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Home Ownership
Home Ownership

What's the Best Type of Mortgage for You?

When you're ready to buy a home, choosing the best lender and type of mortgage can seem daunting because there are many choices. Since no two real estate transactions or home buyers are alike, it's essential to get familiar with different mortgage products and programs. 

Let's take a look at the two main types of mortgages and several popular home loan programs. Choosing the right one for your situation is the key to buying a home you can afford. 

What is a mortgage?

First, here's a quick mortgage explainer. A mortgage is a loan used to buy real estate, such as a new or existing primary residence or vacation home. It states that your property is collateral for the debt, and if you don't make timely payments, the lender can take back the property to recover their losses.

In general, a mortgage doesn't pay for 100% of a home's purchase price.

In general, a mortgage doesn't pay for 100% of a home's purchase price. You typically must make a down payment, which could range from 3% to 10% or more, depending on the type of loan you qualify for. 

For example, if you agree to pay $300,000 for a home and have $15,000 to put down, you need a mortgage for the difference, or $285,000 ($300,000 – $15,000). In addition to a down payment, lenders charge a variety of processing fees that you either pay upfront or roll into your loan, which increases your debt.

At your real estate closing, the lender wires funds to the closing agent or attorney. After you sign a stack of mortgage and closing documents, your down payment and mortgage money go to the seller and various parties, such as a real estate broker, title company, inspector, surveyor, and insurance company. You leave the closing as a proud new homeowner and begin making mortgage payments the next month.

What is a fixed-rate mortgage?

The structure of your loan and payments depends on whether your interest rate is fixed or adjustable. So, understanding how these two main types of mortgage products work is essential.

A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy.

A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy. The most common fixed-rate mortgage terms are 15- and 30-years. But you can also find 10-, 20-, 40-, and even 50-year fixed-rate mortgages.

Getting a shorter mortgage means you pay it off faster and at a lower interest rate than with a longer-term option. For example, as of December 2020, the going rate for a 15-year fixed mortgage is 2.4%, and a 30-year is 2.8% APR. 

The downside is that shorter loans come with higher monthly payments. Many people opt for longer mortgages to pay as little as possible each month and make their home more affordable.

Here are some situations when getting a fixed-rate mortgage makes sense:

  • You see low or rising interest rates. Locking in a low rate for the life of your mortgage protects you against inflation. 
  • You want financial stability. Having the same mortgage payment for decades allows you to easily budget and avoid financial surprises. 
  • You don't plan to move for a while. Keeping a fixed-rate mortgage over the long term gives you the potential to save the most in interest, especially if interest rates go up.

What is an adjustable-rate mortgage (ARM)?

The second primary type of home loan is an adjustable-rate mortgage or ARM. Your interest rate and monthly payment can go up or down according to predetermined terms based on a financial index, such as the T-bill rate or LIBOR

Most ARMs are a hybrid of a fixed and adjustable product. They begin with a fixed-rate period and convert to an adjustable rate later on. The first number in the name of an ARM product is how many years are fixed for the introductory rate, and the second number is how often the rate could change after that.

For instance, a 5/1 ARM gives you five years with a fixed rate and then can adjust, or reset, every year starting in the sixth year. A 3/1 ARM has a fixed rate for three years with a potential rate adjustment every year, beginning in the fourth year.

When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go.

ARMs are typically 30-year products, but they can be shorter. With a 5/6 ARM, you pay the same rate for the first five years. Then the rate could change every six months for the remaining 25 years.

ARMs come with built-in caps for how much the interest rate can climb from one adjustment period to the next and the potential increase over the loan's life. When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go. In other words, you should be comfortable with the worst-case ARM scenario before getting one.

In general, the introductory interest rate for a 30-year ARM is lower than a 30-year fixed mortgage. But that hasn't been the case recently because rates are at historic lows. The idea is that rates are so low they likely have nowhere to go but up, making an ARM less attractive. 

I mentioned that the going rate for a 30-year fixed mortgage is 2.8%. Compare that to a 30-year 5/6 ARM, which is also 2.8% APR. When ARM rates are the same or higher than fixed rates, they don't give borrowers any upsides for taking a risk that their payment could increase. 

ARM lenders aren't making them attractive because they know once your introductory rate ends, you could refinance to a lower-rate fixed mortgage and they'd lose your business after just a few years. They could end up losing money if you haven't paid enough in fees and interest to offset their cost of issuing the loan.

Unless you believe that rates can drop further (or until ARM rates are low enough to offer borrowers significant savings), they aren't a wise choice in the near term.

So, unless you believe that rates can drop further or until ARM rates are low enough to offer borrowers significant savings, they aren't a wise choice in the near term. However, always discuss your mortgage options with potential lenders, so you evaluate them in light of current economic conditions.

RELATED: How to Prepare Your Credit for a Mortgage Approval

5 types of home loan programs 

Now that you understand the fundamental differences between fixed- and adjustable-rate mortgages, here are five loan programs you may qualify for.

1. Conventional loans

Conventional loans are the most common type of mortgage. They're also known as a "conforming loan" when they conform to standards set by Fannie Mae and Freddie Mac. These federally-backed companies buy and guarantee mortgages issued through lenders in the secondary mortgage market. Lenders sell mortgages to Fannie and Freddie so they can continuously supply new borrowers with mortgage funds. 

Conventional loans are popular because most lenders—including mortgage companies, banks, and credit unions—offer them. Borrowers can pay as little as 3% down; however, paying 20% eliminates the requirement to pay an additional monthly private mortgage insurance (PMI) premium.

2. FHA loans

FHA or Federal Housing Administration loans come with lenient underwriting standards, making homeownership a reality for more Americans. Borrowers need a 3.5% down payment and can have lower credit scores and income than with a conventional loan. 

3. VA loans

VA or Veterans Administration loans give those with eligible military service a zero-down loan with no monthly private mortgage insurance required. 

4. USDA loans

The USDA or U.S. Department of Agriculture gives loans to buyers who plan to live in rural and suburban areas. Borrowers who meet certain income limits can get zero-down payments and low-rate mortgage insurance premiums.

5. Jumbo loans

Jumbo loans are higher mortgage amounts than what's allowed by Fannie Mae and Freddie Mac, so they're also known as non-conforming loans. In general, they exceed approximately $500,000 in most areas.

Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.

This isn't a complete list of all the loan programs you may qualify for, so be sure to ask potential lenders for recommendations. Remember that just because you're eligible for a program, such as a VA loan, that doesn't necessarily mean it's the best option. Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.

Source: quickanddirtytips.com

Home Ownership, Investing, Personal Finance

Where Should You Retire? A Comprehensive Guide To Retirement Costs In All 50 States

Studies suggest you save between $700,000 and $2 million for retirement, based on this crucial factor: location. Discover which states are cheaper and why!Studies suggest you save between $700,000 and $2 million for retirement, based on this crucial factor: location. Discover which states are cheaper and why!

The post Where Should You Retire? A Comprehensive Guide To Retirement Costs In All 50 States appeared first on Money Under 30.

Source: moneyunder30.com

Home Ownership, Student Finances

Why You Need to Open a UGMA/UTMA Account for Your Kids

From the Mint team: As you know, Mint is a free product you can use to help stay on top of your finances. So, how do we make money? We get paid by the advertisers on our site. This compensation may affect how and where products appear on the site (and in what order). Mint.com does not include all products or all available offers. Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

 

Saving and investing for college expenses may seem overwhelming, but setting aside even small amounts can give your child a head start. While many people are aware of tax-efficient investing accounts like 529 plans, you may not know about UGMA/UTMA accounts – another way to save for educational and other expenses.

In this article, we’ll take a look at UGMA and UTMA custodial accounts, what they are, and how to determine the best way to save for your kids’ future, while getting tax advantages.

What are UGMA and UTMA accounts?

UGMA stands for the Uniform Gifts to Minors Act and UTMA stands for Uniform Transfers to Minors Act. Account-holders are “custodians,” and may transfer money into the account to benefit the minor, but the money is managed by the custodian. Typically the money is released to the minor at the age of majority (usually 21 but sometimes 18 or other ages).

How do UGMA and UTMA accounts differ from 529 plans?

529 plans differ from UGMA/UTMA account in a few key areas:

  • 529 plans can only be used for educational expenses, while UGMA/UTMA accounts can be used for anything that benefits the child. .
  • 529 plans are owned and controlled by the person who created the account – with UTMA/UGMA accounts, the funds are transferred to the beneficiary at the age of majority.
  • Unlike 529 plans, custodial accounts are considered the property of the child, which means that it counts for a higher percentage in financial aid calculations.

The two types of plans share some similarities:

  • Both types of accounts are considered custodial accounts that can be used for the benefit of a minor.
  • Anyone can contribute to either type of account — there are no restrictions based on one’s personal income

If you have a medium to long-term horizon, either a UGMA/UTMA account or a 529 account is usually better than just putting your money in a savings account at a low-interest rate. And don’t forget that it is possible to have both a 529 plan AND a UGMA/UTMA account for the same child.

Why You Need to Open a UGMA/UTMA Account for Your Kids

Unlike with a 529 plan, the funds in a custodial account do not have to be used solely for higher-education expenses. The custodian can withdraw money in a UGMA/UTMA custodial account for any expense that benefits the child, like technology, transportation, housing, or any other expense for the child.

The biggest advantage of UGMA/UTMA custodial accounts is their flexibility. Because they can be used for a wide array of expenses, you can use the money in the account even if your child chooses not to go to college. While earnings do not grow completely tax-free like in a 529 plan, earnings in a UGMA/UTMA account are tax-advantaged, but in a different way.

Depending on how you file your tax return, a guardian can choose to include their child’s unearned income with their own tax return. Unearned income is money that doesn’t come from employment, like from interest or investments. In 2020, the first $1,100 of a child’s unearned income can be claimed on the guardians’ tax return tax-free, and the next $1,100 is taxed at the child’s tax rate, which is likely much lower than their parent’s.

Things to watch out for with UGMA or UTMA accounts

If you’re looking to save money or transfer assets to your kids for a variety of expenses beyond education, a UGMA/UTMA custodial account can make a lot of sense. One thing to watch out for is that a UGMA/UTMA account is tied specifically to one named beneficiary. Unlike a 529 plan, where you can transfer the money in an account to a sibling or other beneficiary, with a UGMA/UTMA account, any unused funds must be used or distributed by the time the child reaches their age of majority or their state’s maximum age for custodial accounts.

Apps like Acorns are making it easy to start a UTMA/UGMA account with their new product, Acorns Early. You can start in under a few minutes and set Recurring Investments starting at $5 a day, week, or month. Fun fact: If you invest $5 a day from birth, considering a 7% average annual market return, you could have more than $70,000 by the time the child turns 18. To learn more, visit Acorns.com/Early.

The post Why You Need to Open a UGMA/UTMA Account for Your Kids appeared first on MintLife Blog.

Source: mint.intuit.com

Home Ownership, Personal Finance, Real Estate

Is a Fixer-Upper Home Worth the Investment?

fixer-upper

Buying fixer-upper homes is currently a popular investment in the housing market, especially since lower-priced houses increase housing confidence in home buyers. On the one hand, it is a great way to purchase a home below market value and sell it for more than you paid. On the other hand, it often seems to be more work than people anticipate, and sometimes the final product doesn’t end up being worth as much time, effort, and money as people put into it.

So, is a fixer-upper home worth it? The answer depends on a variety of factors and your current situation. Thankfully, we have a list of pros and cons as well as tips and recommendations if you’re trying to decide if a fixer-upper home is the right decision for you.

The Pros

  • You have more creative leeway. You can build, renovate, and design the house the way you want.
  • You can decide what places in the home you want to spend more money on (i.e., a better kitchen or a better bedroom).
  • You have the opportunity to make the home worth a great deal more than you paid.
  • You can likely flip the home for more money
  • Fixer-upper homes are typically 8% below the market value.
  • You will pay less in property taxes because they are calculated based on your home’s sale price.
  • If you have a home warranty, you can save money on replacing and repairing broken appliances and systems.

The Cons

  • Most fixer-upper homes are not move-in ready.
  • Renovations are costly.
  • You also don’t have an exact total of what everything will cost, making the financial bottom line uncertain.
  • Fixer-upper homes can be a risk. You never know when things are going to go wrong, so you have to anticipate possible complications.
  • If you need to make structural changes, you’ll need a building permit, which is around $1,000, according to HomeAdvisor.
  • It can take months or even longer to finish a fixer-upper.

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Do a Home Inspection

If you are interested in a fixer-upper home, you want to begin with a home inspection. The inspector will likely be able to determine whether the home is worth the investment or not, depending on the severity of the necessary renovations.

Note that if the necessary improvements in the house are structural, such as roof and/or wall issues, it’s likely not worth the investment. These type of renovations are complicated and extremely expensive. They are also not typically noticeable by potential buyers, so they fail to raise the value of your home enough to make up for the money you invested. However, if you have a written report from your home inspector listing the major issues and the estimated repair costs, you might be able to get the seller to lower the cost of the house to account for the added repairs you’ll have to do.

Get an Estimate of Renovation Costs

Deciding if a fixer-upper home is worth it is heavily influenced by the estimated cost of renovations. As stated above, home inspectors can often help you with this. Note all of the necessary renovations and how much they will cost by using a home inspector or a contractor; it’s better to over quote this than under quote. Then you want to subtract this from the home’s projected market value (after repairs and renovations). You can estimate a home’s market value by researching the neighboring homes’ values. Finally, you need to deduct 5 to 10 percent more for possible complications and other possibilities.

Determine If You Need Permits

Depending on your area, you might need permits to do certain renovations. If you build without obtaining the proper permits, you could have difficulty selling the house in the future. Make sure you have the money to get the required permits before committing to remodeling.

Identify the Skills You Have and What You Can DIY

Part of purchasing a fixer-upper is having to do much of the work on your own. Decide if you have the skills to do the necessary renovations. If you can do most of the repairs by yourself, figure out what you can DIY and hire someone to do the rest. If you’re doing most of the labor, all you need are the parts and equipment for the renovations, and you won’t have to waste money paying someone else.

If you don’t have the ability to do a large chunk of the workload yourself, consider staying away from a fixer-upper home. Hiring someone to do most of the work for you will likely cost more than the renovations are worth in value.

Make Sure You Have the Time—and the Motivation

Fixer-upper homes require a considerable amount of time. If you think you’re too busy to manage the home renovations, consider going with a move-in ready home instead. Especially if you delay pressing repairs, you could risk losing money and value in your home.

Along with a time sacrifice, fixer-uppers require motivation to deal with such a huge project. Ensure you have the motivation and determination to finish renovations before committing to a fixer-upper home. You don’t want to take the plunge and buy the home just to get burnt out halfway through and regret your decision.

Check Financing Options

Buying a fixer-upper home is more financially complicated than your typical finished home; you will need money for the routine down payment and closing costs, but you will also need money for the home repairs and any possible complications in the renovation process.

If you don’t have enough money for the renovations up front, there are borrowing options such as the 203(k) loan that is meant for home repair, improvement, and reconstruction. A multitude of other loan options can ease the financial difficulty.

Avoid Being House Poor

Being house poor is when you spend the majority of your income on your home ownership. This can include your mortgage payment, property taxes, utilities, maintenance costs, etc. If choosing a fixer-upper home is going to take the majority of your money, you’re most likely better off to wait until you have additional income to handle the financial burden.

Take into account your debt-to-income ratio (DTI) when deciding if a fixer-upper home will make you house poor. Your DTI is all of your monthly debt payments divided by your gross monthly income. Generally, a 36 percent or lower DTI is ideal.

Plan for Complications

With fixer-upper homes comes unpredictability. There are unexpected issues and costs that can leave you scrambling if you’re not prepared. Although you can’t predict the future, you can still take precautions so you are as prepared as possible if something goes wrong, whether that be additional expenses, time constraints, etc. You don’t want to be left in a tough spot because you assumed everything would go as planned.

The Bottom Line

Fixer-upper homes can be a great home investment, but a great deal of responsibility and financial burden comes with it. Make sure you have the resources and the time to manage such a project. If you do, use the above tips in your fixer-upper journey. If not, maybe consider a move-in ready home or you could postpone the fixer-upper project until you are more prepared.

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The post Is a Fixer-Upper Home Worth the Investment? appeared first on Credit.com.

Source: credit.com

Home Ownership

5 Steps to Take When Budgeting for a Career Break

Not everyone’s career path is a 40+ year marathon working full time until you can finally come up for air in your golden years. Sometimes you need a little break along the way. Taking time away from the workforce — whether it’s to travel, take care of loved ones, learn a new skill or whatever […]

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

Budgeting, Home Ownership

Mvelopes Review: Digitize the Cash Envelope Method With This App

The cash envelope budgeting method can be a very effective way to control your spending.

The premise is simple. You come up with spending limits for your variable expenses, like groceries, eating out or entertainment. Next, you fill up envelopes with cash to match what you’ve budgeted for each category.

As you shop throughout the month, you can only spend the amount of money in your envelopes. Once you’ve run out of cash, you’ve got to freeze spending until it’s time to fill the envelopes again.

There’s one significant flaw in this budgeting method though: What if you don’t shop with cash? Many people opt for online shopping or use a debit or credit card rather than dollars and coins.

Fortunately, there are ways to adapt the cash envelope budget for cashless shoppers. One of the solutions is to use a budgeting app, like Mvelopes.

In this Mvelopes review, we’ll explain how this app works to help you keep your spending in check.

What Is Mvelopes?

Mvelopes is a budgeting app from Finicity, a fintech company owned by Mastercard. It’s based on the cash envelope system, so all of the categories you set up in your budget are essentially your digital envelopes.

Mvelopes syncs to your financial accounts, so whenever you pay a bill, shop online or swipe your debit card, that transaction shows up in the app. The app uses bank-level encryption to keep your information safe.

Once you assign the transaction to its appropriate envelope, you’ll automatically see how much money you have left to spend in that category. And if you do happen to use cash for something, you can manually enter that info in the app.

Pro Tip

New to cash envelope budgeting? Here’s how the cash envelope system works.

How to Get Started with Mvelopes

You can download the Mvelopes app for your Apple or Android mobile device — or you can create an account and manage your money straight from your computer.

Mvelopes offers three tiers of service. Mvelopes Basic costs $5.97 per month or $69 per year and lets you set up your budget by syncing to all your financial accounts. The next step up is Mvelopes Premier, which costs $9.97 per month or $99 per year and includes access to the Mvelopes Learning Center and Debt Reduction Center.

The Mvelopes Learning Center has online video lessons on topics like mastering your spending, creating an emergency fund, insuring your future, home buying and how to have stress-free holidays. With the Debt Reduction Center, you get support to create a tailor-made debt payoff plan.

The app’s top tier of service is Mvelopes Plus. This plan connects you with a real-live personal finance trainer for one-on-one virtual sessions four times a year. You’ll also get higher priority customer service support. Mvelopes Plus costs $19.97 a month or $199 a year.

Although there is no free version of Mvelopes, you can sign up for a 30-day free trial of Mvelopes Premier — the app’s most popular option — to test out the service with no financial commitment.

FROM THE BUDGETING FORUM
Grocery Shopping – How far away is your usual store?
1/29/19 @ 9:29 PM
F
We should to learn to do the math
1/25/21 @ 2:24 PM
Karen E Peyton
Starting a budget
10/29/20 @ 5:43 PM
S
A reminder NOT to spend.
1/7/20 @ 12:55 AM
Jobelle Collie
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The Pros and Cons of Mvelopes

Mvelopes can sync with over 16,000 financial institutions, so most users can track their spending with minimal effort. Keeping your spending in check means you can free up more money to go toward saving or debt.

According to the company, Mvelopes has helped users save an average of $6,175 and pay off an average of $17,425 of debt.

One disadvantage of this app, however, is that it’s not free, like the budgeting apps Mint or Clarity Money. Also, if you’re looking for a tool that tracks more aspects of your financial life, such as your net worth and where you stand with your investments, you might want to consider an app like Personal Capital.

Still looking for the perfect app? Here’s our roundup of the best expense tracking apps. 

Who Is Mvelopes For?

The Mvelopes app is a great option for fans of the cash envelope method who are looking to digitize their money management.

It is also a good choice for people looking to nix overspending, because the app keeps you up-to-date with how much funds you have left to spend in each budget category.

Additionally, Mvelopes can help you boost your personal finance knowledge via online courses or pay down debt with a tailored payoff plan.

By signing up for the free 30-day trial, you’ll have a month to decide whether Mvelopes is the right choice for you.

Feeling overwhelmed? Create a budget that works for you with our budgeting bootcamp!

Nicole Dow is a senior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com