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How To Become A Homeowner in 2020

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House in the snow

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The homeownership rate has edged up 1 percentage point in the last five years, to 64.8 percent. And there are many renters eager to join the club, especially since interest rates are holding near historic lows.

For first-time buyers, the process of becoming a homeowner can be intimidating. It’s a big purchase that comes with a host of responsibilities and costs. But, it’s also a long-term investment in your future.

For some, it might take longer (especially if you have existing debt, live in an expensive area or are just starting your career), whereas others are just a couple steps away. Regardless of how much you earn or what you have in the bank, it’s never too late (or early) to get ready to buy a home.

Here we break down what you need to do to achieve homeownership in 2020 or beyond.

How to budget for homeownership

  • How much can you afford?
  • Create a need vs. want list
  • Where can you afford a house?

Every major purchase should begin with a balance sheet, which should include your debt, income and assets. You’ll also want to include estimated costs associated with homeownership, such as a comfortable amount to put toward a mortgage and estimates for property insurance, taxes and homeowners association fees (if applicable).

This will give you a clearer picture of what you can afford and how much you have available for a down payment. Our online calculator can walk you through how to determine how much house you can afford.

Would-be buyers who live in expensive metros might need to think creatively when it comes to buying a home.

“One option might be to find a seller that is willing to do a ‘rent to own.’ In this situation, you start off by renting, and at some point, exercise an option to buy,” says Chuck Czajka, founder at Macro Money Concepts. “You might also be able to find a seller that would be willing to give a private mortgage. Looking for an affordable home might mean a smaller home or even a condominium.”

Getting your credit in shape

  • Get your credit in order, as this has a direct effect on your interest rate

Whether you have no credit, average credit or bad credit, getting your FICO score in the best shape possible is a crucial step in buying a home. First, to qualify for a conventional mortgage you have to have a minimum 620 FICO score. There are other loans, such as FHA and VA loans, with looser to no credit-score requirements, so you can still buy with a lower score.

However, the second reason for improving your credit score is that you’ll qualify for a better interest rate. The lower your interest rate, the less you’ll pay each month and over the life of your loan.

If you need help managing your money or figuring out how to improve your credit, meet with a financial adviser.

“Find someone that not only has a good reputation, but also someone you feel connected with,” says Peter Boomer, executive vice president at PNC Bank. “Someone who is willing to build a relationship with you, not only help you with figuring out how much you can afford but one that will help you figure out how much you want to afford.”

Saving for a down payment

  • Save for your down payment
  • Figure out how much you can put down
  • Should you cash in stocks/bonds? Ask parents for help?

The down payment for a home is one of the major barriers to homeownership for most first-time buyers. As home prices continue to rise, so does the cost of a down payment — especially if you want to avoid PMI, private mortgage insurance. PMI is a yearly cost — about .03 to 1.5 percent of your mortgage, that homeowners with less than 20 percent down must pay if they have a conventional or FHA loan (VA loans don’t have this requirement).

This means if you have less than 20 percent saved for a down payment, you should add PMI to the list of housing costs when you’re figuring out your budget.

Some folks might have to dip into savings or even cash in stocks or bonds to have enough for a down payment. Family members can also chip in for your down payment, which requires a gift letter. A real estate agent can help you write up this document, just be sure to include all of the necessary information such as the amount of money that’s being given to you, a statement that the money is a gift and not a loan and where the money’s coming from (checking account, etc.).

Once you know how much you can put down, you might decide to postpone homeownership until you have more saved. For people with less than 20 percent down but who want to lock in a low interest rate, another option is to pay down the balance faster to get rid of PMI sooner. If your home appreciates in value quickly, you can get a new appraisal to show that the balance has dropped below 80 percent of the home’s value, which can also eliminate the PMI requirement.

If you plan to buy in the next year or two, the safest place for your down payment money is a high-yield savings account.

Identify the best mortgage type for you

Next, it’s important to determine the kind of mortgage you want as well as what you might qualify for. A real estate agent can help you identify loans and lenders that fit with your goals and existing financial situation. So, this is a good time to get recommendations from friends and colleagues.

If you have a sub-620 FICO score, you might not be able to get a conventional mortgage. Other options, such as FHA and USDA loans, are on the table for folks with lower credit scores. However, these loans come with certain restrictions conventional mortgages don’t have.

For instance, it’s harder to get a fixer-upper with an FHA loan. Here’s where you have to go back to your balance sheet and compare what you have with what you need and want. Different loans offer their own set of advantages and drawbacks, so it’s important to research them carefully.

Those who want to pay off their loans early and get a lower interest rate can opt for a 15-year mortgage rather than the traditional 30-year mortgage. A shorter term means higher monthly payments, but an overall lower loan cost.

Homebuyers on a fixed budget might be better off with a longer loan, as they can still make extra payments toward their principal (at their discretion) without the obligation of larger monthly payments. So, should someone lose their job or an emergency arises, they can stop making extra payments (until they can afford to later).

“I advocate for taking a 30-year mortgage as opposed to a 15-year mortgage, simply because the monthly payments will be lower,” Czajka says. “This way, buyers can grow into their home. Should they decide to pay the home off early, they can pay a little more to the principal as they get used to the new budget.”

Get preapproved for a mortgage

Before you start shopping for a house, find out how much you qualify for. The best way to do this is through a preapproval.

To get preapproved for a mortgage, you’ll provide lenders with detailed information about your work history, income, debt, assets and credit profile. The lender will verify the information you provide, including running a hard credit check.

If you’re preapproved, you’ll receive a loan estimate with how much you can borrow. This preapproval letter is a great asset when you’re shopping for a home, as it lets sellers know you’re a serious and qualified buyer.

Before you sign a home purchase contract

Now that you have your preapproval letter in hand, it’s time to start shopping. This is the exciting part of buying a house. You might imagine the parties you’ll host by the pool or the long baths you’ll take in the oversized master bathroom.

But, avoid barreling toward something that you might regret down the road, Boomer warns. It’s important to take time and research everything from the neighborhood to the schools, particularly if you have a family or plan on starting one — even if it’s down the road. As more homeowners are staying in their houses longer, it’s wise to think of what you might want a few years from now.

“Don’t be in such a rush to make a buying decision. Start by investigating the area that you want to live in. If starting a family is in the cards, check out the schools in the area. Look at other nearby homes to see if the neighborhood is growing and if prices will be increasing,” Boomer says. “The last thing you want to do is purchase the biggest and best home in the neighborhood. Starting out with a house that needs a little attention can pay dividends later when it’s time to upgrade. Purchase a house for a lower price, fix it up and sell it at a higher price later.”

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Early Termination of a Car Lease

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If you’re leasing a vehicle in order to save money, but are thinking of terminating your lease contract early, you may want to think twice. Leases aren’t always as easy or as affordable to get out of as auto loans.

Can You Terminate Your Car Lease Early?

In most cases, you can get out of an auto lease early, but you may not be able to do it cheaply.

Leasing typically comes with fees both at the beginning and end of your term. However, if you need to get out of your lease early, there may be early termination fees (ETF), making the cost more than you bargained for.

Additionally, lessors often require you to pay all your remaining lease payments in one lump sum before releasing the contract early. Costs involved with getting out of your car lease early may also include:Early Termination of an Auto Lease

  • Excess mileage charges
  • Wear and tear fees
  • Any taxes not yet collected
  • Any negative equity
  • Storage and transport fees
  • Pay the cost of sale preparation

Check your lease contract to see if your lessor has any charges for terminating your lease early, or if there are stipulations that prevent you from getting out of the contract before a certain time. Even if there are extra fees imposed on you for returning your leased vehicle early, it might be easier to terminate a lease nowadays than it’s been in the past.

Since the pandemic, many dealerships and lenders have pushed into the digital realm to get business done. This includes video conferences to meet with dealers that typically needed to be done in person in the past. Of course, your vehicle still needs to be turned into a franchised dealership to be inspected and processed before a leasing company allows you to terminate your lease contract early.

Is it Worth it to Terminate Your Lease?

The first step is to look at your leasing contract and see if you even can get out of your lease early, and how much it’s going to cost you in ETFs. Then, you need to gather the following information:

  • Your monthly lease payment amount
  • How many payments you have left on your contract
  • The residual value of the vehicle

To figure out a good ballpark figure for getting out of your leased vehicle early, add together the cost of your remaining lease payments and any ETFs. To see if it’s worth it, compare this figure with the buyout price at the end of your lease, and find out what the current market value of the car is by checking sites like Kelley Blue Book and NADAguides.

Depending on how close you are to the end of your lease term, if the buyout price on the vehicle is significantly lower than the early termination price, it may be a good idea to wait it out. Then, once you buy out your lease, you can trade in the car for something else.

If you decide not to wait, how you handle getting out of your leased vehicle early could depend on the difference between the current market value of the car and the residual value of the vehicle as predetermined in your leasing contract. If the car has more value than the lessor predicted, you may be able to sell it for enough to pay your way out of your lease early.

Three Options for Terminating Your Lease Early

If you’re looking to get out of your lease early, for whatever reason, you typically have three options:

  1. Sell your leased car to a dealer – Selling your leased car to a dealer is similar to doing a trade-in, except they pay off your lease contract, including the early termination fees. It’s typically a pretty easy process, especially since used vehicles are in high demand since the pandemic. You may be able to get a little more for a car that’s coming off a lease since the turnaround time on a sale is likely to be shorter, depending on demand. If this is the case, you may even be able to walk away with some cash in hand depending on if the dealer’s willing to pay more than the lessors estimated residual value on the vehicle.
  2. Have someone else take over your lease – Lease assumption isn’t always something you can do, but in many cases, you can transfer your lease to someone else, as long as they meet all the lessor qualifications and there’s equity in the vehicle.
  3. Lease buyout – With the demand for used vehicles at affordable prices up right now, you may be able to buy out your lease then sell the car privately as long as you get enough money to make it worth your while. If you can’t come close to selling it yourself for the amount you need to pay off your lease, including ETFs, it may not be worth it to try and get out of the vehicle early. Most leasing companies allow for some form of early lease buyout, but again, it may cost you those extra fees.

If Leasing Isn’t for You

Now that you’ve figured out whether it’s worth it or not to get out of your lease early, it’s time to decide what to do next when it comes to getting a vehicle.

If you didn’t mind leasing but the car just wasn’t for you, you likely have the option to swap into another lease on a different vehicle with the same company. Many lessors contact lessees toward the end of their contracts to see if they’d be willing to get into another car lease early.

However, leasing isn’t for everyone. If you found that the restrictions that come with it such as the mileage limitations, or cost of maintenance and repairs are too much for you to handle, it may be time to consider an auto loan for your next go-round. If this is the case, Auto Credit Express wants to get you started on the path toward your next vehicle.

We’ve gathered a nationwide network of special finance dealerships that are signed up with lenders to help people with credit challenges. Whether you’re just not sure where to start or you need a little help due to bad credit, start here. By filling out our fast, free, no-obligation auto loan request form, you’re taking the first step toward finding your next car loan without all the hassle of searching. Get started right now!

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GSB focuses on social responsibility

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State-owned Government Savings Bank (GSB) has focused on providing loans to people without a record in the National Credit Bureau system or with bad credit over the last year to help those impacted by the pandemic deal with unprecedented economic hardship.

GSB president and chief executive Vitai Ratanakorn said the bank has extended loans to people with no credit history who have never borrowed from commercial banks or non-bank institutions.

He said the bank had already provided 1.5 million loans to members of this group of people.

The bank has also provided loans to 200,000 people with bad credit records.

Mr Vitai said the lending was aimed at drawing those outside the credit bureau system into the system and enabled them to get access to the loans, which was one of the main roles of state-run banks. This lending has been supported by the government.

He said this lending was not aimed at seeking profit as GSB charged a low monthly interest rate of 0.1-0.3%. For example, if the bank provided a 10,000 baht loan to a person under this scheme, it would only gain interest income of around 120 baht per year.

In addition to its objective of becoming the country’s genuine social bank, GSB’s other goal this year is to prevent loans from becoming bad debts, he said. The bank will rush to help customers in danger of accumulating bad debt to restructure before it reaches that stage.

Mr Vitai said GSB will not focus on growing its loan portfolio during the first six months of the year, but on serving the state’s policy of helping people and business operators cope with the impacts from Covid-19. Grassroots people and small and medium-sized enterprises are suffering the most from the pandemic, he said.

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How to Start Over When You’ve Lost Everything

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Upset women laying on the wood floor of her living room and petting her dog.

Image source: Getty Images

When you’re down to nothing, you have everything to gain.

People start over for many reasons, including job loss, divorce, illness, and business failure. Whatever the reason, if you’re starting anew, here are some steps to take in rebuilding.

Acknowledge the twist

Remember that you’re not starting from scratch. The fact that you’ve lost assets means that you had assets to lose. Whether that’s a retirement account, home, or business doesn’t matter. You know what it’s like to work for — and achieve — something. You did it once; you can do it again.

Establish credit in your name

If you don’t have much credit in your name, establish your own healthy credit file by taking out small amounts of credit and paying them off like clockwork each month. If your credit score has taken a hit, apply for a credit card for people with bad credit, use it to make small purchases, and pay it off each month before the bill comes due. Or you might ask someone you’re close to to add you as a user on their credit card. Your credit score gets a boost each time they make a payment, even if you never touch the card yourself.

Invest right away

The sooner you begin, the faster you can recoup losses. Maybe you can’t invest as much as you once did. That’s okay. Something is better than nothing, and you can add to your investment pot over time. The more time compound interest works its magic, the better. Every dollar helps, whether you plan to retire in 10 years or 30.

If you’re employed by a company that matches a percentage of 401(k) contributions, do whatever you can to contribute at least that much. The matching funds are basically free money.

Let’s say you earn $60,000 annually, plan to work 15 more years, and your employer matches up to 5% of your contributions. Here’s how much you’ll have put away with just your 5% on its own:

Annual Income

Percent Contributed

Amount Contributed

Average Annual Rate of Return

Time Until Retirement

Value At Retirement

$60,000

5%

$250/month, before taxes

7%

15 years

$75,387

Since your employer also matches that 5% of your income, you’ll have $150,774 instead.

If you were to raise your pre-tax contributions to 10%, here’s how it would look instead:

Annual Income

Percent Contributed

Amount Contributed

Average Annual Rate of Return

Time Until Retirement

Value At Retirement

$60,000

10%

$500/month, before taxes

7%

15 years

$150,774

Including the additional 5% contributed by your employer, you would have $226,161 at 15 years. It’s not a fortune, but could be very helpful. By the way, if you don’t touch it for 20 years, that nest egg would be worth nearly $369,000. If you don’t plan to retire for 30 years, it will be worth more than $850,000.

If you’re not with a company that matches contributions, find a brokerage firm that supplies the level of education and direction you’re looking for and get started.

Get professional help

After financial trauma of any sort, it’s tempting to invest aggressively. While in some circumstances it could be an effective way to make up for losses, it may not be the best move if you’re closing in on retirement. Consider working with a financial advisor, even if it’s on an hourly basis and you pay only for their time helping you come up with a smart investment strategy.

Postpone Social Security

One thing my husband and I (and many of our friends) have done is raise the age at which we expect to retire. We don’t see it as a sad thing. I never want to stop working, and now that my husband is in a job that tickles him, he’s not in a hurry either. The minimum age to retire is 62, but if you can wait until you’re 70, you max out your monthly Social Security payments.

Find support

Millions of people have made money, lost money, and started over. Chances are you already know a few people who’ve redesigned their lives from the bottom up. Talk to them. Ask them what they learned from the experience. If they had it to do over again, is there anything they would change?

People who experience hardship often have the best stories to tell and are often an excellent source of inspiration. It may not be easy now, but with luck, you can look back one day and say, “Hey, I did okay — despite the unexpected setbacks.”

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