According to the U.S. Census Bureau, the median sales price of new homes in May 2020 was around $317,000. Even if you’re purchasing a home that falls well below that average, chances are it’s one of the most expensive things you’ll ever buy. With such a big expense, you might be wonderingâhow much do you need to save for a house?
The good news? You don’t have to save for the entire purchase price. But the amount you might need on hand to buy a home can be significant. Get some idea of how much money you might need to buy a house below.
How Much Should You Save for a House Down Payment?
It all depends on the price of the home you want to buy and what type of loan program you qualify for. Down payments are usually a percentage of the home cost.
You might have heard that you need 20% down to buy a home. That’s actually not entirely true. Although the Consumer Financial Protection Bureau makes a case for the benefits of 20% down, it also notes that this number doesn’t work for everyone.
So, where does the 20% figure come from? It’s part of the guidelines set by Fannie Mae and Freddie Mac, government sponsored, mortgage guarantee companies. You either have to pay 20% down or pay private mortgage insurance, because analysis indicates that loans without 20% down are riskier for the lenders.
Here’s a look at some common mortgage options and how much you might need to have for a down payment:
The CFPB notes that conventional loans with PMI can require 5 to 15% down on average. If the home price is $300,000, that’s $15,000 to $45,000.
Loans through the Federal Housing Administration require down payments of at least 3.5%. That’s $10,500 on a $300,000 home.
Some loan programs, such as those for rural borrowers through the USDA, or those who qualify for loans through the VA, don’t require a down payment at all.
Other Expenses to Save for
Down payments aren’t the only thing you need to save for when buying a home. Closing costs can be thousands of dollars, and you may need to foot the bill for inspections, home repairs or even fun things, like new furniture. To make the home-buying process less stressful, it’s a good idea to save more than you expect to need for closing costs.
How Long Will It Take to Save for a House?
Saving 20% of your income could catapult you into purchasing a home in the next one to three years, depending on your market. For example, if you’re earning $96,000 per year, that’s $19,200 saved after one year. It’s $38,400 after two years and $57,600 after three. Even if you need 20% down, these amounts are roughly enough to help you buy homes worth between $100,000 and $300,000 within three years.
How Much of Your Savings Should You Spend on a House?
It’s tempting to empty out your savings or cash in your 401(k) to buy your dream home. Even if the house is just your first step into home ownership and isn’t perfect, it’s tempting to do what it takes to get those keys.
But spending 100% of your savings leaves no safety net if something happens. What if something breaks in your new home or there’s a medical emergency? Having some savings on hand to cover these issues helps protect your home, because you’re more likely to be able to continue to pay the mortgage.
Planning to Purchase a Home
If youâre planning on buying a home in the future, it’s important to start saving today. Every little bit you can do to save for a home helps make it happen.
If you want to buy a home for around $300,000 and you can’t qualify for a loan program that requires no down payment, you’ll need at least $10,500 to $15,000. You’ll also need closing costs and other fees, which typically run between 2 and 5% of the purchase price. Assuming $10,000 in closing costs, you need $25,000 minimum to position yourself for home ownership.
A Short-Term Plan
If you’re looking to buy a home within the next year or two, you’d need to save $12,500 to $25,000 a year. Saving 20% of your income can help you save the bulk of that in one or two years if you make more than $50,000 annually. To do that, though, you’ll need to set an aggressive personal budget and be willing to cut out some extras, such as cable or eating out.
A Long-Term Plan
By starting your journey to home ownership as early as possible, you can stretch your plan to five years or more. If you save over the course of five years, that’s only $5,000 a year. That’s $416 a month or just under $100 a week. You really could save for a house this way simply by cutting out a few expensive coffees, pizza nights, dinners, etc.
Start Saving Today
How much should you save before you try to buy a home? It depends on so many factors that there’s not a one-size-fits-all answer. So, do your research early, make a plan and stick with it. And, as you get close to being ready to buy a home, don’t forget to shop around to find the best mortgage rates. Because those mortgage rates, along with your home price, determine how much you’ll pay for your home.
The post How Much Money Do You Need to Buy a House? appeared first on Credit.com.
So youâre at the point in your life where buying a home is not a question of if, but when. Youâre scrimping. Youâre saving. Youâre dreaming of walking through the front door of your very own home.
But as the decision draws near, you start questioning everything. Is now a good time to buy a house? Or is this the worst time? Is it more financially responsible to buy a house right now or wait? And what if you mistime the market, buying too soon or too late, and miss out on lower home prices?
Ultimately, the experts say the answer is less about economies, markets and pandemics and more about you.
So, how do you think through this decision? Youâll want to take time to thoroughly review your personal financial situation and life goals. At the same time, youâll need to gain some understanding of the market dynamics that impact home costs.
This process will take some time, but itâs well worth the effort. With a firm grasp on your personal situation and some context on the housing market, youâll be able to confidently go forth knowing youâre making a fiscally informed decision about whether to buy a house right now.
Honestly assess these aspects of your finances
Financial security is always important if youâre trying to determine when youâre ready to buy a home. To decide if now is a good time to buy a house, ask yourself the following questions about your finances:
How secure is your income?
Job or income stability is an important factor if you are buying a home in a rocky economy, such as the one triggered by the coronavirus pandemic, says real estate economist Gay Cororaton. Even in a robust economy, your income security should be top of mind when youâre thinking of buying a house right now.
If you have any inkling that your position may be eliminated or that youâll be making a career change, you may want to delay buying a home. Even a recent break in employment that caused you to draw down some of your savings may raise a red flag with lenders, says Kate Ziegler, a real estate agent with Arborview Realty in the Boston area.
If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home.
Do you have enough money saved?
After income stability, savings is the next-most-important financial factor youâll want to consider to determine if now is a good time to buy a house, Ziegler says. The old rule of thumb was to save 20% of the price of the home for your down payment. While that is ideal, itâs not necessaryâfar from it, Ziegler says. In fact, it has become more common for first-time buyers to put down much less than 20%.
How much house can you afford?
The down payment is one side of the affordability coin. Your monthly mortgage payment is the other side. You need to know how much you can spend on both to determine if you can afford to buy a house right now, says Jeff Tucker, a senior economist at Zillow. Aim for a monthly mortgage payment that doesnât stretch you too thinâexperts typically put this at around 28% of your monthly gross income, according to Bankrate.
With those guidelines, you can determine what you can afford. For example, if you make $4,000 a month, you should typically spend no more than $1,120 on your monthly mortgage payment in total.
How much house that buys you depends on multiple factors: mortgage rates, property tax rates, homeowners insurance andâif you donât have the savings to put down 20%âprimary mortgage insurance, or PMI. To get a rough estimate, plug your income details into an online calculator. For a more specific figure, talk to a local lender and get pre-approved for a mortgage, Ziegler says.
Once you know your price range, you can determine how much savings you need in the bank to buy a house right now. Youâll also need to have money saved for closing costs, which vary but typically run 2% to 5% of the loan amount, according to Bankrate.
Again, Ziegler recommends talking to a lender to really understand what your individual down payment and closing costs would be. Finally, be sure to add a line item in your budget for home maintenance that will inevitably pop up after you move in. Whether itâs a dishwasher on the fritz or a leaky roof, you donât want to be caught off guard, so be sure to save money for emergency home repairs.
How is your credit?
Your credit profile is also important to lenders, and it will likely be a factor in what interest rate youâre offered. Given that, you should be checking your credit report and know your credit score before investing in a home. If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home, Tucker says.
What is your debt-to-income ratio?
Another factor lenders check is your debt-to-income ratio, or DTI, Tucker says. This is the percentage of your gross monthly income that goes to paying monthly debt payments, plus your new mortgage. Lenders typically require this ratio to be 45% or less but prefer it even lowerâin the 33% to 36% range.
Have you considered the opportunity cost?
Another financial consideration when deciding if now is a good time to buy a house is the opportunity cost of delaying a home purchase, Ziegler says. If youâre renting in a market where the rent is higher than your would-be monthly mortgage payment, you may be spending a lot more money each month than if you were to purchase a home. And of course, with a mortgage, your monthly payment increases your equity.
After taking a clear-eyed look at your income, savings and these other financial factors, you will have a better sense of when youâre ready to buy a home and whether nowâs the time for you to dip into the market.
Consider key market factors
Next, take a look at factors that are outside of your control, but still influence your purchase: prices, interest rates and national employment trends.
Where are housing prices?
As youâre looking at the market, one of the biggest considerations when you are ready to buy a home will be housing prices and availability. Research your local market by talking to real estate agents who work specifically in the area where you want to buy and asking them about market trends, Ziegler says.
Track current listings and recently sold prices to get a sense of how prices look today. Generally, the tighter the inventoryâmeaning the fewer houses availableâthe higher prices will be, Tucker says.
Whatâs going on with interest rates?
When youâre ready to buy a home could also depend on another major economic factor: interest rates. When interest rates are low, your housing budget is effectively supercharged, Tucker says, and you can afford a more expensive house because youâre spending less on interest. When they are high, the opposite is true.
This is what compels people to buy when interest rates are lowâyou get more for your money. If you get a 30- or 15-year fixed-rate mortgage, you lock in that rate for the entire life of the loan, which could save you money now and into the future, Tucker says.
How does employment look nationally?
Finally, if you want to get a general idea of where the housing market may be headedâif prices will drop or rise soonâcheck out the national employment trends, Cororaton says. Low unemployment means prices will generally trend upward because more people can afford houses, boosting competition and prices, she says.
But if unemployment is inching up, then people are losing jobs and will be more likely to remain in their current homes. As a result, there tends to be less competition for them, lowering prices.
You donât need to be an expert in the market to determine if now is a good time to buy a house, but a baseline understanding of these big-picture forces can give you the confidence you need to embark on your home-buying journey.
Think about your future plans
After reviewing your savings and income and assessing the market conditions, take a step back and think about your life plans over the next few years. Your lifestyle and goals will help determine whether now is a good time to buy a house.
âFor buyers who are not certain whether they will still be living in the same place in three or five years, I would caution against locking themselves into a certain location,â Ziegler says. âIf theyâre just not sure what the future holds, it may be better to have that flexibility.â
Itâs unlikely in many markets that you will see substantial financial gain from homeownership if you move within five years, Ziegler says. Your equity gains will likely be offset by the transaction costs of buying and selling your home.
That goes for remote workers, too. Are you working from a home office these days? While widespread remote work may allow buyers to consider homes farther from their offices, ask yourself: Is my company going to permanently allow employees to work from home? Do I think there will be other remote opportunities in the future?
While youâre thinking about the next three to five years of your career, also consider the next three to five years of your personal life. Will you have a family? Will that family grow?
These can be weighty topics, so be sure to think them through on your own schedule. Buying a house is a big decision, and itâs not one to be rushed. By taking the time to assess your life, from your job security to your financial health to your lifestyle, and considering the impact of market factors, youâll have a clearer sense of when you are ready to buy a home.
If youâve decided that buying a house right now is the best decision for you, itâs time to learn more about how it will impact your budget. Get started by reading up on these eight unexpected expenses when buying a home.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post Is Now a Good Time to Buy a House? appeared first on Discover Bank – Banking Topics Blog.
A note from a dedicated reader inspired today’s article. It’s a question about the stock market and investing at all-time highs. It reads:
Hey Jesse. So, back in March you said that you were going to keep on investing despite the major crash. Fair enough, good call!
Note: here and here are the two articles that likely inspired this comment
But now that the market has recovered and is in an obvious bubble (right?), are you still dumping money into the market?
Thanks for the note, and great questions. You might have heard “buy low, sell high.” That’s how you make money when investing. So, if the prices are at all-time highs, you aren’t exactly “buying low,” right?
I’m going to address this question in three different ways.
General ideas about investing
Back-testing historical data
Identifying and timing a bubble
Long story short: yes, I am still “dumping” money into the stock market despite all-time highs. But no, I’m not 100% that I’m right.
General Ideas About Investing
We all know that that investing markets ebb and flow. They goes up and down. But, importantly, the stock market has historically gone up more than it has gone down.
Why does this matter? I’m implementing an investing plan that is going to take decades to fulfill. Over those decades, I have faith that the average—the trend—will present itself. That average goes up. I’m not betting on individual days, weeks, or months. I’m betting on decades.
It feels bad to invest right before the market crashes. I wouldn’t enjoy that. But I’m not worried about the value of my investments one month from now. I’m worried about where they’ll be in 20+ years.
Allowing short-term emotions—e.g. fear of an impending crash—to cloud long-term, math-based thinking is the nadir of result-oriented thinking. Don’t do it.
Don’t believe me? Here’s a fun idea. Google the term “should I invest at all-time highs?”
When I do that, I see articles written in 2016, 2017, 2018…you get it. People have been asking this question for quite a while. All-time highs have happened before, and they beg the question of whether it’s smart to invest. Here’s the S&P 500 data from 2016 to today.
S&P 500 – Past five years. Punctuation my own addition.
So should you have invested in 2016? In 2017? In 2018? While those markets were at or near all-time highs, the resounding answer is YES! Investing in those all-time high markets was a smart thing to do.
Let’s go further back. Here’s the Dow Jones going back to the early 1980s. Was investing at all-time highs back then a good idea?
I’ve cherry-picked some data, but the results would be convincing no matter what historic window I chose. Investing at all-time highs is still a smart thing to do if you have a long-term plan.
Investing at all-time highs isn’t that hard when you have a long outlook.
But let’s look at some hard data and see how the numbers fall out.
Historical Backtest for Investing at All-Time Highs
There’s a well-written article at Of Dollars and Data that models what I’m about to do: Even God Couldn’t Beat Dollar-Cost Averaging.
But if you don’t have the time to crunch all that data, I’m going to describe the results of a simple investing back-test below.
First, I looked at a dollar-cost averager. This is someone who contributes a steady investment at a steady frequency, regardless of whether the market is at an all-time high or not. This is how I invest! And it might be how you invest via your 401(k). The example I’m going to use is someone who invests $100 every week.
Then I looked at an “all-time high avoider.” This is someone who refuses to buy stocks at all-time highs, saving their cash for a time when the stock market dips. They’ll take $100 each week and make a decision: if the market is at an all-time high, they’ll save the money for later. If the market isn’t at an all-time high, they’ll invest all their saved money.
Thearticle from Of Dollars and Data goes one step further, if you’re interested. It presents an omniscient investor who has perfect timing, only investing at the lowest points between two market highs. This person, author Nick Maggiulli comments, invests like God would—they have perfect knowledge of prior and future market values. If they realize that the market will be lower in the future, they save their money for that point in time.
What are the results?
The dollar-cost averager outperformed the all-time high avoider in 82% of all possible 30-year investing periods between 1928 and today. And the dollar-cost averager outperformed “God” in ~70% of the scenarios that Maggiulli analyzed.
How can the dollar-cost averager beat God, since God knows if there will be a better buying opportunity in the future? Simple answer: dividends and compounding returns. Unless you have impeccable—perhaps supernatural—timing, leaving your money on the sidelines is a poor choice.
Investing at all-time highs is where the smart money plays.
Identifying and Timing a Bubble
One of my favorite pieces of finance jargon is the “permabear.” It’s a portmanteau of permanent and bear, as in “this person is always claiming that the market is overvalued and that a bubble is coming.”
Being a permabear has one huge benefit. When a bubble bursts—and they always do, eventually—the permabear feels righteous justification. See?! I called it! Best Interest reader Craig Gingerich jokingly knows bears who have “predicted 16 of the last 3 recessions.”
Source: advisorperspectives.com
Suffice to say, it’s common to look at the financial tea leaves and see portents of calamity. But it’s a lot harder to be correct, and be correct right now. Timing the market is hard.
Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.
Peter Lynch
Predicting market recessions falls somewhere between the Farmers’ Almanac weather forecast and foreseeing the end of the world. It takes neither skill nor accuracy but instead requires a general sense of pattern recognition.
Note: The Farmers’ Almanac thinks that next April will be rainy. Nice work, guys. And I, too, think the world will end—at least at some point in the next few billions of years.
I have neither the skill nor the inclination to identify a market bubble or to predict when it’ll burst. And if someone convinces you they do have that skill, you have two options. They might be skilled. Or they are interested in your bank account. Use Occam’s Razor.
Just remember: some permabears were screaming “SELL!” in late March 2020. I’ve always heard “buy low, sell high.” But maybe selling your portfolio at the absolute market bottom is the new secret technique?
“But…just look at the market”
I get it. I hear you. And I feel it, too. If feels like something funny is going on.
The stock market is 12% higher than it was a year ago. It’s higher than it was before the COVID crash. How is this possible? How can we be in a better place mid-pandemic than before the pandemic?
One explanation: the U.S. Federal Reserve has dropped their interest rates to, essentially, zero. Lower interest rates make it easier to borrow money, and borrowing money is what keeps businesses alive. It’s economic life support.
Of course, a side effect of cheap interest rates is that some investors will dump their cheap money into the stock market. The increasing demand for stocks will push the price higher. So, despite no increase (and perhaps even a decrease) in the intrinsic value of the underlying publicly-traded companies, the stock market rises.
Is that a bubble? Quite possibly. But I’m not smart enough to be sure.
The CAPE ratio—also called the Shiller P/E ratio—is another sign of a possible bubble. CAPE stands for cyclically-adjusted price-to-earnings. It measures a stock’s price against that company’s earnings over the previous 10-years (i.e. it’s adjusted for multiple business cycles).
Earnings help measure a company’s true value. When the CAPE is high, it’s because a stock’s price is much greater than its earnings. In other words, the price is too high compared to the company’s true value.
Buying when the CAPE is high is like paying $60K for a Honda Civic. It doesn’t mean that a Civic is a bad car. It’s just that you shoudn’t pay $60,000 for it.
Similarly, nobody is saying that Apple is a bad company, but its current CAPE is 52. Try to find a CAPE of 52 on the chart above. You won’t find it.
So does it make sense to buy total market index funds when the total market is at a CAPE of 31? That’s pretty high, and comparable to historical pre-bubble periods. Is a high CAPE representative of solid fundamentals? Probably not, but I’m not sure.
My Shoeshine Story
There’s an apocryphal tale of New York City shoeshines giving stock-picking advice to their customers…who happened to be stockbrokers. Those stockbrokers took this as a sign of an oncoming financial apocalypse.
The thought process was: if the market was so popular that shoe shines were giving advice, then the market was overbought. The smart money, therefore, should sell.
I recently heard a co-worker talking about his 12-year old son. The kid uses Robin Hood—a smartphone app that boasts free trades to its users. Access to the stock market has never been easier.
According to his dad, the kid bought about $100 worth of Advanced Micro Devices (ticker = AMD). When asked what AMD produces, the kid said, “I don’t know. I just know they’re up 60%!”
This, an expert might opine, is not indicative of market fundamentals.
But then I thought some more. Is this how I invest? What does your index fund hold, Jesse? Well…a lot of companies I’ve never heard of. I just know it averages ~10% gains every year! My answer is eerily similar.
I’d like to believe that I buy index funds based on fundamentals that have been justified by historical precedent. But, what if the entire market’s fundamentals are out of whack? I’m buying a little bit of everything, sure. But what if everything is F’d up?
Closing Thoughts
Have you ever seen a index zealot transmogrify into a permabear?
Not yet. Not today.
I do understand why some warn of a bubble. I see the same omens. But I don’t have the certainty or the confidence to act on omens. It’s like John Bogle said in the face of market volatility:
Don’t do something. Just stand there.
John Bogle
Markets go up and down. The U.S. stock market might crash tomorrow, next week, or next year. Amidst it all, my plan is to keep on investing. Steady amounts, steady frequency. I’ve got 20+ years to wait.
History says investing at all-time highs is still a smart thing. Current events seem crazy, but crazy has happened before. Stay the course, friends.
And, as always, thanks for reading the Best Interest. If you enjoyed this article and want to read more, Iâd suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This articleâjust like every otherâis supported by readers like you.
Short term investments are those investments that can yield their returns within a short period of time — usually within 1 to 3 years. (contrary to a long term investment such as saving for retirement).
In other words, short term investing are typically used to meet short-term financial goals (such as buying a house or go on a vacation).
A bank checking account is one of the best known and popular ways to save for such a goal.
But your traditional checking account only pays a meager return, if at all.
If you can’t find an alternative to a checking account, no need to fret.
There are plenty of shortterm investments that will help keep your money safe and earn a good return at the same time.
Below, we’ve curated the best short term investments to help reach your investment goals.
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Things to consider:
First thing first, before you make any short term investments, you should know about the risk, return and investing time frame of short term investments.
Average return to expect: 1 to 4% per year;
Risk: very low to low risk of losing money;
Time frame: 0 to 3 years
Best short term investments:
If you’re saving and investing money for the short term, i.e., to use it as a down payment on a house, you will not invest that money in stocks or mutual funds, right?
That’s because, stocks are high risk investments. And if you need the money for a certain time, it might not be available due stock market volatility.
Instead, a smart choice is to save that money in a low-risk investment where you can protect the capital invested and earn interest/income at the same time.
If you have a different investing goal, such as saving for retirement, it’s best to look at stocks or mutual funds. Investing in stocks or mutual funds is considered a long term investment as opposed to short term investing.
If you’re interested in investing for the long term, here’s how the stock market works.
So, what are your options? Here are some of the best short term investments to consider to earn some interest on your money.
1. Savings account.
A savings account at a bank is an excellent choice. And they usually pay more interest than a regular checking.
They are quite safe. Savings account are insured by the FDIC, but only for up to $250,000.
That means if a bank goes bankrupt, the government will step up and give you your money back.
In addition, they are very liquid. You have access to your money fairly easy.
CIT Savings Builder – Earn 0.85% APY. Here’s how it works: Make at least a $100 minimum deposit every month. Or Maintain a minimum balance of $25k. Member FDIC. Click Here to Learn More.
2. Certificate of deposit (CDs).
If you want a good rate of return on money that you don’t plan on using within the next couple of years, CDs is a safe place to do invest it.
Banks sell certificate of deposit for a specific dollar amount and length of time. As an investor, you agree to leave a certain amount of money with the bank for a specific time.
When the time is up, the CD matures. Then, you get your money back, plus interest.
CDs are also FDIC insured for up to $250,000. They provide a safe and competitive yield. That makes them some of the best short term investments to consider.
The minimum deposit requires to open a CD depends on the bank. But it usually ranges from a few hundred dollars to thousands.
The CIT Bank is paying 1.30% for an 11-month CD. There is an opening minimum of $1,000. With most CDs, if you tap into your money before maturation, you will get hit with an early withdrawal penalty.
However, with this CIT Bank CD, there is no penalty if you withdraw early.
CIT Bank has various types of CDs. If you prefer longer terms CDs, check them out now at the CIT Bank website.
3. Money market fund
While you can keep your cash at a bank in a savings account because they’re safe there, you don’t have to.
You can try a money market fund. They are safe as well.
A money market fund is a type of mutual fund (but thy don’t focus on stocks or bonds).
Mutual funds companies such as Vanguard offer money market funds.
Money market fund is not insured by the government, so there is a possibility you can lose money. However, they are quite safe.
They’re safe, because they have a dollar invested in securities for every dollar you deposit in your fund.
The principal money you invested does not change in value. When you invest in a money market fund, you earn dividends. That’s a good advantage.
Another advantage of a money market fund as a short term investment is that it provides higher yield than bank savings account.
It also allows you to write checks without incurring any charges.
So, if you’re saving money for a home that you’re going to buy soon, a money market fund is a safe place to grow your money.
4. Short-term corporate bond funds.
Bonds, in general, are similar to CDs. An exception is that they, just as stocks, are securities that trade in the market.
So, they may fluctuate in value, but not as much as stocks.
Bond funds are a collection of bonds from companies (large, medium, or small) from different industries. Hence, the name “corporate bond funds.”
Investing in bond funds can be used as a short-term investment. Sometimes, investors consider corporate bond funds to diversify their investment portfolio.
Just like a money market fund, corporate bond funds are not FDIC insured. But they are just as safe as a money market fund.
Plus, you don’t just invest in one bond or two bonds. If one bond in your investment fund takes a hit, it only affects a small amount of your money.
So while they are riskier than money market funds saving accounts, CDs, short term corporate bonds pay you more. That makes them one of the best short-term investments out there.
5. Treasury bonds.
One of the best ways to invest money in the short term is to buy treasury bonds. Treasury bonds are issued by the U.S. government.
There are three types: treasury bills, treasury notes, and treasury bonds. They are like CDs. Once the bond matures, you get the full money invested, plus interest.
Treasury bonds may provide the same or a better interest rate than CDs. But a big advantage is that, while they’re not FDIC insured, they are backed by the U.S. government.
In other words, the government promises to repay your money, which is considered to be very safe.
So if you have more than $250,000, you should consider a treasury bond.
Another advantage is that while interest on a CD is fully taxable, Treasury’s interest is state-tax-free.
In conclusion, short term investments are those in which you make for a certain and short period of time for a specific goal.
Short term investments aren’t the best if you’re seeking high returns.
But if you’re a beginner investor you should consider placing some of your money into these best short term investments.
Remember: don’t invest your money in stocks when you plan to use it within the next five years, because a stock market drop can dry out your investment portfolio.
Read more:
The Best Ways to Invest $1000 For Good Return
How to Invest With Little Money (Even With $5)
How to Invest 100k to Build Real Wealth
Speak with the Right Financial Advisor
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I love making things automatic. Whether it is bill-paying, direct deposit, prescription renewals, or investing, making things automatic makes life easier, and that is where our Betterment investing review comes in.
When it comes to retirement planning, an overwhelming number of online tools and websites promise to help you create a dynamic and profitable portfolio while minimizing fees.
This growing list of services includes robo-advisors, a class of financial websites that offer to manage your portfolio with minimal in-person interaction and a heavy reliance on the latest investing tools and software.
One of the most popular robo-advisors by far is Betterment. Conceptualized by its founders in 2008, Betterment has since grown to help its customers invest billions of dollars of their hard-earned dollars. This is an investment platform that puts your investing on cruise control, and even allows you to make money watching TV! You can open an account with no money at all, and get the benefit of professional, low-cost investment management that enables you to invest in thousands of securities with as little as a few hundred dollars.
It hasnât been easy. With other competitors like Wealthfront and Personal Capital always a few steps behind them, Betterment has struggled to find a way to stand out. Even with the competition, Betterment has emerged as one of the top online brokerage accounts and continues to grow its market share.
Open an account
0.25% to 0.40% annual management fee, depending on the plan
No trade, transfer or rebalancing fees
No minimum balance
Hands-off investing tailored to your goals and risk preference
About Betterment
Betterment is an online, automated investment manager that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and individual needs.
The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. Unless you email or call in, your communication with an individual advisor will be very minimal.
But, there is some good news to counteract the lack of individual service. Because of lower operating costs, Betterment is able to charge lower fees than traditional financial advisors. This can be huge for individuals who want to take a hands-off approach to their retirement accounts, yet donât want to pay top dollar for access to a top-tier financial advisor in their area.
Using complex investment software, Betterment allocates your investment portfolio based on your individual circumstances, investment time horizon, and thirst for risk.
In the meantime, they keep fees at a minimum by using ETFs (exchange-traded fund) that let you have a diversified portfolio, like mutual funds, but are tradeable much like stocks.
Since ETFs come with very low expense ratios, Betterment is able to pass those savings along to the consumer. Although the program already manages over $16 billion for their clients, they are still growing at a rapid pace.
Because the service is able and willing to deal with investors at all stages of wealth accumulation, it has become a go-to for both experienced and novice investors with various investing goals.
Further, Bettermentâs portfolio strategy isnât geared just for retirement savings; the service can also improve your returns on dollars you invest for short-term and medium-term goals like saving for college, taking an annual vacation, or building up a cash reserve.
How Betterment Works
Like post other robo-advisors, Betterment provides complete, automated investment management of your portfolio. When you sign up for the service, youâll complete a questionnaire that will determine your risk tolerance, investment goals, and time horizon. From that information, Betterment determines your portfolio will be designed as conservatives, aggressive, or some level in between.
Over time however, Betterment may adjust your portfolio to become gradually more conservative. For example, as you move closer to retirement, your asset allocation will be gradually shifted more heavily in favor of safe investments, like bonds.
Your portfolio will be constructed of exchange traded funds (ETFs), which are low-cost investment funds designed to track the performance of an underlying index. In this way, Betterment attempts to match the performance of the underlying indexes, rather than to outperform them. For this reason, investing with Betterment â and most other robo-advisors â is considered to be passive investing. (Active investing involves frequent trading of stocks and other securities in an attempt to outperform the market.)
Betterment also uses allocations based on broad investment categories. There are three in total:
Safety Net â These are funds allocated for near-term needs, such as an emergency fund.
Retirement â This will naturally be your long-term investment account and held in tax-sheltered IRAs.
General Investing â This allocation is dedicated to intermediate goals, maybe saving for the down payment on a house or even for your childrenâs education.
Given that each of the three broad goals has a different time horizon, the specific portfolio allocation in each will be a little bit different. For example, the Safety Net will be invested in cash type accounts for safety and liquidity.
Betterment Advantages And Disadvantages
Betterment Pros:
Thereâs no minimum investment required.
The low annual fee of 0.25% on the Digital plan can allow you to have a $20,000 account managed for just $50 per year, or a $100,000 account for just $250.
Tax-loss harvesting is available at all taxable accounts.
Betterment Premium provides unlimited access to certified financial planners, providing a service similar to traditional investment advisors, but at a fraction of the cost.
The No-fee Checking and Cash Reserve give you cash management options to go with your investing activities.
Betterment offers several portfolio options, including Smart Beta, Socially Responsible Investing, and the BlackRock Targeted Income Portfolio.
The use of value funds also adds the potential for your investment accounts to outperform the general market, since value stocks tend to be underpriced relative to their competitors.
Flexible Portfolio will give you some control over your investment allocations, which is a feature absent from most robo-advisors.
Betterment Cons:
Bettermentâs annual advisory fee is on the low end of the robo-advisor range. But there are some robo-advisors charging no fees at all.
Betterment doesnât offer alternative investments. These include natural resources and real estate, which are offered by some of their competitors.
External account syncing is available only with Betterment Premium.
The Betterment Investment Methodology
Like most other robo-advisors, Betterment manages your investment account using Modern Portfolio Theory, or MPT. The theory emphasizes proper allocations into various asset classes over individual security selection.
Your portfolio is divided between six stock asset allocations and eight bond asset allocations. Each allocation is represented by a single ETF thatâs tied to an index specific to that asset class. The single ETF will provide exposure to scores or even hundreds of securities in each asset class. That means collectively your investment will be spread across thousands of securities in the US and internationally.
The six stock asset allocations are as follows:
US Total Stock Market
US Value Stocks â Large Cap
US Value Stocks â Mid Cap
US Value Stocks â Small Cap
International Developed Market Stocks
International Emerging Markets Stocks
The eight bond asset allocations are as follows:
US High Quality Bonds
US Municipal Bonds (will be held in taxable investment accounts only)
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-Term Treasury Bonds
US Short-Term Investment Grade Bonds
International Developed Market Bonds
International Emerging Markets Bonds
Tax-loss Harvesting
Since Betterment offers tax-loss harvesting with taxable investment accounts, most asset classes will have two or three very similar ETFs. This will enable Betterment to sell a losing position in one ETF to reduce capital gains in winning asset classes. Alternative ETFs are then purchased to replace the sold funds to maintain the target asset allocations in your account.
Tax-loss harvesting is becoming an increasingly popular investment strategy because it effectively defers capital gains taxes into future years. Itâs available only for taxable accounts, since tax-sheltered accounts have no immediate tax consequences.
How Betterment Compares
Here’s how Betterment compares to the previously mentioned companies, Wealthfront and Personal Capital.
Betterment
Wealthfront
Personal Capital
Minimum Initial Investment
$0
$500
$100,000
Advisor Fee
0.25% on Digital; 0.40% on Premium (account balance over $100k)
0.25% on all account balances
0.89% on most account balances; reduced fee on balances > $1 million
Live Advice
On Premium Plan only
No
Yes
Tax-Loss Harvesting
Yes, on all taxable accounts
Yes, on all taxable accounts
Yes, on all taxable accounts
401(k) Assistance
Yes, on Premium Plan only
No
Yes
Budgeting
No
No
Yes
Betterment Accounts and Options
For the first few years of Bettermentâs existence they offered a single investment account serving as a one-size-fits-all plan. But thatâs all changed. They still offer basic investment accounts, but they now give you a choice of multiple investment options.
Betterment Digital
This is Bettermentâs basic investment plan. There is no minimum initial investment required, nor is there a minimum ongoing balance requirement. Betterment charges a single fee of 0.25% on all account balances.
You can also add any other portfolio variations, except the Goldman Sachs Smart Beta portfolio, which has a $100,000 minimum account balance requirement.
Betterment Premium
Betterment Premium works similar to the Digital plan, but it delivers a higher level of service. The plan provides external account synching, giving Betterment a high altitude view of you your entire financial situation. External investment accounts can help in enabling Betterment to better coordinate your portfolio allocations with assets held in outside accounts. They can also make recommendations out to better manage those external accounts.
And perhaps the biggest advantage of the Premium plan is that it comes with unlimited access to Bettermentâs certified financial planners. In this way, Betterment is competing more directly with traditional investment advisors, but doing it with a robo-advisor component.
Youâll need a minimum of $100,000 to invest in the Premium plan, and the annual advisory fee is 0.40%. Thatâs just a fraction of the usual 1% to 2% typically charged by traditional investment advisory services.
Betterment Cash Reserve
The account pays a variable interest rate, currently set at 0.40% APY. Betterment doesnât actually hold these funds directly, but rather invest them through participating program banks.
Thereâs no fee for this account, and you can move money as often as you want. And for those with very high cash balances, the account is FDIC insured for up to $1 million through the program banks.
Betterment Socially Responsible Investing (SRI)
SRI portfolios are becoming increasingly popular in the robo-advisor space. It involves investing in companies that meet certain standards for social, environmental, and governance guidelines. Betterment indicates that the ETFs they use in their SRI portfolio have produced a 42% increase in their social responsibility scores.
SRI portfolios work with both the Digital and Premium plans, using a similar investment methodology. But they make certain modifications, holding ETFs based on SRI in place of the ETFs used in non-SRI portfolios.
SRI portfolios do not require a minimum balance and charge no additional fees. And like their Digital and Premium plans, taxable SRI investment accounts take advantage of tax-loss harvesting.
Betterment Flexible Portfolios
The key word in the name is âflexibleâ because the main feature is adding personal options to your portfolio allocations.
This is done by adjusting the individual asset class weights in your portfolio. For example, if you have a 7% allocation in emerging markets, you may choose to increase it to 10% if you believe that sector is likely to outperform others. But you can also decrease the allocation if it makes you feel uncomfortable.
Betterment Tax-Coordinated Portfolio
This is less of a formal portfolio and more of an investment strategy. It must be used in combination with a taxable investment account and a tax-sheltered retirement account. Betterment will then allocate investments based on their tax impact.
For example, income generating assets â that produce high dividend and interest income â are held in a tax-sheltered account. Investments likely to generate long-term capital gains are held in a taxable investment account, since you will be able to take advantage of lower long-term capital gains tax rates.
Goldman Sachs Smart Beta
This option is for more sophisticated investors, and requires a minimum account balance of $100,000. And since it is a high risk/high reward type of investing, it also requires a higher risk tolerance.
Betterment uses the same basic investment strategy as they do in other portfolios. But itâs an actively managed portfolio that will be adjusted in an attempt to outperform the general market. Securities will be bought and sold within the portfolio and can include either individual securities or Smart Beta ETFs.
The portfolio has many variations, including a wide range of allocations. Stocks are chosen based on four qualities: good value, strong momentum, high quality, and low volatility.
And like other portfolio variations Betterment offers, there is no additional fee for this option.
BlackRock Target Income Portfolio
Betterment recognizes that some investors are more interested in income than growth. This will particularly apply to retirees. The BlackRock Target Income Portfolio invests in portfolios based on your risk tolerance. This can mean low, moderate, high, or even aggressive.
Those categories may seem unusual for an income generating portfolio. But while the portfolio attempts to minimize risk of principal, it also recognizes that some investors are willing to add risk to their portfolio in exchange for higher returns.
A low-risk portfolio may have a higher allocation in US Treasury securities. An aggressive portfolio may center primarily on high-yield corporate bonds or even emerging-market bonds that have higher interest rates due to greater risk.
Betterment No-fee Checking
Provided by Betterment Financial LLC in partnership with NBKC Bank, this is a true no-fee checking account. Not only are there no monthly maintenance fees, but there are also no overdraft or other fees. Theyâll even reimburse all ATM fees and foreign transaction fees you incur. And thereâs not even a minimum balance requirement.
Youâll be provided with a Betterment Visa Debit Card with tap-to-pay technology, that you can use anywhere Visa is accepted. All account balances are FDIC insured for up to $250,000. And as you might expect from a company on the technological cutting edge, you can deposit checks into the account using your smartphone.
Check out our full Betterment checking review.
Betterment Key Features
Minimum initial investment: Betterment requires no funds to open an account. But you can begin funding your account with monthly deposits, like $100 per month. This method will make it easier to use dollar-cost averaging to gradually move into your portfolio positions.
Available account types: Joint and individual taxable investment accounts, as well as traditional, Roth, rollover and SEP IRAs. Betterment can also accommodate trusts and nonprofit accounts.
Portfolio rebalancing: Comes with all account types. Your portfolio will be rebalanced when your asset allocations significantly depart from their targets.
Automatic dividend reinvestment: Betterment will reinvest dividends received in your portfolio according to your target asset allocations.
Betterment Mobile App: You can access your Betterment account on your smartphone. The app is available for both iOS and Android devices.
Customer contact: Available by phone and email, Monday through Friday, from 9:00 am to 8:00 pm, Eastern time.
Account protection: All Betterment accounts are protected by SIPC insurance for up to $500,000 in cash and securities, including up to $250,000 in cash. SIPC covers losses due to broker failure, not those caused by market value declines.
Financial Advice packages: Betterment offers one-hour phone conferences with live financial advisors on various personal financial topics. Five topics are covered:
Getting Started package: This package gives new users the professional vote of confidence they need as a professional will assess their account setup. $199
Financial Checkup package: This package takes it a step further, providing the customer with a professional opinion on their portfolio and financial circumstances. $299
College Planning package: As its name implies, this package helps parents who are investing with the goal of paying for their childrenâs college education in the next 5-18 years. $299
Marriage Planning package: Merging finances can be tricky, so Betterment created this plan to help engaged couples and newlyweds to succeed as they unite their lives and assets. $299
Retirement Planning package: Your investment goals and strategies change as you near retirement. This particular package helps keep you on target to meet them. $299
Retirement Savings Calculator: Robo-advisors are popular choices for retirement accounts. For this reason, Betterment offers the Calculator to help you project your retirement needs. By entering basic information in the calculator (it will sync external accounts if you have a Premium account â including employer-sponsored retirement plans) it will let you know if you are on track to meet your goals or if you need to make adjustments.
How To Sign Up For A Betterment Account
The Betterment sign up process is one of the most user-friendly out there for any brokerage. It comes with easy-to-follow instructions and as streamlined registration process which users can navigate through in a matter of minutes.
First get the process started by clicking the button below.
Sign up for a Betterment Account
After the initial sign up process, users can expect a simple transaction as they transfer funds into the account, much like moving money from a checking to savings account.
When you begin the sign-up process, youâll be given a choice of four different investment goals:
I chose âInvest for retirementâ. It will ask your current age, your annual income, then give you a choice of accounts to use. That includes a traditional, Roth, or SEP IRA, or even an individual taxable account. I selected a traditional IRA.
Based on a 30-year-old with a $100,000 income, Betterment return the following recommendation:
You even have the option to have the specific asset allocations listed. After clicking âContinueâ, youâll be asked to provide your email address and create a password. Youâll then be taken to the application, which will ask for general information, including your name, address, phone number, and how you heard about Betterment.
Once your account has been set up, you can fund it immediately, by connecting your bank account, or by setting up recurring deposits.
You can also set up other accounts, such as âManage spending with Checkingâ or âInvest for a long-term goalâ.
Why You Should Open An Account With Betterment
While nearly anyone who invests could benefit from the online portfolio management and advising, this service is definitely geared to certain types of investors. In most cases, Betterment will work best for:
Hands-off investors who have some investing knowledge â Since it takes care of the heavy lifting for you, it works best for investors who want to take a hands-off approach to their investment portfolio. Passive investors can let Betterment handle the logistics while using online account management to keep a close eye on their accounts.
Novice investors who need help â Beginning investors who are just learning the ropes can turn to Betterment for online portfolio management with low fees. The many online tools and user-friendly interface make it easy for beginners to get a grasp on basic financial concepts and investing strategies.
Robo-advisors are growing in popularity and could easily replace in-person advisors in the near future. With lower fees and advanced software that can maximize results, online investing is certainly gaining an edge.
Whether Betterment is right for you depends on your individual needs and investing goals. If youâre a hands-off investor who wants to grow your retirement funds without paying a lot of fees, then Betterment might be ideal. Additionally, beginning investors can benefit handsomely from the online tools and investing education offered through the Betterment website.
If you think Betterment investing might be exactly what your portfolio needs, sign up for a new account today.
However, if you determine that you would be better served by a more hands-on approach, check out the other online brokerage account options. Being a certified financial planner, I have had a chance to work with several of these platforms and have done the following reviews:
Motif Investing Review
Lending Club Review
Ally Invest Review
The post Betterment Investing Review: Make Investing Automatic appeared first on Good Financial Cents®.
Iâm 51 years old and donât have a large nest egg. Iâm a single parent with three kids. Iâm a second career middle school teacher, so there is not a lot of money left over each month.Â
How much money should I be saving to be able to retire in my 70s? Where should I invest that money?
-B.
Dear B.,
You still have 20 years to build your nest egg if all goes as planned. Sure, youâve missed out on the extra years of compounding youâd have gotten had you accumulated substantial savings in your 20s and 30s. But thatâs not uncommon. Iâve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.
I like that youâre already planning to work longer to make up for a late start. But hereâs my nagging concern: What if you canât work into your 70s?
The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So itâs essential to have a Plan B should you need to leave the workforce earlier than youâd hoped.
Retirement planning naturally comes with a ton of uncertainty. But since I donât know what you earn, whether you have debt or how much you have saved, Iâm going to have to respond to your question about how much to save with the vague and unsatisfying answer of: âAs much as you can.â
Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, letâs talk about how much you need to retire. You can set savings goals from there.
The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side â perhaps even less.
For the average worker, Social Security benefits will replace about 40% of income. If youâre able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until youâre 70 instead of claiming as early as possible at 62. That can make an enormous difference when youâre lacking in savings.
But since a Plan B is essential here, letâs only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.
If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once youâve done that, try to max out your Roth IRA contribution. Since youâre over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.
If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, youâd have $185,000 after 15 years. Do that for 20 years and youâd have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.
The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes youâll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.
Choosing what to invest in doesnât need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.
By now youâre probably asking: How am I supposed to do all that as a single mom with a teacherâs salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isnât enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.
I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I canât change the fact that we underpay teachers. I want a solution for you that doesnât involve working forever. That may mean you have to work more now.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Once you decide to become a homeowner, itâs likely that you will need to take out a mortgage to purchase your new home. While the conclusion that you need a mortgage to finance your home is usually easy to arrive at, deciding which one is right for you can be overwhelming. One of the many decisions a prospective homebuyer must make is choosing between a 15-year versus 30-year mortgage.
From the names alone, itâs hard to tell which one is the better option. Under ideal circumstances, a 15-year mortgage mathematically makes sense as the better option. However, the path to homeownership is often far from ideal (and who are we kidding, under ideal circumstances weâd all have large sums of money to purchase a house in cash). So the better question for homebuyers to ask is which one is best for you?
To help you make the most informed financial decisions, we detail the differences between the 15-year and 30-year mortgage, the pros and cons of each, and options for which one is better based on your financial priorities.
The Difference Between 15-Year Vs. 30-Year Mortgages
The main difference between a 15-year and 30-year mortgage is the amount of time in which you promise to repay your loan, also known as the loan term.
The loan term of a mortgage has the ability to affect other aspects of your mortgage like interest rates and monthly payments. Loan terms come in a variety of lengths such as 10, 15, 20, and 30 years, but weâre discussing the two most common options here.
What Is a 15-Year Mortgage?
A 15-year mortgage is a mortgage thatâs meant to be paid in 15 years. This shorter loan term means that amortization, otherwise known as the gradual repayment of your loan, happens more quickly than other loan terms.
What Is a 30-Year Mortgage?
On the other hand, a 30-year mortgage is repaid in 30 years. This longer loan term means that amortization happens more slowly.
Pros and Cons of a 15-Year Mortgage
The shorter loan term of a 15-year mortgage means more money saved over time, but sacrifices affordability with higher monthly payments.
Pros
Lower interest rates (often by a full percentage point!)
Less money paid in interest over time
Cons
Higher monthly payments
Less affordability and flexibility
Pros and Cons of a 30-Year Mortgage
As the mortgage term chosen by the majority of American homebuyers, the longer 30-year loan term has the advantage of affordable monthly payments, but comes at the cost of more money paid over time in interest.
Pros
Lower monthly payments
More affordable and flexible
Cons
Higher interest rates
More money paid in interest over time
15-Year Mortgage
30-Year Mortgage
Pros
⢠Lower interest rates
⢠Less money paid in interest over time
⢠Lower monthly payments
⢠More affordable and flexible
Cons
⢠Higher monthly payments
⢠Less affordability and flexibility
⢠Higher interest rates
⢠More money paid in interest over time
Which Is Better For You?
Now with what you know about the pros and cons of each loan term, use that knowledge to match your financial priorities with the mortgage that is best for you.
Best to Save Money Over Time: 15-Year Mortgage
The 15-year mortgage may be best for those who wish to spend less on interest, have a generous income, and also have a reliable amount in savings. With a 15-year mortgage, your income would need to be enough to cover higher monthly mortgage payments among other living expenses, and ample savings are important to serve as a buffer in case of emergency.
Best for Monthly Affordability: 30-Year Mortgage
A 30-year mortgage may be best if youâre seeking stable and affordable monthly payments or wish for more flexibility in saving and spending your money over time. The longer loan term may also be the better option if you plan on purchasing property you couldnât normally afford to repay in just 15 years.
Best of Both: 30-Year Mortgage with Extra Payments
Want the best of both worlds? A good option to save on interest and have affordable monthly payments is to opt for a 30-year mortgage but make extra payments. You can still have the goal of paying off your mortgage in 15 or 20 years time on a 30-year mortgage, but this option can be more forgiving if life happens and you donât meet that goal. Before going this route, make sure to ask your lender about any prepayment penalties that may make interest savings from early payments obsolete.
As a prospective homebuyer, itâs important that you set yourself up for financial success. Fine-tuning your personal budget and diligently saving and paying off debt help prepare you to take the next steps toward buying a new home. Doing your research and learning about mortgages also helps you make decisions in your best interest.
When picking a mortgage, always keep in mind what is financially realistic for you. If that means forgoing better savings on interest in the name of affordability, then remember that path still leads to homeownership. Try out these budget templates for your home or monthly expenses to help keep you on a good path to achieving your goals.
Sources: Consumer Financial Protection Bureau
The post 15-Year vs. 30-Year Mortgages: Which is Better? appeared first on MintLife Blog.
If you’re looking to buy a HUD home, the Hudhomestore website is the best place to do it. It can be found here at hudhomestore.com. HUD homes are listed for sale at the site.
While anyone can buy a HUD home, you will need to get approved for a loan first.
Just like buying a house through the conventional route, all financing options are available for HUD homes. That includes conventional loans, FHA loans, VA loans, etc.
However, most people used an FHA loan to buy a HUD home due to its low down payment and credit score requirements.
If you have questions beyond buying a HUD home at the hudhomestore website, consult a financial advisor.
What is the Hudhomestore?
The hudhomestore is a website operated by the U.S Department of Housing and Urban Development (HUD). The website can be found here at hudhomestore.com.
Homes are listed there for sale after they have gone through foreclosures. Real estate agents and/or brokers can place bids on your behalf to buy a house.
What is a HUD home?
A HUD home (usually a 1 to 4 unit) is a property owned by HUD. Before a home became a HUD home, it was owned by a homebuyer who had purchased the home with an FHA loan.
Once the borrower stopped paying his or her FHA loan, the home went to foreclosures. Then the home goes to HUD and becomes a HUD home.
Why you should buy a HUD home at the Hudhomestore?
The benefits of buying a HUD home are huge. The main benefit is that most of these homes are priced below market value.
In addition, if you’re an EMS personnel, police officer, firefighter, or teachers, and live in revitalized areas and plan to live there for at least 36 months, HUD’s Good Neighbor Program offers HUD homes at a 50% discount.
This program is listed at the hudhomestore website.
In addition, HUD offers other perks such as low down payment and sales allowances you can use to pay for moving, repair and closing costs. The low down payment, that is on top of the FHA financing that you may be qualified for.
Another huge benefit of buying a HUD home is that HUD gives preferences to buyers who intend to live in the home for at least one year. So this puts you ahead of investors.
Are you qualified to finance a HUD Home?
All financing options, including conventional loans, VA, and FHA loans, are available when it comes to buying a HUD home.
But FHA loans are very popular among first time home buyers, due to its low requirements. But before you start searching for HUD homes through the Hudhomestore website, you should compare multiple loan offers so you can the best mortgage rates.
FHA loan requirements:
580 Minimum score
3.5% down payment
If your credit score is below 580, you can still be qualified but you’ll have to pay at least 10% down. Or, you can always take time to raise your credit score.
Don’t know what your credit score is, visit CreditSesame.
Our Review of Credit Sesame.
Steps to buy a HUD Home at the HUDhomestore website:
HUD homes can be hard to find if you don’t know where to look. In other words, they are not listed on conventional real estate websites such as Zillow or Redfin.
Instead, they are listed at the HUDhomestore webiste, which can be found at hudhomestore.com. They also have HUD Homestore Mobile Apps.
Knowing these steps is important to mastering one of the best strategies to buy a house at below market or wholesale prices.
Step 1: Shop and compare home loans
Before you start searching your house through the hudhomestore site, it’s a good idea to
The worst thing that can happen is to find a house that you like to then realize that you cannot secure a home loan.
To get the best mortgage rates, you need to compare multiple loan offers. Buying a home is major expense, and getting the best rates could save you a lot of money. I can spend a lot of time talking about why it is a bad idea to only speak with one mortgage lender.
But when it comes to having multiple loan offers, I highly suggest LendingTree.
LendingTree is an online platform that connects you to several mortgage lenders without visiting a dozen bank branches.
LendingTree will provide you up to 5 loan offers from multiple lenders for free, so you can compare and make sure you get the best deal.
So if youâre at this step right now, go and compare current mortgage rates for free at LendingTree, and come back to this article.
Our LendingTree Review.
Step 2: Finding a HUD Home at the HUDhomestore website.
To find a HUD home, simply go to the hudhomestore website. It can be found at hudhomestore.com.
There are three ways to find HUD homes on the hudhomestore website. The first way is through a map.
Once you on the website, you will see a map to the right with all of the states listed there. You simply look for your state and click on it to see all of the available HUD homes.
The hudhomestore site will show you a list of all of the HUD homes available for that particular state. It will include the photo of the HUD home, the address, the asking price, etc.
If you click on the photo of the house, you will be able to see more information of the property, including more photos, street views and information of the property.
Another way to find a house through the hudhomestore website is by clicking on the HUD Special program links.
The hudhomestore site specifically lists three HUD Special Programs: Good Neighbor Next Door; Nonprofits; $1 Homes-Government Sales. It specifically states on the hudhomestore website that if you click on any of these special programs, you will see available properties.
The third way to find a HUD home via the hudhomestore site is through the Search Properties. At the middle of the homepage, you will see a Search Properties where you can enter more detailed criteria.
Step 3: Buy your HUD home
Once you have found your desired HUD Home at the hudhomestore, it’s time to buy your HUD home.
But note that HUD homes are sold through an auction process. When you’re searching for the property through the hudhomestore site, it will tell you a deadline by which to submit your offer.
So if the deadline has not passed, submit your bid. Once it has passed, HUD reviews all offers. Just like any auction, the highest bid wins. If all of the offers are too low, HUD will extend the offer period and/or lower the asking price.
Note that you will not be able to place the bid yourself. Only real estate agents need to register to place bids on the hudhomestore website. You will need to find a real estate agent or you can specifically search for HUD registered agents at hudhomestore.com.
For more information on buying a home through the hudhomestore website, visit www.hudhomestore.com.
More on Buying a Home:
How to Buy a House: A Complete Guide
How Long Does It Take To Buy A House?
Buying a Home for the First Time? Avoid These Mistakes.
10 First Time Home Buyer Mistakes to Avoid.
Work with the Right Financial Advisor
If you have additional questions beyond buying a HUD home at the Hudhomestore, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
So, find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post How to Buy a HUD Home at the Hudhomestore Website? appeared first on GrowthRapidly.
Have you ever sat down to go over your budget only to find out that youâve outrageously overspent on food? Local, organic, artisan goods and trendy new restaurant outings with friends make it easy to do. With food being the second highest household expense behind mortgage or rent, our food choices have a huge impact on our budget. Using this monthly budget calculator can also help guide how to budget for food.Â
You may be surprised to find out that the most nutrient-dense foods are often the most budget-friendly. Itâs not only possible, but fun and easy to eat nourishing, delicious food while still sticking to your budget. Here are 11 ways to help you learn how to budget groceries.
1. Track Current Spending
Before you figure out what you should be spending on food, itâs important to figure out what you are spending on food. Keep grocery store receipts to get a realistic picture of your current spending habits. If you feel inclined, create a spreadsheet to break down your spending by category, including beverages, produce, etc. Once youâve done this, you can get an idea of where to trim down spending.
2. Allocate a Percentage of Your Income
How much each household spends on food varies based on income level and how many people need to be fed. Consider using a grocery calculator if youâre not sure where to start. While people spent about 30 percent of their income on food in 1950, this percentage has dropped to 9â12 today. Consider allocating 10 percent of your income to food as a starting point, and increase from there if necessary.
3. Avoid Eating Out
This is the least fun tip, we promise. Eating out is a quick and easy way to ruin your food budget. If youâre actively dating or enjoy going out to eat with friends, be sure to factor restaurants into your food budget â and strictly adhere to your limit. Coffee drinkers, consider making your favorite concoctions at home.
4. Plan Your Meals
Itâs much easier to stick to a budget when you have a plan. Plus, having a purpose for each grocery item you buy will ensure nothing goes to waste or just sits in your pantry unused. Donât be afraid of simple salads or meatless Mondays. Not every meal has to be a gourmet, grandiose experience.
5. Keep a Fridge Grocery List
Keep a magnetized grocery list on your fridge so that you can replace items as needed. This ensures youâre buying food you know youâll eat because youâre already used to buying it. Sticking to a list in the grocery store is an effective way to keep yourself accountable and not spend money on processed or pricey items â thereâs no need to take a stroll down the candy aisle if itâs not on the list.
6. Eat Before You Go to the Store
If your mother gave you this advice growing up, she was onto something: according to a survey, shoppers spend an average of 64 percent more when hungry. Sticking to a budget is all about eliminating temptations, so plan to eat beforehand to eliminate tantalizing foods that will cause you to go over-budget.
7. Be Careful with Coupons
50 percent off ketchup is a great deal â unless you donât need ketchup. Beware of coupons that claim youâll âsaveâ money. If the item isnât on your list, youâre not saving at all, but rather spending on something you donât truly need. This discretion is key to saving money at the grocery store.
8. Embrace the Bulk Section
Not only is the bulk section of your grocery store great for cheap, filling staples, but itâs also the perfect way to discover new foods and bring variety into your diet. Take the time to compare the price of buying pre-packaged goods versus bulk â itâs almost always cheaper to buy in bulk, plus eliminating unnecessary packaging is good for the planet.
Bonus: a diet rich in unprocessed, whole plant foods provides virtually every nutrient, ensuring optimal health and keeping you from spending an excess amount on healthcare costs.
9. Bring Lunch to Work
Picture this: youâre trying to stick to a strict food budget, and one day at work you realize itâs lunchtime and youâre hungry. But alas, you forgot to pack a lunch. All the meal planning and smart shopping in the world wonât solve the work-lunch-dilemma. Brown-bagging your lunch is key to ensuring your food budget is successful. Plus, it can be fun! Think mason jar salads and Thai curry bowls.
10. Love Your Leftovers
Would you ever consider throwing $640 cash into the trash? This is what the average American household does every year â only instead of cash, itâs $640 worth of food thatâs wasted. With millions of undernourished people around the globe, throwing away food not only hurts our budget but is a waste of the worldâs resources. Tossing food is no joke. Eat your leftovers.
11. Freeze Foods That Are Going Bad
To avoid wasting food, freeze things that look like theyâre about to go bad. Fruit thatâs past its prime can be frozen and used in smoothies. Make double batches of soups, sauces, and baked goods so youâll always have an alternative to ordering takeout when you donât feel like cooking.
Sticking to a food budget takes planning and discipline. While it may not seem fun at first, youâll likely find that you enjoy cooking and trying a variety of new foods you wouldnât have thought to use before. Being resourceful and cooking healthfully is a skill that will benefit your wallet and waistline for years to come.
Sources: Turbo | Fool | Forbes | Medical Daily | GO Banking Rates | Value Penguin
The post How to Budget Groceries: 11 Easy Tips appeared first on MintLife Blog.
If youâre someone who struggles with financial anxiety and stress, practicing a financial self-care routine could help. Just like other areas of your life, the more consistent you are about financial self-care, the better. This is why I am emphasizing the idea of building habits. The reality is that anxiety and stress are lifeâs constants. We ourselves donât have the luxury of removing those factors from our environment, but what we do have are tools to help manage and reduce them.Â
Before I get into it, I want to note that thereâs a pretty extensive list of financial-self care options available, but what Iâve realized is that when we are struggling, we often overcommit ourselves to perfectionism instead of trying to be a little less imperfect. Iâm the first to admit that itâs really tough not to go all-in when reading advice that sounds life-changing. Often, we find ourselves trying out anything and everything to feel in control, and it is for this reason that I wonât offer you the extensive list today. Instead, I hope to help you focus on taking things slow for once so that you donât set yourself up for failure (and ultimately right back in the anxiety-ridden state you first found yourself in). You can view these three foundational habits as a starting point for a long-term financial self-care routine that you will work to enhance over the course of your life. With this in mind, letâs dive in.
HABIT # 1: REVIEW & CATEGORIZE YOUR TRANSACTIONS DAILY
Building awareness of what and how much youâve spent can be a game-changer. This habit not only takes the dreaded guessing game out of your end-of-month leftover income and total spending, but it can help you course-correct throughout the month to ensure you hit budgeting goals, cut back in areas you may find yourself regretting, or even upping your spend in areas that bring you joy. A few added bonuses of this habit include saving time at the end of the month if youâre someone that typically sits down for 4-5 hours to get yourself organized, in addition to helping you catch fraudulent transactions faster!Â
Pro tips for building this habit:Â
Make it easy: If you donât already use Mint, download the app today to have all of your transactions organized and easily viewable in one place.Â
Make it obvious: Set a calendar reminder on your phone to check Mint each day at the same time. Iâd recommend early morning before your day gets busy.
Make it attractive: Check your spending after a ritual or habit you enjoy doing. For example, after you sit down to drink your coffee, open up Mint to review your transactions.  Â
Make it satisfying: After reviewing your transactions, do something rewarding. For example, after categorizing and reviewing, consider checking it off your to-do list for the day to feel progress.
HABIT # 2: CHECK YOUR SAVINGS ACCOUNT(S) DAILY
Checking your savings accounts is a great way to flood your brain with positivity about your financial situation. Having savings is a rewarding feeling, and even more rewarding, is seeing your savings progress over time. Getting in this habit will also be a good reminder to actively save for each of your financial goals.Â
Pro tips for building this habit:Â
Make it easy: Connect your savings accounts to Mint and use the goal-setting feature that allows you to customize your savings goals and connect your savings account to easily track your progress.Â
Make it obvious: Consider setting your phoneâs background to a photo of something youâre saving for so that everytime you check your phone, youâll be reminded of saving. Mint also allows you to add photos of your goals in the web version and in the app.Â
Make it attractive: In addition to checking your savings right after reviewing your transactions in Mint, consider starting a savings group with your friends and family. No need to talk about how much youâve saved, but you can talk about your goals and turn to the group for motivation when youâre tempted to spend what you would normally save.Â
Make it satisfying: Make sure to give yourself credit for doing this habit by also crossing it off as a separate to-do list item. Try to also make it a rule to never miss checking your savings twice in a row. Skipping a day here and there because life gets in the way is totally normal, just make sure to commit yourself to doing it the next day.Â
HABIT # 3: REWARD YOURSELF 1X PER WEEK
I saved the best for last. Rewarding yourself is a critical step that most skip when trying to become more disciplined. Self-control can be a draining experience, especially at first. Make sure to set aside âfree timeâ each week to do something for yourself. It doesnât have to be big, and it doesnât have to require a lot of money. Think of it as a way of telling yourself good job for working hard and trying to improve.Â
Pro tips for building this habit*:Â
Make it easy: Consider making your reward something that takes less than 2 minutes to start doing. Perhaps itâs turning on a Netflix show, making an easy dessert, grabbing a coffee at the Starbucks you just walked by, or even dancing in your living room to your favorite song.Â
Make it obvious: As I write this, it sounds weird, but for some of us, setting aside time for ourselves isnât something weâre good at, so commit yourself to a consistent day and time thatâs for you to do what you want.
*Making it attractive and satisfying isnât necessary here because the reward in and of itself will reinforce the habit.Â
With that, you now have 3 habits to start building a financial self-care routine. Give this a shot, and let me know how it goes in the comments below.Â
The post 3 Financial Self-Care Habits You Can Start Today appeared first on MintLife Blog.
