terms, “I’d rather have a dollar in my hand today than two dollars in 20 years.”
Money today is worth more than money in the future. This is called discounting. And we’ve used this idea before to analyze mortgage costs.
We’re faced with a similar problem today.
When we buy a hybrid car, we spend more on the purchase price today. But, ostensibly, we save operating costs each year we own the vehicle. However, those future savings are worth less than the extra dollars spent today.
Do we save enough on long-term operating costs to compensate for the differences in sticker price and depreciation? That’s the question!
To answer it, we need to:
Understand the differences in costs between gas cars and hybrids (sticker cost, depreciation, fuel costs, insurance costs, maintenance costs).
Determine an appropriate discount rate for this analysis and apply it.
An Appropriate Discount Rate
As of 2022, the average age of all cars on American roads is 12.5 years. That said, the average car owner has their vehicle for 8 years before (most often) selling it or (less often) it breaks down completely.
Therefore, a happy medium duration for today’s analysis is 10 years. We’re going to look at the differences between hybrids and gas cars over a 10-year life.
How much less valuable is a dollar in 2034 than a dollar today?
Warren Buffett uses U.S. Treasury bond rates as his discount rate. I’m inclined to agree with him. It’s “the risk-free rate.” In any analysis, we can ask ourselves, “Would I rather pursue [this risky option], or simply invest my money in U.S. Treasury bonds for a decade or two?” Good enough for Warren, good enough for me.
As of February 2024, the 10-year Treasury rate is 4.3%. The table below shows how to apply that discount rate to future savings.
Example: I could take $74.47 today, invest it in a 4.3% annual interest bond, and I’d have $100.00 in seven years. Thus, if a hybrid car saves me $100 in 2031, it’s precisely the same as having $74.47 in my pocket today in 2024. A bird in the hand…
How Much Does a Hybrid Save Us?
We need an example of two cars to analyze. Since Kelly and I are currently active car market participants (we’re soon to have a “Baby on Board”…by the way, what’s the deal with those stickers?), I’ve been researching the Kia Sorento. Let’s dig into the details of the all-gas Sorento vs. the hybrid Sorento.
All these details I’m about to share with you are shown mathematically in this spreadsheet. Please feel free to make a copy and play around yourself.
To make a copy of a Google Sheet: File –> Make a Copy
Sticker Price and Depreciation Rate
The gas Sorento starts at $31,990. The hybrid Sorento starts at $36,990.
According to iSeeCars, both vehicles will depreciate 53% in their first 5 years.
Gas Expenses
To calculate estimated gas expenses, we need to understand:
how far we drive
our miles-per-gallon efficiency of the cars
and the cost of gas
Depending on your source, the average American drives between 13,000 and 15,000 miles per year. We’ll use 14,000 miles per year for this article.
The Kia Sorento hybrid gets 35 miles per gallon (we’re looking at the all-wheel drive model, thanks to snowy Rochester winters). The all-gas Sorento gets 24 miles per gallon.
Average American gas prices are currently $3.27 per gallon.
We combine those numbers to find out:
The Sorento Hybrid incurs $1308 of gas expenses per year.
The all-gas Sorento incurs $1907 of gas expenses per year
Insurance Costs
The average “full coverage” auto policy costs $2000. Your miles may vary (#carjoke).
Insurance is very personal in that nature. Your driving history and desired coverage level significantly affect the insurance premium.
Nevertheless, we’ll use $2000 per year for the all-gas Sorento. Hybrid insurance costs, on average, 7% more than all-gas models; the Sorento Hybrid will cost $2140 per year.
Maintenance
Most sources cite that hybrid maintenance costs are lower than all-gas engines, as hybrids use regenerative braking (fewer brake replacements), don’t use alternators or starters, and tend to have simpler transmissions.
Unfortunately, I cannot find any sources that provide hard numbers to support this claim! If you find something, please let me know.
Therefore, I’m using an average figure of $600 per year for repairs and maintenance and biasing those dollars towards the end of the cars’ lives. Newer cars break down less and are covered by various levels of warranty.
All-In Costs: Hybrid vs. All Gas
Over our 10-year analysis period, the Kia Sorento Hybrid would cost us $55,662(depreciation + gas + insurance + maintenance), as measured in 2024 dollars.
The all-gas model would cost us $56,491.
Pretty darn close, but it’s a slight nod to the hybrid model. Category-by-category, the results are:
The hybrid costs $3000 more in depreciation costs.
The hybrid saves $4997 in gasoline costs.
The hybrid costs $1167 more in insurance.
And while I’m focusing only on dollars and cents here, there’s an environmental argument too. I won’t dive into the details. But you should probably place a value on environmental costs and benefits (albeit a difficult value to define in dollars and cents).
Of course, this is a perfect example of “average pilot syndrome.” Averages are useful in theory but rarely in practice. You must re-run this analysis for your unique scenario. The first questions that come to mind are:
Which specific model are you looking into? It might not be the Kia Sorento.
What are the miles per gallon ratios of the all-gas and hybrid models?
What are insurance rates like? Not only for your preferred car, but for you?
What are the typical maintenance costs of your desired car?
How does your car depreciate over time?
Should you adjust the discount rate? (PS – you can play around with the spreadsheet yourself, and you’ll see that the discount rate does not change the outcome significantly in this case.)
Was It Worth It?
We’ve covered a lot of conjecture and “what if” questions, made some assumptions, and created a spreadsheet. Is it all worth it?
First, I think I’m directionally accurate. Will the real world play out as I’ve modeled here? Of course not. For all I know, an asteroid will blast our car into smithereens on its first night in the garage (it’ll be a new kind of hybrid; half shrapnel, half vapor). But I think I have a better factual understanding now than I did before. I hope you agree.
This was ~2 hours of work (mainly on the writing, not the math) to optimize an $800 decision. And because I’ve discounted those future dollars, that’s $800 as measured today. Not bad! For some hybrids, this is likely to be a multi-thousand dollar difference. Nice!
Time to unplug, fill up, and peel out.
Thank you for reading! If you enjoyed this article, join 7500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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There’s no doubt that being a single mom is challenging. There’s also no doubt that qualifying for a mortgage can be difficult even under normal circumstances.
The National Association of Realtors found that single female buyers account for 9% of all home purchases. This figure is down from 20% in 2010. And the median purchase price for single female buyers was $189,000, which is the lowest of all median home purchases.
For many single mothers, trying to qualify for a mortgage with only one income can feel next to impossible. But as a parent, it’s normal to want to provide a comfortable home for your children.
And thankfully, there are loans and financial assistance programs available that can help you do just that. Let’s look at some of the best mortgage programs available for single moms.
Challenges Single Moms Face in Buying a Home
One of the most difficult challenges that many single mothers face is a lack of income. They are responsible for providing for themselves and their children on one income, and they don’t always receive child support.
It can be challenging because mortgage companies want to see that you have a certain amount of disposable income before they’re willing to lend to you. You need to prove that you can make your monthly mortgage payments, have a low debt-to-income ratio, and a strong credit history.
Plus, most lenders require down payments between 10% and 20%. Most people struggle to come up with this kind of cash, so it can be especially challenging for a single mother.
5 Home Loans for Single Moms
If you’re a single mom looking to purchase a home, there are options available to you. Listed below are the five best mortgage assistance programs for single moms.
1. Down Payment Assistance Programs
Homeownership is a dream for many, but the initial costs can sometimes stand as a formidable barrier. For aspiring homeowners facing this challenge, down payment assistance programs act as a financial bridge, easing the burden of upfront expenses. Offered across various states and localities, these programs are crafted to cater to differing financial situations.
Lifting financial barriers: The highlight of these programs is their primary purpose – reducing the initial costs of buying a home. By either lowering or completely covering the down payment, they create a more accessible route to homeownership for many who might find it out of reach otherwise.
Local solutions for local challenges: Many states and cities have their unique down payment assistance programs designed with their residents in mind. From specific grants to interest-free loans, the types and benefits of these programs can vary widely based on the region.
Multiple options: Some programs might offer flat monetary assistance, like a set grant amount, while others could provide a percentage of the home’s price. Additionally, there might be options that assist not just with the down payment but also with closing costs.
Criteria and eligibility: Like any financial program, these assistance initiatives come with their sets of requirements. Factors like income levels, property location, and first-time homebuyer status can influence eligibility.
Your next steps: If the prospect of reduced initial costs sounds appealing, dive into research specific to your state or city. Local housing agencies and official state websites often provide comprehensive lists of available down payment assistance programs. By understanding what’s accessible in your region, you can make a more informed decision on your path to homeownership.
2. FHA Loans
FHA loans are a popular option for single parents struggling to come up with a down payment. You can apply for this type of home loan through a bank or online mortgage lender, and the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD) guarantee the home loan.
Flexible credit requirements: One of the most significant advantages of an FHA loan is its lenient credit criteria. Even if your credit score isn’t perfect, you may still be eligible for this loan, offering a lifeline to many potential homeowners who’ve faced financial hiccups in the past.
Lower down payments: Traditional loans often demand a hefty down payment, but with an FHA loan, you can potentially secure your dream home with as little as 3.5% down. This makes the path to homeownership more feasible for individuals without vast savings.
Debt-to-income leeway: Where many conventional loans are strict about debt-to-income ratios, FHA loans often provide a bit more wiggle room, accommodating borrowers with higher debt levels.
Government assurance: With the Federal Housing Administration backing these loans, lenders often feel a heightened sense of security. As a result, borrowers can often enjoy more favorable loan terms and conditions.
Understanding the criteria: While FHA loans offer flexibility, there are still criteria to meet. This includes ensuring the property meets specific standards and falls within set loan limits. Additionally, borrowers will need to pay a mortgage insurance premium (MIP), which can add to the monthly payment. It is usually more expensive than a conventional loan, and it remains in place until you refinance or sell the property.
Getting started with an FHA loan: If the benefits of an FHA loan resonate with your situation, the next logical step is to consult with an FHA-approved lender. They’ll guide you through the process, ensuring you’re informed, prepared, and ready to make the best decision for your homeownership dreams.
3. USDA Loans
When thinking of affordable homeownership, rural areas might not be the first thing that comes to mind. Yet, the U.S. Department of Agriculture (USDA) has paved a unique path to homeownership, especially in these lesser-populated regions. USDA loans stand as a testament to the government’s commitment to making homeownership accessible to a broader audience, regardless of urban or rural preferences.
Zero down payment: The standout feature of USDA loans is the possibility to finance the entire purchase price of a home. Imagine walking into your new home without the stress of a hefty upfront payment. That’s the magic of the USDA.
Flexible location choices: While the term “rural” defines the USDA’s primary target, many suburban areas also fall within their eligibility map. It’s not just about countryside homes; it’s about expanding homeownership in less densely populated areas.
Competitive interest rates: Often, USDA loans come with interest rates that are either at par or even better than conventional loans. This can translate into significant savings over the life of the mortgage.
Government guarantee: With the backing of the U.S. Department of Agriculture, lenders often extend more favorable terms to borrowers. This backing ensures lower risks for lenders and better loan conditions for aspiring homeowners.
Understanding eligibility: To be a part of the USDA’s vision, you’ll need to meet specific criteria. This includes income restrictions based on the median in your area and ensuring the property falls within the USDA’s designated zones.
Starting the USDA adventure: If the prospect of a no-down-payment home in a tranquil setting appeals to you, look into the USDA loan process. Engaging with a lender familiar with USDA loans will offer clarity and set you on a promising path toward a home that aligns with your dreams.
4. VA Loans
For those who have bravely served in our nation’s military, VA loans are the government’s way of saying thanks. Whether you’re a veteran, an active-duty service member, or the widow of someone who served, these loans offer distinct benefits tailored to recognize and support your sacrifices.
No down payment: What sets VA loans apart is the option to finance 100% of a home’s purchase price. That means you can step into homeownership without the heavy upfront cost that often deters potential buyers.
Low-interest rates: Traditionally, VA loans come with interest rates that are more competitive than many conventional loans. Over the lifespan of your mortgage, this could equate to substantial savings.
Skip the PMI: With many mortgages, if you can’t put down a certain percentage, you’re hit with the additional monthly cost of private mortgage insurance (PMI). However, with VA loans, you won’t have to factor in PMI, no matter your down payment amount.
Government assurance: With 100% backing from the government, lenders often offer more favorable terms. It’s a win-win; you get better conditions, and they get added security.
Meeting the criteria: To take advantage of a VA loan, you’ll need to meet specific service stipulations. The criteria vary based on your military service’s nature and duration. Additionally, the property you choose must meet VA standards, which entails an inspection and appraisal by a licensed professional.
If a VA loan sounds like a good fit, your next step is to consult with a VA-approved lender. They’ll walk you through the ins and outs, ensuring that you’re both eligible and fully informed.
5. HomeReady Mortgage by Fannie Mae
If you’re a single mom or a first-time homebuyer searching for a more flexible mortgage option, the HomeReady Mortgage by Fannie Mae might be just what you’re looking for. This program is designed to assist individuals, like you, in accessing affordable home financing.
Low down payment: With HomeReady, the daunting hurdle of a large down payment becomes more manageable. This program allows for down payments as low as 3%, enabling homeownership for those who might be limited by savings.
Inclusive co-borrowing: Understanding that households today come in all forms, HomeReady offers a unique feature. It permits co-borrowers who won’t be residing in the house, like a supportive relative or close friend. This flexibility can significantly enhance borrowing capacity.
Reduced PMI: While many mortgages saddle borrowers with hefty private mortgage insurance (PMI) premiums, the HomeReady program shines with its reduced rates. Over time, this can result in tangible savings.
Government-backed confidence: Fannie Mae’s backing offers lenders the assurance they need, which often translates to more favorable loan terms and conditions for borrowers.
Meeting the guidelines: Like all specialized loan programs, HomeReady comes with its specific criteria. It’s essential to understand these requirements and ensure that both the borrower and the property align with them.
Stepping into HomeReady: If the features of the HomeReady Mortgage align with your situation, the next step is to liaise with a lender experienced with Fannie Mae’s offerings. Their guidance can illuminate the home buying process, ensuring that you make an informed choice, well-suited to your housing aspirations.
Preparing for Homeownership: Key Steps for Single Moms
Taking the first step towards homeownership as a single mom can feel daunting, but with the right preparation, it becomes a more manageable process. To ensure you’re making the right choices for you and your family, consider these foundational steps:
Determine your budget: Before diving into the property market, it’s crucial to have a clear understanding of your financial standing. Assess your monthly income, expenses, and potential home-related costs. This will give you a clear picture of the mortgage payment you can afford without straining your finances. Remember, it’s not just the monthly mortgage you have to account for; consider property taxes, utilities, and potential maintenance costs too.
Search for low down payment options: Not all home loans for single moms require a hefty down payment. It’s beneficial to look for home buying programs that offer low down payment options. This can help in making homeownership more attainable without depleting your savings.
Establish a savings plan: Even if you opt for a low down payment loan, you’ll still likely need to pay some upfront costs. Establishing a dedicated savings goal can help. Consider opening a high-interest savings account where your money can grow over time, helping you reach your down payment goal faster.
Stay informed: Securing home loans for single moms can be a challenging process. Stay informed by researching and comparing different home loan options. Consider reaching out to financial advisors or housing counselors who can guide you through the home buying process.
In addition to these steps, it’s also beneficial to look into loan programs tailored for low-income borrowers. Such programs can offer favorable loan terms, grants, or even down payment assistance, making homeownership even more achievable.
See also: Best Home Loans for Low-Income Borrowers
Home Loans for Single Mothers FAQs
Can I buy a home as a single mom?
Yes, you can purchase a home as a single mom. However, it can be more difficult to qualify for traditional home loans when you are a single parent.
You may need to look into government-backed loans such as FHA loans or USDA loans, which may have more flexible qualification requirements. Alternatively, you could look into owner-financing or rent-to-own options.
What types of home loans are available for single moms?
Single moms may be eligible for several types of home loans, including FHA loans, USDA loans, VA loans, and conventional loans.
How much money can single mothers borrow when applying for a home loan?
The amount of money that single mothers can borrow when applying for a home loan depends on several factors. These include income, credit score, debt-to-income ratio, and down payment.
Lenders will look at your income to determine how much they are willing to lend, and your credit score will determine the interest rate you receive. It is also important to have a sufficient down payment, typically at least 3-5% of the home’s value.
Additionally, lenders will want to see that your debt-to-income ratio is less than 43%, meaning that your monthly debt payments are less than 43% of your monthly income. With good credit and a sufficient down payment, single mothers may be able to borrow up to 97% of the home’s value.
What is the minimum credit score required to get a home loan for single mothers?
The minimum credit score required to get a home loan for single mothers can vary depending on the type of loan and the mortgage lender.
Generally speaking, FHA loans tend to have the lowest credit score requirements, with a minimum score of 500. This can be helpful for single mothers who may not have the best credit.
Other types of loans, such as a conventional loan, may have a minimum credit score requirement of 620 or higher. It is important to check with the lender to find out the exact credit score requirements for the type of loan you are applying for.
Are there any special programs available for single mothers looking to purchase a home?
Yes, there are several programs available across the U.S. designed to assist single mothers and low-income families in their quest for homeownership. These programs can make the home-buying process more affordable through a combination of grants, low-interest loans, down payment assistance, and more. Aside from the ones we mentioned above, here are some other notable ones:
State-specific programs: Various states offer specific programs to assist single parents or low-income individuals. For instance, states might have special housing grants for single mothers, or they may offer seminars and classes on home buying that come with financial incentives upon completion.
Habitat for Humanity: This non-profit organization helps families build and rehabilitate their homes. Single mothers can offer volunteer hours to the organization as a form of ‘down payment,’ assisting in constructing their own homes or others.
Individual Development Account (IDA): IDAs are matched savings accounts, where for every dollar saved, it gets matched by federal and non-federal funds. This can be a boon for single mothers looking to accumulate a down payment.
Section 8 Homeownership Voucher: While Section 8 is often associated with rental assistance, there’s a homeownership option that allows eligible participants to use voucher payments to make mortgage payments.
Are there any special tax benefits for single mothers who purchase a home?
Yes, there are several tax benefits available to single mothers who purchase a home, such as the mortgage interest deduction and the homeowner’s tax credit.
How can a single parent save for a house?
Set a budget and stick to it: Make sure to create a budget and stick to it. Track your income and expenses and cut out unnecessary costs.
Set realistic goals: Set realistic goals for what you can afford and how much you will need to save each month.
Automate your savings: Set up an automatic transfer from your checking account to savings each month.
Reduce interest-bearing debt: Pay off as much debt as possible.
Use tax-advantaged savings accounts: Consider using tax-advantaged savings accounts, such as an IRA or 401k, to save for a house.
Take advantage of grants and assistance programs: Research grants and assistance programs available to single parents and take advantage of any that you may qualify for.
Make extra money: Look for ways to make extra money, such as a part-time job, side hustle, freelance work, or selling items online.
Live below your means: Live below your means and make sacrifices if necessary.
Talk to a financial advisor: Speak to a financial advisor or real estate agent to get advice on the best way to save for a house.
Does child support count as income for a mortgage?
Yes, child support may be counted as income when applying for a mortgage. Lenders will usually require proof of the payments, such as a tax return or court order.
Bottom Line
None of the home buying programs outlined above are specific to single mothers. However, hopefully, you can see that it’s possible to find an affordable mortgage with a low down payment. Purchasing a home as a single mother can be challenging, but it’s also very doable. Make sure you compare your options and find the program that works best for your family.
Selling your house is often one of the largest financial transactions you’ll make in your life. It can be complex and emotionally challenging, especially if it’s your first time dealing with a home sale or if the house is full of family memories.
Despite these challenges, millions of people successfully sell their homes each year. The process is well-trodden, but each sale has its unique circumstances and can come with many curveballs.
Whether you’re downsizing, upgrading, relocating, or just ready for a change, selling your house is a big step. The task might seem daunting, but remember, you’re not alone. Many resources can guide you through this process, providing advice and support along the way.
This guide aims to simplify the process and provide you with step-by-step instructions to help sell your house.
From setting your objectives to finally handing over the keys, we’ll walk you through each stage. We will address common challenges and offer expert insights to ensure you’re well-prepared for the journey ahead. Our goal is to help you sell your house at the best possible price within your desired timeline, while minimizing stress and maximizing satisfaction.
Understand Your Selling Objectives
The first step in any successful real estate transaction is understanding your motivations and objectives for selling. Be clear about your goals and timeline to create a selling strategy that will get you the price you want for your home within the timeframe desired.
Why are you selling?
Your motivations for selling might be tied to lifestyle changes, financial circumstances, or relocation for work. Perhaps you’ve outgrown your current house, or maybe it’s become too big after the kids have moved out. You might need to relocate for a new job or prefer a change in scenery as you approach retirement. By identifying your reasons for selling, you’ll have a clearer idea of what you want to achieve with the sale.
What’s your timeline?
Your timeline can significantly influence your selling strategy. If you’re in a rush due to reasons like a job relocation or closing on another home, you may have to price your property more competitively to attract a faster sale. However, if you have the luxury of time, you can afford to be patient and wait for an offer that matches your ideal price.
Evaluate Your Financial Position
Understanding your financial situation is essential in the home-selling process. A realistic view of your finances will help you make informed decisions, particularly in setting a reasonable asking price.
Understand Your Home Equity
Equity refers to the portion of your property that you truly “own” – it’s the difference between the current market value of your home and the remaining balance on your mortgage. Knowing your equity can give you an idea of your potential profits from the sale.
Consider Your Outstanding Mortgage
The amount left on your mortgage is another critical factor. If your outstanding balance is more than your home’s sale price, you may need to consider a short sale, which requires your lender’s approval and can affect your credit score.
Estimate Closing Costs
Closing costs are the fees and expenses you pay to finalize your home’s sale, excluding the commission for the real estate agent. They may include title insurance, appraisal fees, and attorney fees, among other costs. These are usually about 2-5% of the purchase price. Understanding these costs is crucial as they directly impact your net proceeds from the sale.
Taking the time to clarify your selling objectives and understanding your financial position will pave the way for a more streamlined and successful home-selling experience. These factors are not just critical for setting a realistic asking price but also for aligning your home sale with your larger financial or life goals.
Prepare Your House for Sale
Once you’ve identified your selling objectives, the next step is to prepare your house for the market. A well-prepared home can catch the attention of more prospective buyers and even command a higher sale price.
Home Improvements and Necessary Repairs
Before you list your home, assess its overall condition. Some minor upgrades and necessary repairs can significantly enhance your home’s appeal, often leading to a faster sale or higher selling price.
Deep Cleaning and Carpet Cleaning
Begin with a deep clean to ensure your home looks its best. Pay attention to often-overlooked areas, such as baseboards, window sills, and ceiling fans. If you have carpets, consider hiring a professional carpet cleaning service to remove any stains or odors. Cleanliness can significantly influence a buyer’s first impression.
Minor Upgrades and Fixes
Next, tackle minor upgrades and repairs that could deter potential buyers. This could include painting walls with a fresh, neutral color, fixing any plumbing or electrical issues, and ensuring all appliances are in working order. Although these tasks may seem small, they can make a big difference to potential buyers.
Stage Your House
Staging your house involves preparing it for viewing by potential buyers. It can significantly impact how quickly your home sells and the price.
Hire a Professional Stager
A professional stager, although an extra cost, can be a worthwhile investment. For a few hundred dollars, they can transform your space and make it appealing to as many potential buyers as possible. They use strategies like optimal furniture placement, accentuating natural light, and choosing neutral decor to make your home attractive and inviting.
Depersonalize Your Home
Part of effective staging involves depersonalizing your home. This means removing personal items like family photos, collections, and mementos. The aim is to create a neutral space where potential buyers can easily envision themselves and their own belongings. It’s all about helping buyers picture your house as their future home.
In the competitive real estate market, first impressions count. By investing time, money and effort in staging your house for sale, you can stand out from the competition and make a great impression on prospective buyers. These preparations could translate into a quicker sale and potentially a higher price.
Set the Right Price
One of the most critical decisions in the home-selling process is determining the right asking price. Setting a competitive price can help attract more prospective buyers, shorten the time your home spends on the market, and potentially yield a higher sale price.
Understand the Importance of Pricing
Choosing the right price is not just about the amount you’d like to receive. It’s also about understanding buyer psychology and local market trends. Pricing your home correctly can result in more interest, more showings, and ultimately, more offers.
Get a Comparative Market Analysis
A key tool for setting the right price is a Comparative Market Analysis (CMA). A CMA provides information about recent home sales in your area, adjusted for differences in features and conditions, giving you a good idea of what buyers might be willing to pay for your home.
Hire a Great Real Estate Agent
A great real estate agent can provide an accurate and comprehensive CMA. They have the experience and local market knowledge to understand which homes are truly comparable to yours and how various features and upgrades impact pricing.
Consider Comparable Sales
Comparable sales, or “comps,” are recent home sales in your area that are similar to your property in size, condition, and features. Your real estate agent will look at these comps, adjust for differences, and use the information to guide you towards a fair and attractive list price.
Adjust for Features and Conditions
Every home is unique, and its features and condition will impact its value. Your real estate agent will consider these factors when setting your home’s list price. For example, if your home has a new roof or a remodeled kitchen, it might command a higher price compared to a similar home without these upgrades.
Setting the right price is both an art and a science. It requires an understanding of the local real estate market, an evaluation of comparable sales, and an assessment of your home’s unique features. By enlisting the help of a great real estate agent and leveraging their expertise, you can set a competitive price that will attract serious buyers and maximize your profits.
Market Your House
Once your house is ready for sale and priced right, the next step is to get the word out to prospective buyers. Effective marketing can attract more interest and lead to quicker, more competitive offers.
Use High-Quality Professional Photos
Professional photography plays a crucial role in marketing your house. High-quality photos can showcase your home’s best features and give potential buyers a good first impression. Homes listed with professional photos tend to receive more views online, which can lead to faster sales and often at higher prices.
Craft a Compelling Listing Description
A well-written listing description can spark interest and invite potential buyers to learn more. Highlight your home’s unique features, recent upgrades, and what makes it special. Remember, you’re not just selling a property, you’re selling a lifestyle. Allow your real estate agent to offer feedback and help you create an enticing, optimized listing that will also show up in search results when people are looking for a home like yours.
Host Open Houses and Private Showings
Open houses and private showings are opportunities for potential buyers to experience your home in person. Be flexible with your schedule and make your house available for viewing as often as you can. The more people who walk through your door, the better your chances of receiving an offer.
The Role of a Good Real Estate Agent in Marketing
Marketing a house involves a significant time commitment and a specific set of skills. This is where a good real estate agent comes into play.
Leverage the Multiple Listing Service (MLS)
A good real estate agent can list your property on the Multiple Listing Service (MLS), a database of homes for sale that’s used by real estate professionals. An MLS listing can increase your home’s visibility, attracting other real estate agents and their clients.
Find a Realtor with A Proven Track Record
Choose a real estate agent with a proven track record of sales in your area. Their experience and local market knowledge can be invaluable in promoting your home effectively and attracting serious buyers.
In a crowded real estate market, standing out is key. By leveraging professional photography, crafting a compelling listing description, and utilizing the expertise of a good real estate agent, you can market your home effectively, attracting more potential buyers and increasing your chances of a successful sale.
Evaluate Offers and Negotiate
Once your marketing efforts start paying off and offers begin to come in, it’s time to shift focus to negotiation. The goal here is to achieve the best possible terms that align with your selling objectives.
How to Evaluate Offers
When you receive an offer, it’s essential to look beyond the offered price. While the highest offer might seem the most appealing, it’s not always the best choice.
Consider the Buyer’s Lender
Understanding where the buyer’s financing comes from is important. Offers from buyers who are pre-approved by a well-known lender may carry less risk than those from buyers who are not pre-approved or who are using a less established lender.
Assess the Down Payment
The size of the buyer’s down payment can indicate their financial stability. A larger down payment may suggest that the buyer has solid finances and is serious about purchasing your home.
Understand the Buyer’s Timeline
A buyer’s timeline can be just as important as their offered price. A qualified buyer who can close quickly might be more attractive than a higher offer that’s contingent on selling a current house.
How to Manage Multiple Offers
Receiving multiple offers can be exciting, but it can also be overwhelming. Your real estate agent can help you with this process.
Consult with Your Real Estate Agent
Your real estate agent’s experience can be invaluable in this situation. They can guide you through your options, help you compare offers side by side, and give advice based on their understanding of the current real estate market and the specifics of each offer.
Make the Best Decision Based on Your Needs
When reviewing multiple offers, it’s important to consider your own needs and priorities. For example, if you need to sell quickly, you might prioritize a buyer who can close sooner, even if their offer is not the highest.
Negotiating and accepting offers can be a complex part of the selling process. It’s not just about accepting the highest offer, but understanding the nuances of each proposal and making the best decision for your circumstances. With the right real estate agent by your side, you can handle this process confidently and successfully.
Close the Sale
After you’ve accepted an offer, the next step is to finalize the transaction. The closing process involves several stages, including a home inspection, title search, potential repair negotiations, and final paperwork signing. Here’s what to expect:
The Due Diligence Period
The due diligence period allows the buyer to further investigate the property after their offer has been accepted. During this time, the buyer’s agent will arrange for a home inspection.
Home Inspection and Report
A professional home inspector will thoroughly examine your property and generate an inspection report. This document details the condition of the house and outlines any potential issues, from minor maintenance concerns to significant structural problems.
Negotiating Repairs
If the inspection report reveals necessary repairs, there may be further negotiations. Buyers might ask you to handle the repairs, reduce the sale price, or offer a credit at closing to cover the repair costs.
The Title Search and Insurance
As part of the home buying process, the buyer’s lender will work with a title company to conduct a title search. This ensures the house is free from liens or claims and that you have a clear title to transfer to the new owners.
Understanding Title Insurance
Buyers might also negotiate for you to pay for title insurance as part of the closing costs. Title insurance protects the buyer and their lender from future property ownership claims, unexpected liens, or undisclosed property heirs.
Sign the Final Paperwork
The last step in the home sale process is the closing meeting. Here, you’ll sign the final paperwork, which includes key documents such as:
The Bill of Sale
This document transfers the ownership of personal property (like appliances or furniture) included in the home sale.
The Deed
This legal document transfers ownership of the property from you, the seller, to the buyer.
Documents Prepared by a Real Estate Attorney or Real Estate Brokerage
The closing process involves many legal documents. These might be prepared by a real estate attorney or real estate brokerage to ensure everything is in order.
Closing the sale of your house can be a complex process. However, understanding each step can help you proceed with confidence and reach a successful conclusion to your home sale journey.
Post Sale Considerations
Even after the final paperwork has been signed, and the new owners have the keys, there are a few additional factors to consider. The sale of your house doesn’t just end at the closing table. Let’s delve into these post-sale considerations.
Understand the Tax Implications
Selling your house can have significant tax implications. The application of taxes largely depends on the profit you make from the sale and how long you’ve lived in the house.
Capital Gains Tax Exemption
If the house was your primary residence for at least two of the last five years before selling, you might qualify for a capital gains tax exemption. This can significantly reduce your tax liability.
Consult with a Tax Professional
However, tax laws can be complex, and every situation is unique. Consult with a tax professional or a certified public accountant to fully understand the potential tax impacts. They can provide guidance tailored to your specific circumstances.
The Move to Your New Home
Moving to your new home involves logistical and financial considerations. Plan ahead for moving costs, including professional movers, moving supplies, and potential temporary housing.
Keep Records of Your Home Sale Expenses
It’s wise to keep a comprehensive record of all home sale-related expenses. This includes real estate agent commissions, home improvements made before the sale, and any fees or costs associated with closing. These records can be crucial for your future tax returns or financial planning.
Some of your moving costs may be tax-deductible if you or a member of your household is in the military, and you are moving due to a military order. Previously, moving costs were tax-deductible for many people who were relocating due to a job. After 2025, these deductions may return.
Conclusion
Selling your house is a significant event, and educating consumers about the process can reduce stress and result in a better outcome. By preparing your home, pricing it right, and working with a competent real estate agent, you can complete the transaction smoothly and efficiently.
The selling process might seem overwhelming, but with thorough preparation and the right team on your side, it can be an exciting time. Remember, every house can sell, it just requires the right strategy, a competitive price, and a bit of patience.
Frequently Asked Questions
What should I do if my house isn’t selling?
If your house isn’t attracting buyers, various factors could be at play. The asking price may be too high, marketing efforts might be insufficient, or the house’s condition could be deterring potential buyers. Consult with your real estate agent to pinpoint potential problems and devise solutions. You may need to reduce the price, enhance your marketing strategy, or invest in necessary home improvements.
Can I sell my house myself instead of using a real estate agent?
Yes, selling your house yourself is an option. This is known as “For Sale By Owner” (FSBO). However, selling a house involves complex tasks like pricing, marketing, negotiating, and handling legal paperwork. Real estate agents possess the expertise and experience to deal with these challenges. If you opt for FSBO, be prepared for a significant time commitment and be ready to handle these tasks yourself.
How long does it usually take to sell a house?
The timeline for selling a house can vary greatly and depends on numerous factors, such as local market conditions, the home’s condition and price, and even the time of year. On average, it can take anywhere from a few days to a few months. Your real estate agent can give you a better estimate based on local trends and your specific situation.
What is a seller’s market, and how can it impact my home sale?
A seller’s market occurs when the demand for homes exceeds the current supply. This often results in homes selling more quickly and at higher prices. If you’re selling your house in a seller’s market, it can be an advantage as you may get multiple offers and a higher sale price.
Should I make repairs before selling my house?
Whether to make repairs before selling your house often depends on the type and extent of the repairs and the overall condition of your house. Small repairs and improvements, like painting or fixing leaky faucets, can make a good impression on buyers. If your home has more more substantial issues, discuss the repairs with your real estate agent to weigh the cost against the potential return on investment.