Saving Money Archives » Larry & Kathy Reichle

How to get one of those record-low 15-year mortgage rates for your refinance

August 26, 2021 by Kathy Reichle Leave a Comment

In the days before the pandemic, 15-year mortgages — with their usually stiff monthly payments — were far too expensive for many people refinancing their homes. Borrowers often just grabbed another 30-year home loan, America’s go-to mortgage.

But with the COVID crisis keeping mortgage rates in the cellar, even the 15-year option has been looking cheap. That’s especially true right now, with 15-year rates at an all-time low in the latest survey from mortgage giant Freddie Mac.

More borrowers have been choosing the shorter-term loans: In May, 15-year mortgages accounted for 15.8% of all home loan originations, up from just 5.5% in May 2019, according to the latest data from the Urban Institute.

Here’s how to evaluate if a 15-year fixed-rate mortgage is right for you — and how to land one of today’s all-time-low 15-year rates.

Today’s 15-year mortgages offer big savings

Serious man and woman calculating bills, using calculator and laptop, online banking services, family discussing and planning budget, focused wife and husband checking finances together

Average rates on 30-year fixed-rate mortgages are deep below 3% at the moment, reflecting worries among investors that the COVID-19 delta variant could torpedo the economy’s comeback from the pandemic.

Thirty-year rates this week are averaging 2.77%, not far from early January’s typical rate of 2.65%, which was the lowest in the 50-year history of Freddie Mac’s weekly survey.

But rates on 15-year fixed-rate loans are even cheaper and, in fact, are currently at a record low: averaging a mere 2.10%.

Let’s be clear: Because of their shorter repayment period, 15-year mortgages will give you a much higher monthly payment than a 30-year loan. But with 15-year rates at all-time lows, payments also will be as low as can be.

Here’s an example of how you can save with a 15-year mortgage right now: In early August 2019, when the average for a 15-year fixed-rate mortgage was 3.20%, a $250,000 loan would have cost you $1,751 per month, or $21,012 a year.

But at the current average rate of 2.10%, that same loan will cost you $1,620 per month, or $19,440 a year

— for annual savings of close to $1,600.

15-year mortgage vs. 30-year loan

Even better, the shorter-term mortgage will cost you tens of thousands of dollars less in total interest versus a 30-year loan.

If you were to refinance a $200,000 balance at the current average rates, your monthly payment would be $1,296 with a 15-year loan, but only $819 with a 30-year mortgage — a $477 difference.

That might be a deal breaker for some, but when you consider the lifetime interest you’d save with the shorter loan term, the high monthly payment isn’t quite so bad.

The total interest you’d pay by refinancing into a 15-year mortgage at 2.10% would be more than $33,000, while you’d have to fork over about $95,000 in interest for the 30-year loan at 2.77%. That’s an extra $62,000.

Don’t forget that in addition to saving more than $62,000, you’d pay off your debt in half the time.

Why shorter mortgage terms have better rates

House and coins place on the wood table is ladder with white illustration, representing lower mortgage rates.

The average interest rate on a 15-year fixed-rate mortgage is usually lower than the average on a 30-year loan because shorter-term loans are generally seen as less risky by lenders.

However, since a 15-year mortgage requires a steeper monthly payment, the criteria needed to qualify for one is often stricter than for a 30-year loan.

You might ultimately decide the bar is too high and that you’ll have to look for other ways to cut your housing costs — maybe by shopping around to find a lower rate on your homeowners insurance.

To land a 15-year mortgage, it may be necessary to raise your income above what you currently earn, reduce your debt-to-income ratio, or pump up your credit score by 200 points or more.

How to find the best 15-year mortgage rate

credit score concept on the screen of smartphone, checking payment history and ranking in bank

To land a 15-year mortgage, it may be necessary to raise your income above what you currently earn, reduce your debt-to-income ratio, or pump up your credit score by 200 points or more.

To ensure you’ll get the best rate possible on a 15-year refi, you’ll want to check your credit score before you start looking for offers.

You’ll need a score in the “very good” (740 to 799) or “excellent” (800+) range if you want lenders to feel confident about working with you.

If you haven’t been keeping tabs on your score lately, that’s OK — you can easily check your score for free online, and get tips on how to boost it if it’s low.

Once your credit score is in good shape, you’ll want to shop around and compare quotes from at least five lenders to find the best 15-year loan offer.

Research from Freddie Mac has found that comparing five rates can save a borrower thousands of dollars over the life of a loan — so don’t jump at the first offer you get.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

August 9, 2021 by Shawn Utley

What to Expect When Getting Pre-Approved

September 20, 2018 by Kathy Reichle Leave a Comment

Getting “pre-qualified” today when preparing to buy a home is so 80’s. Getting pre-qualified then meant talking to a loan officer over the phone or in an office and having a conversation about various aspects of your financial life. The loan officer asks about your job, how long you’ve worked there and how much money you make. The loan officer asks about your general credit history, whether it’s excellent, good or maybe needs a little work.

What about other debt? What sort of monthly payments are you obligated to pay each month? The loan officer would then take that information, plug in current market rates (back in 1981 the average 30 year rate hovered around 17%. No, really) and give you an amount you can qualify for. Maybe even the loan officer typed up a prequalification letter you could carry around.

Not anymore. If all you have is a prequalification letter it’s possible your real estate agent will ask that you go back to your loan officer and get pre-approved. The terms do sound somewhat alike but sellers, lenders and real estate agents alike know the difference.

A preapproval ups the qualification game by verifying the conversation you had with your loan officer. Instead of a conversation over the phone, you’ll be asked to submit a completed loan application. The key word here is “complete.” Well, almost. You don’t have a property picked out yet so you’ll leave that part blank. What you can expect to provide is proof of your income instead of a conversation. This means the most recent copies of your pay check stubs. To make sure you’ve been working for at least two years, your W2 statements for the last two years will also be reviewed.

If you’re self-employed, you may not have pay check stubs. Regardless, you’ll need to provide your last two years of income tax returns, both personal and business.

In addition, a year-to-date profit and loss statement should also be prepared. This P&L doesn’t necessarily have to be completed by an accountant or otherwise certified, you can put one together on your own if you want.

Regarding your credit history, you’ll also be asked to sign a Borrower’s Authorization form which allows the lender to pull your credit report and credit scores. You’ll need funds for a down payment and closing costs so copies of recent bank statements must be at the ready.

In short, you need to get your preapproval application to the point where all you need is a property to buy along with a signed sales contract. Now, not only can you shop in confidence, but the sellers and the seller’s real estate agent can put you at the top of the list when considering your offer.

Today, absolutely everyone should be shopping for a home with a solid preapproval letter in hand. There’s no question about it.

Written by: David Reed

How much house can I afford to buy?

June 26, 2018 by Kathy Reichle Leave a Comment

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

8 Things to Do Before Applying for a Mortgage

May 4, 2018 by Kathy Reichle Leave a Comment

Know what to expect

Buying a house is one of the largest financial commitments many people make in their lifetimes. Between the down payment, principal, interest, taxes, and insurance payments, utilities, maintenance, repairs, and updates, the financial outflows can be overwhelming.

A key aspect for most homebuyers is a mortgage — a loan secured by the house that enables the buyer to pay for the cost of the house over time, instead of all at once. It’s a big deal to apply for and get a mortgage, and taking care of these eight items before you do will help you along the way.

1. Determine how much house you need

If your income is decent and your credit score is good, you might find that banks are willing to lend you more money than it takes to buy a house that meets what you really need out of a home. While it’s tempting to buy up to a larger house in a nicer neighborhood, remember that many of the costs — not just the mortgage payment — scale right along with the price of the home you’re buying. Keeping your home buying decision attuned to what you really need will help you keep your total costs in check.

Key factors to consider include:

How many people will be living in the house?
Is the school district a ‘must have’ of a ‘nice to have’?
What does the commute look like to work/grocery stores/etc.?
Is the neighborhood safe?
How much work are you willing to do to update/upgrade/maintain the home?

2. Scrape together a down payment

Most lenders will give you better terms on your mortgage if you have a substantial amount of your own cash tied up in the home you’re buying. Generally speaking, you’ll need at least a 20% down payment to get the best rates and terms on your mortgage. That means that if your house costs $200,000, you’d need to cough up $40,000 of that amount yourself and be able to borrow the other $160,000.

You might be able to get a mortgage if you have a smaller down payment, but chances are that you’d pay a higher interest rate and/or be stuck paying private mortgage insurance on top of your mortgage. Those raise your cost of borrowing over time, which means you’ll end up paying more in the long run than if you had the down payment available.

3. Check your credit report — and clean up any errors

If you’re borrowing a large chunk of money, lenders want to know you’re a good risk before they offer you theirs. To see most of what the lenders see, you’ll want to check your credit report. You can get a free copy of your credit report from each of the major credit bureaus once per year by visiting AnnualCreditReport.com. From that report you can see which companies you owe money to, how much you owe, and whether or not you’re considered to be on time with your payments.

Around 20% of credit reports have errors in them, either because of things like identity theft or because of more mundane clerical errors in data entry. If you see errors in your reports, the bureaus have a process to allow you to challenge those errors to get them corrected. By correcting errors before you apply for your mortgage, you improve both your chances of getting that mortgage and getting good terms on it.

4. Pay off what you can, and get current on everything else

In addition to wanting to see that you have a good history of managing your debts, mortgage lenders want to make sure you’re not over-extending yourself by taking on that large of a debt. They will calculate ratios based on how much you currently pay towards debt service and how much in total you will pay towards debt service once you have your mortgage.

Generally speaking, you’ll need to be putting less than 36% of your income towards debt service before considering your mortgage. Once your mortgage is factored in, you’ll absolutely need to keep that ratio below 43% of your income to have a qualified mortgage.

If that sounds like a crazy high percentage of your income to be putting towards debt, you’re absolutely right. The less you owe, the easier it is for you to make your payments on time and in full, and the more flexibility you have when things go wrong. By getting your other debts under control first, the less risk you’ll pose to the lender, and the better the overall deal you’ll qualify for.

5. Document your income — and the source of your down payment

Your lender will want to see proof that you make enough money to cover your mortgage payment as well as proof that youcame up with the money for your down payment. Proof of income comes in the form of your W-2 or 1099 from work or investment income that you use to file your taxes. A recent paystub would also help showcase that you’re still earning the income you’re claiming as part of your ability to pay your mortgage.

Proof of down payment money comes from checking account, savings account, and brokerage account statements, along with explanations for any large deposits into those accounts in recent months. The lender is looking for evidence that the money you’re using to make your down payment is yours, and they prefer “seasoned” money over recent windfalls.

Seasoned money is money that you’ve saved up over time, and it’s preferable because it gives the lender confidence that you’re good with money. If the lender suspects your down payment money is a gift or loan from family members — because it’s a recent deposit of a lot of money — the lender will ask for documentation on where that money came from. If the lender isn’t satisfied with the explanation, it could jeopardize your ability to get favorable rates or the mortgage at all.

6. Figure out what mortgage terms you want

The key choices you’ll make are the length of the mortgage and the rate type of the mortgage. The most common length for a mortgage is 30 years, followed by 15 years, but several other lengths are also possible. As a general rule, the shorter the length of the mortgage, the lower the interest rate you’ll pay on it, but the higher your monthly payments will be because you’re paying the balance down that much faster.

You can also choose between fixed rate and adjustable rate mortgages. With a fixed rate mortgage, your interest rate and the principal and interest part of your payment never move throughout the life of your mortgage. With an adjustable rate mortgage, your interest rate resets every year — sometimes after a preset number of introductory years at a steady rate. With an adjustable rate mortgage, you take on the risk of rising interest rates, but the benefit is typically a lower starting rate than a fixed rate loan has.

7. Avoid taking on any new debts around the time of your mortgage

If you’re buying a house, you’ll typically have a lot of expenses above and beyond the house payment. Things like renovating, buying new furniture, moving, fixing up your old place, and so on all require money. Avoid the temptation to borrow money for any of those items — or anything else — between the time you start shopping for a house and the time you close on your mortgage.

That can be trickier than it sounds. Even if the merchant offers you deferred payments like “no payments for 90 days” or interest free financing, it still counts as a loan and shows up on your credit report. If your lender sees you taking on excessive borrowing capacity before your mortgage is issued, it will react in a way that protects its interests. That likely means either cancelling your mortgage altogether or reducing the amount you can borrow based on your credit no longer being as strong as it had been previously.

8. Research lenders before applying for your loan

The act of applying for credit — whether or not you’re approved for that credit and regardless of whether you accept that credit — causes an inquiry on your credit report. That inquiry will typically lower your credit score by a few points. If your credit is borderline, the impact to your credit score can be enough to knock you into a higher risk tier or out of contention for a mortgage altogether.

As a result, you’ll want to check around to see which select group of lenders you want to do business with before filling out the mortgage application. Banks and credit unions frequently post their current mortgage rates online, and other mortgage lenders often advertise on real estate listing or similar sites. By researching lenders in advance and limiting your applications, you reduce your credit inquiries and the cost and hassle of applying for your mortgage.

A home is a big commitment — so plan for it

Your home may very well be the largest financial commitment you’ll make in your lifetime. By planning well for the financing associated with it, you can minimize the costs of ownership and put more of your hard earned cash towards what really counts, rather than towards fees, interest, and overhead costs. And that will go a long way towards allowing you to enjoy your home — and the mortgage burning party you might want to throw once you’ve paid it off.

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

April 21, 2018 by Kathy Reichle Leave a Comment

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

Suze Orman: First thing to do now if you want to buy a home soon

April 13, 2018 by Kathy Reichle Leave a Comment

If you’re planning to buy a home this year, you’ve hopefully saved up more than you think you’ll need for a down payment. But stockpiling money isn’t the only thing that should be on your financial checklist before becoming a homeowner.

First and foremost, you should check in on your credit score, that’s because, the higher your credit score, the better rate you’ll be able to get on a mortgage. And that matters because even a fraction of a percent can dramatically alter the total you’ll pay over time.

Your goal should be to get the best possible loan. The better your financial profile is, the lower the interest rate you will be offered. Even a small interest rate difference can add up to tens of thousands of dollars in savings over the life of a loan.

FICO credit scores range from 300 to 850 and signify your trustworthiness to financial institutions. While anything over 650 is considered decent, Orman recommends aiming for a score of 740 or higher before applying for a loan.

If your score is lower than 740, please focus on boosting it as much as possible over the next few months. Every 10 or 20 point increase can help your cause. A 700 score might earn you a better offer than a 680 score.

That’s because a high score tells lenders that you have a proven track record of being responsible with your money. It means we’re more likely to want to give you a loan, because we know you’re going to pay us back.

If your score is less than ideal, Orman recommends taking three immediate actions to improve it: pay down credit card balances, pay down other debt, such as student loans, and stop buying anything that isn’t completely necessary.

You want to improve your credit utilization ratio, which is calculated by dividing your balance by your credit limit. Ideally, you’ll never hold a balance of more than 30 percent of your limit. So If you have a card limit of $10,000, you never want your balance to exceed $3,000.

As you get ready to consider putting in an offer on a home, you want to pay down as much debt as possible and refrain from splurging.

The best advice is to charge as little as possible in the months leading up to a home purchase.

You’ll also want to have excess cash on hand that can prove to lenders that you’ll be covered even in the event of an emergency. “Though there is no hard-and-fast rule, lenders want to know that if you get laid off, or sick, you can cover the mortgage for at least a few months,” Orman says.

Be sure to do your own research on how to boost your credit score to before buying a house and read up on the four things you should be doingif you’re aiming for a perfect credit score.

Emmie Martin, CNBC

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

February 21, 2018 by Kathy Reichle Leave a Comment

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 How Much House Can You Afford?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

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 Adopt a Frugal Lifestyle

January 26, 2018 by Kathy Reichle Leave a Comment

While many people associate frugality with an austere lifestyle, the opposite couldn’t be more true. Being frugal actually allows consumers to spend money on what they truly value while saving on the things they don’t.

“Frugality gives you freedom because you see how spending in some areas is keeping you from what you want in other areas,” says John Schmoll, founder of FrugalRules.com. “Frugality isn’t about deprivation. It’s about being purposeful with your spending, and about finding balance and spending on what you value.”

Consumers who seek to be more frugal have to set their priorities and learn to live without certain things to be able to afford others. Although it isn’t a difficult concept to grasp, making any changes can be challenging without a guide. To begin adopting a frugal lifestyle, follow these steps.

Identify your end goal. Adopting a frugal lifestyle isn’t something that will happen overnight. It’s a journey that will have bumps along the way. In order to maintain it for the long-term and reap the benefits, experts recommend outlining your goals.

“Writing down your goals and tracking progress will help you stay motivated when things get challenging,” says Jessi Fearon, personal finance coach at JessiFearon.com. “Although you may have a few instant wins, you won’t see results overnight and tracking your goals and progress will make it easier to stick to it.”

Consumers can list goals on a piece of paper or on an Excel chart, depending on their preference. Some may even find an app such as Mint helpful for tracking their various spending and saving habits.

Assess your spending and make a budget. Learning how to live without certain items, so you can spend money on what you value most, is the center of what it means to be frugal. In order to make this a reality, however, the most crucial step is setting a budget.

“The most important frugal habit you should adopt is to create and use a monthly budget,” says Gina Lincicum, founder of MoneyWiseMoms.com. “None of the little things you do to save, such as using coupons or buying clothes on sale, will have as much of an impact if you’re overspending in other areas.”

Begin by reviewing your checking and saving accounts from the last few months to assess your financial situation and identify potential expenses and purchases you can live without. Create a plan to reduce or eliminate these items, so there’s extra money to go toward goals and other more important expenses.

Change one behavior at a time. “Starting small is the best way to start living a more frugal lifestyle,” Schmoll says. “I always recommend to individuals that they try one thing to build confidence. Once they see they can make a change and do well, they will feel more motivated to make other changes.”

As an example, Schmoll suggests that those who want to cut back on dining outshould choose one or two meals to make at home at first. “Seeing how much money can be saved over the course of a few weeks is a great way to see how frugality can help with long-term savings,” Schmoll says.

Identify spending triggers. In a world where people are bombarded by ads and deals everywhere they turn, giving into the consumerist mindset is hard to avoid. In order to take control over impulsive and excessive spending, you must understand what triggers it in the first place. Spending triggers are anything that cause mindless spending.

“Knowing your triggers gives you power,” Schmoll says. “It allows you to know your area of weakness and make a plan to avoid the particular situation.”

Avoiding spending triggers is relatively easy. For instance, if you tend to overspend at a certain store, limit the number of trips you make to that retailer. If you’re constantly indulging in deals promoted on a shopping app, remove it from your phone. And if you’re feeling bored, find another activity to keep you busy, such as taking a walk or calling a friend.

[See: 8 Big Budgeting Blunders – and How to Fix Them.]

Set a “use it up” mindset. Being less wasteful is a basic principal of frugality and this is easy to accomplish by shifting your mindset to think about using up everything you have before spending money to replace it. Think outside the box and let your creativity guide you to be more resourceful with what you already have.

“You don’t have to take things to the extreme,” Fearon says. “Start with creating new dishes out of leftovers, reuse worn-out shirts as cleaning rags and repurpose as many things as you can.”

Enjoy free activities. Being frugal doesn’t mean missing out on fun and adventure. It means looking for ways to enjoy life on less, and there are plenty of free activities available. These include hikes, picnics, watching the sunset, playing in the park, camping, hosting family game night and scheduling free days at local museums.

Lincicum suggests taking advantage of the local library for free family activities, such as arts and crafts, movie night and book and movie rentals at no cost.

Stash away cash for emergencies. The biggest challenges many people face when it comes to reaching any financial goal are those unexpected life circumstances that derail progress. A car accident, home repair or medical emergency can easily wipe out savings or add a tremendous amount of debt. Lincicum recommends setting aside cash in a separate savings fund to help weather these short-term financial storms and avoid high-interest debt.

Prioritize this emergency fund by creating a line item within your budget and fund it faster by automating a transfer between your checking and savings account every time you get paid.

Focus on lowering major expenses. While hacking away at small expenses by clipping coupons and buying used items will help boost savings over time, consumers can gain bigger financial rewards faster by reducing larger budgetary items, says Lily He-Prudhomme, founder of TheFrugalGene.com. Look at the expenses that take a bigger bite out of your monthly budget and think about how you can reduce these costs.

By Andrea Woroch

Pay Attention in 2018!

January 5, 2018 by Kathy Reichle Leave a Comment

We may have a tricky year ahead of us, so what’s the best and easiest strategy for consistent success in 2018?

Pay Attention!

Start the year with or without New Year’s Resolutions, but commit to success this year by paying attention:

#1. To how well informed you and information sources you rely on are

#2. To what’s really going on around you — real and fake, and

#3. To how you react to what’s going on around you — online and off.

Whether you are a real estate owner or a wanna-be… whether you intend to buy or sell in 2018, so much is shifting in real estate, in the economy, and everywhere else that nothing should be taken for granted or assumed in 2018. Concentrate on getting the facts not just someone else’s bias view of where advantages lie for you.

#1. A lot changed in 2017 and the full implications of those changes will continue to emerge in 2018.

Pay attention to ramifications and compromises, subtle and otherwise, attached to changes in everything from tax law and net neutrality to technology’s continued re-write and disruption of much we’ve take for granted:

Real estate ownership will be impacted by changes to tax law, estate planning, resulting neighborhood development, and interactions between these and many more elements. Where will advantages lie for you?
Changes in the business world may directly or indirectly influence job or retirement security for your family. This in turn may impact qualification for financing, mortgage renewal, and real estate affordability. Projected reductions in funding and donations for social and community support programs and organizations may have widespread impact in neighborhoods, community development, and in education. These shifts may reduce location benefits which, in turn, can affect real estate value. How will your location be affected in 2018?

#2. Whoever or whatever you blamed for distractions in 2017 will be with you in 2018 and might even be worse.

There are only so many hours in the day and only so many dollars in your pay check. Distractions that erode concentration on your needs and goals, and distractions that feed impulse spending will be expensive in many ways. Pay attention to what takes you off point, off track, and off goal to ensure you stay in control. You may blame others for distracting you, but it’s your powers of concentration that should be continually honed and improved to keep you ahead of the pack.

Saving for a down payment, home renovation, or to pay down an existing mortgage requires a written budget strategy to guide you toward clearly-defined results.
Paying monthly condominium fees, mortgage payments, or heating bills is exhausting when approached as month-to-month catch-up. Shift your focus to cutting costs and increasing income long-term and you’ll move beyond a monthly survival perspective to establish a constructive, long-term frame of reference for success.
Steady, dramatic increases in online shopping over the 2017 holiday season mean many households may be combining the impulse spending facilitated by credit cards and click-here shopping carts to undermine their budgets even more dramatically than ever. As the volume of online shoppers increases, convenience, cost saving, and product satisfaction may be compromised, so it’s only the novelty of online shopping that addicts. What’s all this got to do with achieving your core real estate ownership goals?

#3. Significant amounts of what you believed you knew in 2017 about real estate, finance, insurance, home security, mortgages, work, and the internet will be out of date in 2018.

Pay attention to which laws, regulations, services, and real estate expenses have actually changed not just been endlessly, sensationally rehashed in the media and online. Accurate information and clever strategies are gold.

Tweets, posts, and other online content arrive in increasingly-overwhelming rates and volumes. This leaves less and less time to uncover facts and realities and to actually learn and think about relevance to you. From shopping or applying for a mortgage to searching for a new home or viewing property, virtual video and online content bring these and other real estate activities onto your laptop and your mobile phone. Is this distance-learning leaving you better informed and smarter real estate-wise than face-to-face meetings with real estate experts and hands-on location and property investigations?
Searching out professionals who keep up with change within their profession is a challenge. Time pressures leave some professionals parroting what they hear and see in media and online instead of carrying out thorough research themselves. How do you make sure you receive the professional advice you need to interpret changes from your real estate point of view?

Let’s meet the challenges and opportunities of 2018 head on!

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5. Document your income — and the source of your down payment

6. Figure out what mortgage terms you want

7. Avoid taking on any new debts around the time of your mortgage

8. Research lenders before applying for your loan

A home is a big commitment — so plan for it

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

Suze Orman: First thing to do now if you want to buy a home soon

How to Adopt a Frugal Lifestyle

Pay Attention in 2018!

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Larry & Kathy Reichle

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