17 Biggest Home Buying Mistakes & How to Avoid Them

Whether you’re a first-time homebuyer looking for a starter home or a seasoned homeowner ready to upgrade or downsize your property, the buying process is similar. From searching for the perfect place to call home to putting in an initial offer, it’s an exhilarating and life-changing adventure for new and experienced buyers alike.

And with such a major decision on the line, it’s important to make sure you don’t come to regret your decision in the future or miss out on your dream home by making a common — but avoidable — mistake.

17 Home Buying Mistakes to Avoid

Simple missteps like overestimating your DIY skills or making a lowball offer can put a damper on the excitement you feel during or following the home buying process. And they can cost you money, stress you out, and give you buyer’s remorse.

But, if you know what the most common mistakes are and you prepare in advance, you can bypass them — and the negative side effects they come with.

These are the most common home buying mistakes you should seek to avoid.

1. Not Reviewing Your Budget

Before you buy a home, you need to know what you can afford. This means taking a deep dive into your budget and reviewing your current costs and expenses, as well as estimating any new costs and expenses you’ll take on from owning a home.

For example, additional or increased costs may include:

  • Your monthly payment for rent or a mortgage
  • Property taxes
  • Homeowners insurance
  • Repairs and maintenance
  • Landscaping
  • Homeowners Association (HOA) or condo fees
  • Furniture
  • Utilities

You should also budget for a home emergency fund to cover potential problems like broken appliances or unexpected repair and maintenance costs.

If the estimated costs are too high, it might mean you have to rethink your budget by lowering your price range or reducing your homeowner expenses.

Knowing what you can afford beforehand ensures that you only look at houses within your budget and aren’t tempted to overspend.

2. Overlooking the Community

A house is one thing, but the community it’s in is another. Many homebuyers become excited about a particular property and fail to pay attention to the neighborhood or area it’s in. However, where a home is located can have a significant impact on your quality of life and overall happiness.

For example, pay attention to location-based factors such as:

  • The property’s proximity to an airport, dump, or train tracks
  • Whether it’s a family-oriented neighborhood
  • How close it is to amenities like public transportation, schools, and parks
  • How far it is from your place of work
  • Where necessities like grocery stores and gas stations are located

It’s also useful to look into future developments in the area, like commercial buildings, apartment complexes, and public spaces. If you’d prefer to live away from busy public areas, purchasing a property close to a future strip mall might not be a great option for you.

Or, if you want to be part of an up-and-coming area, planned developments give you a clear idea of what to expect in your neighborhood in the next few years, like new restaurants or off-leash dog parks.

Take some time to think about what you want to be close to or far from before you start your home search. Consider your interests and lifestyle to determine where your ideal property would be located, then use the information to ensure you wind up in a community that you feel good about.

3. Forgetting About Maintenance Costs

The great part about renting is that you don’t have to worry about the costs of homeownership like appliance repairs, building upkeep, or landscaping. But you do have to cover these expenses when you buy a new home.

As with forgetting to make a budget, forgetting to consider ongoing maintenance costs has the potential to wreak havoc on your finances. And avoiding maintenance and upkeep will only end up costing you more money in the long run because it will lead to larger repairs and more serious problems.

Homeowner maintenance includes a variety of recurring tasks, such as:

  • Mowing, trimming, and weeding
  • Snow removal
  • Applying paint and stain
  • Cleaning gutters
  • Pressure washing decks, patios, and siding
  • Chimney cleaning
  • Exterior window washing
  • Servicing your heating and cooling system

Depending on the home, it may also include tasks like replacing shingles, treating hardwood floors, or hiring an arborist to prune your trees.

When it comes to getting these jobs done, you can either take them on yourself or hire a professional to do them for you. However, both will cost you some combination of time and money.

Most home maintenance tasks require equipment. So if you plan to tackle them yourself, expect to cover the costs of equipment, like buying a lawnmower or a ladder or renting a pressure washer. And, if you hire a contractor to do your home maintenance for you, you’ll of course need to pay them.

Maintenance costs aren’t included in your mortgage loan, so you need to be able to cover them out of pocket. When reviewing properties, consider what kind of maintenance the property will need and whether you can afford it. Not only does it cost money, but it also takes a lot of time.

If a high-maintenance property isn’t a fit for your lifestyle or budget, look for something that requires less work, such as a newer home or lower-maintenance property like a condo.

4. Not Getting a Preapproval

One of the first steps you should take on your journey to homeownership is to get a mortgage preapproval. A preapproval is the amount a bank agrees to lend you based on factors like your savings, credit score, and debt-to-income ratio.

Having a preapproval tells you exactly how much a bank will allow you to borrow, giving you a maximum purchase price for your home.

Without being preapproved, you have no idea how much a mortgage lender is willing to give you or what your interest rate will be. This means you’ll be house shopping with no real budget in mind. You won’t even know if a bank will approve you at all, meaning you could be wasting your time even looking for a home in the first place.

Before you think about booking a showing or talking to a realtor, book an appointment with your bank or a mortgage broker. Find out exactly how much you have to work with so you can view homes within your price range and budget.

5. Only Looking at a Few Properties

Buying a home is a major undertaking, not just financially, but emotionally as well. Only looking at a handful of houses won’t give you a realistic picture of what’s on the market, what home prices are like, or whether something better is out there.

Book multiple showings to get a feel for your options. Even if you think you’ve found your dream home early on, there’s no guarantee you’ll get it. Keep your options open and check out a wide variety of properties to give yourself some perspective.

Who knows, you might find a hidden gem or dodge a bullet simply by taking your time and not limiting your options to a handful of properties.

6. Not Having a Real Estate Agent

When embarking on a home buying journey, you may be tempted to save yourself some money by opting to go without a buyer’s agent. But for most people, that’s a mistake. Unless you’re well-versed in real estate law and property negotiations, you should have a good real estate agent.

After all, their fees are typically covered in your mortgage as part of the closing costs of the home, meaning you don’t have to pay for them out of pocket.

But that’s not the only reason you should have a realtor when buying a property. A buyer’s agent provides many benefits, such as:

  • Networking with other realtors and property owners to find new and upcoming listings
  • Having access to property listing tools such as the MLS
  • Negotiating offers and conditions
  • Helping you to find a broker, lawyer, or other professional you may need
  • Handling important paperwork
  • Ensuring you’re aware of any important disclosures

An experienced buyer’s agent will work for you, helping you to find the perfect property not only for your lifestyle and budget but based on what’s available. They’ll take on the heavy lifting when it comes to paperwork, showings, and communicating with sellers and their agents, giving you a chance to focus on more important things.

7. Not Making a Wants vs. Needs List

Some people jump straight into viewing properties without evaluating their needs versus their wants. But it’s a common mistake that complicates the home buying process and causes decision paralysis. When buying a home, it’s essential to know what you need in your new home compared to what you would like it to have.

For example, if you have a dog, a yard could go on your needs list, while something like a pool or walk-in closet might go on your list of wants. If a lack of closet space would be a deal breaker for you, you might list the walk-in closet as a need for you instead.

You can give this list to your realtor, which will help them to filter through potential properties to show you. This saves both of you from wasting time viewing homes that won’t work for you.

And, it encourages you to get your priorities straight by forcing you to think about what you really need to be happy and fulfilled in your new home. Plus, knowing what you want gives you a better idea of your budget and which bonus features or upgrades you can afford.

If you don’t make a list, you could end up buying a property that isn’t a great match for your lifestyle.

8. Taking on Too Much Work

Fixer-uppers tend to be romanticized in reality TV shows about house flipping and interior design, but they’re a lot of work. Overestimating your DIY skills and taking on a house that’s going to require a significant amount of time and money to renovate or repair can quickly turn your motivation into buyer’s remorse.

On top of a mortgage payment, you’ll have to cover the costs of materials and labor for any upgrades or renovations that need to be done. If you’re handy, you can save money on labor, but you’ll still need tools, supplies, and a serious time commitment.

If you have to hire professional contractors to complete the work for you, expect costs to be relatively high depending on what you need done. If a home project goes over budget — which happens often — you don’t want to be left in a bad financial situation and an unfinished home.

Before moving ahead with a home purchase, consider how much work you’re willing to take on and how much of a renovation budget you can afford.

9. Buying in the Wrong Market

In real estate, there are two basic types of extreme markets: a buyer’s market and a seller’s market. In a buyer’s market, there are a variety of homes available for you to view and consider, meaning sellers are more likely to try to entice you with competitive prices and other incentives.

In a seller’s market, there aren’t many homes up for sale, so buyers have to compete against one another to win bidding wars. This often results in paying over the asking price, which increases monthly mortgage payments and possibly even your down payment.

The best time to buy a home is in a buyer’s market. Sometimes, waiting for a season or two to buy will save you a significant amount of money and keep you from the stress and uncertainty of buying in a seller’s market.

If you’re able to, buy when the market is in your favor and not working against you.

10. Feeling Uncertain

If you feel uncertain about a home, an offer, your real estate agent, or your financial situation, it’s not the right time for you to buy. Purchasing a house is one of the biggest financial commitments you’ll ever make, so you need to feel confident that you’re making the right choice for you, your budget, and your family.

If something feels off, carve out time to figure out what’s causing your uncertainty. It’s normal to feel nervous about taking on a home loan, especially if you’re a first-time homebuyer, but watch out for feelings of apprehension, uneasiness, or even dread.

Your home buying experience should be positive, so if your gut is telling you to reconsider, it might be best to take a step back and reevaluate.

That’s not to say you shouldn’t buy a home at all. It just means you need to change something about your situation, such as getting a new real estate agent, looking at more properties, or lowering your budget. Consider what will make you feel confident about buying a home and don’t move forward until you feel comfortable, positive, and satisfied.

11. Making a Lowball Offer

Making a lowball offer on a property is a rookie mistake that many seasoned and first-time homebuyers make. It offends home sellers, starting negotiations off on the wrong foot and sometimes even ending them altogether.

Sellers often spend a lot of time working with their real estate agents to price their homes based on the market, comparable homes in the neighborhood, and the state of the property. Just like you need to work within a budget for your home purchase, they need to make a certain amount of money from their home sale.

Lowball offers are rarely accepted and don’t provide much benefit to either party.

When making an offer on a home, listen to your real estate agent and offer a fair price. Being respectful and considering the true value of a home in your offers makes them more likely to be accepted.

12. Not Talking to a Broker

While a bank is often the first place you go to find out how much you can get approved for, they’re not your only option. A mortgage broker can provide you with a variety of different mortgage rates and terms from different lenders, allowing you to choose the best offer.

As with your bank, you’ll need to provide financial information like pay stubs, your credit score, and details about your assets and debts. The broker will use this information to shop around and find you the best interest rate and mortgage terms based on your financial situation.

Often, they can find you a better deal than what your bank is offering. However, make sure your broker has your best interests in mind. Don’t take out a mortgage with a disreputable or unestablished lender just to save some money.

A good broker can save you a lot in interest, so they’re worth talking to regardless of whether you choose to go with one of their offers.

13. Having a Small or Nonexistent Down Payment

There are a variety of different loans when it comes to buying a home, each with different down payment requirements:

  • VA home loans, which are for veterans and require as little as 0% down
  • Conventional loans, which are the most common for those with strong credit and no military service
  • FHA loans for borrowers with poor credit and low down payments

If you’re opting for a conventional loan, you’ll likely need to have a hefty down payment, especially if you want to avoid having to pay private mortgage insurance (PMI). Typically, you have to pay for PMI if you don’t have the minimum down payment required by a lender, and it’ll cost you anywhere from $50 to $200 per month.

Most lenders prefer to have at least 20% of the purchase price as a down payment. So, if you were buying a home for $350,000, you’d need to have $70,000 cash to put toward your mortgage.

Not planning for a sufficient down payment can put a huge damper on your home buying experience. It affects how much a lender will give you, your interest rate, and whether you have to pay PMI. Plus, it impacts your cash flow and the funds you have to put toward closing costs, renovations, and repairs.

Make sure you know how much you need in advance and plan ahead to avoid a disappointing and disheartening experience.

14. Going Without a Home Inspection

When you make an offer on a house, you have the option to make it dependent on a home inspection. Some lenders even make it a requirement of your mortgage terms. But if they don’t, or if you’re buying your property without a loan, you may choose to go without a home inspection.

But skipping a home inspection can cost you a lot of money and stress down the road.

Home inspectors are certified professionals who inspect a property’s condition. They review the structure, plumbing, electrical, exterior, and interior elements of the home and provide you with a report detailing any issues they find. For example, a home inspector would catch wiring that is not up to code or water damage in the basement.

These reports help you to avoid major repairs and give you an overview of the property’s condition. This can save you from buying a home that needs a new roof or that has a mold problem. Seeing as home inspections typically cost between $300 and $500, they’re often worth it.

Even if you choose to move ahead with a home purchase after you receive your inspection report, you can use it to renegotiate your offer based on any repairs that need to be made.

For example, if the report noted that the railing on the deck needs to be replaced, you could either request that the seller have it fixed or reduce your offer by how much it would cost a contractor to do.

15. Not Including the Right Conditions in an Offer

Your real estate agent will help you to figure out which conditions to put in your offer, but the most common include:

  • Home inspection
  • Financing
  • The sale of your current home
  • Closing date
  • Fixtures and appliances
  • Who pays which closing costs

You can also request an appraisal or survey, repairs, or specific cleaning tasks.

Conditions protect you so that you don’t commit to purchasing a house before you know you have financing and a home inspection in place. And they keep you from walking in on moving day only to find out the appliances weren’t included in your purchase price.

Base your conditions on the property you’re interested in and make sure they’re fair and within reason. Add too many unreasonable conditions to an offer and you risk getting rejected by a seller.

16. Not Seeing a House Yourself

Although video tours are OK, they don’t give you the full sensory experience of a home. You don’t pick up on any strange smells or noises, and you don’t truly get a feeling for the size or condition of the space or the neighborhood it’s in.

Even having a friend or family member view a home in your stead is a better option than going with video alone — especially if you won’t be able to visit yourself before you make an offer.

Ideally, though, you should visit and view a home yourself before you commit to buying it. If you happen to be buying a home in another state or country, try to plan a trip beforehand to look at houses. If you can’t do that, consider finding temporary housing to stay in after you arrive so you can search for a home in person.

If you don’t, you could end up buying a property you aren’t completely happy with or one that has unexpected issues.

17. Not Checking Your Credit Rating

Buying a house means having a solid grasp of your personal financial situation, including your credit score. Knowing your credit score keeps you from encountering any disappointing surprises when you talk to a bank or broker about getting preapproved for a mortgage.

Monitoring your credit score gives you a chance to improve it before you apply for a mortgage, increasing your chances of being approved and getting offered more competitive rates.

Check your credit score before you get too far into the home buying process to see what your rating is and whether you have any recent dings like late payments that may affect your interest rate or mortgage terms.


Final Word

Buying a house is meant to be an exciting and enjoyable experience. With such a major personal and financial commitment on the horizon, you want to do everything you can to avoid buyer’s remorse after you sign the dotted line.

Prepare yourself by getting your finances in order, having a clear idea of the kind of place you want to call home, and understanding the current market to have a happier, more successful home buying experience.

Source: moneycrashers.com

How Rising Inflation Affects Mortgage Interest Rates

Rising inflation can shrink purchasing power as prices of goods and services increase. This, in turn, can affect interest rates and the cost of borrowing. While the inflation rate doesn’t have a direct impact on mortgage rates, the two do tend to move in tandem.

What does that mean for homebuyers looking for a home loan and for homeowners who want to refinance a mortgage? Simply that as inflation rises, mortgage rates may follow suit.

Understanding the difference between the inflation rate and interest rates, and what affects mortgage rates for different types of home loans, matters in terms of timing.

Inflation Rate vs. Interest Rates

Inflation is defined as a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index, to determine how to direct monetary policy.

What to Learn from Historical Mortgage Rate Fluctuations

Inflation Trends for 2021 and Beyond

As of May 2021, the U.S. inflation rate had hit 5% as measured by the Consumer Price Index, representing the largest 12-month increase since 2008 and moving well beyond the 2% target inflation rate the Federal Reserve aims for.

While prices for consumer goods and services were up across the board, the biggest increase overall was in the energy category.

Rising inflation rates in 2021 are thought to be driven by a combination of things, including:

• A reopening economy

• Increased demand for goods and services

• Shortages in supply of goods and services

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. State reopenings have spurred a wave of “revenge spending” among consumers.

Although the demand for goods and services is up, supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in steadily rising inflation.

Fed Chair Jerome Powell said in June 2021 that he anticipates a continued rise in the U.S. inflation rate in 2021. This is projected to be followed by an eventual dropoff and return to lower inflation rates in 2022.

In the meantime, the Fed has discussed the possibility of an interest rate increase, though there are no firm plans to do so yet. Some Fed bank presidents, though, have forecast an initial rate increase in 2022.

Recommended: 7 Factors that Cause Inflation – Historic Examples Included

Is Now a Good Time for a Mortgage or Refi?

It’s clear that there’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

It simply means that if you’re interested in buying a home it could make sense to do so sooner rather than later. Despite the economic upheaval in 2020 and the rise in inflation that’s happening now, mortgage rates have still held near historic lows. If the Fed decides to pursue an interest rate hike, that could have a trickle-down effect and lead to higher mortgage rates.

good mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you’re able to afford.

The same is true if you already own a home and you’re considering refinancing an existing mortgage. With refinancing, the math gets a bit trickier.

You might want to determine your break-even point when the money you save on interest charges catches up to what you spend on closing costs for a refi loan.

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage – Step-By-Step Guide 

The Takeaway

Inflation appears to be here to stay, at least for the near term. Understanding what affects mortgage rates and the relationship between the inflation rate vs. interest rates matters from a savings perspective.

Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan.

SoFi offers fixed-rate home loans and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.

Photo credit: iStock/Max Zolotukhin


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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

How Do Reverse Mortgages Work?

Traditionally considered a last-ditch source of cash for eligible homeowners, reverse mortgages are becoming more popular.

Older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool to fund home renovations, consolidate debt, pay off medical expenses, or simply improve their lifestyles.

So what is a reverse mortgage? It’s a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment, or a line of credit.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house, or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Reverse mortgages aren’t for everyone. They eat up home equity and incur fees and interest. Depending on your age, home equity, and goals, alternatives like personal loans, a cash-out refinance, or a home equity loan may be a better fit.

Most Common Kind of Reverse Mortgage

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM), which can also be used later in life to help fund long-term care. The current loan limit is $822,375.

HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD).

If the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, the reverse mortgage loan needs to be paid back if no other borrower is listed on the loan. That was the status quo at least.

A new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as he or she continues to occupy the home as a principal residence, is still married, and was married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021 HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. They will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor. To find one, you can search for a counselor on the HUD site.

The counselor may cover eligibility requirements, the financial ramifications if you decide to go forward, and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable.

The counselor may also share alternatives. The goal is that you will be able to make an informed decision about whether a reverse mortgage is right for your situation.

Nearly 42,000 HECMs were awarded in 2020.

How Does a Reverse Mortgage Work?

To qualify for an HECM, all owners of the home must be 62 or older, and have paid off their home loan or have a considerable amount of equity.

Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed.

The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•  Income, assets, monthly living expenses, and credit history

•  On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or age of an eligible non-borrowing spouse, and current interest rates.

Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria. Borrowers or their

Loan Costs

An HECM loan includes several charges and fees. They include:

•  Mortgage insurance premiums

  Upfront fee: 2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit (whichever is less)

  Annual fee: 0.5% of the outstanding loan balance

•  Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000. The origination fee cap is $6,000)

•  Third-party charges

•  Service fees

•  Interest

Your lender can let you know which of these are mandatory.

Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

A lender or agent services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements, and disburses loan proceeds to you.

In return, they could charge you a monthly service fee of up to $30 if the loan interest rate is fixed or adjusts annually. If the interest rate can adjust monthly, the maximum monthly service fee is $35.

Third-party fees could include an appraisal fee, surveys, inspections, title search, title insurance, recording fees, and credit checks.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more info about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($822,375), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums.

In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

Pros and Cons of Reverse Mortgages

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing.

Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses, or buying a vacation home (although this is not true for the single-purpose variety).

How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit, or some combination of the three.

You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

The money from a reverse mortgage counts as a loan, not as income. As a result, Social Security and Medicare are not affected, and payments are not subject to income tax.

An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again:

Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

You’ll need to keep up property taxes and insurance, repairs, and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate, and loan fees, and whether they choose a lump sum, line of credit, monthly payment, or combination.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash. Here are suggestions:

Cash-out refi. If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan. A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC). A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Some lenders will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

Home equity loan. A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage makes sense for some older people who need to supplement their cash flow. But many factors must be considered: the youngest homeowner’s age, home value, equity, loan rate and costs, heirs, and payout type. Retirees have options.

SoFi offers a cash-out refinance, which involves taking out a home loan with new terms for more than you owe and pocketing the difference in cash.

SoFi also provides fixed-rate unsecured personal loans of $5,000- $100,000.

Need a financial boost? Consider a personal loan or a refinance with SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not 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

When You Should and Shouldn’t Purchase Mortgage Points

When buying a home, there seems to be a ton of jargon to sort through and an endless sea of decisions to make, especially if you’re wanting to finance the purchase with a loan. Depending on your situation, lenders and real estate agents may suggest buying discount points during the homebuying process. But, what is a “point,” and what does it mean to buy one? If you aren’t sure, you’re not alone. While they’re not a solution for every financing scenario, understanding mortgage points may actually save you thousands of dollars over the life of a loan!

mortgage pointsmortgage points

What Are Mortgage Points?

Mortgage points, sometimes also referred to as “discount points” are fees you pay to your lender in exchange for a lower mortgage interest rate. Essentially, you’re paying more upfront to pay less over time.

While the name uses the term “points,” it’s easier to think of mortgage points as “discount percentages.” The Consumer Financial Protection Bureau explains that each point equals one percent of your loan amount. For example, if your loan amount is $200,000, then one point would equal $2,000, two points would be $4,000, etc. Typically, purchasing a point will lower your interest rate by a quarter of a percent; so, if your $200,000 loan is approved at a 4.5% rate, paying $2,000 upfront could lower your interest rate to 4.25%. Most lenders will also allow you to purchase fractions of points if you desire.

It’s important to note that mortgage points are paid in addition to closing costs and are out-of-pocket expenses for the buyer.

When Should You Purchase Mortgage Points?

While not every buyer can (or should) purchase mortgage points, they are a great solution for many buyers depending on what future plans are. Buyers who intend to stay with the initial loan long term (i.e., won’t be refinancing or selling) could benefit greatly from purchasing them, because they will remain in the loan long enough to recoup the upfront costs of purchasing those points, and save money over the life of their loan.

For example, in the current market, it’s expected that mortgage rates will start to rise by year’s end, and may continue to rise for quite some time. In this case, most homeowners won’t opt to refinance (after all, who wants to refinance into a higher interest rate?), which makes getting the best rate on a loan now and sticking with it long term the more ideal scenario.

When Should You Avoid Purchasing Mortgage Points?

Having a lower interest rate sounds appealing, but purchasing mortgage points may not be the best course of action for everyone. Depending on your loan and unique situation, it could be years before you recoup the costs of purchasing loan points. In fact, depending on the amount of mortgage points purchased, it could take the entire life of the loan to break even on the out-of-pocket expense of the discount points. Plus, if mortgage rates fall and you decide to refinance, any money paid for points on the original loan would become a wasted expense.

The Mortgage Reports cautions, “Paying a fee to lower your mortgage rates might make sense over a 5- or 10- or 30-year time window. But, if you plan to move within a few years; or refinance your loan, you’ll likely never recoup your initial investment.”

In short, if you only plan to live in the home for a few years, buying mortgage points won’t be a worthy expense because you won’t be in the loan long enough to reap the benefits. A better alternative could be to use those funds for a higher down payment.

mortgage pointsmortgage points

What About Other Mortgage Costs?

Another consideration: lenders require private mortgage insurance (PMI) if the down payment is less than 20% of the purchase price. PMI expenses vary from lender to lender, but tend to range from 0.5 to 1.5% of the original loan amount. Using our $200,000 example, that would tack on an additional $1,000 to $3,000 each year until a loan-to-value ratio of 80% is reached.

In this scenario, increasing your down payment instead of paying for points could be the more ideal solution, because it will get you closer to reaching the 80% loan-to-value ratio required to cancel PMI. On that $200,000 loan, increasing your down payment from 5% to 10% would not only reduce your principle (in other words, your money would go straight to the loan instead of the bank), it could also reduce the length of time you have to make PMI payments by almost two years, thus saving you more money.

Mortgage Points are Specific to the Individual

To know if purchasing mortgage points is the best option for you, it’s important to consult your lender to calculate the savings versus cost for your specific situation. An experienced lender will be able to weigh the options of a larger down payment versus paying for discount points, and also help navigate more complex scenarios such as loans for investment properties. In the meantime, if you’re looking for more insights into the mortgage process, visit the Homes.com Mortgage Hub.


Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com

3 Reasons Why Putting Less Down Can Raise Your Mortgage Payment

Posted on June 17th, 2021

If you’re in the market to purchase a new home, perhaps because mortgage rates are low and you’re an extremely brave individual, you may be thinking low down payment all the way.

Heck, for many borrowers these days, a low down payment is the only way to play, with home prices surging to new all-time highs in record fashion.

In case you hadn’t heard, zero down mortgages are mostly extinct, other than VA loans and USDA loans.

But there are still other low-down payment options, such as the ever-popular FHA loan, which only requires 3.5% down, along with conventional mortgage options that call for just 3% down.

While these low-down payment mortgages can make homeownership more accessible, your mortgage payment will rise, which obviously erodes your affordability.

There are actually three ways a low down payment can increase your mortgage payment, which could even put your loan in jeopardy.

Let’s explore these issues to determine if putting down more money might be the better move.

Less Money Down = Larger Loan Amount

  • The most obvious downside to a lower down payment is a larger loan amount
  • The less you put down, the more you’ll need to borrow from the bank
  • This means paying more each month in the way of principal and interest
  • Pay extra attention to loan amount if it’s close to the conforming limit

First and foremost, if you put less money down on your home purchase, you’ll wind up with a larger mortgage. There’s really no way around it.

For example, if a home is listed for $500,000 and you put down 20%, your loan amount would be $400,000.

If you’re only able to come in with 3%, your loan amount is a significantly higher $485,000.

Simply put, a larger mortgage balance means a higher monthly mortgage payment. So the less you put down upfront, the more you pay each month.

That bigger loan amount also means you’ll pay a lot more interest over the life of the loan.

So this hurts two-fold. Both month-to-month in terms of potential payment stress, and over time via a lot more interest paid.

The upside might be less money trapped in your home, which could be put to use elsewhere for a higher return.

[What mortgage amount can I qualify for?]

More Risk Means a Higher Interest Rate to Compensate

  • Another issue with putting less down is a potentially higher interest rate
  • Lenders charge pricing adjustments that increase as the LTV ratio goes up
  • This could raise your mortgage rate a little or a lot depending on all the factors in play
  • Those with low credit scores could be impacted even more when coming in with a low down payment

Before you go with a low down payment mortgage, consider the mortgage rate impact of doing so.

If you decide to put down just 3-5%, your loan-to-value ratio (LTV) will be pretty high, and that means more risk to the issuing bank or lender.

To compensate for this increased default risk, you will likely be offered a higher interest rate on your mortgage.

Those rock-bottom rates you see advertised often require a 20%+ down payment, similar to how they assume you have an excellent credit score.

So if you don’t put down 20%, and instead opt for 5% or less, you’ll probably be stuck with an inferior mortgage rate.

How much worse will depend on the full loan scenario, including your FICO score, property type, occupancy, and so on.

For example, if the 30-year fixed is averaging 3% for top-tier loan scenarios, you might be offered an interest rate of 3.75%.

That higher interest rate will result in an increased mortgage payment, and more money paid out to the bank via interest.

This additional cost can add up significantly over the life of the loan as well.

And remember, it’s a one-two punch when you consider the larger loan amount coupled with the higher mortgage rate.

To add insult to injury, it could also affect outright eligibility in some cases if you’re debt-to-income ratio (DTI) is near the cutoff.

In other words, you may need to put down more to even get approved for a mortgage to begin with.

Mortgage Insurance Might Be Required

  • One final problem with low-down payment mortgages is the mortgage insurance requirement
  • This applies to most home loans where the down payment is less than 20%
  • This can greatly increase your overall housing payment as well depending on all risk factors
  • And is yet another added cost that can be avoided if you simply put down more money at closing

Finally, if you put down less than 20%, and don’t go with a piggyback second mortgage, you’ll likely be subject to paying mortgage insurance.

This applies to loans backed by Fannie Mae and Freddie Mac, which are the most common.

For FHA loans, this MIP requirement is unavoidable, even if you happen to come in with 20%+.

And note that this insurance protects lenders (not you) from the higher risk of default associated with a low-down payment mortgage.

It will be added on top of your monthly mortgage payment, so you’ll owe even more each month until you pay your loan balance down to 80% LTV (and ask that the insurance be removed).

The good news is it can be avoided by simply coming in with a 20% down payment and not taking out an FHA loan.

Let’s look at an example to put it all in perspective:

Home purchase price: $400,000

20% down: $80,000
$320,000 loan amount @3.75% (30-year fixed)
Monthly mortgage payment: $1481.97
Total interest paid: $213,509.20

5% down: $20,000
$380,000 loan amount @4.375% (30-year fixed)
Monthly mortgage payment: $1897.28
Total interest paid: $303,020.80

Assuming you went with a 30-year fixed mortgage, the 5% down option would result in a monthly mortgage payment more than $400 higher than the 20% down option (before mortgage insurance is even factored in).

Note the higher mortgage rate on the low-down payment loan.

And you’d pay nearly $90,000 more in interest over the life of the loan.

In other words, down payment matters. A lot.

Bonus: The amount you put down can also keep your loan out of the jumbo mortgage realm, which will often make it even cheaper mortgage rate-wise.

So consider that as well if you happen to be close to the conforming loan limit.

And as always, be sure to do plenty of homework and mortgage rate shopping.

If you take the time to gather multiple quotes and consider all scenarios, you may be able to get the best of both worlds, a low-down payment mortgage with a low interest rate.

Learn more by reading my primer on mortgage down payments.

Source: thetruthaboutmortgage.com

Why It Could Be a Great Summer for Mortgage Rates

It’s looking like it could be a really good summer for mortgage rates, after a very uncertain spring made it appear as if the best we had seen was gone forever.

Now this isn’t to say that mortgage rates will hit all-time record lows again, but the fact that they’re slipping back to those levels, even as inflation concerns grow, is a positive.

Mortgage Rates Ebb and Flow Throughout the Year

  • The 30-year fixed has fallen back below 3% and is currently averaging 2.96% per Freddie Mac
  • It was as high as 3.18% in early April when it appeared the best levels were a thing of the past
  • Now we seem to be enjoying a low-rate trend that could get even better as summer progresses
  • There are often periods of strength and weakness with mortgage rates (aka opportunities for borrowers)

If you watch mortgage rates for long enough, you’ll notice that they ebb and flow, just like stocks or other investments.

This is because the mortgage-backed securities (MBS) that drive these prices are actual investments for the traders who purchase and sell them.

There are periods of strength and weakness, which often last weeks or even months, where it seems they either have nowhere to go but up or down.

It can be emotional and psychological, similar to the stock market where traders rush to close their positions after a bad week , only to panic and buy back in as prices rise again.

When we compare that to mortgage rates, it could be the homeowner who locks their rate after a period of rising rates, only to find that the trend reverses.

Of course, it’s very difficult to time the market, so I don’t fault anyone trying to determine that right time to lock it in, or alternatively float for an even better rate.

The point is that often when all hope is lost, there’s a reversal, which seems to come out of nowhere.

That appears to be the case over the past couple weeks, with the 30-year fixed now averaging 2.96% per Freddie Mac, basically its lowest point since February.

If all goes well, we could see it fall back to those early 2021 levels, where it was as low as 2.65% in January.

Mortgage Lenders Are Going to Get Aggressive as Business Slows

  • The traditional home buying season is now coming to a close as summer begins
  • For mortgage lenders coming off record quarters this means severely reduced loan volume
  • Fewer home purchase loans and dwindling refinances could force them to lower their interest rates to drum up business
  • This means they’ll pass more savings onto consumers while reducing their own margins

While the technicals underpinning mortgage rates have been improving for a few weeks now (10-year bond yield back at its lowest point since March), another seasonal dynamic might be working in our favor.

As we approach summer, everyone slows down, gets fatigued, and goes on vacation. Most businesses don’t look forward to this time of year unless they’re in the tourism industry.

This is especially true of real estate and mortgage, as both tend to peak in spring during the traditional home buying season, before grinding to a halt in the warmer months.

Knowing this, mortgage lenders will be forced to get more competitive if they want to keep volume up, an especially difficult task given their record business in the first quarter of 2021.

Ultimately, it’s going to be very tricky for them to keep up the momentum, especially since most homeowners already refinanced, and home sales are being held back by a major lack of inventory.

So what is a lender to do? Well, lower their mortgage rates obviously!

They’ve got profit margins they can play with, and instead of making a ton of money per loan, they can sacrifice some to keep the business coming in.

This might even be more pronounced than usual because lenders have been busier than ever, which allowed them to keep rates artificially inflated.

We Are Entering the Historically Better Time of Year for Mortgage Rates

  • Mortgage rates tend to be highest in April when consumer demand for home loans is strongest
  • Lenders are often busiest during this time of year and charge a premium as a result
  • Once their business slows down they’re essentially forced to become more competitive
  • Rates usually drop as summer progresses and are cheapest in winter

After some research, I discovered that mortgage rates are highest in April, then tend to cruise lower throughout the second half of the year.

While they seem to be cheapest in winter, specifically the month of December, they get pretty low around late summer and early fall too.

This is yet another reason why the best time to buy a home is in August/September.

Anyway, if this trend holds in 2021, we could see the 30-year fixed fall back to those record low levels seen in January.

As noted, we might see even more improvement than in other years due to a major slowdown in business, which should force lenders to compete more aggressively than usual.

For example, United Wholesale Mortgage, the nation’s largest wholesale mortgage lender, recently announced a price match through the month of June.

This tells me they’re doing their best to pick up the expected slack and other lenders will likely follow suit, including the retail banks.

For borrowers, this is great news. If you missed your chance to refinance, or were on the fence about it, you might get a good opportunity this summer or later in the year.

And those who have yet to purchase a home might be able to offset the sky-high price tag with an ultra-low mortgage rate again.

Of course, low rates might be a bit of a double-edged sword for home buyers as they just stoke the flames of an already red-hot housing market.

Read more: 2021 Mortgage Rate Predictions

(photo: Michael Frascella)

Source: thetruthaboutmortgage.com

Why Americans Still Would Buy a Home in This Crazy Market

Real estate agent with sold sign
Andy Dean Photography / Shutterstock.com

We’re still weeks away from July 4, but that hasn’t stopped American home values from shooting up like a Roman candle.

With prices soaring, you would think many home shoppers would be getting cold feet. Instead, 52% of people surveyed by mortgage giant Fannie Mae still think this is a good time to buy, up from 48% month over month.

Compare that to the feeling of home sellers: Just 32% of those folks think it’s a good time to sell.

Overall, the Fannie Mae Home Purchase Sentiment Index (HPSI) increased 4.5 points in May to 67.5, rising slightly after nearing its all-time survey low in April. Fannie Mae describes the homebuyer outlook as “somewhat more optimistic” in May than the previous month.

Why is optimism starting to rise again among homebuyers? Likely because they think mortgage rates are about to slide.

The net share of Americans who say mortgage rates will go down over the next 12 months has increased by 10 percentage points.

Still, even though optimism is rising, it is nowhere near where it was a year ago. The Fannie Mae Home Purchase Sentiment Index is down 24.5 points year over year.

In a press release, Doug Duncan, Fannie Mae senior vice president and chief economist, said:

“Although the HPSI’s precipitous declines of March and April did not continue in May, Americans’ financial, economic, and housing market concerns remain substantially elevated compared to survey history.”

Despite homebuyers increasingly seeing the glass as half-full, sellers remain down in the dumps. Duncan says sentiment in this group remains “severely dampened,” largely because of economic concerns.

Still, Duncan notes that an uptick in purchase activity could boost the confidence of some potential sellers. He says:

“As lockdown restrictions begin to ease across the country, we expect economic recovery to be largely shaped by consumers’ decisions regarding when and how to reengage in the economy. We believe this month’s HPSI results and Friday’s unexpectedly favorable labor market report to be encouraging signs for the months ahead.”

Are you planning to shop for a home soon? Stop by our Solutions Center and search for a great mortgage rate.

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

Source: moneytalksnews.com

Do Mortgage Payments Go Down Over Time?

Mortgage Q&A: “Do mortgage payments decrease?”

While everyone always seems to focus on mortgage payments adjusting higher, there are a number of reasons why a mortgage payment may actually decrease over time.

No really, there are, so let’s take a look at how this pleasant surprise could happen, shall we…

Mortgage Payments Can Decrease on ARMs

  • While perhaps not as common as the payment going up
  • Monthly payments can drop if you have an adjustable-rate mortgage
  • But you’ll need the associated mortgage index to decline in the process
  • And your lender may have a built-in floor, so basically don’t bank on it

If you have an adjustable-rate mortgage, there’s a possibility the interest rate can adjust both up or down over time, though the chances of it going down are typically a lot lower.

Still, it is viable to take out an ARM, hold it throughout its initial fixed-rate period, then wind up with a lower rate once it becomes adjustable.

You may remember that now infamous interest rate reset chart, the one that showed billions of dollars worth of mortgages resetting from their fixed-rate period into their scary adjustable period.

Well, the damage wasn’t nearly as bad as it originally appeared because many of the mortgage indexes tied to those loans plummeted to rock-bottom levels and/or all-time lows.

As a result, some homeowners who stayed in those seemingly “exploding ARMs” may have actually seen their mortgage payments fall. And the savings could have been significant.

For example, say you took out a 5/1 ARM set at 3.5% for the first 60 months with a margin of 2.25% tied to the 12-month LIBOR.

After five years, the rate may have fallen to around 2.5% with the LIBOR index down to just 0.25%.

Yes, it is possible to lower your mortgage rate without refinancing!

When You Pay Down Your Mortgage (But It’s Not Automatic)

  • Payments can also go down if you make a large lump sum payment
  • But you’ll need to get your mortgage lender to recast your loan
  • Doing so will allow them to re-amortize it based on a lower outstanding balance coupled with your original loan term
  • Without a recast, extra payments won’t automatically lower future payments

If you decide to pay off a large chunk of your mortgage, you can ask the mortgage lender to recast your loan (if they allow it).

This essentially re-amortizes the mortgage so the new, smaller balance is broken down over the remaining months left on the loan.

Your monthly mortgage payment is adjusted lower to reflect the smaller outstanding principal balance, but your mortgage rate doesn’t change.

While this could increase household cash flow, you may be better suited to pay off your mortgage early by making your old, higher monthly payment despite the lower balance.

[Pay off the mortgage or invest instead?]

Keep in mind that mortgage payments won’t decrease automatically simply by making extra payments. All that will accomplish is a quicker payoff period and interest savings.

For example, if you pay an extra $500 per month on a $300,000 mortgage set at 4%, you’ll pay off the loan 11 years and 8 months early. But payments will be the same every month until the loan is paid in full.

In other words, future payments won’t go down to reflect earlier ones, but because the loan will be paid off sooner than scheduled, you will save more than $92,000 in interest over the life of the shortened loan.

Similarly, a mortgage payment doesn’t just decrease over time as it is paid off, like it might be with a credit card or revolving account like a HELOC.

Instead, the monthly payment is pre-determined for the life of the loan, even if you chip away at it along the way.

If You Refinance Your Home Loan to a Lower Rate

  • This is the most common reason why mortgage payments drop
  • And largely why homeowners choose to refinance their mortgages
  • If interest rates are low and you’re looking for some payment relief
  • It might be time to trade in your old home loan for a new one via a refinance

Here’s a no-brainer. If you want a lower mortgage payment, look into a rate and term refinance.

Because mortgage rates are very low at the moment, your mortgage payment will probably decrease significantly if you refinance now, assuming you haven’t done so recently.

This is one of the most popular and easiest ways to lower your mortgage payment with minimal effort.

It just requires a little bit of work on your end in terms of shopping around, submitting a loan application, getting approved, and making it to the finish line.

For example, if your current interest rate is set at 4%, it might be possible to refinance it down to 3%, which depending on the loan amount could lower your payment significantly and save you a ton in interest too.

However, it’s not always a good time to refinance. Sometimes rates can be higher, and other times the closing costs might exceed the benefit, especially if you don’t plan to stay in the property for the long-haul.

[When to refinance a mortgage?]

If you’re not sure whether to refinance or not, consider the refinance rule of thumb argument.

Shop Your Homeowners Insurance, Look Into a Tax Reassessment

  • You can also look beyond your mortgage rate to gain payment relief
  • It might be possible to lower your payment by shopping around for homeowners insurance
  • Or getting a tax reassessment if you feel your property value has dropped
  • A simple escrow surplus can also result in a lower payment

Lastly, be sure to shop your homeowner’s insurance each year, as it is typically included in your mortgage payment.

If you can snag a lower home insurance premium, your mortgage payment may decrease as a result. Another pretty simple way to save money…

Assuming you didn’t waive escrows, your loan servicer will collect a portion of property taxes and homeowners insurance with each principal and interest payment, then pay these items on your behalf.

If either decrease from a year earlier, your total housing payment may go down as well after they run their annual escrow analysis.

Also look into a tax reassessment of your home if you feel it is overvalued.

If property values have been on the decline, you may be able to save some money on property taxes by asking your county recorder’s office to reassess your property.

Of course, it doesn’t always work out as planned so tread cautiously.

Remember, a mortgage payment is typically expressed as PITI, which stands for principal, interest, taxes, and insurance.

Take the time to address each component if you want to save money on your monthly housing costs.

See also: Do mortgage payments increase?

Source: thetruthaboutmortgage.com

Retirement Planning Checklist

Ideally, you should start planning for retirement the day you receive your first paycheck. But in reality, most of us don’t focus on retirement until much later—and that’s fine, as long as you’ve been saving throughout your career. Once you reach your fifties, though, it’s time to start thinking about when you’ll retire, where you’d like to live, and how you’ll spend your time once you stop working.

While the pandemic has thrown a wrench in some re­tirement plans, it has created opportunities, too. The personal savings rate has soared, as Americans who were able to keep their jobs stashed their stimulus checks, along with money they would normally spend on restaurants and travel, in savings accounts. Instead of allowing that money to languish in a low-interest account, consider using it to beef up your retirement savings.

With the caveat that the when of retirement may be out of your control—if you’re, say, forced to retire earlier than planned or need to stay on the job longer to make up for gaps in your savings—here’s a list of items to check off when you’re 10 years, five years and one year away from your expected retirement date.

10 years until retirement

Retirement is on the horizon, but other matters—your family, your job, your kitchen renovation—tend to consume most of your attention. Still, it’s not too soon to start running the numbers, ideally with the help of a certified financial planner, to get a sense of whether your planned retirement date is realistic.

In the wake of the COVID-19 pandemic, you may need to make some course corrections. More than 80% of Americans say the pandemic has affected their retirement plans, and one-third estimate that they’ll need two to three years to get back on track, according to a survey conducted by Fidelity Investments. The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted early last year allowed people who suffered financial setbacks as a result of the pandemic to withdraw up to $100,000 from their 401(k) or other employer-provided retirement plans without paying a 10% early-withdrawal penalty. If you took a hardship withdrawal (and your employer allows it), you have up to three years to repay the funds and have the repayment treated as a tax-free rollover. (If you repay the distribution after you’ve paid taxes on it, you can file an amended return and get a refund.) The sooner you repay any hardship withdrawals, the more time your money will have to grow. Similarly, while the CARES Act gave borrowers six years instead of five to repay 401(k) loans, the sooner you repay the loan, the sooner you’ll be able to take advantage of market gains on a bigger balance.

Use your stimulus check or other money you’ve saved to increase contributions to your retirement plans. If you’re 50 or older, you can stash up to $26,000 in your 401(k) or other employer-sponsored retirement savings plan. You can also contribute up to $7,000 (if you’re age 50 or older) to a traditional IRA or, if you don’t earn too much to qualify, a Roth IRA (see below).

If your employer offers one, consider shifting some of your 401(k) contributions to a Roth 401(k). Having all of your savings in tax-deferred 401(k) plans and traditional IRAs can result in big tax bills when you start taking withdrawals, says Karen Van Voorhis, a CFP in Norwell, Mass. And while many dual-income married couples earn too much to contribute to a regular Roth, there are no income limits on contributions to Roth 401(k) plans.

Contribute to a health savings account. In 2021, workers age 55 and older who are covered by a high-deductible health insurance plan can contribute up to $4,600 to an HSA. You can use the money to pay for medical expenses that aren’t covered by your insurance, but if you pay those expenses out of pocket and let the money in your HSA grow until you retire, you’ll have a stockpile of tax-free money to pay for medical expenses that aren’t covered by Medicare. Many plans let you invest contributions in mutual funds or exchange-traded funds.

Pay off high-interest debt, such as credit cards or PLUS loans you took out for your children’s college education. Nearly one-fourth of retirees say that debt has made it more difficult for them to live comfortably in retirement, according to the Employee Benefit Research Institute’s 2021 Retirement Confidence Survey. With interest rates at record lows, though, paying off your mortgage before you retire may not be the best use of your money (see below).

Create (or update) your estate plan, which should include a will or trust, health care proxy and power of attorney. Review beneficiaries on insurance policies and retirement plans.

Rebalance your portfolio. It’s too soon to make a big shift from stocks to conservative investments, because you’re still years away from retirement. But the stock market has been going gangbusters for months, which means you may have more invested in stocks and stock funds than you’re comfortable with. For example, if your target asset allocation is 80% stocks and 20% bonds and cash, you may need to sell some stock funds to get your portfolio back on track.

Take advantage of a drop in income

The economy has begun to rebound this year, but many workers are still unemployed or have seen their hours reduced, and some have voluntarily taken time out to care for at-home children. If you fall into that camp, you may be able to take steps that will reduce your tax bill when you retire.

If the reduction in your income caused you to drop into a lower tax bracket but you’re still in good financial shape, this year may be the ideal time to convert some of the money in your traditional IRA to a Roth, says Karen Van Voorhis, a certified financial planner in Norwell, Mass. You’ll pay taxes on any money you convert, but you’ll pay less than you would owe in higher-income years. And once you retire, withdrawals from your Roth will be tax-free, as long as you’re 59½ or older and have owned a Roth for at least five years.

A decline in your household income could also make it possible for you to contribute to a Roth. If you’re married and file jointly, you can’t contribute the maximum to a Roth IRA if your 2021 modified adjusted gross income is more than $208,000. If your household income falls below that threshold this year, you have until April 15, 2022, to con­tribute to a Roth. Each spouse can contribute up to $6,000 in 2021, or $7,000 if they’re 50 or older.

5 years until retirement

It’s not too soon to start estimating what your expenses will be in retirement, which is critical to determining whether you can afford to retire in five years. If you spent the pandemic working from home, you may have a pretty good idea of how much you’ll save when you’re no longer commuting or having your clothes dry cleaned. But don’t lowball your post-retirement expenses. Many retirees see their expenses go up in the early years of retirement, when they’re still healthy enough to pursue activities they didn’t have time to enjoy while they were working. And if you plan to retire before age 65, you’ll need to budget for health insurance, too.

To get a handle on your cost of living in retirement, comb through your credit card and bank statements to get an idea of how much you spend each month on everything from gas to pet care. Once you’ve done that exercise, use a retirement budget worksheet, such as the one offered at http://investor.vanguard.com/calculator-tools/retirement-expenses-worksheet, to estimate your expenses in retirement.  

Then, consider sitting down with a CFP to determine whether you’ve saved enough to afford the lifestyle you’ve envisioned. You may conclude that working a year or two longer will significantly enhance your retirement security (see The Benefits of Working Longer).

Add up sources of guaranteed income, such as Social Security and a pension, if you’re eligible for one. If you don’t have an online Social Security account, go to www.ssa.gov/myaccount/create.html to set one up.

Once you’ve signed up for an online account with Social Security, review your earnings history to make sure you’ve received credit for every year you worked. Your benefits could be shortchanged if an employer reported earnings under an incorrect name or Social Security number.

If you’re concerned that you haven’t saved enough, look into the possibility of a phased re­tirement. For example, instead of quitting your job in five years, ask your employer if you could continue to work two or three days a week.

Explore part-time positions or gig-economy jobs that will gen­erate additional income in retirement. Check out www.sidehusl.com, which reviews and rates online job sites, for leads on companies that offer part-time work for retired professionals.

If you plan to relocate in re­tirement, start visiting potential destinations. Many people dream of retiring to an area they’ve visited on vacation, but that’s not the same as living like a local. Try to visit at different times of the year, and take advantage of short-term rental properties or Airbnbs.

Plan for the cost of long-term care. Premiums for long-term care insurance rise as you age, so this may be your last chance to purchase a policy you can afford. While the pandemic made many seniors wary of nursing homes, most current policies provide a pool of benefits that include coverage of home health care. Talk to an insurance agent who represents a number of companies so you can compare coverage and costs. (A CFP can also help you determine whether you have sufficient assets to cover long-term care on your own or in conjunction with a smaller policy.)

Start shifting some of your savings to more-conservative investments—but be careful. With interest rates so low, an overly conservative portfolio could lag inflation, exposing you to the risk of running out of money. Many workers at this stage of their lives opt for a 60-40 allocation—60% stocks, 40% in government bonds—but with interest rates at record lows, you may need to diversify that portion of your portfolio with funds that invest in triple-B-rated corporate bonds, preferred stocks, convertible bonds and real estate investment trusts (see 35 Ways to Earn Up to 10% On Your Money).

Prepare for the unexpected. Nearly half of retirees surveyed by the Employee Benefit Research Institute said that they retired earlier than expected. Many people end up retiring earlier than planned because of layoffs or health issues. Make sure you have at least a year’s worth of expenses in an emergency account so your retirement savings can continue to grow.

Consider keeping your mortgage

It’s hard to put a price on the peace of mind that comes from retiring debt-free, and there’s no question that you should strive to pay off high-interest debt before you stop working. But with mortgage rates at record lows, paying your mortgage off early may not be the best use of your money, financial planners say.

For example, you shouldn’t pay off your mortgage unless you’re already contributing the maximum to your retirement-savings plans. If you have a 30-year mortgage with a 3% interest rate, there’s a good chance you’ll earn more on your investments than you’ll save on interest. Likewise, don’t drain your emergency savings to pay off the mortgage. And even if you check both of those boxes, you should pay off your mortgage only if you have enough money in taxable accounts to pay for it, says David Foster, a certified financial planner in St. Louis. Taking money out of a traditional IRA or 401(k) will likely trigger a significant tax bill, he notes.

Still, when it comes to the appeal of retiring mortgage-free, “the math may say one thing, but your heart says something else,” says Jeremy Finger, a CFP in Myrtle Beach, S.C. If you can retire your mortgage without jeopardizing your retirement savings—or triggering a big tax bill—go ahead and pay it off, he says. Alternatively, consider accelerating the payoff, either by making extra payments or by refinancing to a shorter term. That way, you can retire mortgage-free, or with only a few years to go until the loan is paid off, without depleting your cash reserves.

1 year until retirement

With retirement so close, you may find yourself browsing catalogs or websites for cruises or walking tours. But even if you’re convinced you’ve saved enough to retire in a year, you’ve still got plenty of work to do—and big decisions to make. Start by sitting down with your human resources department to review your pension (if you have one), any retiree health care coverage and other benefits. In some cases, postponing retirement by just a few months could affect your monthly pension payout or your 401(k) match, so be judicious when setting a date for your departure.

This is also a good time to refine the budget you created at the five-year point. You should have a better idea of how you’ll spend your time and how much those endeavors will cost. And if you’ve decided to downsize or move to a lower-cost area, you should be able to estimate how reducing your cost of living will affect your budget.

Determine when you’ll apply for Social Security. Use your online account to review how much your benefits will contribute to your retirement income. Most boomers are eligible for full retirement benefits at age 66, but if you delay until age 70, you’ll receive a delayed-retirement credit of 8% a year.

Start exploring your Medicare options. If you’re approaching age 65, you’re probably already receiving lots of mail from various Medicare Advantage, medi­gap and Part D prescription plans. You’ll be in a much better position to choose a plan that’s right for you if you start reviewing your options at least a year in advance, says Kari Vogt, a CFP and Medicare insurance broker in Columbia, Mo. Planning ahead will also help you avoid gaps in coverage that could trigger costly Medicare penalties.

If you’re eligible for a traditional pension, review the pros and cons of taking a lump sum versus a monthly payout. A CFP can help you consider which option works best for you and your spouse.

Decide what to do with money in your current employer’s 401(k) plan. Rolling the money into an IRA may offer more flexibility when you take withdrawals, but some 401(k) plans provide institutional-class funds with lower fees.

Simplify your finances. If you have 401(k) plans with former employers, consider con­solidating them into an IRA so you can reduce paperwork, review your investment allocation and possibly lower some of your account expenses.

Go to www.missingmoney.com or www.unclaimed.org to make sure you haven’t lost track of any former employers’ pension benefits, retirement plans, bank accounts or other funds.

If you have decided on a re­tirement destination, step up your research. Subscribe to the local paper, talk to real estate agents in the area, and research local hospitals and health care providers.

Come up with a plan for charitable giving. Many retirees want to support their favorite causes but don’t have a strategy, says David Foster, a CFP in St. Louis. You can do the most good by making scheduled contributions a part of your budget, he says.

Create a bucket system

One of the challenges facing retirees is pre­serving enough of their savings to protect them from bear markets while keeping enough invested in stocks to stay ahead of inflation. A system that divides your savings into three “buckets” can solve this dilemma. Set aside enough cash in the first bucket to cover living expenses for the first year or two of retirement that won’t be covered by Social Security, a pension and/or an annuity. In the second bucket, invest what you expect to need in the next 10 years in short- and intermediate-term bond funds. The third bucket will hold money you won’t need until much later, which means you can invest it in stocks and alternative investments. Review your cash bucket annually to determine whether it needs to be replenished from your other buckets. If the stock market takes a dive, you’ll have enough in your first two buckets to cover expenses for years, giving your stocks plenty of time to recover.

Source: kiplinger.com

15 Real Estate Markets Offering the Most Bang for Your Buck

Happy couple buying a home in a new city
Monkey Business Images / Shutterstock.com

Editor’s Note: This story originally appeared on Porch.

The classic saying in real estate is “Location, location, location.” Everyone who buys a home knows that where homes are located — by market, by neighborhood, and even by block — can cause wide variation in what they will list and ultimately sell for.

Changes in the real estate market during the COVID-19 pandemic have shifted some of the calculus when it comes to choosing both the location and the particular home. On the one hand, low interest rates have increased the amount of money buyers are willing to spend, as evidenced in part by the ratio of contractor-built to owner-built housing starts. When interest rates are high, many potential buyers opt to build their own home as a way to save money, pushing the ratio down. Conversely, when interest rates are low, buyers are more willing to pay a premium on a home that someone else built, and the ratio rises.

Alongside lower mortgage rates and the corresponding increase in what buyers are willing to spend, COVID-19 has ushered in a resurgence of interest in large homes. With more people transitioning to virtual work and schooling, many previously high-demand markets have cooled off, while lower-cost markets offering larger houses and more “bang-for-the-buck” have new appeal.

Large metros offering the best “bang-for-the-buck”

goodluz / Shutterstock.com

To find the real estate markets where buyers can get the most for their money, researchers at Porch analyzed data from Zillow, Realtor.com, and the U.S. Census Bureau. They created a composite score based on five key metrics related to price, affordability, home size, and the recent and projected changes in value.

At the state level, Kansas leads the nation by a large margin, followed by a number of other lower-cost states in the South and Midwest. Notably absent from the top of the list are coastal states like California and Massachusetts, where price per square foot and home payments as a share of income are much higher than in the rest of the country.

At the metro level, it is unsurprising to find that many of the best bang-for-the-buck markets are located in the same states that rate highly for value. Oft-overlooked large metros like Indianapolis, Kansas City, and Cleveland top the list, a function of low housing costs both on a per-square-foot basis and as a share of income.

Here are the best large “bang-for-the-buck” real estate markets.

15. Phoenix, AZ

Aerial view of Phoenix, Arizona
Tim Roberts Photography / Shutterstock.com
  • Composite score: 78.6
  • Median list price: $403,792
  • Price per square foot: $201.21
  • Monthly mortgage payment as a percentage of household income: 25.9%
  • Median home size (square feet): 2,121
  • Previous 1-year change in home price: +7.9%
  • Projected 1-year change in home price: +16.1%

14. Rochester, NY

Rochester New York
TarnPisessith / Shutterstock.com
  • Composite score: 78.8
  • Median list price: $236,986
  • Price per square foot: $125.99
  • Monthly mortgage payment as a percentage of household income: 16.2%
  • Median home size (square feet): 1,761
  • Previous 1-year change in home price: +11.3%
  • Projected 1-year change in home price: +8.9%

13. Richmond, VA

Richmond Virginia homes
Noel V. Baebler / Shutterstock.com
  • Composite score: 79.2
  • Median list price: $347,950
  • Price per square foot: $156.34
  • Monthly mortgage payment as a percentage of household income: 20.8%
  • Median home size (square feet): 2,207
  • Previous 1-year change in home price: +7.5%
  • Projected 1-year change in home price: +10.1%

12. Grand Rapids, MI

Grand Rapids Michigan homes houses
Fsendek / Shutterstock.com
  • Composite score: 79.5
  • Median list price: $306,125
  • Price per square foot: $150.52
  • Monthly mortgage payment as a percentage of household income: 19.8%
  • Median home size (square feet): 2,018
  • Previous 1-year change in home price: +6.4%
  • Projected 1-year change in home price: +12.0%

11. San Antonio, TX

San Antonio, Texas home
Natalia Silyanov / Shutterstock.com
  • Composite score: 79.9
  • Median list price: $301,805
  • Price per square foot: $144.93
  • Monthly mortgage payment as a percentage of household income: 20.5%
  • Median home size (square feet): 2,220
  • Previous 1-year change in home price: +1.7%
  • Projected 1-year change in home price: +11.1%

10. Oklahoma City, OK

Shane Wilson Link / Shutterstock.com
  • Composite score: 80.0
  • Median list price: $268,581
  • Price per square foot: $130.13
  • Monthly mortgage payment as a percentage of household income: 18.7%
  • Median home size (square feet): 2,105
  • Previous 1-year change in home price: +7.7%
  • Projected 1-year change in home price: +8.1%

9. Dallas-Fort Worth, TX

Dallas, Texas Homes
Trong Nguyen / Shutterstock.com
  • Composite score: 81.1
  • Median list price: $351,276
  • Price per square foot: $152.27
  • Monthly mortgage payment as a percentage of household income: 20.5%
  • Median home size (square feet): 2,320
  • Previous 1-year change in home price: +1.0%
  • Projected 1-year change in home price: +12.6%

8. Houston, TX

Houston homes neighborhood
Stephanie A Sellers / Shutterstock.com
  • Composite score: 82.1
  • Median list price: $322,206
  • Price per square foot: $136.89
  • Monthly mortgage payment as a percentage of household income: 19.6%
  • Median home size (square feet): 2,368
  • Previous 1-year change in home price: +2.7%
  • Projected 1-year change in home price: +10.8%

7. Birmingham, AL

Birmingham Alabama home
Carolyn May Wright / Shutterstock.com
  • Composite score: 82.9
  • Median list price: $263,736
  • Price per square foot: $122.40
  • Monthly mortgage payment as a percentage of household income: 18.8%
  • Median home size (square feet): 2,091
  • Previous 1-year change in home price: +5.7%
  • Projected 1-year change in home price: +11.7%

6. Charlotte, NC

Home surrounded by greenery in Charlotte,NC.
Jon Bilous / Shutterstock.com
  • Composite score: 83.1
  • Median list price: $358,347
  • Price per square foot: $153.40
  • Monthly mortgage payment as a percentage of household income: 23.3%
  • Median home size (square feet): 2,331
  • Previous 1-year change in home price: +5.1%
  • Projected 1-year change in home price: +15.1%

5. Salt Lake City, UT

Salt Lake City, Utah
Rigucci / Shutterstock.com
  • Composite score: 83.1
  • Median list price: $491,591
  • Price per square foot: $191.74
  • Monthly mortgage payment as a percentage of household income: 27.0%
  • Median home size (square feet): 2,664
  • Previous 1-year change in home price: +13.4%
  • Projected 1-year change in home price: +16.0%

4. Raleigh, NC

Raleigh North Carolina home
KAD Photo / Shutterstock.com
  • Composite score: 83.2
  • Median list price: $378,824
  • Price per square foot: $154.92
  • Monthly mortgage payment as a percentage of household income: 20.5%
  • Median home size (square feet): 2,480
  • Previous 1-year change in home price: +3.4%
  • Projected 1-year change in home price: +14.0%

3. Cleveland, OH

Woman eating breakfast
Henryk Sadura / Shutterstock.com
  • Composite score: 83.8
  • Median list price: $208,061
  • Price per square foot: $98.97
  • Monthly mortgage payment as a percentage of household income: 15.2%
  • Median home size (square feet): 1,901
  • Previous 1-year change in home price: +6.2%
  • Projected 1-year change in home price: +10.4%

2. Kansas City, MO

Kansas City Missouri homes
Sabrina Janelle / Shutterstock.com
  • Composite score: 84.6
  • Median list price: $338,726
  • Price per square foot: $145.98
  • Monthly mortgage payment as a percentage of household income: 20.9%
  • Median home size (square feet): 2,294
  • Previous 1-year change in home price: +9.3%
  • Projected 1-year change in home price: +14.8%

1. Indianapolis, IN

winter scene homes in Indianapolis, Indiana
Ted Alexander Somerville / Shutterstock.com
  • Composite score: 87.0
  • Median list price: $283,562
  • Price per square foot: $113.70
  • Monthly mortgage payment as a percentage of household income: 18.9%
  • Median home size (square feet): 2,308
  • Previous 1-year change in home price: +5.5%
  • Projected 1-year change in home price: +14.1%

Detailed findings & methodology

real estate agent realtor
Sean Locke Photography / Shutterstock.com

The data used in this analysis is from Zillow, Realtor.com, and the U.S. Census Bureau. To determine the best “bang-for-the-buck” real estate markets, researchers created a composite score based on the following factors and weights:

  • Price per square foot (40%) – the median price per square foot for 2020
  • Monthly mortgage payment as a percentage of household income (10%) – the estimated monthly mortgage payment based on the median list price and median household income; assuming a 30-year fixed rate mortgage with a 20% down payment
  • Median home size (20%) – the median home size in square feet for 2020
  • Previous 1-year change in home price (5%) – the average monthly year-over-year change in list price for 2020
  • Projected 1-year change in home price (25%)* – the forecasted one-year change in home price from Zillow

With the exception of the monthly mortgage payment as a percentage of household income, higher values corresponded to a higher score for all factors considered. In the event of a tie, the metro with the lower median listing price was ranked higher. To improve relevance, only metropolitan areas with at least 100,000 residents were included.

*Not available for U.S. states.

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

Source: moneytalksnews.com