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6 Home Buying Myths That Waste Time and Money

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You’ve decided to buy a home. Friends, family, even coworkers and random acquaintances are offering their advice. Not all of it will be true.

They mean well, but what worked for someone else may not be the best option for you. Plus, there are plenty of widely believed myths surrounding home buying. Falling for them can actually make it harder to find the right place.

Here are some of the most common myths and why you shouldn’t believe them.

Myth #1: You need a 20% down payment

This myth can stop potential homebuyers cold. The median listing price in the U.S. is $385,000. You would have to have $77,000 readily available if you wanted to make a 20% down payment, an amount that can be daunting for a lot of people.

“It’s one of the biggest myths out there,” says John Mallett, founder of mortgage broker MainStreet Mortgage. “It stops more people from entering the market or even seeing if they can qualify.”

In reality, 20% down is more of a guideline than a hard and fast rule. In fact, the average down payment equals 12%. For first-time buyers it goes down to 7%.

Government-backed options, such as FHA loans and USDA loans, can be secured with as little as 3.5% down. If you are a member of the armed forces or a veteran and you qualify for a VA loan, you can buy a home with 0% down.

Conventional loans also don’t require a 20% down payment, but with less money down you will generally need to pay for private mortgage insurance. PMI costs 0.5% to 1% of your loan amount per year and is paid in monthly installments. So, if you have the money to pay 20% down, however, it can make sense to do it. Having more equity also protects you if home values fall.

You can also apply for a number of different grants and homebuyer assistance programs that can provide money for a down payment. These programs can include grants, forgivable loans and second mortgages that can provide partial or full down payment help. (Brokerage Redfin has put together a list of down payment assistance programs available nationwide and by state.)

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Myth #2: You should definitely get a 30-year fixed-rate mortgage

The 30-year fixed-rate mortgage is popular for a reason. The fixed rate means predictable payments, while the long payback period means relatively low payments.

However, it’s not your only option and it pays to evaluate different types of loans to see which one best fits your needs. In many instances, a 30-year mortgage will be more expensive in the long run.

For example, if you are more interested in paying the mortgage off faster and can afford higher monthly payments, you might want to consider a 15-year fixed-rate loan.

These loans will usually have lower interest rates than 30-year loans (the average rate for a 15-year mortgage has been below 2.5% since last summer). By paying a lower interest rate over a shorter term, you’ll save money despite higher monthly payments.

An adjustable-rate mortgage may be worth considering if you don’t plan on staying in the home for long. Some ARMs will have very low interest rates during the initial fixed-rate period, which can save money. Though if you do not sell or refinance before the rate becomes variable, you could face a much higher rate and monthly payments.

Myth #3: You can’t buy a home unless you have great credit

Sometimes, even buyers with good credit scores may be hesitant to apply for a mortgage because they don’t think they’ll qualify.

While having a good credit score will allow you to qualify for better mortgage rates, having less than spectacular credit doesn’t mean you won’t qualify at all. Different lenders will have different minimum credit score requirements, but in general you can get a conventional mortgage with a credit score as low as 620.

You have other options if your score is lower than 620. FHA loans, for example, will technically require a minimum of only 500, although you will likely have to make a larger down payment and your interest rate won’t be the best. A 580 credit score is more commonly acceptable and still allows you to make a relatively low down payment.

The bottom line? The higher your credit score the more favorable the rate you are likely to qualify for, which can save you a lot of money. But if you don’t have perfect credit, there are still ways to become a homeowner.

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Myth #4: You can’t buy a home if you have student loans

The fact that you have student loan debt doesn’t automatically disqualify you from obtaining a home loan either. What matters is whether or not you have enough income to cover your student loans, mortgage payments and other debts.

This means that you’re going to have to take a good look at your debt-to-income ratio. Your DTI represents how much of your monthly income goes toward paying debts. You can calculate your DTI by taking your monthly debt expenses and dividing them by your gross monthly income.

A general rule of thumb used by most lenders for an ideal DTI is 28%/36%, where 28% of your monthly income goes towards paying all your monthly debt expenses without including your mortgage payment and 36% is the maximum including the mortgage. Some lenders, however, will accept higher DTIs.

In fact, if your DTI is within a lender’s acceptable limits and you’ve been paying your student loan on time, your good payment history can help you qualify for a mortgage.

If your DTI is too high, however, you may not be able to qualify. To fix that, you can look into programs that offer student loan payment assistance to help reduce your debt. There are other steps you can take to make the home buying process successful.

The FHA has also recently eased its requirement for how student loans payments are calculated when determining a borrower’s monthly obligations. The new policy is based on the actual payments made rather than a percentage of the outstanding loan balance. The change will make it easier for those with student loans to qualify for an FHA loan.

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Myth #5: You don’t need a home inspection

In today’s hot housing market, some buyers have taken to waiving home inspections to win bidding wars. While this tactic may help you win the battle with other potential buyers, it comes with a high level of risk as well.

Many lenders require a home inspection before you buy, but some lenders don’t. Even if your lender makes a home inspection optional, it’s a bad idea to waive it.

Home inspections are designed to identify potential problems in a home. They can uncover things as simple as stuck windows and plumbing leaks to cracked foundations and black mold infestations.

As a buyer, you want to be aware of problems with the home so you can either negotiate for repairs to be made as a condition of the purchase or walk away from a home that may be unsafe or damaged beyond repair.

Myth #6: You only need to budget for a down payment and closing costs

Most homebuyers are well aware that they’ll need money upfront for their down payment and closing costs. However, these aren’t the only early costs you need to think of when you purchase a home.

Buying a home is a big expense, so you want to protect it by getting homeowners insurance to cover potential damages to the property, loss of personal belongings and medical care for visitors in the event of an accident on your property.

In fact, your mortgage lender will require you to have a policy in place by closing. You should get estimates for insurance costs and budget accordingly early in the buying process. Costs will vary depending on your home’s value, location, condition, the type of coverage and many other factors. However, the average cost for insurance is about $2,300 per year.

You’ll also want to budget for property taxes, homeowners association fees and trash pick-up fees, if applicable. These are items you should take into consideration when calculating the total cost of buying a home.

Finally, when you buy a home, you have to move into it. While some new homeowners are ready to pack up their belongings, rent a truck and move themselves, for others a move involves hiring professionals to handle the whole process. Get estimates from different companies and make sure to factor the costs into your home buying budget.

More from Money:

So You Want to Buy a Home? Here’s How to Get Started

You’re Only Ready to Buy a House if You Can Answer ‘Yes’ to These 7 Questions

5 Ways Your Finances Instantly Change When You Buy a House

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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