Most of us aren’t thinking about credit scores during the holiday season. But not paying attention to credit now may result in problems down the road. The following are 5 tips to help you maintain your credit score during the holiday season.
1. Protect Your Credit from Scammers
Credit card fraud is rampant during the holiday season. If a scammer gets any of your personal information they could potentially open new credit card accounts using your name. Once phony accounts have been opened, the late charges will be reported the following month and eventually collections will start in your name. You may not even realize you are a victim of identity theft unless the collection notices come to your address or your credit score drops significantly.
2. Don’t Apply for New Credit Just for the Holidays
Stores will offer plenty of promotions this time of year to get you to spend more money. Opening a new card, however, may cause your credit score to temporarily drop. Whenever you open a new account inquiries are made into your credit, and when that happens your credit score goes down. If you must, make sure to only open one new account. If possible, wait until a few months after the holidays to open any new accounts.
3. Do Ask for a Limit Increase
This may seem counterproductive, but most experts will tell you to never go over 30 percent of your limit. That means if your limit is $1,000, you should never carry more than $300 on the balance. If you do go over that amount your credit score will decrease. If you plan to use your card for several purchases it may be a good idea to ask for an increase. This will give you wiggle room to spend a little more without messing with your credit score.
4. Don’t Over Spend
The previous section was advice on how to be able to spend a little more without ruining your credit score. However, this should be done with caution. Overspending will lead to a larger minimum payment you may have trouble making the next month. Not missing any payments is the cardinal rule for maintaining a good credit score.
5. Don’t Miss a Payment
Missing even one payment can dramatically affect your overall credit score. FICO reports that payment history makes up 35 percent of your overall FICO score.
It’s important to make sure you have enough money set aside after the Christmas holiday to make at least your minimum payment. Finally, if you have more than one card make sure to pay off the one with the highest rates.
In my last blog post we started discussing the various reasons that a homeowner would look into refinancing a mortgage. We touched on the conversions between adjustable rate and fixed rate mortgages, and the shortening of the mortgage’s term. In this post, we’ll touch on the remaining (common) reasons for refinancing.
Getting A Lower Interest Rate
As with the switch between adjustable rate and fixed rate mortgages, the goal is to save money via interest rates on the loan. When seeking a lower interest rate, it’s always necessary to switch between rate-types. In an environment where interest rates are low, mortgage holders (with fixed rates) may seek out refinancing to obtain another, fixed-rate mortgage with a lower rate. The general rule is to only seek out refinancing if there is an opportunity to reduce the interest rate by 1-2%, anything less will not be worth the upfront costs of the refinance.
Debt Consolidation or Accessing Equity
These are some of the most common reasons that mortgage holders will consider refinancing, but they are also the reasons that carry the most risk, from a personal finance perspective.
Some mortgage holders will look to refinancing in order to access their home equity. The justifications for this move will vary. Some will use the equity to pay off remodeling, which can increase the value of the house, or to purchase more property, which can be a great investment. Others will use the equity to to cover large personal expenses, or pay off other debts.
Other mortgage holders will refinance to try to consolidate their debts; the idea of reducing high interest debt with lower interest debt makes sense on paper. However, many people who are refinancing for this purpose alone will not necessarily be saved from their high-interest (ie: credit card) debt forever. It’s likely that they will accrue more high interest debt with the available credit the refinancing has allowed them.
For a great breakdown of how mortgage rates are quoted, view this video by Khan Academy:
In the housing market, it’s common to hear the term “refinancing” come up amongst homeowners. In short, refinancing is the act of paying off an existing mortgage loan and getting a new one to replace it. As with any major financial decision, there are upsides and downsides to refinancing a mortgage, and mortgage holders will look into refinancing for a number of different reasons. The end goal however is always the same: to save some money on some aspect of the loan.
Here are a few of the most common reasons for refinancing:
Switching Between Fixed and Adjustable Rates
There are benefits to starting out with fixed rate mortgages and adjustable mortgages, when first taking out a mortgage loan. But those benefits may erode over time, depending on the state of the market.
If the mortgage holder started out with a fixed rate mortgage loan, it may make sense to start looking into refinancing if the interest rates in the market begin to fall. If it looks as though market interest rates will continue to fall over an extended period of time, switching to an adjustable rate mortgage (ARM) would make sense. With an adjustable rate mortgage, there are periodic rate adjustments (that can adjust up or down). The falling rates in the market would result in both a lower interest rate and a smaller monthly payment for holders of an adjustable rate mortgage.
Important Note: Refinancing to an adjustable rate mortgage needs to be heavily considered by the mortgage holder. If they are only considering staying in the home for a few years, then switching to an ARM in a falling interest market makes sense. But, it’s possible for the rates to increase again over time, so that must be taken into consideration.
Conversely, if the mortgage holder started out with an adjustable rate mortgage, it’s possible for the market to enter a state of steadily climbing interest rates. In this situation, periodic adjustments to the mortgage will result in increased interest rates over time. It would make sense for the ARM to be refinanced to a lower, fixed rate mortgage to avoid continued hikes in the interest rate.
Reducing The Term of the Mortgage
Depending on the state of the market, refinancing to shorten the length of the mortgage is also an option. When there are “record low” interest rates, the loan holders may be presented with the opportunity to get out of a 25-30 year fixed rate mortgage. Refinancing to a lower interest rate can result in a shorter overall term, with a monthly payment that’s around the same as what was already being paid.
Check back soon for more information on mortgage refinacing!
A quick glance at any search results regarding millennials and their home-buying decisions will undoubtedly show a hodge podge of articles with conflicting points of view. So the question remains, are millennials buying or not? Surprisingly, the answer is: yes. But they’re buying differently than the generations before them.
As the millennial generation begins to come of age, it is becomingly increasingly obvious that they are approaching property ownership differently. This is understandable as the recession of 2008 left many under employed, and the subprime mortgage crisis had dire consequences on the market as a whole. Millennials are entering the real estate much more slowly than generations before them, for both economic and social reasons. From an economic standpoint, they are carrying far more student loan debt than ever before. About 71% of bachelor’s degree recipients graduate with loans today, which is up from 64% just 10 years ago. Additionally, the millennial generation has been heavily focused on moving into urban areas (where, from their financial standpoint, homeownership is virtually impossible).
But, the oldest members of the generation are turning 30 now, and the housing market is simultaneously beginning to find health. This means that millennials are actually looking to purchase homes.
Studies show that 35% of home buyers in 2015 were millennials, which was up 3% from 2014. These buyers had a median age of 30 years old, and were purchasing primarily single family homes within suburban areas. Based on the millennial exodus to urban centers (where they were primarily renting space in apartments), it’s very likely that millennials would like purchase homes in those urban spaces if the economy allowed for it. According Lawrence Yun, a NAR Chief Economist,
“The need for more space at an affordable price is for the most part pushing their search further out.”
According to Fortune Magazine, a survey was done to determine where millennials (ages 20-30) were looking to purchase homes. It was found that individuals were actively seeking out places where average wages and home prices worked hand in hand to make for a healthy living situation. Not surprisingly, the areas where millennials were purchasing homes were far away from the coasts, where housing cost are steadily increasing.
Currently, the most popular place amongst millennials looking to purchase homes is Utah. Not only does Utah tout some of the most affordable home prices, Utah County also has the fastest employment growth of the 342 largest counties in the United States.
National Mortgage News has pegged the following cities as the top 10 cities where millennials are buying homes:
- Ogden, Utah
- Minneapolis, Minnesota
- Raleigh, North Carolina
- Salt Lake City, Utah
- Charleston, South Carolina
- Denver, Colorado
- Washington, D.C.
- Seattle, Washington
- Austin, Texas
- Portland, Oregon
As, the millennial generation continues to age, it will be interesting to see how their buying habits develop over time.
According to the Mortgage Bankers Association’s National Delinquency Survey, foreclosure starts have decreased across the board, in the first quarter of 2016.
The Mortgage Bankers Association (MBA) is one of the most reputable and highly recognized sources for data on the residential delinquency and foreclosure rates. For their National Delinquency Survey, 120 mortgage lenders are observed. They sample 41.6 million mortgage loans that are given out by institutions such as banks, credit unions, and mortgage companies. The MBA then proceeds to review and report on both the delinquency rates and foreclosure rates that they observe throughout the sampling.
One of the most significant rates to decrease was the percentage of loans where the action to foreclose was started. In the first quarter of 2016, the rate is 35%, which is down 10 points from 2015 and is the lowest level since the second quarter of 2000. (source)
This downturn in foreclosure can be attributed to two major shifts. One, the qualifications and guidelines for getting a mortgage loan have become much more stringent since the recession of 2008. The Dodd-Frank Wall Street Reform and Consumer Protection Act was put into place under Obama’s presidency; it was a huge reform that was designed to temper and prevent risky business practices by a variety of financial institutions. Under the Dodd-Frank Act, The Consumer Financial Protection Bureau was established to provide regulation over mortgage lenders and brokers. One of the major side effects of that act was the implementation of protections of families from exploitive measures by lenders and mortgage companies.
The second shift took place on the consumer end. After feeling the effects of recession, consumers looking to buy a home have begun to seek education on the real estate market, before reaching out to apply for the loan. More resources have become available on predatory lending, and consumers are now willing and able to arm themselves with that knowledge before moving forward.
As the decrease in foreclosure starts continues, the whole lending market will begin to shift focus. The focus for the past few years has perpetually been stuck on reducing risk. But with the reduction of foreclosures now being evident, lenders will be able to start focusing on expanding access to credit. Their goal can now be on continuing this positive momentum, and creating traction for a new housing boom.
In my last post, I started a list of things that you should absolutely consider before purchasing your first home. Buying a home is a major live achievement, and you’ll want to make sure that everything goes as smoothly as possible, so your achievement doesn’t turn into a source of deep personal and financial strife.
Let’s delve a little further into some other important things to think about before you sign on the dotted line.
Don’t Buy A Home for the View
If you’re looking at a home, and the selling point is the view, you must remind yourself that that view may not be there forever. Markets shift, renovations happen, and new properties are built all of the time; those can easily obstruct or destroy the view that you loved so much.
Protip: If you really love the view, and you have the means…..try and buy the property that makes it up. This is really only applicable in rural, undeveloped areas, but it may be possible to purchase a small plot of the land that makes up the view that you love.
What Is The Long Term Plan?
There are a few things to consider when you’re thinking long term.
- The most obvious question is whether or not you are planning to grow your family. How many kids are you planning for? Will there be enough space? Is the layout of the house kid-friendly/safe?
- If this is just a “starter” house, and you’re planning to move and rent out this house: Make sure renting is allowed. There are some homeowner associations that contractually prohibit renting, so be aware of that before you buy.
- If this is just a “starter” house, and you’re planning on selling, determine who the house will appeal to when you’re trying to sell. Is this home going to appeal only to first time buyers or will families consider it too?
You’ll want to try to invest in a home that appeals to a broad market. So, consider things like school districts, proximity to amenities, & family-friendliness when purchasing because you don’t want to end up with a house that you can’t sell or lose money on because your potential buyer-pool is limited.
Coming to a position in life when you feel ready to purchase your first home is very exciting. Of course there will be a lot of planning and budgeting before any concrete decisions are made. But, there are certain things that many first-time buyers forget to even think about when planning out their big buy.
Use this as a checklist of things you should take into consideration when thinking about investing in a home.
Look Into Funding & Grants
You’d be surprised by the assistance available for potential buyers if you do the proper research. Many people are quick to assume they wouldn’t qualify for grants because of income limits, but that’s not always the case. There are a lot of associations that provide grants and assistance based on profession, so check for those first. Then, look into grants available specifically for the area/type of area that you are looking to live in.
Can You Handle a Financial Emergency?
I mentioned emergency funds in a past blog post in the context of bankruptcy prevention, but it absolutely bears repeating. If you are going to invest in a home, you must have a significant savings. If you lose your job, or there is a medical emergency, do you have enough saved to cover expenses and your mortgage for a few months?
First-time buyers who are transitioning from renting also often forget that all maintenance will now come out of pocket. Many homeowner insurances will have deductibles that you must hit before they pay for damages, so remember that there can be a lot of unplanned out-of-pocket expenses that come with owning a home.
Think About What Kind of Neighborhood You Want to Live in
It’s easy to be swept up into the whirlwind of house showings and open houses, and the last thing you want to do is fall in love with a house in an area that doesn’t align with your needs. One of the most important things to determine is whether or not the area is primarily renters or buyers. The high turnover of residents in rental properties means that the vibe of the neighborhood can shift very easily.
If you’re planning to have a family, there are also a few things to think about. What are the schools like? Are there a lot of other families in the area, or is it primarily single residents? Will there be resources for your children?