The dreaded 20% down payment has made many a renter worry that they’ll never be able to buy a home of their own. Saving up one-fifth of the cost of an entire house can take years, especially while you’re paying rent, utilities and a million other expenses.
There are advantages to waiting until you have 20% to put down. But in some cases, buying with a smaller down payment may be in your best interest. Fortunately, conventional loans are becoming more readily available with a smaller down payment, and the Federal Housing Administration, or FHA, backs mortgages for qualifying buyers with down payments as low 3.5%. Let’s look at the options.
Conventional vs. FHA
Because some lenders offer both conventional and FHA loans, homebuyers are often confused about who exactly is lending them money. In both cases, the financial institution is the lender. The difference is that FHA mortgages are insured by the government. The FHA does this to encourage lenders to issue more mortgages to qualified buyers for whom a conventional loan is out of reach.
The size of the loan matters, too. FHA loans must be under a certain dollar amount, which varies by county. Conventional loans offered by lenders like Bright Star Credit Union also have to come in under a cap, and anything higher is considered a jumbo mortgage.
Paying the smallest down payment possible makes sense, right? Not necessarily. For one thing, a larger down payment provides some insulation against market fluctuations. If your down payment is quite small, a downturn in the real estate market in the first few years might leave you owing more than your home is worth. That can make it hard to sell the house without taking a loss if you need to move.
Larger down payments also reduce the total amount you’re borrowing. As a result, a bigger down payment will mean you’re paying interest on a smaller loan balance. Both your monthly payments and the long-term costs of carrying the loan will be smaller if you pay a greater portion of the home’s price up front.
But smaller down payments make home ownership accessible to many people who otherwise wouldn’t be able to buy a house or condo, or would have to wait years longer to get there.
Many lenders offer conventional loans with down payments below 20%, but the smaller the down payment, the higher the buyers’ credit score needs to be — and the higher the interest rate that they’re likely to face. But the down payment that FHA borrowers have to pony up also depends on the strength of their credit, so the differences between the two types of loans may not be as significant as some people think.
If you put down less than the recommended 20% for a conventional loan, your lender will most likely require you to pay for private mortgage insurance, or PMI, on top of your monthly mortgage bill. Your smaller down payment makes you a riskier bet for the lender. The insurance helps the lender recoup more money if you default on the loan.
Now for the bad news. With FHA loans, you have to pay an up-front premium just to close the deal. You must also keep on paying monthly mortgage insurance premiums until the loan is paid off or refinanced. This is a major drawback to FHA loans.
Qualifying for a loan
Whether you’re applying for a conventional loan or an FHA loan, you have to prove that you can afford the required monthly payments. Your lender will require proof of income and will want to see documentation of all your major assets and debts. The lender will also check your credit score, but don’t despair if your credit is less than perfect. The FHA has a minimum credit score requirement of 500, while most lenders require a credit score of at least 580.
How to choose
There are as many types of loans as there are types of buyers. The right decision will depend on your circumstances. If your down payment is on the small side and your credit score is okay but not great, an FHA loan might be the best choice. A conventional loan may be a better bet if you bring either a substantial down payment or good to great credit to the table.
If you’re unsure which route to take, sit down with your lender and look at the options. You’ll be picking up the keys in no time.
Virginia C. McGuire, NerdWallet
Target, Home Depot, Visa and MasterCard are some of the companies that experienced hacking breaches in the past few years. If you need a refresher course Target hackers stole about 40 million debit and credit card numbers and personal information; Home Depot hackers installed custom-built malware on its self-checkout systems as well as stole 53 million email addresses.; Visa hackers exposed more than 20 million accounts while the MasterCard hackers opened 13.9 million accounts. With today’s hacking breaches it’s hard to trust that your information will stay secure anywhere you shop. BrightStar Credit Union wants to help protect your money and your identity with our newest financial presentation Fraud in Florida-Keeping your Money Safe beginning in March. For dates and locations click here. But until then these tips will help you feel more secure and make your money more secure.
Avoid Suspicious Websites
When an unknown company’s website is offering a deal that is too good to be true, it most likely is. Beware of businesses that have a lousy website design or multiple pop-up windows. U.S. News and World Report suggests in order to stay safe by shopping with big-name retailers. If you are shopping from a smaller retailer look for familiar payment systems, such as PayPal.
Don’t Give Your Information to Strangers
This may seem like a no-brainer but it’s easy to be fooled. Many times hackers will call pretending to be an official from your credit union or bank to ask you information about your account. To verify that they are talking to the accountholder they will ask for personal information like your social security number, your account number or your debit/credit card number. DO NOT GIVE IT TO THEM. Your credit union/ bank should already have that information. Instead hang up the phone and call your financial institution personally to report the fraudulent activity.
Remember: There is NO Sure Thing in Investing
If you have someone, whether it’s a friend, a family member or a complete stranger, talking to you about a low-risk, high-return investment opportunity, run far away. The Federal Trade Commission reports “When you hear pitches that insist you act now, that guarantee big profits, that promise little or no financial risk, or that demand you send cash immediately, report them at ftc.gov”
Only Open Emails from Known Addresses
The average amount of spam mail a business email receives in a day is 13. That is 13 opportunities for a hacker to steal your information and even give your computer malware. To protect yourself from spam mail make sure you have a spam folder set up through your email account. Email services like Gmail, Outlook and Yahoo all have a spam folder automatically set up for those annoying emails. If your email provider doesn’t offer you one automatically follow these 3 steps to secure your finances
- Identify Spam: Spammers will often have weird email addresses and spelling mistakes. It’s simple, if the email address does not look familiar, do not open it.
- Prevent spam: Make your email address unscannable when you need to enter it in a website to register, ie. myemail[at]yahoo[dot]com
Block and Report Spam: Many email services have a one-click option for you to block a sender. It could either look like an exclamation point, a shield symbol with a X in the middle of it, or a right click option on that email to block sender.
Remember, there is no sure fire way to protect yourself from hackers. If you follow these tips and are smart about where you spend your money you can decrease your chances of having hackers stealing your information and your identity. Don’t forget to RSVP for BrightStar Credit Union’s newest financial presentation Fraud in Florida-Keeping your Money Safe beginning March 24. For dates and locations visit bscu.org/seminars
Do you find yourself having trouble keeping track of your finances? How much money do you spend on groceries per month? Clothes? Utilities? Or maybe you’re having trouble creating a budget and sticking to it. Well, we are very happy to tell you about Money Desktop.
MoneyDesktop (MD) is an online money management tool, integrated into online banking, which empowers you to take control of your finances and simplify your life. Budgeting, account aggregation, categorization and mobile access are just a few of the tools to guide you along the way.
With MD, you can view your bubble budgets. You set your budget for any number of categories including entertainment, pets, business services and much, much more! The budgets change color from green to yellow to red depending where you are on your budget for that month. The size of the bubble changes on how small or large you set your budget. The larger the budget, the larger the bubble.
MoneyDesktop also has a Debts tab that allows you to see how much you owe on all your credit cards, loans etc. You can choose to organize your debts by: fastest payoff first, highest interest first, lowest balance first or highest balance first. Then you can change how much money you want to pay off each month for these debts. Depending on the amount you choose MoneyDesktop tells you when you will be debt free.
Another tab MoneyDesktop offers is the Trends tab. It is an easy way for you to measure how much money you spent in the last 6 months in categories. These categories include travel, food and groceries, home, health and fitness, auto and transport, and more!
With all of these features and more available on MoneyDesktop, budgeting your money has never been easier. To access it login to Online Banking on bscu.org. Once you’re in click on the MoneyDesktop tab at the top of the page. To start, add accounts for your other financial institutions including credit cards, investments, and mortgage. From there you’re all set to use MoneyDesktop!
BrightStar Credit Union was featured in an article posted by NerdWallet discussing how banks and credit unions are helping their members get a fresh start in 2015. Here is a quick peak ““We will be going around to different branch locations from January to March with presentations that teach members about car buying, ‘What the Car Dealers Don’t Want You to Know’; their credit score, ‘Credit Matters: Understanding Your Credit Score’; and helping them avoid fraud, ‘Fraud in Florida; Keeping Your Money Safe.”
To read the whole article click here: http://nerd.me/1Fn1LhK
Electronics and clothes and toys, oh my! It seems holiday wish lists are getting longer and more expensive while the budget keeps shrinking. If you find yourself in a rut this holiday season because you didn’t save enough this year or so many unexpected things happened that you lost count, don’t panic. The holidays aren’t about keeping up with Jones’, it’s about enjoying the people who surround you all year round. However, if you do plan to hand out presents this year, there a few ways for you to not lose your cool.
If you have a big family and can’t afford buying a gift for Aunt Carol, Uncle Joe and that one cousin who seems to be missing a screw, suggest a gift exchange like Secret Santa. You put all the family member’s names into a hat and everyone draws a name. This way the family can focus on getting their one member a special gift that they actually want rather than spending a lot more time and money looking for everyone in your family.
Host a potluck
One of the greatest things about the holidays are the dinners. The food is endless with choices that will have you wishing you had a second stomach. So instead of everyone relying on you to make 3+ courses, host a potluck. Invite all of your friends and family to your house and ask them each to bring a dish to share. As the host, think about cooking the main dish. It will be less of a burden on your wallet and it’s fun to see what delicious food your guest will bring.
Remember not every sale is a bargain
BUY ONE GET ONE 50% OFF! ONE-TIME SALE! GET IT BEFORE IT’S GONE! You’ve probably seen this sign every store you’ve been into since Black Friday but these sales aren’t really worth it. Unless you had these items on your list (and you’ve checked it twice) pass on the sale. Give yourself 24 hours to think if you really needed those pajamas or shoes. Most likely the answer will be no.
Do you have a closet in your house filled with stuff you haven’t used in a year? 2 years? More? If you haven’t used it in a year, you probably will never use it again. Try selling your stuff. Stores like Plato’s Closet and Uptown Cheapskate will gladly accept your new or like new clothes. If you’re looking for bigger stuff to sell like electronics or furniture Craigslist and eBay are great options. If no one is biting on your awesome deals consider donating to a charity. After all, it is better to give than receive.
Compare prices online
These days everything is online. So when you’re looking to buy something you know is available at multiple stores check out each store’s website. Compare prices to see which one offers the best deal. Don’t forget to put in any promo codes or coupons that the stores are offering. Most will even offer free shipping.
So don’t get all flustered this holiday season. Keep calm and be smart. These tips will even help you when it’s not the holiday season. Oh, and try to get your holiday shopping early so you can enjoy the time with your family and friends.
Reflecting on the past year, are you thankful for having reached certain financial goals? Perhaps you’ve set aside a target amount in retirement savings or reached a certain level in a fund for a future expense, such as a child’s college tuition or a house.
The holiday season is a time when many evaluate how they did on their most recent New Year’s financial resolutions. If you’ve got plenty of cash for gifts and other holiday expenses, you probably did well on your savings goals. But if you’re struggling to come up with the money you need, it may not feel like there is much to celebrate on the financial front.
Now is a good time to think about setting objectives for next year so that when Thanksgiving 2015 arrives, you’ll have a shot at being financially thankful.
As Easy as One, Two, Three
How can you ensure you have something to celebrate financially at Thanksgiving—if not this year, then in 2015 and beyond? Follow these three steps.
- Establish a budget and stick to it. A budget starts with recognizing priorities and cutting out the unnecessary indulgences, such as a daily pumpkin spice latte. See where you can cut expenses that aren’t vital, and bolster your savings.
- Avoid credit card debt. Try not to buy things using a credit card unless you can completely pay off the balance each month. A variable interest rate can quickly run up your debt, especially when rates range close to 23%. Avoid swiping the card unless you can pay it off with the next bill.
- Consolidate your debt. See if you can get a lower interest rate on debt, whether it’s tied to credit cards, school loans or other expenses. Consider taking out a home equity loan or line of credit, or even a personal loan to reduce your costs. With the Federal Reserve taking steps that may push rates higher starting next year, now may be the last time for a while that you’ll be able to lock in low rates.
If sticking with a savings plan has proven too challenging, consider setting up an automatic deposit system through your financial institution. A specified amount will be withdrawn from your earnings and plugged directly into a savings account or retirement fund. By salting it away, you can eliminate the temptation to spend the money on unnecessary items—as the saying goes, out of sight, out of mind.
And don’t forget to keep your eyes on the prize. Next year at this time you may find that, financially speaking, you indeed have plenty for which to be thankful.
Cait Klein, NerdWallet
Interest rates are hovering at near historic lows, but may not be for much longer. The Federal Reserve’s move to end a policy designed to loosen credit may lead to a hike in borrowing costs next year. So if you expect to need a new car within the next year, now may be a good time to make your move, at least on the financing.
Average new car loans with 48-month terms across the U.S. carried rates of just over 4% as recently as September, according to Fed data. Now, some credit unions, like BrightStar Credit Union, are offering to finance as much as 99% of the cost of a new vehicle for as low as a 1.8% annual percentage rate.
Getting an auto loan
As you gear up to drive away in a new car, here are a few tips on securing low-cost financing ahead of any potential rate increases.
Use a credit union
Credit unions are member-owned, not-for-profit organizations, which lets them offer significantly lower-rate loans than most lenders. Research from the National Credit Union Association shows four-year, new-car loan rates averaged 2.64% in the second quarter of this year at U.S. credit unions. That compares with a national average rate of 4.78% at banks. Credit unions on average offered better rates on both new and used car loans for all durations measured.
Secure financing before heading to the dealer
It’s a good idea to know how much monthly payments are likely to be before heading to the dealer. Consider using an auto loan calculator to determine how much money you’ll pay each month for different loan terms and rates. Securing the financing before you negotiate a price for a car may take the pressure down a notch and help you land a better deal.
Shop at the right time
Timing is everything when it comes to buying a new car. Toward the end of the year, dealers may be scrambling to meet annual sales quotas, and salespeople maybe angling for holiday bonuses. Combined, those motives can make it an ideal time to negotiate a good price. As January approaches, dealers often try to clear out this year’s models to make room for next year’s on the sales floor. You may also benefit from bargaining during the early part of the week, as that helps to ensure you’ll have a salesperson’s full attention, undistracted by the traffic of a busy weekend. Making an offer toward the end of the day can also help you win a better deal, as salespeople may be tired and anxious to head home.
If you expect to replace a car or buy a new one before 2016, acting now rather than in nine months could help you score significant savings, should rates rise as expected. And a credit union’s favorable loan terms may help ensure that you make the most of the opportunity.
Cait Klein, NerdWallet
The holidays are approaching. Maybe you’re excited for spending time with your family, the food, or just the holiday lights that seem to pop up overnight. With all of those mentioned guarantees, there is another one you just can’t seem to avoid, gift giving. Even if you tell your family and friends you don’t want to exchange gifts there is always that one person that gives you a gift because “Oh, I just saw it and it screamed your name!” Or maybe you love to buy gifts for everyone; parents, siblings, significant others, bosses, mailmen, your hairdresser. Whichever category you fall in make sure you are prepared. Did you budget for the holidays this year?
If you’re like most people you haven’t even thought about the holidays until they put decorations in the stores during October. So what’s your plan? Is it swiping it your credit card that charges 22% interest so they can pay off Alec Baldwin and Tina Fey to promote their cards? If that’s the case you should keep reading.
Many of those high-interest credit cards come with compound interest. What is compound interest you may ask? Its interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or a loan. You can look at it as “interest on interest.” If you’re not interested in paying the credit card companies those high interest rates (let’s not forget that annual fee you’re paying as well) keep on reading.
If you’re looking to save money the BrightStar Credit Union Holiday Loan is just right for you. First, it offers simple interest, the interest charge is always based on the original principal, so interest on interest is not included. Second, we offer rates as low as 7.99% APR and go up to 16% APR. Even then our rates are still lower than the credit card companies. Third, you set the limit to how much you want to spend this season, up to $5000. So if you plan to spend $1500, take out $1500 and you don’t overspend and you won’t be overwhelmed when the holiday season ends.
The BrightStar Credit Union Holiday Loan is available until December 31st. So be prepared for Black Friday, Cyber Monday and anything else the retailers throw at you. And above all else, enjoy your holidays.
Apply for a loan today at https://www.bscu.org/holiday/