We get asked frequently by founders what the available funding options are.
One such option is Dreamit. We had the chance to ask Andrew Ackerman, the managing Director of their UrbanTech program, a few questions about their upcoming accelerator class.
What are some of the things that startups can gain by going through the program?
Dreamit is specifically designed for the pre-series A startup with traction. The benefits startups get from the program can really be broken out into 3 categories: customers, capital & coaching.
Most VCs and accelerators talk about the customer introductions they can make for startups in their portfolio. Dreamit takes it to the next level with our two-week, multi-city “Customer Sprint” process. These are curated, one on one, sit down at a conference table meetings with C-suite decision makers at over 70 top players in Construction, Development, Property Management, et. al. that can shave 3-6+ months off the typical 9-12 month enterprise sales cycle.
Demo days may (arguably) still work for some pre-seed accelerator programs but if you are raising a $5M-$10M Series A round (or even a $2M-$4M Seed extension), raising it in $50K increments from angels is just not going to cut it. So instead of Demo Day “startup theater”, Dreamit takes the startups in our program on a two-week, bi-coastal “Investor Sprint” where they meet the institutional VCs who can lead these rounds, in their offices, for 20-minute, one-on-one meetings.
In terms of coaching, each of Dreamit’s 3 verticals are run by Managing Directors with successful exits under their belts and who have deep experience in their respective industries. But don’t take our word for it; ask our alumni… many of who have gone through traditional pre-seed accelerator programs in the past and can talk to the Dreamit difference.
What are some of the big successes that you guys have had with startups in the program?
Dreamit has worked with over 300 startups since our founding in 2008. In the past 6 months, we’ve had 4 high profile, successful exits including LevelUp (acquired by Seamless), Adaptly (acquired by Accenture), Trendkit (acquired by Cision), Houseparty (fka, Meerkat, acquired by Epic Games). We were also early investors in SeatGeek.
What trends in real estate are you most excited about?
The single biggest trend is completely unrelated to tech: it is the increased willingness on the part of the traditional real estate community to embrace rather than resist innovation. The increased recognition of the necessity of piloting with startups to gain an edge in the increasingly competitive real estate environment has, quite literally, changed everything.
On the tech side, improvements in speech recognition and natural language processing are changing everything from finding an apartment, to booking showings, submitting maintenance requests, controlling your smart apartment and much, much more. Equally impactful but much less flashy is the increasingly interoperable data layer underpinning the industry. There has never been more real estate data available and it is finally in a form that, with more than a little bit of effort, can be combined with other data sources in ways that unlock insights and business models that could not have existed a mere 2 years ago.
What kinds of startups are you searching for your upcoming program?
Good ones. Allow me to elaborate: Really, good ones.
Kidding aside, we look for what I call “corporate ready” startups with solid, demonstrable traction selling unique solutions to large and extremely painful problems. Is that too much to ask?
What are your customer partners looking for in proptech startups? How have their needs changed over the past couple of years?
One of the reasons our 70+ partners make the bi-annual Customer Sprints a regular part of their innovation calendar is that they know that the startups we bring them already have “product-market fit” and are run by founders who understand what it takes to successfully sell to and work with large corporate clients. Nothing reassures a multinational construction firm like Skanska that a startup is ready to work with them like a traction slide with logos of other big GCs like Turner, Suffolk, and other national contractors.
In truth, their needs in that respect have not changed that much, but they are more willing to prioritize working with startups to solve their problems than ever before.
Thanks, Andrew. Applications for Dreamit’s Fall 2019 program are open now. For those founders interested…
Does retail sales experience translate to real estate? If the success of today’s guest, Landon Stone, is any indication, it certainly can! Landon’s team doubled their business in a market that’s down 40 percent. And his first year in the business, he closed 33 deals. Listen and learn how to start your real estate career with strong sales and how to scale your success with a team. Landon and Shelby also discuss FSBOs, expired listings, high-value clients, and more.
Listen to today’s show and learn:
Landon Stone’s transition from retail to real estate [2:19]
Landon on selling his first flip [6:03]
Why Landon decided to become a real estate agent [7:31]
How Landon closed 33 homes his first year in real estate [9:32]
The one goal to focus on when calling cold leads [13:28]
From FSBOs to expired listings [17:39]
How to get referrals and the conversations to have with cold leads [19:27]
Why Landon Stone almost quit real estate after a successful start [22:22]
Advice on starting a real estate team [26:37]
What Landon’s real estate team looks like now [28:27]
Winning business in a down market [33:00]
Determining your average ticket and increasing it [36:41]
Where to find high-value clients [38:16]
Resources for doing deals [41:06]
Landon’s advice for real estate agents [43:44]
Landon’s plans for growing his real estate business [49:36]
Where to find and follow Landon Stone [52:23]
Landon Stone
Landon Stone is BORO Realty Group’s CEO, Founder, & Team Leader! He’s driven & passionate about helping those around him make all the right moves! Landon, born and raised in Texas, relocated to the Greensboro, NC area after graduating from Texas Tech University. With a history of working in sales, the ambition of an entrepreneur, and a dream of designing a life to be proud of, Landon found himself starting his career in Real Estate. His mission is to advise his clients at a high level of expertise with a goal to help all of his clients build and maintain long-term wealth. As a General Contractor and Real Estate Investor, he adds an additional dimension of value being able to help clients make design and rehab decisions based on the value it brings to their properties. He strives to impress, push boundaries and help those around him grow into the people they desire.
Related Links and Resources:
It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
Your home is not just the cherished place you live. It is a valuable asset that can bring you opportunities for financial security and growth. Owning a home helps you build equity, and in turn, wealth, providing an option when you need to access funds. But there are other ways you can use your home as part of your financial strategy. Let’s explore how you can put your home to work for your financial benefit.
The Tangible Benefits of Homeownership
Owning a home can be a very rewarding experience. In addition to giving you a sense of pride and a connection to your community, homeownership provides tangible benefits that can improve your financial well-being. Two key benefits are equity and tax advantages.
Building Equity Over Time
As you make mortgage payments, you build equity in your home. Equity is the difference between the market value of your home and the amount you owe on your mortgage. Once you’ve accumulated enough home equity, you can tap into it for various needs like home renovations, debt consolidation or other expenses. You can typically obtain this cash through a second mortgage, such as a fixed-rate Home Equity Loan or a Home Equity Line of Credit (HELOC).
Tax Advantages
As a homeowner, you can deduct some of the interest you pay on your mortgage from your federal income taxes. This can save you a significant amount of money each year.*
Strategies to Unlock Your Home’s Financial Potential
Understanding the different ways you can take advantage of your home can help you unlock its full financial potential and move you closer to your goals.
1. Home Equity Loans
Having home equity can be a safeguard for managing large expenses. For example, if you need access to funds for home improvements, debt consolidation, school tuition, an emergency or any other significant expense, consider a Home Equity Loan.
A home equity loan allows you to borrow against your home’s equity and receive a one-time cash payment. Since this type of loan is a second mortgage, your primary mortgage, including your interest rate, remains unaffected. This can be a great advantage if you have a very low interest rate on your first mortgage and you want to access cash from your home equity without refinancing your entire loan balance — especially if rates are running on the higher end in the current market. You’ll also have the security of a fixed interest rate and payment on this type of loan, unlike a line of credit. The amount borrowed may even be tax deductible if the funds are used to renovate your home.*
2. Consolidate Debt
Your home equity can help you take charge of your debt. If you have a lot of high-interest debt from credit cards or personal loans, consider consolidating your debt with a home equity loan or cash-out refinance. A cash-out refinance replaces an existing mortgage with a new loan with a higher balance, sometimes with more favorable terms than the current loan. The difference between these two loans is distributed to the homeowner as cash.
Credit card and personal loan interest rates are typically much higher than home loan interest rates, so a cash-out refinance or home equity loan could potentially save you a lot of money on interest payments.
Paying down debt can also boost your credit score. But don’t treat a cash-out refinance or home equity loan like an ATM. Have a plan in place to avoid further debt.
3. Home Improvements
Certain improvements to your property can substantially enhance your home’s worth. Upgrading areas like the kitchen and bathrooms or incorporating energy-efficient elements can greatly appeal to future potential buyers if you choose to put the house on the market. Even if you’re not planning on selling anytime soon, this kind of investment often yields long-term financial benefits. Any increase in market value also contributes to an increase in your home equity.
4. Exterior Improvements
Exterior improvements like landscaping, a new wood deck or a wrap-around porch not only boost curb appeal but may also boost your home’s market value. When your market value increases, so does your home equity. Plus, when you’re ready to sell, potential homebuyers may be willing to pay more, often making these types of upgrades good long-term investments.
5. Investment
If you have good credit, liquid reserves and other qualifications, the equity in your home could be used to purchase an investment property.
A single-family home, townhouse or multi-family unit can be a long-term asset, offering additional tenant income. A vacation home can provide a reliable getaway that appreciates over time — and you can buy one with as little as 10% down.
6. Higher Education
As the equity in your home grows, so does the amount of accessible funds you have available to pay for a child’s education or your own tuition expenses. Just be sure to compare the interest rates of a home equity option vs. taking out a student loan. And do the math to ensure your existing budget can manage the increased or additional loan payments you’ll be responsible for.
7. Renting Out Spare Rooms or Basement
If you have extra space, you may be able to generate additional income by renting out a spare bedroom, guest house, casita or basement. A bedroom, guest house or casita could be rented to a tenant, and a spacious basement or garage could be leased to someone who needs storage space. Do your due diligence before renting out a room to ensure you understand the laws involved, any HOA restrictions, insurance, permits and safety requirements and tax implications.
8. Listing Your Space for Short-Term Rentals
Earn money by listing your guest house, casita or extra room as a short-term rental on a peer-to-peer exchange service such as Airbnb. Hosting out-of-town visitors can be very profitable, especially if you live in a tourist spot, business or transportation hub or near a university. Again, you’ll need to comply with your area’s legal, zoning, insurance, tax rules and other regulations.
9. Rent Out Your Pool or Backyard
Have a pool or backyard that often goes unused? Rent it out and bring in some extra cash. Apps like Swimply and Peerspace allow you to list your pool or yard and connect with individuals looking to swim, host a party, conduct photoshoots and even film commercials. That said, before you get started on using your property for this type of business venture, be sure to check with your homeowners insurance provider on any additional protections needed.
10. Home Equity Line of Credit (HELOC)
A HELOC allows you to access your home equity by providing a line of credit, which behaves similarly to a credit card. Borrow the amount you need when you need it, up to your approved limit. Keep in mind that HELOCs use variable rates, so the interest rate will fluctuate based on certain benchmark rates and the current market.
Want to leverage your home equity? Check out our home value estimator to help give you an idea of your home equity, then explore our home equity loan options or contact a Pennymac Loan Expert today.
*Consult a tax adviser for further information regarding the deductibility of mortgage interest and charges.
Real estate finished November as the second best performing group in the S&P 500 Index adding 12%, trailing slightly behind tech’s 13% gain. The momentum was fueled by bets the central bank may begin cutting rates as early as next year.
RELATED: Mortgage rates will decline further, economic signs indicate
In November, the interest-rate sensitive sector was a market outperformer as investors poured capital into the group. A pullback in Treasury yields has also supported trader optimism that the worst of it could be over. Additionally, U.S. real estate investment trusts, which have been beaten-down by surging interest rates and economic uncertainty, are now flashing signs of strength.
The group rallied 12% in November versus the S&P 500’s 9% gain, notching its best month since 2011. Bank of America said it’s overweight the real estate sector ahead of 2024, with Jeffrey Spector calling the REIT sector equity’s “diamond in the rough.” He listed American Homes 4 Rent, Americold Realty Trust, Empire State Realty Trust, Kimco Realty Corp., Prologis Inc. and Welltower Inc. as his top picks in a note to clients Friday.
Battered office landlord stocks have placed a overcast on the REIT sector as a whole, though office only represents a sliver of the group. Investors have been fleeing the office sector as fears of remote work and elevated borrowing costs destabilize the sector.
“Real estate has seen the biggest de-rating since 2021 among all industries on concerns over office, but office is less than 5% of real estate’s market cap,” he said.
While Bank of America remains cautious on the market entering 2024, it still sees real estate as underappreciated.
For homebuilding stocks, the bulk of the monthly advance was made during the first three sessions of November after the Federal Reserve announced it would hold its benchmark rate steady for a second meeting. The index posted three back-to-back gains of more than 4%, ultimately sending the index to post its biggest monthly gain since 2020.
The recent pullback in mortgage rates is likely to further support the sector’s gains, enabling builders to buy down rates to 5.5%, a level that has previously helped demand, Bloomberg Intelligence analyst Drew Reading said.
“This would actually make new home payments more favorable versus resales heading into the spring selling season, so the timing is great for the group,” he noted.
Although builder confidence has been on the decline, Capital Economics U.S. Property Economist Thomas Ryan says the sentiment is a misrepresentation of where larger public builders actually stand, as the gauge is largely comprised of smaller private builders.
As such, the typical strong correlation between NAHB homebuilder confidence and housing starts has broken down recently, he said. That divergence was underscored in November after the confidence gauge fell to its lowest level this year, despite housing starts unexpectedly rising to the highest in three months.
“While smaller homebuilders are finding it increasingly difficult to access the credit required to maintain construction activity, their giant competitors are in an extremely strong financial position,” Ryan wrote.
The real estate sector still lags behind the broader market year-to-date, but according to Bank of America, the group may be a bright spot heading into 2024.
Inside: Do you find it difficult to stick to a budget, despite trying your best? If so, you’re not alone. Budgeting can be a tricky task, but by understanding flexible vs variable expenses, you will better manage your money.
Creating a budget is a fundamental step in shaping your financial well-being, and understanding how your expenses fit within this budget is essential.
These are expenses that can be easily modified or eliminated when monetary constraints arise, thus playing a significant role in stabilizing your financial health.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a flexible expense?
A flexible expense is a budget item you can adjust or modify as per your financial situation. This wiggle room inherent in such costs is not vital for survival, unlike the rigidity of fixed costs such as rent or health insurance.
You can manage these flexible expenses depending on your financial goals or constraints, making them an important part of budget planning.
Fixed Expenses
Variable Expenses
Flexible Expenses
A fixed expense is a cost that remains constant and is paid at regular intervals, such as mortgage payments, car insurance, or cell phone bills, making it predictable and crucial for budgeting purposes.
A variable expense is a cost that changes over time, fluctuating based on individual decisions and circumstances, encompassing both essential spending like groceries and discretionary purchases like movie tickets.
A flexible expense is a non-essential cost in your budget that you can adjust, reduce, or eliminate to save money, encompassing diverse categories like vacation spending, beauty treatments, electronics, dining out, and entertainment services.
What is an example of a flexible expense?
There are countless opportunities for flexible spending, some of which we might not even realize. Common examples include:
Vacations: A sunny beach holiday might be highly appealing, but not always financially feasible. There are alternative, less expensive options such as a staycation.
Beauty treatments: Items like haircuts, manicures, and massages fall into this category.
Electronics: The urge to upgrade to the latest smartphone or tablet model is understandable, but if your current device works fine, that’s an expense you can postpone.
Food and dining: While we all need to eat, the amount spent on eating out, or grabbing a latte on the go can be adjusted.
Entertainment: Expenses here include streaming services, cable television, concerts, or movie outings. There are plenty of free things to do that don’t cost money.
Remember, the trick lies in distinguishing between what you need and what you want.
Distinguishing fixed expenses from flexible expenses
The main difference between fixed and flexible expenses lies in their ability to change.
Fixed expenses, like your rent, or more specific elements such as a lease payment, represent costs that you’re obligated to cover regularly. They’re usually consistent in amount and include items such as utilities, phone bills, insurance premiums, and car payments. Handling these sensibly is crucial as postponing or canceling these could lead to severe consequences.
On the flip side, flexible expenses vary and can be adjusted or cut out entirely depending on your financial situation. These can range from dining out and entertainment costs to clothing purchases and vacation expenses. By taking control of your flexible expenses, you can ensure financial stability, even when incomes fluctuate.
Flexible Expense List Questions to Ask
Are you incurring this expense out of necessity or is it more of a luxury or desire?
Do I have control over the total amount spent on this expense or is it a constant obligatory payment?
Can this expense be eliminated or reduced without drastically affecting your lifestyle or basic needs?
Does this expense vary from month to month or can it be controlled based on your financial situation?
If you were to face financial constraints, could this expense be readily cut back or postponed?
If you answered yes to these questions, then you have a flexible expense.
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Which budgeting method works best for flexible expenses?
Choosing the best budgeting method varies greatly depending on your financial habits, goals, and discipline.
Regardless of the budgeting method you choose, remember that flexible expenses are the last thing that you prioritize in your budget.
Option #1 – Envelope System
The “Cash Envelope System” works well for many, where you allocate a specific amount of money for each flexible expense category in separate envelopes. You only spend what’s set aside in each envelope, assisting in keeping variable and flexible costs in check.
The envelope system allows you to save in advance for flexible expenses you want like a vacation or new car or even new clothing.
Option #2 – Pay Yourself First
Alternatively, the “Pay Yourself First” budget prioritizes savings. Something we like to do around here at Money Bliss.
Right after receiving your paycheck, you immediately transfer a designated amount into your savings or investments. The remaining money is then divided among your fixed, variable, and flexible costs.
Option #3 – Zero Based Budget
Lastly, the “Zero-Based Budget” is a method where every dollar you earn is allocated to a particular expense category, leaving you with a zero balance at the end of the month.
This 3 layer system starts with your fixed expenses, then moves to variable expenses. If you have money left over, then you can work on including those fun money flexible items or a deposit into savings account.
In essence, the best budgeting technique is one that fits your needs and aids in achieving your financial goals.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
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YNAB vs Mint
How do you budget for flexible expenses?
Budgeting flexible expenses may seem daunting initially, but with a systematic approach, it becomes manageable.
Here are the steps to follow:
Calculate Your Income: Identify your total monthly income after taxes, this is your starting point.
Identify Your Monthly Expenses: Take your bank and credit card statements; evaluate your spending habits to identify your expenses. Start with your fixed expenses as those are priority. Then move to variable and flexible expenses as your budget allows.
Set a Budget: Employ the 50/30/20 rule (or any other method that works best for you) to divide your income between essentials, flexible expenses, and savings.
Track Spending: Regularly monitor your spending against the budget set.
Adjust and Control: After monitoring, make necessary adjustments to control your expenditures.
Consistency: Continually follow these steps for a few months, change gets easier over time, and so will managing flexible costs.
Budgeting, especially flexible budgeting, allows for financial adaptability, enabling companies to seize unexpected opportunities or navigate emergencies without severe monetary strain.
How tracking your spending can help
Learning to recognize your overspending by diligently tracking can offer an enlightening picture of your financial habits. It aids in understanding where your money is being utilized and exposes any neglected ‘financial leaks’. A no spend challenge can help you pinpoint these issues.
Planning and then tracking your spending is crucial in forming an effective budgeting strategy. This is where a calendar can come in handy.
Tracking can be achieved manually via saving receipts, noting down amounts, or through digital means such as online budgeting tools or apps like YNAB or Tiller Money. With regular tracking, you can regulate your spending. Thus, ensuring you stick to your set budget, and make informed future financial decisions.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
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Tips and tricks for handling flexible expenses in your budget
Optimizing your budget while dealing with flexible expenses need not be a daunting task. Here are some tips to help:
Prioritize Savings: Always try to prioritize savings. One of our money saving challenges can help you.
Use Sinking Funds: This is money set aside to be used at a future time for a specific purchase.
Control Impulsive Spending: Limit frequent shopping trips, reduce eating out, and avoid buying unnecessary gadgets.
Substitute Luxuries with Alternatives: Option for budget-friendly alternatives like watching movies at home instead of the cinema, or cooking at home instead of dining out.
Utilize Budgeting Tools: Make use of budgeting apps or financial management tools that can track spending and help maintain your flexible expenses.
Practice Mindful Spending: Stay aware of your financial goals and make purchasing decisions that align with those goals.
Utilize Discounts: Seek opportunities for discounts that can contribute to these savings. For instance, some car insurance companies provide a discount for annual payments rather than monthly.
Remember, the goal isn’t to eliminate flexible spending entirely. But to strike a healthy balance that aligns with your long-term financial health.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
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FAQ
By tracking and managing these expenses, you can have more control and insight into your finances as this is where most unmindful spending happens.
It enables you to understand better where your money goes each month and helps avoid unnecessary spending. When you curtail these expenses, you free up money that can be used to pay off debts, save for future goals, or invest.
Therefore, skillful handling of flexible expenses allows you to maintain a well-rounded and healthy financial state.
Rent generally falls under the category of fixed expenses rather than flexible ones as it is typically a set amount due regularly.
Ready to Solidify Your Budget with these Examples of Flexible Expenses
Conclusively, budgeting with flexible expenses is an essential skill for effective financial management and becoming financially stable.
The key lies in balancing your needs and wants, recognizing and eliminating unnecessary spending while prioritizing necessities. Making use of budgeting tools, like the 50/30/20 rule, can also be advantageous and strategic.
Remember, it’s crucial to be aware not only of your income but also of where your money is spent, as gaining control over your flexible expenses can help avoid financial strain and achieve your financial goals. Always strive to adapt your spending habits to best fit your financial situation.
Now, learn how to handle unplanned expenses.
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Penny stocks offer a unique glimpse into the lesser-seen side of the stock market. These stocks, tied to small and sometimes obscure companies, present a blend of opportunity and challenge, attracting investors with their potential for high returns despite inherent risks.
In the history of penny stocks, there are tales of spectacular gains and equally dramatic losses, reflecting their unpredictable nature. This market segment appeals to a certain type of investor: one who is not just willing to take on risk, but who is also keen on conducting thorough research to unearth potential opportunities in overlooked corners of the market.
This introduction to penny stock trading aims to strike a balance between the excitement of potentially lucrative investments and the sober reality of the risks involved. As we delve into this topic, we’ll explore both the allure and the cautionary aspects of trading in penny stocks, offering insights for those curious about this intriguing area of finance.
What are penny stocks?
Penny stocks are defined by the Securities and Exchange Commission (SEC) as shares issued by small or micro-cap companies for any amount below $5 per share.
They typically trade on the over-the-counter (OTC) or dark market. But you may find some on U.S. securities exchanges, foreign exchanges, and in rare cases, on major stock exchanges.
They are designed for investors who can withstand a high level of risk, as the low price point is a tell-tale sign of bigger issues going on within the company. It could be anything from cash-flow issues to impending bankruptcy or fraud. You could also be dealing with a startup with little to no track record or a company with management woes.
Profit Potential in Penny Stocks: What to Expect
Penny stocks, often trading below $5 a share, can seem like a gateway to quick profits in the stock market. They’re attractive because of their low entry cost and the dream of buying a stock for pennies today that might be worth dollars tomorrow. However, it’s crucial to temper expectations with reality.
While there are occasional stories of penny stocks skyrocketing in value, these are more the exception than the rule. The overall success rate for investors in penny stocks is generally lower than in more traditional stock investments, largely due to their volatility and the opaque nature of many companies represented in this segment.
Navigating the Risks: The Realities of Penny Stock Investments
When considering penny stocks, it’s important to understand the risks involved. These stocks are known for their low liquidity, which means it might be difficult to sell your shares at the optimal time.
Moreover, the penny stock market is often a playground for manipulative tactics like ‘pump and dump’ schemes. In such scenarios, stock prices are artificially inflated through misleading or overly optimistic statements, only to be sold off by insiders at a profit, leaving other investors with losses.
What’s more, the lack of comprehensive financial information about these small or micro-cap companies adds another layer of risk. With less regulatory oversight compared to larger, more established stocks, it’s harder for investors to make fully informed decisions.
Making Informed Decisions
If you’re considering diving into the world of penny stocks, it’s vital to do your homework. Thorough research and a well-thought-out strategy are key. Look for penny stock companies with solid fundamentals, transparent business models, and potential for growth.
Be wary of stocks that exhibit sudden price jumps without any underlying business changes. Remember, a disciplined and patient approach, along with a readiness to react to market changes, is essential in navigating the high-risk, high-reward world of penny stock trading.
How to Get Started with Penny Stocks
Step 1: Conduct Thorough Research
Before you jump into penny stocks, it’s essential to do your homework. Start by understanding what penny stocks are and how they differ from traditional stocks. Research the companies behind these stocks thoroughly.
Look into their financial health, business models, and market potential. Pay special attention to their balance sheets, earnings reports, and any news that could affect their stock prices. Remember, information is power in the world of investing, and this is especially true for penny stocks.
Step 2: Set Realistic Investment Goals
Determine what you want to achieve with penny stocks. Are you looking for quick profits, or are you more interested in long-term growth? Setting clear and realistic goals will help guide your investment decisions and keep your expectations in check. Be aware that while penny stocks offer the possibility of high returns, they also come with a high risk of loss.
Step 3: Choose the Right Trading Platform
Select a trading platform or broker that caters to penny stock investors. Look for platforms with low fees, as penny stocks are typically low-value investments and high transaction costs can eat into your profits.
Ensure the platform provides adequate tools and resources for researching penny stocks. Some platforms may have restrictions or higher fees for trading penny stocks, so it’s crucial to read the fine print before making your choice.
Step 4: Start Small and Diversify
When you’re ready to start trading, begin with a small investment to test the waters. Penny stocks are highly volatile, so it’s wise not to put all your eggs in one basket. Diversify your investments across different stocks and sectors to spread the risk. Remember, diversification is a key strategy in mitigating risk in any investment portfolio.
Step 5: Learn from Mistakes and Stay Updated
Even the most seasoned investors make mistakes, especially in the unpredictable world of penny stocks. Take note of any missteps and learn from them. Stay updated on market trends and news that could impact your investments. Continuous learning and adapting your strategy based on your experiences and market changes are crucial for success when investing in penny stocks.
Common Mistakes to Avoid With Penny Stocks
Falling for hype: One of the biggest traps with penny stocks is getting swayed by hype. Avoid making decisions based on promotional emails or hot tips without doing your own research.
Ignoring red flags: Don’t overlook red flags like inconsistent financials, frequent changes in company leadership, or lack of transparent information.
Overtrading: Resist the urge to trade too frequently. Overtrading can lead to impulsive decisions and increased transaction costs.
Neglecting exit strategy: Always have an exit strategy for each investment. Decide in advance at what point you will sell, whether to capture profits or cut losses.
How to Find Promising Penny Stocks: Effective Strategies
Locating promising penny stocks is a nuanced process. While some penny stocks are available on major stock exchanges like Nasdaq, most are traded over-the-counter (OTC). Understanding where and how to find these stocks is crucial for potential success in this high-risk, high-reward market.
Explore OTC Markets and Major Exchanges
Most penny stocks are traded on OTC markets such as the Over-the-Counter Bulletin Board (OTCBB) and Pink Sheets, where listing requirements are less stringent than on exchanges. However, some penny stocks are also listed on larger exchanges like Nasdaq, adhering to their stricter regulations and offering slightly more stability. Familiarizing yourself with both OTC and large exchanges broadens your scope for finding potential stock picks.
Leverage Financial Information Sources
To aid in your search, utilize financial information sources like Google Finance or Yahoo Finance. These platforms provide valuable data on OTC stocks, including price movements, volumes, and company news. They are excellent starting points for initial research and tracking stock performance.
Selecting the Right Broker for Penny Stock Trading
Choosing a broker that aligns with your goals is crucial. Consider factors like fee structures, trade surcharges, volume restrictions, and trading limitations. Broker fees, especially for low-value transactions like penny stocks, can significantly impact your profits. Ensure the broker you choose allows you to trade penny stocks, as not all do.
Assessing Broker Resources and Tools
In addition to fee structures, assess the resources and tools each broker offers. Some brokers provide specialized resources for penny stock traders, such as advanced screening tools, research reports, and educational content. These can be invaluable in helping you make informed decisions.
Tips for Choosing a Broker
Compare fee structures: Look for brokers with low fees and surcharges for buying penny stocks.
Check for volume restrictions: Ensure the broker doesn’t impose restrictive trading limits that could hinder your strategy.
Research broker reputation: Choose a broker with a good reputation for customer service and reliability.
Evaluate educational resources: Consider brokers that offer educational materials and resources specifically designed for penny stock traders.
Finding the Best Broker for Your Penny Stock Investments
When it comes to choosing the best broker for penny stocks, there isn’t a one-size-fits-all answer. The ideal broker varies based on individual trading styles, preferences, and goals. Here’s a comprehensive list of the best online brokers for stock trading of 2023 can be a great starting point.
It’s important to verify that the brokers you’re considering do indeed offer penny stock trading, as not all brokers provide this service. Make sure to choose a broker that aligns with your investment strategy and provides the necessary tools and resources for penny stock investors.
Risks and Considerations of Penny Stock Trading
Before you dive into the world of penny stocks, there are some risks you should be aware of.
Trade Volume and Fees
It’s no secret. The trading volume for penny stocks is relatively low because of their risky nature, so you may find it difficult to buy and sell at the most optimal times. You also want to pay attention to the fees that brokers sometimes tack on to penny stock trades.
If you find that they are substantially higher than what you’d pay to trade regular shares, move on to brokers that don’t employ this practice.
Exchanges
If the shares aren’t listed on a major exchange, like the NYSE or Nasdaq, proceed with caution as the regulations are little to non-existent. In turn, you have much more to lose, as there’s no way to gauge how the penny stock company will perform in the short or long term with little information to go on.
Return on investment
When trading stocks, there’s no guarantee that you’ll turn a profit. In fact, the odds definitely aren’t in your favor if the company the shares are tied to is in the midst of a financial storm or rough patch.
While this isn’t a definitive nail in the coffin, you have to think about the time between the purchase of shares and when the penny stock price appreciates and if it’s worth the wait. This could take months, if not years.
Penny Stock Scams
Be on the lookout for scam artists that promise to make you wealthy from trading penny stocks overnight. They do this by promoting a particular penny stock heavily or issuing warnings that a particular penny stock should be avoided at all costs. Either way, these deceptive marketing tactics can drive stock prices up or down in a jiffy and wreck your earning potential.
Strategies for Trading Penny Stocks Successfully
Setting clear goals and risk tolerance
Ensure that you clearly understand your investment goals and risk tolerance before you get started. This can help guide your decision-making and ensure that you are comfortable with the level of risk you are taking on.
Using stop loss orders and other risk management techniques
Stop loss orders and other risk management techniques can help to limit potential losses in penny stock trading. These techniques can help to protect your investment and keep you from making rash decisions in the face of market volatility.
Being patient and disciplined in decision-making
Successful penny stock investors are often disciplined and patient. They take the time to thoroughly research potential investments, avoid the temptation to chase after quick gains, and stick to a well-thought-out trading plan.
Bottom Line
Penny stock trading offers a unique blend of risks and rewards, appealing to those willing to navigate its volatile waters. It’s crucial to approach this market with thorough research, a clear strategy, and realistic expectations. Remember, while the potential for high returns exists, so does the risk of significant losses.
Your Next Steps
Educate yourself further: Continuously expand your knowledge about penny stocks. Resources like financial websites, investment books, and online courses can provide deeper insights.
Stay informed: Keep up with market trends and news. Regularly visit financial news platforms and consider subscribing to newsletters focused on penny stocks.
Connect with a community: Engage with online forums or local investment groups where you can exchange ideas and learn from experienced penny stock traders.
Trading penny stocks isn’t for everyone, but with the right approach, it can be a rewarding part of your investment portfolio. Always invest wisely, understand the risks involved, and never stop learning.
Frequently Asked Questions
How much money do you need to start trading penny stocks?
It depends on the broker you open an account with. Each broker has different minimum deposit requirements for opening an account. Most of them don’t have any requirements at all.
Are penny stocks hard to trade?
Penny stocks can be volatile and unpredictable. They are also subject to market manipulation. Most active traders who trade them are day traders, and only about 10% of them are actually profitable.
Why are penny stocks risky?
Penny stocks can be highly volatile and are typically subject to greater risks than larger, more established stocks. They may also be more susceptible to fraud and manipulation, which can lead to significant losses for investors.
Is Robinhood good for penny stocks?
You can trade penny stocks on Robinhood. However, the only penny stocks supported by Robinhood are stocks that trade on either the NASDAQ or NYSE. While most penny stocks are not listed on these major exchanges, exchange-listed penny stocks are typically viewed as the safer alternative to OTC stocks.
When you’re shopping for a mortgage, you’ll likely see two of the most common repayment terms — 30 years and 15 years — no matter which lender you shop with. Each term has its benefits and drawbacks, and the better option depends on your unique situation. Here’s a look at the pros and cons of 15-year mortgages, how to qualify for one and what mortgage rates you might expect.
Pros and cons of a 15-year mortgage
A 15-year mortgage can be a great option if you want to save money on interest and can afford higher monthly payments. But before taking out a 15-year home loan, consider the pros and cons of choosing this term.
15-year fixed-rate mortgage vs. ARM
Home loans may come with a fixed rate or an adjustable rate. A fixed rate won’t change throughout the life of the loan, even if market rates rise or fall. That means your monthly principal-and-interest payments won’t change either, which can be helpful for budgeting purposes.
With an adjustable-rate mortgage (ARM), your interest rate is fixed rate for a certain number of years and then fluctuates at regular intervals. A 15-year ARM is less common, so you’ll likely see the adjustable-rate option when taking out a 30-year mortgage. The frequency at which your rate changes depends on the loan you choose, but it’s common to see 5/1, 7/1, 10/1, 5/6, 7/6 and 10/6 ARMs.
The top number indicates the fixed period, while the bottom number shows how often the rate can change. With a 5/1 ARM, for instance, your rate remains fixed for five years, then fluctuates once a year through the rest of the loan term. And with a 5/6 ARM, your rate will be fixed for five years and then will change every six months.
ARMs typically come with rate caps, so your rate can only increase by so many percentage points even if market rates skyrocket. In general, an ARM can make sense if you plan to stay in your home for a short time, or you’re willing to risk potentially higher rates for possible rate decreases in the future.
How to qualify for a 15-year mortgage
Lenders consider several factors when evaluating prospective borrowers. In general, you’ll need to meet the following criteria to qualify for a conventional mortgage loan.
Credit score: You’ll typically need a credit score of at least 620 when you apply for a conventional home loan, though a higher credit score might be necessary in some cases. Loans backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) often have looser qualifying criteria because they pose less risk for lenders.
DTI ratio: Your debt-to-income (DTI) ratio shows the amount of debt you carry relative to your monthly income. Most lenders prefer a DTI below 36%, though some will accept a DTI of up to 50%.
Down payment: Some lenders may allow for a down payment as low as 3% of the loan amount, but you may need a down payment as high as 20% in some cases. Requirements vary by lender and loan type.
Employment: Lenders often check two years’ worth of employment history when you apply for a mortgage.
Qualification requirements can vary with each lender and the loan you want to take out. Before you apply for a mortgage, you can research lenders and ask about their requirements to determine your approval odds. Consider doing a preapproval, which can help you check how much you can borrow.
Comparing current 15-year mortgage rates
Your mortgage is likely the largest loan you’ll ever take out, so it’s wise to compare rates before applying. Even a slightly lower rate could help you pay much less in interest costs over the life of your 15-year term.
For instance, if you’re approved for a $350,000 home loan with a 15-year term, a 7% interest rate and a 3% down payment, you’d pay $209,845 in interest over your loan term. But the same loan with a 6.75% rate would cost just $201,303 in interest.
While your rate depends on many factors (including location), here’s a look at current 15-year mortgage rates from some well-known lenders, as of November 2023.
How to find the best rate and lender
Finding the best mortgage lender and the lowest interest rate comes down to doing some prep work. Take the following steps to find the best deal when you get a home loan:
Check your finances. Pull your credit reports and look for any reporting errors that are dragging your credit score down. Also check your credit score, which will directly impact the rate you receive. The best rates are usually reserved for borrowers with excellent credit.
Research several lenders. Create a list of prospective lenders you may want to borrow from. These could be traditional banks, credit unions or online lenders.
Compare rates and terms. Lenders often list available mortgage rates and terms on their websites. Using a mortgage calculator, you can estimate your monthly payment based on the potential loan size, down payment and interest rate.
Get pre-qualified. Once you’ve narrowed your list of lenders, check whether they offer a pre-qualification tool on their websites. Pre-qualifying involves providing some basic personal and financial information to get insight into potential rates and loan amounts.
Apply for the loan. After you’ve found a lender and a home loan that works for you, you’ll need to formally apply for the mortgage. Expect to provide in-depth personal and financial information as part of the application process.
Frequently asked questions (FAQs)
As of November 22, 2023, the average interest rate for a 15-year mortgage is 7.06%. But rates vary by lender, so it’s important to shop around and compare loans.
While 15-year mortgage rates are currently high, they will likely decrease at some point. The National Association of Realtors predicts rates may decline through fall and winter of 2023 if the federal funds rate stabilizes.
Your interest rate is the percentage your bank charges you to borrow money. Your APR includes both the interest rate and the fees you’ll pay for your mortgage loan, such as broker fees and points. Both rates are expressed as a percentage, so you can use them to compare multiple loan options.
Whether a 15-year is better than a 30-year mortgage depends on your situation. A longer term comes with a lower payment, but you’ll pay more in interest costs over time.
“So when it comes to a 15-year mortgage, the question that most people need to answer is: ‘Am I comfortable with this higher monthly payment?’ and ‘Is paying the home off more quickly a priority for me versus using that monthly cash for other purposes?’” says Jon Bodan, a strategic financing adviser at Real Estate Bees.
“There’s no right or wrong answer here,” Bodan adds. “But if you have other savings and are contributing to your retirement, then doing a shorter-term mortgage can be another good way to build net worth and wealth.”
Interest rates on 15-year mortgages are often slightly lower compared to 30-year home loans. Because repayment terms are shorter with 15-year mortgages, lenders take on less risk. Thus, the rates borrowers receive for shorter-term mortgages tend to be lower.
hikesterson/Getty Images; Illustration by Issiah Davis/Bankrate
After topping 8 percent in October, mortgage rates beat a hasty retreat in November. The average rate on 30-year loans fell under 7.5 percent in Bankrate’s most recent survey of lenders.
“Market sentiment has significantly shifted over the last month, leading to a continued decline in mortgage rates,” says Sam Khater, chief economist at mortgage company Freddie Mac.
One key reason for the reversal: Investors bid down 10-year Treasury yields, the main indicator for 30-year fixed mortgage rates.
Another factor is inflation, which was down to 3.2 percent for October. While that’s still above the Federal Reserve’s official target of 2 percent, forecasters think the Fed is done raising rates, a shift that will relieve some of the pressure on mortgages.
“If the Fed signals an end to interest rate hikes and takes on a dovish tone, there may be some downward pressure on mortgage rates,” says Odeta Kushi, economist at title insurer First American. “But don’t expect any large declines in mortgage rates until inflation is much closer to the Fed’s 2 percent target or there’s a decline in economic activity.”
Mortgage rate predictions December 2023
The downward momentum in mortgage rates will be sustained, albeit modestly, as the Federal Reserve signals they are done raising interest rates and projects slower inflation in 2024. Cautious projections from the Fed about the timing of rate hikes, along with the elevated volume of Treasury issuance, will be offsetting factors that limit the extent of decline in mortgage rates.
— Greg McBride, Bankrate Chief Financial Analyst
Many forecasts now call for rates to stick in the 7 percent range, either at 7.5 or higher.
“While mortgage rates have trended down from their peak in October, they remain above 7 percent and will likely stay there for some time,” says Ruben Gonzalez, chief economist at real estate brokerage Keller Williams.
As inflation cools and the Federal Reserve stands down, rates should drift down to 7 percent, says Lisa Sturtevant, chief economist at Bright MLS, a real estate listing service in the Mid-Atlantic region.
“Part of it is the Federal Reserve is pausing on interest rate hikes,” says Sturtevant. “Of course, mortgage rates are affected by things other than what the Fed does. For example, mortgage applications are down, and lenders are competing for a shrinking pool of applicants.”
Current mortgage rate trends
After rising sharply through late October, mortgage rates have trended back down. The average rate on a 30-year mortgage was 7.4 percent as of Nov. 29, according to Bankrate’s survey. This represents a departure from 8.01 percent on Oct. 25.
Bankrate’s weekly mortgage rate averages differ slightly from the statistics reported by Freddie Mac, the government-sponsored enterprise that buys mortgages and packages them as securities. Bankrate’s rates tend to be higher because they include origination points and other costs, while Freddie Mac removes those figures and reports them separately. However, both Bankrate and Freddie Mac report similar overall trends in mortgage rates.
When will mortgage rates go down?
While the experts we talked to don’t expect rates to come down significantly this month, they do forecast an eventual easing in 2024. The Mortgage Bankers Association projects rates to fall to 6.1 percent late next year. The National Association of Realtors estimates rates will be at 6.3 percent in a year, while Fannie Mae forecasts they’ll be at 7.1 percent.
Still, mortgage rates aren’t easy to predict.
“A lot of us forecasted we’d be down to 6 percent at the end of 2023,” says Sturtevant. “Surprise, surprise, we’re not.”
One wild card has been the unusually large gap between mortgage rates and 10-year Treasury yields. Normally, that spread is about 1.8 percentage point, or 180 basis points. This year, the gap has been more like 280 basis points, pushing mortgage rates a full percentage point higher than the 10-year benchmark indicates.
“There is room for that gap to narrow,” says Sturtevant, “but I’m not sure we’ll get back to those old levels. In this post-pandemic economy, the old rules don’t seem to apply in the same ways. We’re sort of figuring out what the reset is. Investors have a different outlook on risk now than they did before the pandemic. We’re just in this weird transition economy.”
What to do if you’re getting a mortgage now
Mortgage rates are at generational highs, but the basic advice for getting a mortgage applies no matter the economy or market.
Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. To help qualify for a conventional mortgage, you’ll generally need a score of 620 or higher. However, the best mortgage rates go to borrowers with the highest credit scores, usually at least 740. In general, the more confident the lender is in your ability to repay the loan on time, the lower the interest rate it’ll offer.
Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20 percent, you’ll avoid private mortgage insurance (PMI), which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20 percent down payment, there are specific loans, grants and programs that can help. The eligibility varies by program, but often are based on factors like your income.
Understand your debt-to-income ratio. Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.
Check out different mortgage loan types and terms. A 30-year fixed-rate mortgage is the most common option, but there are shorter terms. Adjustable-rate mortgages have also regained popularity recently.
FAQ
It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.
The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate is about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” has been more like 3 percentage points.
Mortgage rates have jumped to 23-year highs, so not many borrowers are opting to refinance their mortgages in late 2023. However, if rates come back down in the near future, homeowners could start looking to refinance.
Deciding when to refinance is based on many factors. If rates have fallen since you originally took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate or lower fees. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.
Renting a house or apartment comes with several perks, like minimal commitment to live in one place. After a certain point, however, most people want to put down roots and purchase their own home.
Owning your own home is the American Dream. Plus, you won’t have a landlord breathing down your neck about what you can and can’t do. But what kind of credit score is needed to buy a house?
We’ve got the answers, plus some extra tips on how to seal the deal, no matter what kind of credit score you have.
How does your credit score affect buying a home?
Your credit score influences your ability to buy a home as a major factor in whether you’re approved for a mortgage. That’s because your credit score is a reflection of how likely you may be to default on your loan.
Weighing all the items on your credit reports, such as payment history and amounts owed, a complex calculation then creates your FICO score. FICO scores are the credit scores that 90% of lenders use. They give mortgage lenders a better idea of how you handle your finances.
Even after you’re approved for a loan, your FICO score also affects the interest rate on your mortgage. Why is that a big deal? Well, depending on how expensive your loan is, you’ll likely end up paying tens of thousands of dollars (if not more) in interest. That’s on top of your principal loan amount.
An interest rate of even just ¼ percent less can save you a lot of money over the course of a 30-year loan. So, it’s clear that your credit history is an important factor not just for getting approved, but also for getting the best interest rates to lower your monthly payments.
Ready to Raise Your Credit Score?
Learn how credit repair professionals can assist you in disputing inaccuracies on your credit report.
What credit score do you need to buy a house?
The minimum credit score needed to buy a house can vary based on the economy and the housing market. However, there are some basic guidelines you can go by to determine how likely you are to be approved for a home loan. First, the minimum credit score depends on the type of mortgage you’re getting.
Conventional Loans
For conventional loans, which come with the strictest lending standards, the credit score needed to buy a house is 620. With a conventional loan, the minimum down payment is 5%, but could also increase based on your credit scores.
FHA Loans
FHA loans are insured by the Federal Housing Administration. For an FHA loan, the minimum credit score requirement is just 580 with a down payment of 3.5%. It’s possible to qualify for an FHA loan with a FICO score as low as 500, but you’ll need a 10% down payment.
Different mortgage lenders have different credit score requirements depending on how much risk they’re willing to take on a loan. Furthermore, you may be required to pay private mortgage insurance for the life of the loan, depending on the size of your down payment.
VA Loans
For VA loans, the U.S. Department of Veterans Affairs has no minimum credit score requirements. However, most VA loan lenders require a minimum credit score of 620. However, some will allow a credit score as low as 580.
USDA Loans
For qualified buyers purchasing a home in designated rural areas, there is no set minimum credit score from the USDA. However, a credit score of at least 640 is recommended.
What factors determine your credit score?
It’s crucial to know what factors affect credit scores so you can plan the most effective way to build or protect your credit.
Payment history: This is perhaps the most important factor, as it accounts for 35% of your overall credit score. Payment history includes whether you have paid your bills on time in the past and any negative marks, such as late payments, collections, or bankruptcies.
Credit utilization: This accounts for 30% of your credit score and refers to how much of your available credit you are using. A high credit utilization ratio could hurt your credit score, while a low one can help.
Length of credit history: This factor accounts for 15% of your credit score and is a measure of how long you have been using credit. Generally, the longer your credit history, the better your credit score will be.
Credit mix: This factor accounts for 10% of your credit score and refers to the types of credit you are using. A good credit mix includes a variety of different types of credit, such as credit cards, student loans, mortgages, etc.
New credit: This factor accounts for the remaining 10% of your credit score and refers to how often you are applying for new credit. Applying for too much new credit in a short period of time can hurt your credit score.
See also: Does Buying a House Hurt Your Credit?
Average Credit Score
The average credit score for buying a home is 680-739. However, those who have a “good” credit score of 740 and higher will be offered the best mortgage rates.
It’s important to check your credit score to know where you stand. However, your credit score alone doesn’t determine whether you’ll be approved. Mortgage lenders also look at your employment history, how much debt you have, and your down payment amount.
For example, buyers with higher credit scores could be eligible to put down as little as 3.5% of the mortgage loan amount with an FHA loan.
However, those with a lower credit score, may be required to pay as much as 10% since mortgage lenders consider them to be more at-risk for defaulting on the loan.
See also: Which Credit Scores Do Mortgage Lenders Use?
More Options for First-Time Homebuyers & Low-Income Borrowers
You can also explore newer mortgage programs available for homebuyers with low to moderate-income. The Freddie Mac Home Possible mortgage, for example, allows you to purchase a home with a down payment of just 3%. Fannie Mae also offers a 3% down payment option with the HomeReady loan, as long as you have a credit score of at least 620.
What else do you need to get approved?
In addition to your credit scores, your mortgage lender looks at a few other factors to approve your home loan. They’ll review your employment situation to make sure you have a steady income to make your monthly mortgage payments.
You’ll most likely need to submit pay stubs, bank statements, W-2s, and sometimes even a verification of employment form. If you’re serious about purchasing a home, start setting these documents aside in a safe place so you have them ready to give to your lender when the time comes.
Not only does the lender look at your debt-to-income ratio and other financials, but they’ll also check out the actual home you’re purchasing. Some types of home loans require the house to be in a certain condition, which can take rehabilitation projects off the table.
Before making an offer, check with your lender on what types of properties you can consider. That allows you to avoid making an offer you can’t follow through on. The property’s appraisal also needs to come in at or above the amount of the loan because a lender cannot loan more than the appraisal value.
Can you get a mortgage with bad credit?
You can still get a mortgage even if you have bad credit, although you’re likely to pay a much higher interest rate to compensate for the increased risk to the lender.
Government-backed loans, like FHA loans, specifically cater to borrowers with lower credit scores. But even if you’re not certain that you’ll qualify, it’s worth offering some extra security to your lender.
For example, you might give a larger down payment or set aside extra cash reserves to show the lender you have the money to repay the mortgage loan. Or you might give proof that you’ve consistently paid your rent on time for an extended period.
Check Out Our Top Picks for 2023:
Best Mortgage Loans for Bad Credit
You could also try writing a letter to explain your credit situation. This can be done, especially if it’s due to an extenuating circumstance like emergency medical bills. Be upfront in asking your lender what you can do to qualify for a loan, even if you might not meet the usual underwriting standards right away.
If you’ve had a bankruptcy or foreclosure in your past, there are a few rules that you simply can’t get around. The exact specifics depend on your loan type.
However, in general, you have to wait for a predetermined “seasoning period” after the bankruptcy or foreclosure has been discharged before you can get approved for a home loan.
For bankruptcies, the seasoning period is typically between two and four years. For foreclosures, you’ll need to wait between three and seven years.
Can a cosigner help you qualify for a mortgage?
Home buyers with a low credit score may want to consider getting a cosigner to help with their mortgage application.
If you can get someone who has a good credit score (such as a family member) to sign the loan with you, it will strengthen your loan application. Just remember that your cosigner is equally accountable as you are for repaying the loan.
If you fail to make loan payments and your account goes into delinquency or even foreclosure, it will affect the cosigner’s credit.
If you decide to take on a cosigner to get approved, make sure that person understands the responsibility and risk that goes into the decision. It obviously takes a close relationship for this kind of situation to work out, so make sure you choose your cosigner wisely.
What if you don’t have any credit at all?
Building credit from scratch is challenging, but it can be done. Adding a cosigner to the mortgage loan application works for people with no credit as well as for those with poor credit. Another option is to start using a credit card responsibly.
Start with a secured card and make your monthly payment in full each month to build credit. Or ask a close relative if you can be added as an authorized user on one of their credit cards.
You can agree not to spend anything (or make quick payments if you do). This simple step will add that credit card’s entire length of use to your credit report.
You can also show your lender that you’ve regularly paid other bills on time, like your cell phone, utilities, or rent. Another method is to make a bigger down payment to compensate for your lack of credit. Talk to your lender to see what else you can provide to make the loan work.
How can you improve your credit to qualify for a mortgage?
There are several ways you can improve your credit score; just realize that it won’t happen overnight.
Order Copies of Your Credit Report
Get started by ordering copies of your credit report. This way, you can get an idea of everything a lender would see when reviewing your loan application.
First, check to make sure that all the information is 100% accurate. From there, look at where there are weaknesses on your report. Is the amount of debt you owe really high?
Lower Your Credit Utilization
Attempt to re-work your budget to pay off your credit card balances and other debt. This will lower your credit utilization ratio and ultimately increase your credit score.
Is your available line of credit minimal? Ask an existing creditor to extend your maximum amount on one of your current credit cards. This will also lower your credit utilization.
Get Negative Items Removed From Your Credit Report
If you have numerous negative marks on your report and feel overwhelmed, you might consider hiring a credit repair company.
Take a look at our list of top ranked credit repair companies in your area to find a reputable one to work with. They’ll take the lead in disputing negative accounts with the credit bureaus and getting them removed from your credit history. Once that happens, you’ll automatically see your credit score increase.
Even if you don’t have the bare minimum credit score to qualify for a mortgage, there are many ways to buy a house. From getting the right loan to improving your credit score, you’ll be able to quickly put yourself on the path to homeownership.
Merrill Lynch is reportedly shutting down its wholesale mortgage unit First Franklin, according to a report by CNBC.
Although it’s unclear how many of the thousands who used to work there are still employed, the report said roughly 400 to 500 could lose their jobs.
First Franklin began as a retail brokerage in San Jose, California in 1981, transitioned to a mortgage lender in 1984, and was later sold to National City in 1999.
In 2003, the company began offering 100% loan-to-value single-lien mortgages and other higher-risk loan programs, reaching $29.6 billion in loan origination volume in 2005, and a year later Merrill Lynch picked it up for $1.3 billion.
However, Merrill acquired First Franklin in December 2006, just when serious problems in the mortgage market began to surface, leading to substantial losses at the brokerage house and the eventual ousting of its CEO Stan O’Neal.
Last September, First Franklin cut an unknown number of jobs so staffing levels would be in line with their volume of business.
Around that same time, there were scores of rumors that First Franklin was actually firing staff that failed to meet performance goals, despite dismal industry loan volume that would be dealt with more appropriately through layoffs.
It’s unclear what operating levels were like recently, but it’s doubtful that the closure will have a significant impact on the industry given separate accounts that claimed the company was running on a severely reduced staff.
After the crisis hit full swing, First Franklin reduced its subprime offerings, and began focusing on Alt-A, although they still had programs for Fico scores below 600.
There is no notice on the First Franklin website at this time, and Merrill Lynch declined to comment when reached by the press.
Check out the latest list of closed lenders, mortgage layoffs and mergers.