With student debt making headlines on a regular basis, and the rates of homeownership being lower, is there a connection? Maybe.
In the first issue of Consumer & Community Context, a publication from the Federal Reserve, an article by Alvaro Mezza, Daniel Ringo, and Kamila Sommer, Federal Reserve Board Division of Research & Statistics entitled, “Can Student Loan Debt Explain Low Homeownership Rates for Young Adults?”, Mezza et al write,
While many factors have influenced the downward slide in the rate of homeownership, some believe that the historic levels of student loan debt have been particular impediments. Indeed, outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014. In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.
We found that a $1,000 increase in student loan debt . . . causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s.
In a study by the Federal Reserve in 2017, they found that every $1k in student loan debt postpones homeownership by about two and a half months. However, “postponed” is not the same as “canceled”! By time time higher education graduates reach their thirties, student loan debt has a reduced affect on rates of homeownership.
We have written before about the wealth-building power of paying a mortgage over paying rent, and student loan debt is similarly and investment into one’s career. The boosted earning potential of a generation of more college graduates is bound to catch up to the burden of the debt that helped fuel it.
Is it better to pay down debt, or to save for a down payment?
There is no one-size-fits-all answer to this question. No matter whether you have prioritized paying your student loan debt or saving for a down payment, if you would like to take a closer look at what makes the most sense for you, contact us. Our job is to work with you to find the right solution for your financial goals.
Maybe you want to remodel the kitchen, paint the walls, or re-tile the shower, but you either don't have permission, or you know it would be throwing money away. Here are a few more reasons why home owners enjoy more privacy and more security than renters.
If you are thinking about refinancing, you probably have a good reason. Maybe you are curious if you could save money by locking in a lower interest rate. Maybe you wonder if you could use some of the equity you have established in your home. Whatever your reason, here are 5 things to know before deciding if refinancing makes sense for you.
1. There are Good Reasons To Refinance
Not sure if Refinancing is a good idea? While refinancing may not be the best choice for everyone, there are a few good reasons to refinance.
A. A Shorter Mortgage Term
Maybe you are motivated to pay off your home sooner. If so, by refinancing to a shorter term mortgage (for example, a 15 year mortgage from a 30 year mortgage), you could set yourself up to be paid off in nearly half the time, depending on the maturity date of your existing mortgage.
Shorter term mortgages often come with smaller interest rates than their longer term counterparts. This can make the increased mortgage payment easily justifiable with the potential decrease of interest payments overall.
B. A Lower Interest Rate
Maybe you bought when interest rates were higher. While timing the market is a risky practice, at best, if the current average interest rates are significantly lower than the rate on your current mortgage, refinancing may look like an attractive option.
C. A Lower Monthly Payment
If your current mortgage is a few years old, refinancing into a new mortgage with the same term could reduce your monthly payment obligation. While this will likely increase the total interest you will have paid over time, the lower payment could free up cash for other expenses or goals.
D. Trade an Adjustable Rate for a Fixed Rate
If you opted for an adjustable rate mortgage due to a lower starting interest rate, you have likely noticed the periodic shifts, up or down, that your interest rate may have taken since originating your mortgage. If you are seeking a little more financial consistency, refinancing with a new fixed rate mortgage may be an appealing option.
E. Access The Equity In Your Home
Has your home increased in market value since you bought it? Do you think your equity could be used better than being tied up in your home? A Cash Out Refinance may be for you. Mind the risk!
F. Consolidate Debt
Do you have other debt with higher interest rates? Do you think it would be a good idea to roll that debt into your mortgage instead? A Cash Out Refinance may be an appropriate option for you. Just like above, we strongly recommend that you mind the risk!
G. Drop Private Mortgage Insurance (PMI)
Low down payment mortgages are a great way to take advantage of the right opportunity, but it comes with Private Mortgage Insurance. In order to get a new loan without PMI, you will have to have at least 20% equity in your home. If you have that, dropping the added monthly expense for the PMI could help pay your home off sooner (with a shorter term mortgage), or result in more available cashflow on a monthly basis.
2. Pay Attention To The Term
The Amortization date (or the time until the death of the loan) is an important aspect to consider if you think you may want to refinance your home. A longer term (like the common 30 year mortgage) will have lower monthly payments, but means you will be paying more interest overall, and paying for more years. A shorter term, like a 15 year mortgage, benefits from less overall interest cost due to fewer interest payments. Shorter terms also often come with lower interest rates than their 30 year counterparts, helping you save even more over the long run. However, a shorter term also means higher monthly payments, as the principle is spread over a shorter period of time.
Deciding which term is right for you will depend on your monthly cash flow, and your personal goals. Your loan officer can help you to determine the right loan for you.
3. Crunch The Numbers
The costs associated with Refinancing can be complicated, when all is taken into consideration. If your goal is simply to save money, it may or may not make financial sense to refinance. Your loan officer can help you consider all facets that may effect the overall cost or benefit of a refinance.
If you are refinancing for a different reason, do the math to be clear on where you stand. A mortgage is a big commitment, and it’s a good idea to thoroughly understand the new agreement before jumping in.
4. Know The Break-Even Point
Total Closing Costs / Monthly Savings = Break-Even Point
The “Break-Even Point” is calculated by a simple formula, dividing the total closing costs by the monthly savings. The calculator linked below can help give you an idea about what your break-even point might be. This is the point in the life of the new loan where the new mortgage effectively pays for its own closing costs.
Why is this useful? If your goal is to save money, you may want to stay in your current mortgage if you plan to sell your home before the break-even point. Selling before you’ve reached the break-even point will end up costing you more overall.
5. Know The Risk
As mentioned earlier, a mortgage is a big commitment. There is always risk present when taking out a loan, especially when defaulting means losing your home. This is especially important to consider before taking a Cash Out Refinance to consolidate debt, especially debt that is not secured.
If you miss payments on a credit card, or student loan, you will have collectors giving you a hard time. If you the same debt is rolled into a mortgage, it becomes guaranteed by your home. Defaulting on a mortgage could result in losing your home. While consolidating high-interest debt into a low-interest mortgage can be a good long-term strategy, it may not be for everyone.
Be Smart: Talk To Your Benchmark Loan Officer Today
At Benchmark, we do more than sell a low interest rate. We look closely to help you determine the right loan for you. Even if you don’t feel ready, talking to us now can help you set a course for success.
Thinking about buying? If you are serious about owning your very own piece of the American Dream, it makes sense to take inventory of your current finances. By taking a closer look, you will have a better idea of whether you are ready to grab your dream of homeownership by the horns or whether you want to make some adjustments first.
If you haven’t read last week’s post, we recommend you do so. It will help give you a clear idea of what it takes to buy.
How to buy a house in 2019
Think you're ready to buy? Do a quick financial self checkup to see how ready you are. Need a second opinion? Benchmark is here to help.
Now, read on. Here are a few considerations before you decide to buy.
Emergency Fund Integrity
Many financial experts recommend that you have 3-6 months worth of expenses saved up in an Emergency Fund. An emergency could be a car repair, appliance replacement, or sudden unemployment. Rainy days happen, and a substantial rainy day fund can help protect you from the financial blow.
While it is true that a bigger down payment will equate to a smaller monthly mortgage payment, it probably isn’t the best idea to tank your emergency fund. You might even consider opening a separate savings account for your down payment, as we mentioned last week: How To Buy A House In 2019 – 5 Tips
Debt-To-Income Ratio (D.T.I.)
You can think of this as a ratio of current monthly income and payment obligations. Your DTI is communicated as a percentage, where lower is better. A low deb-to-income ratio implies that you have a high cashflow relative to your income, and gives the impression that you are responsible with your finances. It also means that you are at a lower risk for defaulting on a payment, which lenders like.
Is your monthly debt obligation higher than you would like it to be? Here are a couple of ways to cut it down without significantly altering your lifestyle.
Do you have any credit card debt? Your minimum monthly credit card payment total is factored into your D.T.I. If you have a card with a low enough balance that you could pay it off sooner, you could effectively reduce your debt factor. Doing this repeatedly is commonly known as the “debt snowball,” an emotion guided strategy for paying down debt.
Are you working on paying off a car purchase? If you make payments on a car loan that is relatively close to being paid off, paying it off will reduce your debt score by the monthly required payment on the loan.
Is your credit history accurate? Do you have a copy of your credit report? It is a good idea to get a copy of your credit report to check for any errors.
You can contact the credit bureaus if you find an error, and work with them to correct it on your credit report. While a ding on your credit history may not be enough to deny your loan application, it may end up costing you big in the form of a higher interest rate.
You have the right to request 1 free credit report each year. Many credit card companies offer this as a service, as do many identity protection services. You can request your credit report and current credit score from Experian, TransUnion, or Equifax.
Need A Second Opinion?
We know that crunching the numbers isn’t for everyone. Even if you are the best candidate for management of your own finances, not everyone feels motivated to sift through their own numbers. At Benchmark, we advocate for the best financial outcome for our clients.
I am willing to help you order your finances so you can make the most informed decision possible. Call me today, or contact me now.
We work with our clients to help you make the most informed decision possible. Call or contact us today.
We work with our clients to help you make the most informed decision possible. Find your branch, and contact them today.
To be able to know if you can realistically afford to be a homeowner, you should first explore your local housing market to find out how much you should expect your new home to cost.
You can use the “How Much House Can I Afford?” tool to get a realistic estimate. We also have a variety of Calculators right here at Benchmark.us to help calculate a number of factors, comparisons, and scenarios.
Saving can be challenging, especially if you are not used to tracking your expenses. To improve your chances of saving success, you should know where every dollar that you earn is going every month. Check with your bank or credit union, as many banks and credit unions include tools for this. You can also use third party tools like Mint, YNAB, everydollar or even a simple spreadsheet. The more organized your plan towards achieving the goal, the more successfully you will be able to save.
If it will take you several months or years to save for your down payment, you could even consider opening a high yield savings account to get your savings earning as well.
3) Know How Much House You Need
For many, the first home you buy is not the first home you want. If the home you want is beyond your financial reach, it could still make sense to settle on a less expensive buy, if your budget and standards allow.
It could cost you far more money in the long run to wait until you can afford the house you want, when a house you could be happy with is within reach now. You can always “trade up” when the time is right. You will have to make this decision for yourself, but it is something to think about.
Every year begins with renewed hopes and bright aspirations embodied by the shared cultural vow we all seem to take: the New Year’s Resolution. If your Resolution involves any aspect of ‘home’ or financial strategies, purchasing your first home and homeownership may be on your mind.
You Are Not Alone
Among renters under the age of 50, 72.7% reported a preference for buying, with 52.5% reporting that they strongly prefer buying, and the remaining 20.2% reported a normal preference. If you are like most other renters under the age of 50, the odds are good that you would prefer to own a home, even if you currently rent. Is homeownership right for you?
Is Housing A Good Investment?
Attitudes toward housing as a financial investment became more positive than they already were: 65% of all respondents think that buying property in their zip code is a “very good” or “somewhat good” investment, compared to 60% in 2016. Only 10.6% think housing is a “bad” investment. Enthusiasm about housing as investment is particularly pronounced among younger, more educated (Bachelor’s degree or more), and higher-income (annual income of $60,000 or more) households. – source: https://www.newyorkfed.org/newsevents/news/research/2018/an180418
One of the biggest hurdles in a market where property values have been on the rise is having enough cash for a down payment. The median listing price in the United States is $276,000 (retrieved from https://www.zillow.com/home-values/ on January 4, 2019 at 4:12pm). So, how much down payment is required?
Most people tend to believe that you need 20% of a home’s price for a down payment. ApartmentTherapy.com created the following table based on the assumption of the median home price for each state, 20% of the down payment, and how much one should save each month for six and a half years. (If you are just starting in January 2019, you won’t be ready with your 20% down until the buying season is in swing in 2025.
If you have owned your home for a few years, this is wonderful news! If you have been saving for a 20% down payment on a home that was listing for $134k in 2012, it is now likely going for $206k, and your 20% down payment has gone from $26.8k up to $41.2k. How would this factor into your savings plan if you took the advice of the table provided above?
Will home prices continue their upward climb? No-one knows. If it does, you could miss out on equity gains and purchase opportunities while saving for a 20% down payment. Is there an easier path to homeownership? What if you didn’t have to put down 20% to get a mortgage?
You Don’t Always Need 20% Down*
If you qualify for a Conventional mortgage loan (based on a variety of factors, including credit score, income, debt, and financial history), there are products available for as little as 3% down!*
For first time home buyers, an FHA mortgage requires as little as 3.5% down, and require a minimum credit score of less than 600!*
Let’s take a look at this practically.
Assuming a list price of $276,000.00, 3% down equates to $8,280. If you were following the 6.5 year plan towards 20% down, you would be saving $707.69 every month for 78 months. BUT, if you plan to put 5% down instead, you could get there in only 19.5 months following the same savings plan. That makes you a homeowner ~5 years sooner!*
0% Down Programs
If you are a Veteran who qualifies for a VA Mortgage Loan, it is possible to buy with 0% down.
USDA loans are also candidates for 0% down qualification.*
Down Payment Assistance
Down payment assistance programs may be available in certain counties and states. Ask your Benchmark loan officer if there are any available in your area.
This Year, Make Your Dream A Reality
Even if you don’t have enough for a down payment, if you think your debt is holding you back, or if you don’t think your credit is good enough, let’s chat.
* Ark-La-Tex Financial Services, LLC NMLS ID #2143 (www.nmlsconsumeraccess.org) is not a law firm, accounting firm, tax firm, or financial planning firm. This advertisement is for general information purposes only. Anyone relying on particular details contained herein does so at his or her own risk and should independently use and verify their applicability to a given situation. All loans are subject to borrower qualifying and meeting appropriate underwriting conditions. This not a commitment to lend. Some products may not be available in all licensed locations. Information, rates, and pricing are subject to change without prior notice at the sole discretion of Ark-La-Tex Financial Services, LLC. Other restrictions may apply. (https://benchmark.us)
The Federal Housing Finance Agency has announced that the maximum conforming loan limits for mortgages has increased.
In most of the country, the confirming loan limits will increase nearly 6.5%, from $453,100 to $484,350 for 2019. For most high-cost areas, where 115% of the local median home value exceeds the loan limit, the loan limit for one unit properties will be $726,525.
What Does This Mean for Homebuyers?
You can now purchase a home with a higher sales price using a conventional conforming loan through the FHFA regulated Fannie Mae or Freddie Mac.
The new limits are effective January 1st, 2019. Typically, the VA and Federal Housing Administration (FHA) are expected to adopt the same increased loan limits for 2019 for FHA and VA loans.
If you are interested in buying a house, but do not know what you might need, or whether you can qualify, you’re not alone. Many would-be buyers are intimidated by the thought of what it takes to buy a home. Some wonder whether they can afford to buy, if they have enough saved for a down payment, or if their credit is good enough.
Can You Relate? If So, You’re In The Right Place!
Be confident that you can do it! The basics are pretty simple. To qualify in the current market, you will need a down payment (would you believe that you don’t need 20%), a stable income, and a good credit history.
You will have contact with your lender, your agent, and other professionals whose roles help get you into your home. These pros are also valuable resources on your journey home.
5 Easy Steps
Ready to apply? Here are 5 steps to follow as suggested by Freddie Mac:
Check your credit score and history.
Though the average FICO score for closed loans was 731 (September 2018 according to Ellie Mae), there are loan products for a wide range of scores. It’s just a good idea to know where you stand before applying.
Gather your documents.
You will need to be able to verify your income, which you can do with W-2 forms or tax returns, your credit history, and statements verifying cash assets (bank statements, investment statements, and the like).
Contact your loan officer!
Your loan officer can help you develop a spending plan, help you determine how much home you can afford,review your income, expenses and financial goals, and recommend a real estate agent who knows the market and will work for your best interests. With a pre-approval letter in hand, sellers will see your offer as legitimate, and will be more likely to accept. You may get pre-approved by your loan officer. Don’t have one? Find yours today!Meet our team or contact us today!That’s me! Contact me today, or Apply Now!
Contact your real estate agent.
Your real estate agent can help you find the right home for you in your price range, be your advocate in pricing negotiations, and be a great source of advice in the specifics of what you’re looking for in a home, neighborhood, and location.
Armed with the information above, you are ready to start doing your own research. Just remember to know how much house you can afford, stick to your budget, and be mentally and emotionally prepared. Making dreams come true takes a little effort and responsibility. At Benchmark, we are here to help make it as easy as it can be.
Unfortunately, it depends on the situation and reasons, so there is no simple answer for bad credit. A few potential reasons could be that you have experienced a divorce which led to a bankruptcy, mismanaged your finances, experienced job loss, or any other financial hazards.
Your credit is calculated from many moving parts. The good news is that your credit score is constantly changing! If you take steps to improve your financial habits, you may also gain an improved credit score in addition to greater peace of mind.
At Benchmark, we don’t leave you to figure it out all on your own.
You are working hard for the chance to buy your dream home. Shouldn’t your lender ,at least, work just as hard?
Knowing what improvements to make when improving your credit can be tricky. That’s where we can help. For example, while some factors apply to everyone, there will be others that only apply to you.
Some strategies you could use to positively impact your score very quickly are:
Keep credit card balances low: I like to call this the rule of 30. Your balance accounts for 30% of your credit score. You want to make sure that your utilization ratio is less than 30%. For example, if you have a credit limit of $1,000, your balance should NEVER exceed $300. If you are already over that, pay it down to where it is less than 30%. By far, this is the mistake that most people make.
Pay your debts: This is not always as simple as it seems, but this accounts for 35% of your score. Something to keep in mind is that paying off new debt has a greater impact than paying off old debt. If you have a newer open credit card, pay that balance first.
Clear up any mistakes: Did you know that as many as 4 out of 5 people have errors on their credit reports*? The odds that you may be one of them are high at 80%. While you can pull your own credit for free once a year, credit reports can be difficult to read. At Benchmark, we review your credit report with you to ensure your credit’s accuracy. If errors are found on your report, you have the opportunity to correct them.
Ratio of used credit and payment of debt combine to account for 65% of your score. The next biggest factor is time, or the length of your credit history. If you are trying to improve your credit, it is important that you do not close your credit card accounts. This hits you on two categories: one is your credit utilization ratio ,or how much you owe, because the ratios will not be calculated properly on closed accounts (you’d have debt, but no extra credit limit), and the other is on length of credit history, because a closed account does not report a length of time.
Overall, there is no single quick technique to improve your credit score. It’s best to simply live within your means, by not spending more than your income. If you’d like more information, give us a call. We can help you get a more personalized view of your credit, and help you decide what you can do to improve it.
At Benchmark, we are ready to help you achieve your dream of owning your own home. Call 1-800-VET-EASYus or Contact Us, or get your Certificate of Eligibility to get started today!
Benchmark Mortgage is proud to announce our partnership with Team Never Quit.
This year, we will be hitting the road with the 2018 Patriot Tour! Our Team is proud to have changed the way VA lending is done, and we take a “never quit” attitude with our veterans and their dreams.
NO MORE will the veteran be taken advantage of. We have a heart and passion for our veteran community, and we pride ourselves in making the home financing experience amazing. Setting the industry standard for 20 years, we are proud to have helped make the American Dream of home ownership become a reality for more than 100,000 Americans. Home ownership has always been the American dream and we believe that no one is more deserving than those who have served our country.
The Patriot Tour features retired Navy SEAL Marcus Luttrell, author of the New York Times bestseller “Lone Survivor” ,a riveting tale of the heroic sacrifices made by Marcus and fellow SEAL Team members assigned to Operation Red Wings in Afghanistan; Taya Kyle, author of ‘American Wife’, Executive Director of the Chris Kyle Frog Foundation, and wife of the late U.S. Navy SEAL Sniper Chris Kyle; retired U.S. Army Capt. Chad Fleming; and retired Navy SEAL and ultra-marathon runner David Goggins.
The Patriot Tour brings together things worth protecting, and things worth celebrating: Family, Service, Sacrifice, and Community. We are excited to be joining the Patriot Tour with these amazing heroes. Stay tuned for more exciting updates as we tour the country, coming to a city near you!