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How much house can I afford to buy?

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If you’re thinking of making the move from renter to homeowner, simply diving into home shopping is the wrong first step. What you need to do is first answer the question:

“How much house can I afford?”

The best way to determine your spending ability is to do a step-by-step calculation. While there are alternate rules of thumb for figuring out your housing budget — such as a ceiling of 2.5 times your annual salary or limiting your housing payments to a third of your gross monthly income — you should not take shortcuts on a financial decision as important as this.

Calculating ‘how much mortgage can I afford?’

Here are the major factors you will need to consider to determine how much house you can afford to buy:

Income. 

First, add up the income that will be used to qualify for the mortgage, including bonuses and commissions. Make sure you have the documentation to prove every source of income; otherwise it cannot be counted when you meet with a mortgage lender.

Debt. 

Add all the payments you make each month for car loans, credit cards, student loans and any other debt. Based on your income, there are limits on how much debt you’ll be allowed to carry, including your mortgage. These debts will limit how much mortgage you can borrow.

DTI ratio.

When a mortgage lender calculates your level of debt based upon how much money you make, it is known as your “debt-to-income (DTI) ratio.” Debt-to-income ratios are the province of mortgage calculators. One important ratio, referred to by mortgage professionals as your “front-end” or “top-end” ratio, is calculated by taking your proposed housing expense divided by your gross (before-tax) income. Many mortgage calculators set 28 percent as the desirable value for this ratio. The other ratio involves all of your loan payments – your housing expenses and your monthly debts (but not utilities or other living expenses) — divided by your gross monthly income. A home affordability calculator frequently set this number at 36 percent. This is called your “back-end” or “bottom-end” ratio.

Monthly obligations.

While your mortgage lender cares about your auto and credit card payments, they really don’t care whether you have cable TV, the latest iPhone or even that you eat on a regular basis. Those monthly expenses are up to you to include, and cable, smartphones and a few trips to the grocery store can easily add up to several hundred dollars each month.

Down payment. 

The minimum down payment for an FHA loan is 3.5 percent; for conventional loans, the minimum is 3 percent for certain buyers and 5 percent for most buyers.

Taxes.

Today, it’s easy to get an idea on a home’s property taxes by looking at the listing online. You can also get in contact with the county tax office or ask a local Realtor to investigate for you. Most homeowners will have their property taxes paid from an escrow account attached to their monthly mortgage payments. One percent in taxes is equal to $1,000 per year for a $100,000 home.

Insurance.

Lenders require homeowners insurance to cover your property. Contact an insurance company or ask a Realtor to estimate your homeowners insurance costs which will vary according to the type of property, cost and features of the home, and its location. To get a rough idea, you can ask a family member or friend what they pay for insurance (if their home is similar to the home you are interested in buying).

Homeowners association dues.

If the property you purchase includes monthly dues, don’t forget to include those fees in your monthly payments.

Mortgage insurance.

If you make a down payment of less than 20 percent on a conventional loan, you will need to pay mortgage insurance. You can utilize HSH.com’s mortgage insurance calculator to see how much this could cost each month. For FHA loans, there is an upfront and annual mortgage insurance premium.

Interest rate.

You can check today’s mortgage rates at HSH.com, but remember that your rate will depend on your credit score, the type of property you are buying, and the choices you make regarding fees and points. A lender will be able to give you a customized mortgage quote given your situation.

Loan term.

While many buyers opt for a 30-year home loan, if you can afford higher monthly payments, you may want to consider a shorter loan term. Shorter loans have lower interest rates and cost you less over the life of the loan.

As a homeowner, you need to have enough money set aside in an emergency fund — at least three months worth of expenses – in case you lose your job or have a medical emergency, and enough reserves set aside to pay for maintenance and unexpected repairs.

Considering all your financial goals and your monthly comfort level with your mortgage payment is the key to accurately calculating how much house you can afford. It’s smart never to borrow the maximum amount you can qualify for so that you leave yourself some financial breathing room.

Keith Gumbinger

Here are 3 ways parents can help their grown kids to own a house

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When responsible first-time homebuyers need help buying a home, the family bank sometimes can lend a hand.

Younger homebuyers face a mountain of obstacles, including rising home prices and interest rates, too few homes for sale and unpaid college debt. Student debt is a major source of trouble. When the National Association of Realtors surveyed recent homebuyers who had problems saving up a down payment, 53 percent of those in the youngest group (37 and younger) blamed student loan debt for their difficulty.

Families appear to be pitching in to help, according to the results of that survey in the 2018 NAR Home Buyer and Seller Generational Trends Report. Among homebuyers who made a down payment, 23 percent of those 37 and younger used a gift and 6 percent a loan from family or friends — the highest proportion for either type of assistance among all age groups.

Family assistance like this works best when the kids qualify for a mortgage on their own and parents make the purchase more affordable with, for example, a bigger down payment or a lower interest rate, says Jeremy Heckman, a certified financial planner with Accredited Investors Wealth Management in Edina, Minnesota.

FIRST, THE GROUND RULES

To create a businesslike distance for these transactions, Heckman suggests that parents:

• Consider disclosing the assistance to all immediate family

• Consider treating all siblings equally

• Use contracts

• Document gifts

Formal agreements offer important benefits, says San Francisco real estate attorney Andy Sirkin. They define obligations and minimize misunderstandings. And if parent lenders die or become incapacitated, all their heirs can view the transaction and its history.

WAYS TO HELP

Here are three ways parents can help make it more affordable for new homebuyers to purchase a home:

1. GIVE MONEY

A gift of money is often best, Heckman says. Parents can write a check for any amount they choose. That’s it — no contract or ongoing commitments. Or they can pay all or part of an expense such as mortgage closing costs. Providing down-payment assistance can help new borrowers avoid paying for private mortgage insurance, which helps keep their monthly payment low.

HOW IT WORKS

Strict rules dictate how cash gifts are used in a home purchase, and they vary by mortgage type, lender and lender offer, says Mark Case, a senior vice president at SunTrust Mortgage.

Lenders like to see money gifts — easily traceable checks, bank transfers or wire transfers — in a borrower’s bank account three or four months before applying for a mortgage, Case says. Givers and recipients may need to sign letters confirming that the money isn’t a loan.

When it comes to taxes, anyone can give any other person a gift up to $15,000 in value (money or, say, stocks) in 2018 without filing the gift-tax return IRS Form 709 . So a parent with two children can give each of them — and even the children’s partners — up to $15,000 this year without having to complete Form 709. A tax professional can confirm how the rules apply to individuals’ specific circumstances.

2. FINANCE THE MORTGAGE

Parents with cash to invest can become the mortgage lender, offering extra-easy terms, like no closing costs or no down payment. Heckman says they can charge a higher rate of interest on their money than it earns in a savings or money market account and still offer kids a lower-than-market mortgage rate.

“I said, ‘This could be a win-win for both of us,’” says Jay Weil, an attorney in Wayne, New Jersey. He and his wife, Judy, have financed two mortgages for their son Matt and Matt’s wife, Allison.

HOW IT WORKS

Jay and Judy fully funded the younger couple’s first home, a Columbia, Maryland, townhouse. They decided to use a service that facilitates family loans. They worked with National Family Mortgage, which charges one-time setup fees of $725 to $2,100, depending on the loan size; provides all necessary forms and documents to meet state, local and IRS requirements; guides families through the settlement and filing process; and connects borrowers with loan servicers.

Then in 2017, the Weils lent the kids money again, for a $579,900 house in Laurel, Maryland. Matt and Allison got two loans. One was a primary mortgage from SunTrust Mortgage for $259,900, at 3.875 percent. His parents provided a second mortgage for $260,000 at 1.98 percent. They used money earned from the sale of their first home to make a down payment.

Family lenders must charge at least the Applicable Federal Rate , the minimum interest rate required to keep the assistance from being considered a gift.

3. CO-BORROW

Although riskier for parents, co-borrowing is another option. Mortgages with co-borrowers were nearly a quarter of all new-purchase mortgages in the third quarter of 2017, according to ATTOM Data Solutions, a real estate data company.

Co-borrowing helps borrowers overcome a limited credit history or a too-high debt-to-income ratio, says Case, of SunTrust Mortgage.

HOW IT WORKS

Parents apply for the mortgage, too. They must meet the lender’s credit requirements and sign loan papers with their kids at closing.

Aside from the mortgage itself, a separate family contract can define expectations and details such as who gets how much equity when the home sells and what happens in case problems arise, says Sirkin, the real estate attorney.

For parents interested in being co-borrowers, there are some things to keep in mind:

• Not all loans allow co-borrowers, so it’s good to confirm the option when shopping for mortgages

• Some lenders may call this step co-signing, which may have different parameters, but the outcome is the same: Parents and children are equally responsible for the loan and any missed mortgage payments

• Parents’ credit could be affected, making it hard to finance another big purchase later, even if children make payments on time

With all the headwinds facing first-time homebuyers, family help sometimes makes all the difference.

By MARILYN LEWIS
NerdWallet


Buy your First Home in One Year: A Step-by-Step Guide

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An ultimate timeline ensures the smoothest transitions.

 

A real yard. Closets bigger than your average microwave. The freedom to decorate however you darn well please! Making the switch from renting to owning is exhilarating, but many rookie homebuyers find the process trickier to navigate than they expected.

This is why we created our First-Time HomeBuyer Checklist. The 12-month timeline will help you sidestep common mistakes, like paying too much interest or getting stuck with the wrong house. (Yep, it happens!)

12 Months Out

Check your credit score.Get a copy of your credit report at annualcreditreport.com. The three credit bureaus (Equifax, Experian, and TransUnion) are each required to give you a free credit report once a year. A Federal Trade Commission study found one in four Americans identified errors on their credit report, and 5% had errors that could lead to higher rates on loans. Avoid last-minute bombshells by checking your score long before you’re ready to make an offer. And work diligently to correct any mistakes.

Determine how much you can afford. Figure out Lenders are happy to lend you as much as your debt load allows. But will that amount make you house poor? Ask yourself, how much house do I really want to afford?Read More In5 Surprising (and Useful!) Ways to Save for a Down Paymenthow much house you can afford and want to afford. Lenders look for a total debt load of no more than 43% of your gross monthly income (called the debt-to-income ratio). This figure includes your future mortgage and any other debts, such as a car loan, student loan, or revolving credit cards.

There are plenty of calculators on the web to help you determine what you can afford. If you’re pushing the limits, start reducing your debt-to-income ratio now. To get a reality check on what you may actually be spending every month, use this worksheet.

Make a down payment plan. Most conventional mortgages require a 20% down payment. If you can swing it, do it. Your loan costs will be much less, and you’ll get a better interest rate. If, however, you’re not quite able to save the full amount, there are many programs that can help. FHA offers loans with only a 3.5% down payment. But they require mortgage insurance premiums, which will drive up your monthly payments. The U.S. Department of Housing and Urban Development (HUD) provides a list of nonprofit homebuying programs by state. Also check with credit unions; and your employer might even have an assistance program.

As you’re planning your savings strategy, keep in mind that banks like you to “season” your money. That is, they like to see that you’ve had stable funds in your account for 60 to 90 days before applying for a loan. Don’t worry: You can still use a financial gift from a family member or bonus received near the time you buy.

9 Months Out

Prioritize what you most want in your new home. What’s most important in your new home? Proximity to work? A big backyard? An open floor plan? Being on a quiet street? You’ll make a much better decision on what home to buy if you focus on your priorities. If it’s a joint decision, now is the time to work out any differences to avoid frustration and wasted time. Perhaps most important: Know what trade-offs you’re willing to make.

Research neighborhoods and start visiting open houses. But now’s when the fun begins, too. Use property listing sites, such as realtor.com, to find out about neighborhoods, public transport, and cost of living.

Start visiting open houses to get an idea of what kind of homes are in your price range and what neighborhoods appeal the most. Seeing potential homes will also keep you motivated to continue reducing your debts and saving for your down payment.

Budget for miscellaneous homebuying expenses. Buying a home has some miscellaneous upfront costs. A home inspection, title search, propery survey, and home insurance are examples. Costs vary by locale, but expect to pay at least a few hundred dollars. If you don’t have the cash, start saving now.

Start a home maintenance account. Speaking of saving, start the good habit now of putting a little aside each month to fund maintenance, repairs, and home emergencies. It’s bad enough to have to call a plumber. It’s worse if you’re paying credit card interest on that plumbing bill.

6 Months Out

Collect your loan paperwork. Banks are very particular when it comes to mortgage loans. They demand a lot of paperwork. What they’ll want from you includes:

  • W-2 forms — or business tax return forms if you’re self-employed — for the last two to three years
  • Personal tax returns for the past two to three years
  • Your most recent pay stubs
  • Credit card and all loan statements
  • Your bank statements
  • Addresses for the past five to seven years
  • Brokerage account statements for the most recent two to four months
  • Most recent retirement account statements, such as 401(k)

If you start collecting these documents now, it’ll lessen the stress when it’s time to get your loan. Bonus: Looking closely at your loan documents each month will also help you stay focused on saving for your down payment and keeping your debt-to-income ratio low.

Research lenders and REALTORS®. Start interviewing REALTORS®, specifically buyers’ agents. A buyer’s agent will work in your best interest to find you the right property, negotiate with the seller’s agent, and shepherd you through the closing process. Your agent also can be instrumental in finding a lender who’s familiar with first-time home buyer programs.

Even better, look for a mortgage broker, who will shop for a competitive loan rate for you among multiple lenders, unlike a bank, which can only offer its own products.

3 Months Out

People touring an open house

Get pre-approved for your loan. At this point, if you’ve been following this timeline, your credit score, paperwork, and down payment should be on track. You’ve done your research on lenders and buyers’ agents. Now it’s time to start working with them. First you’ll need to get pre-approved for a mortgage.

Make an appointment with your lender or mortgage broker and bring all your paperwork. He’ll run a credit check on you and tell you how much of a loan you’re approved for. It often makes sense to borrow less than the maximum the lender allows so you can live comfortably. Draft a budget that accounts for mortgage payments, insurance, maintenance, and everything else you have going on in your life.

Start shopping for your new home. One you’re pre-approved, the buyer’s agent you’ve chosen will be able to target homes that meet your priorities in your price range. This way you won’t be wasting time looking at homes you can’t afford.

2 Months Out

Make an offer on a home.It usually takes at least four to six weeks to close on a home. So if you have a firm move-out date, allow enough time to deal with any hiccups that can delay closing.

Get a home inspection. One of the first things you’ll want to do after an offer is accepted is have a home inspector look at the property. If the home inspector finds something that needs repair, that’s a common example of something that can delay closing.

In the Last Month

Triple-check that all your financial documents are in order and review all lending documents before closing. You’re in the home stretch! If you’ve been keeping your documents up to date, and your down payment is in reserve, these final steps are the easiest. Reviewing the mortgage documents is probably the most difficult. Your agent can help guide you through them.

Get insurance for your new home. Don’t forget to secure insurance before closing. You’ll need to bring proof of insurance to closing.

Do a final walk-through. Do a final walk-through of your new home, usually a day or two before closing, to make sure the home is in the shape you and the seller have agreed upon.

Get a cashier’s check or bank wire for cash needed at closing. Make sure you get an exact amount of cash needed for closing. You’ll get that number a few days before closing so you can secure a cashier’s check or arrange to have the money wired. Regular checks aren’t accepted.

That’s it. Congratulations!

JENNIFER NELSON

How to Save Enough for a Down Payment

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There comes a point for many first-time homebuyers when nearly everything you do becomes focused on saving for that purchase. Even when you’ve been putting money away regularly for years, you find yourself willing to cut out that beach vacation you had been planning, eating in more and even considering a part-time job to help close the gap between you and homeownership.
But even when you’re levelheaded about what you can afford and will qualify for in terms of monthly mortgage payments, the down payment remains a hurdle most first-time buyers struggle with.
As housing inventories remain low in major markets across the U.S. and home prices continue to rise, the difficulty of saving enough money for a down payment only grows.
A Zillow report released in November found homebuyers have to continuously save more for a down payment to keep up with the rising price of property throughout the U.S. The median home price is expected to be $6,275 more in a year, the report says, which means buyers will need to save an additional $105 per month simply to make up for the difference in a 20 percent down payment between now and then.
You’re Not Doomed
There is, of course, some respite for first-time homebuyers when it comes to borrowing options, with the growth of low down payment mortgage programs. Mortgage options requiring less than 20 percent down – with loans through the Department of Veterans Affairs, the Federal Housing Administration, the Department of Agriculture or the purchase of private mortgage insurance – allow homebuyers to get financing with as little as 3 percent (or even zero percent) down.
These options are becoming an “underlying trend within the first-time homebuyer,” says Tian Liu, chief economist for Genworth Mortgage Insurance. Genworth recently released its third-quarter 2017 report, which notes 601,000 first-time buyers purchased single-family homes between July and September. Of those purchases, 467,000 of them were financed with low down payment mortgages, which is up 5 percent from the same time period a year ago.
The growth in low down payment programs is a turnaround from the recession, when lenders wouldn’t move on many deals without perfect credit and 20 percent down. But Liu says the need for a more attainable option has always been necessary to help first-time homebuyers get in the door, not just in the current climate of rising home values.
“It’s really a life cycle story, that you have very little saving to begin with, and as you get into the labor force you start to earn some money, and you earn more than you spend, and therefore you have savings as you go on,” Liu says. “For your first home, you will have very little in assets – typically our borrowers have very small amount of assets, liquid assets in particular – to afford a 20 percent down payment.”
With a 3 percent down payment for a $300,000 house or condo, you’ll need just $9,000 in cash instead of $60,000 required for the standard 20 percent down payment, which gets you much closer to obtaining your goal. The mortgage insurance required with most types of low down payment programs increase your monthly payment, but they still make saving up easier. However, a smart homebuyer will need to save even more to make up for potential increases in value as you move toward homeownership, as well as account for any type of emergencies you may have. The last thing you want is to move into a house with no money in the bank only to sustain roof damage in a storm three weeks later.
Consider What You’re Willing to Go Without
What are your saving options? For the most part, they’re the same standard options people opt for when they need extra cash for any other reason: taking a bag lunch to the office instead of eating out every day, cutting out cable or online subscriptions and canceling a gym membership.
Forty-one percent of respondents to the Open Listings survey noted they would get a second job to save up for their home purchase. Thirty-four percent reported being willing to give up a vacation, 19 percent would bring in a roommate to reduce current living costs and 15 percent opted to go even further and move back in with their parents.
As you save for the home you want, also keep in mind that not everyone qualifies for the same mortgage program. It would be upsetting to save up for a 3 percent down payment on a townhouse in a specific neighborhood, only to find out you don’t qualify for a 3 percent down payment program when you’re ready to start seriously shopping. Speaking with a financial advisor or housing counselor can help you determine the best possible route for you while you’re still saving. The U.S. Department of Housing and Urban Development has a list of approved housing counseling agencies that offer free services to residents.
For that reason, it’s also important to keep an open mind about the type of house you’d like to buy. Consider adjacent neighborhoods, fixer-uppers or fewer bedrooms to make it more affordable. Offsetting the cost of owning a home after you purchase is where Schoenholtz says “the creativity steps in.” Rather than buying a single-family home, he sees younger buyers looking for a property with an apartment that can be rented out, or a garage studio where a hairdressing business can operate.
“It’s not their forever home, it’s their five- to seven-year home, so we see millennials not just hacking the savings, but also where they’re targeting to actually purchase,” Schoenholtz says.By Devon Thorsby

3 steps to figure out how much mortgage you can afford

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Follow this three-step process to help you determine how much you should spend on a home.

1. Prepare a budget

In order to determine the mortgage payment you can afford, you need to first prepare a budget. It is critical to include the proper short-term savings and long-term investing in your budget before you establish the amount to allocate toward a mortgage payment. While owning a home can help build your net worth, it is an extremely illiquid asset that is not easily converted to cash. You should make certain that you have enough in short-term savings to pay your mortgage for at least six months in the event of an unforeseen financial setback. Also, make certain not to reduce your long-term savings goals for things such as retirement or your children’s future college education expenses.

2. Account for increased expenses

The good news is many of your budgeted items will not change with the purchase of a new home. For example, dining, food, clothing, and travel expenses will likely remain as they were before the move. However, some items like homeowners insurance, lawn care, pool maintenance, HOA dues, and utilities may increase when you purchase a residence. Property taxes will also likely increase, so just plugging in the amount the current owner pays may result in errors. If your purchase price is higher than the value listed on the tax rolls (as is commonly the case), you should recalculate the property tax based on the purchase price you will pay. It may take up to a year for the taxing authority to update the tax rolls, but eventually the purchase price will be used to determine your property tax due.

Economists say to expect more people to be looking to buy homes in 2017 despite higher mortgage rates. Sean Dowling (@seandowlingtv) has more. Buzz60

3. Determine your optimal mortgage payment

Once you have prepared a new budget, it will become apparent how much of a mortgage payment you can afford. If the amount you can afford is less than the amount you want to borrow, it may be necessary to adjust other budget items. Focus on reducing discretionary (non-essential) expenses. For example, you might consider reducing the amount you spend on vacations, entertainment, dining out, hobbies, and even your monthly television subscription so you can allocate more toward your new home. It is also a good idea to shop around for your auto insurance policy at the same time you are getting new homeowner insurance. Bundling these two policies with the same insurance company can often reduce your monthly premium by as much as 20%. All of these little changes to your budget can add up to a tidy sum that can help you purchase the home of your dreams.

Buying a home is no small feat, and there are many financial ins and outs to navigate as you prepare for this step in your life. As parting tips, don’t forget that you’ll need cash for your down payment (which will also influence the amount of your loan), and it’s helpful for you to check your credit report before speaking to a lender so you understand whether your lender will view you as a high-risk or low-risk borrower. Planning is key, and the more thought and energy you put into the process ahead of time, the more smoothly the home-buying process will go.

Clark Randall, Credit.com

When Does It Make Sense To Work With A Financial Advisor?

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Consider the following scenarios: You’ve worked hard all your life, been careful with your finances and are now looking forward to retirement. You have a general sense of how your assets are performing, but could use some additional guidance. Or, perhaps you haven’t been much of a saver and you are now playing catch-up and have fears of running out of money in retirement. Both scenarios are ideal for consulting with a financial advisor. Yet – many people don’t. Perhaps there is an underlying fear that they don’t have enough money to even qualify for speaking with a financial advisor, or that they are in such bad financial shape that it makes no sense for them to reach out to an industry expert. The important thing to remember is that if someone is willing to take the step to meet with an advisor, it can be advantageous for them to do so, as they might pick up a few tips and strategies they would not have otherwise been exposed to.

So…when does it make sense to work with a financial advisor? In a 2014 survey, people ages 50-59 were only saving $78/month towards retirement, and another 50% that were questioned think they needed less than $500,000 in retirement savings to be financially secure. These are scary statistics and saving this little each month does little for retirement security; you would be looking at working until 70 or 75 to ensure you had a solid nest egg built up. $500,000 will only generate about $25,000 worth of income in retirement; most people need more than that to live in the Northeast.

With that in mind, you should consider working with a financial planner if:

  • You have concerns you may run out of money in retirement. This is the number one concern of Americans when they discuss retirement: Do I have enough? What is my ROI? How much do I need to be saving to live the retirement I envision?
  • You would benefit from a structured retirement income strategy. For some people, it is better for them to have a concrete plan when it comes to their finances and future goals. This type of plan helps decide what part of your money you are going to spend first in retirement, what accounts can be left alone until later, and what (if anything) you plan to pass on to family members.
  • You want help investing properly FOR and IN retirement. Once someone comes up with a good retirement income plan, then it’s a matter of matching their investment strategy to that plan. A lot of people get tis backwards and start focusing on their investments first, without having a plan in place.
  • You want to have confidence in your financial future. People that seek out financial advisors go because they want to feel more prepared and remove some of the fear from their future.

Financial planners aren’t just for people that have money or people that already have a strong sense of their finances and retirement plan. Financial planners can also be an excellent resource for people that don’t have good sense of their finances and are lacking a plan. They offer unbiased, expert advice and can open your eyes up to tips and strategies you might not have been aware of. As all financial advisors have their own style, do your research to determine which one is the best match for you and your needs. You go to the doctor to ensure you are in optimal health; why not go to a financial advisor to ensure your finances are healthy, too?

Forbes Contributor

Average mortgage rate drops to 5-month low

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The average U.S. mortgage rate fell below a key threshold of 4 percent this week, its lowest level in five months.

Mortgage buyer Freddie Mac said Thursday that the average interest rate on 30-year fixed-rate home loans declined to 3.97 percent this week from 4.08 percent last week. Interest rates on mortgages began to rise after President Donald Trump won the November election. But they’ve started falling as the fate of tax reform and other policies has become uncertain.

The 30-year rate stood at 3.59 percent a year ago and averaged 3.65 percent in 2016, the lowest level in records dating to 1971. Lower rates make it easier for home buyers to afford their monthly mortgage payments.

The rate on 15-year mortgages declined to 3.23 percent from 3.34 percent last week.

The recent drop also illustrates the range of factors that affect mortgage rates. The average 30-year rate has declined steadily in recent weeks — it was 4.23 percent a month ago — even as the Federal Reserve has lifted the short-term rate it controls three times in the past 15 months.

And Fed policymakers have signaled more hikes are likely to come this year as long as the economy keeps growing.

Mortgage rates, however, more closely track the yield on the 10-year Treasury note, rather than the Fed’s decisions. That yield rose after the election in anticipation of faster growth and greater inflation under President Trump.

Yet as investors have downgraded their expectations for tax cuts and infrastructure spending, the yield on the 10-year has fallen. That has led mortgage rates lower as well.

  • By THE ASSOCIATED PRESS

WASHINGTON — Apr 20, 2017,

50 ways to give your finances a fresh start in 2017

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We get it: Money resolutions can feel like a lost cause, especially if you’re already drowning in debt or saddled with uber-bad credit. But if the fear of falling short is stopping you from even attempting to reach any financial goals, well, it may be time to think smaller. There are lots of little steps you can take over the course of 2017 that, in tandem, can lead to ultimate financial balance.

Here are 50 ways to give your finances a fresh start this year.

1. Do your taxes ASAP

You’ll want to avoid taxpayer identity theft, which can delay a much-needed refund. Plus, an early refund can bolster your financial situation.

2. Auto-save

Jumpstart your emergency fund by setting up an automatic deposit or transfer into a savings account each month.

3. Give cash a try

If you’re prone to overspending on credit or debit, spend a week or two keeping only cash in your wallet. You can’t overspend cash — once it’s gone, it’s gone.

4. Ask for a raise

If you have a performance review coming up, or the opportunity to ask for a raise, now’s the time to take stock of your professional value and put together a pitch for better compensation.

5. Check your credit scores

You can’t know what to improve if you don’t know where you stand. You can get two free credit scores, updated every 14 days, on Credit.com.

6. Spring-clean your credit report

Do a major audit by pulling your free annual credit reports via AnnualCreditReport.com and dispute any errors you find with the credit bureau(s) in question. (You can go here to learn how.)

7. Re-evaluate your savings strategy

See if you can maximize your savings by opening an account with a higher annual percentage yield (APY) than your current one or consider a savings vehicle, like a money market fund or a Certificate of Deposit (CD).

8. Move

While it can cost a lot at first, moving can be a long-term money-saving strategy. A good rule of thumb is to keep your housing expenses below 30% (or, ideally, less than 25%) of your income. Do the math and a little research to see if you can do better than your current rent payment. Make sure you factor any the expense of any increase in commute times to make sure it really would be a financially beneficial move.

9. Ask for a lower credit card APR

If you’re paying high interest on your credit card, see if you can’t talk it down. By negotiating down your annual percentage rate (APR), you could save serious money.

10. Get a balance transfer credit card

Look into moving high-interest credit card debt onto a new card touting a low-to-no introductory APR for the rest of the year (or longer). Note: Most issuers charge a balance-transfer fee.

11. Prioritize payments

Our favorite way to pay down multiple credit cards? Put as much money as you can toward the balance with the highest APR, while paying the minimum on your other plastic. That way, you’ll save on interest charges.

12. Consider a credit-builder loan …

If your credit is shot, which would increase your APRs, one way you can start to rebuild your payment history is with a credit-builder loan. You can look into credit-builder loans at your local bank or credit union.

13. … or a secured credit card

Secured credit cards, which require an upfront deposit that serves as your credit limit, are designed specifically for people who need to build or fix their credit. You can find our picks for the best secured credit cards here.

14. Figure out where the ‘right’ ATMs are

Every time you use an out-of-network ATM, you’re paying money to use your own money. Cutting back on those fees can really help you save in the long run.

15. Simply review your budget

How often do you look over your budget? If it’s been a while, start the year off fresh with a budget more customized to where you (and your finances) are today.

16. Scour your credit card statements

You could spot areas where you’re overspending. Plus, you’ll want to be on the lookout for fraud or billing errors.

17. Try a budgeting app

There are a lot of free ones out there that can track your spending, point out what expenses are really draining your bank account and alert you when you’re about to go overboard.

18. Eat at home

Dining out too often can put a serious strain on your wallet. Try cooking at home just a few times a week, and you’re sure to free up some money you can use to pay down debts or put into a savings account.

19. Plan your meals

Better yet, try planning out your meals several days or a week in advance, and set aside time to shop for and prepare them. This minimizes the chance you’ll dine out, which is generally more expensive than home-cooked food.

20. Cancel memberships

If you’re not using your streaming account, or don’t use it that often, go ahead and cancel it. You can always renew later if you decide you miss it, and you’ll free up money each month.

21. Review your transportation situation

Can you begin biking to work or ride with a friend to cut gas expenses? Perhaps walking to work a few times a week could help you save on bus fare.

22. Invest

If you haven’t already started putting money aside for retirement, this may be the year to start doing so. Added bonus: If your company matches any investments you make, it’s like getting free money for those golden years.

 

23.  Look into a rewards credit card 

If you charge a lot and pay those balances off in full, but only have a standard credit card, you may be losing out on rewards for your spending. Check your credit scores and see what types of cards you’d qualify for. You may even be able to get a rewards card that doesn’t have an annual fee.

24. Evaluate your rewards credit card

Already have a rewards credit card? Now may be the time to look at it and see what perks it’s offering you. Does your credit card reward you most for money you spend at the gas station? That’s great if you drive a lot, but if you’re taking public transportation or walking, there may be a better rewards credit card out there for you.

25. Negotiate with your creditors

If you’ve got outstanding debts, see if the creditor or collector will agree to a payment plan. (You can find tips for negotiating with creditors here.)

26. Clip coupons

Yes, it’s old-fashioned, but those weekly circulars from your local grocery store, and coupons from newspapers, mailers and sites like Coupon.com can really add up, especially if you hit double- or triple-coupon days.

27. Pay off a loan

If you’re nearing the end of your loan term, whether it’s for a car, student loan or something else, consider paying it off if you have the cash. You’ll cut out the interest you would’ve paid and, chances are, you’re paying more in interest for the loans than you’re making on the money if you leave it in your savings account until the bill comes due.

 

28. Review your insurance policies

It’s a good idea to review your insurance policies — whether it’s your home insurance, car insurance or any other type — to see if you’re still getting the coverage you need. Then, take that information and shop around to make sure you’re getting the best price available.

29. Ask more questions

Personal finance can be really confusing, so don’t be embarrassed if you don’t understand some of the concepts — even the seemingly basic ones. Commit to learning more about things like how credit works, your options for retirement planning or smart ways to use your credit card.

30. Set calendar reminders

Putting bill due dates in a digital calendar and setting up notifications will help you remember to pay things on time and save you the hassle of late-payment fees or damaged credit.

31. Set a savings goal

Think back on what you wanted to do last year but couldn’t afford. Was it a vacation? Buying holiday gifts? Build an emergency savings? Figure out how much you want to save, when you want to save it by and how much you have to set aside each month to reach that goal. Then do it.

32. Give up your vices or guilty pleasures

Do you put too many dollars toward dining out? Perhaps you spent too much on alcohol or cigarettes? Consider giving up these things (or at least cutting back on them) and using the excess cash to pay down debts, build up an emergency fund or save for a big ticket item.

33. Sell stuff you don’t need

Take a look around the house and see if there’s anything you’re not using. By selling your unwanted items, you can free up money to put toward your savings or paying down credit card debt.

34. Change your passwords

Protect financial accounts by changing up those access digits, especially if you’re using any of the worst passwords from 2015.

35. Comparison shop

Want to score a great deal? Search online and shop around to find the best deals on products. You don’t have to settle for the first deal you see.

36. Consult a professional

If your money situation is complex, a visit with a certified financial planner, credit counselor or certified public accountant may be worthwhile.

37. Turn your hobby into cash

Websites like Etsy have made it possible for thousands of people to sell their wares with little or no investment beyond the craft itself. So, if you make your own candles, scented soaps or other artisinal wares, consider setting up a shop.

38. Fill a piggy bank

At the end of every day, drop your loose change into a jar or other vessel — it doesn’t have to be a piggy bank per se — and do it every day. One of our editors tried this last year and had $285 in change by the end of it. That’s a nice dinner out, and then some.

39. Cut water costs

If you don’t already have low-flow shower heads and toilets, consider getting them. New toilets can be expensive, but you can cheat by filling a liter bottle with water and then dropping it in the tank so you don’t use as much water each time you flush.

40. Buy generic brands

Why pay full price for name brands when generics work just as well? Get in the habit of buying these, at least some of the time, and your wallet is sure to get fatter.

41. Make shopping lists

An easy way to save money is by making a shopping list before you hit the stores. Stick to it, especially if you’re shopping when you’re hungry, and you’ll avoid buying items you just don’t need.

42. Refinance

If your credit has improved, see if you can qualify for a lower-rate on a mortgage, auto loan or private student loan, for instance. Just be sure to account for any fees associated with refinancing before you go ahead and do so.

43. Make your home energy efficient

It may cost more upfront, but little upgrades like installing a programmable thermostat can help you cut down your energy costs. You can find more ideas for making your home energy-efficient on EnergyStar.gov.

44. Use the library

If you buy a lot of books or music, try borrowing it from the library instead. As long as you avoid late return fees, you’ll end up saving a considerable amount of money.

45. Consolidate your credit card debt 

Look into getting a personal loan, or debt consolidation loan, to consolidate debts you’re carrying on multiple credit cards. Depending on your credit, you may be able to secure a lower rate.

46. Live below your means

Spending less than you earn on a regular basis is one way to ensure you always have an emergency fund on hand. Borrowing less than you need — or at least not over-borrowing — will save you big on interest.

47. Reevaluate your tax withholding

Sure, a big tax refund is nice, but it indicates you were paying the government too much all year. Consider changing your withholding specification on your W-4 to get more money back on each paycheck.

48. Wait a day before buying

If you’re prone to impulse-shopping, institute a one-day waiting period before buying. That’ll give you time to evaluate if the purchase is a want or a need.

49. Pay your credit card more than once a month

Link your debit card account to your credit card account and then make a habit of paying down your balances once a week — or at least twice a month. That’ll help you avoid spending more than what’s in your bank account.

50. Skip the trip

Sure, an expensive vacation seems like a necessity, but, if finances are tight this year, opt for a staycation or an affordable road trip instead.

 

3 steps to make your retirement savings last a lifetime

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If I want my savings to support me the rest of my life after I retire, how much can I safely withdraw each year? –Danny


retirement

As much as I’d like to, I can’t give you a specific figure. There are just too many uncertainties that come into play when trying to predict how long one’s retirement savings will last.

For example, if your retirement investments fare poorly or you experience a bear market soon after you retire, your money could run out a lot sooner than if the financial markets perform well.

Similarly, having to shell out money for large unanticipated medical costs or other expenses during retirement could wreak havoc with what appeared to be a perfectly valid withdrawal plan.

And then there’s the big unknown of how many years you’ll actually need your nest egg to sustain you after retiring.

But while I can’t give you a quick and easy answer to this important retirement question, I can give you advice on how to approach this issue so that you can come up with a withdrawal strategy that has a good chance of generating the income you need without subjecting you to undue risk. To achieve that goal, I recommend that you take these three steps:

1. Get a sense of how long you might live in retirement. In order to pace your withdrawals so you don’t deplete your nest egg too soon, you’ve got to have an idea of how long you might live. The operative word here is “might.” You can’t predict with any real accuracy when you’ll shuffle off this mortal coil. But you can get a decent enough estimate of how long you might be around by going to the Longevity Illustrator, a tool designed by the American Academy of Actuaries and the Society of Actuaries to help people with their retirement planning.

The thing I like most about this tool is that, unlike other calculators that gauge lifespans, it doesn’t just spit out an estimate of your life expectancy. Although that’s the figure you hear most often in discussions of longevity, life expectancy can be misleading as it represents the average number of years people of a given age and sex are expected to live. But roughly half of people will live longer than that average, many much longer. The Longevity Illustrator allows you to see your chances of living not to just one age, but a variety of ages, based on your sex and state of your health, thus allowing you to make a more nuanced judgment of how long you could end up relying on your nest egg.

Related: Should I delay taking social security?

So, for example, if you go to this tool, you’ll see that a 65-year-old man who’s a nonsmoker and in average health has a 34% chance of living another 25 years to age 90 and a 16% shot at making it another 30 years to age 95. The chances of a 65-year-old woman making it to those ages are higher (45% and 25% respectively), and the chance that at least one member of a 65-year-old couple (man and woman) will still be alive and kicking at 90 or 95 are higher still (64% and 37%, respectively). Your chances are even higher if you’re in excellent health.

Of course, these are only estimates that pertain to large groups of people, not a guarantee of how long any individual is going to live. Nonetheless, this tool demonstrates that to be on the safe side most people should probably figure that they’ll need their savings to support them at least into their early 90s and in the case of couples into their mid-90s, perhaps longer if their family has a history of long lifespans. What you don’t want to do is underestimate how long you might live — as research shows many people do — and run the risk of depleting your assets too quickly and spending your final years of retirement with little or no savings to fall back on.

2. Start with a reasonable initial withdrawal rate: Once you understand how many years you may be counting on your retirement accounts to supplement Social Security and any other sources of income, you then want to gauge how likely your savings are to last for as long as you need them to given different withdrawal rates.

You can do this sort of analysis by going to T. Rowe Price’s retirement income calculator, which uses Monte Carlo simulations to make its projections. You plug in such information as your age, the number of years you want your retirement savings to last, the amount you have saved for retirement and how much you initially plan to withdraw, and the calculator then estimates the probability that your savings will last that long, assuming you increase your initial withdrawal by inflation to maintain your purchasing power throughout retirement.

So, for example, if you’re 65, have $500,000 in retirement accounts divided equally between stocks and bonds and you withdraw an initial 4%, or $20,000, from your nest egg, this tool estimates that there’s an 80% chance that your nest egg will be able to sustain that withdrawal amount adjusted annually for inflation for at least 30 years. Plug in a lower withdrawal and you’ll get a higher success rate (about 90% for a 3.5%, or $17,500, withdrawal), while going with a higher withdrawal yields a lower chance of success (about 65% for a 4.5%, or $22,500, withdrawal).

Related: Are you behind on retirement saving?

Keep in mind that you’re getting estimates of how likely your savings are to last based on forecasts of how the financial markets are expected to perform. These aren’t guarantees. Still, by trying out a variety of scenarios with different withdrawal rates, you can see how your chances go up or down. Based on that you should be able to arrive at a withdrawal rate that has an acceptable margin of comfort for you.

That said, you don’t want to arrive at a withdrawal rate that’s more to your liking by “cooking the books,” so to speak, and plugging in an unrealistically short lifespan or assuming that an aggressive investing strategy will generate returns large enough to support outsize withdrawals.

3. Be prepared to adjust your withdrawals. A withdrawal rate isn’t something you can set once and put on autopilot. So whatever withdrawal rate you start with, you need to be ready to adjust it over the years based on how much of your savings you’ve spent and how well or poorly your retirement investments have performed.

For example, if a market setback or a large withdrawal to meet an unexpected expense has substantially reduced the balances of your retirement accounts, you may want to scale back withdrawals for a couple of years or forgo inflation increases to give your accounts a chance to rebound and avoid depleting them too soon.

If, on the other hand, your nest egg’s value climbs steeply after a string of outsize investment returns, you may want to take the opportunity to spend more freely and enjoy a splurge or two. Otherwise, you could end up late in life with a big pot of retirement savings, and the realization that perhaps you lived more frugally than was necessary.

Related: Will my retirement savings support me for 30 years?

By going back to the retirement income calculator I mentioned above and re-doing the analysis with updated information every year or so, you should be able to figure out whether you need to adjust your withdrawals to stay on track.retirement2

Bottom line: It’s impossible to identify an ideal withdrawal rate in advance. But if you follow the three steps I’ve outlined, you should have a decent shot at getting the retirement income you need without too high a risk of running through your assets too soon or ending up with more savings than you want in your dotage.

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