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What is the Affect of Student Loan Debt On Homeownership?

Millennial on scooter wearing hat and sunglasses looking up towards the blue sky

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.

and,

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.

Find your Benchmark branch and contact them today for more information.Give us a call or contact us today. At Benchmark, we’ve got your back.Give me a call, send me an email, or request a call today. My team and I got your back.

Does it make sense to Refinance? Consider the options, and know these 5 things.

Does it Make Sense to Refinance? 5 Things To Know

Is Refinancing right for you?

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.

Find your Benchmark branch, and contact them today for more information.Give us a call or contact us today. At Benchmark, we’ve got your back.Give me a call, send me an email, or request a call today. Along with my Benchmark community of mortgage pro’s, I’ve got your back.

Man with briefcase walking towards destination

Before You Buy, Do A Financial Self Exam

Man with briefcase walking towards destination

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.

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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.

Read it now: How To Buy A House In 2019 — 5 Tips

 

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.

Credit Cards

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.

Car Loan

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.

Credit History

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.

 Benchmark brings you home.

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How To Buy A House In 2019 – 5 Tips

Flying sidekick performed by black belt martial artist in martial arts studio

If you want to buy a home this year, here are five tips on how to buy a house in 2019. At Benchmark, we make the effort to make it easy to claim your piece of the American Dream.

Watch this video, then read last week’s article linked below.

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This New Year, Reach Your Dream of Homeownership
Want to buy a home in 2019? Think your credit isn't good enough, you have too much debt, or your credit score is too low? We beg to differ. Let's chat! How to buy a house in 2019.

This New Year, Reach Your Dream of Homeownership

1) Know Your Target Home Value and Down Payment

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.

To get an idea whether the house you have your eye on is priced fairly, you should also ask your real estate agent for a Comparative Market Analysis. (see also: Find A Great Real Estate Agent The Easy Way)

When you have an idea of the cost of your future house, you can roughly calculate how much you will need for your down payment. Think you need 20% down?

Think again. See last week’s post, “This New Year, Reach Your Dream of Homeownership” if you haven’t already.

2) Know Your Cash Flow

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 you read our previous post This New Year, Reach Your Dream of Homeownership, you will recognize the link between consistent savings and your down payment. A budget can help you do that.

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.

In an earlier article entitled Millionaire Tells Millennials To Buy A Home, we mention that David Bach, author of “The Automatic Millionaire” is quoted as saying,

“The fact is, you aren’t really in the game of building wealth until you own some real estate.”

Mr. Bach also said,

“Oftentimes, buying your first home means you’re not buying your dream home. You’re just getting into the market.”

If that isn’t enough, you can read “Homeowner Average Net Worth 3,600% Higher Than Renter” for more reasons to consider getting started sooner rather than later.

4) Know The Steps For Buying A Home

The Way Home graphic

I have a convenient interactive tool right here on my website to help walk you through the steps to take when buying a home.

Discover Your Way Home

We built a tool for our Loan Officer websites that asks a series of questions to give you an personalized step-by-step plan for buying your next home. Need a plan for refinancing? It does that too.

To use this tool for yourself, you will need to find a loan officer in your area Find Your Loan Officer, then click on “The Way Home” in the navigation menu.

To use this tool, you will need to find your Loan Officer and go to their website by clicking the link that looks like this:
Visit My Website branch website link screenshot

Once on your loan officer’s website, look for the “The Way Home” navigation link (below), and click.
The Way Home visual navigation screenshot.

5) Keep Your Cool

Do you feel overwhelmed by what appears to be a monumental achievement? We understand. Do you wish it could seem easy? This is what we do every day.

At Benchmark, we have such a great team, that we have been able to make mortgages happen for borrowers who had already been turned down by another lender.

Not sure where to start? No problem. We are honored to help guide to towards your dream of owning your own home with a mortgage that aligns with your personal financial outlook.

Even if you are concerned with debt, your credit history, or even your down payment, let’s chat! If you want to make your dreams a reality, we are here to help make that possible.

Find your branch, and contact them today. If you are ready, you can click to Apply Now. We look forward to helping you reach your goals!Call or email us, or Contact Us today. If you are ready, you can Apply Now. We look forward to helping you reach your goals!Call me, Email Me, or Contact Me today. If you are ready, you can Apply Now. I look forward to helping you reach your goals!

Good News is Coming sign posted on light post

This New Year, Reach Your Dream of Homeownership

Good News is Coming sign posted on light post
Photo by Jon Tyson on Unsplash

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?
(source: https://www.newyorkfed.org/microeconomics/sce/housing#indicators/Renters/g42)

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

While it is not our (Benchmark) place to recommend any investment strategy, Americans seem to view homeownership as a favorable investment overall. You can read these posts from our archive for more information on this:
Renting vs Buying a Home and Accumulating Wealth
Buying Still Cheaper Than Renting
Homeowner Average Net Worth 3,600% Higher Than Renter
Why Buying Is Investing

Can You Afford To Buy?

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?

Related: Nervous About Buying? Here’s A Dose of Confidence

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.

State Median Home Price Down Payment Monthly Savings Plan
Alabama $171,500 $34,300 $440
Alaska $267,404 $53,480 $686
Arizona $225,000 $45,000 $577
Arkansas $156,000 $31,200 $400
California $462,000 $92,400 $1,185
Colorado $331,000 $66,200 $849
Connecticut $253,500 $50,700 $650
Delaware $210,000 $42,000 $539
Florida $218,000 $43,600 $559
Georgia $193,000 $38,600 $495
Hawaii $442,500 $88,500 $1,135
Idaho $349,000 $69,800 $895
Illinois $212,000 $42,400 $544
Indiana $190,843 $38,168 $490
Iowa $157,000 $31,400 $403
Kansas $187,649 $37,529 $482
Kentucky $170,000 $34,000 $436
Louisiana $232,610 $46,522 $597
Maine $275,717 $55,143 $707
Maryland $379,000 $75,800 $972
Massachusetts $150,000 $30,000 $385
Michigan $164,000 $32,800 $421
Minnesota $240,000 $48,000 $616
Mississippi $195,390 $39,078 $501
Missouri $204,506 $40,901 $525
Montana $314,959 $62,991 $808
Nebraska $178,000 $35,600 $457
Nevada $249,300 $49,860 $640
New Hampshire $245,000 $49,000 $629
New Jersey $290,000 $58,000 $744
New Mexico $254,798 $50,959 $654
New York $430,000 $86,000 $1,103
North Carolina $210,000 $42,000 $539
North Dakota $226,863 $45,372 $582
Ohio $154,900 $30,980 $398
Oklahoma $150,000 $30,000 $385
Oregon $315,000 $63,000 $808
Pennsylvania $191,000 $38,200 $490
Rhode Island $256,000 $51,200 $657
South Carolina $181,500 $36,300 $466
South Dakota $177,500 $35,500 $456
Tennessee $190,000 $38,000 $488
Texas $320,067 $64,013 $821
Utah $440,946 $88,189 $1,131
Vermont $325,000 $65,000 $834
Virginia $297,500 $59,500 $763
Washington $332,719 $66,543 $854
West Virginia $136,500 $27,300 $350
Wisconsin $197,000 $39,400 $505
Wyoming $291,855 $58,371 $749

table and data copied from: https://www.apartmenttherapy.com/home-down-payment-cost-by-state-2018-261916

The Cost of Waiting

When looking to put 20% down, consider the cost of waiting six years. Since January 2012 until January 2019, the national home price index has inflated by 53.56%.

Federal Reserve Economic Data (St. Louis Fed) Home Price Index chart

source: https://fred.stlouisfed.org/graph/?g=mA5v

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.

Find your branch, and contact them today. If you are ready, you can click to Apply Now. We look forward to helping you reach your goals!Call or email us, or Contact Us today. If you are ready, you can Apply Now. We look forward to helping you reach your goals!Call me, Email Me, or Contact Me today. If you are ready, you can Apply Now. I look forward to helping you reach your goals!


* 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)

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FHFA Announces Conforming Loan Limit Increase In 2019

photograph of child jumping on bed

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.

Source: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Maximum-Conforming-Loan-Limits-for-2019.aspx