The Most Expensive Zip Codes for Renters

When it comes to saving money on rent, ZIP code is everything.

Using data from rental market research firm Yardi Matrix, rental listing service RentCafe analyzed how the cost of renting differs by ZIP code in 125 major U.S. metro areas.

The top 10 most expensive ZIP codes are located in just two cities — New York and San Francisco. In fact, Manhattan and San Francisco took all but one of the top 20 spots in the RentCafe ranking. New York City alone is home to 27 of the top 100 most expensive ZIP codes.

The priciest pads are located in Manhattan’s Battery Park Ball Fields (10282), where renters pay an average $5,924 per month, making it the most expensive ZIP code in the country.

Right behind Battery Park were the Lenox Hill area (average rent: $4,898) and apartments on the Upper West Side near Lincoln Square (average rent: $4,892), which took the No. 2 and No. 3 slots on the most expensive list.

San Francisco had two in the top 10: ritzy neighborhoods Presidio and Main Post (94129), where average rental prices stand at $4,762, and the city’s South Beach area (94105) pulled in ninth at $4,380.

According to the ranking, Boston was the third most expensive city for renters. There, renters can expect to pay $4,227 to live in the city’s most expensive ZIP code, the Black Bay neighborhood (02199).

MagnifyMoney looked at RentCafe’s findings to figure out which cities had the most expensive ZIP codes. Here’s how they stacked up:

Ranking

City State Most Expensive ZIP Code

Average Rent

1 Manhattan NY 10282 $5,924
2 San Francisco CA 94129 $4,762
3 Boston MA 02199 $4,227
4 Palo Alto CA 94301 $3,718
5 Menlo Park CA 94025 $3,657
6 Brooklyn NY 11201 $3,622
7 Los Angeles CA 90401 $3,477
8 Santa Monica CA 90405 $3,423
9 Durham NC 03824 $3,381
10 Playa Vista CA 90094 $3,367

How to save on rent

Always comparison shop.

Comparison shopping is one of the most important things you can do to save money on your next move. Comparing prices in and around the area you want to live is one way to make sure you pay a fair price for your new space.

Back in the day, comparing prices on apartment would have involved calling several different management companies to compare quotes. Even then, you might have missed a good deal. With today’s technology you can (and should) easily search for and compare rent prices all over the world with interactive maps on sites like RentCafe, Apartment Finder, or Cozy.

Fly South for lower rent

Renters looking to pay as little as possible should look toward southern states like Kansas or Alabama. Two Wichita, Kan., ZIP codes (67213 and 67211) priced around $400 per month, while apartments in Decatur, Ala. (35601) will run renters on average $458 per month. So, for what you’d pay for one month of rent in Manhattan, you could rent a place in Kansas for a whole year.

Below are the top ten cities with the least expensive rental listings based on Yardi Matrix data.

Ranking City State Least Expensive

ZIP Code

Average Rent
1 Wichita KS 67213 $407
2 Decatur AL 35601 $458
3 Memphis TN 38106 $464
4 Columbus GA 31903 $482
5 Fort Wayne IN 46809 $495
6 Huntsville AL 35810 $503
7 Louisville TN 37777 $507
8 Gravel Ridge AR 72076 $508
9 West Memphis AR 72301 $508
10 Athens AL 35611 $510

 

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The Hidden Costs of Selling A Home

With home values picking back up, many homeowners may be already dreaming of the money they’d make selling their home. Although the aim is to make money on a home sale, or at least break even, it’s easy to forget one important thing: selling a house costs money, too.

A joint analysis by online real estate and rental marketplace Zillow and freelance site Thumbtack found American homeowners spend upward of $15,000 on extra or hidden costs associated with a home sale.

Most of those expenses come before homeowners see any returns on their home sale. Most of the money is spent in three categories: closing costs, home preparation, and location.

Here are a few hidden costs to prepare for when you sell your home.

Pre-sale repairs and renovations

Zillow’s analysis shows sellers should plan to spend a median $2,658 on things like staging, repairs, and carpet cleaning to get the property ready.

Buyers are generally expected to pay their own inspection costs; however, if you’ve lived in the home for a number of years and want to avoid any surprises, you might also consider spending about $200 to $400 on a home inspection before listing the property for sale. That way, you can get ahead of surprise repairs that may decrease your home’s value.

Staging is another unavoidable cost for any sellers. Staging, which involves giving your home’s interior design a facelift and removing clutter and personal items from the home, is often encouraged because it can help make properties more appealing to interested buyers. Not only will you need to stage the home for viewing, but sellers often need to have great photos and construct strong descriptions of the property online to help maximize exposure of the property to potential buyers. If your agent is handling the staging and online listing, keep an eye on the “wow” factors they add on. Yes, a 3-D video walk-through of your house looks really cool, but it might place extra pressure on you budget.

You could save a large chunk on home preparation costs if you decide to DIY, but if you outsource, expect a bill.

ZIP code

Location drove home-selling costs up for many respondents in ZIllow’s analysis, as many extra costs were influenced by regional differences — like whether or not sellers are required to pay state or transfer taxes.

With a median cost of $55,000 for closing and maintenance expenses, San Francisco ranked highest among the most-expensive places to sell a home. At the other extreme, sellers in Cleveland, Ohio, pay little more than a median $10,100 to cover their selling costs.

Generally, selling costs correlate with the cost of the property, so expect to pay a little more if you live in an area with higher-than-average living costs or have a lot of land to groom for sale. Take a look at Zillow’s rankings below.

Closing costs

Closing costs are the single largest added expense of the home-selling process, coming in at a median cost of $12,532, according to Zillow. Closing costs include real estate agent commissions and state sales and/or transfer taxes. There may be other closing costs such as title insurance or escrow fees to pay, too.

Real Trends, a research and advisory company that monitors realty brokerage firms and compiles data on sales and commission rates of sales agents across the country, reported the national average was 5.26% in 2015.

Real Trends says rates are being weighed down by:

  • an increasing number of agents working for companies like Re/Max that give them flexibility to set commission rates without a minimum requirement
  • more competition from discount brokers like Redfin, an online brokerage service that charges sellers as low as 1%
  • an overall shortage of homes for sale pressuring agents to negotiate commission rates

The firm’s president, Steve Murray, told The Washington Post he predicts agent commissions will fall below 5% in the coming years.

Luckily, some closing costs are negotiable.

To save on real estate agent commissions, you can either negotiate their fee down or find a flat-fee brokerage firm like Denver-based Trelora, which advertises a flat $2,500 fee to list a house regardless of its selling price. Larger companies like Re/Max give their agents full control over their commission rates, so you may have better luck negotiating with them.

If you have the time on your hands, you could also list the home for-sale-by-owner to save on closing costs. Selling your home on your own is a more complicated and time-intensive approach to home selling and can be more difficult for those with little or no experience.

Other costs to consider:

Utilities on the empty home

If you’re moving out prior to the sale, you should budget to keep utilities on at your old place until the property is sold.

It will help you sell your home since potential buyers won’t fumble through your cold, dark home looking around. It may also prevent your home from facing other issues like mold in the humid summertime. Be sure to have all of your utilities running on the buyer’s final walk through the home, then turn everything off on closing day and handle your bills.

Make room in your household’s budget to pay for double utilities until the home is sold.

Insurance during vacancy

Again, prepare to pay double for insurance if you are moving out before your home sells. You’ll still need homeowner’s insurance to ensure coverage of your old property until the sale is finalized. Check the terms first, as your homeowner’s insurance policy might not apply to a vacant home. If that’s the case, you can ask to pay for a rider — an add-on to your basic insurance policy — for the vacancy period.

Capital gains tax

If you could make more than $250,000 on the home’s sale (or $500,000 if you’re married and filing jointly), you’ll want to take a look at the rules on capital gains tax. If your proceeds come up to less than $250,000 after subtracting selling costs, you’ll avoid the tax. However, if you don’t qualify for any of the exceptions, the gains above those thresholds could be subject to a 25% to 28% capital gains tax.

The Key Takeaway

Selling a home will cost you some money up front, but there are many ways you can plan for and reduce the largest costs. If you’re planning to sell your home this year, do your research and keep in mind falling commission costs when you negotiate.

List all of the costs you’re expecting and calculate how they might affect the profit you’d make on the sale and your household’s overall financial picture. If you’re unsure of your costs, you can use a sale proceeds calculator from sites like Redfin or Zillow to get a ballpark estimate of your potential selling costs, or consult a real estate agent.

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5 Things to Know if You’re Trying to Get a Mortgage With Bad Credit in 2017

hopping for the right mortgage lender is key to getting the best loan terms, especially if you have less-than-stellar credit.

Believe it or not, your credit doesn’t have to be stellar to get a mortgage. Many banks and lenders will extend a mortgage to applicants with at least a 640 credit score. However, not all lenders are created equal — and, even if you can score a home loan, bad credit is going to seriously cost you in interest.

What Credit Score Do I Need to Get a Mortgage in 2017?

There are two main types of mortgages: conventional and Federal Housing Administration, or FHA, loans.

Some lenders will offer conventional mortgages to consumers with a credit score of just 620. Other lenders will go even lower, but the process for getting that mortgage will be difficult and involve thorough explanations of your credit history.

For FHA loans, some lenders will go as low as 580, with just 3.5% in equity. However some folks can get a new mortgage or even do a cash-out refinance with a credit score as low as 550 — but there’s a catch. You’ll need at least a 10% equity position. This means you need 10% down when buying a home or 10% equity when refinancing.

Keep in mind, though, not all lenders will extend a mortgage to someone with a bad credit score — it has to do with their tolerance for risk. (From an underwriting perspective, poor credit indicates a higher risk of default.) The more risk a bank is willing to take on, the higher your chances of getting approved with a not-so-hot score. You can see where you currently stand by viewing your two free credit scores on Credit.com.

Here are some things to keep in mind if you have a low credit score and are shopping for a mortgage.

1. It’s a Good Idea to Rebuild Your Credit

If you are looking to increase your credit score to have an easier time getting a mortgage, you’ll need to be able to clear the 620 mark to see any significant difference. Hitting that threshold (and beyond) will likely make better mortgage rates and terms available to you, plus keep you from going through the type of scrutiny a lower tier credit score bracket often requires. You can generally improve your credit score by disputing errors on your credit report, paying down high credit card balances and getting any delinquent accounts back in good standing.

2. Down Payment Assistance Will Be Hard to Come By 

Down payment assistance programs are currently quite scarce. Beyond that, to be eligible for down-payment assistance, a borrower would typically need at least a 640 credit score. You can expect this across the board with most banks and lenders. It is reasonable to assume you are ineligible for assistance if your credit score is under 640.

3. Previous Short Sale, Bankruptcy or Foreclosure Are Subject to ‘Seasoning Periods’

If you have one of these items on your credit report, it’s going to impact your ability to get a mortgage. There’s typically a three-year waiting period — also known as a “seasoning period” — before you can qualify for a mortgage after you’ve been through a foreclosure or short sale. The waiting time after a bankruptcy is two years. Note: There are some loan programs that have shorter seasoning periods. For instance, VA loans can get approved at the two-year mark following a foreclosure.

4. Higher Debt-to-Income Ratios Make it Harder

It’s no secret that FHA loans allow debt-to-income ratios in excess of 54%. In order to be eligible for this type of financing, your credit score should be around 640 or higher. That’s not to say your credit score of 620, for example, will not work. It’s almost a guarantee, though, that if your credit score is less than 600 you’re going to have a difficult time getting a loan approved with a debt-to-income ratio exceeding 45%.

5. Cash-Out-Refinancing Is On the Table

This is a big one. If you already own your own home, you could use your equity to improve your credit. How? You could do a cash-out refinance with your home. This would allow you to pay off installment loans and credit cards, which often carry a significantly higher rate of interest than any home loan. Wrapping them into the payment could end up saving you significant money, and it’s still an option for borrowers with lower credit scores. (As I mentioned earlier, some lenders will do a cash-out refinance for borrowers with a credit score as low as 550, so long as they’re in a at least 10% equity position.) However, if this is something you’re considering, be sure to read the print and crunch the numbers to determine if you’ll come out ahead. Cash-out re-fis require you to pay closing costs and your bad credit might not merit a low enough interest rate to make this move worthwhile. You’ll also want to make sure the new monthly mortgage payment is something you can handle.

Remember, just because you can technically get a mortgage with bad credit, doesn’t mean it’s the best move for you. You may want to improve your standing, lower your debt-to-income ratio and bolster your down payment funds before hitting up the housing market. Still, it can be done and if you’re currently looking for a home loan, be sure to ask prospective lenders or mortgage brokers lots of questions to find the best deal you can get. To help you through the process, good credit or bad, here’s 50 full ways to get ready for your house hunt.

Image: AntonioGuillem

The post 5 Things to Know if You’re Trying to Get a Mortgage With Bad Credit in 2017 appeared first on Credit.com.

Want to Roll Your Student Loans Into Your Mortgage? Here’s What to Consider

It can be a good option for some people, but for others it's just trading old debt for new.

It’s a question as old as debt itself: Should I pay off one loan with another loan?

“Debt reshuffling,” as it’s known, has garnered a bad reputation because it often amounts to just trading one debt problem for another. So it’s no wonder the news that Fannie Mae would make it easier for homeowners to swap student loan debt for mortgage debt was met with some caution.

It’s awfully tempting to trade a 6.8% interest rate on your federal student loan for a 4.75% interest rate on a mortgage. On the surface, the interest rate savings sound dramatic. It’s also attractive to get rid of that monthly student loan payment. But there are things to consider.

“One thing we stress big time: It worries me, taking unsecured debt and making it secured,” said Desmond Henry, a personal financial adviser based in Kansas.  “If you lose your job, with a student loan, there is nothing they can take away. The second you refinance into a mortgage, you just made that a secured debt. Now, they can come after your house.”

The Cash-Out Refinance

The option to swap student loan debt for home debt has already been available to homeowners through what’s called a “cash-out refinance.” These have traditionally been used by homeowners with a decent amount of equity to refinance their primary mortgage and walk away from closing with a check to use on other expenses, such as costly home repairs or to pay off credit card (or student) debt. Homeowners could opt for a home equity loan also, but cash-out refinances tend to have lower interest rates.

The rates are a bit higher than standard mortgages, however, due to “Loan Level Price Adjustments” added to the loan that reflect an increase in perceived risk that the borrower could default. The costs are generally added into the interest rate.

So what’s changed with the new guidelines from Fannie Mae? Lenders now have the green light to waive that Loan Level Price Adjustment if the cash-out check goes right from the bank to the student loan debt holder, and pays off the entire balance of at least one loan.

The real dollar value savings for this kind of debt reshuffle depends on a lot of variables: The size of the student loan, the borrower’s credit score, and so on. Fannie Mae expressed it only as a potential savings on interest rates.

“The average rate differential between cash-out refinance loan-level price adjustment and student debt cash-out refinance is about a 0.25% in rate,” Fannie Mae’s Alicia Jones wrote in an email. “Depending on profile [it] can be higher, up to 0.50%.”

On $36,000 of refinanced student loan debt — the average student loan balance held by howeowners who have cosigned a loan — a 0.50% rate reduction would mean nearly $4,000 less in payments over 30 years.

So, the savings potential is real. And for consumers in stable financial situations, the new cash-out refinancing could potentially make sense. Like Desmond Henry, though, the Consumer Federation of America urged caution.

“Swapping student debt for mortgage debt can free up cash in your family budget, but it can also increase the risk of foreclosure when you run into trouble,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and former Assistant Director of the Consumer Financial Protection Bureau. “For borrowers with solid income and stable employment, refinancing can help reduce the burden of student debt. But for others, they might be signing away their student loan benefits when times get tough.”

Risking foreclosure is only one potential pitfall of this kind of debt reshuffle, Henry said.  There are several others. For starters, the savings might not really add up.

Crunch the Numbers. Alllll the Numbers…

“You don’t just want to look at back-of-a-napkin math and say, ‘Hey, a mortgage loan is 2% lower than a student loan.’ You’ve got to watch out for hidden costs,’ Henry said.

Cash-out refinances come with closing costs that can be substantial, for example. Also, mortgage holders who are well into paying down their loans will re-start their amortization schedules, meaning their first several years of new payments will pay very little principal. And borrowers extending their terms will ultimately pay far more interest.

“We live in a society where everything is quoted on a payment. That catches the ears of a lot of people,” Henry said. “People think ‘That’s a no brainer. I’ll save $500 a month.’ But your 10-year loan just went to 30 years.”

There are other, more technical reasons that the student-loan-to-mortgage shuffle might not be a good idea. Refinancers will waive their right to various student loan forgiveness options – programs for those who work public service, for example. They won’t be able to take advantage of income-based repayment plans, either. Any new form of student loan relief created by Congress or the Department of Education going forward would probably be inaccessible, too.

On the tax front, the option is a mixed bag. Henry notes that student loan payments are top-line deductible on federal taxes, while those who don’t itemize deductions wouldn’t be able to take advantage of the mortgage interest tax deduction. On the other hand, there are caps on the student loan deduction, while there’s no cap on the mortgage interest deduction. That means higher-income student loan debtors who refinanced could see substantial savings at tax time.

In other words, it’s complicated, so if you’re considering your options, it’s probably wise to consult a financial professional like an accountant who can look at your specific situation to see what makes the most sense. (It’s also a good idea to check your credit before considering any refinancing or debt-consolidate options since it’ll affect your rate. You can get your two free credit scores right here on Credit.com.)

As a clever financial tool used judiciously, a cash-out student loan refinance could save a wise investor a decent amount of money. But, as Henry notes, the real risk with any debt reshuffle is that robbing Peter to pay Paul doesn’t change fundamental debt problems facing many consumers.

“The first thing to take into consideration is you still have the debt,” he said.

Image: monkeybusinessimages

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Should You Use a Mortgage to Refinance Student Loans?

Fannie Mae, the largest backer of mortgage credit in America, recently made it a little easier for homeowners to refinance their student loans. In an update to its Selling Guide, the mortgage giant introduced a student loan cash-out refinance feature, permitting originators that sell loans to Fannie Mae to offer a new refinance option for paying off one or more student loans.

That means you could potentially use a mortgage refi to consolidate your student loan debt. Student loan mortgage refis are relatively new. Fannie Mae and SoFi, an alternative lender that offers both student loans and mortgages, announced a pilot program for cash-out refinancing of student loans in November 2016. This new program is an expansion of that option, which was previously available only to SoFi customers.

Amy Jurek, a Realtor at RE/MAX Advantage Plus in Minneapolis/St. Paul, Minn., says people with home equity have always had a cash-out option, but it typically came with extra fees and higher interest rates. Jurek says the new program eliminates the extra fees and allows borrowers to refinance at lower mortgage interest rates. The policy change could allow homeowners to save a significant amount of money because interest rates on mortgages are typically much lower than those for student loans, especially private student loans and PLUS loans.

But is it a good idea?

Your student debt isn’t eliminated; it’s added to your mortgage loan.

This may be stating the obvious, but swapping mortgage debt for student loan debt doesn’t reduce your debt; it just trades one form of debt (student loan) for another (mortgage).

Brian Benham, president of Benham Advisory Group in Indianapolis, Ind., says refinancing student loans with a mortgage could be more appealing to borrowers with private student loans rather than federal student loans.

Although mortgage rates are on the rise, they are still at near-historic lows, hovering around 4%. Federal student loans are near the same levels. But private student loans can range anywhere from 3.9% up to near 13%. “If you’re at the upper end of the spectrum, refinancing may help you lower your rate and your monthly payments,” Benham says.

So, the first thing anyone considering using a mortgage to refinance student loans should consider is whether you will, in fact, get a lower interest rate. Even with a lower rate, it’s wise to consider whether you’ll save money over the long term. You may pay a lower rate but over a longer term. The standard student loan repayment plan is 10 years, and most mortgages are 30-year loans. Refinancing could save you money today, but result in more interest paid over time, so keep the big picture in mind.

You need to actually have equity in your home.

To be eligible for the cash-out refinance option, you must have a loan-to-value ratio of no more than 80%, and the cash-out must entirely pay off one or more of your student loans. That means you’ve got to have enough equity in your home to cover your entire student loan balance and still leave 20% of your home’s value that isn’t being borrowed against. That can be tough for newer homeowners who haven’t owned the home long enough to build up substantial equity.

To illustrate, say your home is valued at $100,000, your current mortgage balance is $60,000, and you have one student loan with a balance of $20,000. When you refinance your existing mortgage and student loan, the new loan amount would be $80,000. That scenario meets the 80% loan-to-value ratio, but if your existing mortgage or student loan balances were higher, you would not be eligible.

You’ll lose certain options.

Depending on the type of student loan you have, you could end up losing valuable benefits if you refinance student loans with a mortgage.

Income-driven repayment options

Federal student loan borrowers may be eligible for income-driven repayment plans that can help keep loan payments affordable with payment caps based on income and family size. Income-based repayment plans also forgive remaining debt, if any, after 25 years of qualifying payments. These programs can help borrowers avoid default – and preserve their credit – during periods of unemployment or other financial hardships.

Student loan forgiveness

In certain situations, employees in public service jobs can have their student loans forgiven. A percentage of the student loan is forgiven or discharged for each year of service completed, depending on the type of work performed. Private student loans don’t offer forgiveness, but if you have federal student loans and work as a teacher or in public service, including a military, nonprofit, or government job, you may be eligible for a variety of government programs that are not available when your student loan has been refinanced with a mortgage.

Economic hardship deferments and forbearances

Some federal student loan borrowers may be eligible for deferment or forbearance, allowing them to temporarily stop making student loan payments or temporarily reduce the amount they must pay. These programs can help avoid loan default in the event of job loss or other financial hardships and during service in the Peace Corps or military.

Borrowers may also be eligible for deferment if they decide to go back to school. Enrollment in a college or career school could qualify a student loan for deferment. Some mortgage lenders have loss mitigation programs to assist you if you experience a temporary reduction in income or other financial hardship, but eligibility varies by lender and is typically not available for homeowners returning to school.

You could lose out on tax benefits.

Traditional wisdom favors mortgage debt over other kinds of debt because mortgage debt is tax deductible. But to take advantage of that mortgage interest deduction on your taxes, you must itemize. In today’s low-interest rate environment, most taxpayers receive greater benefits from the standard deduction. As a reminder, taxpayers can choose to itemize deductions or take the standard deduction. According to the Tax Foundation, 68.5% of households choose to take the standard deduction, which means they receive no tax benefit from paying mortgage interest.

On the other hand, the student loan interest deduction allows taxpayers to deduct up to $2,500 in interest on federal and private student loans. Because it’s an “above-the-line” deduction, you can claim it even if you don’t itemize. It also reduces your Adjusted Gross Income (AGI), which could expand the availability of other tax benefits.

You could lose your home.

Unlike student debt, a mortgage is secured by collateral: your home. If you default on the mortgage, your lender ultimately has the right to foreclose on your home. Defaulting on student loans may ruin your credit, but at least you won’t lose the roof over your head.

Refinancing student loans with a mortgage could be an attractive option for homeowners with a stable career and secure income, but anyone with financial concerns should be careful about putting their home at risk. “Your home is a valuable asset,” Benham says, “so be sure to factor that in before cashing it out.” Cashing out your home equity puts you at risk of carrying a mortgage into retirement. If you do take this option, set up a plan and a budget so you can pay off your mortgage before you retire.

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How to Become a Homeowner, Even With Little Income

If you think you can't buy a home because of your income, you may want to think again and look at these options.

The American dream of owning a home can often feel unattainable for low-income families. If you’re among the nation’s low-wage earners, you’re probably struggling to simply make ends meet, so the idea of bringing home enough money annually to qualify for a mortgage, or saving for a down payment, can seem challenging at best. Finding a home you can actually afford makes the challenge that much greater.

As The New York Times recently reported, “affordable” housing is typically that which “costs roughly 30% or less of a family’s income. Because of rising housing costs and stagnant wages, slightly more than half of all poor renting families in the country spend more than 50% of their income on housing costs, and at least one in four spends more than 70%.”

The good news is there are mortgage vehicles that can help — ranging from government-insured loans to programs offered by banks specifically for low-income borrowers. Here’s several options specifically designed so that you too can have a crack at the American dream.

Keep in mind, though, that your credit will still need to be in good standing to qualify for these loans. If you don’t know where your credit stands, you can check your two free credit scores on Credit.com. You can also use these tips to help improve your credit scores before you apply.

FHA Insured Loans

Kyle Winkfield describes Federal Housing Administration (FHA) loans as the gold standard for those with low income or a high debt-to-income ratio.

And as someone who owned a mortgage company for years, Winkfield should know.

“I’m a fan of FHA,” said Winkfield, now managing partner of the Washington D.C.-based wealth management firm O’Dell, Winkfield, Roseman and Shipp. “For the right person, it’s what America is supposed to be. It is supposed to be that bridge to opportunity. And FHA is a manifestation of the American dream of being able to provide for your family and have a better life.”

FHA offers various options for low-income families and individuals. Two of the most notable are its Fixed-Rate FHA mortgage and the Adjustable-Rate FHA mortgage.

FHA’s fixed-rate mortgages are geared toward those who have not been able to save money for a down payment, such as recent college grads, newlyweds or those still completing education. It allows buyers to finance as much as 96.5% of the loan, helping minimize the amount of cash the buyer must have for a down payment and closing costs. In addition, it allows 100% of the closing costs to be paid with money received as a gift — whether from a relative, non-profit or government agency (check out our explainer on down-payment assistance).

The adjustable-rate FHA mortgage, meanwhile, is designed for low- and moderate-income families trying to make the leap from renting to owning. Its key highlights include keeping interest rates and mortgage payments to a minimum. The interest associated with this mortgage may change over the years (you can learn more here about adjustable-rate mortgages, or ARMs), but the most it can increase in a single year is 1% and it cannot ever increase more than 5% from the initial rate.

Freddie Mac Home Possible & Fannie Mae Home Ready

If FHA loans are the gold standard, Freddie Mac and Fannie Mae are the silver option, Winkfield said.

The Freddie Mac Home Possible mortgage allows for minimal down payments — as little as 3% to 5%. And similar to the FHA programs, the source of down payments can be a family gift, employer-assistance program or secondary financing. In terms of annual income requirements, mortgages such as these are generally aimed at those whose income is below the “Area Median Income” (AMI). But Home Possible was developed to assist those in high-cost or under-served areas and therefore allows borrowers to qualify even if they make more than the AMI.

Potentially, the most important thing to know about Fannie Mae Home Ready mortgages is that they allow low-income borrowers to have a co-signer who will not be living in the home. This is a big deal, particularly for single-income households. It means that if your parents, your brother, your sister or anyone else wants to help you get into a home, their income can be taken into consideration when qualifying you for the mortgage. The borrower also is not required to be a first-time home buyer.

“Almost one-quarter of people are sharing a mortgage with someone other than their spouse,” said Ray Rodriguez, regional mortgage sales manager for TD Bank, underscoring the importance of programs like Home Ready. “It could be a parent, a friend, or a domestic partner that they didn’t classify as a spouse. What it shows is that more often than not, people are getting help to buy a home.”

Veterans Affairs (VA) Loans

Developed for military members, a VA loan has several notable benefits, beginning with the fact that there’s no down payment required, eliminating what can be a major hurdle to home ownership.

In addition, VA loans do not require mortgage insurance, which saves still more money. Mortgage insurance is typically needed for those putting less than 20% down on the home, and is either added to your monthly mortgage payment or your closing costs, or both. And finally, credit requirements on the VA loans tend to be less strict..

Most members of the military, veterans, reservists and National Guard members are eligible to apply for a VA loan. Spouses of military members are also eligible under a variety of conditions.

USDA Loans

For buyers in rural areas, another path to home ownership is provided by the United States Department of Agriculture (USDA), through their Rural Development loan program. Probably one of the most under-the-radar mortgage options out there, it was developed to help moderate-, low- and very-low-income buyers.

The USDA offers a couple of different low-interest mortgages, neither of which require a down payment.

First, there’s the Guaranteed Loan, which is available through approved lenders. Applicants must meet income requirements, which vary by state and by region. In general, however, the borrower’s income for USDA loans can’t exceed 115% of the area’s median income. The mortgage also requires that you live in the home you’re buying as your primary residence and meet citizenship guidelines.

The USDA’s Direct Loan is designed for low- and very-low-income buyers who don’t qualify for the Guaranteed Loan. As its name implies, the Direct Loan is not accessed through an approved lender, but directly from the USDA. It provides help with monthly mortgage payments. The amount of that assistance is determined based on family income and is in the form of a subsidy that lowers what you pay out of pocket. The loans can be paid back over 33 to 38 years, and when factoring in the payment assistance provided, interest rates can be as low as 1%.

Like the first loan, there are conditions that must be met to qualify, including being unable to obtain a mortgage elsewhere, agreeing to occupy the property as your primary residence and meeting citizenship or eligible non-citizen requirements. In addition, you must be without decent, safe housing.

Mortgage Options Provided by Banks

Many banks offer their own programs for low-income borrowers, including well-known ones like Bank of America, TD Bank and HSBC.

HSBC’s Community Works program for instance offers as much as $7,000 in closing cost help, loans for up to 97% of the appraised property value or purchase price (whichever is lower) and flexible lending guidelines to help more people qualify.

Bank of America offers an Affordable Loan Solution mortgage that includes a fixed-rate loan designed specifically for low- and moderate-income borrowers. The down payments for this mortgage can be as low as 3%, but owners can’t own additional properties at the time of closing.

TD Bank’s RightStep program allows for putting as little as 3% down. Borrowers must have a credit score of at least 660 and the borrowing limit is $417,000.

“There’s a lot of options out there and the biggest misconception people have is that they have to put 20% down to buy a home,” Rodriguez said.

Still Other Options

There are also many lesser-known programs aimed at assisting low-income home buyers, often on the state and local level, said Brett Graff, editor of The Home Economist.

In Arizona, for instance, there’s the Home Plus Home Loan Program, in New Jersey there’s the Homeward Bound Homebuyer Mortgage Program, and these are just a few examples.

“There are some great programs out there and the best programs are usually through your state,” Graff said.

One final option worth checking out is the U.S. Department of Housing and Urban Development’s (HUD) Good Neighbor Next Door program, Graf said. Designed to help revitalize certain communities, this mortgage discounts the price of a home 50% and requires only $100 as a down payment. It is available only to a handful of specific professions. Qualifying individuals include law enforcement officers, pre-K through 12th grade teachers, firefighters and emergency medical technicians.

The homes are all located in revitalization areas and sold through HUD. In addition, you must live in the home for 36 months as your sole residence.

Image: SelectStock

The post How to Become a Homeowner, Even With Little Income appeared first on Credit.com.

The 20 Most Profitable Housing Markets This Year

If you own a home in one of these markets, there's a good chance you've had a nice return on your investment.

If you’re looking to buy or sell a home this year, you probably know the housing market is booming in virtually every corner of the country. In fact, homeowners who sold in the first quarter of the year realized an average price gain of $44,000 since purchasing their home, a new ATTOM Data Solutions report shows. That equals an average 24% return on purchase price across the country — the highest average price gain for home sellers in nearly 10 years.

“The first quarter of 2017 was the most profitable time to be a home seller in nearly a decade, and yet homeowners are continuing to stay put in their homes longer before selling,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. The report showed homeowners are staying in their homes just shy of eight years on average. “This counter-intuitive combination is in part the result of the low inventory of move-up homes available for current homeowners, while also perpetuating the scarcity of starter homes available for first-time homebuyers,” Blomquist added.

Of course, there are still some laggards. Baton Rouge, Louisiana, for example, saw average home prices decline by $15,000 from their previous purchase price. The same is true for Huntsville, Alabama, where average home prices declined by $8,100.

Of the 20 metro areas with the highest percent return on the previous purchase price, 10 were located in California and three were in Colorado. Competition among homebuyers, especially in these areas, is fierce, so it’s particularly important to have your finances locked and loaded before you start your search. Regardless of where you’re looking, getting pre-approved for a mortgage is key. You’ll also want to be sure your credit is in good shape so you’ll get the best mortgage terms available. You can check your credit scores for free on Credit.com.

These are the top 20 metro areas where home sellers are making the most money when selling their homes.

20. Port St. Lucie, Florida

Average return on investment: 39%
Average price gain: $53,000

19. Austin-Round Rock, Texas

Average return on investment: 39%
Average price gain: $81,795

18. San Diego-Carlsbad, California

Average return on investment: 41%
Average price gain: $144,000

17. Riverside-San Bernardino-Ontario, California

Average return on investment: 41%
Average price gain: $90,000

16. Boston-Cambridge-Newton, Massachusetts-New Hampshire

Average return on investment: 41%
Average price gain: $111,100

15. Oxnard-Thousand Oaks-Ventura, California

Average return on investment: 43%
Average price gain: $160,000

14. Sacramento-Roseville-Arden-Arcade, California

Average return on investment: 43%
Average price gain: $99,000

13. Fort Collins, Colorado

Average return on investment: 43%
Average price gain: $97,500

12. Greeley, Colorado

Average return on investment: 44%
Average price gain: $85,050

11. Urban Honolulu, Hawaii

Average return on investment: 46%
Average price gain: $161,110

10. Salem, Oregon

Average return on investment: 46%
Average price gain: $70,800

9. Vallejo-Fairfield, California

Average return on investment: 47%
Average price gain: $115,000

8. Denver-Aurora-Lakewood, Colorado

Average return on investment: 50%
Average price gain: $110,000

7. Los Angeles-Long Beach-Anaheim, California

Average return on investment: 50%
Average price gain: $187,000

6. Stockton-Lodi, California

Average return on investment: 51%
Average price gain: $101,000

5. Modesto, California

Average return on investment: 51%
Average price gain: $87,500

4. Portland-Vancouver-Hillsboro, Oregon-Washington

Average return on investment: 52%
Average price gain: $110,799

3. Seattle-Tacoma-Bellevue, Washington

Average return on investment: 56%
Average price gain: $139,325

2. San Francisco-Oakland-Hayward, California

Average return on investment: 65%
Average price gain: $276,750

1. San Jose-Sunnyvale-Santa Clara, California

Average return on investment: 71%
Average price gain: $356,000

Image: Peopleimages

The post The 20 Most Profitable Housing Markets This Year appeared first on Credit.com.

10 States Where Foreclosure Woes Linger

Foreclosure rates across the country continue to improve, but these 10 states are still struggling with above-average residential foreclosures.

Image: monkeybusinessimages

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2 Times an Adjustable-Rate Mortgage Makes Perfect Sense

The interest rate on your loans determines how expensive it is to borrow money. The higher the interest rate, the more expensive the loan.

With a conventional, 30-year fixed-rate mortgage, borrowers with the best credit can expect to receive a 4.23% interest rate on that loan. The average homebuyer borrows about $222,000 when they take out a mortgage, which means paying a staggering $168,690 in interest over the term of the loan.

When you need to repay balances in the hundreds of thousands of dollars, even half a point of interest can make a huge difference in how expensive your mortgage is. If you borrowed the same amount but had a rate of 4.73% rate, you’d pay $192,190 in interest — or almost $24,000 more for the same loan.

Given that interest rates make such a big impact on how much your mortgage costs, it makes sense to do what you can to get the lowest rate possible. And this is where adjustable-rate mortgages can start to look appealing. In two cases especially, it makes perfect sense to go with an ARM: when you plan to pay off your mortgage quickly, or you plan to move out of the home within a few years.

Adjustable-Rate Mortgages Can Allow You to Borrow at Lower Rates

An adjustable-rate mortgage, also known as an ARM, is a home loan with a variable interest rate. That means the rate will change over the life of the loan.

ARMs are usually set up as 3/1, 5/1, 7/1, or 10/1. The first number indicates the length of the fixed rate period. If you look at a 3/1 ARM, the initial fixed rate period lasts 3 years. The second shows how often the interest rate will adjust after the initial period.

Some ARMs come with interest rate caps, meaning there’s a limit to how high the rate can adjust. And their initial rate is often much lower than traditional fixed-rate loans.

This can help you buy a home and start paying your mortgage at a lower monthly cost than you could manage with a fixed-rate mortgage. Borrowers with the best credit scores can access a 5/1 ARM with an interest rate of 3.24% right now.

The Risks ARMs Pose to Average Homebuyers

“The main advantage of an ARM is the low, initial interest rate,” explains Meg Bartelt, CFP, MSFP, and founder of Flow Financial Planning. “But the primary risk is that the interest rate can rise to an unknown amount after the initial, fixed period of just a few years expires.”

Homebuyers can enjoy extremely low interest rates for a month, a quarter, or 1, 5, 7, or 10 years, depending on the term of their adjustable-rate mortgage. But borrowers have no control over the interest rate after that.

The rate can rise to levels that make your mortgage unaffordable. Remember our earlier example, where just half a point of interest could mean making the entire mortgage $24,000 more expensive?

ARMs adjust their rates periodically, and the new rate is partly determined by a broad measure of interest rates known as an index. When the index rises, so does your own interest rate — and your monthly mortgage payment goes up with it.

The variable nature of the interest rate makes it difficult to plan ahead as your mortgage payment won’t be static or stable.

“Imagine at the end of year 5, rates start going up and your mortgage payment is suddenly much higher than it used to be,” says Mark Struthers, a CFA and CFP who runs Sona Financial. “What if your partner loses their job and you need both incomes to pay the mortgage?” he asks. In this situation, you could be stuck if you don’t have the credit score to refinance and get away from the higher rate, or the cash flow to handle the extra cost.

“Once you get in this spiral, it is tough to get out,” says Struthers. “The spiral just gets tighter.”

And yes, adjustable-rate mortgages can go down. While that’s possible, it’s more likely that the rate will rise. And some ARMs will limit how high and how low your rate can go.

Struthers puts it plainly: “ARMs are higher-risk loans. If you can handle the risk, you can benefit. If you can’t, it can crush you. Most people do not put themselves in a position to handle the risk.”

Who Can Make an ARM Work in Their Favor?

That doesn’t mean no one can benefit from adjustable-rate mortgages. They do come with the benefit of the lower initial interest rate. “If you plan to pay off the mortgage during that initial fixed period, you eliminate the risk [of getting stuck with a rising interest rate],” says Bartelt.

That’s exactly what she and her husband did when they bought their own home.

“In my situation, we had enough savings to buy our house with cash. But the cash was largely in investments, and selling all the investments would push our income into significantly higher tax brackets due to the gains, with all the cascading unpleasant tax effects,” Bartelt explains.

“By taking an ARM, we can spread the sale of those investments out over 5 years, minimizing the income increase in each year. That keeps our tax bracket lower,” she says. “We avoided increasing our marginal tax rate by double digits in the year of the purchase of our home.”

She notes that another benefit of taking the ARM in her situation was the fact that she and her husband could continue to pay the mortgage past that initial 5 years if they chose to do so. “The interest rate won’t be as favorable as if we’d initially locked in a fixed rate,” she admits. “But that option still exists, and having options is power.”

Planning for a Quick Sale? An ARM Might Work for You

Another way ARMs can provide benefits to homeowners? If you won’t live in the home for long. Buying the home and also selling it before the initial rate period expires could provide you with a way to access the lowest possible rate without having to deal with the eventual rise in mortgage payment when the rate increases.

“ARMs are typically best for those who are fairly certain they won’t be in the house for a long period of time,” says Cary Cates, CFP and founder of Cates Tax Advisory. “An example would be a person who has to move every two to four years for their job.”

He says you could view taking out an ARM as a way to pay “tax-deductible rent” if you already know you don’t want to stay in the house for more than a few years. “This is an aggressive strategy,” he explains, “but as long as the house appreciates enough in value to cover the initial costs of buying, then you could walk away only paying tax-deductible interest, which I am comparing to rent in this situation.”

Cates says you’re obviously not actually paying rent, but you can mentally frame your mortgage payment that way. But you need to know the risk is owing on your mortgage if you go to sell and the home hasn’t realized enough appreciation to cover what you spent to buy.
He also reminds potential homebuyers that you take on the risk of staying in the home longer than you expected to. You could end up dealing with the rising interest rate if you can’t sell or refinance.

What You Need to Know Before Taking an ARM

Before applying for an adjustable-rate mortgage, make sure you ask questions like:

  • What is the initial fixed-interest rate? How does that compare to another mortgage option, and is it worth taking on a riskier mortgage to get the initial fixed rate?
  • How long is the initial fixed rate period?
  • How often will the ARM adjust after the initial rate period?
  • Are there limits to how much your ARM’s rate can drop?
  • How high can the ARM’s rate go? How high can your monthly mortgage payment go?
  • If the mortgage’s interest hit the maximum rate, could you afford the monthly payment?
  • Do you have a plan for selling the home within the initial rate period if you want to sell before paying the adjusted rate?
  • Could you pay off the mortgage without selling if you did not want to pay the adjusted rate?

Do your due diligence and understand the risks and potential pitfalls before making a final decision. But depending on your specific situation, your finances, and your plans for the next 5 years, you could make an ARM work for you.

The post 2 Times an Adjustable-Rate Mortgage Makes Perfect Sense appeared first on MagnifyMoney.

3 Easy Ways to Pay Off Your Mortgage Faster

These tips are your ticket to mortgage-free living.

As long as you’re alive, you have to live somewhere and, generally speaking, you have two options: Rent an apartment (or a home) and line your landlord’s pocket; or buy a home, and over time, hopefully line your own.

This premise is one of David Bach’s most important messages. The author of the New York Times bestseller “The Automatic Millionaire,” is a firm believer in the idea that real estate is critical to building wealth. In fact, he says buying a home is one of the three most important actions people can take in pursuit of financial security.

“I’ve been a lifelong proponent of home ownership,” says Bach, author of 11 best selling books. “How do you build real wealth on an ordinary income? It’s not very sexy, but it’s a simple, timeless approach: Buy a home.”

It’s not merely the act of purchasing a home that Bach advocates. The secrets to financial success that he offers in “The Automatic Millionaire,” include urging readers to pay their homes off early via an approach he calls “automatic debt-free home ownership.”

It may sound radical to some, but according to Bach, who spent nine years as a financial adviser at Morgan Stanley, the common denominator among all of his clients who were able to retire early was that they had paid off their homes early.

Here’s Bach’s approach to debt-free home ownership.

1. Establish a Biweekly Mortgage Payment Plan

A biweekly payment plan is exactly what the name implies. Instead of only making monthly mortgage payments, split the payment down the middle and pay half every two weeks.

When you make a payment every two weeks, (instead of just one per month,) you end up making one extra month’s worth of payments annually. In other words, over the span of a year, you’re making 26 half payments, which is the equivalent of 13 full payments.

“By doing this, something miraculous will happen. Depending on your interest rate, you can end up paying off your mortgage early — somewhere between five and ten years early” he says in the book.

Additional Benefits of Biweekly Payments

The biweekly payment approach also saves the homeowner thousands, if not hundreds of thousands of dollars, in interest. (Having a good credit score can help you save on interest, too. If you don’t know where your credit stands, you can get your two free credit scores, updated every 14 days, on Credit.com.)

In his book Bach provides the example of a 30-year-mortgage on a $250,000 home. If the interest rate on that mortgage is 5%, then the interest paid over the life of the loan will be about $233,139. When paid biweekly, the same mortgage instead costs about $188,722 — a savings of more than $44,000.

Establishing a biweekly payment plan merely requires calling your lender. If the mortgage is held by a large bank, they may refer you to a third-party that handles payment processing.

But one critical point Bach makes in the book is this: Before signing onto biweekly mortgage payments ask the servicing company what the fee is for the program and what they do with your money when they receive it. The second question is particularly important because some companies hang onto the extra money you’re putting toward the mortgage and send it to your mortgage holder all at once at the end of the month.

You want the extra payments applied to your mortgage as soon as possible, so that you’re paying down the mortgage faster.

You also cannot just split your monthly mortgage payment in half yourself (without talking to your mortgage holder, bank or other servicing company) and mail in payments every two weeks. The bank may send the extra payment back to you, unsure of what to do with it.

This trick can also work for paying down your credit card balance faster. (Here are some other tips for paying off credit card debt.)

2. Pay Extra Each Month

The next approach to debt-free home ownership outlined in Bach’s book is a plan he calls “No-Fee Approach No. 1.” It involves merely adding 10% to whatever your monthly mortgage payment happens to be. If your monthly payment is $1,342, pay an extra $134 dollars each month. (Sending the bank $1,467 per month instead of $1,342.)

This approach leads to paying off a home in 25 years, instead of 30, saving about $44,000. However, Bach urges making the extra 10% automatic, so that you don’t come up with excuses not to do it. In other words, have the $1,467 automatically deducted from your checking account each month.

3. Make One Extra Payment Each Year

Pick one month each year and pay the mortgage twice. Translation: Send the bank one extra payment a year.

Try doing this with some of your tax refund, suggests Bach. But no matter when you choose to do it, don’t simply send the bank a check for double the normal mortgage amount.

According to Bach this will confuse the bank. He advises writing two checks. Send one in with your mortgage coupon and the other with a letter explaining that you want the money applied to your principal.

The big takeaway according to Bach is that if you don’t buy a home, you won’t get on the escalator to wealth that home ownership provides. He says this message is particularly important for millennials who have been shying away from home ownership.

“The critical point is that one — you can buy a home. Two — you should buy a home. And three — you will be glad that you did,” says Bach.

Image: filadendron

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