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What Is A Consumer Loan?

A consumer loan is a loan or line of credit that you receive from a lender.

Consumer loans can be auto loans, home mortgages, student loans, credit cards, equity loans, refinance loans, and personal loans.

This article will address each type of consumer loans.

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Types of consumer loans:

Consumer loans are divided into several kinds of categories. They include auto loans, student loans, home loans, personal loans and credit cards. Regardless of type, consumer loans have one thing in common: you have to repay the loan at some period of time. 

Auto loans

Most people who are thinking of buying a car will apply for an auto loan. That is because buying a car is expensive.

In fact, it is the second largest expense you will ever make besides buying a house. And unless you intend to buy it with all cash, you will need a car loan.

So, car loans allow consumers to purchase a vehicle where they may not have the money upfront. With an auto loan, your payment is broken into smaller repayments that you will make over time every month.

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You can choose between a fixed or variable interest rate loan. But the most important thing is, whether you’re buying a new or used car, it’s important to compare loans to help you find the right auto loan for your needs.

Start comparing auto loans now!

Home loans

Another, and most common, type of consumer loans are home loans. A home loan or mortgage is a loan a consumer receives for the purpose of buying a house.

Buying a house is, undoubtedly, the biggest expense you’ll ever make in your life. So, for the majority of consumers who want to purchase a house, they will need to borrow the money from a lender.

Home loans are paid back over a period of time. Those mortgages term are typically 15 to 30 years. They can be variable rate or fixed rate. A fixed rate means that your repayments are locked in for a fixed term.

Whereas a variable rate means that your repayments depend on the interest rate going up or down when the Federal Reserve changes the rate.

Over the loan’s term, you will pay back the principle amount of the loan plus interest. This makes it very important to compare home loans. Doing so allows you to save thousands of dollars on interest and fees.

Personal Loans

The most common types of consumer loans are personal loans. That is because a personal loan can be used for a lot of things.

A personal loan allows a consumer to borrow a sum of money. The borrower agrees to repay the loan (plus interest) in installments over a period of time.

A personal loan is usually for a lower amount than a home loan or even an auto loan. People usually ask for $500 to $20,000 or more.

A personal loan can be secured (the consumer backs it with his or her personal assets) or unsecured (the consumer does not have to use his or her personal asset).

But most of them are unsecured, so getting approved for one will depend on your credit score, income and other factors.

But consumers use personal loans for different purposes. People take out personal loans to consolidate debts, such as credit card debts. You can use personal loans for a wedding, a holiday, to renovate your home, to buy a flt screen TV, etc…

Student Loans

Consumers use these types of loans to finance their education. There are two types of student loans: federal and private. The federal government funds a federal student loan.

Whereas, a private entity funds a private student loan. Generally, federal student loans are better because they come at a lower interest rate.

Credit Cards

Believe it or not credit cards is a type of consumer loans and they are very common. Consumers use this type of loan to finance every day expenses with the promise of paying back the money with interest.

Unlike other loans, however, every time your pay with your credit card, you take a personal loan.

Credit cards usually carry a higher interest rate than the other loans. But you can avoid these interests if you pay your balance in full immediately.

Small Business Loans

Another type of consumer loans are small business loans. These loans are used specifically to create a business or to expand an already established business.

Banks and the Small Business Administration (SBA) usually provide these loans. Small Business Loans are different than personal loans, because you usually have to provide a collateral to get the loan.

The collateral serves as a way to protect the lender in case you default on the loan. In addition, you will also need to provide a business plan for the lenders to review.

Home Equity Loans

If you have your own home, you can borrow money against it. These types of consumer loans are called home equity loans. If you’ve paid off the mortgage on the home, you can borrow up to the full value of the home.

Vice versa, if you’ve paid half of the mortgage on the home, you can borrow half of the value of the house. You can use a home equity loan for several purposes like you would with a personal loan.

But most consumers use this type of loan to renovate their house.  One disadvantage of this type of loan, however, is that you can lose your house in case of a default, because your house is used as a collateral for the loan.

Refinance loan

Loan refinancing is a basically taking a new loan to replace an existing one. But you get this loan specifically either to refinance your existing mortgage or to refinance your student loans or a personal loan.

Consumers usually refinance in order to receive a lower interest rate or to reduce the amount of monthly payments they are making on their existing loans.

However, reducing to a lower payment will lengthen the time to pay off the loan and you will accrue interest as a result.

Consumers also use this type of loan to pay their existing loans off faster. However, some mortgage refinancing loans come with prepayment penalties. So do you research in order to avoid that extra charge.

The bottom line is consumer loans can help you with your goals. However, understanding different loan types is important so that you can choose the best one that fits your particular situation.

So do you need a consumer loan?

Get Approved for personal loan today.

Speak with the Right Financial Advisor

If you have questions about your finances, 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). Find one who meets your needs with SmartAsset’s 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 What Is A Consumer Loan? appeared first on GrowthRapidly.

Source: growthrapidly.com

How to Buy a HUD Home at the Hudhomestore Website?

Using the Hudhomestore to buy a HUD home is easy.

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 you’re 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 SmartAsset’s 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.

Source: growthrapidly.com

5 Telltale Signs That You May Not Be Ready To Buy a Home

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If the dream of owning a home is on your bucket list, you’ve likely combed through listings, narrowed down your home preferences, and even attended a few open houses. But while you might be mentally ready to buy a home, your financial situation might tell a different story.

“Renters who are ready for homeownership should have their financial house in order before contemplating a purchase,” says Ben Creamer, co-founder and managing broker of Downtown Realty Company in Chicago. “I tell my clients to approach buying a home as they would for their job—it requires planning, diligence, and structure to be successful.”

There are a number of monetary factors that can rule you in—or out—as a viable candidate for a mortgage. Here are some signs you’re not ready to be a homeowner.

1. Crummy credit score

Those three little numbers, which are based on your history of financial stability and how responsible you are with your credit, play a big role in the mortgage process.

“A low credit score will directly impact your ability to get a mortgage loan for a home, because it shows that you have not been responsible with managing and paying down consumer debt,” says Creamer.  

He says a score that’s basement-level low—typically anything below 500—means a prospective buyer will likely not qualify for a home loan of any kind. If a credit score is low enough to flag the buyer as a credit risk, a loan may be approved but the terms will be more costly (e.g., having to pay more in loan origination points, a higher cash down payment, a higher interest rate, or all of the above).

“In the end, if you can’t manage consumer debt, you’re not ready for mortgage debt,” says Creamer.

On the other hand, having a high credit score (typically above 740) significantly improves your chances of receiving your loan’s lowest possible interest rate, says Lauren Brown, a real estate agent at Keller Williams Realty in San Diego.

“This way you can save thousands of dollars over the life of your loan,” she says.

2. Patchy job history

Lenders want to see a stable job history, so switching jobs every year or so might not look great.

“Job stability is vital to pre-qualifying for a loan to purchase a home. Most lenders require not only proof of employment but also ask for up to 12 months of financial statements to ensure you are qualified to take on a mortgage,” says Brown.

Creamer says a home purchase is not something that should be done on a whim, since the buyer is responsible for the mortgage payment every month for the next 30 years. 

“Banks want to see a steady, uninterrupted stream of income from a borrower. A prospective buyer who can’t commit to a job might want to rethink committing to a 30-year mortgage payment,” says Creamer.

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Watch: 5 Things First-Time Home Buyers Must Know

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3. Not enough money saved for a down payment

If you’re looking to buy a home, you should have saved and built a nest egg that can cover a down payment and any unforeseen expenses that may come up during the purchasing process.

“It’d be wise to save enough to cover at least a 20% down payment,” says Brown. This amount is typically recommended since it means the lender won’t require you to also pay for private mortgage insurance.

Of course, 20% down is not always realistic for most buyers. In fact, the average down payment in January 2020 was just 11.4%, according to real estate data firm Optimal Blue. That’s why, at the beginning of your home search, you should find an experienced real estate agent or lender that can give you a realistic picture of how much house you can afford and how much of a down payment you’ll need.

4. You can’t get a favorable loan

When shopping for loans you’ll become quite familiar with mortgage interest rates, aka the extra fee you pay your lender (based on your total loan amount) for loaning you the cash you need to buy a home.

Your financial situation determines the type of rates you qualify for, as well as the upfront fees you may have to pay. But if you’re not pleased with the terms of your mortgage, you shouldn’t move forward with the purchase.

“A higher percentage interest rate may not seem like a big deal, but it actually translates to tens or maybe even hundreds of thousands of dollars over the course of the loan. It’s better to hold off on buying until you can secure a more favorable loan,” says Creamer.

Brown advises speaking with your lender about developing a course of action to improve the terms of your loan.

5. Too much debt

Someone who is drowning in debt should tread carefully before juggling a home mortgage loan. 

“If you haven’t managed your consumer debt wisely, you’re not ready to take on a sizable mortgage debt,” says Creamer.

Brown says in a lender’s eyes, you probably can’t afford to add a mortgage payment to your budget if your other bills eat up 50% of your monthly income. She says it would be best to pay off any debts before purchasing a home.

The post 5 Telltale Signs That You May Not Be Ready To Buy a Home appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

What Happens If I Stop Paying My Mortgage?

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During the current financial crisis, you may ponder the idea of simply stopping payment on your mortgage. It is an option that some may want to consider in difficult times, but it is a bad decision all the way around.

The reason: It will affect your credit for years to come and is likely to result in the loss of your home. As a topper, the bank doesn’t really want your house. Lenders are willing to help and would rather not foreclose.

So don’t adopt the tactic of pooh-poohing your payment and hoping for the best.

According to the Mortgage Bankers Association, almost 7% of all mortgage loans are currently in forbearance as of April 19. That’s up from just under 6% the week before. To give some perspective, at the beginning of March, the number was just 0.25%.

While some mortgage holders are asking for help, the temptation not to pay is real. Let’s reiterate: It is a bad idea.

What happens if I don’t pay my mortgage?

If you don’t pay your mortgage, it will set you on the path to foreclosure, which means losing your house.

A mortgage is a legal agreement in which you agree to pay a certain amount to a lender for a certain number of years. Failing to pay violates that agreement.

Right now, federal (and some state) foreclosure proceedings are paused, but they will resume as soon as the economy begins to open up again. In some states, that may be imminent. The idea behind the pause was to ensure that people made it through the shelter-in-place orders with a place to shelter.

“This is not a moratorium that [lenders] will never foreclose again,” says Mary Bell Carlson, an accredited financial counselor known as Chief Financial Mom.

“You need to take this seriously and not just stop paying. Because if you stop paying and it adds up, you’re going to be first on the list to foreclose on when the economy reopens.”

Consequences of missing payments

Mortgage payments are due the first of each month and are considered late after the 15th of the month. That’s when late fees, penalties, and correspondence from the loan servicer begin.

“First off, you’ll get a letter in the mail from your servicer which says you owe x amount and it must be paid by this date,” Carlson says. The letters will outline any penalties and late fees and will often include an offer of help.

“The bank is not in the business of owning homes—that’s not what they want to do,” she says. “They’re not looking to take over your house.”

She adds that lenders want to work out solutions to keep you in your house and avoid lengthy foreclosure proceedings.

Meanwhile, be wary if you receive a call or an email from someone saying they’re your lender and you haven’t paid. It’s probably a scam, says Carlson. Your lender will send notifications via the postal service.

Will not paying my mortgage damage my credit score?

Your loan will go into default after 30 days of nonpayment. The mortgage servicer will probably file a notice of default with your local government and report the nonpayment to the credit bureaus, which will negatively impact your credit score.

“The credit is the first thing that gets hit. Your credit will take a nosedive if you stop paying your mortgage,” Carlson says.

“If you just close your eyes and stop paying, your credit is going to dissipate, and it takes years for those things to fall off.”

A low credit score may impact your future ability to get a mortgage or to rent.

“No one is going to want to rent to somebody who has just declared bankruptcy or has been foreclosed on, because that’s going to be a huge red flag,” Carlson warns.

As you continue to miss payments, penalties, interest, and correspondence from lenders will accumulate. Eventually, you’ll get a notification that the foreclosure process is underway.

How long will it be before foreclosure?

The foreclosure process is different in each state, so the process and its length may vary. Carlson says the process often begins in earnest after about six months of nonpayment.

She added that from the time of the first missed payment to about the six-month mark, lenders will work on solutions to avoid foreclosure. But if they don’t hear from you then, be prepared to lose your home.

“At the six-month point, they say, ‘OK, all options are off the table at this point. You’re unwilling to work with us, we’re going to start foreclosure,’” says Carlson.

When this happens, the entire loan becomes due and repayment plans are no longer an option.

The timeframe varies by state, but sometimes as quickly as six months after the first missed payment, a lender can list the home for sale or hold an auction. A homeowner will have to vacate.

The current economic climate is delaying foreclosures, but proceedings will resume once states begin to lift suspension orders.

What do I do if I’m struggling to pay my mortgage?

If you’re having difficulty making mortgage payments, there are options. Some will help keep you in your house, while others will protect some of your credit. But don’t bury your head in the sand and simply stop paying.

“Communicating with your lender is the key,” Carlson advises. “So if you cannot pay, the communication methods need to—and must be—open to communicate that to your lender and discuss the options you have.”

Here are a few of the common options if you want to stay in your home:

  • Forbearance: A lender allows a borrower to pause payments for a period of temporary hardship, sometimes waiving late fees or penalties. Interest will often still accrue. At the end of the forbearance period, the missed payments become due. Forbearance is a good option if the financial situation is a short-term setback.
  • Loan modification: Changing the terms of the loan and payments is possible. Often, this involves a divorce, job change, or an unexpected increase in expenses. Loan modifications are a tactic to deploy if you want to stay in your home, but can no longer afford the current payments.
  • Repayment plan: If you are a few payments behind and think you can catch up, one option might be a repayment plan allowing you to make a lesser payment temporarily, until your finances are back on track.

 

Some alternatives if you don’t want to stay in your home and would rather walk away:

  • Deed-in-lieu: In exchange for partial or total debt forgiveness, you voluntarily give ownership of the home back to the lender. This is usually when foreclosure is imminent, and you can no longer afford the payments and do not want to sell the property yourself.
  • Short sale: If you want to sell the home yourself and owe more than the home is worth, you could ask your lender if you could do a short sale. The property usually sells for less than the balance of the mortgage.

These options may hurt your credit, but not as badly as a foreclosure.

The post What Happens If I Stop Paying My Mortgage? appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

How Much Cash Do You Really Need to Buy a Home?

Are you ready to buy a home? You’re not alone—in 2019, more than five million people bought an existing home. And that doesn’t even include the number of people who purchased new construction.

The point is, the housing market is always bustling and busy. And if it’s your first time buying a home, it might seem a bit daunting. You might have a couple of questions—how much money do you need to buy a home? And how can you even get those funds?

Overwhelmed? Don’t be. We’re here to guide you towards saving up, so hopefully you’ll be able to afford your dream home. Keep reading to learn more!

How Much Do You Need for a Down Payment?

Let’s start with one of the first payments you might have to make—a down payment. When someone takes out a mortgage loan, they’ll put down a percentage of the home’s price. That’s the down payment.

You might’ve heard that down payments are about 20% of the total cost of your new home. That can be true, but it really just depends on your mortgage. There are mortgage options that require little to no down payment, and how much you need often depends on your eligibility for different programs. Here are some different loan options:

1. USDA Mortgage

The USDA guarantees mortgages for eligible buyers primarily in rural areas. These loans do not have down payment requirements. To qualify for a USDA loan:

  • The property must meet eligibility requirements as to where it’s located.
  • Your household must fall within the income requirements, which depend on your state.
  • You must meet credit, income and other requirements of the lender, though they may be less rigorous than loans not backed by a government entity.

2. Conventional Mortgage

Conventional mortgages are financed through traditional lenders and not through a government entity. Depending on your credit and other factors, you may not need to put down 20% on such loans. Some lenders may allow as little as a five percent down payment, for example. But you’ll have to pay private mortgage insurance (PMI) if you put down less than 20%.

3. FHA Mortgage

FHA loans, like USDA loans, are partially guaranteed by a government agency. In this case, it’s the Federal Housing Administration (FHA). A down payment on these loans may be as low as 3.5%. Requirements for an FHA loan can include:

  • You’re purchasing a primary home.
  • The home in question meets certain requirements related to value and cost.
  • A debt-to-income ratio between 43% and 56.9%.
  • You meet other credit requirements, though these may not be as strict as with conventional loans.

How much do you need to make to buy a $200K house?

Given the above information, here’s what your down payment might look like on a home worth $200,000:

  • USDA loan: Potentially $0
  • Conventional loan: From $10,000 to $40,000
  • FHA Loan: As low as $7,000

These are just some options for mortgages with low down payment requirements. Working with a broker or shopping around online can help you find the right mortgage. In addition to the down payment, you do need to ensure that you can afford the mortgage and make the monthly payments.

Don’t Forget the Cash You’ll Need for Closing

Closing costs are typically between three and six percent of your mortgage’s principal. That’s how much you’re borrowing, so the less you put down, the more your closing costs might be.

Here’s a range of closing costs assuming a cost of three percent of the low range home purchase, when buying with less than 20% down:

  • For a home purchase between $500,000 and $600,000, you’ll need at least $15,000 for closing costs
  • Between $300,000 and $500,000, at least $9,000 for closing costs
  • Between $150,000 and $300,000, at least $4,500 for closing costs

Where Can You Get the Money to Buy a Home?

These numbers should give you an idea of how much cash you’ll need for a home purchase. Acceptable sources for procuring cash to close on a house can be one or any of the following:

  • Stocks
  • Bonds
  • IRA
  • 401(k)
  • Checking/ savings
  • A money market account
  • Retirement account
  • Gift money

The key here is that the money needs to be documented. You have to be able to prove you had it and didn’t borrow it simply for the purpose of making your down payment or covering closing costs.

Don’t have cash available from any of the above-mentioned sources? There are other sources you can use as long as they can be paper-trailed, such as your tax refund or a security deposit refund on your current home rental.

Plan for Other Important Costs

While down payments and closing costs are the biggest out-of-pocket expenses involved in buying a home with a mortgage, you may need to cover other costs. There might be some additional home buying and moving-in costs. Those could include inspections, the cost of any necessary repairs not covered by the sellers and moving fees.

Are You Ready to Buy a Home?

Saving up the right amount of money is just one step in buying a home. You must also ensure your credit score is in order. Lenders look at different credit scores when they consider someone for a mortgage. Sign up for ExtraCredit to get a look at 28 of your FICO Scores to understand how lenders might see you as a borrower. Once you check your scores, you can decide whether you need to build your score or start shopping for your mortgage.

Sign up for ExtraCredit today!

The post How Much Cash Do You Really Need to Buy a Home? appeared first on Credit.com.

Source: credit.com

15-Year vs. 30-Year Mortgages: Which is Better?

Once you decide to become a homeowner, it’s 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, it’s 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 we’d 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 we’re discussing the two most common options here.

The Difference Between 15-Year Vs. 30-Year Mortgages

What Is a 15-Year Mortgage?

A 15-year mortgage is a mortgage that’s 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 you’re 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 couldn’t 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 don’t 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.

Best of Both- 30-Year Mortgage with Extra Payments

As a prospective homebuyer, it’s 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.

Source: mint.intuit.com

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