How Quickly Can You Save Your Down Payment?

KCM Down

Saving for a down payment is often the biggest hurdle for a first-time homebuyer. Depending on where you live, median income, median rents, and home prices all vary. So, we set out to find out how long it would take to save for a down payment in each state.

Using data from HUDCensus and Apartment List, we determined how long it would take, nationwide, for a first-time buyer to save enough money for a down payment on their dream home. There is a long-standing ‘rule’ that a household should not pay more than 28% of their income on their monthly housing expense.

By determining the percentage of income spent renting in each state, and the amount needed for a 10% down payment, we were able to establish how long (in years) it would take for an average resident to save enough money to buy a home of their own.

According to the data, residents in Kansas can save for a down payment the quickest, doing so in just over 1 year (1.12). Below is a map that was created using the data for each state:

Down graph

What if you only needed to save 3%?

What if you were able to take advantage of one of Freddie Mac’s or Fannie Mae’s 3%-down programs? Suddenly, saving for a down payment no longer takes 2 to 5 years, but becomes possible in less than a year in most states, as shown on the map below.

Down graph 2

Bottom Line

Whether you have just begun to save for a down payment or have been saving for years, you may be closer to your dream home than you think! Let’s get together to help you evaluate your ability to buy today.

Posted by The KCM Crew

Ready to buy? Click HERE to get started!

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A Guide to Mortgage Interest Rates: Why They Go Down and Up, and What to Do

Mortgage interest rates are a mystery to many of us—whether you’re a home buyer in need of a home loan for your first house or your fifth.

After all, what does “interest rate” even mean? Why do rates swing up and down? And, most important, how do you nab the best interest rate—the one that’s going to save you the most money over the life of your mortgage?

Here, we outline what you need to know about interest rates before applying for a mortgage.

Mortage

Why does my interest rate matter?

Mortgage lenders don’t just loan you money because they’re good guys—they’re there to make a profit. “Interest” is the extra fee you pay your lender for loaning you the cash you need to buy a home.

Your interest payment is calculated as a percentage of your total loan amount. For example, let’s say you get a 30-year, $200,000 loan with a 4% interest rate. Over 30 years, you would end up paying back not only that $200,000, but an extra $143,739 in interest. Month to month, your mortgage payments would amount to about $955. However, your mortgage payments will end up higher or lower depending on the interest rate you get.

Why do interest rates fluctuate?

Mortgage rates can change daily depending on how the U.S. economy is performing, says Jack Guttentag, author of “The Mortgage Encyclopedia.”

Consumer confidence, reports on employment, fluctuations in home sales (i.e., the law of supply and demand), and other economic factors all influence interest rates.

“During a period of slack economic activity, [the Federal Reserve] will provide more funding and interest rates will go down,” Guttentag explains. Conversely, “when the economy heats up and there’s a fear of inflation, [the Fed] will restrict funding and interest rates will go up.”

How do I lock in my interest rate?

A “rate lock” is a commitment by a lender to give you a home loan at a specific interest rate, provided you close on your home in a certain period of time—typically 30 days from when you’re pre-approved for your loan.

A rate lock offers protection against fluctuating interest rates—useful considering that even a quarter of a percentage point can take a huge bite out of your housing budget over time. A rate lock offers borrowers peace of mind: No matter how wildly interest rates fluctuate, once you’re “locked in” you know what monthly mortgage payments you’ll need to make on your home, enabling you to plan your long-term finances.

Naturally, many home buyers obsess over the best time to lock in a mortgage rate, worried that they’ll pull the trigger right before rates sink even lower.

Unfortunately, no lender has a crystal ball that shows where mortgage rates are going. It’s impossible to predict exactly where the economy will move in the future. So, don’t get too caught up with minor ups and downs. A bigger question to consider when locking in your interest rate is where you are in the process of finding a home.

Most mortgage experts suggest locking in a rate once you’re “under contract” on a home—meaning you’ve made an offer that’s been accepted. Most lenders will offer a 30-day rate lock at no charge to you—and many will extend rate locks to 45 days as a courtesy to keep your business.

Some lenders offer rate locks with a “float-down option,” which allows you to get a lower interest rate if rates go down. However, the terms, conditions, and costs of this option vary from lender to lender.

How do I get the best interest rate?

Mortgage rates vary depending on a borrower’s personal finances. Specifically, these six key factors will affect the rate you qualify for:

  1. Credit score: When you apply for a mortgage to buy a home, lenders want some reassurance you’ll repay them later! One way they assess this is by scrutinizing your credit score—the numerical representation of your track record of paying off your debts, from credit cards to college loans. Lenders use your credit score to predict how reliable you’ll be in paying your home loan, says Bill Hardekopf, a credit expert at LowCards.com. A perfect credit score is 850, a good score is from 700 to 759, and a fair score is from 650 to 699. Generally, borrowers with higher credit scores receive lower interest rates than borrowers with lower credit scores.
  2. Loan amount and down payment: If you’re willing and able to make a large down payment on a home, lenders assume less risk and will offer you a better rate. If you don’t have enough money to put down 20% on your mortgage, you’ll probably have to pay private mortgage insurance, or PMI, an extra monthly fee meant to mitigate the risk to the lender that you might default on your loan. PMI ranges from about 0.3% to 1.15% of your home loan.
  3. Home location: The strength of your local housing market can drive interest rates up, or down.
  4. Loan type: Your rate will depend on what type of loan you choose. The most common type is a conventional mortgage, aimed at borrowers who have well-established credit, solid assets, and steady income. If your finances aren’t in great shape, you may be able to qualify for a Federal Housing Administration loan, a government-backed loan that requires a low down payment of 3.5%. There are also U.S. Department of Veterans Affairs loans, available to active or retired military personnel, and U.S. Department of Agriculture Rural Development loans, available to Americans with low to moderate incomes who want to buy a home in a rural area.
  5. Loan term: Typically, shorter-term loans have lower interest rates—and lower overall costs—but they also have larger monthly payments.
  6. Type of interest rate: Rates depend on whether you get a fixed-rate mortgage or an adjustable-rate mortgage, or ARM. “Fixed-rate” means the interest rate you pay remains fixed at the same level throughout the life of your loan. An ARM is a loan that starts out at a fixed, predetermined interest rate, but the rate adjusts after a specified initial period (usually three, five, seven, or 10 years) based on market indexes.

Tap into the right resources

Whether you’re looking to buy a home or a homeowner looking to refinance, there are many mortgage tools online to help, including the following:

  • mortgage rate trends tracker lets you follow interest rate changes in your local market.
  • mortgage payment calculator shows an estimate of your mortgage payment based on current mortgage rates and local real estate taxes.
  • Realtor.com’s mortgage center, which will help you find a lender who can offer competitive interests rates and help you get pre-approved for a mortgage.

 

Posted by Daniel Bortz on realtor.com

Ready to buy? Click HERE to find your next home!

Should I Buy Now? Or Wait Until Next Year? [INFOGRAPHIC]

Some Highlights:

  • The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
  • Freddie Mac predicts interest rates to rise to 5.2% by the third quarter of 2019.
  • CoreLogic predicts home prices to appreciate by 5.1% over the next 12 months.
  • If you are ready and willing to buy your dream home, find out if you are able to!

Posted by The KCM Crew

 

The Cost of NOT Owning Your Home

Owning a home has great financial benefits, yet many continue to rent! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.

Zillow recently reported that:

“In reality, buying or renting a home is an intensely personal decision, with emotional and even financial considerations that go beyond whether to invest in this one (admittedly large) asset. Looking strictly at housing market numbers, there is a concrete point at which buying a home makes more financial sense than renting it.”

What proof exists that owning is financially better than renting?

1. We recently highlighted the top 5 financial benefits of homeownership:

  • Homeownership is a form of forced savings.
  • Homeownership provides tax savings.
  • Homeownership allows you to lock in your monthly housing cost.
  • Buying a home is cheaper than renting.
  • No other investment lets you live inside of it.

2. Studies have shown that a homeowner’s net worth is 44x greater than that of a renter.

3. Just a few months ago, we explained that a family that purchased an average-priced home at the beginning of 2017 could build more than $48,000 in family wealth over the next five years.

4. Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent payment– along with a profit margin!!

Bottom Line

Owning a home has always been, and will always be, better from a financial standpoint than renting.

 

Posted by The KCM Crew

Ready to start searching? Click HERE to find all of our latest listings!

New To Budgeting? Try The 50-20-30 Rule

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The 50-20-30 Rule makes budgeting simple so you can pay your bills, add to your savings, and set aside money for fun.

Budgeting isn’t always as complicated as it may seem — this simple formula makes it easy to allocate your money each month.

If you’re new to budgeting, figuring out how to manage your money each month can feel overwhelming. Not only do you need to organize, but you also have to make difficult decisions about how to spend your cash. Relying on the advice from others can help only so much, because your income and expenses are unique. Someone may be able to spend $4,000 per month on rent in Manhattan, NY, but that kind of spending may not work for you.

But there’s good news: You don’t need fancy finance apps on your phone, or complicated spreadsheets with countless spending categories to understand how much you can spend. You simply need to follow the 50-20-30 Rule.

 

What is the 50-20-30 Rule?

The 50-20-30 Rule helps you build a budget by using three spending categories:

  1. 50% of your income should go to living expenses and essentials. This includes your rent, utilities, and things like groceries and transportation for work.
  2. 20% of your income should go to financial goals, meaning your savings, investments, and debt-reduction payments (if you have debt, such as credit card payments).
  3. 30% of your income should be used for flexible spending. This is everything you buy that you want but don’t necessarily need (like money spent on movies and travel).

Keep in mind that the percentages for essentials and flexible spending are the maximum you should spend. Falling under those guidelines can leave more money for other financial goals.

How to start a 50-20-30 budget

Figure out what’s currently happening with your spending habits. First, look at your pay stubs to determine exactly how much money you bring home each month. That’s your income and what you’ll base your 50-20-30 split on. (If you’re self-employed, be careful to track your earnings and understand your average income per month so you can budget accordingly.)

Next, track your spending. Yes, every cent, from the big stuff such as rent, to the coffee that you grab on the way to work. (If you spend most of your income through credit and debit cards, these reports are easy to generate). Each of these should be categorized into the three 50-30-20 buckets mentioned above: essentials, financial goals, and flexible spending. From here, adjust your spending to ensure you’re falling into the 50-20-30 parameters. You may find that you’re overspending on stuff you want but don’t need, and that’s when it’s time to cut back.

Why the 50-20-30 Rule works

This budgeting plan keeps your personal finances simple so you can pay your bills, add to your savings, and have the freedom to use some money just for fun. And for the novice, the 50-20-30 Rule is a great starting point for learning the basics. There’s no uncertainty, your action steps are clear, and it even provides for savings, investments, and other financial goals. This makes it much more likely that you’ll stay the course over time, ultimately reaching your desired financial stability.

The 50-20-30 Rule also offers some flexibility. Do you spend more than 50% of your income on essentials? You can bend it a bit by altering the percentages to make it work better for you.

“It’s not about the exact percentage breakdown, because all budgets will be slightly different,” says Eric Roberge, a financial planner who specializes in helping professionals and entrepreneurs at Beyond Your Hammock. “The key is to take action and use a system to help you stay consistent in managing your money every month, and making sure you’re covering your expenses, being responsible by saving for tomorrow, and giving yourself some room to enjoy life today.”

 

Posted by Kali Hawlk on Trulia

 

12 Tips for Cutting Costs at Home

Understanding the details about your home can help you find some hidden savings that can help you cut costs at home. Learn from these 12 tips in this infographic on how save at home.  Many of these tips are great savings and simple tasks that you can do on your own.

SimpliSafe is a simple installation, no hassle wireless security system that protects your home in a user-friendly way with their easy-to-use, fee free system. A security system can not only save you the average 20% insurance discount but with the SimpliSafe system, you can save up to $624 yearly.

Posted in HomeZada

How to Finance a Home Remodel

Often times, when you buy a home, it’s not perfect. Fortunately, the magic of remodeling allows you to craft your current residence or a prospective property into your dream home. However, unless you’re flush with cash, you won’t be able to pay for your renovation project out of pocket. When faced with this dilemma, there are several ways for you to go about getting the funds.

Remodeling a Purchase

FHA 203k mortgages
The FHA 203k loan is backed by the Federal Government and is solely for the purpose of helping those who wish to purchase and renovate a home. There are two different kinds of 203k loans, each geared toward different types of projects.

1. Standard 203k
The standard 203k is for all projects that require professional architectural drawings and inspections. Typically, if the property has any sort of structural damage, or any other problems that make it unlivable, the Standard 203k is the way to go. There is a minimum cost of $5,000, and the project must be completed in six months, although a lender can approve extensions.

2. Streamlined 203k
The streamlined 203k is for less complicated projects that do not require the help of a consultant, architect, engineer, or that will not exceed $35,000. Due to the simpler scope of the task, the loan process is straightforward and will allow you to finish the project in a timely manner.

For both types of 203k loans, the properties will have to meet FHA requirements, including a maximum home value. Fortunately, the FHA’s guidelines are more lenient than those of conventional loans – including more flexible credit, income, and appraisal requirements.

Energy Improvement Mortgages (EIMs)
If you are planning to make renovations that increase energy-efficiency, the energy improvement mortgage is the way to go. An EIM allows you to add the cost of the energy-efficiency improvements to your mortgage without increasing the down payment. The way the lender sees it, you will be able to use the money saved from utility bills to finance the energy upgrades.

Remodeling Your Current Home

Home Equity Loan

A home equity loan is basically a second mortgage based on the equity in your house. Typically the max you can borrow is 85% of the equity in your home, but it will vary depending on income, credit history, and your home’s market value. So if your home is worth $300,000 and you have a mortgage balance of $200,000, you could potentially get a home equity loan for up to $55,000. The repayment plan is exactly like your first mortgage with monthly payments over a fixed term. As with any mortgage, there will be fees and closing costs.

Home Equity Line of Credit

Not unlike a credit card, with a Home Equity Line of Credit (HELOC) you have a revolving line of credit that you can borrow from—as much as you like—by using a check or card that is connected to your account. If you had $100,000 in equity, as in the previous example, that would be your account’s limit. The difference here is that you only make payments on what you borrow.

Cash-out Refinance

With a cash-out refinance, you get a new mortgage with a new rate and term, and you ”cash out” the available equity in your home. Most lenders require at least 15% equity. So to continue with the same example, it would mean a lump sum of $55,000 and a new mortgage for $200,000. Since you’re getting a new mortgage, make sure you factor in closing costs and fees.

Bottom line:
No matter what route you go, make sure you take a hard look at your budget. Home remodeling projects almost always take longer and cost more than initial estimates, so having some wiggle room is incredibly important. In the end, if you take your time, shop around, and speak with experienced professionals, there’s no reason your home remodeling project shouldn’t be a success.

Posted by Carter Wessman on HomeZada