Top 10 Financially Stable Cities in America

san-francisco-(2)

The global economic outlook is strong, according to recent information from Goldman Sachs. The firm predicts that global growth will reach 4 percent in the next year. The U.S. economy as we head into the new year is showing strong momentum and the unemployment rate is already below what the Federal Reserve deems as sustainable. Overall, the current economic environment is about “as good as it gets,” according to Jan Hatzius, Goldman Sachs’ chief economist.

Of course there are U.S. cities that are more financially stable than others. Here, we’ll take a look at 10 that are expected to top the list in 2018 based on growth, employment, and business opportunities. This list can help you gauge where you’ll have the best shot at getting your credit and finances in shape, and ideally, getting ahead with your personal finances.

  1. Provo, Utah

    This city was recently ranked as the best-performing city by the Miliken Institute, thanks to its robust high-tech sector and broad-based job and wage growth. The Provo/Orem region added 5,500 high-tech jobs between 2011 and 2016. San Jose, California-based Adobe has a major presence there and the region’s flagship college, Brigham Young University also accounts for a considerable amount of employment opportunities.

  1. Raleigh, North Carolina 

    Thanks to its low business costs and thriving research and development-driven industries, this city presents those looking for a new place to call home with big opportunities. Job growth over the next 10 years is predicted to be 42.66 percent. Raleigh’s competitive business climate continues to attract employers looking to relocate operations away from rising rents in major metro cities.

  1. Fort Collins, Colorado 

    This northern Colorado city is home to Colorado State University and it’s growing fast with many job opportunities in the tech sector. The average annual salary for one of the city’s major tech companies, Agilent Technologies, is $81,050. In fact, the whole of northern Colorado is growing right along with the rest of the state, with expectations of growing its population an additional 30,000 residents by 2040.

  1. Dallas, Texas 

    There are many Texas cities that could also make the list of financially stable cities, including Austin and San Antonio. But the Dallas/Plano/Irving region ranks in the top 10 thanks to its significant employment gains and overall strong economy. The region added 50,000 jobs in the high-skill professional, scientific, and technical service industries between 2011 and 2016. Dallas also has a stronghold in the housing market and is expected to lead in home sales in 2018. The median home price in the region is $339,950.

  1. San Francisco, California 

    The Golden City ranks high thanks to its steady increase in wages over the past seven years. Not surprisingly, the region’s tech growth continues to far outpace the rest of the country at 60 percent higher than the national average. Despite higher-than-average median salaries, extremely high housing prices make this city out of reach when it comes to a place to call home. In 2016, the median sales price for a single-family home was over $1 million.

  1. Bradenton/Sarasota, Florida 

    If you’re looking exclusively for string job growth, the Brandenton/Sarasota/North Port area is the place to be. It tops the chart in 12-month job growth. Last year the state of Florida’s unemployment fell to 3.7 percent, its lowest level in more than a decade. The current median salary is $40,592 and the median home price is $279,000.

  1. Nashville, Tennessee 

    Music City continues to outpace many other major metros in job and wage growth, with wages growing 36 percent from 2010 to 2015. Some 8,000 jobs were added across the professional, scientific, technical services, administration and support services industries in 2015 and 2016. Home to Vanderbilt University, Nashville also produces a large pool of employment talent and itself employs some 60,000 people. The salary average is $50,913.

  1. Charlotte, North Carolina 

    Like its eastern counterpart Raleigh, low business costs continue to attract employers to the Charlotte region. The professional, scientific, and technical services industries grew about 9 percent from 2015 to 2016, adding some 5,800 jobs. Median housing prices in the region — which was so hard hit in the housing crisis a decade ago — rebounded to $245,000 in 2016.

  1. Atlanta, Georgia 

    Known as the Empire City of the South, Atlanta grew its job economy by 45,000 people in 2016, spanning industries including dining, health, construction, and film and television. While salaries in the region aren’t exceptionally high (averaging $58,899), that is balanced by a lower median home price of $218,350 as compared to booming housing markets like those in Denver, Seattle and San Francisco.

  2. Seattle, Washington 

    While the city has always been a popular tourist destination, it has recently gained attention for a consistently strong job market over the past decade. With both Amazon and Microsoft headquartered in the city, software developers continue to flock there where they can earn an average salary of $132,000. For those looking for tech and software opportunities, Seattle presents a much more affordable option than San Francisco. The median sales price for existing single-family homes at the end of 2016 was $468,785, compared to $1,056,561 in the San Francisco Bay area.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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16 Cities Where it’s Cheaper to Buy than it is to Rent

chicago

January is a natural time to take stock of your financial life, and to dream big dreams about 2018. Could this be the year you make the leap to homeownership? Or will you make a big change and trade in your mortgage payment for a landlord? While the housing market has slowly recovered from its dip in the 2000s, blind faith in housing gains has not. Home ownership rates hit a 50-year low in 2015, and first-time home buyers are now waiting a record six years to move from renting to buying. In fact, young adults looking to upgrade out of their one-bedroom apartments are increasingly renting single-family homes rather than buying. Single-family rentals — either detached homes or townhomes — make up the fastest-growing segment of the housing market, according to the Urban Institute.

In the complex calculus that’s required for the renting vs. buying decision, one variable stands out: Which is cheaper? If that seems like a tough question to answer, there’s a good reason: crunch the data from America’s largest cities, and you’ll learn it’s a perfectly split decision. Home buying is a better option for those who plan to stay in one place for 3-5 years or more. It’s also a good investment in many housing markets. According to an Urban Institute analysis, among 33 top metropolitan areas in the U.S., there are 16 where buying is cheaper.

  1. Miami

    While it’s cheaper to buy than rent there, it would be a stretch to call the Miami housing market a bargain. A median-priced home still consumes 32 percent of a median earner income, above the recommended 30 percent.

  2. Detroit

    Not long ago, it was possible to buy a home in Detroit for well below the median home price in the U.S. The Detroit area has seen some revitalization in recent years, however, and while housing prices have gone up, it’s still a better value to buy a home there than it is to rent one.

  3. Chicago

    Rent in Chicago is on the rise faster than home prices. While they may level out in the near future, it’s a good time to buy while you still can.

  4. Philadelphia

    Renting is significantly more expensive than buying in the City of Brotherly Love. In fact, the average wage-earner would need a 36 percent raise to afford the average rent there. Buying, however, is more affordable.

  5. Tampa, Florida

    For roughly 90 percent of Tampa communities, renting is more expensive than buying.

  6. Pittsburgh

    The average rent in Pittsburgh is $1250 per month, whereas the average home price is just over $145,000. Broken down, it’s cheaper to buy in Pittsburgh, as your monthly mortgage will be much less expensive than the average rent.

  7. Cleveland

    In this popular college town, a homebuyer will save an average of $200 a month if they pay a mortgage instead of rent.

  8. Cincinnati

    Historically speaking, it’s been cheaper to rent than buy in Cincinnati based on the percentage of a person’s income that went to housing costs. That number is now lower for buyers and higher for renters.

  9. Orlando

    In the home of Disneyworld, the average monthly rent will will cost you roughly double what the average comparable monthly mortgage payment will.

  10. Houston

    Even though median rents are falling in Houston, it’s still cheaper to buy, especially if you plan on staying in your home for three years or more.

  11. San Antonio

    Average monthly rent for an apartment in San Antonio will run you $1,226 (estimated as recently as December 2017). The price of a home in the area is $232,000. While the housing market is trending upward, it’s still more advantageous to buy a home, especially if you plan to stay in the area for a long period of time.

  12. New York

    It’s no secret that home prices in the New York City area (including Newark and Jersey City) are well above the national average. However, rental prices are even higher, so if you can afford to buy property here, you’d be better off doing so rather than renting.

  13. Minneapolis/St. Paul

    The Twin Cities are becoming an increasingly popular to destination for young families to move, so it’s a good time to invest in property here instead of renting it.

  14. Kansas City, MO/KS

    Both rents and housing prices are low in the Kansas City area (average rent will cost just under a thousand dollars, while the average home price is $126,100), but buying is better long-term, as it offers more benefits, including potential tax write-offs.

  15. Columbus, Ohio

    Many market experts consider Columbus a “no-brainer” metro area as far as buying over renting. With affordable housing on both sides, the advantage goes to buying.

  16. Boston

    While a buyer may need a large income (or two above-average incomes) to buy here, they’ll need a slightly larger one to rent long-term.

If you’re looking to rent or by and are concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

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10 Places Where Home Ownership is On the Rise

Dallas, Texas cityscape with blue sky at sunset, Texas

For a significant number of Americans, home ownership remains an all too distant dream.

Between record levels of student loan debt, the challenges of squirreling away a down payment and skyrocketing housing prices in many parts of the country, it can be daunting at best to shift from renter to owner.

The U.S. Census Bureau reported in October that as of the third quarter of 2017 about 63.9 percent of Americans own a home. For those 35 and under, the figure is far bleaker, just 35.6 percent.

Home ownership has been on the decline in this country for several years, having peaked in 2004 at 69.2 percent.

A new report from Realtor.com, however, found that there are at least 10 cities around the country witnessing huge increases in ownership – places where the American dream appears to be alive and well.

Realtor.com’s data team discovered that ownership is on the rise in the Rust Belt (think Michigan, Wisconsin, Indiana); small cities just outside of major metropolitan areas and also in some bustling southern hubs.

“What’s interesting about this is most of these places are relatively affordable,” said Realtor.com’s Clare Trapasso.

More than half of the cities on the list offer median prices under the national median of $274,492. Here are the cities to keep in mind if homeownership is on your 2018 agenda.

Milwaukee, Wisconsin

A city most famous for its breweries, Milwaukee has experienced decades of economic challenges. However, it is now witnessing a resurgence, Realtor.com reports and that includes the housing market. The current homeownership rate in the city is 68.7 percent, an 11 percent increase over the past three years. The median home price is $224,950.

Charlotte, North Carolina

A bustling southern financial hub, Charlotte’s homeownership rate has increased 10.5 percent over the past three years to its current 62.8 percent. At $327,050, the median home price here however is substantially more than the national median.

Memphis, Tennessee

A city made famous by Elvis Presley, Memphis is affordable by nearly any standard. The median home price $195,050. Over the past three years, homeownership has increased about 9.3 percent to the current 61 percent.

Baltimore, Maryland

Buyers getting priced out of nearby Washington D.C are finding a more affordable alternative in Baltimore, says Trapasso. The homeownership rate is a significant 68.4 percent. That’s an increase of 7.3 percent over the past three years. The median home price meanwhile hovers around $300,000 (30.2% less than in the D.C. metro area.)

Allentown, Pennsylvania

Singer Billy Joel made Allentown forever famous with his song about the city’s economic hardships. Fast forward to 2017 and it seems the city, which is not all that far from New York City or Philadelphia, is experiencing something of rebirth, says Trapasso. The upswing is due in large part to companies like Amazon, Walmart and Nestle moving in. Homeownership has increased 7.3 percent in recent years to an impressive 74.8 percent, far above national rates. The median home price is about $225,000.

Pittsburgh, PA

Pittsburgh is becoming the right coast’s version of Silicon Valley, according to Realtor.com (minus the sky high home prices). Local university grads are being snatched up by tech companies ranging from Google to Uber and Intel, all of which have local outposts. The homeownership rate, now at 74 percent, represents a 7.2 percent increase since 2014. And shockingly, the median home price is well below the national average at just $174,950.

Albuquerque, New Mexico

Think mild climate, affordable homes and an Old Town filled with historic adobe buildings. Those are just some of the attractions in Albuquerque, which has seen a 5.7 percent rise in home ownership in recent years to 66 percent. The median home price here is about $239,950.

Nashville, Tennessee

This legendary music city has also become one of the culinary hotspots in the south. That the city has so much to offer has not gone unnoticed. Home prices have increased a whopping 89 percent since 2012. Still, it remains a place that’s both comparatively affordable and where homeownership continues on its upward path. The average home price is $359,050 and there’s a 68.8 percent home ownership rate, an increase of 4.9 percent over the past three years.

Dallas, Texas

Texas has long been one of the more affordable places to live in the country (There is no state income tax for starters). That affordability has attracted a lot of big businesses. In Dallas, companies have been both moving to the area and expanding. The city’s desirability is leading to increased prices but for the time being the median is $339,950. The current homeownership rate is 60.7 percent, a 4.8 percent increase over the past three years.

Syracuse, New York

One last city to consider for those determined to become home owners, Syracuse’s median home price is the lowest on the list at $149,950. Buyers can even find single-family homes for between $80,000 to $100,000, says Realtor.com. All of which is translating into a homeownership rate of 66.5 percent, a 4.6 percent increase since 2014.

If you’re wanting to buy a home and are concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

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Cities to Consider When Renting and Buying

low-housing-inventory

January is a natural time to take stock of your financial life, and to dream big dreams about 2018. Could this be the year you make the leap to homeownership? Or, will you make a big change and trade in your mortgage payment for a landlord?

In the complex calculus that’s required for the renting vs. buying decision, one variable stands out: Which is cheaper? If that seems like a hard question to answer, there’s a good reason: crunch the data from America’s largest cities, and you’ll learn it’s a perfectly split decision. According to an Urban Institute analysis, among 33 top metropolitan areas in the U.S., there are 17 places where buying is cheaper, and 16 where renting is cheaper. We’ll get to that list in a moment, but here’s a hint: renters in high-flying West coast cities might want to sit tight for a bit longer.

Renting vs Buying

Fewer life decisions carry more weight than the renting vs. buying dilemma. And that choice is getting harder. A generation ago, buying a home was seen as a rite of passage, a natural (and necessary) step towards adulthood. It was also a solid path to wealth. A $25,000 home purchased in 1970 was worth almost $100,000 by 1990, and about $200,000 today, using national average appreciation. Plenty of baby boomers who bought average-priced homes as young adults find themselves living in a nice nest egg now.

All that changed when the housing bubble burst. Millions lost their homes to foreclosure. Millions more found themselves “under water,” meaning their homes worth less than their mortgage balance. At the height of the housing recession, 23 percent of mortgage holders — nearly 1 in 4 — were under water. They’d lost money on their investment. The myth that housing prices can only go up has been busted. Many of those bubble-era buyers wished they were renting.

While the housing market has slowly recovered, blind faith in housing gains has not. Homeownership rates hit a 50-year low in 2015, and first-time home buyers are now waiting a record 6 years to move from renting to buying. In fact, young adults looking to upgrade out of their 1-bedroom apartments are increasingly renting single-family homes rather than buying. Single-family rentals – either detached homes or townhomes – make up the fastest-growing segment of the housing market, according to the Urban Institute.

But renting is no picnic either. With all these new renters, markets are reacting accordingly, and costs are now skyrocketing at about four times the rate of inflation. In some places, rents are up much higher. Seattle saw an average of 6.3 percent rent increases last year.

Such volatility in housing and rental prices isn’t the only reason the renting vs. buying equation bas become more complicated. Thanks to structural changes in employment — led by the various form of the gig economy and the contingent workforce — flexibility is key for workers. Gone are the days where a worker could buy a house with a 30-year mortgage and count on a consistent commute for the next three decades. People change jobs much more frequently now. Millennials experience four job changes by age 32, according to a LinkedIn study; they’ll move 6 times by age 30, according to 538.com

While it’s possible to sell a condo or house and move, it’s much easier for a renter to relocate for that great opportunity on the other coast.

Income Driven Decisions 

For most people, however, it comes down to money. You might think renting is always cheaper than buying, but that’s incorrect. A long list of variables must be considered when running the numbers, like these: How long will you stay in the place? How much are property taxes? How much investment opportunity cost will you pay when putting a large down payment into a home? How much will you spend on house repairs or condo fees? How much might your landlord raise the rent?

The Urban Institute provides an interesting answer to these questions by comparing the percent of monthly income a buyer or renter would have to spend to own or rent an average home in cities around the country. To ease the comparison, the constants are pretty simple. The report assumes median income, then calculates how of that monthly paycheck would be eaten up by owning – including mortgage payments, interest, taxes, and insurance payments on a median-priced home – or by renting a median-priced 3-bedroom home.

Ordinarily, these costs have to move relatively in sync. When rents get too high, consumers are pushed into buying. The opposite is true, too — when homes/monthly mortgage payments are too high, people are nudged to rent. So these costs tend to move together, or at least like two balloons tied together by a string, floating up into the sky: One pulls ahead for a short while, then the other, and so on. After all, people have to live somewhere.

Cities Good for Renting

But in some cities, these rules don’t seem to apply at the moment, and either renting or buying has sprinted ahead. In those places, you might say the market is broken. The Urban Institute calls this the “rent gap.” In eight large cities in the US — all on the West Coast — the rent gap is higher than 4 percent, meaning it’s considerably cheaper to rent than buy. But on the other hand, there are six major cities spread throughout the East and the Midwest where buying is cheaper, using this monthly costs test. In between are 19 cities where rental and buying costs are basically running neck-and-neck.

The rent gap is most pronounced in places where housing prices have soared. San Francisco is the clear “winner” in the places where renting is cheaper than buying; there, the gap is more than 42 percent. San Jose comes in second at 19%. Seattle, San Diego, Sacramento, Los Angeles, and Portland round out the list of places where the gap is higher than 5 percent.

Cities Good for Home Buying

On the other side of the list — places where buying is cheaper than renting — begins with the winner, Miami.

It would be a stretch to call Miami a bargain, however. A median-priced home still consumes 32 percent of a median earner’s income, above the recommended 30 percent. Still, renting devours even more.

“Because Miami is the second-most-expensive city for rental housing, however, the median rent consumes 42 percent of the median income. So even at this high cost, homeownership is still the better bet,” the report says.

Detroit, Chicago, Philadelphia, Tampa, and Pittsburgh round out the list of places where the rent gap is 5% or more towards buying.

There are buying “bargains” in other cities, too. Cleveland, Cincinnati, Orlando, Houston, and San Antonio all enjoy rent gaps that are more than two percent.

What to Consider

This list comes loaded with caveats, however. The biggest one: Purchasing a home brings the potential of appreciation, and renting does not. That means buyers can “profit” over time and see the value of their investment rise. The longer the time living in the purchased home, the higher the odds that significant appreciation will occur. But don’t forget, transaction costs are significant. Not all those gains are “profit.” Closing costs when buying, and then later when selling, can easily eat up 10% of those gains. Then, there’s always the chance the value of the home will go down, re-creating the situation from the early part of this decade, when buyers lose money. And of course, there’s the variable every homeowner loves to hate, surprise repair costs. Renters generally don’t face that risk.

In the end, the renting vs. buying choice is intensely personal, and always depends on your family’s very specific situation. It’s unwise to ignore macro trends, however. Even if you live in a city where housing costs seem high, it’s worth considering a purchase if rental costs are soaring, too. On the other hand, don’t simply assuming that buying is better. That’s 20th Century logic which no longer applies to the U.S. housing market.

 

If you’re wondering if your credit it good enough to buy or rent, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

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10 Tips to Secure the Best Interest Rate on your Mortgage

guarantee-a-mortgage

The process of buying a home is a very involved one, and can be daunting, especially for first-time buyers. It’s often a whirlwind of paperwork, credit reports, and scrambling to tie up loose ends.

One of the biggest factors that goes into calculating your monthly mortgage payment (other than the size of the loan itself) is your interest rate. Some of this is determined by the Federal Reserve, but it is mostly determined by you and where you stand financially, and many factors are considered. Here are ten tips on securing the best interest rate on your new mortgage.

Choose between a fixed or adjustable rate mortgage

While many people might be wary of an adjustable rate mortgage (ARM), it can be a better option for those who plan to pay off their mortgage in a short amount of time. For the introductory period of an ARM loan, the interest rate will be lower than that of a fixed rate mortgage. Just make sure you’re prepared to see an increase in your monthly mortgage payment after the introductory period is over.

Make the biggest possible down payment

The larger your down payment, the less money the lender will have to give you, and the lower your interest rate can be. Your interest rate is partially based on your home’s loan-to-value (LTV). For example, if a home is worth $200,000, and the loan is for $199,000, that would be considered a high LTV and is more risky for a lender. If this ratio is lower, however, you might be rewarded with a lower interest rate.

Make sure your credit is in excellent shape

While there is no one credit score needed to buy a house, those with higher credit scores have usually demonstrated good financial competency, and those are the types of consumers to whom lenders can offer lower interest rates.

Pay for points 

It it possible to pay extra directly to your lender in order to lower your interest rate. For every one percent of your loan amount you are willing to pay extra, it could amount to as much as half a percent off your interest rate. Essentially, you are just paying a larger amount of interest up-front.

Have a long employment history

Even if you haven’t been at the same job for several decades, demonstrating that you have no (or minimal) periods of unemployment shows lenders they can count on you to pay your mortgage in full every month. This can help lower your interest rate.

Prove income stability

If you can prove that your line of work is in high demand with no sign of slowing down, or if you work for a large, profitable company, your lender may take this into account when processing your paperwork. Income stability will help show that you won’t be likely to miss any mortgage payments.

Lower your debt-to-income ratio

Even with a high credit score, it’s possible to accumulate a lot of debt. Lenders don’t want you using more than roughly 40 percent of your monthly income on your mortgage, car payments, and credit card bills. The lower your debt-to-income ratio, the lower your interest rate will be.

Build up cash reserves

Most people know they should have enough savings to cover about six months worth of bills. Proving to your lender that you can still pay your mortgage in the event of a job loss will help you score a lower interest rate.

Shop around

Different lenders have different criteria for their loans. Finding the one that suits you best can help ensure you get the best possible interest rate for your financial situation.

Close on your loan as quickly as possible

Some buyers need 30 days to close; others might need as much as 60 days. If you can close within the initial 30 day window, however, you might pay as much as a half a percent point less than those who need 60 days to close.

 

Image: iStock

The post 10 Tips to Secure the Best Interest Rate on your Mortgage appeared first on Credit.com.

10 Tips to Secure the Best Interest Rate on your Mortgage

guarantee-a-mortgage

The process of buying a home is a very involved one, and can be daunting, especially for first-time buyers. It’s often a whirlwind of paperwork, credit reports, and scrambling to tie up loose ends.

One of the biggest factors that goes into calculating your monthly mortgage payment (other than the size of the loan itself) is your interest rate. Some of this is determined by the Federal Reserve, but it is mostly determined by you and where you stand financially, and many factors are considered. Here are ten tips on securing the best interest rate on your new mortgage.

Choose between a fixed or adjustable rate mortgage

While many people might be wary of an adjustable rate mortgage (ARM), it can be a better option for those who plan to pay off their mortgage in a short amount of time. For the introductory period of an ARM loan, the interest rate will be lower than that of a fixed rate mortgage. Just make sure you’re prepared to see an increase in your monthly mortgage payment after the introductory period is over.

Make the biggest possible down payment

The larger your down payment, the less money the lender will have to give you, and the lower your interest rate can be. Your interest rate is partially based on your home’s loan-to-value (LTV). For example, if a home is worth $200,000, and the loan is for $199,000, that would be considered a high LTV and is more risky for a lender. If this ratio is lower, however, you might be rewarded with a lower interest rate.

Make sure your credit is in excellent shape

While there is no one credit score needed to buy a house, those with higher credit scores have usually demonstrated good financial competency, and those are the types of consumers to whom lenders can offer lower interest rates.

Pay for points 

It it possible to pay extra directly to your lender in order to lower your interest rate. For every one percent of your loan amount you are willing to pay extra, it could amount to as much as half a percent off your interest rate. Essentially, you are just paying a larger amount of interest up-front.

Have a long employment history

Even if you haven’t been at the same job for several decades, demonstrating that you have no (or minimal) periods of unemployment shows lenders they can count on you to pay your mortgage in full every month. This can help lower your interest rate.

Prove income stability

If you can prove that your line of work is in high demand with no sign of slowing down, or if you work for a large, profitable company, your lender may take this into account when processing your paperwork. Income stability will help show that you won’t be likely to miss any mortgage payments.

Lower your debt-to-income ratio

Even with a high credit score, it’s possible to accumulate a lot of debt. Lenders don’t want you using more than roughly 40 percent of your monthly income on your mortgage, car payments, and credit card bills. The lower your debt-to-income ratio, the lower your interest rate will be.

Build up cash reserves

Most people know they should have enough savings to cover about six months worth of bills. Proving to your lender that you can still pay your mortgage in the event of a job loss will help you score a lower interest rate.

Shop around

Different lenders have different criteria for their loans. Finding the one that suits you best can help ensure you get the best possible interest rate for your financial situation.

Close on your loan as quickly as possible

Some buyers need 30 days to close; others might need as much as 60 days. If you can close within the initial 30 day window, however, you might pay as much as a half a percent point less than those who need 60 days to close.

 

Image: iStock

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A 15-Year Mortgage Can Save You $190K … But Can You Get One?

Sure, it will keep your monthly payments low, but it will end up costing you a lot in the long run. Here are the pros and cons of a 50-year mortgage.

You may wonder, Is a 15-year fixed mortgage worth it? Our answer: absolutely. It’s one of the best ways to eliminate your mortgage debt, and you can save thousands on interest payments.

For instance, consider the staggering difference between a 30-year mortgage and 15-year mortgage, both for $400,000. At an average of 4% interest on a 30-year mortgage, you’ll pay an extra $287,487 over the life of the loan. But with a shorter 15-year mortgage, you’ll pay only $97,218 of interest. That’s a shattering savings of $190,269!

We’ve listed a handful of pros and cons for getting a 15-year mortgage instead of a 30-year mortgage, and we’ll also discuss how to determine if a 15-year home loan is a smart move for you.

Pros and Cons of 15-Year Mortgages over 30-Year Mortgages

Pros

+ Faster to pay off

+ Less accumulated interest

 

Cons

– Higher monthly payments

– Decreased mortgage interest tax deduction

 

Should I Get a 15-Year Mortgage?

The concept of the 15-year mortgage for most is I’m going to bite, chew, and claw my way through a short-term, higher mortgage payment to get to a brighter future.

In today’s interest rate environment, a 15-year mortgage has undeniable mass appeal. We’ve already discussed the difference in interest costs between 30-year and 15-year mortgages. But you should also consider what being mortgage-free will mean for your future.

Consumers who are in a financial position to handle a higher loan payment—while continuing to grow their savings—are well-suited for a 15-year mortgage. Some people whose income is poised to rise or whose debt will soon decrease are also good candidates for a 15-year loan.

A specific demographic that can benefit significantly from a 15-year mortgage is those who will retire in under 30 years. Carrying a mortgage into retirement isn’t ideal. So these consumers might opt to pay off a mortgage faster than someone buying a house for the first time.

To sum it up, consider a 15-year mortgage if any of the following apply to you:

  • You don’t want this debt hanging over you in the future.
  • You have a strong income.
  • You will soon see an increase in income.
  • Your debt will soon decrease.
  • You’re planning to retire in less than 30 years.

How Do I Know I’m Financially Ready for a 15-Year Mortgage?

In most cases, you’ll need a strong income for an approval. When you switch from a 30-year mortgage to a 15-year fixed-rate loan, you’ll pay down the loan in half the amount of time. But doing so can also double your monthly payments during the 180-month term—and it can also lower your mortgage interest tax deduction.

So how much income are we talking? Well, your income will have to support the larger carrying costs of a home. And if you have other debts with a monthly payment, like cars, installment loans, or credit obligations, you should factor those in as well.

If you’re interested in a 15-year mortgage but don’t feel financially stable enough to take on the higher monthly premiums, don’t give up hope. There are things you can do to improve your finances to take on a 15-year mortgage.

How Can I Improve My Financial Stability for a 15-Year Mortgage?

There are at least three ways to improve your capacity to take on a 15-year mortgage: pay off your debts, borrow less, and generate extra cash.

1. Pay Off Your Debts

When your lender looks at your monthly income to qualify you for a 15-year fixed-rate loan, part of the equation is your debt load.

For a preview on how they’ll see your application, take your proposed total monthly payment for a 15-year mortgage payment and add that to the minimum monthly payments for all your other consumer obligations. Divide the sum by 0.45.

(total monthly mortgage payment + consumer obligations) ÷ 0.45 = minimum income

This formula will give you the minimum monthly income you’ll need to offset a 15-year mortgage. If you make anything less than that, you probably won’t qualify for a 15-year home loan.

But because your current debt factors into this formula, paying off debt can easily reduce the amount of income necessary to qualify. And getting rid of debt can also cut down how much you need to borrow because you can save up a larger down payment at a faster rate.

2. Borrow Less

Borrowing a smaller home loan is a guaranteed way to keep a lid on your monthly outflow. You’ll maintain a healthy alignment with your income, housing, and living expenses.

Got extra cash in the bank? If you don’t have an immediate purpose for the money in your bank account beyond your savings reserves, use the funds to put down a larger down payment and reduce your mortgage amount.

With a bigger down payment, your monthly payments will be more manageable, so you’ll pay less in interest expenses over the life of the loan. Borrowing less and putting down a larger down payment are great ways to make your money work for you.

3. Generate Extra Cash

Accessing additional cash can improve your financial situation. Do you have assets like stocks you can sell or a money-market fund you can trade out of? With extra money, you can pay off debts or apply for a smaller mortgage—as we discussed above.

You can also get additional funds from selling another property. If you have a property you’ve been planning to sell, like a previous home, any additional cash generated from selling that property could put you in a better position when moving into a 15-year mortgage.

What Alternative Options Are There?

Borrowing a 15-year home loan isn’t realistic for everyone. You may want to consider a 25-year or 20-year mortgage as an alternative option.

Another school of thought is to simply make larger payments on a 30-year mortgage every month. This is a fantastic way to save substantial interest over the term of the loan, since larger-than-anticipated monthly payments will go to your principal payments, so you’ll owe less in interest in the end. You can even start with a 15-year mortgage and refinance your home at a later date to a 30-year home loan should your finances change.

Keep in mind that to qualify for the best interest rates on a mortgage (which will have a big impact on your monthly payment), you need a great credit score as well. You can check your credit scores for free on Credit.com every month, and you can get your credit report at no cost to you.

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How to Determine Your House Payment: The Quick Formula

mortgage payment

When you’re shopping for a house and considering a mortgage loan, establishing what you can afford for house payments can be a lengthy process. You have to run calculations, get updated payment scenarios from your mortgage company, and determine whether or not you can qualify.

With all these moving parts, we hope it comes as a relief to hear there’s a simpler way to calculate a home payment. This simple solution will be a huge help in a competitive market that doesn’t allow for extended number crunching.

Terms to Know

Before we get into the nitty-gritty, it will be helpful to know these two key terms when using our easy house payment formula.

1. House Payment or PITI

PITI is an initialism used to reference the four factors that influence your monthly house payment:

  • Principle is the amount borrowed, specifically how much of your loan you’re scheduled to pay off each month.
  • Interest is how much it costs to use your loan, and your monthly payment is based on your interest rates.
  • Taxes refer to the property taxes rolled into your monthly house payment and are sometimes called an escrow or impound account.
  • Insurance is the amount of the mortgage payment that goes toward hazard and fire insurance.

2. Debt-to-Income Ratio (DTI)

Important for determining how easily you’ll be able to pay off your debts, the DTI is the percentage of your total monthly debt against your monthly income. In math terms, it looks like this:

(PITI + monthly liabilities) ÷ monthly income = DTI

Most lenders prefer your DTI stays at or under 45%, so it’s important to consider your other monthly liabilities alongside your PITI when getting a mortgage.

The Basic House Payment Calculations Most Lenders Won’t Share

Now that you’re familiar with PITI and DTI, you’re ready for this simple truth: for each $100,000 you borrow, expect a monthly mortgage payment, or PITI, of $725.

It’s true! In most cases, your principal, interest, property taxes, and home insurance for $100,000 will come out to about $725 each month. Here’s a handy table for reference:

Amount Borrowed Approximate PITI
$100,000 $725
$200,000 $1,450
$300,000 $2,175
$400,000 $2,900
$500,000 $3,625

 

You can easily add half of $725 (that’s $362.50) if you’re trying to calculate for an extra $50,000. Or you can divide the loan amount by $100,000 and multiply the result by $725 to get the estimated PITI for your loan.

The Ins and Outs of Calculating PITI

Let’s look at an example. Say you want to buy a $350,000 home. You want to know whether the payment is affordable and whether you’ll meet your lender’s debt ratio thresholds.

Pretend you already have a 20% down payment ready, which is $70,000 for a $350,000 home. So in total, you’ll be borrowing $280,000. Divide that by $100,000 and you get 2.8. Using this information, the basic house payment formula will look like this:

$725 x 2.8 = $2,030

To spell it out, we know that when you borrow $100,000, your PITI will be about $725 per month. When we divide $280,000 by $100,000, we get 2.8. Similarly to how multiplying $100,000 by 2.8 will result in the full loan amount, multiplying $725 by 2.8 will give us the total PITI amount. So the total PITI would be $2,030 per month.

The Ins and Outs of Calculating DTI

Once you’ve calculated the PITI, make sure you’ve got a debt-to-income ratio a lender will approve of. Remember, the highest DTI most lenders will allow is 45%. Continuing with our example and using an income of $4,750, here’s how to find the DTI for a $2,030 PITI if you have no other monthly liabilities:

$2,030 ÷ $4,750 = 42.74%

As you can see, you simply divide the PITI by your income. In this case, the result is 42.74%, which is low enough to possibly qualify for a loan.

The Application of Monthly Liabilities

Remember to include any other monthly liabilities you have when you calculate your DTI. Let’s see if you can still reasonably afford the house with hypothetical monthly liabilities.

Pretend you have a car lease payment of $300 a month and credit card payments of $80 a month. This changes our previous DTI formula like so:

($2,030 + $300 + $80) ÷ $4,750 = 50.74%

With those debts, you would have a 50.74% DTI, which means you likely wouldn’t qualify for that large of a loan. That’s a rather different situation, so don’t forget to include your monthly liabilities when calculating DTI.

Personalizing Your DTI

Your monthly income and expenses may be very different from our hypothetical scenario. Try plugging in your PITI with the formula below to get your personal DTI, and make sure it’s below 45%:

(PITI + monthly liabilities) ÷ monthly income = DTI

Remember, even if your DTI is below 45%, you need to consider your lifestyle and other living costs when deciding on a home. Are you willing to be house poor for a large mortgage, or will you be just as happy with less home and more spending money each month? The choice is up to you!

Factors Beyond the Formula

Our formulas for PITI and DTI are best for a solid estimation, but they’re not exact for every unique situation. Here are some other factors that will affect your monthly house payments:

  • Private mortgage insurance (PMI) comes into play when you have a down payment under 20%. PMI helps lenders offset the risk of you defaulting on the mortgage.
  • Large down payments, on the other hand, will positively influence your borrowing power.
  • Assets and reserves need to be disclosed to most lenders, and you’ll need two months or more of PITI in the bank to meet their requirements.
  • Credit scores can influence interest rates, and if your score is below 620, you may not qualify for a home loan. Every month, check your credit scores for free on Credit.com to see where you stand.

If you’re thinking of buying a home or are currently preparing to purchase one, check out some of our other mortgage tips and tricks.
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Should You Get an FHA Loan or a Conventional Mortgage?

which-mortgage-is-right-for-me

Federal Housing Administration (FHA) loans and conventional loans remain the most popular financing types for today’s mortgage borrowers. But which program makes the most financial sense for you?

FHA Loans vs. Conventional Loans

The key to deciding which loan you should get is understanding the characteristics of both programs and how they relate to your financial picture. You could be a good candidate for either program, so select the loan that aligns with your payment and cash flow expectations.

  FHA Loans Conventional Loans
Credit Score Usually requires 500+ credit score Usually requires 620+ credit score
Credit History Shorter wait times after derogatory credit events like foreclosure, short sale, bankruptcy, and divorce Longer wait times after derogatory credit events, though some lenders may be flexible depending on circumstances
Down Payment As low as 3.5% As low as 3%, though there are advantages for a larger payment
Mortgage Insurance Requires both a 1.75% upfront premium and 0.45%–1.05% annual premiums Either a one-time payment or monthly fees from 0.55%–2.25% depending on credit, though these could be waived with a 20% down payment
Interest rate Tends to have lower interest rates than conventional loans Tends to have higher interest rates than FHA loans
Debt Ratio Allows higher debt ratios than conventional loans Allows lower debt ratios than FHA loans
Time for Approval Often takes longer to process Often takes less time to process

The Nuts and Bolts of FHA Loans

FHA loans are insured by the Federal Housing Administration, and borrowers must pay for mortgage insurance. The program requires two mortgage insurance payments: an up-front premium calculated at 1.75% of the loan amount and an annual premium that’s somewhere between 0.45% and 1.05% of the loan amount—depending on the length of the loan.

These mortgage insurance payments make FHA loans pricey. However, the program is flexible for homebuyers with credit scores as low as 500. Additionally, cosigners are permitted, and the wait time requirements for approval after short sale and bankruptcy tend to be shorter than they are for conventional loans.

Should You Get an FHA Loan?

The FHA program makes sense when you have little equity to work with or a unique financial situation. You’ll need at least a 3.5% down payment to purchase a home using an FHA Loan.

The program will go as high as the maximum loan limit for the county where the home is located. For example, in Sonoma County, California, you can get a loan of up to $554,300 for a single-family home.

The Nuts and Bolts of Conventional Loans

Conventional loans represent the lion’s share of the mortgage market. These loans, while the most popular, also contain tighter qualifying guidelines than FHA loans, including a minimum credit score of 620. And with a conventional loan, wait times after short sales and bankruptcy tend to be longer than those for FHA loans.

The trade-off for these strict guidelines is you don’t have to pay for private mortgage insurance if you have a high enough down payment. So even though conventional loans tend to have higher interest rates, you’ll save more over the life of the loan.

Should You Get a Conventional Loan?

If you have a credit score over 620 and a 5% down payment, you have the bare minimum required to apply for a conventional loan. Combine those with a strong employment history and payment-to-income ratio, and you’re a good candidate for the loan.

Remember, if you’re considering applying for a mortgage, it helps to know not only how much house you can afford but also where your credit stands before you begin the process. That’s because your credit scores help determine what types of rates and terms you may qualify for. You can get two free credit scores, which are updated every 30 days, on Credit.com.

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4 Reasons to Buy Your First Home in Your 30s

There are a few ways to expedite that down payment.

There was a time in my life when I thought I’d never own a home. As someone who had preferred life in big cities and prioritized travel above homeownership, the idea of settling somewhere permanently never really appealed to me.

Then I got married, then I got pregnant, and suddenly the idea of living in an actual home to call my own (with a little more space, to boot) became very appealing. By the time my husband and I closed on our first-ever home, I was 32 years old, and I’m so glad I waited until then to buy. Here’s why.

1. I Had Saved Enough for a 20% Down Payment

My husband and I were married almost three years before we bought our first house, which gave us plenty of time to start putting cash aside in a separate savings account—specifically for a down payment. That meant that we were able to put down 20% of our home’s overall value (the recommended amount), putting us in a good position for a low-interest mortgage loan.

You may not be able to sock away that much in cash by the time you’re ready to buy, but at least when you’re solidly in your 30s, you’re likely making much more than you were in your mid-20s. So you should be able to put down more than you could when you were younger. It should also be easier to refill your savings after spending that money.

2. I Knew Where I Wanted to Settle Down

Places I’ve called home include New York, New Jersey, Pennsylvania, Virginia, Florida, and Colorado, along with a few others. In other words, I had been around the block enough to know what I was looking for in a long-term home and a place to raise my family. As it turned out, Colorado was that place, and so far, it’s all I could have wanted and more.

3. I Was Secure Enough in My Career to Make Big Financial Moves

Because I’ve been freelancing successfully for the past few years, I’ve built up enough of a steady client base to feel financially safe as I took the plunge into homeownership. Buying a house is a lot more than forking over a down payment and paying a mortgage—utilities, homeowners association fees and insurance, and general maintenance and upkeep all add more weight on the monthly budget. By waiting until we were more settled in our careers, though, my husband and I felt more prepared for whatever our new house might throw our way.

4. I Could Afford a House that Didn’t Need Much Work

While I can certainly tackle the occasional DIY project, I’m never going to be someone who wants to place hardwood or redo a bathroom. As such, waiting until I was in my 30s to buy my first house meant that I had the money to buy a home that didn’t need a lot of work. It was essentially move-in ready, which was exactly what I was looking for.

When’s the Right Time to Buy a Home?

Buying a home before you’re in your 30s certainly isn’t a bad thing, as long as you’re financially prepared to put down a sizeable down payment and to pay for the added expense that comes with it. For me, though, waiting just a couple more years until I was in my 30s proved to be invaluable, since I now feel as prepared as possible for whatever new financial responsibilities head my way.

Also, no matter how old you are, make sure you’ve had a chance to build your credit before you buy. Credit plays a big role in buying a home, so make sure yours is as good as possible before you start shopping for a loan and check it frequently.

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