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5 Credit Unions That Donât Use ChexSystems in 2021
Zillow forecasts strong housing demand for years to come
Real estate giant Zillow said in a report last week that it believes housing demand will remain strong for years to come as buyers try to make up for lost time caused by the impact of the Great Recession last decade. In its most recent analysis, Zillow said that low rates of household formation since […]
The post Zillow forecasts strong housing demand for years to come appeared first on RealtyBizNews: Real Estate News.
Buying Your First House? 7 Tips for Millennials and Other Generations
Buying your first house is a big decision. Not only is it a major financial investment, but the location of your home determines your community, neighbors, and perhaps where your children go to school. Becoming a homeowner isn’t for everyone—but if it is one of your financial goals, I recommend that you begin preparing as far in advance as possible.
In this post, you’ll learn 7 key home-buying tips to get prepared, save money, and become a happy homeowner. Plus, I’ll cover some generational trends and challenges that Millennials, Gen Xers, Baby Boomers, and the Silent Gen may face when buying a home.
7 Tips for Buying Your First House
- Know when to stop renting.
- Focus on building credit.
- Check into first-time home buyer programs.
- Estimate how much down payment money you’ll need.
- Save your down payment in the right place.
- Get preapproved for a mortgage.
- Be a savvy negotiator.
Generational Trends for Buying a Home
According to a National Association of Realtors study, 36% of home buyers are Millennials or Gen Y, who are age 37 or younger. And 65% of these buyers are first-timers who are also married couples. They’re increasingly buying single-family homes in the suburbs.
Gen X buyers, who range in age from 38 to 52, make up 26% of home buyers. The NAR report shows they are ethnically diverse, in their peak earning years, and purchase more expensive homes compared to other generations. They’re the most likely to choose homes based on convenience to work and the quality of school districts.
Younger Boomers from age 53 to 62 make up 18% of home buyers. They typically move for a job or to downsize after their kids leave home. Older Boomers in the 63 to 71 age range make up 14% of home buyers. They’re more likely to move the longest distances for retirement, to downsize, or to be closer to family and friends.
Those age 72 to 92 are part of The Silent Generation and make up just 6% of home buyers. Most have already retired and have the lowest income compared to other age groups. They’re more likely to purchase a residence in a senior-care facility than a detached home.
The process of buying a home is largely the same no matter your age. But keep reading for tips to overcome some generational challenges you may face and how to get the best home deal possible.
Tip #1: Know When to Stop Renting
Most of us start out renting because it doesn’t require a big upfront financial investment. But the downside to renting is that your monthly payments are a pure expense. In other words, once you pay rent, that money is gone forever.
When you own a home, it comes with some nice financial perks, including:
- Amortization, which slowly reduces your outstanding loan balance with every mortgage payment you make (if you have a fixed-rate mortgage) and helps build equity in your home.
- Appreciation, which allows you to build equity as the market value of your home rises over time.
- Tax deductions for mortgage interest and property taxes. You can deduct interest on up to $750,000 of mortgage debt on a primary or secondary home. Plus, you can claim a maximum of $10,000 per year for state and local taxes (SALT), which includes property taxes.
Additionally, when you own a home, you can have the lifestyle you want, spread out, and express your personal style.
But depending on where you live, renting may be more affordable than owning a comparable home. This is usually the case in big cities, such as New York and San Francisco.
Renting also comes with a convenient lifestyle, especially if you don’t like dealing with maintenance, doing yard work, or you travel frequently. So, no matter your age, knowing if you should buy a home really depends on:
- Where you want to live.
- The lifestyle you prefer.
- How stable your future income is likely to be.
Tip #2: Focus on Building Credit
For the vast majority of home buyers, you’ll need to qualify for a home mortgage to purchase property. Building credit is always important, but it’s critical before buying a home. Whether you’re a first-timer or a seasoned homeowner, your credit is a primary factor that mortgage lenders consider when evaluating you.
Not only does repairing and building credit help you get approved for a mortgage in the first place, it’s the key to locking in a low interest rate that saves huge amounts of money over the life of your loan.
For example, if you get a $200,000 fixed-rate mortgage with excellent credit, you’ll pay about $145,000 in interest with a 30-year loan. But if you have average credit, you’ll pay close to $190,000 in interest for the same loan.
Having less-than-stellar credit costs you $45,000 just in interest. Even if you sell your home before paying off the mortgage, having excellent credit translates into a monthly payment that’s $125 less than if you have average credit.
If you invested $125 per month for retirement, instead of paying it to a mortgage lender, it could easily grow into a nest egg worth over $200,000 within 30 years. Small financial habits, like how you handle credit, really add up. Read 6 Steps to Build or Repair Your Credit Before Buying a Home for key strategies to follow ahead of your home loan application.
Building credit takes time, and Millennial home buyers may have a short credit history or more student loan debt, compared to Gen X and Baby Boomers. That means Millennials should review their credit reports and make financial adjustments earlier in the home-buying process than older buyers.
Tip #3: Check Out First-Time Homebuyer Programs
There are many great programs for first-time homebuyers that may include mortgage interest subsidies or down payment assistance. But did you know that even if you owned a home in the past, you may still be eligible?
Many first-time homebuyer programs define a first-timer as someone who has not owned real estate in the past three years.
Many first-time homebuyer programs define a first-timer as someone who has not owned real estate in the past three years. So be sure to investigate and ask your mortgage lender how these programs could save you money, no matter your age or even if you owned a home in the past.
The U.S. Department of Housing and Urban Development (HUD) and one of its agencies, called the Federal Housing Administration (FHA), have helped more than 30 million people become homeowners since 1934.
These agencies don’t make loans, but they insure loans. That means lenders that give them will get paid even if the borrowers don’t make loan payments. This encourages lenders to give mortgages to hopeful homebuyers who might not qualify otherwise.
With an FHA loan, you don’t need excellent credit or a high down payment to qualify. The loan limits for a single-family home vary throughout the country but typically range from the low $100,000s to just over $200,000.
Ask your lender for details about FHA programs for first-time buyers. Or contact a HUD housing counselor for free or low-cost advice about your options.
Tip #4: Estimate How Much Down Payment Money You’ll Need
Before you can qualify for a mortgage, you’ll need to prove to a potential lender that you have enough in savings to fund a down payment. It’s a one-time cash payment you pay at the home's closing.
You must make a down payment because home lenders generally won’t finance 100% of the purchase price. The bigger the down payment you can make, the less risky the loan is for the lender.
When you make a purchase offer on a home you can request that the seller pay some or all of your closing costs.
Plus, there are closing costs in addition to a home’s purchase price. These costs vary depending on where you buy a home. But remember that in real estate, everything is negotiable.
When you make an offer on a home, you can request that the seller pay some or all of your closing costs. You can also haggle with your mortgage lender not to charge certain upfront fees.
If you do negotiate with a lender to avoid fees, just make sure that it doesn’t cost you more in the long run. They can make up for fees by charging you a higher interest rate or including fees in the total amount of the loan, which means you’d end up paying interest on your closing costs.
The money for a down payment can come from your savings or gifts from family. If you’re already a homeowner, your down payment can come from the money you make when you sell your current home.
If you can make a 20% down payment on a home, you’ll avoid paying private mortgage insurance or PMI. PMI is s a special kind of insurance that lenders typically require you to pay when you borrow more than 80% of the value of a property, even if you have excellent credit.
So, exactly how much down payment you’ll need is difficult to pin down. It depends on the price of the home, the type of mortgage you get, and customary closing costs in the market. In general, you need enough cash to cover these main costs:
- Earnest money is the good faith deposit you make on a home when you submit an offer. The customary amount varies by market but might range from 1% to 3% of the offer price. If your offer is accepted, the funds are applied toward your closing costs. If not, your earnest money is returned to you.â¨
- A down payment is the percentage of the home price that you must pay at closing. The more you put down, the lower your mortgage payments will be. Some loans require you pay 10% to 20% of the purchase price. Other loans designed for first-time home buyers, such as an FHA loan, may only require 3% down.â¨
- Closing costs are fees you must pay at the settlement or closing. They typically include the loan origination fee, appraisal, survey, inspections, attorney fees, taxes, title insurance, and any other processing expenses. You should receive an estimate of your total closing costs from your lender, so you aren’t caught by surprise.
Tip #5: Save Your Down Payment in the Right Place
Once you begin saving money for a house down payment, you’ll probably get a little anxious about where to keep it. You might be tempted to invest it with the hope of turbocharging its growth.
But financial markets are volatile in the short term, which means you could lose all or a significant portion of your money right before you need it. Instead, tuck your down payment savings in a high-yield, FDIC-insured savings account.
That ensures your money will be completely safe, give you flexibility, and earn some interest to boot. Online banks typically offer the highest interest rates because they don’t have as much overhead as institutions with local branches. However, local credit unions can be competitive—if you qualify for membership.
Tip #6: Get Pre-Approved for a Mortgage
Once you’re ready to become a homeowner, have good credit, and plenty of down payment funds, the next step is to get preapproved for a mortgage. Not only does a pre-approval tell you how much you can afford, it indicates that you’re a serious buyer who could close the deal quickly.
Depending on the seller’s circumstances, being able to close quickly could give you a huge leg up. They may accept your offer instead of a higher one that would take longer to close.
But remember that just because you’re pre-approved for a certain amount doesn’t mean you should borrow it. You’ll have other costs every month, in addition to the mortgage payment. These are called the PITI, which stands for principal, interest, taxes, and insurance:
- Principal is the repayment of the amount you borrowed.
- Mortgage interest is the payment to the lender for the use of the money you borrowed.
- Home insurance protects you and the lender against damage from many (but not all) natural disasters, theft, vandalism, and legal hazards.
- Property taxes are annual city and county assessments.
Taxes and insurance can be rolled into your mortgage payment and then paid by your lender on your behalf. Additionally, you’ll have to pay utilities, maintenance, and perhaps homeowner association dues.
Don’t make the mistake of stretching your finances too far to buy a home. It may leave you house-rich but cash-poor and unable to save for other goals, such as retirement.
Tip #7: Be a Savvy Negotiator
When you make an offer on a home, use your poker face with the seller or real estate agents. As I’ve mentioned, in real estate everything is negotiable. So, be interested, but not too eager.
Most sellers expect you to negotiate on one or more factors of the deal such as purchase price, potential repairs, and closing costs. Always make a purchase offer contingent on the results of a professional home inspection, a C.L.U.E. home insurance claim report, and additional evaluations customary in your area, such as a termite report. Do your due diligence carefully.
Before the closing, you should receive the Settlement Statement, Form HUD-1 from the real estate agent, closing attorney, or title company. Review it carefully, ask questions about charges you don’t understand, and make any necessary changes.
The closing agent will have a stack of documents for you and the seller to sign. You can handle it in person or remotely through the mail. The mortgage and deed will be recorded in the county records registry and you’ll receive a copy of everything. And finally, you can celebrate becoming a homeowner.
It’s easy to get swept up in the beauty of a home, its décor, its neighborhood, or the new lifestyle that you envision there. But take a step back and view every real estate purchase as an investment, even if it’s going to be your home sweet home.
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Key house image courtesy of Shutterstock.
How I Paid Off My $400,000 Mortgage In 7.5 Years, Before I Was 32
A 31 Year Old’s Journey to $5,000,000 in Rental Property Value
Today, I have a great article to share with you from Kyle Kroeger on how to invest in real estate. He has a goal of reaching $5,000,000 in rental property value, and is sharing his plan today. The prospect of retiring early on real estate is highly intriguing to me. It should be for a […]
The post A 31 Year Old’s Journey to $5,000,000 in Rental Property Value appeared first on Making Sense Of Cents.
Why Investing for Retirement is So Important for Women (and How To Do It)Â
Hey everyone! Michelle speaking for a moment. Today, I’d like to introduce you to my friend Amanda Holden. She runs one of my favorite financial blogs – Dumpster Dog. Below is a guest post from her on why investing for retirement is important for women – and how you can start. Enjoy! Play along with […]
The post Why Investing for Retirement is So Important for Women (and How To Do It)Â appeared first on Making Sense Of Cents.
A Beginner's Guide to Investing in Stocks
To new investors, the stock market can seem mysterious and intimidating. Many people hear that buying stocks is risky, but they like the potentially high investment returns. Fortunately, there are some ways to make money investing in stocks that significantly limit your risk.
Just about every investor should own some amount of stocks, even during times of market volatility.
Just about every investor should own some amount of stocks, even during times of market volatility. I'll explain how to invest in stocks when you have little experience or money. You’ll learn the pros and cons of stocks and the best ways to own them to build wealth safely.
What are stocks?
Stocks are intangible assets that give you ownership in a company. That’s why they’re also known as equities or equity investments. Owning stock entitles you to part of a company’s earnings and assets.
Let's say a company needs to fund groundbreaking research, open a division in a foreign country, or hire a crew of talented engineers. Companies issue stock to raise money from investors for these types of ventures—it’s that simple.
Publicly traded stocks are bought and sold on exchanges such as the NASDAQ or the New York Stock Exchange (NYSE). However, you can trade them only through a broker or investment firm.
When a stock increases in value, it’s called "capital appreciation." That’s a fancy way of saying that the price goes up. As I'm writing this episode, Facebook and Apple stock are selling on the NASDAQ exchange for $266.12 and $469.51 per share. Visa and Walt Disney stock are selling on the New York Stock Exchange for $202.41 and $127.92.
If you buy Visa at $202.41 per share and the price goes up to $210, you can sell it for a gain of $7.59 ($210 – $202.41). You can easily find current stock price quotes on sites like Google Finance and Yahoo Finance.
In addition to capital appreciation, some stocks also pay a portion of company profits. If so, it’s called a dividend stock and distributes dividend payments to stockholders. For instance, right now, Discover pays a dividend of $0.44 a share. If you own 1,000 shares of Discover, you'd be paid $440 in dividends over a year.
Dividend stocks pay you even when the share price goes down, so owning them is smart to hedge against potential market losses. You can find a list of dividend stocks on a site like Morningstar.
The pros and cons of investing in stocks
There are many advantages to investing in stocks. One is that you don't need much money to buy them compared to other assets such as real estate. Buying just one stock share makes you an instant business owner without investing your life savings or taking on significant risk.
Buying just one stock share makes you an instant business owner without investing your life savings or taking on significant risk.
Another advantage of making stock investments is that they offer the most significant potential for growth. Although there's no guarantee that every stock will increase in value, since 1926, the average large stock has returned close to 10% a year.
If you're investing for a long-term goal, such as retirement or a child's education, stocks turbocharge your portfolio with enough growth to achieve it. Over the long term, no other type of common investment performs better than stocks.
The main disadvantage of investing in stocks is that prices can be volatile and spike up or plummet quickly as trading volume fluctuates from minute to minute. News, earnings forecasts, and quarterly financial statements are just a few triggers that cause investors to buy or sell shares, and that activity influences a stock's price throughout the day.
Price volatility is why stocks are one of the riskiest investments to own in the short term.
Price volatility is why stocks are one of the riskiest investments to own in the short term. Investing at the wrong time could wipe out your portfolio or cause you to lose money if you need to sell shares on a day when the price is below what you originally paid.
But as I mentioned, you can minimize this risk (but never eliminate it) by adopting a long-term investing strategy.
What is diversification in stock investing?
In addition to taking a long-term approach, another key strategy for making money investing in stocks is diversification. Having a diversified stock portfolio means you own many stocks.
People are often surprised to learn that it's better to own more investments than less. Diversification allows you to earn higher average returns while reducing risk because it's not likely that all your investments could drop in value at the same time.
Diversification allows you to earn higher average returns while reducing risk because it's not likely that all your investments could drop in value at the same time.
For instance, if you put your life’s savings into one technology stock that tanks, you’re in trouble. But if that stock only makes up a fraction of your portfolio, the loss is negligible. Having a mix of investments that responds to market conditions in different ways is the key to smoothing out risk.
Diversification isn’t a guarantee that you’ll make a killing with your investments, but the idea is that as some investments go up in value, others may decline and vice versa. It prevents you from “putting all your eggs in one basket,” financially speaking.
RELATED: How to Invest in the Perfect Portfolio
How to create a diversified stock portfolio
If you think creating a diversified stock portfolio sounds difficult or time-consuming, I want to put you at ease. Buying one or more stock funds is a simple and inexpensive way to achieve instant diversification.
Funds bundle investments of stocks, bonds, assets, and other securities into packages convenient for investors to buy. They’re made up of many underlying investments. Some funds may focus on one asset class only, such as international stocks, others may have a mix of asset types, such as stock and bonds.
Depending on the investment firm you use, you may see the following types of funds:
- Mutual funds are collections of assets that are managed by a fund professional. They give you a simple way to own a portfolio of many stocks. Shares can be bought or sold only at the end of the trading day when the fund’s net asset value gets calculated.
- Exchange-traded funds (ETFs) are similar to mutual funds because they’re baskets of assets. However, they trade like an individual stock on an exchange and experience price changes throughout the day.
- Index funds are a mutual fund that aims to match or outperform a particular index, such as the S&P 500. They typically come with low fees and may be comprised of thousands of underlying investments.
- Target date funds are a type of mutual fund that automatically resets the mix of stocks, bonds, and cash in its portfolio according to a selected time frame, such as your estimated retirement date.
How much stock should you own?
Stocks or stock funds should be an essential part of every investor's long-term portfolio. If you're young and have a long way to go before retirement, consider owning a large percentage of stocks. Though prices will go up and down in the short term, you're likely to see prices trend up and give you an impressive return over time.
But if you're nearing or already in retirement, take a more conservative approach to preserve your wealth. That doesn't mean eliminating stocks from your portfolio entirely but instead, owning a lower percentage.
There's a rough rule of thumb that says you should subtract your age from 100 or 110 to find the percentage of stocks to own.
There's a rough rule of thumb that says you should subtract your age from 100 or 110 to find the percentage of stocks to own. For instance, a 40-year-old should consider holding 60% to 70% of their investment portfolio in stocks. The remainder would be in other asset types such as bonds, real estate, and cash.
These investment allocation targets are not hard rules because everyone is different. To design your ideal allocation strategy, you can use an online resource, such as Bankrate's Asset Allocation Calculator.
What's important to remember about making money with stocks is that the amount you own should change over time. When you have decades to go before retirement, take advantage of as much growth as possible by investing mostly in stocks. As you get closer to retirement, devote more of your portfolio to bonds and cash, which preserve the wealth you worked hard to accumulate.
How Much of Your Paycheck Should You Save Each Month?
Youâve always heard itâs important to save as much as you can, but what does that really mean? Realistically speaking, saving can be hard once your paycheck hits your bank account. Bills, necessities, and extra wants may slowly diminish your…
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The post How Much of Your Paycheck Should You Save Each Month? appeared first on MintLife Blog.
How Do CDs Work?
A certificate of deposit, more commonly known as a CD, is a special type of savings account. You deposit your money into the account and agree not to make any withdrawals for a certain period of time. At the end of that time, you get your money plus whatever was earned in interest back. Want… Read More
The post How Do CDs Work? appeared first on Credit.com.