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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Bankruptcy is a legal process that individuals and businesses can undertake to eliminate their debts under the oversight of a bankruptcy court.

Bankruptcy is a legal process that individuals and businesses can undertake to eliminate all or part of their debts under the oversight of a bankruptcy court. For individuals who have amassed debt beyond what they can reasonably pay, bankruptcy is a potential path toward a clean slate.

There are different types of bankruptcy, important terms to know and significant consequences to watch out for. If you’re wondering, “What is bankruptcy?” or you’re considering it for yourself, read on to get an overview, or you can use the links below to jump to a specific question.

How does bankruptcy work?

Bankruptcy is a complicated legal process that involves several steps:

  • A debtor files a legal petition for bankruptcy in federal bankruptcy court.
  • The court appoints a trustee to oversee the case.
  • The trustee examines the debtor’s assets and liabilities and determines if they have any assets which can be administered by the trustee.

While it’s technically possible to file for bankruptcy on your own, working with a qualified attorney is recommended, as the amount of legal knowledge required is beyond what the average person possesses.

During the creditor’s meeting the trustee will examine the debtor and the case and file a report. What happens next depends on whether you filed for Chapter 7 or Chapter 13. In both cases, your debt can be discharged, but the process for achieving that end varies.

What are the different types of bankruptcy?

For individuals, the two most common forms of bankruptcy are Chapter 7 and Chapter 13. Businesses and local governments can also file for bankruptcy, but we won’t cover those types of bankruptcy in detail in this article.

Chapter 7

Chapter 7 bankruptcy is the most straightforward approach to filing for bankruptcy. Chapter 7 bankruptcy, also called liquidation bankruptcy or fresh start bankruptcy, sometimes involves the sale of assets to pay off debt.  In most cases a debtor’s assets are exempt and no assets need be sold. This is best for debtors who have no way to repay their debt.

When a debtor files for Chapter 7 bankruptcy, the following process takes place:

  1. The debtor provides the trustee with tax returns and other financial documents relevant to the case, plus a list of all their assets.
  2. The trustee evaluates the assets to determine which assets, if any, are nonexempt.
  3. The trustee sells all nonexempt assets to pay off creditors. Debtors can keep exempt property, which varies by state law. For example, in New York, a debtor can keep their car if they own it outright and it is worth $4,000 or less.
  4. The debtor meets with their trustee and creditors at a Meeting of Creditors, also called a 341 Hearing, to verify the information they’ve filed in their bankruptcy petition is accurate.
  5. The trustee might pay some of the debt using the proceeds from liquidating the debtor’s nonexempt assets.  However, this is rare.
  6. Any remaining debt is discharged. However, Chapter 7 does not eliminate all debt—debtors are still responsible for paying court-order alimony and child support, student loans and certain taxes.

The Chapter 7 process typically takes about four to five months from filing to final discharge of debt.

While Chapter 7 bankruptcy has powerful effects on debt, it also has consequences. The negative item from bankruptcy can remain on a credit report for 10 years.

A debtor can only file for this kind of bankruptcy once every eight years. For that reason, a condition of bankruptcy is always credit counseling and personal finance courses, which are aimed at supporting people to prevent them from ending up in the same financial situation again.

Chapter 13

Chapter 13 bankruptcy still leads to debt elimination, but it involves a debt payment plan. In Chapter 13 bankruptcy, debtors keep their property and pay debts over an agreed-upon period, usually three to five years. To qualify, a debtor must prove they have regular income. During the payment period, creditors are legally prohibited from collection efforts against the debtor. This type of bankruptcy is best for debtors who have steady income but still can’t afford to pay their debts in full.

If a debtor files a petition for Chapter 13 bankruptcy, the following will occur:

  1. The court reviews the repayment plan. Typically, repayment plans last three to five years and may repay some or all of the debt owed. The debtor prepares and files the plan and creditors have a chance to comment on it, the trustee comments on it and the court makes a final determination as to whether to approve the plan. 
  2. A court-appointed trustee collects your payments. Over the course of repayment, a trustee will collect funds and disburse them to creditors. 
  3. After repayment, the bankruptcy is discharged. After the specified repayment period, the debtor becomes eligible for a discharge. If the debtor has complied with the trustee’s requests, has paid all required payments and takes a financial management course, then the remaining balance on debt (if any) is forgiven. 

The entire Chapter 13 bankruptcy process can take up to five years from the filing date to the end of repayment.

While Chapter 13 bankruptcy also has detrimental consequences for credit and general financial health, it tends to be less detrimental than Chapter 7 bankruptcy. 

Additionally, Chapter 13 bankruptcy remains on a credit report for just seven years, and the process can be repeated more often if necessary. Having debt discharged or reorganized can be a vital financial tool.

Other types of bankruptcy

While individuals file Chapter 7 and Chapter 13 depending on their circumstances, there are other types of bankruptcy that farmers and fishermen, businesses and city governments can use in difficult financial situations.

Here’s a quick overview of other forms of bankruptcy:

  • Chapter 9 focuses on local governments and school districts that need to restructure debt in the wake of financial troubles. Similarly to Chapter 13, Chapter 9 utilizes a debt repayment plan.
  • Chapter 11 enables businesses to create a debt repayment plan in conjunction with a revised business plan that is aimed at increasing profitability. 
  • Chapter 12 is a narrowly focused form of bankruptcy that is exclusive to family farmers and fishers hoping to avoid liquidation.
  • Chapter 15 is an international provision that helps mediate bankruptcy proceedings that involve the United States and at least one other country. 

While all of these forms of bankruptcy are useful, only Chapter 7, Chapter 11 and Chapter 13 typically directly affect individuals in financial distress.

What does it mean when bankruptcy is discharged?

A bankruptcy discharge means a debtor is no longer personally responsible for certain debts. Regardless of the remaining balance of a previous debt, once a bankruptcy discharge is entered, creditors can no longer collect on the debt.

  • With Chapter 7 bankruptcy, discharge usually occurs after the creditor’s meeting. There is typically a 60-day window after the meeting of creditors for creditors to file complaints, after which the discharge may take effect.
  • With Chapter 13 bankruptcy, discharge typically takes place after the repayment plan is completed.

However, not all debts are eligible for bankruptcy discharge. Depending on the type of bankruptcy filed, the following debts may not be discharged:

  • Alimony
  • Child support
  • Tax liens
  • Some federal, state and local taxes (depending on the age of the debt)
  • Student Loans.
  • Debts for willful and malicious injury to a person or property
  • Debts for death or personal injury caused by the debtor driving while under the influence of alcohol or drugs
  • Any debt not listed in the bankruptcy filing

In general, a discharged bankruptcy is permanent, meaning creditors no longer have any claim to previous debt. In some cases, however, a bankruptcy discharge could be revoked if the party proves to the court that the initial petition was made fraudulently. The time period for taking an action in this way is limited to one year after discharge.

What is the benefit of filing for bankruptcy?

There are advantages to filing for bankruptcy for individuals who can no longer deal with overwhelming debt.

Some of the most important benefits of bankruptcy include:

  • The elimination of many types of debt
  • A fresh start with finances
  • An end to calls and letters from collection agencies
  • Relief from wage garnishment, foreclosure or repossession
  • Protection of certain kinds of property 

Bankruptcy courts exist for a reason, and bankruptcy serves an important financial function for many individuals whose debts significantly exceed their ability to repay. For those who have no other good options, bankruptcy provides important benefits and the chance for relief and a second chance at financial security.

How does bankruptcy affect your credit score?

Bankruptcy has a serious detrimental effect on your credit, though it is possible to rebuild credit after bankruptcy.

The negative item from bankruptcy will remain on your report for seven to ten years, depending on the type of bankruptcy. Any time you apply for credit, that negative item will be visible to creditors, who will factor it in when deciding whether to approve your application.

For those looking to rebuild credit after bankruptcy, a secured credit card is often the best starting point. A secured credit card is backed by a deposit, so creditors are usually willing to provide it even to those who have a bankruptcy on their record. Responsibly using the card and making payments on time can slowly lead to improved credit in the future.

Additionally, many people who have gone through bankruptcy choose to work with a credit repair company, which may be able to support the process of rebuilding credit.

What is bankruptcy fraud?

Bankruptcy fraud occurs when an individual withholds information about debts or assets from the federal bankruptcy court. In both Chapter 7 and Chapter 13 bankruptcy, information about your finances determines how your debt is handled, so providing false or misleading information could lead to a revocation of your bankruptcy discharge or criminal charges.

Here are some examples of bankruptcy fraud:

  • Hiding assets. During bankruptcy, you are forced to disclose all of your assets, which may be sold in order to pay creditors. Withholding information about your assets to try to protect them is not allowed.
  • Running up debt prior to discharge. If you use credit to purchase property or items with no intention of repayment simply because you believe the debt will be discharged, you are likely committing bankruptcy fraud.
  • Falsifying documents. Providing false information about property transfers, debts, assets or any other necessary information is forbidden during bankruptcy proceedings.

The consequences of bankruptcy fraud can be serious, especially if a party proves to the court that your efforts were intended to deceive creditors and prevent them from receiving their just payment. You could be denied a bankruptcy discharge. Fines and even prison time are possible outcomes for bankruptcy fraud, so it’s important to be truthful throughout the entire process.

Bankruptcy terms you should know

A bankruptcy score is used by financial institutions to predict the likelihood that an individual will file for bankruptcy within a certain period of time. Similar to credit scores, bankruptcy scores are calculated using a wide variety of factors. Unlike credit scores, however, bankruptcy scores are not available to consumers, so you can’t know your own score or make efforts to improve it directly.

Still, regardless of your bankruptcy score, the same financial habits that support a strong credit score are also likely to help prevent you from needing to file for bankruptcy:

  • Create and maintain a budget. Spending within your means and prioritizing essential expenses is an excellent way to maintain financial health.
  • Make full and on-time debt payments. Make timely payments for loans and credit cards, and avoid keeping a credit card balance from month to month.
  • Avoid unnecessary lines of credit. While credit is a valuable tool, it’s important to avoid opening too many lines of credit and letting debt become overwhelming. 

Bankruptcy scores are important tools for financial institutions making lending decisions, but they are largely unimportant to consumers. As long as you are making wise financial decisions over time, creditors will continue to recognize your efforts and your risk of bankruptcy will remain low.

Bankruptcy terms you should know

As you navigate bankruptcy, you’ll come across a variety of terms that may be unfamiliar. Understanding all of these terms makes navigating the process of bankruptcy much easier, and fortunately, none of them are difficult to understand.

Here’s a list of terms that you should know if you’re trying to understand bankruptcy better.

  • Assets and liabilities: An asset is anything you own, whereas a liability is anything you owe.
  • Chapter: A chapter is simply the specific type of bankruptcy being declared under Title 11 of the United States Federal Bankruptcy Code.
  • Discharge: A discharge means the associated dischargeable debts no longer need to be paid. 
  • Lien: A lien is a claim against a piece of property from a creditor who is owed a debt, such as a mortgage lender or a car creditor. 
  • Liquidation: Liquidation is the process of selling assets, usually to pay debts—for instance after filing Chapter 7.
  • Means test: The means test is used to determine who is eligible to file for Chapter 7 by accounting for income and debt. 
  • Repayment plan: An approved repayment plan is a court-authorized plan to give creditors back some or all of what they are owed. At the completion of a repayment plan under Chapter 13, remaining dischargeable debt is typically forgiven.
  • Secured and unsecured debt: A secured debt has some sort of valuable property as collateral—for instance, an auto loan is secured by the car itself. An unsecured debt has no associated collateral—for instance, a credit card is unsecured.
  • Trustee: Appointed by the court, the trustee is responsible for reviewing the debtor’s financial situation and documentation relation thereto, conducting the meeting of creditors and collecting and liquidating non-exempt assets or ensuring payments are made according to the repayment plan.

Armed with knowledge of these terms, you’ll have a much greater understanding of bankruptcy moving forward.

What does it cost to file for bankruptcy?

The cost to file bankruptcy can be broken down into two parts: court fees and attorney fees. According to the U.S. Court, you’ll pay a $78 administrative fee and a $15 trustee fee to file for Chapter 7 or Chapter 13 bankruptcy, plus any additional relevant fees. The total filing cost is generally under $500.

If a debtor cannot pay the fees associated with filing for bankruptcy, the court may break the fee payment into up to four installments or waive them altogether. Debtors who wish to have the fee waived must submit Form 103B.  Bankruptcy filing fees are not typically waived, even for the most destitute.

That said, most people will also require an attorney for bankruptcy proceedings, and fees can vary significantly. According to All Law, fees for Chapter 7 typically range from $1,000 to $3,500, whereas fees for Chapter 13 are a bit higher, ranging from $2,500 to $6,000. Depending on your location, fees may be lower or higher, so you’ll want to consult a local lawyer to determine a more accurate cost before proceeding.

Should you declare bankruptcy?

Deciding whether or not to declare bankruptcy can be difficult, so make sure you think about all of the alternatives first. People often consider bankruptcy due to unexpected or overwhelming debt—like a medical bill that has ballooned through interest or a handful of loans that have become unmanageable.

There may be ways to deal with these debts before resorting to bankruptcy. For example:

  • Negotiate with your creditors. Ultimately, creditors are looking for you to repay your debt. By contacting your creditors, you may be able to work out a favorable payment plan or have some of your debt erased in order to make it more manageable. 
  • Get a debt consolidation loan. A debt consolidation loan enables you to simplify and often reduce your debt payments by lowering your interest rate or extending your payment timeline. 
  • Work with a credit counselor. A credit counselor may be able to help you evaluate your entire financial picture and create an action plan to make debt more approachable.

Still, even after these alternatives, there are some people for whom bankruptcy is the best available option. If you have no means to pay back your debts and you’ve exhausted other options, contact a bankruptcy attorney to determine your best next steps.

Overall, bankruptcy exists to protect individuals from long-term financial ruin. Though the credit consequences of bankruptcy are long-lasting, the benefits of freedom from debt are absolutely essential in some cases.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Vince R. Mayr

Supervising Attorney of Bankruptcies

Vince has considerable expertise in the field of bankruptcy law.

He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Source: lexingtonlaw.com

Apache is functioning normally

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The debt snowball method is a repayment plan that involves paying off debts in order of lowest to highest principal sums. As you pay off small loans, you gain the confidence and money needed to repay larger ones.

Paying multiple debts is a juggling act. On one hand, paying all debts at once is tempting but expensive. On the other hand, paying one at a time is more affordable, but that takes long-term financial management. Thankfully, you can use the debt snowball method to simplify your debt payoff plan..

The debt snowball method is a debt repayment plan in which you quickly pay off small debts to focus on larger ones. Even though it’s simple in concept, you may have questions about the execution. To help you out, we’ll explain the method in detail, walk you through its steps and share a few best practices.

Table of contents:

  • What is the debt snowball method?
  • How to snowball debt in 4 steps
  • Snowball method example
  • Best practices for the snowball method of paying off debt
  • The snowball method vs. avalanche method of debt consolidation
  • Pay off debt and improve your credit with Lexington Law Firm

What is the debt snowball method?

The snowball method is a debt repayment approach where you pay off debts in order of smallest to largest principal sums. After making the minimum payment on all debts, spenders invest all they can into debts with the smallest principal. Once you pay off these small debts, you can roll funds over to the next highest.

Unlike other debt consolidation and payoff strategies, the snowball method doesn’t factor in interest rates. Instead, this approach focuses on principal payments. With each debt repaid, you should feel better equipped to tackle the next in line.

Who should use the snowball method?

Anyone juggling multiple debts should consider the snowball method. It provides a simple strategy for organizing your debts. As you knock out small debts, the snowball effect offers the momentum and confidence you need to get out of debt.

Pros of the snowball method

The snowball method of debt repayment offers distinct benefits over other approaches. The main advantages include:

  • Actionability: Small changes to your budgeting make this approach actionable. It doesn’t come with any prerequisite or additional charges. As a result, jumping in is fast and straightforward.
  • Empowerment: If you can’t pay your bills or keep up with debt, the snowball method mentally and financially empowers you. With every small debt cleared, you see progress and stay motivated as you pay off greater debts.
  • Simplicity: The snowball method is easy to wrap your head around. It also breaks large chunks of debt into smaller, approachable pieces.

Cons of the snowball method

Despite its strengths, the snowball method comes with a few downsides, including:

  • Interest accrual: If your larger loans have a higher interest rate, the snowball method may not work as well. According to these credit facts, if you follow the strategy, higher interest rates may cost you more over time.
  • Emphasis on small debts: This approach works best when knocking out small debts back to back. You won’t see the same immediate results if you’re juggling a few large loans.
  • Inflexibility: The snowball method doesn’t leave much room for customization. You may want to consider another option if you want a malleable strategy you can modify.

How to snowball debt in 4 steps

Thanks to its simplicity, you can implement the snowball method in only four steps. This is the process in detail:

Step 1: Take a debt inventory

The first step of the debt snowball method is to list all your debts from smallest to largest. While you can keep interest in mind, focus on the principal balance. If two debts share a similar principal, you can place the one with a higher interest rate first.

Step 2: Make minimum payments on all debts

Make the minimum payment on each of your debts every month. This step is crucial because you don’t want to incur any fees or penalties for not making payments on other debts even as you focus on one in particular.

Step 3: Pay down your smallest debt

On top of the minimum payment, invest as much as you can into your lowest principal balance. While you want to pay it off quickly, don’t forget to set money aside for:

  • Savings
  • Groceries, laundry and other household costs
  • Day-to-day expenses like eating out or investing in your hobbies

Step 4: Repeat until debt-free

As you pay off each debt, you can roll more money into larger ones. When you aren’t juggling as many debts, you’ll have the resources to focus on paying down the highest sums. Eventually, most or all of your debts should get paid off.

Snowball method example

To help explain the snowball method, here is an example of how you budget for it. Assume you make $2,500 a month and have to manage these expenses:

  • Rent: $700/month
  • Utilities: $150/month
  • Student debt: Minimum payment of $120/month (total principal: $21,000)
  • Medical debt: Minimum payment of $60/month (total principal: $4,500)
  • Auto debt: Minimum payment of $40/month (total principal: $1,800)
  • Credit card debt: Minimum payment of $15/month (total principal: $900)

You would implement the snowball method of paying off debt like this:

  1. Pay necessary expenses like rent and utilities. This brings you down to $1,650.
  2. Pay the minimum balance on all debts. Your spending money drops to $1,415.
  3. Pay down your lowest debt. In this case, it’s the credit card debt. Let’s say you pay $500 and bring that principal down to $400. Your remaining balance comes out to $915.
  4. Spend the remainder of your money on day-to-day expenses. Remember to save as much as you can. It never hurts to have an emergency fund ready.
  5. Once you pay off the credit card debt, move on to the next lowest principal sum. So, you would pay off auto, medical and student loans in that order.

Best practices for the snowball method of paying off debt

To see the best returns on the snowball method, follow these tips:

  • Don’t base repayment order on interest: Anyone trying the snowball method should focus on principal balances. This approach relies on small wins to build up to bigger debts. Large, high-interest loans get in the way of that.
  • Mitigate high interest with lower rates: While focusing on small loans, try to reduce interest on larger ones. Negotiating a lower interest rate will help save money in the long run.
  • Track spending over time: You should avoid wasting money that could go toward paying off debt. Additionally, track the amount you spend on debt repayment. That way, you can stay on track as weeks or months pass.
  • Don’t fall behind on bills: Falling behind on bills or loans can lead to fees or a higher interest rate. In the long run, this will slow down your repayment.
  • Set aside emergency funds: You shouldn’t invest every cent in settling your debts. An emergency fund can help you avoid more debts after home repairs or health issues.

The snowball vs. avalanche method

The avalanche method is another way of paying off debt that determines payment order by interest rate. In both the avalanche and snowball approaches, you make minimum payments on all debt each month. From here, they diverge:

  • The avalanche method has spenders pay off the debt with the highest interest rate first. Once customers pay off this loan, they move to the one with the next highest interest rate.
  • The snowball method ignores interest rates to focus on principal payments.

While the snowball method quickly pays off small debts, the avalanche approach is slow and steady. It may take you longer to pay off your debts, but you will accrue less interest. So, depending on your interest rate and principal sum, you may pay less overall, which could make this option more appealing.

Which method is right for you?

The avalanche and snowball methods can both help with debt repayment. The right approach for you depends on personal preference and your financial situation. To find the right strategy, ask yourself:

  • Do you need help staying motivated to pay off debts? If so, the snowball method offers more small wins to keep you going.
  • Is your financial management style analytical and patient? Then the avalanche method will complement a slow and steady approach.
  • Do you have several small loans or a few high-interest loans? The snowball method suits the first situation, and the avalanche method fits the second.

Work to improve your finances and your credit with Lexington Law Firm

Whether you need to rebuild your credit or get out of debt quickly, the debt snowball method can help. Unlike other strategies, the snowball approach is easy to jump into. While paying off debts can take time, this method gives you the confidence and direction to pay down debts one by one. While using any debt repayment plan, you don’t want to forget about maintaining or even improving your credit. Stay current on all your bills, create a budget and track your spending. If you’re working on repairing your credit, Lexington Law Firm could help you on your journey with our credit repair services.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Brittany Sifontes

Attorney

Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.

Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.

Source: lexingtonlaw.com

Apache is functioning normally

Apache is functioning normally

A roof over your head is a great blessing. However, homeownership has its ups and downs. One of those low points might be shelling out thousands of dollars to replace the roof that has protected you from the elements for years.

At some point, every roof will need to be replaced. It’s one of the many joys of homeownership. But, according to Angi, the average roof replacement cost ranges from $4,900 to $14,100. With a wide range of costs, you may be wondering how you can land the best deal.

The wide range of roof replacement costs is due to various factors such as style, location, the size of your roof, and the professional you hire.

Let’s take a closer look at how you can lower your overall costs and get ready for this significant undertaking.

Factors Affecting Roof Replacement Cost

The cost of replacing your roof can vary significantly based on several key factors. Understanding these factors is crucial for managing your budget effectively. Here are the primary elements that influence roof replacement costs:

  • Roofing material: The type of material you choose for your new roof can have a substantial impact on the overall cost. Materials like asphalt shingles are generally more affordable, while options such as metal or slate can be considerably more expensive.
  • Location: Your geographical location plays a role in cost variations. Areas prone to extreme weather conditions or high wind zones may require more durable and costly roofing materials.
  • Roof size and complexity: Larger roofs with multiple peaks and angles, as well as varying roof pitch, will require more materials and labor, leading to higher costs.
  • Professional you hire: The choice of roofing contractor can affect costs. Highly experienced professionals may charge more for their expertise.
  • Additional accessories: Roofing accessories such as flashing, underlayment, and ventilation systems can add to the overall expense.

Types of Roofing Materials and Their Costs

When it comes to replacing your roof, one of the critical decisions you’ll face is choosing the right roofing material. The choice of material not only affects the aesthetics of your home but also significantly impacts the overall cost of the project. Let’s delve deeper into some common roofing materials, their characteristics, and how they influence the cost of roof replacement.

Asphalt Shingles

  • Cost: Basic asphalt shingles are often the most budget-friendly option, with prices ranging from $1.20 to $4 per square foot.
  • Durability: They offer reasonable durability and come in various styles and colors to match your home’s design.
  • Energy efficiency: Standard asphalt shingles are less energy-efficient compared to some other materials.

Metal Roofing

  • Cost: Metal roofing tends to be more expensive, typically starting at around $5 per square foot.
  • Durability: Metal roofs are known for their longevity and resistance to harsh weather conditions.
  • Energy efficiency: They are highly reflective and can help reduce energy costs.

Slate Tiles

  • Cost: Slate tiles are among the costliest roofing materials, often exceeding $10 per square foot.
  • Durability: They are incredibly durable and can last for a century or more if properly maintained.
  • Energy efficiency: Slate tiles provide excellent insulation, contributing to energy efficiency.

Wood Shingles

  • Cost: Wood shingles fall in the mid-range of roofing material costs, typically starting at $5 per square foot.
  • Durability: They offer a charming, rustic look but may require more maintenance.
  • Energy efficiency: Wood shingles provide decent insulation but may not be as energy-efficient as some other options.

Solar Panels

  • Cost: Solar roofing can be expensive, considering both the cost of the panels and installation.
  • Durability: Solar panels have a long lifespan and generate renewable energy.
  • Energy efficiency: Solar panels are highly energy-efficient, potentially reducing your utility bills.

Clay Tiles

  • Cost: Clay tiles are often on the higher end of the cost spectrum, starting at around $10 per square foot.
  • Durability: They are incredibly durable and can withstand severe weather conditions.
  • Energy efficiency: Clay tiles provide good insulation, contributing to energy efficiency.

It’s important to note that the roofing costs mentioned here are approximate and can vary based on factors such as your location, the complexity of the project, and the specific product you choose. When selecting a roofing material, consider not only the initial cost but also its longevity and energy efficiency, as these factors can impact your long-term savings and the value of your home.

By understanding the characteristics and costs associated with different roofing materials, you can make an informed decision that aligns with your budget and aesthetic preferences. Keep in mind that the choice of material is a significant factor in determining the overall cost of your roof replacement project.

When Should You Replace Your Roof

The first thing you need to do is determine whether you really need a new roof. A visible hole in your ceiling is not the sign you should be waiting for. If you get your roof replaced before it reaches the final stop of its useful life, then you could be avoiding potentially bigger problems down the road.

A few signs that your roof is ready to be replaced include:

  • Water leaking into the house
  • Cracked shingles
  • Missing shingles
  • Shingles that are curling on the edges.
  • “Bald spots” on your roof where granules are missing.
  • Overall signs of age on your roof.

Another tip is to be mindful of your neighbors. If your homes were built in the same time period, then you may notice many new roofs in the area. It could be a sign that the inevitable demise is coming to your roof soon.

As soon as you spot any of these signs, you should start considering a new roof. The longer you wait, the more damage might be done to the value of your home.

If you are considering selling your home, do not assume that you can pass along the failing roof to the new owner. Many buyers will shy away from aging roofs because it is an added cost that they can easily avoid by choosing another home to buy.

Make sure to regularly take a closer look at what is happening on your roof. You can help prolong the life of your roof by taking care of it. For example, removing moss and algae growing in your shingles can prevent damage to the shingles can help prevent damage to your roof’s shingles.

How much does a roof replacement cost?

As with all things in life, you have choices for your roof replacement. The total roof replacement cost will vary considerably based on your choices.

The costs stem from the materials, labor, and disposal of your old roofing material.

In terms of material, you’ll need to choose between numerous shingles such as wood, clay, asphalt, solar, slate tiles, metal, and more. The material you choose may be based on cosmetic preference or necessary toughness to combat the elements of different locales. For example, in high wind areas of hurricane-prone Florida, homeowners are required to upgrade their roofing materials in hopes of withstanding potential hurricanes.

Asphalt shingles will most likely be your least expensive choice. An asphalt shingle roof costs about $1.20 to $4 per square foot to remove and replace an entire roof. Other materials, such as metal roofing, will generally cost at least twice as much per square foot. However, a new metal roof will likely save you money on homeowners insurance.

The cost to install 30-year architectural shingles is typically around $350 to $500 per square foot. And 50-year architectural shingles are even more expensive. Of course, they are stronger and last longer.

For labor, the size and construct of your roof will be a significant factor. If you have many peaks and ledges, expect your labor costs to be higher.

Assessing the Condition of the Current Roof

Before diving into a roof replacement project, it’s essential to assess the condition of your existing roof thoroughly. This step can significantly impact your overall cost and project planning. Here’s how to evaluate your roof’s condition:

  • Look for signs of damage: Check for water leaks, cracked or missing shingles, curling edges, bald spots, and any visible signs of aging.
  • Neighborhood trends: Pay attention to neighboring homes; if many have recently replaced their roofs, it might be a sign that your roof is due for replacement soon.
  • Preventive maintenance: Regular maintenance, such as removing moss and algae, can extend your roof’s lifespan and help you avoid costly roof repairs.

When evaluating the condition of your current roof, you might find that not all areas require a full roof replacement. In some cases, a partial roof replacement can be a viable option. This approach is typically chosen when the damage is localized to specific sections of the roof or when budget constraints are a concern.

Estimating the Size and Complexity of the Project

Understanding the size and complexity of your roof replacement project is vital for accurate cost estimation. Here’s how to estimate the scope of your project:

  • Measure your roof: Determine the square footage of your roof to calculate the amount of materials needed.
  • Consider roof design: Roofs with many peaks and angles may require more labor and materials, leading to higher costs.
  • Roofing layers: If your existing roof has multiple layers, removal and disposal costs will increase.
  • Roof features: Any additional features like chimneys, skylights, or roof vents can affect the complexity of the project.

Labor and Installation Costs

The cost of labor and installation is a significant part of your roof replacement budget. Several factors influence these costs:

  • Roof size: Larger roofs require more labor hours, leading to higher installation costs.
  • Roof complexity: Roofs with unique designs or many angles may demand more skilled labor, increasing costs.
  • Contractor expertise: Experienced contractors may charge higher labor fees, but their quality of work can be worth the investment.
  • Location: Labor costs can vary by region due to local labor rates and demand.

Additional Costs for Roofing Accessories

In addition to the primary roofing material and labor, there are other accessories and components that can impact your roof replacement cost. These include:

  • Flashing: Necessary for sealing roof joints and preventing leaks.
  • Underlayment: Provides an extra layer of protection beneath the roofing material.
  • Ventilation systems: Ensures proper airflow in the attic, which can affect the longevity of your roof.
  • Gutters and downspouts: Proper drainage is essential to protect your home’s foundation.

Removal and Disposal of the Old Roofing Materials

Before installing a new roof, the old roof must be removed and properly disposed of. This is a necessary step in the replacement process and can add to your project cost. Key points to consider:

  • The number of existing layers: Removing multiple layers of old roofing can be more labor-intensive and costly.
  • Disposal fees: Depending on your location, there may be fees associated with disposing of old roofing materials.

Potential Hidden Costs and Unexpected Expenses

While you plan your roof replacement budget, it’s essential to be prepared for potential hidden costs and unexpected expenses that may arise during the project. Some factors to be aware of include:

  • Structural damage: If hidden structural issues are discovered during the replacement, repairs can be costly.
  • Unforeseen leaks: Roofing projects can reveal additional leaks that were not visible before, requiring immediate attention.
  • Weather delays: Adverse weather conditions can cause project delays, potentially leading to increased labor costs.

Comparing Quotes from Different Contractors

To make an informed decision, it’s crucial to obtain multiple quotes from different roofing contractors. Here’s how to effectively compare these quotes:

  • Ensure each quote includes warranty information for both materials and installation.
  • Beware of significantly low bids, as they may indicate lower quality work.
  • Check online reviews to gauge the reputation of the roofing company.
  • Verify that the contractor is licensed by contacting your state consumer protection office.

How to Reduce Your Roof Replacement Costs

You should expect to pay thousands of dollars for your roof repair. However, there are methods to lower your overall roof replacement cost.

1. Hire a Professional Roof Inspector

If you’ve noticed that your roof is looking a bit worse for wear, then you should call in an inspector. Although it can cost a few hundred dollars to hire an inspector, it might be well worth the cost.

An inspector will be able to tell you whether you really need a new roof. They might recommend a patch or suggest that you wait a few years before replacing the whole roof. Either way, it will give you a better understanding of the problem at hand.

2. Replace or Repair?

After receiving the inspection report recommendations, you’ll need to decide whether you will replace or repair the roof. It is a good idea to go with the guidance of the inspector. However, as the owner, you have the final say in this decision.

3. Check the Home Warranty

When was your roof last replaced? If the answer is recently, then the replacement might be under warranty.

If you recently bought the home, you should check through the closing paperwork. Home warranty information is often available in that fine print. If you can’t find the information, consider contacting the previous owners to see if they can provide you with that paperwork.

The home warranty may cover your replacement costs, so it is an option you should look into.

4. Decide What You Want

Before talking to a roofing contractor or salesman, make sure you know exactly what you want on your new roof. Take the time to research the different materials and options and choose the one that will work well for your area and your budget.

Build an understanding of the features of your roof. Is it huge? Does it have many peaks and ridges that will increase labor costs?

With this level of research, you’ll be able to discuss the details of contractor bids coherently. Doing this homework helps ensure that you are not being taken advantage of. You might not need the latest and greatest product that the salesman attempts to sell you.

5. Compare Bids

Once you have a good understanding of what you need, then it is time to call in the contractors. Obtain estimates from various roofing contractors. Each bid should include roof warranty information on both the materials and the installation.

Do not automatically jump for the lowest bid. If the bid is significantly lower, do more research before accepting that bid. Sometimes very low bids translate into lower quality work. Online reviews of a roofing company may help you find out if the company is worth doing business with.

Make sure to confirm that the bid is from a licensed contractor. You can contact your state consumer protection office to confirm this.

Trust your instincts when choosing a roofer. You want a roof that will last for years to come at an affordable price. Cutting corners now will only cause more problems down the line.

6. Go the DIY Route

In the world of homeownership, there is always the option to fix the problem yourself. Although the roof is a high stake home repair, you may be able to do part of it yourself for a fraction of the cost.

The labor costs of a DIY roof replacement can account for the bulk of the expense. Sometimes, a contractor will allow you to remove the old roofing material yourself to cut the total cost. However, you should only pursue this option if you have the proper tools and knowledge.

7. Check Your Insurance Policy

If you are like most Americans, you carry a homeowner’s insurance policy on your home. In that case, the policy might cover roof damages.

Most insurance policies will help cover some or all of your roof replacement. However, if the need for replacement is due to neglect, then it is unlikely they will assist you. Call your insurance provider to find out how much they might be willing to cover.

8. Ask for a Discount

Most roofers are at the whim of seasonal work. In the winter, work can dry up in some places. Whereas in the summer, they can’t work through the jobs fast enough.

If you are willing to wait for a convenient time for the roofing company, then ask if they will give you an off-season discount. For example, you could request a 10% discount to wait until they have a slow month for your roof repair.

It never hurts to ask; the worst thing they can say is ‘no.’

Financing Options for Roof Replacements

Replacing a roof can be a significant financial undertaking. If you’re concerned about the upfront cost, consider these financing options:

  • Home improvement loans: Home improvement loans are tailored for renovation projects like roof replacement. They typically offer competitive interest rates and flexible terms, available from banks or online lenders.
  • Home equity loans or lines of credit: Leverage your home’s equity to finance your roof replacement. Home equity loans provide a lump sum upfront, while home equity lines of credit (HELOCs) offer flexibility in accessing funds.
  • Insurance coverage: Review your homeowner’s insurance policy to check if it covers roof replacement, especially for damage caused by specific covered perils like severe storms or hail.
  • Contractor financing: Many roofing companies offer financing options to help you manage the cost of roof replacement. When considering this option, inquire about terms, interest rates, and the company’s reputation to ensure transparency and fairness in their financing offerings.

Bottom Line

Understanding the cost of roof replacement is a crucial step for homeowners. It’s not merely an expense but an investment in the protection and value of your home. By taking the time to assess your roof’s condition, research materials, budget wisely, and seek multiple quotes, you can make informed decisions that align with your financial situation.

Roof replacement can be a substantial undertaking, but with careful planning and consideration, you can ensure the longevity and safety of your home. Remember that each roof is unique, and roofing costs can vary based on several factors. Whether you’re facing an imminent replacement or planning for the future, being well-informed is the key to making cost-effective choices for your roofing needs.

Frequently Asked Questions

How much does a roof cost?

The cost of a roof varies widely based on factors like size, materials, and geographic location. For standard materials like asphalt shingles, prices can range from $7,000 to $12,000 for an average-sized home. More premium materials like metal, slate, or tile can significantly increase the cost. Additional factors like roof design complexity, labor rates, and regional costs also play a crucial role in determining the final price.

What is the average cost of replacing a roof?

The average cost of replacing a roof in the United States is around $10,000, but pricing can vary widely depending on factors like the size of the roof, materials used, and geographic location. High-end materials or complex roof designs can push costs significantly higher.

How do different types of roofs affect the replacement cost?

The type of roof has a major impact on replacement costs. Asphalt shingles are generally the most affordable, while materials like metal, tile, or slate are more expensive. The complexity of the roof design, such as the presence of skylights or multiple levels, also affects the cost.

Are there any additional expenses associated with roof replacement?

Yes, there can be additional expenses beyond the basic cost of materials and labor. These might include costs for permits, structural repairs, gutter replacement, or disposal of the old roofing materials. These costs should be considered when budgeting for a roof replacement.

Does the size of the roof influence the cost?

Absolutely. The larger the roof, the more materials and labor will be needed, which increases the overall cost. Roofing costs are often calculated by the square foot, so a larger roof area will result in a higher total cost.

What factors can affect the overall cost of a roof replacement?

Several factors can affect the total cost, including the type of roofing material, the complexity of the roof’s design, the need for structural repairs, local labor rates, and whether the old roof needs to be removed first. Weather conditions and seasonal demand can also play a role.

Is roof removal included in the replacement cost?

In many cases, the cost of removing the old roof is included in the roof replacement quote. However, this is not always the case, so it’s important to clarify this with the contractor. The cost of removal can vary depending on the size and material of the existing roof.

Do I need permits for a roof replacement?

Yes, most local governments require permits for a roof replacement. The cost and requirements for these permits vary by location. It’s important to factor in these costs and ensure that your contractor handles the permit process.

Are there any financing options available for roof replacement costs?

Many roofing contractors offer financing options to help manage the cost of roof replacement. Additionally, some banks and credit unions offer home improvement loans. It’s advisable to compare rates and terms to find the best financing solution.

What are some signs that indicate a need for a roof replacement?

Signs that you may need a roof replacement include missing or damaged shingles, frequent leaks, sagging, and daylight visible through the roof boards. If the roof is more than 20 years old, it might also be time to consider replacement.

How long does a typical roof replacement take?

The time required for a roof replacement can vary, but most projects are completed within a few days to a week. Factors that influence the timeline include the size of the roof, weather conditions, and the complexity of the job. More complex projects or unforeseen issues can extend this timeline.

How much can I save by replacing my roof myself?

DIY roof replacement can lead to significant savings, primarily by eliminating professional labor costs. You may also reduce expenses by sourcing materials and handling waste disposal yourself.

However, while DIY can cut initial costs, it’s crucial to consider the value of professional workmanship, which often ensures quality and adherence to safety standards. Inexperienced DIY attempts might lead to costly future repairs, potentially offsetting the initial savings.

Source: crediful.com

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Thanksgiving week is always an interesting (and frequently frustrating) time for the bond market that underlies day to day interest rate changes.  Markets are traded by humans, even in cases where humans are programing machines to do the trading, and human participation dwindles on certain holiday weeks.

As participation decreases, trading levels can jump around in a more random way as fewer people and fewer dollars constitute a larger percentage of the overall trading environment.  That can lead to volatility in mortgage rates as was the case on Friday for lenders that actually updated rates from Wednesday.

In other words, the bond market pointed to a moderate jump in rates on Friday. There was a good chance the jump was an artificial byproduct of Thanksgiving week, but there was no way to be sure until today. 

Now we’re sure. Bonds quickly moved back in line with Wednesday’s levels and the average mortgage lender did the same.  That’s good news considering last Wednesday’s mortgage rates were right in line with the lowest levels of the past 2 months.

Source: mortgagenewsdaily.com

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The Census Bureau released the monthly New Home Sales report today, showing a decrease from 719k in September (revised down from 759k initially reported) to 679k in October.  While this number is below the long term trend that emerged after the Great Financial Crisis, it’s still in league with the pre-covid highs.

The post-covid story for the housing market has been one of ever-dwindling inventory and its various effects.  One of the most obvious effects of lower EXISTING home inventory is that NEW homes have captured a larger share of the market.

Existing homes have moved lower, almost exclusively from the peak.  The divergence from New Home Sales has been especially notable since mid-2022 when rates really began skyrocketing. The following chart shows the percent change in both new and existing sales from the peak.

Perhaps most notable is the price trend during the time when sales were down more than 40%.  

An inventory crunch is the only thing that could explain the juxtaposition of a sharp decline in sales and a sharp increase in values, but it’s important to note the 3rd ingredient in play during the highlighted time frame above: incredibly low rates. Prices stopped accelerating almost as soon as rates began to jump.

What’s the takeaway for the housing market?  Today’s report doesn’t tell us much.  Anything in the 650-750k range is fairly neutral.  Additionally, the outlook may be rapidly changing to whatever extent the highest interest rates are behind us.  That’s a possibility that will receive more clarity with next week’s economic data, but it will take several months to confirm.

Source: mortgagenewsdaily.com

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Mortgage rates have risen. Home sales have fallen. And prices of houses in the Bay Area and California have gone up more than 5 percent. 

While interest rates peaked at 7.8 percent in late October, home sales across the Golden State fell 11.9 percent from a year ago, the San Jose Mercury News reported, citing new figures from the California Association of Realtors.

Meanwhile, the cost of a typical home in the Bay Area rose 5.7 percent during the period to $1.27 million. 

At the same time, the median price of a California home rose 5.3 percent to $840,360, according to the Realtors report, while overall number of home sales fell 27.2 percent.

Even with slowing sales, most buyers aren’t pulling out of the market just because of interest rates, brokers say. The declining sales point more to a lack of inventory.

Jim Hamilton, president of the Silicon Valley Association of Realtors (Compass)

Buyers “are getting accustomed to those higher interest rates,” Jim Hamilton, president of the Silicon Valley Association of Realtors, told the Mercury News. “It’s a pretty dramatic jump, but it didn’t happen overnight either.”

Interest rates peaked at 7.79 percent in the last week of October, the highest rate in 20 years.  Since then, rates have slipped to 7.44 percent.

After 14 months of decline, prices began moving up again in August. In the nine-county Bay Area, San Mateo County had the highest median home price at $2.1 million, while Solano County had the lowest at $620,000.

Most sellers don’t want to give up cheap mortgages and buy at rates two or three times higher than what they’re now paying, agents say.

With fewer homeowners moving and marketing their homes, buyers now compete for fewer properties. And that drives up prices, a trend likely to continue through New Year’s.

Price-savvy buyers may also be putting their house hunts on hold.

Kumi Hodge, a real estate agent based in San Ramon (Kumi the Realtor)

For every 1 percent increase in rates, buyers tend to lose 10 percent of their purchasing power, according to agents. A buyer that could afford a $1 million home in January, when rates were 6.4 percent, might now be only able to afford a home worth $845,000.

“If there’s not a need for more space, or relocating based on work, then people are sitting tight and waiting to see what happens with rates,” Kumi Hodge, a residential agent based in San Ramon, told the Mercury News.

— Dana Bartholomew

Read more

Source: therealdeal.com

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Gross Annual Salary

Estimated Maximum Monthly Rent

$25,000

$625 per month

$50,000

$1,250 per month

$75,000

$1,875 per month

$100,000

$2,500 per month

$125,000

$3,125 per month

$150,000

$3,750 per month

Keep in mind that this method might not be feasible for everyone to follow, especially in places like New York City, San Francisco, and Boston where rent is extremely high. For example, the average monthly rent in New York City is $5,600, meaning you would need an annual salary of at least $224,000 to follow the 30% rule. 

If you live in a high-cost city and find this rule unrealistic for your scenario, you may want to consider following a different budgeting technique. 

2. 50/30/20 Rule

The 50/30/20 rule is a technique that divides your after-tax income into three categories—50% toward needs, 30% toward wants and 20% toward savings. This method isn’t as straightforward since rent is a part of the broader “need” category. 

Let’s walk through a step-by-step example to determine your rent budget according to the 50/30/20 rule: 

  • Step 1: Determine 50% of your monthly income: If your monthly take-home pay is $6,000, then allot $3,000 per month toward needs. 
  • Step 2: Add up your other expenses in the “needs” category: Other expenses in the “needs” category include minimum payments on loans, groceries, health care, car payments, and utilities. In this example, let’s say each month you spend $500 on groceries, $100 on health insurance, $150 on utilities, $20 on credit card bills, and $500 on a car payment, which totals $1,270. 
  • Step 3: Subtract the other “needs” expenses from the total “needs” budget to determine your monthly rent: To determine your rent budget, you would subtract $1,270 from $3,000, which equals $1,730.

If, after using this template, you find that your rent budget is lower than you’d prefer, you can lower your other “needs” expenses to allot more money toward your rent budget. For example, you could get a more modest vehicle, shop at a more affordable grocery store, or take steps to lower your utility bill.

3. 70/20/10 Rule

Similarly to the 50/30/20 rule, the 70/20/10 rule divides your post-tax income into three different categories. With this technique, 70% goes to spending, 20% to saving and investing and 10% to debt repayment and donations. With this rule, rent is a part of the “monthly spending” category. 

Here’s how to calculate your monthly rent budget according to the 70/20/10 rule: 

  • Step 1: Determine 70% of your monthly income. If your take-home pay is $6,000, allocate $4,200 to the “spending” category. 
  • Step 2: Add up your other monthly spending expenses: Let’s estimate that you have the same “needs” expenses as the example above, which total $1,270. Your monthly “wants” budget includes $250 on eating out, $200 on clothing shopping, $85 on a gym membership, $200 on entertainment, and $300 on travel. Your total monthly spending would equal $2,305. 
  • Step 3: Subtract your monthly spending expenses from the 70% spending budget to determine your monthly rent budget: To determine your budget, you would subtract $2,305 from $4,200, which equals $1,895. 

With this rule, you may have more wiggle room to increase your rent budget by cutting down spending on your wants. For example, you could reduce the frequency of eating out or spend less money on clothes to grow your rent budget.

Other Factors to Consider 

Remember that there isn’t a one-size-fits-all approach to how much to spend on rent. When deciding between different rental options, consider how the following factors may add additional costs or offer savings opportunities:

  • Location: Consider the distance to places you frequent and how that might affect costs. For example, you might find that rent is $100 less further out of the city. However, if you drive to the city for work every day, gas money might eat at your cost savings. Not to mention the additional time it adds to your commute. 
  • Amenities: Consider what amenities the apartment offers that could save you money on other parts of your budget. For example, an on-site gym could save you approximately $75 monthly on a separate gym membership. 
  • Remote work: If you work from home, you might put your transportation cost savings toward your rent budget to allow additional space for a home office. 
  • Utilities: Some landlords include utilities in the rent price, while others don’t. Since the average electric bill is $137, it’s important to take this factor into account. 
  • Internet and cable: Consider whether your rent includes internet and cable. Some complexes may require you to purchase an internet and cable package. 

How to Save Money on Rent 

Due to rising rent costs across the U.S., staying within your rental budget can be a challenging task. Consider the following tips to save money on rent: 

  • Get a roommate: As of February 2023, the average monthly rent for a one-bedroom apartment in the U.S. is $1,152, while the average rent for a two-bedroom apartment is $1,320, which means getting a roommate can save you $492 a month. 
  • Sign your lease in the winter: Studies have shown that December through March are the cheapest months to sign a lease due to decreased demand during the winter season. 
  • Negotiate with your landlord: If you’ve been a reliable tenant or have a strong rental application, you may be able to negotiate your rent. Keep in mind that you’ll likely have more luck negotiating with an independent landlord than a property management company. 
  • Offer to pay upfront: If you have enough savings, offer to pay a few months to a year of rent up front in exchange for a discount. 
  • Opt for a long-term lease: Many landlords prefer long-term tenants and will offer lower rates if you sign a longer lease. 
  • Move to a cheaper area: Generally, rent is more expensive in cities compared to rural or suburban areas. However, If you want to live in an urban area, consider opting for a smaller, more affordable city like Tulsa, OK, rather than a large city like New York, NY.

Budgeting techniques like the 30% rule, the 50/30/20 rule, or the 70/20/10 rule can provide you with a guideline of how much of your income to spend on rent. Additionally, looking for ways to save on rent can help you reach your other financial goals. 

Now that you’ve determined your rent budget, credit score is another factor to consider when apartment searching. Landlords and property managers will likely perform a credit check to help determine your ability to pay rent. Generally, your credit score should be in the “good” range (670 or above) to improve the odds of your applications getting approved. While you can get an apartment with bad credit, you might have to jump through additional hoops. 

Unsure what your credit score is? Check your credit score for free today to make sure you’re ready to sign a lease.

Source: credit.com

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Mortgage activity picked up for a third straight week, with growth observed among first-time buyers, the Mortgage Bankers Association said

The MBA’s Market Composite Index, a measure of weekly application volumes based on surveys of trade groups members, climbed up a seasonally adjusted 3% for the seven-day period ending Nov. 17. The latest increase comes after similar rises of 2.8% and 2.5% earlier this month. Despite the recent upswing, applications still were 16.3% lower compared to the same week in 2022. 

“Mortgage applications increased to their highest level in six weeks, but remain at very low levels,” said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

Applications have headed upward over the past few weeks as interest rates began easing. A better-than-expected October inflation report alleviated some economic angst, with data pointing to a softening economy, according to Kan.

Following the release of the inflation report, the 30-year fixed conforming average among MBA lenders finished last week at 7.41%, taking a 20 basis point dive compared to 7.61% in the previous survey. Points used by borrowers to pay down the interest rate dropped to 0.62 from 0.67 for 80% loan-to-value ratio applications.

The effect of lower rates contributed to a seasonally adjusted 3.9% jump in the Purchase Index week over week, with both conventional and government volumes increasing. But with limited inventory still suppressing demand, activity remained 20.6% below year-ago levels. 

Still, recent trends show glimmers of potential momentum in the home buying market. Pending sales over the past month based off of Redfin’s analysis of listings rose to its highest point in almost a year. Existing-home sales also ticked up on a monthly basis in October, according to the National Association of Realtors, despite remaining at historical lows.

Much of the recent growth is driven by first-time buyers, according to the MBA. “The average loan size on a purchase application was $403,600, the lowest since January 2023. This is consistent with other sources of home sales data showing a gradually increasing first-time home buyer share,” Kan said. 

Purchase loans guaranteed by the Federal Housing Administration, which are frequently used for starter homes, surged a seasonally adjusted 6.7%.

The MBA’s reported mean purchase amount declined 0.7% from the prior week’s $406,600, and with the exception of 2023’s first application survey, has remained above the $400,000 mark all year. The average refinance-application size also clocked in at its lowest this year, inching down 2.3% to $241,200 from $247,000 a week earlier. The overall average across all applications, likewise, fell to its lowest mark since January, finishing at $351,000, 1.3% lower from $355,700 seven days earlier. 

Meanwhile, the MBA’s Refinance Index edged up 1.6% but sat 3.7% lower on an annual basis. The share of refinances relative to total activity grew to 32.4% from 31.9% the previous week. 

Led by growth in FHA-backed purchases last week, the share of government-market lending grew correspondingly. Loans guaranteed by the FHA garnered 14.8% of all applications compared to 14.4% a week earlier. The volume of mortgages taken through the Department of Veterans Affairs saw a more muted increase, inching up to 11.3% of activity from 11.2%. Applications sponsored by the U.S. Department of Agriculture pulled back to a 0.4% share from 0.5% the week prior.

Similar to the conforming 30-year rate, all other fixed averages tracked by the MBA decreased last week. The contract rate of the 30-year jumbo loan dropped 14 basis points to 7.51% from 7.65% in the previous survey. Borrower points decreased to 0.62 from 0.67.

The contract average of the 30-year FHA-guaranteed mortgage saw a 17 basis point decline, descending to 7.19% from 7.36% week over week. Points also dropped down to 0.69 from 0.75 for 80% LTV-ratio loans.

The 15-year fixed-rate mortgage averaged 6.89% compared to 6.94% seven days earlier, while points used decreased to 0.76 from one in the prior survey period.

The 30-year fixed-contract 5/1 adjustable-rate mortgage recorded the only rise in the survey, jumping 11 basis points to an average of 6.76% from 6.65%. Points also increased to 0.82 from 0.72. 

But as borrowers received some affordability relief thanks to the pullback in fixed rates over the past month, the share of ARMs shrank again to 8.3% of activity from 8.8%. Interest in ARMs typically rise and fall alongside fixed-rate movements. Four weeks ago, adjustable-rate mortgages approached 11% of volume. 

Source: nationalmortgagenews.com