Category Minimalist LIfestyle

FHA vs. Conventional Loans: Which Is Better?

When it comes to affording a new home, you have a few types of home loans to choose from. Prospective homebuyers often compare the FHA vs. the conventional loan when researching loans. Each loan type has certain stereotypes associated with them, but we are here to give you the facts about both FHA and conventional loans. This post will help you understand what each loan is, familiarize you with the differences between them, and provide some guidelines for how to pick which one is best for you.

What Is An FHA Loan?

An FHA loan is insured by the Federal Housing Administration (FHA). These loans are issued by private lenders, but lenders are protected from losses by the FHA if the homeowner fails to repay. FHA loans are generally used to refinance or buy a home.

What Is A Conventional Loan?

A conventional loan is supplied by a private lender and isn’t federally insured. Requirements for obtaining a conventional loan vary depending on the lender. When used to buy property, conventional loans are typically known as mortgages.

What Is A Conventional Loan?

Differences Between FHA and Conventional Loans

The main difference between FHA and conventional loans is whether or not they are insured by the federal government. Conventional loans aren’t federally backed, so it’s riskier for the lender to loan money. On the other hand, FHA loans are protected by the government, and as a result of less risk, they can typically offer better deals.

This difference in federal insurance is the reason why FHA and conventional loans vary when it comes to the details of the loan. Keep reading to learn the differences regarding credit requirements, minimum down payments, debt-to-income ratios, loan limits, mortgage insurance, and closing costs.

FHA Loan Conventional Loan
Minimum Credit Score 500 620
Minimum Down Payment 3.5% 3%
Maximum Debt-to-Income Ratio Credit score of 500: 43%
Credit score of 580+: 43-50%
Credit score of 620: 33-36%
Credit score of 740+: 36-45%
Loan Limits Low-cost counties: $356,362
High-cost counties: $822,375
Contiguous US: $548,250
High-cost counties, AK, HI, and US territories: $822,375
Mortgage Insurance Mortgage insurance premiums required. Private mortgage insurance required with down payments less than 20%.
Property Standards Stricter standards, property purchased must be a primary residence. Flexible standards, property purchased doesn’t have to be a primary residence.

Sources: FHA Single Family Housing Policy Handbook | Fannie Mae 1 2 | Federal Housing Finance Agency | Freddie Mac | HUD 1 2 | Consumer Financial Protection Bureau 1 2

Credit Score

Your credit score is a determining factor in your loan eligibility. Your credit score is measured on a scale of 300 (poor credit) to 850 (excellent credit). Good credit helps you get approved for loans more easily and at better rates. FHA and conventional loans differ in their credit score requirements and represent financial options for individuals at either end of the credit spectrum.

Minimum Credit Score for FHA Loan: 500

  • Accepts a credit score as low as 500, but usually with a 10% down payment
  • These loans accept lower credit scores because they are insured
  • Note: Some lenders may only issue FHA loans with higher credit scores

Minimum Credit Score for Conventional Loan: 620

  • Accepted score may vary from lender to lender
  • These loans are usually offered to individuals with strong credit because they present less risk to lenders

Minimum Down Payment

A down payment is the sum of money that is paid as a percentage of your purchase up-front.

Minimum Down Payment on an FHA loan:

  • 10% of your purchase with 500 credit score
  • 3.5% of your purchase with 580+ credit score

Minimum Down Payment on a Conventional Loan:

  • 3% of your purchase can be put down with good credit
  • 5% to 20% of your purchase price is typical

Debt-to-Income Ratio

Your debt-to-income ratio is the amount of money paid toward debt each month divided by your total monthly income. To be eligible for a loan, you must be at or below the maximum debt-to-income (DTI) ratio.

Maximum DTI Ratio Guidelines for FHA loans:

  • 43% with a credit score of 500
  • 43–50% with a credit score of 580

Maximum DTI Ratio Guidelines For Conventional Loans:

  • 33-36% with a credit score lower than 740
  • 36-45% with a credit score of 740 or higher
  • 50% highest allowed through Fannie Mae

Loan Limits

Both FHA and conventional loans have limits on the amount that you can borrow. Loan limits vary based on your location and the year your loan is borrowed. Find 2021 loan limits specific to your county through the Federal Housing Finance Agency.

2021 FHA Loan Limits

  • High-cost counties: $822,375
  • Low-cost counties: $356,362

2021 Conventional Loan Limits

  • Contiguous US (excluding high-cost counties): $548,250
  • Alaska, Hawaii, US territories, and high-cost counties: $822,375

Mortgage Insurance

Mortgage insurance is taken out to protect the lender from losses in case you fail to repay your loan. Whether you will pay private mortgage insurance or mortgage insurance premiums is based on your loan type and down payment percentage.

FHA Loan

  • Mortgage insurance is required for all FHA loans.
  • It is paid to the FHA in the form of mortgage insurance premiums and includes an up-front and monthly premium.
  • MIP payments last the entire life of your FHA loan.
  • To get rid of MIPs after paying 20% of your loan, you can choose to refinance into a conventional loan.

Conventional Loan

  • Private mortgage insurance (PMI) is only required when a down payment below 20% is made.
  • PMI comes in different forms: monthly premium, up-front premium, and split premiums.
  • PMI requirements stop once you have met one of three requirements:
    1. Principal loan amount is reduced to 80% before the loan term ends.
    2. At least 78% of the principal balance is scheduled to be paid down.
    3. The halfway point of your loan term has passed.

Property Standards

There are different property standards that must be met to use each loan. FHA loans have stricter requirements, while conventional loans have more flexibility.

FHA Loan

  • Property purchased with FHA loans must be your principal residence, meaning the borrower has to occupy the residence
  • FHA loans can’t be used to invest in property (e.g., renting out or flipping)
  • Title must be in the borrower’s name or name of a living trust

Conventional Loan

  • Property purchased with a conventional loan doesn’t have to be a principal residence — second or third residences are allowed
  • Conventional loans can be used to purchase investment properties

Pros and Cons of FHA vs. Conventional Loans

As a result of the various differences between FHA and conventional loans, each type has its respective pros and cons.

FHA Loan

Conventional Loan

Pros

  • Qualify with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit
  • Lowest option for down payments with good credit
  • PMI cancellable
  • More affordable with good credit
  • Property doesn’t have to be your main home

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your main home
  • Need higher credit and lower DTI to qualify
  • Typically has larger down payments
  • PMI required with a down payment less than 20%

Pros and Cons of FHA Loans

FHA loans are government-regulated and insured to extend flexible opportunities for homeownership. They’re flexible regarding credit and DTI, but stricter about insurance and property standards.

Pros

  • Flexible qualification with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your primary residence

Pros and Cons of Conventional Loans

Conventional loans can also offer flexibility, but generally only if you have good credit and demonstrate reduced risk to the lender. These loans have stricter qualifications, but flexibility in other areas.

Pros

  • Lowest option for down payments (3% with good credit)
  • Private mortgage insurance can be canceled (must meet requirements)
  • More affordable with good credit
  • Property purchased doesn’t have to be a primary residence

Cons

  • Strict qualifications require higher credit and lower DTI
  • Larger down payments are typical
  • Private mortgage insurance required with a down payment less than 20%

Which Loan Is Better For You?

Both FHA and conventional loans have their advantages and disadvantages. Here are some general guidelines for when to use an FHA loan or a conventional loan.

When To Use an FHA Loan

  • You have a low credit score (500–619)
  • Your DTI ratio is on the higher side (between 45–50%)
  • You can only afford a small down payment
  • You plan to use the property as your primary residence

When To Use an FHA Loan

When To Use a Conventional Loan

  • Your credit score is fairly good (620 or above)
  • Your DTI ratio is on the lower side (33–36%)
  • You can afford a larger down payment
  • You want flexibility with insurance and repaying your loan

When To Use a Conventional Loan

It’s important to thoroughly research your options before choosing a loan. A key takeaway when comparing FHA vs. conventional loans is that FHA loans are federally insured and conventional loans aren’t. This distinction results in different qualification and payment requirements for each loan.

Use the information in this post to carefully compare the differences in accepted credit scores, minimum down payments, loan limits, maximum debt-to-income ratios, mortgage insurance and property standards. In doing so, choose the loan that works for your circumstances and helps you best afford the home of your dreams.

Sources: FHA Single Family Housing Policy Handbook | US Dept. of Housing and Urban Development | Federal Housing Finance Agency | Freddie Mac

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Why It Pays to Be Single (Infographic)

It can be hard being single, especially when Valentine’s Day rolls around, and you see others celebrating their relationships. It’s equally difficult when TV shows and movies portray relationships as the gold standard that everyone should strive for. 

The truth is that being a party of one comes with plenty of benefits. You have more time to figure out who you are and who you want to be. Spontaneity comes easily because you don’t have to consider what your partner wants. You may even pick up an interesting new hobby. 

One of the best benefits of being single is the opportunity to whip your finances into shape and save a ton of money! For example, consider your monthly grocery budget. The United States Department of Agriculture estimates that the monthly cost of groceries for women under 50 is about $256. For men under 50, it’s about $302. Meanwhile, the monthly grocery cost for families of two is about $613. 

Let’s do some quick math. That means each partner winds up paying about $307 per month. That’s $51 more than a single woman would pay for groceries each month and $5 more per month for men. (That’s not to mention that, if you’re single, you’ll likely spend a lot less on going out for food!) 

Additionally, if you’re not in a relationship, you can live simply, take up a side hustle, and even qualify for more financial aid than you would if you had a partner.  

Explore the infographic to learn exactly how much you can save by being single and what steps you should take to set yourself up for future success.

14-surprising-benefits-of-being-single

Sources: CNN Money | USDA | Elite Singles | National Retail Federation | Huffington Post | Forbes | National Center for Education Statistics | RENTCafe | The Balance | Social Security Administration | Psychology Today | Daily Mail | American Psychological Association | BBC | Science Alert 

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Move Like a Minimalist: How to Avoid New Nest Syndrome

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Spring is a common time when people start buying new homes, or simply moving to new apartments across town. Moving by itself is an incredibly stressful time, and no one needs to add additional financial stress into the mix. Moving tends to be expensive, transporting things across town (or further) and getting everything settled can put a major dent in an established monthly budget. Once you get to your new place, it’s likely that the layout of the furniture won’t be the same, and you’ll need to figure out how to best fit everything in while very likely buying some new furniture to make everything work.

When you’re starting the moving process and getting settled into your new place, don’t let the expenses get out of control. Here are some tips to help prevent the new nest instinct from taking over and ruining your savings and budgeting progress.

1. Walk The New Space To See How Things Will Fit

Take some time to walk through your new home, make and record some measurements and roughly plan where things will go. Doing so will allow you to declutter the things that you either don’t need or simply won’t fit in the new space. There’s no sense moving something that you’ll just end up getting rid of shortly after. This preparation will allow you to save money by potentially renting a smaller, less expensive moving truck.

2. Wait To Buy New Things Until You’ve Lived There For A While

While it’s tempting to go to your favorite furniture store and buy everything you think you’ll need in your new home, I’d highly suggest waiting until you’ve lived there for a few weeks. Unless something is absolutely essential, you will benefit from waiting and seeing what things you actually need. This gives you the opportunity to find the small quirks and needs of that specific home and you won’t waste money buying things before you know you need them.

3. Take Your Time And Acquire Unique or Interesting Pieces

Just like number two, if you’re willing to wait a little bit and acquire things more slowly, you’re more able to find interesting and unique pieces of furniture to bring into your space. These pieces will add more character to your home, and really bring it to life. If you’re the DIY type, you can make some custom solutions that will perfectly fit the space you have. Even if it’s repurposing and upcycling an antique piece by painting or refinishing it, it’s guaranteed to be cheaper and likely more durable than something from a local superstore.

4. Remember That White Space Is Perfectly Fine

Especially if the space you’re moving into is bigger than your previous home, remember that you don’t need to fill up every corner of every room. It’s okay to leave big open spaces in your new living quarters, for a clean, uncluttered look. If you don’t feel the need to fill in all the space, you’ll save a ton of money on potential furniture and decorative purchases along the way. Focus on fewer, more meaningful purchases and you’re good to go.

5. Don’t Buy Everything Right Away

When visiting the homes of parents and other folks that have lived in their homes for a long time, it’s easy to feel like that level of furnishing is expected. Don’t go into debt immediately buying furniture for your new place! The reality is that most people have had years (sometimes decades) to furnish their home and have done it over a very long period of time. Relieve yourself of the pressure to have a perfectly decked out home and feel free to leave some rooms open, undecorated, or even unused if you want. It’s your space, and you get to choose exactly how you use it.

If you follow these tips, you’ll significantly cut the cost of moving into a new home whether it’s an apartment, a house, or anything in between. While you might feel pressure to get everything set up right away, take your time and make everything work to your advantage.

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Lessons Learned from 6 Years Without a Car

If you’ve ever considered going car-free, I’m here to tell you to take the plunge.

Over the last 6 years I’ve lived in 3 different cities, sans car (much to my suburban mother’s amazement). I got rid of my car in my early 20s, the moment I found a job that was walking-distance from my first studio apartment in Seattle.

Being car-free isn’t always easy. Little trips can be a hassle, and getting out of town for the weekend is more complex. But I’ve found it makes day-to-day life more carefree. If you’re walking, biking, or bussing around your city, you get to discover things you never would in your car, save a ton of cash, and live a little greener.

Here’s what I’ve learned from years without a vehicle:

Designing your life, car free

When you don’t have a car, you’ll consider drastically different factors when you look for a place to live.

Here are the top priorities I looked for in a new place, in order of importance:

  • Grocery store proximity – I can get a new job that’s closer, but I can’t build a new grocery store. Sure, you can get food delivered, but I prefered to save money and get a little exercise doing my own shopping. I tried to keep my grocery runs to a 10 minute walk or less.
  • Neighborhood walkability – You can get a general idea of how walkable things are on Walkscore. If you browse a few neighborhoods, you’ll quickly see the difference between suburban sprawl and easily areas where you can cover most of your errands on foot or bike.
  • Commute options – Are you close to a bus line or, better yet, a transit hub? Limited transit options may not be a dealbreaker, but you should at least be sure your regular routes are covered.

These criteria often led me to centrally located spots—downtown hubs, or neighborhoods that are fairly self-contained. That meant higher rent, but the money and time I saved not driving made it worthwhile.

Enjoy that extra $$

When you get rid of your car, suddenly you’ll notice hundreds more dollars in your pocket every month (surprise!). I owned my vehicle outright, but was still paying ~$300 per month in parking, gas, and insurance. Gross.

I chose to put that cash in savings. Even as an entry-level receptionist, I suddenly had extra money to add to my retirement and my emergency fund.

Getting rid of the car built my cash cushion in two ways — lower monthly expenses, and less risk. An accident or a mechanical failure could set you back at any time, making it tough to plan. A flat monthly bus pass is a much more predictable expense than car ownership.

Creative transportation options

One of the lovely parts of not having a car? You get really creative about transportation. Here are the best resources I’ve used in my time without a car:

  • Cycling/Bikeshare – Biking isn’t for everyone, but if you’re brave, it’s a beautiful way to get around the city and stay crazy fit. Many cities are jumping in on the bikeshare trend – so you don’t even need to know how to change a tire. Wear a helmet!
  • Fancy bikes – Too tired to ride? Electric bikes. Need to take it on the metro? Foldable bikes. Need to haul stuff? Cargo bikes.
  • Carpooling – As a formerly car-free person, I’m now living my values as a carpool mom. See if your company can connect you to a pool through Zimride, or hop in a carpool through the Waze app.
  • Car2GoCar2Go is a pretty cool alternative car sharing service. Free parking, you don’t need to find designated spots. Just leave it wherever! Perfect for one-way trips.
  • Scooters – Don’t hate, those little scooters littering the sidewalks are a really fun solution for the last mile of your trip. You can buy your own if sharing hasn’t hit your town.
  • Trains – We may not have amazing bullet train service, but Amtrak is still a wonderful way to see the scenery. It’s more comfortable than the bus (dining car!) and not much more expensive.
  • Car rental – If you’re keeping a car for rare weekends away, you’d save a ton of money just renting instead. Bonus: no maintenance, and you always drive a late model.
  • Peer-to-Peer car rental – This is kind of a wild thing, now you can rent cars from people on the internet with Turo. It’s cheap, but I’ve had mixed luck with the vehicles there. Rent at your own risk.

If you need to test the car-free waters, give some of these alternate transportation methods a try. That way you can find out what works before you take the plunge. Even if you keep your wheels and reduce the amount of time you spend driving alone, that’s a win for the planet, and for a more connected city. Happy non-driving!

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How Much Does It Cost to Refinance?

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For millions of American homeowners, their mortgage payment is one of their greatest financial commitments. With mortgage rates hitting record lows this year, it’s no wonder that people are interested in the possibility of refinancing their homes.

Instead of only focusing on the potential of saving hundreds per month, it’s essential to fully understand how much it costs to refinance. We wanted to outline the basics so you have a strong starting point in your refinancing decision-making process.

How Much Does It Cost to Refinance a Mortgage?

Mortgage refinancing is defined as replacing your existing mortgage with a new one. There are multiple types of mortgage financing loans that require different considerations, such as cash-out refinances. In any case, working with your mortgage lender is essential to figure out if refinancing will be worth it for you.

Below, we’ve listed the main types of fees you can expect when refinancing your mortgage. Depending on the situation, you could expect to pay anywhere from $5,000 to $10,000 in fees upfront.

The cost of each fee varies greatly based on the type, size, and location of your home. You’ll also have to factor in your credit score and other aspects of your personal financial profile. Also, refinancing fees vary between states and lenders.

Refinancing Closing Costs
Type of fee Estimated cost
Loan origination fee 0.5% – 1% of loan amount
Appraisal fee $300 – $400
Credit report fee $30 – $50
Title insurance fee $500 – $1,000
Government recording fee $30 – $50
Property survey cost $300 – $800
Home inspection cost $300 – $600
Flood certification cost $15 – $20
Prepaid Interest Charges Varies based on the interest rate and when your loan closes
Tax service cost Varies
Attorney cost Varies
Mortgage points One point costs 1% of your mortgage amount
Loan reconveyance fee $50 – $65

By doing a cost-benefit analysis with your lender, you’ll determine if the short-term financial burden of refinancing is feasible. As with any financial endeavor, you’ll need to do your due diligence.

It’s worth noting that some refinancing costs are tax-deductible based on certain criteria. For example, you can usually receive tax deductions on mortgage interest and closing costs.

Questions to Ask Yourself Before Refinancing

Before you make your decision, examine your long-term goals to see if you can justify the cost to refinance a mortgage. Ask yourself key questions about how much you’ll actually benefit from refinancing your loan or not.

How-Much-Does-It-Cost-to-Refinance-1

1) Will the Investment Pay for Itself?

Ask yourself how long it will take you to earn back the cost of refinancing your home. Consider your ability to break even in a timely fashion. For example, it makes sense if you’re planning on staying in your home for the long haul and you can break even in a few years. If you might move in a year or two anyway, maybe you should reconsider refinancing.

2) Is Your Loan Seasoned?

Your loan is considered seasoned when it’s been out for at least a year and the borrower has a reliable payment history. If you’re five to ten years into paying off a 30-year mortgage, refinancing might not actually benefit you.

For example, if you’re losing your potential savings to additional interest costs, you’ll likely just lose more by refinancing. On the other hand, refinancing could be a great option if you can ensure you won’t be losing money to interest fees.

3) How Can I Lower my Refinancing Costs?

Focus on improving your credit score and debt-to-income ratio before refinancing your mortgage. You’ll be in a strong position for negotiation to get the best possible rate. It’s worth asking if you can waive the appraisal fee, which could save you hundreds.

If a property has been appraised fairly recently and prices have not significantly changed, your mortgage lender might be able to waive a new appraisal. Also, don’t hesitate to comparison shop to find discounted third-party fees.

How-Much-Does-It-Cost-to-Refinance-2

Will Refinancing Affect My Credit?

Refinancing a mortgage has the potential to impact your credit score, although not permanently. If refinancing makes sense for your situation, you shouldn’t be concerned about it hurting your credit in the long term. It might not be the most ideal situation, but it’s extremely common and typically relatively easy for your credit score to bounce back.

By consolidating your credit inquiries, you’ll prevent multiple hard inquiries from raising red flags. Also, you can work with your lenders to avoid having them all run your credit, which could risk lowering your credit score.

From a long-term financial planning standpoint, home refinancing can be a smart move. Even if you’re considering refinancing your car loan, it makes sense to look into refinancing your house first. After all, a mortgage refinance allows you to benefit from more cash in your pocket due to lower monthly payments.

Since financing decreases your monthly bills, you’ll want to be strategic about where you direct your additional funds. Are you saving for college tuition, a wedding, or retirement? Are you working towards becoming debt-free? Refinancing is a great time to get serious about budgeting and prioritizing your personal financial goals.

Sources:

Federal Reserve | Interest.com | The Nest | My Mortgage Insider | Freddie Mac

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8 Ways to Spring Clean Your Entire Life

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Spring is here and it’s time to open the doors, shake out the rugs, and let some of that fresh air into your life again. Whether or not you’ve just endured a brutal, snowy winter, spring is a great time to make some positive changes that will help keep your momentum up all year long.

Here are 8 ways that you can spring clean your entire life, starting right now as we head into summer.

#1 Get started on your taxes and finances for next year

Yes, I know you probably just finished doing your taxes for last year, but there’s no better time to get everything in order for this year. If tax time is particularly stressful for you, get a jump start on entering your expenses and income into your favorite financial tracker Mint to make next year’s tax season a breeze. The first quarter of the year is already over, so don’t wait to get on top of your finances.

#2 Cut the monthly recurring clutter

If you have your bank and credit accounts linked up together with Mint, take a moment to review any monthly recurring expenses that you aren’t still using. You might be able to save hundreds of dollars by cutting out an unused gym membership now that the weather is nicer outside. To take full advantage of the beautiful weather, try pausing or canceling a streaming video subscription for a few months; you can always go back to it later when you want to spend more time inside again.

#3 Declutter one item or more per day

A big part of spring cleaning is clearing out the clutter that might have accumulated over the winter in your home. The best part is, decluttering doesn’t have to be terrible. You can make a fun game out of it by donating, selling, or recycling one thing every day for the entire month. Feeling ambitious? Try playing The Minimalist Game, which starts on a new month and ramp up the number of items you declutter as you go. One on the first day, two on the second day, three on the third, and so on.

#4 Clear out the closet and donate any clothes you’re not wearing

Especially if you live in a colder climate, it’s probably time to change over your wardrobe to a more seasonally-appropriate selection. Instead of packing all of winter clothes away, donate any sweaters and winter wear that didn’t get used over the last four months or so, then pack away the rest for when you’re ready to use it again. If you want to give a capsule wardrobe a try, check out Project333—33 items of clothing for three months.

#5 Eat a salad as a meal every day

While winter is the perfect time for hearty soups and stews, it’s time to break out the salad tongs and lighten up your fare. Try replacing one of your meals with a big salad each day and see how it makes you feel after a few weeks. It doesn’t have to be lettuce in a bowl either, you can get creative with your vegetables, toppings and dressings. Not only is this a great way to eat more greens, but you can save a bunch of money by preparing a lunch like this in advance instead of buying lunches out while at work.

#6 Dust the surfaces and corners in your home

If you’re going to do some spring cleaning, it should probably include some actual cleaning, right? Grab the duster and vacuum and pay special attention to the corners, nooks, and crannies around your home. A little attention to some often ignored areas can go a long way in making your space feel clean, open, and inviting. Now is a great time to pull your furniture and appliances out from the wall, wipe down cabinets, and dust the blinds.

#7 Check in on all of your credit cards, bank accounts, and monitor your credit score

About once a year, it’s good to make sure you actually have all of your credit and debit cards. Have you been locked out of your online savings account for a while? Call the company and get it figured out. Locate all of your physical credit and debit cards and make sure they’re all securely stored in your wallet or somewhere safe.

Most importantly, check your credit profile to make sure everything is on point and there aren’t any issues you weren’t aware of. You can use your Mint.com account to check your credit score without impacting your credit, and regularly monitor it completely free. It’s a great option that doesn’t require pulling your full report or paying for active monitoring.

#8 Change your passwords and enable 2-factor authentication when possible

Yes, it’s totally a pain but the best time to change and update any old or duplicated passwords is right now. Especially if you use the same password across several different sites, it’s important to change them up and use proper, secure passwords for each site. I highly recommend using a password manager like LastPass or Dashlane, they both streamline the process and make it easy to manage a huge number of proper passwords.

Even if you just pick a few of these ideas, you’ll surely reap the rewards of doing some spring cleaning this month. The more space you create for all the right things, the more easy and fun the rest of your year will be. Let’s get cleaning!

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Should I Refinance My Mortgage? When to Refinance

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The Federal Reserve recently lowered interest rates in an effort to stimulate the economy during the coronavirus pandemic. As a result, more and more people are becoming interested in refinancing their mortgage. Depending on the situation, refinancing your mortgage can prove to be a savvy financial decision that can save you massive amounts of money in the long-term. But is it right for you? 

If you’re curious about refinancing your mortgage, this article should answer many of your questions, including: 

  1. How Does Refinancing Work?
  2. When Should I Refinance My Mortgage? 
  3. What is the Downside of Refinancing My Home? 
  4. How Do I Calculate if I Should Refinance My Mortgage? 
  5. What are My Refinancing Options? 

How Does Refinancing Work? 

“Refinancing your mortgage allows you to pay off your existing mortgage and take out a new mortgage on new terms,” according to usa.gov. So when you refinance your mortgage, you’re essentially trading in your old mortgage for a new one. The new loan that you take out pays off the remainder of the original mortgage and takes its place. That means the terms of the old mortgage no longer apply, and you’re instead bound by the terms of the new one. 

There are many reasons why homeowners choose to refinance their mortgage. They may want to secure a loan with a lower interest rate, switch from an adjustable rate mortgage (ARM) to a fixed-rate, shorten or lengthen their repayment term, change mortgage companies, or come up with some cash in order to pay off debts or deal with miscellaneous expenses. As you can see, there are a vast number of reasons why someone might be interested in refinancing. 

There are also a couple of different ways to go about refinancing. A standard rate-and-term refinance is the most common way to do it. With this method, you simply adjust the interest rate you’re paying and the terms of your mortgage so that they become more beneficial to you. 

However, you could also do a cash out refinance, where you pull equity out of your home and receive it in the form of a cash payment, or take out a new loan that’s greater than the remaining debt on the original mortgage. Even though you’ll get an influx of cash in the short-term, a cash out refinance can be a risky option because it increases your debt and it’ll likely cost you in interest payments in the long-term.


When Should I Refinance My Mortgage?

Maybe you’ve been wondering, “Should I refinance my mortgage?” If you can save money, pay off your mortgage faster, and build equity in your home by doing so, then the answer is yes. Whether you can achieve this is dependent on a variety of things. Take a look at these refinance tips in order to get a better idea of when you should refinance your mortgage. 

Capitalize on Low Interest Rates 

When mortgage rates go down, a lot of people consider refinancing their mortgage in order to take advantage of that new lower rate. And this makes perfect sense—by paying a lower interest rate on your mortgage, you could end up saving thousands of dollars over time. But when it comes to refinancing your mortgage, there are a number of other factors you should consider as well. 

Regarding interest rates, you should take a look at how steeply they drop before making any refinancing decisions. It might be a good idea to refinance your mortgage if you can lower your interest rate by at least 2 percent. It ultimately depends on the amount of your mortgage, but anything less than that amount likely won’t be worth it in the long run. 

Switch to Fixed-Rate Mortgage

It’s also very common for people to refinance in order to get out of an adjustable rate mortgage and instead convert to a fixed-rate. An adjustable rate mortgage usually starts off with a lower interest rate than a fixed-rate, but that rate eventually changes and it can end up costing you. That’s because the interest rate on an adjustable rate mortgage changes over time based on an index of interest rates. It can alter based on the mortgage market, the LIBOR market index, and the federal funds rate. 

By converting to a fixed-rate mortgage—where the interest rate is set when you initially take out the loan—before the low rates on your adjustable rate mortgage increase, you can minimize the amount you have to pay in interest. If you’re able to lock in a low fixed interest rate, you’ll be less susceptible to market volatility and more capable of devising a long-term payment strategy.   

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When debating the question of “Should I refinance my mortgage or not?”, you should also keep in mind what lenders will look at when determining the terms of your loan. In order to come up with an interest rate and approve you for a refinancing loan, lenders will take the following factors into consideration: 

What is the Downside of Refinancing My Home? 

Refinancing a mortgage isn’t for everyone. If you don’t take the time to do your research, calculate savings, and weigh the benefits versus the potential risks, you could end up spending more money on refinancing than you would have had you stuck with the original loan. 

When refinancing, you run the risk of placing yourself in a precarious financial position. This is especially true when it comes to a cash out refinance, as this can put you on the hook for even more money and bury you in interest payments. 

Don’t refinance your home and pull out equity just to get quick cash, make luxury purchases, and buy things you don’t need—doing this is an easy way to dig yourself into a deep financial hole. In reality, you should only refinance your mortgage if you know that you can save money doing it. 

How Do I Calculate if I Should Refinance My Mortgage? 

Before you refinance your mortgage, it’s crucial to crunch the numbers and determine whether it’s worth it in the long-run. To do this, you’ll first have to consider how much refinancing actually costs. 

Consider Closing Costs

So how much does it cost to refinance? One of the most significant expenses to take into account when refinancing is the closing costs. All refinancing loans come with closing costs, which depend on the lender and the amount of your loan, but average around three to six percent of the principal amount of the loan. So, for example, if you took out a loan of $200,000, you would end up paying another $8,000 if closing costs were set at 4%. 

These closing costs are most often paid upfront, but in some cases lenders will permit you to make the closing costs part of the principal amount, thus incorporating them into the new loan. While closing costs generally don’t cover property taxes, homeowner’s insurance, and mortgage insurance, they do tend to include the following: 

Determine Your Break-Even Point

To make an informed decision as to whether refinancing your mortgage is a sound financial decision, you should calculate how long it will take for the refinancing to pay for itself. In other words, you’ll want to determine your break-even point. To calculate your break-even point, divide the total closing costs by the amount you’ll save on a monthly basis as a result of your refinance loan. 

The basic equation for figuring out your break-even point is as follows: [Closing Costs] / [Monthly Savings] = [# of Months to Break Even] 

Taking this into consideration, you can see how the length of time you plan on staying in a home can make a big difference as to whether or not refinancing your mortgage is the right option for you. If you’re thinking of moving away and selling your house in a few years, then refinancing your mortgage is probably not the right move. You likely won’t save enough in those few years to cover the additional costs of refinancing. 

However, if you plan on remaining at the house you’re in for a long stretch of time, then refinancing could potentially save you a lot of money. To make an informed decision, you have to do the math yourself—or, to make the calculations even simpler, use Mint’s online loan repayment calculator

What are My Refinancing Options? 

As stated above, you have options when it comes to refinancing loans. You could refinance your mortgage in order to secure a lower interest fee and a change in the terms of your loan; or you might opt for a cash out refinance that lets you turn your home’s equity into extra income that you can use to pay for home improvement, tuition costs, high-interest debt payments, and more. 

In order to actually start refinancing your home, you’ll have to find a lender and fill out a loan application. Shop around at large and small banks alike to see who will offer you the lowest interest rates and the best terms. How long does a refinance take? The timeline depends on a few things, including the lender you borrow from and your own financial situation. But, in general, it takes an average of 45 days to refinance a mortgage. 

You might also consider forgoing the traditional banks and dealing with an online non-banking company instead. Alternative lenders often offer greater flexibility in terms of who qualifies for a loan and they can, in some cases, expedite the refinancing process. For example, Freddie Mac is a government-sponsored mortgage loan company that, in addition to offering no cash out and cash out refinancing, has a third option available for borrowers whose loan-to-value ratio is too high to qualify for the traditional refinancing routes. Learn more by visiting freddiemac.com

When tackling any big financial decision, it’s important that you’re informed and organized. Learn the facts, do the calculations, and research your options before beginning the refinancing process to make sure it’s the right choice for you. 

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Minimalist LIfestyle Podcasts Travel

How to Travel Like a Minimalist and Save Money

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If you want to travel more, it doesn’t have to be more expensive. There are many ways to travel like a minimalist— travel lighter while saving money for future traveling. Here are my six recommendation for traveling like a minimalist.

# 1 Sign up for travel deal alerts

There are many airfare deal websites where you can subscribe for updates on the latest deals. This is a way to be in the know about cheap flights on certain dates and take advantage of them. Since one of the biggest costs of traveling is usually airfare, this is a way to save up to hundreds of dollars.

#2 Look for alternative hosting arrangements

With options such as Airbnb and hostels, you can look for accommodations that work best for your traveling needs. For example, if you’re staying a bit longer and would like the ability to eat in a few times, perhaps you can find a small apartment or room to rent with a kitchen. The cost can be cheaper than more traditional options, especially if you look for locations outside of the main attraction area.

#3 Invest in a durable, carry-on friendly travel backpack

To save you luggage fees and time, I’d encourage you to invest in a durable travel backpack if you don’t already have one. If you’re checking a lot of luggage, the fees for that will add up to more than the cost of a high-quality backpack in just a few trips. Traveling lighter will not only save you luggage fees, it will save you time as you won’t need to wait for checked luggage. This also ensures that you never lose your luggage as well. If a travel backpack doesn’t appeal to you, there are plenty of luggage choices that can fit in the overhead bin of the plane or under your seat.

#4 Ask locals for suggestions on things to do

One of the best ways to get to know an area is to ask locals for recommendations on where to go and what to see. Whether it’s your taxi or rideshare driver, your accommodation host, or local people at the market or a café, this is a way to bypass the usually more expensive touristy attractions and go to some cool places you wouldn’t know about otherwise.

#5 Download Google maps using Wi-Fi

If you don’t have cell service where you’re traveling, you can download Google maps for the area through Wi-Fi at a café or where you are staying. This way, you can still use GPS to get around even without cell service. You can also search for information on free walking tours that are tip-based if you’re looking for a more cost-friendly way to experience the area. With these tours, there is usually a meeting location where you’ll meet up with other people who are also traveling and the guide will take you around.

#6 Eat one meal per day from a local grocery store

You can cut down on some expenses by eating a meal from the local market or a grocery store. This is also a way to experience more of the local scene, people and foods, while having more money to spend at restaurants and other places you’d like to experience.

By following one or a few of these tips, you’ll be able to travel more, travel longer, or just save money as you experience new places all around the world.

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Minimalist LIfestyle

How Long Does It Take to Refinance a House (+ 5 Ways to Speed Up the Process)

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We’re all looking for ways to cut down on expenses — especially fixed expenses that lock us into a contracted bill month after month. One common way to spare your budget is to decrease your living expenses, including your house payment. Refinancing your loan could help cut down on your mortgage payments and could update your loan terms, saving you money. If you’re considering refinancing, you may ask, “how long does it take to refinance a house?”

Refinancing your home can be tedious but it could help your budget in the long run. Luckily, we’re here to help by sharing the typical refinancing process and detailing how to make it as efficient as possible.

How Long Does It Take to Refinance?

How Long Does It Take to Refinance?

Typically, refinancing a house takes 45 days, but it may vary depending on your financial situation and your lender vetting process. Preparing your financials early and picking the appropriate lender for your case are a few factors that could help the timeline of your updated mortgage loan. To speed up the refinancing application process, skip to our section below or keep reading to refinance your home in seven steps.

Steps to Refinance Your Home

Refinancing your mortgage has its positives and potential negatives. You could decrease your monthly mortgage payments, get a shorter loan period, or lock in a better interest rate. But you could also end up spending more on application fees or face prepayment penalties. Before speaking with a lender, research the refinancing process, requirements, and added costs that could deter your ideal result.

The 7-Step Home Refinancing Timeline

Step 1: Define Your Financial Goals

Start by asking yourself what you’d like to get out of a refinancing loan agreement. Do you want to shorten your loan term? Do you want to secure an interest rate lower than your current rate? Or, do you want both? Determine your ideal end result, verify your investment choice, and seek a lender that supports your goals.

Step 2: Compare Lenders (and Reviews)

Ask around or search online to find the right lender for you and your goals. Pick out a few professionals you’d be interested in working with and ask them their rates, terms, and requirements. To help narrow down your lender options, seek out reviews online or ask for referrals in your network to ensure you pick the right choice.

Step 3: Double-Check for Additional Fees or Costs

Refinancing a loan can rack up a bill you may not be aware of until after you start the loan process. Attorney, application, inspection, appraisal, and title searches are a few refinancing tasks that you could be charged for. To budget for these expenses, save a bit extra from each paycheck or assess your current savings account using our app. If you have enough saved, start inquiring about this loan. If you don’t, put extra cash into savings each month until you have enough to cover the extra charges.

Mortgage Refinancing Documents

Step 4: Apply for Your Best Loan Estimate

Once you’ve found the right loan for your financial goals, the next step is to fill out your application.. To submit your application, you may have to provide proof of income, assets, debts, and other forms that complete your financial portfolio. These documents may be helpful in the application process:

Step 5: Start the Loan Process and Appraise Your Home

It’s now time to begin the loan process and appraise the value of your home. Once you’re approved for your loan, it’s time to get your home inspected, appraised, and conduct a title search. To ensure you’re on track with your timeline, prepare all your documents ahead of time. Skip to our section below for more ways to speed up this process.

Step 6: Wait for Underwriters to Cross-Reference

Now, the underwriters take it from here. Underwriters double-check your financial information to ensure everything is accurate before approving your loan. Your creditworthiness and debt-to-income ratio are generally the key factors underwriters will look at. Your property details, including when you bought your house and your home’s value, are a few other determining factors. This process may be the longest time constraint, taking a few days up to a few weeks.

Step 7: Close Your Loan to Lock in Your Interest Rate

Once your loan is approved and you’ve agreed upon your terms, it’s time to lock in your rate. This stage is commonly known to stretch your timeline as well. It can take your lawyer anywhere from one day to two months to settle your current loan and redeem your property. Keep in mind, this is typically where you pay the brunt of your fees whether you’re approved or denied. These fees may include closing costs and application fees.

Ways to Speed up the Application Process

If refinancing your loan benefits your budget, you may be eager to get your new loan. Luckily, there are a few tricks to speed up this process:

Refinancing your home takes time, but it can be well worth it in the long run. Getting a lower interest rate and a shorter term length could lessen your payments going towards interest. Use our app and our loan calculator to see what refinancing could do for your budget.

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Minimalist LIfestyle Podcasts

Get Paid to Recycle While Saving the Earth and Your Wallet

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To make extra cash, you normally have to put in time and effort. But what if you could make a profit off everyday items you otherwise throw away? You may think this sounds too good to be true, but you actually can! You can get paid to recycle lots of things that you put in your disposal bins. Not only are you helping the earth while recycling, but you’re also giving back to your wallet. Contributing your earnings, even if it’s a few dollars, could free up a few extra spending dollars in your budget each week.

With little effort, you could make up to hundreds, if not thousands, a year on useless items. From your empty cans to used cooking grease, you could rack up some serious side hustle earnings. Keep reading to see what trash items you could earn the most from or skip to our infographic below. Don’t forget to track your earnings using our app.

How Can I Make Money by Recycling?

Now, recycling may not replace your full-time job, but it can earn you some extra “fun” money. For instance, your used cans may earn you about $5 a pound. That $5 a week could add up to an extra $260 a year. Below is a list of items you’re able to get paid to recycle:

Turn Trash Into Cash

1. Recycle Empty Cans

Most of us have plenty of canned pet food, vegetables, and soups. Instead of throwing out each can you use, trade them in for cash. If you stockpile enough cans, you could make up to $100 a week on used can packaging. To earn some extra cash, check out your local recycling center or Reuseplastics.com.

2. Profit Off Books Collecting Dust

Calling all the bookworms — this is your time to shine. If you love to read your books in hand, you probably have a stockpile of books lying around. Once you finish a book, consider selling or trading on Amazon, AbeBooks, Decluttr, or Letgo. Each of these apps allows you to take a picture and list your used items at a discounted price. Take into consideration the cost of shipping before you calculate your earnings.

3. Sell Wine Corks Online

Oddly enough, every time you crack open a new bottle of wine, you could be making a profit. Save your corks and then trade them into companies like Yemm & Hart Green Materials that pay the market value for every 10 pounds of pure cork. Corks can be refurbished into various crafts, flooring, tile, and fishing rods products.

4. Your Trash Could Be Your Money-Maker

Simply stated, you could earn cash from your trash can. Companies like TerraCycle pay for trash people produce daily — eliminating the idea of waste. Similarly, Boxcycle collects used cardboard boxes, packing materials, pallets, and mailers in return for cash. Even your ink cartridges can be recycled, reused, and bought off you from companies like Cartridges for Kids, Funding Factory, US Recycling, and Need Empty.

3 Shopping Apps to Reduce Your Carbon Footprint

5. Swap Your Unused Gift Cards For Cash

Especially around the holiday season, you may accumulate gift cards from loved ones. As thankful as you may be for the gift, frequently forgetting to use them is a common occurrence. Around $3 billion worth of gift cards goes to waste each year. Instead of losing track of your gift cards, Cardpool allows you to swap your gift cards for cash.

6. Get Paid To Cook a Greasy Dish

Your regular cooking oil could be recycled into biodiesel — a great money maker. Whether you own a restaurant or regularly cook for your large family, you could profit off greasy food. Biodiesel and Craigslist buyers will pay around 44 cents per gallon for used cooking oil. After you’re done cooking, pour your oil into a used gallon milk jug or a bucket. Once it’s filled to the brim, trade it in for cash.

7. Make Money Off Your Pre-Loved Electronics

Whether you actually want a new tech device or just some spare cash, make a profit off what you don’t use. Companies like Best Buy, Gazelle, SellCell, and Maxback buy and recycle preloved tech devices. Payments for these items may be paid out via check, gift card, or through PayPal. Be sure to backup everything you’d like to keep on another device before turning in your old tech for cash.

8. Make a Profit Off Metal Scraps

Old batteries, steel, iron, and rare metals can be recycled into day-to-day products. Cars, appliances, file cabinets, and much more contain everyday metals manufacturers are always on the hunt for. Trade-in any scrap metal you have laying around and turn them into Scrap Metal Buyers for cash.

9. Car Troubles? Make a Profit off the Unfixable

For junk cars that aren’t resellable or reliable, consider turning them in for cash at the junkyard. Compare junk car buyers like Junk Car Medics and Cash Cars Buyer to see how much you could earn from your vehicle.

10. Spring Clean Your Living Area

When cleaning your living area, list your preloved items on second hand online stores. Poshmark, ThredUp, Swap, Instagram, eBay are a few second hand websites that attract valuable buyers. As you post items to your virtual shop, bundle items to cut your cost of shipping for each item.

11. Turn Unused Lights Off

If you’re already strict about turning the lights off at home, turns out you could earn more than a utility bill decrease. For instance, OhmConnect is an app that pays you to save money on a more frugal lifestyle. Once you set up the app, you earn points when you use less electricity during the peak usage timeframes. Not only are you able to save cash on your monthly bill, but you also accumulate points you’re able to cash out later.

For additional tips and tricks to earn money from recyclables, check out our infographic below.
Recycle Your Money: How to Save the Earth and Your Wallet

Sources: Carpet Plus | Cash Cars Buyer | CNBC | EPA | Never Enough Bookstore | SBKC | The World Counts | U.S. Global Mail

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