What Is Inflation (Definition) – Causes & Effects of Rate on Prices & Interest

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People have always grumbled that a dollar doesn’t go as far as it used to. But these days, that complaint is truer than ever. No matter where you go — the gas station, the grocery store, the movies — prices are higher than they were just a month or two ago.

What we’re seeing is the return of a familiar economic foe: inflation. Many Americans alive today have never seen price increases like these before. For the past three decades, inflation has never been above 4% per year. But as of March 2022, it’s at 8.5%, a level not seen since 1981.

Modest inflation, like what we had up through 2020, is normal and even healthy for an economy. But the rate of inflation we’re seeing now is neither normal nor healthy. It does more than just raise the cost of living. It can have a serious impact on the economy as a whole. 

Recent inflation-related news:


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  • In March 2022, the U.S. inflation rate hit a 40-year high of 8.5%. 
  • Prices for gasoline have increased nearly 50% over the past year.
  • Retail giant Amazon has added a 5% fuel and inflation surcharge for sellers.
  • The Federal Reserve is planning a series of interest rate hikes to cool the overheated economy.

What Is Inflation?

Inflation is more than just rising prices. Prices of specific things we buy, from a gallon of milk to a year of college tuition, rise and fall all the time. These price increases affect individual consumers’ lives, but they don’t have a big impact on the entire economy.

Inflation is a general increase in the prices of goods and services across the board. It drives up prices for everything you buy, from a haircut to a gallon of gas. Or, to put it another way, the purchasing power of every dollar in your pocket declines.

Most of the time, inflation doesn’t disrupt people’s lives too much, because prices rise for labor as well. If your household spending increases by 5% but your paycheck increases by 5% at the same time, you’re no worse off than before.

But when prices rise sharply, wages can’t always keep up. That makes it harder for consumers to make ends meet. It also drives them to change their spending behaviors in ways that often make the problem worse.


Causes of Inflation

Inflation depends on the twin forces of supply and demand. Supply is the amount of a particular good or service that’s available. Demand is the amount of that particular good or service that people want to buy. More demand drives prices up, while more supply drives them down. 

To see why, suppose you have 10 loaves of bread to sell. You have 10 buyers who want bread and are willing to pay $1 per loaf. So you can sell all 10 loaves at $1 each.

But if 10 more buyers suddenly enter the market, they will have to compete for your bread. To make sure they get some, they might be willing to pay as much as $2 per loaf. The higher demand has pushed the price up.

By contrast, if another seller shows up with 10 loaves of bread, the two of you will be competing for buyers. To sell your bread, you might have to lower the price to as little as $0.50 per loaf. The higher supply has pushed prices down.

Inflation results from demand outstripping supply. Economists often describe this as “too much money chasing too few goods.” There are several ways this kind of imbalance can happen.

Cost-Push Inflation

Cost-push inflation happens when it costs more to produce goods. To go back to the bread example, cost-push inflation might happen because a wheat shortage makes flour more expensive. It costs you more to make each loaf of bread, so you can’t afford to bake as much.

As a result, you bring only five loaves to the market. But there are still 10 customers who want to buy bread, so they must pay more to get their share. The higher cost of production drives down the supply and thus drives up the price.

In the real world, cost-push inflation can result from higher costs for anything that goes into making a product. This includes:

  • Raw Materials. The wheat that went into your bread is an example. Higher-cost wheat means higher-cost flour, which means higher-cost bread.
  • Transportation. In today’s global economy, materials and finished goods move around a lot. Transporting products requires fuel, which usually comes from oil. So whenever oil prices go up, the price of other goods rises as well. 
  • Labor. Another factor in production cost is labor. When schools closed during the COVID-19 pandemic, many parents had to stop working to care for their children. That created a worker shortage that drove prices up.

Demand-Pull Inflation

The opposite of cost-push inflation is demand-pull inflation. It occurs when consumers want to buy more than the market can supply, driving prices up.

Typically, demand-pull inflation results from economic growth. Rising wages and lower levels of unemployment put more money in people’s pockets, and people who have more money want to spend more. If the booming economy hasn’t produced enough goods and services to match this new demand, prices rise.

Other causes of demand-pull inflation include: 

  • Increased Money Supply. Another way people can end up with more money in their pockets is because the government has put more money in circulation. Governments often do this to stimulate a weak economy or to pay off past debts. But as the money supply increases, the purchasing power of each dollar shrinks. 
  • Rapid Population Growth. When the population grows rapidly, the demand for goods and services grows also. If the economy doesn’t produce more to compensate, prices rise. In Europe during the 1500s and 1600s, prices soared as the population grew so fast that agriculture couldn’t keep up with the new demand.
  • Panic Buying. Early in the COVID pandemic, consumers started buying extra groceries to fill their pantries in preparation for a lockdown. This led to shortages of many staple products, like milk and toilet paper. As a result, prices for those goods went up.
  • Pent-Up Demand. This occurs when people return to spending after a period of going without. This often happens in the wake of a recession. It also occurred as pandemic restrictions eased and people returned to enjoying movies, travel, and restaurant meals.

Built-In Inflation

When consumers expect prices to be higher in the future, they often respond by spending more now. If the purchasing power of their savings is only going to fall, it makes more sense to take that money out of the bank and use it on a major purchase, like a new car or a large appliance.

In this way, expectations of high inflation can themselves lead to inflation. This type of inflation is called built-in inflation because it builds on itself. 

When workers expect the cost of living to rise, they demand higher wages. But then they have more to spend, so they spend more, driving prices up. This, in turn, reinforces the belief that  prices will keep rising, leading to still higher wage demands. This cycle of rising wages and prices is called a wage-price spiral.


Effects of Inflation

Inflation does more than just drive up the cost of living. It changes the economy in a variety of ways — some harmful, others helpful. The effects of inflation include:

  • Higher Wages. As prices rise with inflation, wages typically rise as well. This can create a wage-price spiral that drives inflation still higher.
  • Higher Interest Rates. When the dollar is declining in value, banks often respond by raising interest rates on loans. The Federal Reserve also typically raises interest rates to cool the economy and rein in inflation, as discussed below.
  • Cheaper Debt. Inflation is good for debtors because they can pay off their debts with cheaper dollars. This is most useful for loans with a fixed interest rate, such as fixed-rate mortgages and student loans.
  • More Consumption. Inflation encourages consumers to spend money because they know it will be worth less later. All this spending keeps the economy humming, but it can also drive prices even higher.
  • Lower Savings Rates. Just as inflation encourages spending, it discourages saving. Higher interest rates can counter this effect, but they often don’t rise enough to make a difference.
  • Less Valuable Benefits. High inflation is worse for people on a fixed income. They face higher prices without higher wages to make up for them. Benefits such as Social Security change each year to adjust for inflation, but higher benefits next year don’t help when prices are rising right now.
  • More Valuable Tangible Assets. Inflation reduces the purchasing power of the dollars you have in the bank. Tangible assets like real estate, however, gain in dollar value as prices rise.

Measuring Inflation

The most common measure of inflation is the Consumer Price Index, or CPI. The Bureau of Labor Statistics (BLS) determines the CPI based on the cost of an imaginary basket of goods and services. BLS workers painstakingly check prices on all these items each month and record how each price changes.

To calculate the annual rate of inflation, the BLS looks at how much all prices in its basket have changed since a year earlier. Then it “weights” the value of each item based on how much of it people buy. The weighted average of all items becomes the CPI.

The BLS then uses the CPI to calculate the annual rate of inflation. It divides this month’s CPI by the CPI from a year ago, then multiplies the result by 100. This shows how the purchasing power of a dollar has changed over the last year. The result is reported monthly.

Other measures of inflation include:

  • Personal Consumption Expenditures Price Index (PCE). This inflation measure is published by the Bureau of Economic Analysis. Like the CPI, it’s a measure of consumer costs, but it’s adjusted to account for changes in the products people buy. The Federal Reserve uses the PCE to guide its monetary policy, as discussed below. 
  • Producer Price Index (PPI). The PPI measures inflation from the seller’s perspective, not the buyer’s. It’s calculated by dividing the price sellers currently get for a basket of goods and services by its price in a base year, then multiplying the result by 100.

Historical Examples of Inflation

A little bit of inflation is normal. But sometimes inflation spirals out of control, with prices rising more than 50% per month. This is called hyperinflation, and it can be devastating for an economy.

Hyperinflation has occurred at various times and places throughout history. During the U.S. Civil War, both sides experienced soaring inflation. Other examples include Germany in the 1920s, Greece and Hungary after World War II, Yugoslavia and Peru in the 1990s, and Venezuela today. In most cases, the main cause was the government printing money to pay for debt. 

The last time the U.S. had prolonged, high rates of inflation was in the 1970s and early 1980s. The inflation rate was nowhere near hyperinflation levels, but it spiked above 10% twice. Eventually, the Fed hiked interest rates to double-digit levels to get it under control.

Although high inflation can be destructive, zero inflation isn’t a good thing, either. At that point, an economy is at risk of the opposite problem, deflation. 

When prices and wages fall across the board, consumers spend less. Sales of products and services fall, so companies cut back staff or go out of business. As a result, jobs are lost and spending drops still more, worsening the problem. The Great Depression was an example.


The Federal Reserve, or Fed, is the U.S. central bank — or more accurately, banks. It’s a group of 12 banks spread across the country under the control of a central board of governors. Its job is to keep the economy on track, reining in inflation while trying to avoid recessions. 

The Fed maintains this balance through monetary policy, or controlling the availability of money.

Its main tool for doing this is interest rates. When the economy is weak, the Fed lowers the federal funds rate. This makes it easier for people to borrow and spend. 

When the problem is inflation, it does the opposite, raising interest rates. This makes it more costly to borrow and more worthwhile to save. As a result, consumers spend less, slowing down the wage-price spiral.

The Fed has other tools for fighting inflation as well. One option is to change reserve requirements for banks, requiring them to hold more cash. That gives them less to lend out, which in turn reduces the amount consumers and businesses have to spend.

Finally, the Fed can reduce the money supply directly. The main way it does this is to increase the interest rate paid on government bonds. That encourages more people to buy bonds, which temporarily takes their money out of circulation and puts it in the hands of the government.


Inflation Frequently Asked Questions (FAQs)

If you keep seeing stories about inflation in the news, you may have some other questions about how it works. For instance, you may wonder:

What Is Hyperinflation?

Hyperinflation is more than just high inflation. It’s a wage-price spiral gone mad, sending prices soaring out of control. As noted above, the usual definition of hyperinflation is an inflation rate of at least 50% per month — more than 12,000% per year. However, some economists use the term to refer to an inflation rate of 1,000% or more per year.

What Is Disinflation?

Disinflation is a fall in the rate of inflation. This is what the Federal Reserve and other central banks try to achieve through their monetary policy, such as raising interest rates.

Disinflation is not the same as deflation, or falling prices. During a period of disinflation, prices are continuing to rise, but the rate at which they rise is slowing down.

What Is Transitory Inflation?

When the first signs of a post-COVID-19 inflation spike appeared, Federal Reserve chair Jerome Powell described it as “transitory.” By this, he meant that the rise in prices would be short-lived and would not do permanent damage to the economy. 

However, in November 2021, Powell declared it was “time to retire that word.” Based on the growth in prices, he had concluded that inflation was more of a long-term trend. The Federal Reserve responded by planning to fight inflation harder, buying more bonds and plotting out a series of interest rate hikes.

What Is Core Inflation?

Measuring inflation can be tricky because prices for some products fluctuate more than others. Food and energy prices, in particular, can shift a lot from month to month. Including these products in the CPI can lead to sharp, but temporary, spikes or dips in the inflation rate.

To adjust for this, the CPI and PCE have a separate “core” version that doesn’t include food or energy prices. This core inflation measure is more useful for predicting long-term trends. The  main versions of the CPI and PCE, known as the “headline” versions, give a more accurate picture of how prices are changing right now.

What Is the Consumer Price Index (CPI)?

As noted above, the Consumer Price Index, or CPI, is the main measure of inflation in the United States. The BLS calculates it based on how much prices have risen for an imaginary basket of goods and services that many Americans buy.


Final Word

A little inflation in an economy is normal. It can even be a good thing, because it’s a sign that consumers are spending and businesses are earning. The Fed generally considers an annual inflation rate of 2% to be healthy.

However, higher inflation can cause serious problems for an economy. It’s bad for savers whose nest eggs, including retirement savings, shrink in value. It’s even worse for seniors and others on fixed incomes whose purchasing power has fallen. And it often requires strong measures from the central bank to correct it — measures that risk driving the economy into a recession.

If you’re concerned about the effects of inflation, there are several ways to protect yourself. You can adjust your household budget, putting more dollars into the categories where prices are rising fastest. You can stock up on household basics now, before the purchasing power of your dollars falls too much. 

Finally, you can choose investments that do well during periods of inflation. Stock-based mutual funds and real estate investment trusts are both good choices. Just be careful with inflation hedges like gold and cryptocurrency, which carry risks of their own.

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

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

Source: moneycrashers.com

How Much is an iPod Worth?

In a file photo dated 2015, an iPod, iPod Nano and iPod Shuffle are displayed at an Apple store in New York.

In this 2015 file photo, from left, an iPod, iPod Nano and iPod Shuffle are displayed at an Apple store in New York. AP Photo by Mark Lennihan

Apple announced that it’s discontinuing the iPod, so is now a good time to sell your old iPod?

Apple introduced the first iPod in 2001, revolutionizing the way we listen to music, and Apple products can surprisingly hold their value. From Apple’s vintage original to the final 7th generation iPod Touch, here’s how much your old iPod is worth.

How Much Is an iPod Worth?

Your iPod’s value will depend on the model, age, condition and storage capacity. At the lower end are iPods with heavy cosmetic damage, while on the higher end are iPods in excellent condition, often with large storage capacities.

There are five categories of iPod: the Classic, Mini, Nano, Shuffle and Touch. You can go to Apple’s support page if you need help identifying your iPod model.

The estimated prices are subject to change and are based upon data found as of the publish date. The sale prices are based on sold and completed listings from online auction and e-commerce sites, including eBay and Amazon.

If you have a broken iPod, you should assume that the estimated value is even less, but you can try selling it as-is for a lower price.

Value of the iPod Classic

Price range: $30-$1,000

The most valuable iPod Classics are the original 1st generation, a piece of Apple history, and the final two generations, which are still usable today. All sell particularly well if they are still in their original packaging.

Apple released six versions of the iPod Classic over its lifetime, with the last model announced in 2007 and discontinued in 2014.

iPod Classic

Generation Condition/Packaging Selling For
1st Good to excellent condition $200 to $500
1st Original packaging $1,000
2nd Good condition At least $150
2nd Perfect condition with all the accessories $300
3rd Good condition $50 to $100
4th Good condition $36 to $60
5th and 6th Good to like new $60 to $180

Value of the iPod Mini

Price range: $20-$150

The Apple iPod Mini was a successful, scaled-down iPod that introduced the famous Click Wheel. The only decent price you can get for the iPod Mini is if you have it with the original box in excellent condition.

iPod Mini

Generation Condition/Packaging Selling For
All Good condition $20 to $60
All Original box, excellent condition As high as $150

Value of the iPod Nano 

Price range: $20-$350

The Apple iPod Nano was the successor to the iPod Mini, featuring smaller-capacity solid-state flash memory. The iPod Nano’s design changed wildly over the seven generations it was offered from 2005 to 2017.

Starting with a Click Wheel, the Nano eventually became a touch-screen device. The 1st generation iPod Nano is seen as a collector’s piece when it’s a sealed, new in-box device.

iPod Nano

Generation Condition/ Packaging Selling For
1st, 2nd and 3rd Sealed, new in box Up to $350
1st, 2nd and 3rd Used $20 to $60
4th and 5th Good condition $30 to $100
6th and 7th Good condition Starting at $25
6th and 7th Sealed in original boxes Up to $250

Value of the iPod Shuffle

Price range: $10-$160

Designed as a cheaper alternative, the iPod Shuffle lacked a screen, forcing the user to rely on a shuffle feature that randomly played music. The shuffle lasted from 2005 to 2010 and had six different generations.

As with the others, the most valuable Shuffles are in their original boxes.

iPod Shuffle

Generation Condition/ Packaging Selling For
1st Original box $50 to $160
1st No box $10 to $25
2nd Good to sealed in box $15 to $70
3rd Good to sealed in box $15 to $80
4th Good $30
4th New, in-box Up to $150

Value of the iPod Touch

Price range: $20 to $600

The iPod Touch was introduced in 2007 and continued selling up until 2022. The last generation to be produced included up to 256 GB of storage and Apple’s A10 Fusion SoC. Values can range wildly, depending on the age, condition and storage.

Apple is continuing to sell the iPod Touch 7th generation for up to $400 while supplies last, but don’t expect them to last for too long.

iPod Touch

Generation Condition/ Packaging Selling For
1st Good condition with original box & all accessories $20 to $50
1st New, in box Up to $600
2nd Good condition $20 to $50
3rd Good condition $20 to $50
4th Good condition $25 to $80
5th New in box, larger capacity Up to $100
6th Good condition $30 to $120
7th Used, good condition $130 to $330

Where Should I Sell My iPod?

If you are looking to sell your old iPods, start with online classifieds such as Facebook Marketplace or the OfferUp app for Android or iOS.

You can list your vintage iPods there for free, and they do not collect any fees if you sell the devices in person. If you list the devices as shippable, you’ll need to pay applicable fees as well as the cost of shipping (if you don’t charge your buyer).

You can also sell your old iPod on eBay. It charges fees to its sellers, but you will get a broad audience to sell your device. Take clear photographs and list your iPod at a competitive price.

For the best chance of selling your old device, research what other people are selling the same iPod model for in your condition and storage size.

Frequently Asked Questions (FAQs)

Is an old iPod worth anything?

iPods can be worth as little as $10 and as much as $1,000, depending on its model, age, condition and storage capacity.

What is an iPod Touch worth?

Apple’s iPod Touch can be worth anywhere from $20 to $600, depending on the generation. While a new, in-box 1st generation sells for as much as $600, other models fetch prices that barely cover their shipping cost. 

What iPods are worth the most?

The iPod with the most value is a sealed, in-box iPod 1st Generation from 2005. The original iPod can sell for around $1,000 in a well-preserved state. A sealed, in-box iPod Touch 1st Generation for $600. A sealed, in-box iPod Nano 1st Generation for $350.

But I heard ‘this’ iPod is worth thousands?

There are rare models that have sold for thousands of dollars in the past. In general, the market has changed since many of these iPods were originally sold.

Michael Archambault is a senior writer for The Penny Hoarder specializing in technology.

Source: thepennyhoarder.com

Will Gas Prices Ever Go Down?

As it becomes increasingly painful to fill up your gas tank, you might well be wondering: Will gas prices go down at some point?

Fuel prices feel like they’ve been on a never-ending ride higher of late. A year ago, the national average price of regular unleaded was $2.96 per gallon, according to travel website AAA. A month ago, it was $4.12. Today, it’s $4.33. And it’s probably heading higher still this spring.

We recently looked at the reasons why gas prices are so high: global oil demand rebounding from the pandemic faster than production. The war in Ukraine. Efforts in the U.S. to transition the economy away from reliance on fossil fuels. Energy companies’ reluctance to invest in more oil production.

Now, we’ll try to answer the question undoubtedly on many drivers’ minds: Will gas prices go down soon – and if so, what will do the pushing?

Fuel Tax Relief?

A few states have tried to ease the financial burden on their residents by suspending their state fuel taxes for a short period. But are gas prices doing down because of those moves?

Not really.

For instance, Connecticut suspended its 25-cent-per gallon state levy on fuel for April, May and June. But according to AAA, the average price of regular unleaded in the Nutmeg State today is $4.32, up from $4.13 a week ago. Increases in crude oil prices can swamp the effect of suspending a state’s gas tax. And when those state taxes are paused, the savings don’t all go in the driver’s pocket. Fuel sellers keep some portion of them.

Could the federal government give drivers nationwide a tax cut by suspending the 18.3-cent-per-gallon federal tax on gas? Unlikely, report my colleagues at The Kiplinger Letter, who regularly speak with lawmakers on Capitol Hill to assess which bills have a chance of passing.

In the case of a proposed suspension of the federal gas tax, Democrats, the majority party, can’t agree among themselves to do it.

More Oil on the Way

Here’s a little good news: More crude oil should be reaching the global market later this year, which means more gasoline and other refined fuels. Eventually, that should help push gas prices down, or at least keep them from rising so fast.

In the U.S., energy companies are slowly putting more rigs to work drilling new wells, even as they prioritize returning cash to investors via share buybacks and dividends. Oilfield services company Baker Hughes reports on the number of working rigs in the U.S. each week, and most weeks lately, the tally has risen a bit. Meanwhile, OPEC announced last week that it will continue with its plan to gradually restore the oil exports it cut in 2020 when prices plunged, which means adding about 400,000 barrels of daily exports each month.

The bad news: Neither domestic oil output nor OPEC’s sales are rising fast enough to push oil prices down now. And that means gas prices are unlikely to take a breather soon, either.

So, when can we expect gas prices to go down?

Gas Prices Could Go Down During Autumn

A good bet for when gas prices will go down is the fall, if seasonal patterns hold up this year.

Before COVID-19 scrambled those patterns, gas prices would typically rise in spring, peak sometime around Memorial Day, ease a bit but stay high during the summer, then pull back sometime after Labor Day.

As post-pandemic life gets back to normal, that pattern could return this year. Heavy summer travel and the resulting heavy demand for gas are likely to ebb by late summer or early fall as kids go back to school. By then, the Federal Reserve’s interest rate hikes will have had some time to slow the overall economy, which should weigh on oil demand, too. OPEC should be pumping more oil then, as will the U.S., continuing the slow rebound in production from the pandemic-induced slump.

That might not be much comfort to motorists as they pay for expensive fill-ups this spring and summer. But unless an economic recession comes along soon and crimps demand for fuel in painful fashion, high gas prices probably won’t go down anytime soon.

Source: kiplinger.com

15 Technical Indicators for Stock Trading

Using technical analysis to research stocks is a common strategy to profit from short-term movements in security prices. While some stock analysis tools are fundamental in nature, technical stock indicators typically seek patterns in past price and volume data to give investors and traders insights about how a stock might move in the future.

Naturally, every stock indicator has its pros and cons. Technical indicators can be used by traders to analyze supply and demand forces on stock price, to help investors to understand market psychology, or to manage risk. But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.

For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting your stock analysis.

Learn more about the pros and cons of using the following 15 trading tools in your strategy.

Table of Contents

How Do Stock Technical Indicators Work?

Technical analysis uses various sets of data and indicators, such as price and volume, to identify patterns and trends. It does not use fundamental analysis to look at the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure.

Rather, technical analysis solely analyzes a stock’s performance. Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.”

One of the basic tenets of technical analysis is that history tends to repeat itself. By examining certain patterns in light of past outcomes, analysts can make an educated guess about where stock prices might be headed. That said, past performance is never a guarantee of future stock price movements, so traders must bear this in mind.

Knowing many of the most popular trading tools might benefit your investing strategy with easier to spot buy and sell signals. You don’t have to know every single technical indicator, and there are many ways to analyze stocks, but using multiple stock indicators may improve trading results. You can also use these stock indicators to help you manage risk when you are actively trading.

Trend indicators are some of the most important technical trading tools since identifying a security price’s trend is often a first step to forming a strategy. Long positions are often initiated during uptrends, while short sale ideas can occur when prices are in an established downtrend.

Volume technical indicators are also helpful to gauge the power or conviction of an asset’s price move. Some believe that the higher the stock volume on a bullish breakout or bearish breakdown, the more confident the move is. Higher volume could signal a lengthier trend continuation.

Two Types of Technical Indicators

Technical indicators generally come in two flavors: overlay indicators and oscillators.

Overlay Indicators

An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.

Oscillator Indicators

On a technical analysis chart, an oscillator tracks the distance between two points in order to gauge momentum. The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.

An oscillator indicator can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy.

Oscillator indicators can be leading or lagging:

•   A leading indicator tracks current market movements to anticipate where the trend is headed next.

•   A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.

Top 15 Stock Indicators for Technical Analysis

It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.

Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.

Following are 15 of the most common technical stock indicators, along with their advantages and disadvantages.

1. Moving Averages (MA)

A moving average (MA) is the average value of a security over a given time. The MA can be Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA).

A moving average smooths price volatility and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend. Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.

Pros

•   Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.

•   Moving average crossovers are commonly used to pinpoint trend changes.

•   You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.

Cons

•   A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.

•   Market turbulence can make the MA less informative.

•   Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.

2. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) also helps investors gauge whether a security’s movement is bullish or bearish, but it uses two different MAs to do so. Often, a 26-period exponential moving average is subtracted from a 12-period EMA to spot trading signals. Then a signal line, based on a shorter period EMA, is plotted on top of the MACD to help reveal buy and sell entry points.

Traders use the convergence or divergence of these lines to identify when bullish or bearish momentum is high.

Pros

•   The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.

•   The MACD can be used to indicate a trend and also momentum.

•   Can help spot reversals.

Cons

•   May provide false reversal signals.

•   Responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.

3. Relative Strength Index (RSI)

RSI is a tool that identifies bullish vs. bearish price momentum. The relative strength index is an oscillator — a tool that builds a trend indicator based on the price movement between two extreme values. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.

Pros

•   Can help investors spot buy or sell signals.

•   May also help detect bull market or bear market trends.

•   Can be combined with moving average indicators to spot breakout trends or reversals.

Cons

•   The RSI can move without exhibiting a clear trend.

•   The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.

•   It does not give clues as to volume trends.

4. Stochastic Oscillator

The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines: The primary “fast” moving line is called the %K, while the other “slow” line is a three-period moving average of the %K line.

A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The stochastic oscillator uses a 0 to 100 value range.The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified.

Pros

•   Since it’s plotted on a 0 to 100 scale, it’s possible to gauge overbought and oversold levels.

•   Traders can adjust time frame and range of prices to reduce market fluctuation sensitivity.

•   Can be used by day traders.

Cons

•   A security can remain overbought or oversold for long periods as the range of oscillations is not always proportionate to a security’s price action.

•   It can be useful for implementing an overall strategy, but not for gauging the overall market sentiment or trend direction.

5. Williams %R

Similar to the stochastic oscillator, above, the Williams %R (a.k.a. the Williams Percent Range) is also a momentum indicator — but in this case it moves between 0 and -100 to identify overbought and oversold levels and find entry and exit points in the market. The Williams %R compares a stock’s closing price to the high-low range over a specific period, typically 14 days.

Readings between 0 and -20, which are in the top 20% of price during the look-back period, are considered overbought. Readings between -80 and -100, which are in the lowest 20% of price during the look-back, are considered to be oversold.

Pros

•   You can combine different short and long time periods to compare trends.

•   Identifies overbought and oversold levels.

Cons

•   False signals can happen if price strength or weakness leads to a brief movement in the Williams %R above 70% or below 30%.

•   There is no volume analysis with the Williams %R.

6. Bollinger Bands

Bollinger Bands are a set of three lines that help measure the relative high or low of a security’s price in relation to previous trades. The center line is the Simple Moving Average (SMA) of the stock price. The other two trendlines are plotted two standard deviations away from the SMA (one positively, one negatively). These can be adjusted.

The upper and lower lines show the high and low boundaries of the security’s expected price movement (90% of the time). The middle line shows real-time price action moving between those bounds as it fluctuates day-to-day.

Pros

•   Helps traders identify volatility.

•   Can help point to trading opportunities.

Cons

•   Large losses are possible when volatility surges unexpectedly.

•   Does not identify cycle turns quickly enough at times.

7. On-Balance Volume (OBV)

OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security will likely increase. Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.

The numerical value of the OBV isn’t important — it’s the direction that matters. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.

Pros

•   Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.

•   OBV can be used to confirm price action and identify divergences.

Cons

•   Hard to find definitive buy and sell price levels.

•   False signals can happen when divergences and confirmations fail.

•   Volume surges can distort the indicator for short-term traders.

8. Accumulation / Distribution Line (ADL)

The ADL is a momentum indicator that traders use to detect tops and bottoms and thus predict reversales. It does this by using volume versus price data to identify divergences and thereby show how strong a trend might be. For example: If the price rises but the ADL indicator is falling, then the accumulation volume may not actually support a true price increase and a decline could follow.

Pros

•   Traders can use the AD Line to spot divergences in price compared with volume that can confirm price trends or signal reversals.

•   The ADL can be used as an indicator of the flow of cash in the market.

Cons

•   Doesn’t capture trading gaps or factor in their impact.

•   Smaller changes in volume are hard to detect.

9. Average Directional Index (ADX)

The Average Directional Index (ADX) also helps investors spot asset price trends and to quantify the strength of those trends. ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically 14 days, but it may be calculated for shorter or longer periods. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.

The ADX uses positive and negative Directional Movement Indicators (DMI+ and DMI-). ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.

Pros

•   Can help identify when price breakouts reflect a solid trend.

•   Can send signals to traders to watch the price and manage risk (e.g. thru divergences).

Cons

•   Can generate false signals if used to analyze shorter periods.

•   Can’t be used as a standalone indicator.

10. Price Relative / Relative Strength

Relative Strength should not be confused with the Relative Strength Index (above). Relative Strength is more of an investment strategy than a specific indicator. It involves comparing one asset to another or the broader market and helps traders find securities that are trending on a relative, not absolute, basis.

Pros

•   A stock indicator that helps compare one security’s price to another to find which is outperforming.

•   Can plot one stock versus a competitor or market benchmark.

Cons

•   Does not provide exact buy and sell levels.

•   False breakouts and breakdowns can happen.

•   Mean reversion can lead to losses for momentum traders.

11. Relative Volume (RVOL)

RVOL relays to traders how near-term volume compares to historical volume. The higher RVOL is, the more other traders might be paying attention to and trading the asset. Think of it as the stock being “in play.” Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with low relative volume. The RVOL is displayed as a ratio.

So if it is showing 2.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period.

Pros

•   Can offer clues to identify unusually powerful price moves.

•   High and low volume is easily detected by use of being above or below a value of one (1).

Cons

•   While volume is important, it does not give exact buy and sell price levels.

•   Volume surges can be fickle — like around an earnings date.

12. Rate of Change (ROC) and Momentum

ROC is just what it sounds like — the speed at which a stock is moving compared to its trend. The indicator measures a stock’s percentage price change compared to how it moved in recent periods. Like many of the tools mentioned, it can be used to spot divergences.

Pros

•   Works better in trending markets.

•   When used with other trading tools can help traders spot strong momentum.

•   A technical trading tool that can identify overbought and oversold levels.

•   Ideal for spotting divergences.

Cons

•   False signals can happen when the indicator suggests a price trend reversal will take place.

•   Does not give higher weight to more recent price action.

13. Standard Deviation

An asset’s standard deviation is a fundamental statistical tool to get a sense of volatility. It uses historical volatility to arrive at a percentage that is used to reflect how much a security moves. While volatility can indicate potential risk, it can also signal the potential for opportunity.

Pros

•   Mathematically captures the volatility of a stock’s movements, i.e. how far the prices moves from the mean.

•   Provides technicians with an estimate for expected price movements.

•   Can be used to measure expected risk and return.

Cons

•   Does not provide precise buy and sell signals.

•   Must be used in conjunction with other indicators.

14. Ichimoku Cloud

Ichimoku clouds are used to show support and resistance areas on a price chart in an extra-illustrative manner. An Ichimoku Cloud is comprised of five separate calculations that examine multiple averages, and uses the difference between two of the lines to create a shaded area (the cloud) that aims to predict support and resistance levels. It is also employed to identify momentum and trend. It is thought to provide more data than a simple candlestick chart.

Pros

•   A leading indicator of price.

•   Indicates support and resistance areas.

•   Useful for gauging the direction and intensity of a price trend.

Cons

•   Can give many false signals in trendless markets.

•   Can be confusing to traders given its complexity.

15. Fibonacci Retracements

Fibonacci Retracements are based on the golden ratio discovered by mathematician Leonardo Pisano in the 13th century. At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. The Fibonacci sequence and ratio are used to form support and resistance lines on a price chart.

Pros

•   Offers clues about where a stock might find support and resistance.

•   Helps define exit and entry levels.

•   Can be used to place stop-loss orders.

Cons

•   The use is subjective.

•   Some say Fibonacci Retracements are simply a self-fulfilling prophecy: if many traders are using these ratios, then outcomes will reflect this.

•   No logical proof of why it should work.

The Takeaway

Technical analysts use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes a stock’s performance.

Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.” There are countless stock technical indicators in existence, and it can quickly become overwhelming to learn them all. It might be more useful to focus on a handful of the most popular trading tools so you can execute a strategy that works for you.

To start trading stocks and gain a hands-on understanding of how technical indicators work, you can open a brokerage account online with SoFi Invest®. You can trade stocks, fractional shares, exchange-traded funds (ETFs), IPO shares, and cryptocurrencies right from your laptop or phone. As a SoFi member, you will have access to many online resources — including financial professionals who can guide you in your financial journey. Get started now!


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What Is a Moving Average (SMA & EMA) in the Stock Trading World?

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Price action happens fast in financial markets. One minute a stock price may move up, then the next minute it’s heading down. However, most investors pay little mind to the short-term fluctuations in prices. 

But how do investors weed out the noise of short-term volatility in market prices? Many use measurements called moving averages to spot longer-term trends. 

Read on to find out what a moving average is and how you can use this technical analysis tool to improve your investment returns. 


What Is a Moving Average (MA)?

A moving average is a statistical calculation for measuring long-term trends in the stock market. Moving averages smooth the choppy up and down movement the market is known for, making it easier for you to visualize trend direction and strength on a financial asset’s chart. 


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In financial markets, moving averages are used to create a constantly updated average price with closing prices as the central data points. The moving average is a lagging indicator because it uses past prices to determine a trend, rather than trying to predict the future as a forward-looking indicator would. 


How Does a Moving Average Work?

Moving averages work by plotting average prices over a period of time on a chart. Although most interactive charts can do the calculations and plot the moving average for you, it’s important that you understand how these calculations work. 

The moving average starts with the first set of closing prices over the period’s time frame. With each day that passes, the oldest closing price in the average is dropped off and the newest price is added in. 

For example, a 30-day moving average plots the average price over the past 30 days on the chart. This is calculated by adding the closing prices for the past 30 days together and dividing the total by 30. Then, at the close of each trading session, the closing price from the first day of the average is removed and the new closing price is added in. A line plotting these data points represents the moving average.

Check out Apple’s three-month stock chart below, complete with its 30-day moving average drawn in purple:

(Chart courtesy of Yahoo! Finance)

The blue line that tracks the stock’s day-to-day price movements fluctuates rapidly, making it difficult to determine a trend. However, the purple line, the 30-day moving average, smooths out these price movements. This shows that Apple’s stock has been moving downward gradually for the past three months. The stock’s recent upward movement has started to pull the 30-day moving average higher again, however, which suggests a reversal of this downtrend may be on the horizon.  


Types of Moving Averages

There are two different ways to calculate moving averages. Moreover, the time frames used in the calculations make a difference in the data the moving average yields. 

Simple Moving Average (SMA)

The simple moving average (SMA) is the easiest average to calculate. The SMA is made up of the raw price movement data, giving each day in the average an equal weight. The simple moving average plots the mean of price data over a predetermined number of days, with each closing price having an equal importance to the calculation. 

Exponential Moving Average (EMA)

The exponential moving average (EMA) uses the same information but gives more importance to the most recent price data. The calculation for the EMA is a weighted average calculation because of the emphasis it puts on the most recent data.  

This weight is created using a multiplier on the most recent price in the dataset. Multipliers in EMAs are determined using the following formula:

(2 ÷ (Time Frame +1) = Multiplier 

So, for a 30-day EMA multiplier:

(2 ÷ (30 +1) = 0.0645

Multiplying the most recent price by the multiplier puts more emphasis on the most recent data. This results in an EMA that’s higher than the SMA when the most recent stock prices are up and lower when prices are down. 

Take a look at the Apple chart below. The blue line is Apple’s stock price, the 30-day EMA is drawn in red, and the SMA appears in purple.

Notice how the red line (the EMA) reacts to movements in the stock price faster than the purple line (the SMA) does. This sensitivity makes it easier to catch recent price trend reversals by looking at EMA. 

Short-Term vs. Longer-Term Moving Average

The time period covered by the moving average makes a difference as well. Short-term moving averages show short-term trends, while long-term averages signal long-term trends. Oftentimes, investors and traders alike use a mix of short- and long-term averages as indicators that let them know when to jump into or out of an investment. 


Why Use Moving Averages?

There are two reasons investors and traders alike use moving averages:

Most financial markets are volatile in nature. That’s because these markets depend on supply and demand for price movement. When there are more buyers than sellers, the prices of assets rise, and when there are more sellers than buyers, the prices of assets fall. 

With high levels of volatility in financial markets, it may be difficult to determine the direction of a trend and when that trend is making a reversal. Moving averages help investors weed out the noise of short-term price changes and focus on the overall trend at hand. 

To Find Entrance and Exit Signals

Choosing the best time to enter or exit a financial position is one of the most challenging aspects of participating in financial markets. Moving averages help make decisions to enter or exit an investment more simple. 

Professionals use moving average oscillators and crossovers (described below) as signals that determine when they should buy or sell an asset. For example, when a short-term moving average crosses over a long-term moving average, the action acts as a buy signal that suggests it’s time for investors and traders to dive in. 


How to Use Moving Averages

Moving averages are an important part of technical analysis. They make up multiple key indicators that signal when to buy and sell assets. Here’s what you need to know when using these tools. 

Using Simple Moving Averages vs. Exponential Moving Averages

The exponential moving average is far more responsive to price movements because of the heavy weighting placed on the last piece of data in each dataset. This comes with advantages and disadvantages. 

Trends are easier to read when using a simple moving average because it’s less responsive to price movements. However, the EMA is more sensitive to price movements, making reversals easier to spot. EMA generally gives buy and sell signals faster than the SMA, making it a perfect tool for a short-term trader. 

Choosing a Time Frame

The time frame you choose when setting up a moving average makes a big difference in the trend that emerges. 

For example, take a look at the chart for Apple stock below. The purple line is a 30-day moving average while the green line is a 10-day average.

As you see, the 10-day average is more uneven than the 30-day average and the two lines cross several times over the course of three months. Here’s how to know when to use one, the other, or both:

  • Short-Term. Short-term averages are best used when investors and traders are interested in making short-term moves in the market. 
  • Long-Term. Long-term averages are best for determining long-term trends. They’re best used by investors who are interested in buying and holding an asset for a while. 
  • Both. Using short- and long-term moving averages together can help to determine the best time to buy and sell assets. When the short-term average crosses over a long-term average, it’s time to buy, and when it crosses below the long-term average, it’s time to sell. 

Advantages of a Weighted Moving Average

The primary advantage of a weighted moving average like the EMA is that it responds to price movement much more quickly than a simple moving average. This sensitivity helps spot reversals more quickly, giving traders an opportunity to act earlier. The ability to tap into trends early gives a trader a leg up in the market. After all, time is money!


Limitations of Using Moving Averages

Moving averages are an important tool for those accessing markets, but there are limitations to consider. The most notable limitations to moving averages include:

  • Purely Technical. Moving averages are technical indicators that derive their data solely from price movement. Investors should also understand the fundamental factors that explain why the movement is taking place and whether it’s likely to continue. 
  • Lagging. Moving averages are lagging indicators. It’s important to keep in mind that past performance isn’t always indicative of future price movements. 
  • Conflicting Signals. Moving averages can point to different trends when they span different periods of time. For example, a 10-day moving average could signal a buying opportunity at the same time the 200-day moving average for the same stock suggests it’s a long-term loser. 
  • Useless In Erratic Markets. When prices jump up and down frequently, it can be hard to determine a trend using moving averages. 

Trading Signals From Moving Averages

Moving averages are used to generate trading signals known as technical indicators. Some of the most common indicators that use moving averages include:

Crossover

Moving average crossovers happen when a short-term moving average crosses over a long-term moving average. 

When the short-term moving average, called the signal line, crosses above the long-term moving average, it’s a signal to buy the stock. Conversely, when the signal line crosses below the long-term moving average, the crossover is a sell signal. 

Take a look at the chart below — a three-month chart of Apple stock with a 30-day moving average (purple) and a 10-day moving average (orange):

The shorter, 10-day moving average line in orange is the signal line. When the orange line crosses below the purple line, it suggests it’s time to sell Apple stock. When the orange line crosses above the purple line, it’s time to buy. 

In the chart above, there are two buy and two sell signals. Can you find them?

Moving Average Convergence Divergence (MACD)

The moving average convergence divergence (MACD) is a momentum indicator that’s designed to determine trends and their momentum. The indicator is an oscillator that shows the relationship between two moving averages and the price of an asset. 

The indicator is an oscillator that can be found on most interactive charts. It is derived from the 26-day EMA and the12-day EMA, which creates the MACD line. A nine-day EMA of the MACD acts as the signal line. 

Like with moving average crossovers, traders who use MACD look for crossovers of the signal line and MACD line. When the signal line crosses above the MACD line, it’s considered a buy signal, while a cross below the MACD line is considered a sell signal. 

The MACD data is generally shown in a sub-chart below the main chart:

In the case above, the MACD line is purple and the signal line is orange. Any time the orange line crosses above the purple line, it’s a sign that it’s time to buy the stock. Conversely, when the orange line crosses below the purple line, it’s time to sell. 

Bollinger Bands

Bollinger bands are another oscillator created by plotting lines two standard deviations above and below the SMA. When the price moves closer to the upper band, the asset is believed to be overbought, suggesting it’s time to sell. On the other hand, when the price moves close to the lower band, it suggests the asset is oversold and it’s time to buy. 

See the chart below:

The orange line is a 20-day simple moving average. The space between the upper and lower Bollinger bands is shaded in. Notice that when the price nears the upper band, downtrends tend to follow. On the other hand, when prices near the lower band, Apple stock tends to make a recovery. 


Moving Average FAQs

Naturally, you might have a question or two about moving averages. You’ll find answers to the most common questions below.

What Does a Moving Average Tell You?

Moving averages tell you a few things. First and foremost, they’re great at pointing to trend directions. You can tell an uptrend is taking place when the moving average slopes upward and a downtrend sets in when the average slopes downward. 

Moving averages are also used as technical indicators that signal to investors and traders when to buy and sell financial assets. 

What Is a Good Moving Average to Use?

Simple and exponential moving averages, both short-term and long-term, have their pros and cons. The best moving average to use depends on your needs. 

For example, if you’re looking for a stock that has been trending upward for a long time and is likely to continue, a long-term SMA is the way to go. 

On the other hand, if you’re looking for a short-term opportunity to cash in on a new trend, short-term EMAs are the best bet. 

Which Moving Average Is Best for Swing Trading or Day Trading?

Short-term traders tend to use the EMA rather than SMA. This is because these traders make their money by taking advantage of short-term trends in the market, and the EMA is more responsive to these types of trends. 

What Is EMA In Forex?

The EMA works the same way in forex trading as it does for any other financial asset. It’s a weighted average of prices over a predetermined period of time with extra emphasis given to the newest data in the set. 

What Is a 50-Day Moving Average?

A 50-day moving average is the mean (average) of closing prices of a financial asset over the past 50 trading sessions. The 50-day moving average is one of the more common technical indicators used to spot technical trends in stocks. It is often used to identify key technical support and resistance levels.  

What Is a 200-Day Moving Average?

A 200-day moving average is the mean (average) of closing prices of a financial asset over the past 200 trading sessions.The 200-day moving average is a long-term indicator commonly used to identify much longer-term trends.  


Final Word

Moving averages are a great tool for investors and traders alike. However, they shouldn’t be the only tool in your toolbox. 

Before acting on a moving average signal, investors should research fundamental data that explains why the trend is moving in the direction it is and whether it’s likely to continue. Technical traders should use a mix of different technical indicators for the best shot at success in the market. 

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

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

Buying a Home in a Seller’s Market With a Low Down Payment

It has been difficult lately to buy a home with a small down payment, considering that the average home price rose by 17% in 2021, and cash offers and bidding wars remain a thing. But buying a house with a low down payment is possible.

Lenders are willing to approve low-down-payment mortgages if you qualify and are comfortable with paying mortgage insurance.

Here’s some help navigating the current real estate market if you have a small down payment.

What Is Considered a Low Down Payment?

According to the National Association of Realtors®, 45% of consumers think they need a down payment of 16% to 20% or more to buy a house. In actuality, the average down payment on a house in 2021 was 17%. If you look at just first-time homebuyers in that survey, the average down payment was closer to 7%.

Given the wide ranges above, what’s actually considered a low down payment? Popular mortgage programs out there may require as little as 3% down, and a couple of more specific home loan programs allow 0% down.

Just keep in mind that anything under a 20% down payment will likely entail some form of mortgage insurance, an ongoing fee charged by most lenders.

Challenges of Buying in a Seller’s Market When You Have a Small Down Payment

There’s truth to the saying “cash is king,” and that continues to be evident in today’s seller’s market, where real estate investors who pay all cash frequently outbid prospective first-time homebuyers.

Be ready for these potential challenges if you intend to buy a home with a small down payment.

Longer Closing Time

Closing on a home with a mortgage-contingent offer to buy takes longer than closing with a cash offer. There’s often more paperwork, and underwriters may take longer to ensure that your financials are in order before green-lighting your mortgage.

Lenders May Disagree With Mortgage Minimums

Just because a mortgage loan program allows for a 3% minimum down payment doesn’t mean the lender will accept it. Lenders have wide latitude to dictate their own terms, and it’s fairly common for them to set their own minimum down payment requirement somewhere above what the stated minimum for the program is.

Home Sellers May Be Nervous About Your Ability to Close

While it’s true that all funds from your down payment and mortgage transfer to the seller at closing, many sellers still buy into the old “bird in hand” adage when it comes to accepting offers. A higher down payment signals a buyer’s financial capacity and is therefore more attractive in the eyes of the homeowner.

If sellers accept a bid with a low down payment, they may run an increased risk of the buyer being rejected at the last minute by their mortgage lender.

In a deal involving a mortgage backed by the Federal Housing Administration (FHA), if the home is appraised for less than the agreed-upon price, the sellers must match the appraised price or the deal will fall through.

And FHA guidelines require home appraisers to look for certain defects. If any are found, the sellers may have to repair them before the sale.

Tips for Buying With a Small Down Payment

If you’re trying to score a home with a small down payment, there are some ways you can approach it to increase your odds of buying the home of your dreams.

One way is to select a government-backed mortgage program — FHA, or the U.S. Department of Agriculture or Veterans Affairs — that allows for a low down payment. The government guarantee makes them more palatable for mortgage lenders and easier for a homebuyer to afford.

Some specialized mortgage programs allow qualified buyers to put as little as 0% down; others, from 3% to 5% down. Some of the most popular low-down-payment mortgage programs are:

•   VA loans (0% down)

•   USDA loans (0% down)

•   FHA loans (3.5% down)

•   Fannie Mae HomeReady (3% down)

•   Conventional 97 loan (3% down)

•   Conventional mortgage (5% down)

Another option is to apply for down payment assistance. Many governments and nonprofits offer down payment assistance programs for first-time homebuyers — those who have not owned a principal residence in the past three years — in the form of loans or grants. Some lenders can even help you qualify for these programs to help offset the upfront costs of homebuying.

Finally, you can also ask a family member, or sometimes a domestic partner, close friend, or employer, to help with the down payment by contributing gift money. The money can’t come with any strings attached, and a gift letter will be key. This is a popular option for parents and in-laws who want to help their children buy a first home.

Pros and Cons of Using a Low Down Payment

There are both benefits and disadvantages to submitting a small down payment on a home. Here are a couple of points to think about.

Pros of Using a Low Down Payment

•   Gets you in a home faster than waiting to save for a bigger down payment.

•   Start building equity earlier and avoid spending money on rent.

•   Preserve cash for other investments, opportunities, and emergencies.

•   Take advantage of current low mortgage rates, theoretically saving you money over the long run.

Cons of Using a Low Down Payment

•   You’ll have to pay private mortgage insurance, or a mortgage insurance premium, which could add 0.5% to 1.5% of the loan amount to your annual housing costs.

•   Your monthly mortgage payment will likely be larger, as the amount you borrow will increase the less you put down.

•   Your lender may penalize you with a higher mortgage rate to offset the higher risk of a lower down payment.

•   You run a greater risk of your home loan being underwater, should home values drop.

Tips for Managing a Seller’s Market

So what’s a prospective homebuyer to do in a seller’s market when the cards are stacked against them?

One way to get a leg up on the competition is to get the ball rolling on financing early and make sure you have everything in place by the time you even submit an offer on a home.

Making sure you’re pre-qualified, when lenders have an idea of your income and assets before you start home shopping, and then pre-approved, when you receive a letter from a lender stating that you qualify for a certain loan amount and rate, can ensure that you’ll be ready to roll the second you find the right home.

Once you’ve submitted an offer on a house, make sure you’re Johnny-on-the-spot when it comes to all documents and information requested by your chosen lender.

Another thing you can do is to find an experienced real estate agent who’s been through the homebuying process countless times.

No matter the temperature of the market, tips for how to shop for a mortgage can come in handy.

The Takeaway

Buying a home with a small down payment, even in a seller’s market, is possible. With preparation and the right mortgage lender, you may be able to land a starter home or your dream home with a low down payment.

SoFi allows a down payment of as little as 3% for qualified first-time homebuyers and 5% for other borrowers for its line of low-fixed-rate mortgages.

Before you apply for a home loan, start with a no-obligation mortgage rate quote from SoFi.

It takes just minutes to get your rate.


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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

25 Cheap Mother’s Day Gifts Under $20 Including Shipping

Away from Mom this Mother’s Day?

Whether you live across the country or state from dear old Mom and can’t treat her to brunch, you likely want to send more than a text.

Whatever’s keeping you and Mom apart this Mother’s Day, May 8, there are plenty of ways you can show her you love and miss her. Not only that, but you can do it all while going easy on your wallet.

To help, we’ve put together a list of 25 Mother’s Day gifts under $20 you can order online. And that $20 includes shipping — free for some items.

Mother’s Day Gifts That Will Help Her Get Outdoors

Fresh air, exercise and flowers — all three are a nice way to celebrate Mom. Well, exercise if she likes that sort of thing!

1. Pickleball Glove for Mom

Pickleball is the hottest team sport these days. If your mom is seriously into this sport, you can pick her up a brand-name pickleball glove on Amazon for somewhere between $18 and $20. If you have Prime membership, shipping is free, keeping you under budget.

2. Annual Flower Bulbs

Does Mom love gardening?  Give her a gift that keeps on giving with annual bulbs. Plant these flowers once, and they will bloom year after year. Bulbs that need a freeze to bloom (iris, daffodils, tulips) are typically put in the ground in the fall before it gets too hard for digging so that they blossom in spring. The following bulbs can be planted in the spring to bloom in the summer.

Gladiolus Flower Bulbs

Gladiolus are beautiful and you can get a lot of them even on a budget. You can pick your color, ordering a bag in white or purple for  $13.95 on Walmart’s platform. Shipping is free.

Lily Flower Bulbs

You can get about three lily bulbs for under $20. Some options from Walmart sellers include Pink Tiger Lilies and Sumatra Oriental Lilies.

These options run between $13.95 and $15.99 and come with free shipping.

3. Gift Certificate to a Local Garden Center

Maybe Mom doesn’t have space for a garden, but does love having flowers and plants around. In this case, consider getting her a gift certificate to her local garden center for $20.

There’s an added bonus to sending your card on Mother’s Day; when she goes shopping after the holiday, excess inventory will be marked down dramatically, giving her more bang for her buck.

4. Twisted Mandala Planters

Perhaps Mom’s got all the plants she needs. What she could really use is a planter — especially for indoor use.

The Geometric Twisted Mandala Planter from FunctionalAM on Etsy is a beautiful option. You can get sizes from 3 inches to 6.5 inches for $8-$20 depending on which option you choose. And shipping is free.

A blue butterfly stands out amongst a group of red butterflies.
Getty Images

5. Butterfly Habitat

Butterfly habitats may be marketed towards children, but Mom can enjoy one, too! This kit from Target is $19.99, and comes with a habitat and voucher for live caterpillars — which ship separately. Your order should qualify for free shipping.

Mom will be able to watch the caterpillars as they build their chrysalises and grow into butterflies, eventually releasing them into the wild. Bonus points for sending a card with a cheesy analogy about how she helped you grow into a butterfly, and what a great job she did.

Sweets & Culinary Mother’s Day Gifts

Mother’s Day is a great time to shower your mom with sweets. Or, if Mom’s great in the kitchen, it’s a fun time to celebrate those skills with gifts.

6. Personalized Recipe Cards

Mom’s a great cook. Everyone’s always asking her for recipes. Pick her up a set of personalized recipe cards on Etsy so she’ll get full credit when she shares her skills. This set costs $9 and costs $4 to ship to the U.S.

7. Heart-Shaped Pan

Check out this heart-shaped pan from Ecolution on Amazon. Whether your mother’s making pancakes or eggs, she’ll appreciate that Ecolution’s products are eco-friendly yet durable. You’ll appreciate that it clocks in at just $11.93 and ships free with Prime membership.

8. Fruit Infusion Pitcher

This fruit infusion pitcher is great for making mimosas and flavored water alike. It is $19.99 on Amazon.com and ships free with Prime membership.

9. Chocolate

Believe it or not, you can get a fair amount of good chocolate for under $20. The G-Cube from Godiva comes with an assortment of 22 flavors, and costs $12. With shipping, you can expect to pay around $19.95.

10. Delivery from a Local Bakery

Ask your mom about her favorite local bakery recommendations. Then, place an order for delivery with them on Mother’s Day. This allows you to not only get mom a gift, but also support small businesses in her community.

If the delivery fee would put you over budget you can find another way. You could request curbside pickup or she could take a quick trip inside to pick up her present.

Self-Care Gifts for Mother’s Day

We all need a little more self-care. Help Mom relax with these soothing Mother’s Day gift ideas until you can see each other again.

11. Comfortable Sleep Mask

Help Mom get some better shut eye. These cute, silk satin sleep masks from Beyarina from Walmart not only comes in under budget at $13.95, for a total of $19.98 after shipping.

12. Amethyst Yoni Soap Bar

This Amethyst Yoni soap bar from Organically Bath & Beauty is pH balanced for sensitive skin costs about $15.30 to send to Mom after accounting for shipping costs.

13. Best Mom Ever Sugar Body Scrub

This cute product from Joon X Moon will help remind mom that she’s the best ever, all while basking in the glow of champagne-scented exfoliation. It’s available at Target for $10, and there are a few ways you can get it to her. Shipping isn’t really an option as it only ships with orders of $35+.

But, you can purchase it at the Target near where Mom lives through Target’s Pickup or Drive Up services. Or, if you already have a Shipt membership, you can get it delivered to Mom’s house from her local store for just $7, bringing your total to $16.99.

Need more ideas to celebrate your mom? We’ve got two dozen DIY spa ideas to help her relax and rejuvenate. 

A woman puts cucumbers over her eyes as she sits up with a charcoal facial mask on her.

Getty Images

14. Luxe Face Masks

Charmed Bath & Body offers several different face masks available via Etsy. You can choose from:

  • Matcha
  • Rose clay.
  • White clay
  • Charcoal
  • Turmeric

It should cost you around $15.79 in all to purchase and ship one of these mask powders for Mother’s Day.

15. Aromatherapy Humidifier

If Mom’s really into essential oils, consider this aromatherapy humidifier on Amazon. You can pick between one that’s LED lit or one that’s wood printed. Prices range from $14.99-$19.99, and shipping is free for Prime members.

16. Mother’s Day Coloring Book

Give Mom an opportunity to de-stress with this Mother’s Day coloring book from Amazon. Each page comes with intricate drawings to color in and encouraging and cute quotes about motherhood.

This book is $14.99 and ships free for Prime members.

17. Blue Light Glasses

All of our devices — phones, PCs, TVs — give off blue light. Staring at blue light can cause migraines, damage our vision and even throw off circadian rhythms, our natural sleep-wake cycles.

Help Mom out with some self-care she didn’t even know she needed with these blue light blocking glasses from Nordstrom. They’re only $15 and shipping is free.

18. White Noise Machine

If her circadian rhythms are messed up, a white noise machine can help Mom get to sleep easier. Sharper Image’s Sound Soother Revo is available at Target for $14.99. While the $5.99 shipping fee may take you slightly over budget, you can get free shipping if you purchase with your Target RedCard. Plus you’ll save 5% off your order.

19. Essential Oil Diffuser Bracelet

This Jack & Rose diffuser bracelet will set you back just $15 and the shipping is free with Amazon Prime. The locket-style bracelet comes with eight color pads that can be changed to match an outfit or a mood. If she’s already into essential oils, all she has to do is squeeze a few drops on the cotton pads and be surrounded by that aroma when she wears the bracelet.

Does she need essential oils? A three-pack starter set of eucalyptus, lavender and tea tree oils is often on sale on Amazon for $5.99. That may put you a tad over your budget, but isn’t she worth it?

Sentimental Mother’s Day Gifts

These sweet, mom-centric products will highlight your relationship as you take a trip down memory lane.

20. Tell Me Your Story Book (Grandma Edition)

This is a cute idea if your mom has grandkids. Have them gift her this memory journal. It’s available for $7.96 on Amazon with free shipping for Prime members.

21. Tell Me Your Story Book (Mom Edition)

Don’t have kids, but love the memory book idea?

Fear not. There is a version of these products for children to give directly to their moms — no procreation required. This daily journal of childhood memories will run you $12, once again with free shipping for Amazon Prime members.

22. You & Me Mom Journal

Want to make the memory journal thing a two-way street?

This journal from Uncommon Goods can be sent back and forth between you and your mother. Each page has prompts encouraging the two of you to reflect on your life memories and love together over the years. It will run you $13, and should come in just under $20 after accounting for shipping costs.

23. Photo Book

There’s nothing moms love more than pictures of their kids and grandkids . Photo books can often be cumbersome to create, or come with deceptive discounts and “deals” that don’t account for exorbitant shipping costs.

You can get around all that by creating a book with Google Photos. You can easily import all the pictures already on your Google account, and can create a 20-page, soft-cover photo book that’s sure to put a smile on her face for just $14.99 without any shipping charges.

24. Photo Puzzle

Two things moms love in one: Photos and puzzles! Pick your image, and NannyGoatsCloset on Etsy will send you your own puzzle for $13.99 plus $3.95 for shipping.

25. And Then There’s … Cash

You’re shopping on a tight budget, so your wallet is probably thin right now. She might not want to admit it, but money might be tight for your mom, too.

Instead of buying her physical presents, consider sending her the cash in the form of a gift card or a check, not an actual bill. Be sure to send a card or heartfelt note along with it.

Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder.

Source: thepennyhoarder.com

10 Inherited Items Worth More Than You Think

shocked man with money cash
Krakenimages.com / Shutterstock.com

After 25 years of appraising and reselling antiques, I know how daunting it can be to settle an estate. It usually goes something like this: A family is overwhelmed after inheriting a house stuffed to the rafters with generations’ worth of objects. They choose a few keepsakes for themselves and then rent a roll-off dumpster to dispose of everything else.

And while that approach might feel efficient, it’s a tremendous waste. Sometimes the most mundane-looking items can be worth a surprising amount of cash. So if you’re a recent heir, take a breath — and take stock. These items are worth more than you think.

1. Cookware

Vintage Texas Ware bowl
Kentin Waits / Money Talks News

There may be money in those kitchen cabinets! Buyers love cookware that’s been proven by years of use. Look for Pyrex and Fire-King casserole dishes. Texas Ware mixing bowls (pictured) and Revere Ware pots and pans.

Beyond their practical uses, many of these brands are hot collectibles. This jadeite casserole dish by Fire-King sold for $178.40 on eBay.

2. Midcentury furniture

midcentury modern couch sofa loveseat
TierneyMJ / Shutterstock.com

From architecture to accent tables, midcentury design is having a moment. If you’ve inherited a houseful of MidMod (midcentury modern) furniture, get ready to be pleasantly surprised.

Eager buyers aren’t limiting themselves to high-end designers. Decidedly midmarket when first produced, pieces by Heywood-Wakefield can now sell for several hundred dollars. And this Plycraft chair and ottoman (a knock-off of a famous Charles Eames design) recently sold for $1,350 on eBay.

See also: “8 Tips for Selling Inherited Family Furniture”

3. Vintage tools

Jeff Giniewicz / Shutterstock.com

At estate sales, I’ve noticed shoppers make a beeline for the garage or basement workshop in search of tools. Vintage Craftsman, Skil and Stanley products sell well because they’re better made than their contemporary counterparts.

And don’t worry about emptying the toolshed. If you’re lucky enough to inherit one of these 20 valuable old tools, you can afford to hire a handyman anytime you need one.

4. Old phones

rotary phone
evkaz / Shutterstock.com

Everything old is cool again. Collectors pay top dollar for rotary phones made of an early type of plastic called Bakelite. This Western Electric model from the 1930s sold for $155.99 on eBay.

Princess phones from the 1960s and ’70s are in demand too. Unusual colors like pink, mint green and orange command the highest prices. This aqua blue touchtone phone made by Bell System recently sold for $150 on eBay.

5. Retro clothing

Vintage retro clothes clothing
Marbury / Shutterstock.com

Have you inherited closets packed with vintage clothing, shoes and accessories? Buyers are waiting.

According to thredUP, an online consignment and thrift store, the used clothing market is expected to be worth $84 billion by 2030. That demand is fueled by a new generation of consumers who prioritize sustainability and appreciate the quality and style of vintage clothing.

Not convinced? This vintage pair of Florsheim Imperial shoes recently sold for $295 on eBay. And on Etsy, this three-piece Pendleton set for women is listed for $160.

See also: “11 Secrets to Finding Quality Clothing at Thrift Shops”

6. Stainless steel flatware

Antique silverware
Zadorozhnyi Viktor / Shutterstock.com

Stainless flatware sold in most department stores today should be called “bentware.” The quality and durability just doesn’t compare with pieces from the 1960s and ’70s.

Consumers are noticing and willing to “fork” over more cash for better quality. This 59-piece Oneida flatware set sold for $175 on eBay and this Montgomery Ward set brought $112.50.

7. Old eyeglasses

Hipster man with vintage glasses
MS_studio / Shutterstock.com

Brands like Warby Parker have carved out a niche by selling vintage-inspired eyeglass frames. But there’s a strong market for truly old-school glasses. The following styles are hot sellers right now:

  • “Cat-eye” frames from the 1950s
  • Round wire-frames
  • Horn-rimmed frames (sometimes referred to as “Buddy Holly glasses”)

Vintage examples in good condition can sell for $25-$65 per pair.

8. Vintage Christmas decorations

Sarycheva Olesia / Shutterstock.com

Yes, Virginia, there is a Santa Claus. Vintage glass ornaments made in Germany by Shiny Brite sell well all year long. This lot of 61 ornaments recently sold on eBay for $295, and this Shiny Brite tree-topper brought $75.

And remember those ceramic table-top Christmas trees from the 1970s? They’re selling for hundreds these days. This 23-inch tree made by Atlantic Molds is listed for $500 on Etsy.

9. Original artwork

Nataliia Zhekova / Shutterstock.com

Over the years, many older adults accumulated generations’ worth of family art. Purchased in a gallery or homemade by a budding artist, original creative work can sell for serious money.

And though it may be tempting, don’t cast aside art that looks crudely done. Sometimes referred to as “naïve” or “outsider art,” these pieces may have value. This painting of South Beach, Florida, signed simply “E.S.,” recently sold on eBay for $235.

10. Vintage vinyl

George Carlin records
digitalreflections / Shutterstock.com

Those milk crates full of vinyl records just might be hiding a treasure. Even if you don’t have one of the rarest records of all time, you could still make a handsome sum in the resale market. This Buckingham Nicks album (by the Fleetwood Mac members) recently sold for a rockin’ $149.99 on eBay.

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

Source: moneytalksnews.com

A Guide to the VA Home Loan for 2022

When looking for a way to fund the dream of home ownership, many men and women who served or are serving in the United States military look into VA loans.

The Department of Veterans Affairs — formerly the Veterans Administration — loan program is for service members, veterans and eligible surviving spouses to help them become homeowners.

“We’re looking for the VA home loan to be the program of choice for veterans,” said Terry Rouch, assistant director for loan policy and valuation with the Department of Veterans Affairs. “This is what we consider one of the major benefits for their military service.”

While many of the terms are favorable, in some cases, a VA loan might not always be the best option for those who are eligible, so it is important to understand how a VA loan compares to a conventional loan and how and when they can be used.

What Is a VA Loan?

A VA loan is a mortgage loan for qualifying military personnel, veterans and surviving spouses administered through the Department of Veteran Affairs. The loans are made through private lenders but backed by the federal government. Among the benefits are lower interest rates and often no down payment.

The main benefits of a VA loan are:

  • No down payment in many cases.
  • Often lower interest rates than conventional mortgages.
  • Limited closing costs.
  • No need for PMI (private mortgage insurance).
  • No penalty for prepayments or paying off the loan early.

“In the past year, we guaranteed more loans than we’ve ever done in the entire history of the program,” Rouch said. “We had 1.44 million loans in the fiscal year of 2021.”

Rouch said the fact PMI is never required with a VA loan is a huge benefit. Conventional lenders often require PMI if the buyer is making less than a 20% down payment.

Michael Anderson, a mortgage loan officer with Charter West Bank in the Omaha, Nebraska, area, said using the VA home loan program increases buying power.

“Say you wanted to keep your payment at $1,500. If you have PMI, you’re going to be able to buy less of a home because you need to add in that PMI portion,” Anderson said.

About 40% of Anderson’s clients are currently serving or have served since the area is home to Offutt Air Force Base. Anderson said he has worked at other banks where more than 90% of his clients were using VA loans.

Realities of a VA Loan in a Hot Housing Market

It’s no secret the real estate market is hot across the country. Prices are increasing and the time that homes are on the market is decreasing. In many cases, there are multiple offers. More and more, cash offers rule and those seeking loans are aced out.

There are misunderstandings about the VA loan process which make both buyers and sellers uneasy. One of those misconceptions is that the process takes much longer than a conventional loan.

“It’s really about advocacy at that point,” said Debbie Childs, a real estate agent with the Real Estate Group in Virginia Beach, Virginia.

She often has the loan officer who is working with her clients call the listing agent to vouch for their mutual client.

Childs said to sweeten the deal, she will add a clause saying if the VA appraisal finds anything that needs to be fixed, the buyer will incur the cost.

Sometimes, the seller will pick an offer based on the fastest closing. In this case, cash offers are more attractive because the deal can close quickly.

Childs said most of her VA loans have come through in about 30 to 45 days. According to Fannie Mae, the average closing time for a conventional loan is 47 days.

Sometimes it takes a conversation between the loan officer and listing agent to get a deal done, providing proof the buyer is serious and has the funding in place.

Meeting VA Loan Requirements

Even with a VA loan, the borrower must still meet the lender’s credit and income requirements so borrowing money to buy a home is not a guarantee, but having a VA loan can help make things easier on the borrower.

“It’s difficult in many instances for a veteran or an active duty service member to actually save money simply because they’re limited on the amount of income that they’re earning and they’re constantly being transferred to different duty stations, which makes it hard for families to set up a budget to set aside a down payment,” Rouch, himself a Navy veteran, explained.

A VA loan is only for primary residences and that residence must meet building codes and safety standards, so it’s not possible to use a VA loan for a vacation or investment home or a real fixer upper.

There are also funding fees for VA loans based on a percentage of the loan with rates set by the federal government.

All VA loans have funding fees except if the borrower:

  •  Receives or is eligible to receive compensation for a service-related disability.
  • Received a Purple Heart.
  • Is the surviving spouse of a veteran who died during service or of a service-related disability.

The funding fee is similar to the points conventional lenders charge for a loan.

Who Are VA Loans For?

Contrary to what some might think, VA loans aren’t just for first-time home buyers.

“Many people utilize the VA program one time when they are young and they purchase their first home (using a) VA loan, but they don’t ever go back and use it again,” Rouch said. “We do want people to know this is a lifetime benefit so once they become eligible, they can use that for their entire lives.”

According to the VA website, as of 2020, there is no limit to the amount of a loan if you meet the conditions of having full entitlement, which means you have:

  • Never used the home loan benefit, or
  •  Paid a previous VA loan in full and sold the property, or
  • Used the home loan benefit, but had a foreclosure or short sale and repaid it in full.

If you do not meet the conditions for having a full entitlement, there may be a loan limit, based on where you live.

The limit is based on the county where you live and the Federal Housing Finance Agency has a site to figure it out. Typically, in 2022 it is $647,200 but higher in some areas where it is $970,800.

Rouch said service after the loan is another advantage of using a VA home loan.

“If someone becomes delinquent or has a situation that would create a scenario where they need to do a modification, the VA is very workable with veterans. We want to ensure that they not only get a loan but to maintain that home as well.”

He said they work with loan servicers to make sure veterans are taken care of.

“On that odd chance or that situation that may occur where they become delinquent, they can feel comfortable knowing that the VA has got their back there too and that we’re there to try to help.”

Types of VA Loans

Under the heading of VA loans, there are several different types including purchase loans and cash out refinance loans.

  • Purchase loans: This loan helps veterans purchase a primary residence at a competitive interest rate without PMI and often without a down payment.
  • Cash out refinance loans. With this loan, owners can take cash out of a home’s equity to pay for things like home improvements or school, or to pay off debt.

The other types of VA loans are:

  •  Native American Direct Loan:  For Native Americans or people married to Native American veterans who can help finance the purchase, construction, or improvement of homes on Federal Trust Land.
  •  Interest Rate Reduction Refinance Loan: These are for borrowers who have an existing VA backed loan who want to reduce monthly payments or make their payments more stable. These are also known VA streamline refinance loans.
  • Adaptive Housing Grants: These loans are for veterans with permanent and total service-connected disability to help them purchase or build an adaptive home or to modify an existing home.
A female veteran picks up her child as she enters her home.
Getty Images

Who Is Eligible for a VA Loan?

In general, to be eligible for a VA loan, you must have served in the military for a specified length of time or be the surviving spouse of someone who died on active duty or from a service-related disability or the spouse of someone being held as a prisoner of war.

General length of service requirements are:

  • 181 days of active duty during peacetime.
  • 90 consecutive days during wartime.
  • More than six years of service with the National Guard or Reserves or 90 days under Title 32 active duty status with at least 30 days being consecutive.

The VA website section on eligibility requirements has more specifics depending on when you served, if you are an officer or a retired officer, and the times that constitute wartime or peacetime.

Character of service matters, so no other than honorable discharge is allowed so no dishonorable discharge or bad conduct.

To get a VA loan, you must have a valid Certificate of Eligibility (COE) to show you have satisfied the service requirements and duty status.

The application process is online as part of a benefits information site from the VA and the Department of Defense. Make sure to have any documents handy that you may need to prove your eligibility.

Even if you meet the service and duty status requirements, it is not a guarantee that you will receive a VA loan. You must still meet credit, income, and other requirements your lender might have.

How to Buy a House With a VA Loan

In many ways, buying a home with a VA loan is the same as buying a house with any other type of loan.

As you would with any loan, you need to find out how much of a mortgage you qualify for, but there’s one additional first step.

“I like to go out and get [a client’s] certificate of eligibility first from the VA portal just to make sure they’re eligible and then from that point, it’s just an application just like everyone else,” Anderson explained. “I’m going to document their credit, get their assets and other information.”

Not all lenders handle VA loans. According to the VA, there are more than 1,500 lenders that offer VA loans.

To find a VA loan lender in your area, Anderson recommended asking your real estate agent or talking to other veterans in your area or the area where you’re moving. In fact, you might want to look for a Realtor who has experience working with the military community and understand the specific needs and challenges.

Once you know how much you prequalify for, you can start looking at homes in your price range.

“It’s a challenging market and each pricing point is different and each neighborhood is different, so you really need a realtor guiding you,” said Childs, the Virginia Beach real estate agent. “When I’m representing a VA client, I first remind the listing agent that the VA buyer’s skin in the game is their service to our country because sometimes (they ask) where is their skin in the game? Where is their money down?”

The prequalification can also help agents and home sellers know you are serious about buying their home.

Appraisal and Underwriting

Once you find the home you want and put in an offer, there are a few more steps you must take with a VA loan including appraisal and underwriting.

“When I’m working with buyers, I try to get them through initial underwriting before they look at houses. That does really help a buyer to get all their paperwork in and processed so when I have my loan officer call the listing agent, I can say they are through initial underwriting already,” Childs said.

The VA appraisal for a loan is not the same as a home inspection or a traditional home appraisal. It must be done by a VA-certified appraiser, which can take up to two weeks depending on the market.

The VA appraisal is more stringent than appraisals for traditional loans and is done to make sure the property meets the minimum property requirements like working plumbing and functioning electrical systems and that it meets fair market value.

“The VA does do almost a secondary home inspection,” Childs explained, but said the reports often come back with just a few minor repairs.

Closing Costs

The closing costs are the fees the borrower pays to the lender, and with VA loans, they are different than with traditional mortgage loans.

With VA loans, lenders cannot charge the borrower prepayment penalties, attorney fees or settlement charges.

Lender can charge:

  • Origination fee: The lender can charge this fee, but there are limits about how much they can charge.
  • VA funding fee: This is a charge that is only for VA loans. It is a one-time fee that goes to the VA as a way to help pay for the program to continue. The fee varies based on the price of the home and if the borrower has a down payment.
  • VA appraisal fee. This fee varies from state to state and they were raised in 2021 to meet high demand. The fee can be $450 to more than $1,000 (parts of California and Alaska). The appraisal determines the market value of the home and ensures that it meets Department of Veteran Affairs requirements. 

If you don’t want to pay the closing costs up front, you can roll some of them into the mortgage amount, including the VA funding fee.

Frequently Asked Questions (FAQs) About VA Loans

We found the answers to some of the mostly commonly asked questions about VA loans.

Is There a Minimum Credit Score to Qualify for a VA Loan?

The VA does not set a minimum credit score, however lenders may require a credit score above a certain threshold to have a loan with their company. Your real estate agent should be able to steer you to a lender that can work with whatever credit score you have. Or help you understand ways to bring it up if necessary.

What is the Minimum Income for a VA Loan?

The VA does not set a minimum income for a loan, however borrowers still need to meet income and other standards from the lending institutions.

How Does a Home Qualify for a VA Loan?

The home must pass a VA appraisal in order for the buyer to use a VA loan. The VA appraisal makes sure the property meets the minimum property requirements like working plumbing and functioning electrical systems and that it meets fair market value.

Is There a Limit to the Amount you can borrow With a VA Loan?

There is no loan limit if the borrower meets basic eligibility criteria of service time and character of discharge. That assumes the borrower has a full loan benefit entitlement. The lender might set an amount the borrower qualifies for based on income, credit, and other criteria.

Who Qualifies for a VA Loan?

There are basic eligibility criteria of service time and character of discharge. General length of service requirements are: 181 days if served active duty during peacetime; 90 consecutive days during wartime; more than six years of service with National Guard or Reserves or 90 days under Title 32 active duty status with at least 30 days being consecutive. Surviving spouses can also be eligible in certain situations.

What can Disqualify You From a VA Loan?

Service members and veterans must meet discharge and military service obligations. A less than honorable discharge may disqualify someone from obtaining a VA loan as they could not meet time of service requirements.

Is it Easy to Get Approved for a VA home Loan?

Approval for a VA loan is not necessarily any easier or more difficult than approval for a conventional loan. The main differences are neither a down payment nor PMI (Private mortgage insurance) are required parts of VA loans.

Can I be Denied a VA Loan?

Eligibility for a VA loan does not always mean loan approval. Lenders might have other risk criteria they apply to loans that are in addition to VA requirements and guidelines.

Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing about finance, health, travel and other topics.

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Source: thepennyhoarder.com