A Guide to Understanding Bridge Loans

Getting a bridge loan
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Buying a new home before you can sell your old one can present quite the financial conundrum. This is mostly because you have to come up with the cash for a new property when you don’t have access to the home equity you have already built up in your existing property. That’s where a bridge loan comes in.

What is a bridge loan?

Bridge loans promise to fill the gap or “provide a bridge” between your old residence and the one you hope to buy. They accomplish this by providing temporary financial assistance through short-term lending.

Unfortunately, bridge loans come with pitfalls, some of which can be costly or have long-term financial consequences. This guide will explain the good and the bad about bridge loans, how they work, and some alternative strategies.

How does a bridge loan work?

While bridge loans can come in different amounts and last for varying lengths of time, they are meant to be short-term tools. Generally speaking, bridge loans are temporary financing options intended to help real estate buyers secure initial funding that helps them transition from one property to the next.

Let’s say you found your dream home and need to buy it quickly, yet you haven’t had the time to prepare your current residence for sale, let alone sell it. A bridge loan would provide the short-term funding required to purchase the new home quickly, buying you time to get your current home ready for sale. Ideally, you would move into your new home, sell your old property, then pay off the loan.

Here are some additional details to consider with bridge loans:

  • Your current residence is used as collateral for the loan.
  • These loans may only be set up to last for a period of six to 12 months.
  • Interest rates are higher than those you can get for a traditional mortgage.
  • You need equity in your current home to qualify, usually at least 20 percent.

Also keep in mind that there are several ways to repay a bridge loan. You may be required to start making payments right away, or you may be able to wait several months. Make sure to read the terms and conditions of your loan so you know where your financial obligations begin and end.

Risks of taking out a bridge loan

Taking out a temporary loan so you can purchase a new home may sound ideal, but as with most financial products, the devil is in the details. While these loans can help in a pinch if you aren’t able to purchase a property through other means, there are notable disadvantages.

They can cost more than alternatives

David Reiss, a professor at Brooklyn Law School and the academic program director at the Center for Urban Business Entrepreneurship, says the biggest downside of these loans is the price tag. Because bridge loans are meant to work for the short term, lenders have a much shorter timeline for turning a profit. As a result, “they typically charge a few percentage points higher than what you would pay with home equity loans,” says Reiss. Not only that, but they come with closing costs that may be expensive, and can vary from loan to loan.

So, even if the loan is short-term, it will likely cost you more than borrowing the money through a traditional mortgage by selling your existing home first, or through other means.

You’re taking on more debt

Another inherent risk with bridge loans: You’re simply borrowing more money. “The loan is secured by your home, so you have another mortgage,” Reiss says. “If you don’t make payments, then you could face late fees and financial turmoil.”

You can’t predict when you’ll sell your home

And if you’re unable to sell your home and your new or old monthly mortgage payments are taking a big chunk of your income, you could have trouble meeting all your financial obligations.

Reiss offers one other scenario in which a bridge loan could spell financial trouble: if the real estate market sours.

“You might assume you’ll sell your home easily, but that isn’t always the case,” says Reiss. “Unexpected events can screw up your plans to sell your home, so if you end up carrying multiple mortgages, you could potentially end up in trouble.”

According to Reiss, taking out a bridge loan could easily leave you with three home loans — your old mortgage, your loan, and your new mortgage — if the housing market slumps inexplicably and you can’t sell.

“This may not be a problem temporarily, but it can cause financial havoc in the long run,” he says. “You’ll be stuck with the unexpected expense of carrying all these mortgages.”

Falling behind on payments can lead to foreclosure on your old home, your new property, or both.

Advantages of a bridge loan

Applicants who are well aware of the risks of this financial product may still benefit from choosing this option. There are notable advantages, Reiss says, especially for certain types of buyers.

They can give you an edge in competitive markets

Bridge loans are “the kind of loan you get when you need to move forward and you can’t do it any other way,” says Reiss. If you are absolutely dead-set on purchasing a property and struggling to make the financials work, then a bridge loan could truly save the day.

This is especially true in housing markets where homes are moving quickly, Reiss notes, since a bridge loan allows you to buy a new home without a sales contingency in the new contract. What this means is, you’re able to write an offer on a new property without requiring the sale of your old home before you can buy.

This can be quite advantageous “in a hot market where sellers are getting lots of offers and you’re competing against other buyers who are paying in cash or making offers without a contingency,” Reiss says.

Bridge loans may be more convenient than the alternatives

Reiss also says that, while there are other loan options to consider for buying a new home, they aren’t always feasible in the heat of the moment. If you wanted to purchase a new home before selling your old home and needed cash, you could consider borrowing against your 401(k) or taking out a home equity loan, for example.

Yes, these options may be cheaper than getting a bridge loan, Reiss acknowledges. The problem is, they both take time. Borrowing money from your 401(k) may take several weeks and plenty of back and forth with your employer or human resources department, and home equity loans can take months. Not only that, but it might be difficult to qualify for a home equity loan if your home is for sale, Reiss says.

“A home equity lender who catches wind of your intent to sell your home may not even loan you the money since it’s fairly likely you’ll pay off the home equity loan quickly, meaning they won’t turn a profit,” he says.

Bridge loans, on the other hand, could be more convenient and timely because you may be able to get one through your new mortgage lender.

Four good reasons to take out a bridge loan

With the listed advantages and disadvantages above in mind, there are plenty of reasons buyers will take on the risk of a bridge loan and use it to transition into a new home. Reasons consumers commonly take out bridge loans include:

1. You want to make an offer on a new home without a sales contingency to improve your chances of securing a deal.

The most important reason to get a bridge loan is if you want to buy a property so much that you don’t mind the added costs or risk. These loans let you make an offer without promising to sell your old home first.

2. You need cash for a down payment without accessing your home equity right away.

A bridge loan can help you borrow the money you need for a down payment. Once you sell your old home, you can use the equity and profit from the sale to pay off your loan.

3. You want to avoid PMI, or private mortgage insurance.

If most of your cash is locked up as equity in your current home, you may not have enough money to put down 20 percent on your new home and avoid PMI, or private mortgage insurance. A bridge loan may help you put down 20 percent and avoid the need for this costly insurance product.

“But you would need to net out the costs of the bridge loan against the PMI savings to see if it is worth it,” says Reiss. “And remember, once you have sold the first home, you could use the equity from that home to pay down the mortgage on your new home and get out of paying PMI.”

According to the Consumer Financial Protection Bureau (CFPB), you may have to order an appraisal to show you have at least 20 percent equity to get PMI taken off your new loan, and even then, it can take several months.

“So, we might be talking about six to 12 months of avoided PMI payments if you were planning on using the equity from your old home to pay down the mortgage on your new home,” says Reiss.

4. You’re building a new home.

A bridge loan can help you pay the upfront costs of building a new home when you aren’t yet prepared to sell your old one because you still need a place to live.

How to qualify for a bridge mortgage loan

Because bridge loans are offered through mortgage lenders, typically in conjunction with a new mortgage, the requirements to qualify are similar to getting a new home loan.
While requirements can vary from lender to lender, you commonly need to meet the following criteria for a bridge loan:

  • Excellent credit
  • A low debt-to-income ratio
  • Significant home equity of 20 percent or more

Typically, lenders will approve bridge loans at the value of 80 percent of both the borrower’s current mortgage and the proposed mortgage they are aiming to attain. Let’s say you’re selling a home worth $300,000 with the goal of buying a new property worth $500,000. In this example, across both loans, you could only borrow 80 percent of the combined property values, or $640,000.

If you don’t have enough equity or cash to meet these requirements — or if your credit isn’t good enough — you may not qualify for a bridge loan, even if you want one.

Fees and other fine print

Before you take out a bridge loan, it’s important to understand all the costs involved. Here are some fees and fine print you should look for and understand:

Fees

Since bridge loans vary widely from lender to lender, the fees involved — and the costs of those fees — can vary significantly as well. Common fees to look for include an origination fee that can be equal to 1 percent or more of your loan value. You will also likely be on the hook for closing costs for your loan, although the amount of those costs can be all over the map based on the terms and conditions included in your loan’s fine print. As example, Third Federal Savings and Loan out of Cleveland, Ohio, offers a bridge loan product with no prepayment penalties or appraisal fees, but with a $595 fee for closing costs. Borrowers may also be on the hook for documentary stamp taxes or state taxes, if applicable. Make sure to check your loan’s terms and conditions.

Prepayment penalties

While it’s unlikely your loan will include any prepayment penalties, you should read the terms and conditions to make sure.

Payoff terms and conditions

Because all bridge loans work differently, you need to be sure when your loan comes due, or when you need to start making payments. You may need to make payments right away, or you might have a few months of wiggle room. Because there are no set guidelines, these terms can vary dramatically among different lenders.

Tips to sell your home quickly and avoid a bridge loan

If you’re on the fence about getting a bridge loan because you’re worried about short-term costs or the added layer of risk, try to sell your home quickly instead. If you’re able to sell, you may be able to access your home’s equity and avoid a bridge loan altogether, while also eliminating the possibility of getting “stuck” with more than one home.

We spoke to several real estate professionals to get their tips for selling your home quickly. Here are their best tips for getting your home ready to sell in a short amount of time:

Tip #1: Do some quick outdoor cleanup and landscaping work, then try to make your home as neutral as possible.

“To get people inside, they need to like the outside of your house,” says Nancy Brook, a Realtor who sells properties with RE/MAX of Billings, Mont. “Trim trees and shrubs, treat weeds, and mow and trim lawns.”

You should also make sure that there’s no chipped or peeling paint, she recommends. “And if your home is anything but a neutral color, you should seriously consider painting it.”

Tip #2: Get rid of half your stuff (or more).

As Brooks notes, most real estate agents suggest that sellers pack up most of their personal items and remove them from the house when they’re trying to sell. This helps people declutter while also making their property more appealing to people who might be turned off by someone else’s personal photos and items.

“Pack up or get rid of rid of paperwork, knick-knacks, personal photos and collections,” says Brooks. “Any furniture that obstructs a walkway should be eliminated. Get rid of any unnecessary dishes, pots, pans and small appliances in your kitchen. All the excess gives a junky appearance.”

Tip #3: Deep-clean from top to bottom.

While cleaning seems like an obvious first step, it is often neglected, notes Trina Larson, RE/MAX Realtor and selling specialist from Potomac, Md.

“You would never purchase a dirty car or a dirty new jacket,” she says. “Get everything as clean as possible, and try to make your house look brand-new.”

Items on your to-clean list should include corners, edges of baseboards, light fixtures, windows inside and out, your home’s siding and anything that isn’t in pristine condition.

Tip #4: Get rid of off-putting smells.

If you want to sell quickly, your house should smell clean and inviting, Larson suggests. “Your first step is to remove every offensive odor,” she says.

Go through each room and take inventory of what you smell. “Pet urine is especially heinous, and there is only way to remove it,” she says. “You have to go in and replace the carpet where the accident happened. Although it might seem like an expensive task, it is worth every penny. No cooking or animal odors.”

Basic cleaning can also help remove smells. The cleaner your home, the fresher it will seem to potential buyers.

Bottom line: Is a bridge loan worth considering?

If you want to buy a home quickly and don’t have time to sell your home, a bridge loan could help. Likewise, bridge loans can be a good option for people who are moving or building a new home and need the capital to make the sale go through regardless of cost.

On the other hand, such loans may not be the best choice for consumers who don’t want to risk getting stuck with two homes and multiple payments. They’re also a poor choice for buyers who don’t want to pay any additional closing costs or interest payments to get in the home they want.

In the end, only you can decide if the risk of getting a bridge loan for your new home is an acceptable one.

The post A Guide to Understanding Bridge Loans appeared first on MagnifyMoney.

15 Housing Markets With the Most Movers

Markets with affordable housing and access to jobs draw the most interest.

Markets in Colorado and the Carolinas are drawing the most potential home buyers, according to data released Thursday by ATTOM Data Solutions.

The property data company analyzed mortgage applications to create its “Pre-Mover Housing Index,” a measure of the proportion of homes likely to sell in a market.

The index is based on the ratio of mortgage applications that include an estimated loan settlement date to the number of homes in a given market. Mortgages that have a so-called “pre-mover” flag, like a settlement date, close within 30 days 62.2% of the time, according to ATTOM’s data.

An index above 100 in a given market means an above-average ratio of homes will be sold there compared to the national average. ATTOM looked at 120 metropolitan areas that had at least 100,000 single-family homes and condos. Those that scored the highest combined affordable homes with access to jobs, said Daren Blomquist, senior vice president of ATTOM.

If you’re looking to buy in one of these markets, competition could be fierce. It may help to get pre-approved for a mortgage and to pull your credit to make sure there’s nothing on your report that will bog you down. See where you stand by checking a free credit report snapshot on Credit.com, and reviewing this list of the 15 areas with the highest Pre-Mover Housing Indices.

15. Chicago-Naperville-Elgin, Illinois-Indiana-Wisconsin

Pre-Mover Index: 165
Number of homes: 2.9 million
Average property value: $296,727

14. Manchester-Nashua, New Hampshire

Pre-Mover Index: 175
Number of homes: 121,883
Average property value: $361,833

13. Durham-Chapel Hill, North Carolina

Pre-Mover Index: 179
Number of homes: 146,469
Average property value: $279,327

12. Atlanta-Sandy Springs-Roswell, Georgia

Pre-Mover Index: 179
Number of homes: 1,962,184
Average property value: $248,786

11. Las Vegas-Henderson-Paradise, Nevada

Pre-Mover Index: 180
Number of homes: 683,448
Average property value: $249,214

10. Nashville-Davidson-Murfreesboro-Franklin, Tennessee

Pre-Mover Index: 190
Number of homes: 614,297
Average property value: $271,580

9. Lancaster, Pennsylvania

Pre-Mover Index: 191
Number of homes: 147,076
Average property value: $167,674

8. Orlando-Kissimmee-Sanford, Florida

Pre-Mover Index: 194
Number of homes: 738,302
Average property value: $246,020

7. Jacksonville, Florida

Pre-Mover Index: 196
Number of homes: 490,967
Average property value: $198,053

6. Lexington-Fayette, Kentucky

Pre-Mover Index: 208
Number of homes: 115,422
Average property value: $214,785

5. Washington-Arlington-Alexandria, District of Columbia-Virginia-Maryland-West Virginia

Pre-Mover Index: 209
Number of homes: 1,840,922
Average property value: $486,711

4. Tampa-St. Petersburg-Clearwater, Florida

Pre-Mover Index: 209
Number of homes: 1,041,157
Average property value: $229,571

3. Raleigh, North Carolina

Pre-Mover Index: 225
Number of homes: 386,744
Average property value: $235,513

2. Charleston-North Charleston, South Carolina

Pre-Mover Index: 225
Number of homes: 230,381
Average property value: $359,157

1. Colorado Springs, Colorado

Pre-Mover Index: 251
Number of Homes: 218,034
Average Property Value: $263,960

Image: Portra 

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Moving to One of These 9 States Could Save You Thousands

Should you move to one of the nine states with no income tax? Here's how to decide.

Each year, taxpayers pay trillions in income taxes. In fact, the government collected approximately $3 trillion last year. If you’re like most taxpayers, you owe both federal and state taxes, which means an even bigger chunk of your paycheck goes to the government.

When you’re carrying debt — whether it’s student loans or a credit card balance — it can be frustrating to see so much of your hard-earned money leave your hands. That’s why many people consider moving somewhere with no state income tax.

According to a new study by Student Loan Hero, taxpayers could save an average of $1,977 a year by moving to a state with no income tax. But before you pack your bags, find out what factors you should keep in mind.

States Without Income Taxes

States that collect income taxes use them to fund essential programs and services for residents. More than 50% of state tax revenues go toward education and healthcare initiatives, such as Medicaid. State agencies also use collected income taxes to pay for services, including transportation and law enforcement.

Residents in most of the country must pay federal and state income taxes. However, nine states don’t levy any state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Because you don’t have to pay state taxes, you can get a significant yearly savings.

How Much Could You Save?

How much you could save by moving to a state with no income tax depends on your income bracket and where you live now. For example, Oregon workers have a state income tax of 7.75%, the highest rate of any state in the country. Someone earning the median salary in the state — $49,710 — would pay $3,851 in addition to their federal taxes.

Moving to another state to save that kind of cash can be tempting. So tempting, in fact, that 30% of survey respondents would move to a state with no income tax to save money. Moreover, 38% of respondents said they’d use their tax savings to accelerate their student loan debt repayment. (To see how student loans are impacting your credit, check out your free credit report snapshot on Credit.com..)

Using Your Savings for Debt Repayment

The savings you get from not paying state taxes can save you even more money in the long run. Using that money to repay your loan helps you pay off the loans faster, cutting down on interest charges. It can also save you thousands over the life of your loan.

For example, say you had $35,000 in student loans with an interest rate of 6.31% (the current rate for Grad PLUS loans) and a minimum monthly payment of $400 a month. Now, take the average $1,977 you would save by moving to a state without income tax and divide it up over 12 months. That would give you an extra $165 in your pocket each month. If you put that additional amount toward your student loans, you could pay off your debt about three and a half years early and save more than $4,500 in interest.

Other Costs

Before packing up and moving to a new state, consider other costs that may eat into your savings. Between putting down a deposit on a new apartment, moving your belongings and registering your vehicle in a new state, you can spend thousands.

In addition, some states with no income tax make up their revenue through other means, such as sales tax. Florida has a 6% sales tax on goods and services, including essentials such as clothing or food. If you’re not used to paying taxes on groceries, the added sales tax can put a dent in your budget. That’s why it’s important to compare the cost of living when deciding if it’s worth it to move to a new state.

Moving to Save Money

Depending on your circumstances, moving to a state with no income tax can give you a substantial savings. You can use that money to pay off your student loans faster, boost your emergency fund or catch up on retirement savings. But before you make the leap, be sure you understand the added expenses of moving so your decision is financially sound.

Image: xavierarnau

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12 Ways to Keep a Big Move From Breaking Your Budget

Moving is annoying, sweaty and expensive. Here are ways to at least make it easier on your budget.

I moved across the hall two summers ago. My girlfriend and I were moving to a larger apartment in the same building, one that could fit two adult human beings better than the tiny Fortress of Solitude I had selected while I was still single.

I hate moving. It’s annoying, sweaty and expensive. The word “moving” vastly undersells the actual act. It’s easy to move. Lift a finger, take a step; you’ve moved. It’s not so easy to account for all of your possessions, pack them in an organized way, transport them safely, then unpack and rearrange them in a new setting, all on a budget.

But I thought moving across a hallway would be easy. While it was certainly easier than having to move to a different building, it was still annoying, still sweaty and still expensive.

I learned a valuable lesson: Moving is terrible, always. Having a plan can make it less so. Here are a few tips that may help you save on your next move and make it less stressful, even if you’re going farther than across the hall.

1. Get Rid of Stuff

There’s no point moving stuff you don’t even want. Try to sell excess furniture, especially larger items, online or to your friends or co-workers, said Ali Wenzke, founder of The Art of Happy Moving blog.

You can list items on sites like Craigslist, NextDoor or Facebook. This way you can get potential buyers to haul away your stuff for you.

Many charitable organizations will take smaller items like clothing, Wenzke said. Keep your receipt so you can write off the donation come tax time.

2. Get Free Boxes

The price of packing supplies can add up. Luckily, you can get free boxes if you just ask.

While many retailers will have spare boxes, furniture stores tend to have a good range of sizes, saidSam Radbil Sr., communications manager for ABODO Apartments, an online apartment marketplace. It’s a good idea to call stores at least a week before you need the boxes, since they may not get rid of boxes every day.

You can also ask friends who have recently moved if you can have their old boxes.

3. Label Everything

If you lose a sock every time you do your laundry, you will likely misplace one or two things when transporting everything you own. Labeling all your boxes appropriately can help keep your valuables from disappearing into the moving ether.

Radbil suggests labeling boxes by room.

“If you want to get really technical about it, even label exactly what objects are contained in the box,” he said. “This will also help you prioritize what boxes to unpack.”

4. Conserve Bubble Wrap (& Other Packing Tips)

A few stray packing tips from Garrett O’Shea, president of PockitShip, an on-demand shipping company: Wrap dishes in your clothing, rather than buying bubble wrap. Put paper or Styrofoam plates in between breakable plates. Put heavy items, like books, in suitcases. Pack essentials last, so they go on top of other items and you can grab them easily.

5. Decide Whether to Hire Movers

This decision boils down to time, ability and cost, said Leigh Meadows-McAlpin, owner of Dwelling, an interior design firm in South Carolina. Meadows-McAlpin frequently discusses the logistics of moving with her clients.

Moving on your own requires time to sort, pack, load and unload, as well as rent and return a truck. You also need the muscle, or friends and family who have the muscle, to pack and load everything. On the other hand, the cost of labor for you and your friends is usually no more than pizza, beers and gratitude.

“As the saying goes, time is money, and if you don’t have the time or ability to move yourself, you should consider spending the money to hire movers,” Meadows-McAlpin said.

6. How to Pick a Mover

The American Moving and Storage Association website is a good place to start, Wenzke of The Art of Happy Moving said. If you can’t find a mover in your area on the site, try searching the sites of their state associations. All the movers listed are vetted by the association and licensed.

“I recommend getting at least three in-person quotes from at least three different moving companies before choosing a mover,” Wenzke said.

An in-person quote should be more reliable and will give you a better feel for the company, Wenzke said. Be sure to ask about equipment, rates, how they handle parking restrictions with their trucks and if they outsource moves to a third party. Also make sure they have proper insurance — stuff happens.

Double-check reviews on Yelp, Angie’s List and other sites before hiring, she added.

Another good place to look is the Move for Hunger website, Wenzke said. The companies there are also vetted and pack up unopened, nonperishable food to donate to a local food bank at no additional cost.

7. Make a Moving Budget

Once you have a few quotes, you can put together a budget of how much the move will cost. Be sure to plan for unexpected expenses and any additional furniture you’ll need if your new place is bigger.

Factor in how much stuff you have and how much time you’ll need since movers usually charge an hourly rate.

“Small moves can start as little as $200 and go all the way into the thousands,” O’Shea said.

Make sure your wallet and your credit can handle the expense. You can get a snapshot of your credit report for free on Credit.com, and see whether you could — or should — get a credit card before your move. (Remember, while credit cards can serve as a great source of liquidity, that available limit isn’t license to overspend.)

8. How to Rent a Truck

If you decide to go it alone, you’ll likely need a bigger set of wheels. Your couch will likely not fit in your hatchback. (Looking for a new car? Follow these steps to save.)

When evaluating a truck rental, be sure to look at mileage costs, the cost of the truck, pickup and drop-off locations and any available discounts, Radbil, of ABODO, said. Remember to reserve a truck in advance as well.

9. Pick a Climate-Controlled Storage Facility

If for some reason you won’t be able to move your stuff to your new place right away, Meadows-McAlpin suggested keeping it in a climate-controlled storage facility. Otherwise heat, moisture and cold can cause mildew, rust and other damage to belongings.

“As a designer, I’ve had to have our workrooms repair or replace furnishings damaged in storage many times, and most of those damages could have been avoided if the clients had simply opted for a client-controlled space,” she said.

10. Report Your Change of Address

Moving is expensive enough, so you don’t want to add to your costs by falling behind on bills because they don’t get delivered to the right place. Luckily, changing your address is as simple as filling out a form on the U.S. Postal Service website.

11. Transfer Utilities

This can be easy to forget in the chaos of a move, but make sure the lights will be on for you when you get to your new home and that you stop paying for utilities once you leave your old home. When I moved into my first apartment after college, I did not plan ahead and had no lights or internet for the first few days. It was a pretty depressing way to start a new chapter of life.

Most utilities have user-friendly websites that allow you to do start and stop service, but otherwise calling ahead of the move can ensure that your new home is fully ready for you. (Once you’re settled, see how to save on your electric bill.)

12. Deduct Moving Expenses

If your move is work-related, you can deduct your moving expenses from your taxes if you meet certain conditions. The move qualifies if your new workplace is 50 miles farther from your old home than your old job location was from your old home, according to the IRS.

If you had no prior workplace, the new job location must be 50 miles from your old home. You must also work at least 39 weeks in the year following the move.

So to make your move pay, be sure to save your receipts for tax time.

Getting ready to move out of the dorm? Here’s 19 mistakes college grads make when finding their first apartment you’ll want to avoid.

Image: monkeybusinessimages

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10 Places That Can Boost Your Child’s Future Income (& 10 That Won’t)

Where you raise your kids matters. Here are 10 counties shown to raise the earnings of kids who grow up there, and 10 counties to avoid.

Image: monkeybusinessimages

The post 10 Places That Can Boost Your Child’s Future Income (& 10 That Won’t) appeared first on Credit.com.

The Best Cities for Raising Kids in 2017

A Place to Learn & Play

Image: gpointstudio

The post The Best Cities for Raising Kids in 2017 appeared first on Credit.com.

Why Aren’t Americans Moving Anymore?

Here's what's in store for U.S. migration trends in 2017.

January is a good time to take stock of your career, and with the economy perking up, perhaps you should to consider making a dramatic change. After all, what’s more American than relocating for opportunity?

But even as careers get shorter — the average millennial will have seven jobs by age 28 — and the gig economy encourages all sorts of creative work arrangements, a funny thing has happened to the idea of heading “West.”

Americans don’t really move much anymore.

In fact, the rate of interstate moves has fallen by 50% in a single generation. In the 1980s, about 3% of the population moved to a new state every year. Today, that figure has fallen to less than 1.5%. The rate has steadily dropped, and it’s dropping across demographics, and through both good times and bad, suggesting it’s a trend with staying power.

Economists are worried about this. Movement suggests opportunity, so a decrease in migration suggests the “American Frontier” may be closing for good.

Why does this matter so much? Labor portability is the bedrock of capitalism and social mobility. Workers must be able to move where opportunities are in order for labor to be distributed efficiently. And freedom of movement (take this job, and shove it!) is the main tool workers have to bargain effectively with employers — not to mention getting themselves a big increase in income. (Want to know where your finances stand? You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

“Given the role of mobility both for individual labor market outcomes and for the overall efficiency of the aggregate labor market, the long-run decline in migration rates could indicate a decline in overall labor market dynamism,” wrote Fatih Karahan and Darius Li on the New York Fed’s blog recently. “Many policymakers have worried that lower mobility is associated with a more rigid economy, where workers cannot move to locations with good jobs. Lower mobility might cause the labor market to be slow in adjusting to shocks, making downturns longer and recoveries slower.”

But try as they might, while everyone seems to agree migration is down dramatically, researchers can’t agree on the cause. In fact, they don’t even agree that it’s a bad thing.

First, to be specific about the change that’s occurring: The Urban Institute called attention to this slowing migration trend recently, citing Federal Reserve researcher Raven Molloy, who said the percentage of interstate movers among working-age people (25 to 59) has steadily slowed from nearly 3% in the 1980s to less than 1.5% from 2010 to 2015.

In a separate paper, Molloy wrote that drops have occurred across all age groups and many demographic categories. You’d expect younger people to move more, but even that group has shown a steady drop — those aged 20 to 24 moved at a 5.7% rate from 1981 to 1989 but only a 3.3% rate from 2002 to 2012, Molly wrote.

Renters moved more than homeowners, but both moved less frequently during that same time span — renters from 6.4% to 3.6%; owners from 1.5% to 0.9%. Those with more education moved more, but again, movement across all groups fell: College+ dropped from 4.2% to 2.1% while those with only high school educations dropped 2.2% to 1.1%.

That means some more seemingly obvious explanations — like trouble selling housing during the recession, or an aging population — don’t explain what’s going on.

Maybe there’s a happy explanation for this. Three years ago, Greg Kaplan and Sam Schulhofer-Wohl wrote a paper for the Minneapolis Fed that dispelled another popular theory — that the growth of two-income couples makes moving harder, because it’s more challenging for both partners to find new jobs in new areas.

Instead, they said that the changing nature of industry in America means that most regions now offer very similar opportunities. Gone are the days when people moved West to farm or moved to Detroit to work on cars. Using data known as the Theil Index, the pair point out that the mix of jobs offered in U.S. states is continually growing more and more similar — that “geographic job specificity” has fallen by one-third in the past 20 years.

“Fewer workers need to move to obtain the best jobs for them, because labor markets around the country have become more similar … That decrease in geographic specificity makes it easier for workers to stay where they most enjoy living and maintain their occupation,” the two wrote.

Their other explanation is even more positive. Would-be movers have a much easier time test-driving their potential new homes from afar. It’s easier for people in Minnesota to connect with people in California to see what life there is really like.

“With more information, workers are less likely to make moves they ultimately regret, and the migration rate declines,” they wrote. The authors note that among people who do move from state to state, there’s a 15% chance that they’ll move again the next year. So, perhaps we are finally learning the grass isn’t always greener. “In other words, American workers haven’t lost their flexibility. They just don’t need to move so much anymore.”

Another explanation is a variation on the discredited idea that the greying population explains why Americans are moving less. Corporations looking to fill jobs would generally prefer to hire locally. Nationwide searches are expensive, as are long-distance relocations. Because a greater number of older candidates are available nearby, many companies are skipping the more costly form of job hunting, indirectly contributing to less migration, even among younger people, Karhan and Li argued in their paper.

“In short, a young individual today is moving less than a young person did in the 1980s because of the higher presence of older workers,” they wrote. (Again, it’s a silver-lining theory.) “These findings suggest that the declining trend in interstate migration is a response of the labor market to an aging population and does not necessarily signal a decline in the market’s dynamism or efficiency.”

But a more recent research paper published by Molloy and others at The Brookings Institution threw a lot of cold water on these various theories and conceded they’re unable to identify a clear reason. It does hint at two intriguing explanations that require more study, however.

One involves declining levels of trust. States where more people say strangers can’t be trusted experienced even greater drops in migration, the paper said. So a decline in overall social trust could be making people less likely to take the leap of faith needed to make a big move.

But the paper’s most intriguing suggestion involves understanding why workers get the pay and benefits they do. Perhaps larger corporations are screening employees more thoroughly, increasing a worker’s costs for finding new jobs, again making a move less attractive.

Or, perhaps the most obvious answer of all: Moving just isn’t worth it any longer.

Companies may also no longer feel much pressure to lure employees with big pay increases — and that in turn means there are no gold rushes that encourage workers to uproot their lives. This explanation fits with another trend that’s stymied economists for years — Americans stubbornly slugging wage increases, despite a seemingly tight labor market.

While pointing out that much more research in this area is needed, Molloy and his co-authors ended their paper ominously: This effect is “unlikely to be benign.”

Image: courtneyk

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10 Cities Americans Are Leaving the Fastest

These 10 cities are losing population faster than any other large American cities.

Image: kali9

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These Movers Will Help You Escape an Abusive Relationship for Free

meathead-movers-domestic-violence

In 1997, high school students Aaron and Evan Steed launched their moving service, Meathead Movers, as a way to make money while juggling sports and school. Based in San Luis Obispo, California, roughly midway between San Francisco and Los Angeles, the company’s business was a hit. But periodically, Steed and his partners received upsetting calls — from panicked women trying to flee abusive relationships.

“We’d just help them out for free,” no questions asked, Aaron Steed told Credit.com. Once Meathead Movers opened four offices and began serving the Los Angeles market, they continued to help out victims of domestic abuse free of charge.

“We just kept helping out, and after three years we found ourselves in a contentious situation where the batterer came home and the police were called,” Steed said. At that point, “we realized we had to team up with a local domestic violence shelter” in order to get it done right.

One day, a friend of Steed’s passed along a contact at The Women’s Shelter Program in San Luis Obispo, which offers women and children affected by domestic violence counseling and support. After speaking with a former executive director there, Steed began collaborating on a strategy to better serve the families without putting anyone in harm’s way. The first partnership was formalized in 2001; today, Meathead Movers has nine partnerships with women’s shelters throughout Central and Southern California.

When victims call asking for help, Steed turns them over to a case worker at one of Meathead Movers’ partners, like Good Shepherd in Los Angeles, which then determines the best course of action. “They’ll confirm it’s a legitimate situation, provide housing, legal advice, and all kinds of other things,” Steed explained. “Then, once it’s time to actually move the person out, the shelter will contact us and we’ll do the move.”

Meathead Movers also often helps victims leave the shelter when it’s time to strike out on their own. By his estimate, Steed’s company has helped between 350 and 400 victims. “We don’t want moving to be a hindrance to get out of a bad situation,” he said.

It’s a random act of kindness that’s inspiring other small businesses: In July, Meathead Movers launched the site, MoveToEndDV.org, which challenges 10,000 businesses “to take the #MoveToEndDV pledge and make a donation or provide a product or service for free to help the shelters that support victims of domestic violence.”

Image: Meathead Movers 

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5 Money Tips You Should Know Before Moving Out

moving-out-of-parents-house

Moving to a new home can be very stressful and also exciting. This may be your first time on your own without financial support. You want to ensure you are financially prepared and ready for the big step, so here are a few money tips to help you get started.

1. Build Your Credit

Before signing on the dotted line, you should consider building solid credit. If you have a good credit score, then you may get a low, fixed-interest rate when applying for a mortgage. If you ignore your credit score, then you may get a high interest rate or even possibly denied on your loan. If you are moving in with a partner, then consider sitting down with him or her and looking over your credit together. (You can view a free snapshot of your credit report, updated every 14 days, on Credit.com.) Whether you have a joint account or not, you are now both responsible for your mortgage and other expenses that come with your home. (Note: Landlords, too, often check credit, so it’s in your best interest to make sure yours is in good shape before filling out rental applications.)

2. Plan Your Budget Now

While you are still living at home, you might want to plan out your budget before moving into your new home. First, write down all of your current expenses, then include your “new home” expenses and how you will be paying for them. Your “new home” expenses may be furniture and appliances to start out, but you also want to include your mortgage or rent, utilities and any loans you plan on taking out. It might be difficult to guess how much all of your bills will be, but it’s beneficial to provide an estimate of how much you think it might cost. This way, you will be prepared and have enough money aside to pay for it.

3. Pay Down Your Debts

Moving to a new home comes with a lot of additional expenses. You might want to pay down a little (or all) of your debt now before taking on more. It might be impossible to eliminate a debt as large as student loans, but you should try to at least get your number down. So, if you already have steady monthly payments, consider putting a little extra toward it each month. Any little bit helps.

4. Save Money

Take out a pen and paper and write down all of your financial goals for your new home. Let’s say you’ve always wanted a large dining room table or a leather love seat. Try and find the cheapest option and start saving! You can choose to save one at a time or tackle each goal separately.

Whatever your strategy is, saving before you move will help you stay organized and avoid going into debt.

You might want to consider putting 10% of your net pay (take-home pay) toward your savings for your new home to help you get ready. You can even have a little fun with this and give your savings a name such as “A New Beginning.”

5. Practice Makes Perfect

You might want to practice paying your bills before you move out so you can get used to not having the money. This might be a little difficult at first, but it will only help you become more financially prepared for your move. If you find yourself struggling to meet your payments, then you may have to cut back on some expenses from your budget. If you are comfortable taking the money out of your account, consider putting it into your savings so you are ready to pay for it when you officially move in.

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