Topics:Homeowner Tips Financial Advice Home Improvement Financing Downpayment Home Improvement Investment Properties First-Time Homebuying Working With An Agent Successful Selling House Hacking Best Mortgage Rates Companies real estate investing Closing Costs Home Loan Research Press Releases Mortgage Loans Mortgage Refinancing
March 27th, 2023
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May 19th, 2022
One of the more daunting parts of buying a home, besides ensuring that you can afford the investment in the first place, is making sense of all the terms and jargon that accompany the process. To help you feel more confident in the homebuying process, we’ve compiled a list of 50 must-know mortgage terms. A | B | C | D | E | F | H | J | L | M | N | O | P | R | S | T | U | V Adjustable rate mortgage (ARM) An adjustable rate mortgage (ARM) is a mortgage loan type in which your interest rate will change based on overall market rates. Thus, your monthly payments will fluctuate throughout the life of your mortgage loan. The initial interest rate and monthly payment will be lower with an ARM, but both are subject to increase substantially. Amortization Amortization is the process of paying down your home loan by making regular monthly payments, reducing your debt over time. To amortize your mortgage, you will typically need to ensure that your payments cover both interest and principal. Annual percentage rate (APR) The annual percentage rate (APR) is the annual rate charged for borrowing money, versus a monthly fee/interest rate. Because your APR takes various costs and fees into account, it is typically larger than your interest rate. Appraisal A home appraisal provides the estimated value of a real estate property. Assets Assets are valuable items, resources, or property that you own and that have a cash value. Some examples of assets include checking and savings accounts, stocks and bonds, and 401(k) and IRA accounts. Your lender will verify your assets when you apply for a mortgage. Lenders assess your assets to ensure that you have enough money in savings and investments to cover your mortgage payments in the case of a financial hardship or emergency. Balloon loan A balloon loan means that you will have one larger, one-time payment at the end of your loan term. This payment can be much higher than your usual payments, and if you’re unable to pay it, you may need to refinance your mortgage. Or, in some cases, you may face foreclosure. Closing Closing is the last step in the homebuying process. At closing, the deed will be delivered and signed, closing costs will be paid, and you will be given the keys to your new home. Closing costs Closing costs cover the expenses associated with the homebuying process and transaction. Closing costs may vary by location and lender but typically include the loan origination fee, insurance fees, and attorney fees. Conforming loan A conforming loan is a type of home loan that is below a set dollar amount and that meets specific Fannie Mae and Freddie Mac funding criteria. Conforming loans are typically underwritten and funded by lenders and then sold to investors, such as Fannie Mae or Freddie Mac. Construction loan A construction loan is a short-term loan that is used to cover home renovation, construction, or rehabilitation projects. Contract of sale A contract of sale is a written agreement between a buyer and seller, conveying the title and that certain conditions have been met and payments have been made. Conventional mortgage A conventional mortgage is any type of home loan that isn’t insured by a government agency/entity. Co-signer/co-borrower A co-signer or co-borrower is someone who signs your loan and agrees to take responsibility for paying back the loan with you. If you have a low credit score or are experiencing difficulty in securing financing to purchase a home, a creditworthy co-signer or co-borrower can increase your chances of qualification, as well as help you secure better rates and terms. Debt-to-income (DTI) ratio Your debt-to-income ratio is a percentage representing all your monthly debt payments divided by your monthly gross income. Loan underwriters will verify your DTI ratio to see how much income you have to cover mortgage payments after other debt payments are made each month. Deed A deed is a document proving that you own your home and have a title to the property. Discount points Discount points are an optional cost you can pay at closing to “buy” a lower interest rate. Typically, one discount point is equal to one percent of your loan and you will be required to pay points in cash at closing, thus increasing your upfront costs but reducing your monthly interest payment amount. Down payment A down payment is a portion of the sales price of a home that is paid at closing. A traditional down payment is 20 percent, but in most cases, a lower down payment can be made. Earnest money deposit An earnest money deposit is a deposit a homebuyer pays to confirm a signed contract agreement to buy a house. The house seller or another third party (e.g. a real estate agent) holds the money until closing. When you close on a home sale, the earnest money can be applied to your down payment or closing costs. If the contract is terminated before closing for an acceptable reason, the money will be returned to the buyer. Equity Equity is how much money you have paid into your house — how much your home is currently worth minus the amount of remaining mortgage. Escrow Escrow covers property-related expenses like homeowners insurance or property tax. Typically, your mortgage lender will set up an escrow account for you, and a portion of your monthly payment will go into your account, covering additional property expenses. Fannie Mae The Federal National Mortgage Association (Fannie Mae) is a U.S. government-sponsored agency that provides mortgage options to low- and moderate-income homebuyers. To increase affordable lending, Fannie Mae purchases and backs mortgages from lending institutions. FHA loan An FHA loan is a government-insured mortgage backed by the Federal Housing Administration. FHA loans are a great option for first-time homebuyers because they typically have lower down payment and minimum credit score requirements, making it easier to qualify for financing. Many private lenders offer this loan type. Fixed rate mortgage A fixed rate mortgage is a type of loan that has a set interest rate at the time of mortgage purchase that will never change throughout the life of the loan. Foreclosure If you fail to make your monthly mortgage payments, one possible consequence is foreclosure, through which your lender or servicer takes back your property. If the foreclosure process is initiated, your lender or servicer is generally required to send you notification. Some foreclosure proceedings involve a court process, but not all. Freddie Mac The Federal Home Loan Mortgage Corporation (Freddie Mac) is a U.S. government-sponsored agency under the direction of the Federal Housing Finance Agency (FHFA). Freddie Mac purchases mortgage loans from lenders and servicers to promote affordable lending practices. Home equity line of credit (HELOC) A home equity line of credit (HELOC) allows you to borrow money against your home equity. A HELOC is a line of credit, meaning that you withdraw funds as needed, not all at once, and you will typically have an adjustable interest rate. There will be a determined “draw period” for your HELOC, which will allow you to draw funds during a set period of time — once the period ends, you will no longer be able to withdraw funds. You will be required to make minimum payments throughout the draw period, and you may be required to pay your complete balance when the draw period ends. Home equity loan A home equity loan allows you to borrow money against your home equity. You will receive funds as a lump sum, and you will typically have a fixed interest rate. Home inspection A home inspection is typically part of the homebuying process. It is important to order a home inspection to ensure that the home’s structure and systems are in good repair. Homeowners insurance Homeowners insurance is a form of insurance that can cover losses or damages to your home. It typically covers four types of damage: interior damage, exterior damage, loss or damage of personal belongings, and injury that may occur on your property. Homeowners insurance shouldn’t be confused with a home warranty or mortgage insurance. Jumbo loan A jumbo loan is a type of home loan that exceeds the limits set by Fannie Mae and Freddie Mac. These loans have higher credit score requirements and are typically reserved for the purchase of luxury properties. Loan-to-value (LTV) ratio The loan-to-value (LTV) ratio compares your mortgage amount to the value of your property. Lenders may consider your LTV ratio to determine whether or not they will lend to you, as well as whether or not they’ll require you to pay private mortgage insurance (PMI). The higher your down payment on a property, the lower your LTV ratio will be. Mortgage A mortgage is a specific type of loan used for a property or home purchase. Mortgages are commonly offered by private lenders, brokers, banks, and credit unions. You will be required to make monthly payments on your mortgage payment, including interest, for the set term of your loan. Non-conforming loan A non-conforming loan is a mortgage loan that doesn’t meet the Fannie Mae and Freddie Mac guidelines, thus disqualifying it from being sold to either government-sponsored enterprise. These types of loans typically have higher interest rates. Origination fee An origination fee is a fee charged by a mortgage lender to cover the cost of processing a loan. Pre-approval Pre-approval is a preliminary assessment of whether or not a lender will lend to a specific borrower. If you, as a borrower, are approved, you will typically receive a pre-approval letter, which can be used as a confirmation of financing when placing an offer on a house. Pre-qualification Pre-qualification is not the same as pre-approval. Pre-qualification simply gives you an idea of how much you would qualify for for a loan, but is not binding in any way. Principal The principal is the amount that you have to pay back on your mortgage. Your monthly payments will include a portion of the principal, ensuring that you pay back your borrowed amount in full. Private mortgage insurance (PMI) Private mortgage insurance (PMI) is a type of insurance for your lender if you make a down payment under 20 percent. Once you’ve accumulated a certain amount of equity in your home, you should be able to cancel your PMI. Property tax Property tax is typically charged at a local level based upon the value of your property. Property taxes are typically collected through your monthly mortgage payment and will be added to your escrow account. If you don’t have an escrow account, you will be responsible for paying the property taxes directly. Real estate agent A real estate agent is a licensed real estate professional who represents either a buyer or seller in a real estate transaction. You typically don’t pay a real estate agent directly — they are typically compensated through a percentage of the property’s purchase price. Refinance Refinancing refers to the process in which you replace your loan with another to secure better rates and terms. Reverse mortgage A reverse mortgage is reserved for homeowners who are 62 years of age or older, and allows them to access their home equity. Reverse mortgages are different from home equity loans or home equity lines of credit (HELOCs) because instead of the homeowner making payments to a lender, the lender will release funds to the homeowner. The money you receive, as well as interest, will increase the balance of your loan each month. Settlement Settlement is the final stage in a real estate transaction when the ownership of the property is transferred from seller to buyer. Short sale A short sale refers to a home being sold for less than what remains on the existing mortgage. It is an alternative to foreclosure, but because the home is being sold, you will be required to leave. Term The term of your mortgage is the set amount of time that you will be making monthly payments to completely pay off your loan. Typical mortgage loan terms range from 15 to 30 years. Title A title is the physical document that states that you own your home or property. The title will also show past property owners, as well as a description of the property. Underwriting Underwriting is part of the mortgage process in which you, as a borrower, are assessed as an acceptable risk by your lender. An underwriter will analyze your documentation, credit history, and financial history, after which a lending decision will be made. There are typically fees associated with the underwriting process that you will pay as part of your closing costs. USDA loan A USDA loan is a government-insured loan backed by the U.S. Department of Agriculture (USDA). This mortgage program is reserved for eligible rural properties that are outlined and approved by the Rural Housing Service. Typically, USDA loans have a 0 percent down payment and favorable rates. VA loan A VA loan is a government-insured loan backed by the U.S. Department of Veteran Affairs (VA). This mortgage program is reserved for U.S. military service members, veterans, and eligible spouses, and helps them buy homes. The VA guarantees a portion of the loan, reducing the risk of loss for a lender, and this loan type typically has a zero down payment with favorable rates. Variable interest rate A variable interest rate refers to a rate that will fluctuate throughout the life of your mortgage loan. You will typically have a lower starting rate, but it is very likely that your rate will rise as the market experiences various ebbs and flows.
After hours spent researching and comparing mortgage options, you’ve finally closed on your loan with your chosen mortgage company. But after a few months, you receive notice that your loan has been sold. At first, this news may seem like a reason to worry, but it really isn’t. The truth is that mortgage companies buy and sell loans all the time. It’s a common practice in the industry that makes it possible for companies to offer home loans in the first place. But let’s answer some big questions that you might have: Why did my lender sell my loan?What does it mean for me that my loan has been sold?Which mortgage companies don't sell loans? For answers to other questions you may have, jump down to the FAQ section. Why did my lender sell my loan? Before you can understand why your mortgage lender sold your loan, let’s take a look at some of the key players in the mortgage industry: Mortgage lender — Your mortgage lender is who lent you the money to purchase your home and who typically works with you directly on anything related to your mortgage. Loan servicer — Your loan servicer handles your mortgage after closing on your home loan. You make your payments to your loan servicer, typically facilitated by your lender. Investor — Investors purchase mortgages from lenders. After a mortgage is sold to an investor, a lender may retain servicing rights, which means that you’ll continue making payments to the same company even though they don’t technically own the loan anymore. While each of these entities are involved in helping you purchase a home, it is important to remember that they don’t view your mortgage loan the same way that you do. For you, your mortgage is a big personal investment, perhaps a step closer to achieving important life goals. For mortgage lenders — banks or other financial institutions — your mortgage loan is solely a financial asset. search Lenders typically sell loans for two reasons: Free up capital to offer mortgage loans to other homebuyers Generate cash while retaining servicing rights to a loan When you get a mortgage you will be required to pay interest on your loan. Interest will be combined with your principal loan amount into a monthly payment — payments that you will be making for the next 15 to 30 years depending on your loan term. While the lender will make money from these payments each month, it typically isn’t enough money to support further lending opportunities to other homebuyers at the same time, which is the case for many brokers and small lenders. Lenders would quickly max out how many people they could lend to if they had to wait three decades to get all their money back, so they sell loans to free up cash and continue offering mortgages to other homebuyers. In addition to interest, lenders also charge various fees, but selling loans is a much faster way to make more money and replenish funds to lend to others. It’s important to understand that your loan broker/bank/lender doesn’t make money by lending money. They’re in the business of wholesaling loans and collecting a fee for their efforts. Your “lender” makes money on origination fees and the incentives they are paid by larger lenders. Let’s use a simple example. Suppose your local bank has $1,000,000 to lend. How many home loans can they make with a limited amount of cash? Maybe three or four home loans. However, what if they could sell your loan, replenish their money and receive a few thousand dollars for their efforts? — Robert Taylor, The Real Estate Solutions Guy In most cases, your lender will sell your loan to a large mortgage company like Fannie Mae or Freddie Mac, two U.S. government-sponsored entities that buy loans from banks and lenders. Loans are also frequently sold between private mortgage lenders and banks. Whether your loan is sold to Fannie Mae, Freddie Mac, or another private mortgage lender, you don’t get to choose to whom your loan is sold. For the most part, who your loan is sold to won’t make a difference, but for some borrowers this can be cause for frustration if their loan is sold to a company or lender that they aren’t familiar with. When you get a mortgage loan, there is a high chance that it will be sold, creating a cycle that has a significant impact on the availability of mortgages to other homebuyers and the economy as a whole. What does it mean for me that my loan has been sold? When your mortgage is sold, not much should change on your end. If your mortgage has been sold, resist the need to obsess. The loan's terms, such as the interest rate, monthly payment, and remaining debt, will remain constant.The primary responsibility you should prioritize is data management. Keep an eye out for reminders regarding the need to update your payment details. You may need to reroute an ACH withdrawal or mail a check to a new address. And you will not be penalized if you recently made a payment to the former owner of the mortgage. There is a 60-day grace period following the sale of service rights. — Jennifer Harder, CEO and Founder of Jennifer Harder Mortgage Brokers Your loan rate and term will remain the same. The only change you may need to worry about is if your loan servicing has been transferred. search If your mortgage loan is sold, two payment scenarios may occur: You continue making payments to your original lender You begin making payments to your new loan servicer If you neglect to confirm where you’re making payments moving forward, you run the risk of sending payments to the wrong place and then incurring late payments. If your payment circumstances change, requiring you to either mail payments to a new address or set up an online account elsewhere to make direct payments, your lender will alert you and provide direction on how to proceed. In addition, your new loan servicer is also required to notify you within 30 days of the service transfer. When you receive notice that your mortgage has been sold, the most important thing you can do is check — and double check — the information provided. When you receive notice that your loan has been transferred, double check the loan details, such as the loan number, to make sure it’s not a scammer trying to dupe you into sending them money. You can (and should) call your previous lender as well, to confirm the loan transfer. Beyond that, just start making your monthly payment to the new lender each month. — Brian Davis, Founder of SparkRental It's important to remember that when your loan is sold to a different lender, your interest rate and loan terms always stay the same. The only thing that can actually change is when and where to send your monthly payments, which is why the first thing you should do after receiving the ownership transfer notice is to read it very carefully; make sure that all your personal information and loan terms are correct. You should also look for the date from which your new lender will take over as well as the new billing information so that you can set everything up for your next payment. Overall, there's nothing major or negative that you should worry about when having your loan sold, just make sure all the information is correct and you can continue paying your mortgage as normally do. — Chris McGuire, Owner of Real Estate Exam Ninja search When you receive notice from your new loan servicer, look out for the following details: Name, address, and phone number of the new loan servicer Loan details (loan type, loan number, etc.) Date of loan sale Date of when the new loan servicer takes possession of the loan New loan billing information Contact information for the party who can resolve loan disputes and receive legal notices Your contact information — make sure it is all correct If you take the time to carefully read your mortgage transfer notice, and contact your previous and new lenders, your payment transition should be smooth, and you will continue making your mortgage payments as before. Which mortgage companies don’t sell loans? Most mortgage companies buy and sell loans — there is no guarantee, no matter your lender, that your loan won’t be sold. However, some lenders strive to service all loans that they underwrite and process. We analyzed the more than 4,600 mortgage company reviews on BestCompany.com and took a deep dive into 114 reviews mentioning a customer’s loan being sold or bought. From this analysis we learned that two companies stand out from the rest for being more likely to fully service your loan without selling. Quicken Loans On BestCompany.com, 3 percent* of customers mentioned in their review that they chose/like Quicken Loans because the company doesn’t sell loans: Quicken Loans, via Rocket Mortgage, states that it is proud to service the majority of loans that it originates. However, there is no guarantee that your loan will not be sold if you choose this lender. *Taken from a sample of 114 customer reviews on BestCompany.com. New American Funding In mortgage company reviews left on BestCompany.com, 3 percent* of customers mentioned that they chose/like New American Funding because the company doesn’t sell loans: While New American Funding can’t guarantee that it won’t sell your loan, the company strives to service the majority of loans that it originates. *Taken from a sample of 114 customer reviews on BestCompany.com. Additional company review insights From our customer review analysis, we also discovered the following insights about the customer experience when a loan is sold: 31% of customers don’t like their new loan servicer — due to a variety of reasons including, but not limited to, poor customer service and difficulty in making payments. 19% of customers are happy with their new loan servicer. 10% of customers mention that their loan was sold almost immediately after closing, which was often unexpected. 10% of customer reviews are for the mortgage company, Better.com. 3% of customers mention that they didn’t receive notice that their loan was sold. Fifty percent of reviews remark on whether or not a customer likes their new loan servicer after their loan was sold. Although you can’t necessarily control who your loan will be sold to, there are some things you can do to help prevent your loan being sold to a servicer that you don’t like or trust: Take time to research mortgage companies and ask about their servicer/investor networks. While companies aren’t obligated to disclose this information, it never hurts to ask. Better.com, for example, states on its website that it has a robust network of banks, government-sponsored entities, and publicly traded companies. In addition to this, Better.com states that it collects third-party reviews on the service their partners provide to ensure a quality experience for customers. Carefully read your mortgage agreement. Mortgage companies are required to disclose whether or not they’ll sell your loan in your mortgage agreement. While this may not provide you with specific information on your lender’s servicer/investor network, it gives you an opportunity to approach the subject with your lender. One of the most important things you can do to secure a more enjoyable mortgage experience, whether or not your loan is sold, is to do your research and ask your mortgage lender as many questions as you can before signing on the dotted line and closing on a loan. The bottom line It is very likely that your mortgage loan will be sold at least once during your mortgage term. But, there's no reason to worry. If your loan is sold, carefully read the notice sent to you by your lender and make sure you understand where you will be making payments. And if you have further concerns, speak to your original lender and new servicer to make sure that you’re all on the same page. Frequently asked questions How quickly will my loan be sold after closing?What do I do if I don't like my new loan servicer?What if I don't receive notice that my loan has been sold?Can my new loan servicer charge me additional fees?How many times can my loan be sold?Can I do anything to prevent my loan from being sold?Can I choose who my loan who is sold to?Are there mortgage companies that don't sell loans? How quickly will my loan be sold after closing? Your loan can be sold at any time — immediately after closing to 10 years after the fact. From customer reviews on BestCompany.com, many customers mention that their loan was sold much faster than they anticipated. It is worth preparing yourself for this reality, especially if you are borrowing from a small broker or lender. What do I do if I don’t like my new loan servicer? You don’t have any control over who your loan is sold to, which can be problematic if your loan is sold to a servicer that you don’t like or trust for any reason. If you don’t like your new servicer, there is the option to refinance with a different lender, which will change the rate and term of your original loan. Refinancing is a good idea if you can secure a lower interest rate and/or more favorable loan term, helping you save money on your mortgage overall. If you won’t be able to secure more favorable loan terms, it might not be worth refinancing just to get out from under your loan servicer. What if I don’t receive notice that my loan has been sold? Mortgage companies are required to give you notice if your mortgage loan is sold. In addition, your new loan owner is required to notify you within 30 days of the service transfer. Ensure that your contact information — mailing address, email address, and phone number — are correct before closing on a loan to make sure that the company can reach you for any reason. If you don’t receive any notice or you have any questions about the mortgage selling process, speak with your original mortgage lender and new servicer. You also have a 60-day grace period when your loan is sold in case you send payments to your old lender instead of the new one, allowing time to take care of any discrepancies in the loan transfer process. Can my new loan servicer charge me additional fees? In most cases, no, you will not be charged any fees when your loan is sold. How many times can my loan be sold? There isn’t necessarily a limit to how many times your loan can be sold. In many cases, homeowners don’t experience their mortgage being sold more than once or twice. Can I do anything to prevent my loan from being sold? The short answer is no, there isn’t anything you can do to prevent your loan from being sold. Can I choose who my loan is sold to? Mortgage companies have specific servicer/investor networks from which they buy and sell loans, and you don’t get to choose which company your loan is sold to. Are there mortgage companies that don’t sell loans? There aren’t any companies that never sell loans. However, some companies strive to service a majority of the loans they originate, such as Quicken Loans or New American Funding. However, even these companies sell loans, so there is no guarantee that your loan won’t be sold
In 2019, first-time homebuyers made up 33 percent of all homebuyers in the United States. That's an average of 1.5 million Americans. Millennial-aged consumers make up the largest demographic of first-time homebuyers and they're facing a different housing market than their parents, as well as increased student debt, making it more difficult to buy a house. However, that doesn’t mean that millennials, or anyone else for that matter, can’t or shouldn’t buy a house. Instead, it is important to ask the right questions: How much money do I need to buy a house? Should I pay off debt before buying a house? How do I get a mortgage? Click on the links above to find the answers to these questions. While these three questions obviously aren't exhaustive, they do offer a solid foundation and place to start in the home buying journey. To get an inside look at the first-time home buying process, we touched base with Rebecca Hunter, CEO at The Loaded Pig, who purchased her first home back in the summer of 2019. From her experience, Hunter recommends asking the right questions about potential mortgage lenders; in particular, how you would be communicating with your lender: “I guess the main pain point that could have been avoided was that we picked an online lender so that we didn't have to deal with a person in an office or on the phone, but we ended up having to talk on the phone multiple times a day during the entire closing period. So asking, what is your main way to communicate during the closing process? Since your company is an online lender, does that mean that we will only communicate online?” Many of the top mortgage lenders today are online, making it easier to apply for and manage your home loan. But, if problems arise or you have questions, it is important to know how you’ll most easily be able to communicate with your lender. Once you have chosen a lender, or at least whittled down your list to your top two or three, there are some more important questions that you can ask about each lenders’ expertise and experience, which could potentially save you from stress later down the road. “The huge issue that our lender brought to our attention exactly one week from closing was that they miscalculated the taxes and we had to pay off a $10,000 auto loan in order to close on the house,” Hunter describes. “This seemed like a lack of experience, so some questions I might have asked are: How experienced are your underwriters? How many years has this lender been in business? What percentage of loans that are approved actually close on time?” Beyond figuring out how a mortgage and down payments work, when it comes to buying your first house, it can be hard to know what questions you should be asking, especially once you start looking at homes. Asking the right questions and taking time to do your research may seem like a long and painstaking process, but it can help ensure that you really do find the right house for you. Questions to ask when buying a house: How Much Money Do I Need to Buy a House? Should I Pay Off Debt Before Buying a House? How Do I Get a Mortgage?
Buying a house is a large investment, and it can be daunting, especially if you have existing debt that you are paying off; credit cards, auto loan, student loan(s), etc. So you may be asking yourself, should I pay off debt before buying a house? You would think that the answer to this question would be a simple yes, since having less debt is better when taking on a new debt, right? In reality, the answer is a little more nuanced. While paying down, or completely paying off debts can be helpful in freeing up some extra cash that can be put towards a down payment, closing costs, and subsequent monthly mortgage payments, it is important to understand the relationship between debt and the mortgage process. Jason Gelios; REALTOR®/Author Industry Expert Having some debt can be good: It's always better to have less debt when applying for a mortgage, however not having any debt can also backfire because lenders like to see some responsibility managing debt. Sometimes I meet with first-time homebuyers who may need to establish debt to qualify for a mortgage. On the other hand I have seen some home buyers have to pay down or pay off debt to be approved for a mortgage that will fit within their budget by getting them the more attractive rate. A helpful place to start is understanding what mortgage underwriters are looking for. Underwriting is a crucial part of the mortgage process, and is ultimately the deciding factor in whether or not you’ll be approved for a home loan by a lender. Generally, underwriting occurs behind the scenes while home appraisal is taking place. An underwriter will carefully assess your finances to give the lender an idea of how much of a risk you are, resulting in an approval decision. Underwriters often look at the following: Credit history — Your credit report will be pulled and the underwriter will carefully review your current credit score, as well as your credit history, including things like payments and your overall use of credit. Income — You will be asked to provide proof of employment and income. Savings — The underwriter will take a look at your savings to ensure that you have enough money in addition to your income. Having strong savings is important in the case of an emergency or if you need some extra cash to make a down payment on a home. Home appraisal — An appraiser will inspect the property that you wish to buy and place a value on the property. This process is generally required in the home purchasing process. Assets — Your assets can be sold in case of loan default to make mortgage payments. Since the down payment and closing costs can be a substantial amount of money, underwriters will often look at this information to ensure that you can make your monthly mortgage payments. Debt-to-income (DTI) ratio — Your DTI is how much credit you use in relation to your income, and it is presented as a percentage. This ratio allows an underwriter to see how much debt you currently have and if you have enough cash flow to take on another large debt, in this case a mortgage. So how does your debt affect these and other important mortgage process factors? Let’s take a closer look. Debt and your credit score No debt is equal to a better credit score, right? Well, no actually. A higher credit score requires some responsibly managed debt, meaning that you always make payments on time. Your credit score is calculated based on your debts and how you manage them. If you don’t have any debt, you won’t have a credit history, and lenders won’t be able to verify how you manage borrowed money. However, lowering debt, instead of eliminating it, could be a helpful practice, particularly to help meet the costs of buying a house and to continue making your mortgage payments. But you should be careful in how you go about lowering debt, because doing too much too soon could have an adverse affect on your credit score. When you pay off a loan, or any other type of debt, your credit score will temporarily drop; the same occurs if you close credit card accounts. While it may not always be wise to maintain debts for the sole purpose of achieving a high credit score, it is important to understand the timing of paying off debt in relation to applying for a mortgage. Therefore, a good rule of thumb may be to not pay off debts or close credit card accounts immediately before applying for a mortgage. Underwriters, who are scrutinizing your credit, generally don’t like to see credit changes immediately before funding a home loan, and so it could be in your best interest to hold off on paying down your debts and/or closing credit card accounts. And, a healthy credit score is required if you want a lower interest rate. But, how do you know whether or not it’s a good idea to pay off your debts or not? “People looking to purchase a home for the first time should meet with a mortgage professional who will look at their credit and income to see if it makes sense for them to pay down or pay off debt to get approved for a better loan,” says Gelios. “If a first-time homebuyer can get approved for a higher amount they want or need while getting a better rate if they pay off debt and increase their credit scores, then that is the route they should go.” Debt-to-income ratio As was mentioned earlier, your DTI ratio is how much credit you use in relation to your income, and is typically presented as a percentage. This ratio is the second largest factor, after making on-time debt payments, that makes up your credit score. “Most lenders like to see an applicant's Debt-to-Income ratio at or below 43 percent when applying for a home loan. This is the monthly debt obligation divided by the gross monthly income.” says Gelios. “For example, if an applicant has $1,000 (Monthly Debt) and $2,000 in Gross Monthly Income, their DTI would be 50 percent. So at this point an applicant would need to pay down or pay off debt to bring that percentage down.” This ratio is particularly important to underwriters because it is common that individuals with too much debt (or a high DTI ratio) are more likely to default on their loan. Thus, if you have too much debt, you may need to pay it down before applying for a mortgage. You may be thinking that it would be best to just eliminate debt entirely and not worry about this ratio, but remember that some debt is good and is important for maintaining a healthy credit score. Debt and your savings What do you do when you have some extra income? Would it be better to pay down your debts or put that money aside in savings? While it can be helpful to consider the cost of interest on your debts, or simply splitting your income in half to cover all your bases, one important consideration is whether or not you already have an emergency fund or not. An emergency fund is exactly what it sounds like: savings put aside for an emergency. Especially when buying a house, it is important to have some money set aside for unexpected circumstances from roof repair after a storm, to medical expenses that you wouldn’t be able to easily cover while also making mortgage payments, or even to unexpected job loss. In general, it is always advisable to be prepared and have some extra money in the bank. In most cases, experts advise having three to six months worth of expenses in an emergency fund. While this can vary depending on your circumstances, as well as the debts that you are paying off, setting aside whatever you can is a good idea. In the end, the decision to pay off debt or save money is a personal decision and will depend on your circumstances. The bottom line Should I pay off debt before buying a house? Whether you have existing student loan debt or credit card debt, it is generally a good idea to pay debt down before buying a house. But there are three things to keep in mind that can help you determine the best ways to pay down and/or manage your debts: Having some debt is good. Making drastic changes to your debt (paying it down drastically, paying it off, or closing credit card accounts) can impact your credit score. Underwriters don’t like to see a lot of changes before funding a loan. Building or fortifying your emergency fund is always a good idea. You never know what might come up. If in doubt, talking to a mortgage professional or loan officer can be a helpful way to more accurately assess how to approach your debts before buying the house of your dreams. Choose a Mortgage Lender Once you've got your debts and finances in order, it's time to choose the best mortgage lender for your needs. Compare Expert contributor: Jason Gelios is an award-winning, top producing REALTOR® and author.
Guest Post by Baruch Mann (Silvermann) When you've fallen in love with a prospective home that checks off your "must haves" — the extras from your wishlist, the neighborhood you really love, the garage space you've dreamed about — it is time to move on to the next steps. While you’ll get more important details about the property, it must pass the inspection process. Additionally, since you’ve fallen in love with the property, others may feel the same way, so you’ll want to move on with the process as quickly as possible. If the property is attractive, there may be a lot of competition from other buyers. So, is it possible to deal with both tasks — passing a home inspection and beating out competing buyers — simultaneously? Can you learn if it’s the right location for your specific needs? Can you win a bidding war? How do you deal with the inspection process? And what about your finances? Figure out the final details Now that you’ve found the home that you’re interested in, use these strategies to figure out a bit more about the home and your new location: Ask the right questions — You can obtain lots of information with some basic questions. You should start by asking why the seller is selling the home and how long they lived there. Start to build a relationship that could be helpful during the negotiation process. If you're looking to buy a house that has been frequently moved out of, it could be a sign that there is something wrong in the area that requires closer attention. Are there any problem neighbors? Are there traffic issues, crime, or local businesses that could pose a difficulty? You may notice the neighborhood has lots of litter or bright lights. Conversely, there could be barking dogs at all times of the day and night and broken street lamps. Any of these issues could be a warning sign not to buy, so it is crucial to ask early on and avoid homebuyers' remorse from not asking enough questions. Talk to an agent — While you should know what's going on in the area, you may lack local knowledge. It is crucial to talk to a real estate agent to gain real insight into the area. If you're new to the area, you may not be comfortable with certain aspects of the neighborhood. Ask about issues such as school catchment areas, litter problems, parking, traffic, and noise. Think about all the things that could bother you and ensure you ask the agent about the possibilities. Visit the property at different times of the day and night, so you can get a realistic picture of the neighborhood. Use online neighborhood comparison tools — Numerous online tools can give you a general overview of new neighborhoods. Realtor and HomeFinder will not give you the skinny about the home, neighborhood, crime, schools, and more. GreatSchools.org, on the other hand, can help you to find out where the schools rank. You can compare new neighborhoods with where you currently live. This will help you to find a similar neighborhood or one with better schools or lower crime rates. Win a bidding war on the house you really want How do you win a bidding war on the house you want? It’s a very important question to consider, and here are some steps you can take to help ensure that the home will be yours: Make a good impression when you initially visit the home. Be polite, ask questions, and develop a rapport. Real estate can be a highly emotional process — the seller may be emotionally attached to their property, so it is nice to express what you like about it and why you want their home. Work with your realtor to compare listings in the area, so you can determine the right amount to offer. Generally, the more competitive the market, the nearer to the asking price you'll need to be. Come with cash. Not everyone is able to do this, but if you're in a position to make an all cash offer, you'll have an advantage. In very hot markets, with heavy investors, there are usually cash offers on the table. Sellers will be reluctant to deal with the possibility of loans now coming through, or they may not want the delay needed for mortgage processing, so cash is preferred. Develop a relationship with the seller. In the end, real estate is all about people. As we touched on above, a good relationship with the seller could help you to win a bidding war. So, you should start working on your relationship from the moment you initially visit the house. You could try writing a personal letter to the seller, explaining why you want to buy the house. If you have a young family, you could write about picturing your kids enjoying the cozy family room or playing in the yard. You could also write about how much you love the neighborhood and are looking forward to becoming an active part of it. Use the win/win perspective when negotiating Your best strategy is to position yourself as a strong buyer who’s serious about getting to the closing table. However, don't skip negotiations and be ready to walk if necessary. One of the worst things you can do is get over emotional and overextend yourself. Many people make the mistake of starting each negotiation like going into battle. This will not only annoy the listing agent you're likely to work with again in the future, but it could hurt you in the long run. Instead, focus on solutions. This will help you to avoid turning every point into an adversarial crisis. Understand what is important for the seller and aim to allow them to feel that they also won. For example, if there is a roof issue, but the seller wants to sell and move now, you could ask for a discount and do the repair yourself. If the seller is unwilling to compromise on the price, you could request extras that were not included in the home inspection report. Dealing with a rejected offer If your offer is rejected and there is no counter offer, you need to ask the seller’s agent for a reason why. There are limitless reasons why sellers choose not to move forward with an agreement. For example, the seller may have received several offers, and yours may not be the most attractive. Alternatively, the seller may decide to wait for an even better offer. If you discover your offer was rejected due to a better offer from someone else, find out if the other offer has been accepted. If the offer has already been accepted, you’ll need to start shopping for a new home. However, if the offer is still in the negotiation stage, there may be time to present a new offer. This will mean working with your agent in a bidding war. If you’re a first-time home buyer, reach out to your agent for tips on making an attractive offer. An agent familiar with the local market, who has negotiation experience will provide an invaluable resource for you during the home-buying process. Managing the inspection process When dealing with inspection, it’s recommended to have someone who understands the process with you. Understanding the inspection process is mainly based on experience, but if you know someone who deals with inspections this can be even better. When I bought my first home, I had no real idea of how it worked, so I called my father. He had a lot of experience and knowledge, so he paid attention to the details, asked the right questions, and helped me to understand potential problems. Although you'll get a report, it will be easier to understand a problem that's been explained to you, so you can see what the issue is. To negotiate for credits or repairs, you should start by obtaining a local contractor or construction professional estimate for how much the repairs should cost. If you're working with a real estate agent, they can handle the negotiations on your behalf. Supply your agent with a copy of the inspection report, so they can use it as leverage when working with the listing agent and the sellers. Make sure you get the right mortgage for your needs You need to ensure you weigh things out appropriately, and you work on which mortgage lender will be best for you and your family in the long term. This may be paying equally from the beginning or paying a little now and more later. This is based on three different things: The mortgage term — The loan term has an impact on every aspect of the loan. It affects how much you pay every month, the interest costs, and other expenses. With a longer term, you will have lower payments, making it attractive for many people, but you need to be prepared to pay more in the longer term. Interest rates and types — A fixed rate means that there will be no change in how much you'll pay. Adjustable rates are subject to interest changes, usually at specified times. Which type is preferable will depend on your specific circumstances. Mortgage types — In addition to choosing between a fixed and adjustable rate mortgage, you should look at conventional mortgages versus government loans. Each of these has drawbacks and benefits, so carefully consider these before you make a final decision. Buyers should have their funds for closing costs readily available. You'll need to be ready to wire the funds or present a cashier's check on the day prior to closing. Lenders require proof of sufficient funds for a down payment and closing costs before closing. You should also bring copies of the paperwork you received or signed during the home-buying process, plus two forms of ID and the payments you need to make. Top Mortgage Lenders Compare rates, terms, and mortgage types, and find the best mortgage lender for you. Compare Baruch Mann (Silvermann) is a personal finance expert and founder of The Smart Investor, a financial online academy for millennials that helps thousands invest smartly and make better financial decisions.
A mortgage is a type of loan that is used to finance a home purchase and gives your lender the right to take your property if you fail to make your payments. Most homebuyers need to get a mortgage, unless you can pay for the full cost of the home out of pocket. Julie Aragon, a trusted mortgage expert at Julie Aragon Lending Team, explains that getting a mortgage should always be your first step in the homebuying process: “Talk to a licensed loan officer (aka mortgage lenders) as soon as possible (definitely before you fall in love with a property) so you can understand how much you can qualify for and what types of up-front and monthly payments scenarios you'd be looking for at different purchase price points. If you're already using a real estate agent, get a recommendation from them.” To qualify for a mortgage loan, certain eligibility requirements must be met, including having a good credit score (generally at least a 580), and a low debt-to-income ratio of less than 50 percent. How does a mortgage work? Like other types of loans, your lender gives you a set amount of money that you are required to pay back over a set period of time. In addition to your loan balance, you will also be required to pay interest on your loan, which will be determined in large part by your creditworthiness and how much of a risk you pose to your lender. In most cases your home is used as collateral, meaning that the lender has the right to foreclose on your property if you miss a mortgage payment — foreclosure generally doesn’t occur until you’ve missed two or three consistent payments. How do I get a mortgage? Getting a mortgage can seem like a daunting process, but it really comes down to choosing the right lender and mortgage loan type for you. 1. Check your finances Because your mortgage interest rate and ability to qualify for a mortgage is reliant upon your creditworthiness, it is important to check your credit score. You may even need to work to improve it if possible, allowing you to get better rates and terms. Andy Kolodgie; Owner of The House Guys Industry Expert Two important things when qualifying for a mortgage: The two most important things when qualifying for a mortgage are credit score and debt to income (DTI) ratio. However, there are a multitude of other requirements that you can get caught up in (such as a minimum 2 year job history). Your DTI ratio ideally needs to be 43% or less but certainly no more than 50%. In terms of credit score, the higher the better — but any higher than 760 won’t make a difference for qualifying). The minimum credit score (unless you’re doing a VA loan, which has no minimum) is 540. While there are mortgage options if you have bad credit, doing what you can to ensure that you have a healthy credit score could save you a lot of money in the long run. In most cases, you should strive to have a credit score of at least 700. 2. Determine what you can afford It is important to take stock of your finances, make a budget, and crunch some numbers so you know how much money you will need to buy a house, including a down payment and closing costs. Ensuring that your finances are in order could save you time in the mortgage process, especially if you have an idea of what size down payment you can make. It can also provide you with peace of mind, knowing that your finances are in order and that you’re prepared to meet the costs of buying a home. How much money do you need to buy a house? Calculate how much money you will need upfront to buy a house — including a down payment, closing costs, moving expenses, etc. Calculate 3. Build your savings Buying a house is a large expense, and so it is likely that you have already built up your savings to make a down payment and pay closing costs. But, even beyond those expenses, you'll want to build up your savings so that you have some wiggle room if an emergency arises or you are met with more costs than you initially anticipated. 4. Choose a mortgage lender There are a lot of different mortgage companies to choose from, so how do you pick one? A good place to start is by comparing interest rates, fees, and down payments across lenders. Interest rates vary by loan type and term, but the average rate you will see across the industry is approximately 3 percent APR. Many lenders offer lower rates, such as AmeriSave with rates as low as 2.328 percent. The interest rate you will receive will be dependent on your credit score and current finances, so it can be helpful to pre-qualify with various lenders to compare the rates that you would get. Many mortgage lenders have an application fee, loan origination fee, third-party fees, and other government processing fees. The cost of these fees may vary by lender, and some lenders may not have certain fees, and so it is important to do your own research to see what fees your top lenders have. For a conventional loan you can generally make a down payment as low as 3 percent, but this will also depend on the lender that you choose. Sundance Brennan; American Financial Network, Inc. Industry Expert Tips for choosing a mortgage lender: There are a lot of mortgage lenders in the marketplace. When people ask me who they should be working with, it’s usually less about the rates and fees and more about service and trust. The playing field has been leveled in terms of rates and fees that are allowed to be charged and there isn’t really a wide range of costs in today’s market. You can certainly find some price differences, but in the macro sense, our borrowers are savvier than they have ever been. With information readily available on the internet, lenders have found that they need to be priced very near their competitors to find success. That should give the borrower some peace of mind knowing that reasonable prices happen when there is an open competitive market. Read reviews online, find a personal referral if at all possible, and make sure that when you speak to your loan officer you are comfortable with all of their answers and guidance. In addition to typical mortgage factors such as rates and fees, we wanted to know what mortgage consumers were most concerned about in a mortgage lender. So, we took a look at the mortgage company reviews left on BestCompany.com. From these reviews, customers most often mentioned the following in their mortgage loan experience: 65% mention customer service 38% mention speed and efficiency in the overall mortgage process 20% mention transparency 16% mention interest rates Customer service For the majority of consumers leaving reviews, customer service is one of the most important aspects of the mortgage process. In many reviews, consumers name specific loan officers that they worked with, either describing positive or negative experiences. On many mortgage company websites you can search for loan officers to try and find the best fit for you and your needs. Speed and efficiency It takes an average of 30 days to process a mortgage loan application, but in many cases, this process can take a much longer amount of time, up to 60 days. But, consumers prefer companies that can process an application quickly and efficiently. Transparency In many negative mortgage company reviews, customers detail experiences in which companies were not transparent with costs — customers were hit with much higher costs at the close of the mortgage loan process than they were given at the beginning of the process. Interest rates It is surprising that mortgage consumers are quick to mention customer service, speed and efficiency, and company transparency before interest rates. Thus, it can be inferred that customers are more concerned about the overall experience of working with a company than rates and terms. However, this is still an important factor in the mortgage loan process, and consumers do want low rates. Julie Aragon; Julie Aragon Lending Team Industry Expert Make sure you read mortgage lender reviews: We recommend finding someone who has a lot of experience in the area(s) you're eyeing for your purchase. Start with recommendations from local friends and/or family who've had good experiences with lenders in the past. No matter what, research online reviews. Read Top Mortgage Company Customer Reviews Compare top-rated mortgage companies and read reviews from real customers to find the best lender for you. Compare 5. Choose the right mortgage for you Since mortgages aren’t “one size fits all” there are a variety of loan options available, allowing consumers to tailor their mortgage to their needs and finances: Conventional loan — The most common type of mortgage loan. A conventional loan isn’t backed by a government agency and is instead backed by a private lender. Generally, this loan type will require a down payment of at least 3%. Adjustable rate mortgage (ARM) loan — With an adjustable rate mortgage loan, your interest rate will vary throughout the loan. This means that your initial interest rate will be lower than with another type of loan, but that rate will fluctuate, raising and lowering your monthly payment as you’re paying off your mortgage. FHA loan — An FHA loan is backed by the Federal Housing Administration and accepts down payments as low as 3.5% with a credit score as low as 580. This loan type can be a great option for first-time homebuyers. VA loan — VA loans are offered by private lenders and are partially backed by the U.S. Department of Veteran Affairs. This loan type offers mortgages to military service members, veterans, and select military spouses with a 0% down payment. USDA loan — Only available to eligible rural homebuyers, a USDA loan is backed by the U.S. Department of Agriculture. This loan type offers low interest rates and a 0% down payment, but you must buy a home in a designated rural or suburban area. Jumbo loan — A jumbo loan is used to finance expensive properties that exceed the limits of a conventional loan. This list is not exhaustive, and it is important to note that not all lenders offer all loan types. But, the lender you choose to work with will be key in helping you know which loan type will best fit your needs. 6. Get pre-approved for a mortgage Mortgage pre-approval is a preliminary evaluation by a lender to determine whether or not a borrower is eligible for a mortgage loan. If you are pre-approved, the lender will provide you with a letter, which will be necessary to have when you’d like to place an offer on a house. In general, it takes 1 to 3 days to receive a pre-approval letter. 7. Go house hunting When you’re ready to start the house hunting process, it will be important to find a real estate agent. While you can buy a home without using an real estate agent, it is recommended to use one to simplify and help throughout the house hunting process. "Real estate agents take a bigger responsibility with the whole process in buying a house. When you are a first-time home buyer it is best to ask for assistance from real estate agents since they will make your home hunting easier," says Ben Singh, Owner/Founder of SEEB Homes. "They will be alert for issues that might not cross your mind when buying a house and they will address it quickly. It will save you a lot of time and money since they can give you researched, current, and reputable data regarding a neighborhood's demographics, crime rates, schools, and other important factors." 8. Close on a home Once you’ve found the home of your dreams, it’s time to close — transfer the ownership of the home from the seller to you, the buyer. If you have a real estate agent, they will take care of the majority of the closing process. But, this process generally includes getting a home inspection, renegotiating the home sales prices, if necessary, completing your mortgage application, getting homeowners insurance, and then signing on the dotted line of the closing documents. Who are the top mortgage lenders? We took a look at customer reviews for the top-rated mortgage companies on BestCompany.com, and we noticed that customers most often outlined sentiments and experiences with customer service, the overall loan process, and interest rates. Keep reading for a breakdown of customer reviews for each company. AmeriSave Mortgage search Highlight: AmeriSave offers an efficient loan process and low rates AmeriSave Mortgage is one of Best Company's top picks for a mortgage lender, offering low rates and a quick and easy loan process that will get you to closing faster. AmeriSave Mortgage was founded in 2002 and has funded over $55 billion in home loans and has been trusted with over 280,000 homes. As the top-rated mortgage company on BestCompany.com, 87 percent of AmeriSave Mortgage reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 59% of customers mentioned positive experiences with customer service. Loan officers were professional, knowledgeable, and quick to respond. 42% of customers mentioned that AmeriSave’s loan process was fast and easy. In addition, 21% of customers specifically noted how they appreciated that the AmeriSave loan process was almost entirely done online. 23% of customers mention low and competitive rates. AmeriSave Mortgage Customer Review: Joyce from Newport News, Virginia “They were very quick, efficient, and handled everything well. They knew all the answers to questions I had and they were just fantastic. They had my process finished in a month and a half. The whole experience was just fantastic.” *Data and insights are taken from a sample of 100 AmeriSave Mortgage reviews. Learn more about AmeriSave Mortgage New American Funding search Highlight: New American Funding offers outstanding customer service New American Funding is one of Best Company's top picks for a mortgage lender, offering outstanding customer service with loan officers who will help you at every step of the loan process. New American Funding was founded in 2003 and has funded over $33.6 billion in over 137,000 home loans. Ninety-nine percent of New American Funding reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 82% of customers mention positive experiences with customer service. Customers were able to receive personalized help quickly and loan officers were reliable and knowledgeable. 35% of customers mention how fast and easy the New American Funding loan process was from application to close. 16% of customers mention low and competitive rates. Speaking to these points, and especially to providing exceptional customer service, Rick Arvielo, New American Funding cofounder and CEO, states: “New American Funding considers itself to be a family, and our clients are part of the family too. We believe in developing industry-leading technology and combining it with unparalleled customer service to create the best possible mortgage experience for our borrowers. That philosophy has led our company to become one the nation’s largest and most respected lenders.” New American Funding Customer Review: Mark from Columbus, Ohio “They frequently checked in with me during the house buying process to make sure I had everything I needed. Once I found the home I was ready to purchase, they made sure I was informed and understood each step along the way until I closed on my new home!” *Data and insights are taken from a sample of 85 New American Funding reviews. Learn more about New American Funding NBKC Bank search Highlight: NBKC Bank offers an efficient loan process and outstanding customer service NBKC Bank is one of Best Company's top picks for a mortgage lender, offering outstanding customer service with top-notch loan officers that customers frequently mention positively by name in reviews, and a quick and easy loan process that will get you to closing faster. NBKC Bank was founded in 1999 and offers a full suite of traditional banking services. The company has a top-ranked mortgage program and offers discounts to Costco members and home loan savings for all. Ninety-eight percent of NBKC Bank reviews are 4 or 5 stars. From these positive reviews, we gained the following insights*: 89% of customers outline positive experiences with customer service. The majority of reviews mention specific loan officers by name and that customers felt like they were receiving prompt and personal care. 50% of customers mention how fast and easy the NBKC Bank loan process was from application to close. 14% of customers mention low and competitive rates. In addition, customers also frequently mention low fees and closing costs. NBKC Bank Customer Review: Alexander from Alpharetta, Georgia “I am a first-time home buyer, and despite the whole process is pretty complex, I found all communication to be amazingly swift and smooth. NBKC offered us a great mortgage rate, and our agent, Ryan, managed to get to the closing even faster than we expected…” *Data and insights are taken from a sample of 100 NBKC Bank reviews. Learn more about NBKC Bank Compare Top Mortgage Companies Learn more about top-rated mortgage companies and read reviews from real customers to find the best lender for you. Compare Expert contributors: Julie Aragon, mortgage expert at Julie Aragon Lending Team. Andy Kolodgie, owner of The House Guys. Sundance Brennan, Branch VP of Training and Sales at American Financial Network, Inc. Ben Singh, owner/founder of SEEB Homes.
Even before you start looking at real estate, asking yourself how much money you need is a very good place to start in the home-buying process. If you're already aware of down payments and closing costs, you can give yourself a pat on the back, but make sure you plan for all costs and expenses, even the smaller ones that you might forget about. So, how much money do you need to buy a house? Honestly, it's probably going to be even more than you thought. But this is no reason to despair. Armed with knowledge of the required costs and a thorough budget, you will be in a good place to start the home-buying process. Continue reading for detailed information on specific costs involved in buying a house, as well as a handy calculator that can help you see how much money you might need to buy a house. Down payment Maybe you’ve heard before that you need to make a 20 percent down payment to buy a home. While this can significantly reduce the size of your loan and cut out the cost of paying mortgage insurance, saving you more money on your monthly mortgage payment, this doesn’t mean that you must pay 20 percent down. In fact, most people make a down payment of 6 to 12 percent. And, there are mortgage loan options that only require 3 to 5 percent down, or no down payment at all: FHA loan — insured by the US Federal Housing Administration and intended for low-credit score borrowers with a minimum down payment of 3.5 percent VA loan — guaranteed by the US Department of Veteran Affairs with a 0 percent down payment USDA loan — offered to rural property owners by the US Department of Agriculture with a 0 percent down payment The majority of loans offering low down payments are backed by government entities, but that doesn't mean that you must pay 20 percent down if you choose a conventional mortgage loan. In many cases, you will be able to negotiate your down payment on a conventional loan, but you will likely get a higher interest rate because your loan will be backed by a private lender instead of a government entity or agency. Dan Green; CEO of Homebuyer Industry Expert What size down payment should you make? Down payment requirements are flexible, and it’s important to stay within your means. Just because you can make a large down payment doesn’t mean that you should. To find a suitable down payment figure, calculate how much money you’ll need for six months of living expenses and set that money aside. Whatever you have left is safe to use for buying a home. If you would like help in making a down payment, you can look into payment assistance programs. There are 2,000 of these programs available nationwide, and they are generally run by state, county, or city governments. Most down payment assistance can be broken down into two categories: grants or second mortgages. Determining the best down payment for you depends on your personal finances, but there are some helpful things to consider that can help you in that decision process: When is it best to make a large (or at least the 20%) down payment? If you have the means and financial stability, making a larger down payment can significantly cut down your monthly mortgage payments. But, you should consider how much more you will then be paying up front, which may be a large financial hit that could be difficult to recover from. “It's not always better to make a big down payment. The best down payment is the one that doesn't deplete your savings. Life rarely moves in straight lines. It's important to keep cash for emergencies,” says Green. When is it best to make a small down payment? “Small down payments work best when you earn good monthly income and don't have big savings,” adds Green. Especially for first-time homebuyers, it is wise to make a smaller down payment, as this will provide you with greater cash flow in the future, as opposed to putting a large amount of money down up front and depleting your savings. Closing costs While the down payment on a home is a large and important expense, don’t forget about closing costs. Closing costs cover a myriad of fees involved in processing and finalizing a mortgage, and generally come out to 2 to 5 percent of your loan amount. This may not sound like a lot, but say you buy a $300,000 home, your closing costs would range from $6,000 to $15,000. Closing costs generally include the following: Loan application, origination, and underwriting fees Home inspection and appraisal fees State recording fees Property taxes Homeowners insurance Private mortgage insurance (PMI) Escrow fees Warranty HOA costs If you would like to lower your closing cost, since it can be quite a hefty amount of money, there are a few options you could look into, such as grants, or simply asking about discounts and rebates. However, the best thing you can do is plan ahead so that you won't be surprised when it's time to close on your home. Additional costs/fees After determining what percent down you will put on your house and how much money you will need to put aside for closing costs, there are just a few more costs to consider: Moving expenses Unless you have a lot of charitable friends with trucks and a day to spare, you will likely need to consider what it could cost to hire a moving company and/or rent a moving truck. Especially if you are moving across state or across the country, it is very important to consider how much it will cost you to move. On average, the cost of hiring professional movers for a local move will range from $300 to $1,500, according to Move Buddha; if you are moving a long distance it could cost you $2,400 to $5,000. If you’re moving across the country, your costs will increase, and there are other important considerations like the cost of shipping a car. Depending on the distance of your move, be prepared to set aside at least $300 if not more. Home furnishing and maintenance If you don’t have many belongings and/or pieces of furniture to move into your new home, consider the cost of home furnishing. This could include couches, a dining room table, rugs, etc. It is also important to set money aside for home maintenance, such as gutter cleaning or yard upkeep. Be sure to budget for the items you know you will need up front, as this will save you from financial stress down the road. Jeff Beck, CEO and President of Leaf Home Solutions, expands on these points: “According to a recent report, lumber costs have surged more than 170% over the past year, which can add nearly $24,000 to the cost of a new home. Materials such as concrete, metal products, appliances, and other expenses are also increasing due to supply chain disruptions caused by COVID-19 shutdowns. Many first time home buyers, especially in this market, are so motivated to put in the highest potential offer, that they aren’t thinking about maintenance expenses. For example, if gutters are not cleaned within the first six months of owning your new home and water overflows from the gutters, it can fall along the foundation of your home, freeze, and result in cracks. Gutters should be cleaned at least twice a year to prevent damage to your roof and foundation. Certain homes, potentially both new and old, don’t always have proper windows installed to match the weather conditions of the area. Areas susceptible to hurricanes and tornadoes need to consider storm tight windows that properly seal, which as a new owner, you may not notice right away. The upkeep of maintaining a home through your changing needs is important. Many of our customers invest in their homes by introducing features and amenities that represent convenience and accessibility, such as walk-in tubs and high-quality stair lifts. Our products and installations provide peace of mind to customers that their home is secure for every phase of life.” How can I save money on my home purchase? After reading through all the costs involved in buying a home, making some estimated total cost calculations, and likely coming face-to-face with one intimidatingly big number, you might be wondering if there is any way that you could save money on your home purchase. You might be able to save some money, but the truth is, it really comes down to the mortgage lender you choose. From our review data, we were able to get an idea of some of the “cost experiences” consumers were having with different mortgage lenders in the industry: (*Note: “reliable” and “unreliable” costs refer to whether or not costs changed from application to closing) 5% of all reviews mentioned costs — either low or high costs, or getting hit with costs they weren’t aware of when they applied with a mortgage lender. 21% of reviews mentioned NBKC Bank’s low and reliable costs*. 12% of reviews mentioned Quicken Loans’ high and unreliable costs*. *Taken from a sample of 121 reviews. If you are looking to keep costs as low as possible, NBKC Bank may be a good choice. Of the more than 400 customer reviews, 95 percent of customers award NBKC Bank 5 stars, highlighting low rates and fees, and a painless process with no surprises. NBKC Bank is an online bank with physical branch locations in the Kansas City area, and it also offers a discount to Costco members. Read NBKC Bank customer reviews As a well-known mortgage company, Quicken Loans is a popular choice, but customer reviews are almost an even split between 1 and 5 stars. Many positive reviews highlight good experiences with customer service, but many negative reviews outline very high costs which, in some cases, were tacked on at the end of the loan process, giving customers a rude awakening. Read Quicken Loans customer reviews Compare Top Mortgage Companies Learn more about top mortgage companies and read reviews from real customers. Compare Expert contributors: Dan Green, CEO of Homebuyer, a mortgage lender for first-time homebuyers Jeff Beck, CEO and President of Leaf Home Solutions
According to a recent Bankrate survey, millennials (age 25–40) are the most likely group to experience home buyer's remorse. In fact, the data shows us that nearly 64 percent of millennials experience regret or remorse after a home purchase. What is home buyer's remorse? Home buyer's remorse is a deep regret felt after buying a house. Because homes are large purchases, if not one of the largest purchases many consumers will ever make, feelings of remorse or regret are common. While these feelings typically fade over time, you can avoid some common mistakes, which can help you feel more at ease after buying a home. What are the most common home buying regrets? According to Bankrate, the biggest finance-related regrets that millennial home buyers have include some of the following: High maintenance costs (not accounted for) (21%) High mortgage payment (13%) Displeased with mortgage rate (12%) Don’t think buying a home was a good investment (9%) Overpaid on a home (13%) Additional regrets include physical characteristics of a property, including millennials who felt they bought a house that was too big (14 percent), a house that was too small (14 percent), or a house in a bad location (15 percent). Multiple factors contribute to these common home purchase regrets, including a competitive market with record-low mortgage rates, not shopping around for a mortgage, and skyrocketing lumber prices. The competitive market provides a sense of urgency in putting an offer on a home and closing as quickly as possible, which can result in more unfavorable payments and costs, compounded with the fact that materials are just more expensive today than in the past. 13 common mistakes and how to avoid them Underestimating the commitment level involved Not shopping around for a mortgage Neglecting to consider all costs Forgetting about your emergency fund Assuming "new" means "better" Visiting your potential property only once Not taking time to see the neighborhood Buying a fixer upper you can't afford to repair Skimping on a quality home inspection Not taking one last look at the property Not getting a home warranty Making renovation decisions independently Not tracking project costs 1. Underestimating the commitment level involved A house is a big purchase, and that typically comes with increased responsibility. For example, when you get a mortgage to buy a house, you are committing to make subsequent payments on that home loan for the next 15 to 30 years, which is a large financial investment. Tip: Analyze, strategize, and counselApproach your home purchase like the large investment that it is — a house should never be an impulse purchase. Take time to establish what you want and need in a property and its location, analyze all the pros and cons of purchasing, and speak with friends, family, and real estate professionals to assess whether or not you’re ready to become a homeowner. 2. Not shopping around for a mortgage Shopping around for a mortgage is one the most important steps in the homebuying process, but a step that is frequently overlooked by the majority of home buyers. Yes, it might take you more time to pre-qualify with multiple lenders, and rates are fairly similar across the board, but saving even the smallest margin of a point in interest could save you thousands of dollars over the life of your mortgage loan. And you won’t know what rates are available to you if you don’t shop around and pre-qualify with multiple lenders. Tip: Read customer reviewsRates and fees will be entirely dependent on your personal finances, including your credit score and debt-to-income ratio (DTI). But if you want an idea of what the rates and fees are like with a specific mortgage lender, reading customer reviews can be a game-changer. Since mortgage products and services and fairly similar among lenders, it’s important to get an idea of whether or not a company is trustworthy and if they provide reliable customer service — a mortgage is a large investment, so you wouldn’t want to be locked in with a lender that you can’t get a hold of or that can’t answer any of your questions. Read Mortgage Company Reviews [From Real Customers] Compare rates and fees, and see what customers have to say about the mortgage process experience with specific companies. Read Reviews 3. Neglecting to consider all costs There are a lot of homebuying costs to consider, and that’s just a fact. The down payment is the big one that’s usually on the top of mind, but don’t forget about closing costs, moving expenses, home furnishings, and home maintenance costs that will inevitably come up. Crunch some numbers before you get too far in the homebuying process, or to simply map out the costs that might arise. Tip: Don’t just focus on the down paymentLuke Babich, CSO/Co-founder of Clever, recommends the following: “I'd recommend anyone considering buying a house to make a balanced analysis of whether or not they can actually afford to buy a house. There's a common saying that just because you can afford the down payment does not mean you can afford the mortgage! Make sure you factor in important variables: house maintenance (which is on average $13,000 a year), mortgage payments, home insurance, and security.” 4. Forgetting about your emergency fund The homebuying process includes many large upfront costs, not to mention that you will need to budget out your monthly mortgage payments throughout the life of your loan. Thus, it can be tempting to save up all money necessary to cover your home purchasing costs, but if you neglect to save up some money for emergencies, you may find yourself in deep water later on. Therefore, when you’re saving up to buy your dream home, also save up for your emergency fund. Tip: Buy less house than you can affordJohn Grimes, Realtor at BHGRE Metro Brokers, recommends the following: “It is very important that they draw the line at a level they're comfortable with going forward with no rosy assumptions of increased income. Ideally, a dual income couple should buy a house that either one of them can swing on their one income. That almost never happens, but it would reduce stress in the household. Buying below one's means leaves room for savings, vacations, entertainment, charitable giving, and other priorities.” 5. Assuming “new” means “better” Daniele Kurzweil, the Friedman Team at Compass, explains how a new home doesn’t necessarily mean it’s “better”: “Everyone loves walking into a home and seeing that there is no work to be done. Bring your toothbrush and you are home. Many developers and home flippers are catering to people who want new new new and design their projects to conform to whatever the latest trends are. Our clients walked into an apartment and fell in love with the open concept look with very modern finishes. Fast forward six months and our clients realized that while an open concept floor plan might be wonderful for a two-story house, in an apartment it poses its own unique challenges. Sound travels, and when you have one big open room you have nowhere to escape to. The modern finishes were beginning to look dated, and since everything was out in the open, it was the only thing they could focus on.” Tip: Consider the pros and cons of a new buy or build Kurzweil continues: “Design trends are just that — trends. When purchasing a home, be sure to consider what your needs are. Is this for starting a family? Empty nesters? First-time home purchase? Think of buying a new construction home kind of like buying a car: the second you drive it off the lot, it starts depreciating in value. You are buying new construction because it has never been lived in, and as such you are paying a premium. But when you go to sell, one of the biggest draws will no longer be there. . .it will no longer be new.” 6. Visiting your potential property only once Imagine that you find a property that you can just feel is the right one. The neighborhood is beautiful and quiet. The neighbors seem nice. You’re ready to put down an offer right there and move in the next day. While this can happen and your gut feelings shouldn’t necessarily be ignored, you might want to visit the property again on another day. When you only visit a property once, you might miss out on important factors, such as after school traffic, that might not actually be ideal. Additionally, a one-time visit might not provide you with enough time to take a close look at the property, which could cost you in the future if there were repairs or issues that you missed on your one and only visit to the property. Tip: See the property at different times on different daysGerard Splendore, Broker at Warburg Realty, recommends the following: “I sold a one-bedroom apartment to a first-time buyer and we only viewed it when school was in session, not at the beginning of the day for drop off or end of day for pick up. At the walk through the day before closing the street in front of the building was clogged with school buses and parents in cars. This came as a complete surprise to the buyers.I always suggest seeing properties during the week at various times, in the evening, and on weekends. This is a great way to avoid any surprises about the surrounding area.” 7. Not taking time to see the neighborhood Alison Bernstein, founder and CEO of Suburban Jungle, was the first of her friends and colleagues to leave the big city to live in the suburbs. She and her growing family found an area that seemed perfect on paper, but it turned out, after they moved, that the area wasn’t what they had anticipated at all and they realized that they really wanted something different. The trouble is that real estate agents don’t always know neighborhood and community nuances, so it can be hard to get a complete picture of an area. For this reason, Bernstein started The Suburban Jungle, a company committed to helping families make the move to suburbia by making connections in the communities they’re interested in. Tip: Meet people and make connections Bernstein recommends the following: “Talk to as many people that live [in the neighborhood] and try to get the real, non-sale pitch to understand what their day is like. Maybe meet them and run a few errands with them and see if you can see yourself there. You know, like even going to the school pick-up if you have kids, or going to some preschools and being there at the time of drop-off or pick-up. Those things go a long way because a lot of people see community on a Saturday and they're like, "oh, this looks fabulous," but it tells a different story on like a Tuesday afternoon.” 8. Buying a fixer upper you can’t afford to repair Perhaps you’ve spent some time watching HGTV and have been entranced by shows like Fixer Upper or Good Bones. Maybe you think that buying a run-down home could be a fun and easy project. This could be true if you have a background in construction or home renovation, but for the average individual, buying a fixer upper home could cause more headaches and stress than you really want or need. Tip: Don’t get in over your headAlison Bernstein from Suburban Jungle explains: “If you have the appetite for fixing up and you don't get in over your head, and that's what you're excited about, then great. It's important to make sure that people have enough time because a lot of people are working full-time or have kids, and it is definitely a very time-consuming process. So as long as you can enjoy it and take it on, and like I said, more importantly, enjoy the process, then it's great. If you don't have a choice, you're stuck and you're renovating because you have to, I think it takes on a different light, but hopefully it's well worth it.” 9. Skimping on a quality home inspection One of the best ways to induce remorse or regret is by skimping on a home inspection. In many cases, this might be a required part of your mortgage process. But if it isn’t, that doesn’t necessarily mean that it should be optional. Tip: Pay more for a highly qualified inspectorWally Conway, president of HomePro Inspections, recommends the following: “The single best way to avoid buyer’s remorse is to have clarity on what you are buying and have protection for the unexpected. Your home inspection should be performed by the most experienced and technically competent home inspector that money can buy. Most buyers are taking on a 30-year mortgage, and that’s a long time to live in regret. It's also 360 mortgage payments! Wouldn't it seem wise to invest a mortgage payment to ensure that you have done as complete a job in due diligence as is humanly possible? Consider protecting your home after the inspection is done by choosing a home inspection that includes protection to cover the cost of the unexpected problems that will come up with home ownership, such as live sewer line failures, mold, and roof leaks.” 10. Not taking one last look at the property David Pipp, Personal Finance Blogger at Living Low Key, shares his experience not noticing an issue that could have been avoided: “Shortly after we moved into the house, we had a massive rain storm and ended up with water in our basement. It wasn't until that issue arose that we noticed there were no gutters on the back side of the house where water got in. $2,000 later we had new gutters on the house and our water problem was fixed. Since we moved in, we have had to add a water filtration system to the well, replaced both of the decks on the house, replaced a leaking toilet, and countless other small fixes totaling close to an additional $10,000. Next summer we plan to have the house re-insulated because it gets really cold during the Minnesota winters.” Hire a second home inspector One way you can ensure that nothing is missed, or any issues are overlooked, is by hiring a second home inspector. This might be an additional upfront cost, but having a second opinion at the start, and a comparison to your initial home inspection, could save you thousands of dollars later on. 11. Not getting a home warranty After putting money into a mortgage, a home inspection, and more, you may want to shrug off getting a home warranty — after all, it would just be one more expense, right? However, you never know what could happen once you close on your home. Perhaps, just days after closing, your water heater breaks or your air conditioning stops working. Without a home warranty, you could be spending a large amount of money out of pocket, whereas a home warranty could save you from some of these expenses in the long run. Tip: Understand how a home warranty worksJlyne Hanbak, REALTOR® Keller Williams Realty, explains: “A home warranty is a relatively inexpensive way to protect the major appliances and systems of a home for a specific period of time after the home is purchased. A home warranty can — and should — be negotiated into the contract on behalf of the buyer so that they are protected after their home closes.” 12. Making renovation decisions independently When renovation decisions come up, it can be helpful and important to have a second, professional opinion on your next steps. While you might think that you could save more money by doing a Google search or seeing what other people have done on YouTube, these options may not be the best for your specific situation and could cost you more overall. Tip: Hire a professional When buying a fixer-upper home you need to get advice from a home improvement professional on its overall potential for making the improvements you're expecting to make. 13. Not tracking project costs John Bodrozic, co-founder of HomeZada, explains: “When you don’t budget and track costs on home remodel projects, you can end up way over budget. Plus, you don’t have a record of costs that can help you adjust the tax basis of your home at tax time.” Tip: Budget and record expenses from day one Keep a record of your home expenses from the very beginning, it’s really as simple as that. Move forward without regret The answer to avoiding home buyer’s remorse really comes down to three things: financial preparation, education, and awareness. Learn about the different mortgage products available to you. Get loan offers with interest rates from multiple lenders. And before settling on a particular lender, read customer reviews about the top-ranked mortgage lenders. Are there hidden lender fees? Are the loan officers prompt to return calls and emails? Are other borrowers pleased with their experience? Remember that a professional opinion could be a big money and time-saver. While it may seem like a hassle to get a contractor, home inspector, or other home professional to take a look at your property, it could save you from stress later on. Buying a home, unfortunately, can often come with some buyer’s remorse — it is a large purchase after all. But if you prepare properly and learn from the mistakes of others, you can make the best decision possible without looking back. Compare Top-Rated Mortgage Lenders Read verified customer reviews and find the best mortgage lender for your needs. Compare Article updated by Kalicia Bateman Contributors: Luke Babich, CSO/Co-founder of CleverJohn Grimes, Realtor at BHGRE Metro BrokersDaniele Kurzweil, the Friedman Team at CompassGerard Splendore, Broker at Warburg RealtyAlison Bernstein, founder and CEO of Suburban JungleWally Conway, president of HomePro InspectionsDavid Pipp, Personal Finance Blogger at Living Low KeyJlyne Hanbak, REALTOR® Keller Williams RealtyJohn Bodrozic, co-founder of HomeZada
Guest Post by Holly Welles Homebuyers with a larger budget are often interested in a larger property. They believe it's in their best interest to buy a house with more yard space, more rooms, and more storage. While this may seem preferable to a smaller property, it's almost always better to buy less house than you can afford.In truth, having more of something doesn't mean you'll make the most of it. It's common among homeowners to spend a majority of their time in a few select rooms, leaving the rest of their living space unoccupied. The reading nook they planned to use only gathers dust, despite their initial intentions. So what should you keep in mind during the homebuying process? How will a smaller property help with your financial situation? We'll walk you through everything you should know on the subject, looking at the top five reasons to purchase only as much as you need when searching for a home. 1. Maintenance responsibilities Your maintenance costs will vary depending on the size of your property. With a smaller home, you won't need to spend as much on tasks like landscaping. A larger home may present a problem, as these higher maintenance costs will compound and build up quickly over time. It's also crucial to give thought to your long-term situation. Once you retire, you'll still need to manage your property and maintain its condition. This may prove difficult if you have limited mobility, and something as simple as shoveling snow or raking the leaves could take considerable effort. 2. Home repairs and upgrades Repairs and upgrades are inevitable for any homeowner. Whether you fix a fence or attend to a leaky faucet, your property is an ongoing investment that demands your time and money. Long after you purchase your home and pay off your mortgage, you'll still have expenses to manage. With that in mind, it's vital to plan for expensive repairs and upgrades. It’s inevitable that you’ll need to replace windows, fix HVAC systems, and replace a roof every 10–15 years, for example, and the costs of the renovation could seem overwhelming. Owning a smaller home will make it easier to save money and address these issues as they present themselves. 3. More opportunities to save If you're planning for children, you likely see the appeal in a larger property. Your kids will run and play without the restrictions of a smaller space, roaming your backyard with the family dog. This freedom is important, of course, but you also have to consider your children's future comfort. More specifically, you may have to help your kids through college. It's far less challenging to contribute to their college savings when you spend less on mortgage payments and maintenance costs. While your children need room to grow, they also need financial support. 4. Mortgage and PMI payments Many of today's homebuyers can't afford a traditional 20 percent down payment. Some of them choose to pursue an FHA Loan, an accessible option with a low down payment. Unfortunately, these new homeowners need to pay extra for private mortgage insurance, or PMI, on top of their regular mortgage payments. It's an additional burden which can place strain on your financial situation. If you plan on buying a larger house with an FHA Loan, you should study the risks involved with that purchase. Before you proceed with an FHA Loan, it's essential to learn more about what the commitment entails. 5. Emergency preparedness When searching for a new home, you'll need to confront a few questions that may feel uncomfortable to think about. If you were to lose your job, suffer an injury, or undergo a similar hardship, would you have enough money to pay the bills? Could you accommodate the expenses of a larger home? If the answer to those questions is "No," you should look for a property which is well within your price range. Beyond the typical benefits you can expect, you'll have more resources to manage an emergency. A sudden illness or unexpected termination won't cause as much turbulence in your life. Buying the right amount of house As you move forward, give thought to the advantages of a smaller property. It's often better to buy less house than you can afford, even if you're willing to spend more on a larger home. Regardless of your eventual choice, you can feel confident knowing you made an informed decision. Holly Welles is a real estate writer and the blogger behind The Estate Update. You can find more of her tips on homeownership, finance, and investing on Twitter.
Most often the hardest part about buying a house is saving up for the down payment, the closing costs, and the associated fees. A large chunk of your savings, or maybe the entirety of it, is all going towards one of the biggest purchases of your life. So where do you start? How do you plan to save enough money for this important purchase, and how do you stick to such a plan? Here are a few financial tips you could implement into your home-buying plan: Make a detailed budget The first and most important step to saving money is creating a detailed budget. If you don’t have a plan, you may fall back into bad habits and let saving money for that dream home slip through your fingers. There are free budget templates you can get online, or you can design a personalized one of your own. Whatever you prefer, just make sure it is something you think you can stick to and benefit from. Schedule updates Having a plan is great, but if you don’t have regular updates and keep up with it, your master plan can easily fade day by day. Making time for weekly, monthly, and yearly updates is a great way to make sure you are staying on task and saving as much money as you had originally planned. Initially, it might even be beneficial to do daily updates, especially if you have a hard time getting into the habit of saving money. Put the money somewhere you can’t access easily People have different ways to save money, whether it be saving it in a big jar marked “Dream Home” or keeping it in their checking account for easy access. These may be options that work for some people, but we suggest changing it up a bit. Having your saved money easily accessible can often prove to be a temptation. If you put your saved money somewhere that is difficult to get to, there is a better chance that you will not defy your budget. One way to do this is to open a separate savings account that is not linked to your checking account. Keeping money in your checking account could end poorly if you forget how much money is supposed to be saved and what money you can spend. (This is also where a budget can come in handy.) Additionally, there is often a withdraw limit on savings accounts that resets monthly, making it more difficult to keep withdrawing money from it. This could prove to be the financial motivation you need not to touch the money you have in savings. Utilize automatic saving tools If you have your paychecks automatically deposited into your account, most employers also offer an option that allows you to allot a certain amount of your paycheck to be taken out and put straight into a savings account. That way, when you get your paycheck, you won’t even have to worry about putting aside the money yourself; the money will already be separated. Cut out any unnecessary expenses Part of saving money is deciding what expenses are necessary and what expenses you could really do without. Try making a list of all your monthly expenses and decide which ones you can get rid of. This will help lighten the load on the things you have to pay for and will ultimately help you reach your savings goal faster. Saving for a home can be overwhelming, but if you use these financial help tips, we think your experience will go much more smoothly.
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