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Homeowner Real Estate

What are HOA fees?

Before you become a homeowner, it’s essential to think about how much responsibility you want to have when it comes to managing your property. 

Are you the type of person who likes to mow their lawn on a Saturday afternoon, cold beverage in hand? Or would you rather write a check and have someone else worry about it?

If you prefer a more hands-off approach to homeownership, you may want to look to buy a property that’s part of a homeowner’s association (HOA). 

In this post, we’ll examine how HOAs work, what they cover, why they’re important, and how much you can expect to pay should you become part of an HOA community.

What is a homeowner’s association?

An HOA is an organization or entity that manages a community or residential development like a condominium or neighborhood. They typically are managed by an HOA board of directors, which includes elected members who live in the community. Most communities have HOA elections each year.

HOAs are responsible for overseeing various responsibilities, including infrastructure, aesthetics, maintenance, and shared common areas within a community. They act on behalf of the property owners and work to keep the community fair, orderly, and under budget. 

In addition, associations enforce HOA rules, or covenants, conditions, and restrictions (CC&Rs). These governing documents keep the community in proper condition and help residents avoid conflicts because everyone knows what’s expected. 

Today, roughly 22% of homes participate in an HOA — a figure that has remained consistent over the last decade.

What are HOA fees?

Homeowners association fees are regular payments homeowners who live in HOA communities have to pay. In most cases, homeowners distribute monthly dues to cover the costs of managing and maintaining the common areas and shared amenities within the community.

In some cases, HOA fees may also cover utilities like water, electricity, and cable or internet. However, HOAs can vary across different communities. Before purchasing a property, be sure to find out what your HOA fees cover so that you don’t wind up overpaying for services. 

Are HOA fees mandatory?

HOA fees are generally mandatory for homeowners who live in a community or development with an HOA association. By purchasing a property within a condominium or community association, you automatically become an HOA member and must pay monthly HOA dues.

While you cannot buy your way out of an HOA, there are some scenarios where homeowners can gain a bit more control over their properties. For example, some communities offer non-mandatory HOAs with optional memberships and fees. However, non-members may not be able to access common amenities like community pools or fitness facilities. 

In some cases, the homeowners in an established community may also vote to dissolve their HOA. However, this is rare and typically requires both a majority vote and legal counseling.

If you do not wish to participate in a community with an HOA, the easiest thing to do is purchase a property that’s not part of one. 

HOA fees vs. special assessments

Homeowners in HOA communities contribute financially to the area’s upkeep through both HOA fees and special assessments. However, these are different types of expenses.

Special assessments are one-time or occasional payments that homeowners must make in addition to paying HOA fees. They typically occur when the HOA faces unexpected or significant expenses that exceed what is available in the association’s reserve fund or budget. 

For example, a special assessment may cover major repairs, capital improvement projects, and emergency maintenance like roof replacements.  

What do HOA fees cover?

The specific services that an HOA covers can vary depending on the community’s rules and regulations. But in general, you can expect your HOA fees to cover the following. 

Insurance 

HOA fees typically include insurance coverage for shared structures and common areas. They also include liability coverage for the association.

Security and surveillance

In some communities, HOAs help ensure safety. They may provide security cameras, arrange private security patrols, or restrict access to the community (e.g., with a gate). 

Exterior maintenance 

HOAs often cover exterior maintenance like roofing, siding, painting, parking lots, and structural repairs. They also typically pay for a property management company to oversee maintenance operations.

Administrative expenses 

A portion of the HOA fee goes toward the association’s administrative costs. This may include things like hiring staff members, purchasing office equipment, and paying vendors. 

Amenities 

Communities often have shared amenities like tennis courts, swimming pools, clubhouses, and fitness centers. HOA fees help keep them up and running.

Common area maintenance 

Fees also cover costs associated with maintaining common areas like community gardens, parks, walking trails, green spaces, and playgrounds.

Utilities and services

In some communities, HOAs manage utilities like cable, internet, and electricity. This can make life easier for homeowners by consolidating their bills into one easy monthly payment. 

Reserve funds

HOAs use reserve funds to cover the cost of major repairs, renovations, and expenses. 

HOA vs. no HOA: Cost comparison

Many homebuyers balk at the idea of paying into an HOA at first. But that changes when they do some quick budgeting and think about all of the expenses they might otherwise have to pay entirely on their own. As it turns out, an HOA can actually save you money if it’s affordable. 

With that in mind, here’s a breakdown of some common services that an HOA covers that you’d have to pay for out of your own pocket as a homeowner. 

Swimming pools 

Condominiums and HOAs often have private swimming pools. If you buy a home that doesn’t have an HOA and you want a pool, you will need to cover all the costs associated with maintaining a pool — like water, cleaning, chemicals, and routine maintenance. You may also have to pay more for your homeowner’s insurance policy, too.

Landscaping

It takes a lot to keep a yard looking good. If you want to maintain your property yourself, you’ll need to purchase tools and equipment like lawnmowers, shovels, rakes, and trimmers. Otherwise, you’ll have to hire a landscaper. If your property has trees or other natural resources, you will need to care for those as well. If you live where it snows a lot, you’ll also have to pay to clear your driveway.

HOA fees typically cover landscaping costs as well as snow removal during the winter months — saving you time and money. 

Upkeep and repairs

Without an HOA, you’ll be responsible for keeping up both the interior and exterior of your property. This includes things like painting, ensuring your roof and chimney are in good shape, pest control, and maintaining your walkways and driveway.

Do HOA fees build equity?

Equity is the difference between the market value of your property and what you owe to the bank. Unfortunately, HOA fees do not directly build equity for a homeowner like mortgage payments do. That’s because HOA fees go to the HOA association — not the lender that owns your mortgage.

That said, HOA payments can directly impact your property value. When an HOA is doing a great job at managing the community, HOA fees can potentially boost your equity, albeit indirectly. As a result, it’s critical to purchase a property with a responsible and financially secure HOA that is committed to doing its best to increase the value of community properties.

How HOA fees impact taxes

Unfortunately, HOA fees are generally not tax-deductible for homeowners. The Internal Revenue Service (IRS) views HOA fees as personal living expenses instead of tax-deductible expenses. 

Despite this, there are exceptions where you can write off a portion of your HOA fees on your taxes. Some examples include owning a rental property within an HOA community, claiming a home office deduction, or when the HOA assesses special fees or assessments for capital improvements.

Do HOA fees increase over time?

Just like pretty much everything else in life, HOAs generally increase over time. For example, you might purchase a property and pay $350 per month in HOA fees at first. But down the line, it’s possible that those costs could balloon to $500 or more due to any of the following factors. 

Inflation and cost of value 

The price of goods and services tends to increase over time due to inflation and the cost of living. HOAs often need to adjust their fees to cover the rising cost of labor, materials, utilities, and other expenses. 

Aging infrastructure 

Large planned communities require a variety of infrastructure like roads, fences, drainage systems, docks, grills, and benches. HOAs may sometimes raise their fees to fund capital improvement projects or fund repairs. 

Market conditions

HOAs are also subject to changing economic conditions in the real estate market. HOAs sometimes increase fees to make up for revenue shortfalls when property values plummet.

Reserve fund planning 

Part of the HOA’s job is to review and adjust reserve fund contributions. The HOA may occasionally raise their fees to ensure financial stability and prepare for emergencies.

Insurance and legal costs

Insurance premiums tend to rise over time, which can impact homeowners’ wallets. In addition, HOAs sometimes must budget for legal disputes.

When purchasing a property with an HOA, you should ask your real estate agent for a breakdown of average HOA payments for your target property. This will help you understand how the HOA’s fees have changed over time, giving you a sense of where they might be heading. 

Average HOA fees: How much can I expect to pay?

Monthly HOA fees can range from a few hundred to thousands of dollars. Right now, the average cost for HOA fees in the U.S. is around $300 per month. But depending on where you end up moving, it can be much higher. With that in mind, let’s take a look at some of the key factors that determine the total cost of an HOA fee. 

Location

The location of your property will directly impact what you pay as an HOA fee. For example, HOA fees tend to be higher in urban areas like New York City or Miami, as well as upscale neighborhoods, tourist spots, and vacation destinations. 

Amenities 

The more amenities you have, the more you can expect to pay in HOA costs. If your community has three or four swimming pools, a golf course, or a modern fitness center, your bill will be significantly higher.

Oftentimes, homeowners wind up paying for services that they occasionally use — like the swimming pool they jump in a couple of times during the summer. Before buying a home, take a look at what you’re paying for and determine whether it’s worth the cost.

Property type

The type of property that you own may also impact what you pay in HOA fees. For example, condominiums and townhouses are usually more expensive than single-family homes because they contain shared areas and amenities. On the other hand, a shared home HOA may only cover things like landscaping, security, snow removal, trash removal, and other basic services, resulting in a lower monthly price.

Community size

Large communities with 10 or 20 buildings tend to have higher HOA fees than smaller ones. That’s because they tend to have more shared spaces, more amenities, and more properties to look after. Larger communities are also more prone to lawsuits, which can result in higher payments.  

The HOA’s financial health

HOAs that lack adequate reserves and efficient planning tend to have less stable fees and higher expenses. Working with a well-managed and ethical HOA can help keep costs under control. 

Tips for managing HOA fees

Whenever you’re joining a new community, you’ll want to stay on top of monthly payments so you don’t draw the ire of your new neighbors or your HOA. Missing payments can also result in collections notices, late fees, and legal actions. Here are some tips that can help you avoid conflicts and enjoy a better quality of life.

Attend HOA meetings

By attending monthly HOA meetings, you can stay on top of community issues and voice your opinion about monthly fees and potential increases. If you can’t attend HOA meetings, ask about digital resources like community bulletins, newsletters, and user dashboards.

Keep a careful record of payments

HOA payments will add up over time, so it’s a good idea to track your overall spending. Keeping careful records can also help clear up discrepancies when they arise. If possible, consider using an online portal so that all payments are recorded in one place.

Budget for payments 

It’s important to be realistic about whether you can afford your monthly HOA payment in addition to all of the other fees you’ll have as a homeowner — like mortgage payments, property taxes, utilities, food, furniture, and insurance. Your HOA payment should fit comfortably within your budget and still leave you enough room for a decent quality of life. 

As a best practice, budget a bit higher to account for any changes to HOA fees or special assessments that may be coming down the road. Pro tip: Always set aside a portion of your savings to cover unexpected expenses. 

Demystify HOA fees with Home Approach

Buying a house can be an overwhelming experience with many different figures and details to consider. If you’re having a hard time understanding what it means to join an HOA, that’s perfectly normal.

That said, HOA payments are a critical piece of the financial puzzle when assessing home prices. For further guidance, we recommend scheduling a consultation with one of Home Approach’s expert advisors. Our professionals are well-versed in the intricacies of HOAs and can provide valuable insights to help you make informed decisions.

To gain a deeper understanding of HOA fees and access personalized guidance, sign up for  Home Approach today.

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1st Time Homebuyer Homeowner Real Estate

Septic vs. Sewer: What Homeowners Need to Know

If you’re like most people, you probably don’t spend much time thinking about wastewater. 

But when you’re buying a new home, it’s a good idea to understand the essential role that wastewater management plays in maintaining a healthy, sustainable, and efficient living space. In fact, when it boils down to it, wastewater management is one of the most important considerations you need to make during the homebuying process. 

That’s because homes quietly churn out substantial amounts of wastewater every day. Believe it or not, the average household in the United States produces around 138 gallons of wastewater each day from places like the tap, shower, washing machine, toilet, and dishwasher. To put things in perspective, that’s roughly seven standard bathtubs full of water. 

But where does it all go? 

There are two primary methods of dealing with household wastewater: septic and sewer systems. Ultimately, your home’s wastewater management system will directly impact your daily life, maintenance routine, and long-term expenses. 

With all this in mind, let’s plunge deeper into the topic of septic versus sewer systems and explore how they work, their main differences, and their financial impact.

What is a septic system?

A septic system is a decentralized or localized method of treating and removing wastewater. With this type of system, all wastewater management takes place independently on the property without connecting to a central or municipal sewer. 

According to the United States Environmental Protection Agency (EPA), more than one in five households in the U.S. depend on individual septic or small community cluster system for wastewater treatment.

Septic systems are common in suburban and rural areas that lack access to public sewer systems. Some cities allow homeowners to install private septic systems, although this isn’t very common.

How does a septic system work?

Septic systems funnel household waste into a single underground tank for treatment and removal. 

Sewage enters the tank from the house through a pipe and flows into a general basin where it goes through a separation process. Solid waste — like toilet paper and organic matter — sinks to the bottom of the tank and forms a layer of sludge. Lighter materials like oils and fats float to the top of the tank and generate a layer of scum. 

The partially treated liquid that remains in the middle layer exits through a separate outlet pipe. This liquid contains special microbes and natural bacteria that break down and digest the organic matter, further treating the wastewater. 

After exiting the septic tank, the effluent flows into a drain field — or leach field — for absorption. At this point, the water moves through a network of surrounding pipes and gravel and eventually returns to the soil which acts as a filter by removing harmful pollutants and pathogens. Eventually, the water becomes compatible with the groundwater and the local environment.

The pros and cons of using a septic system

The pros 

  • When you have a septic system, you don’t have to pay monthly sewer fees, which could lead to potential savings. 
  • Septic systems tend to be more environmentally friendly than centralized sewer systems. This is mainly because they use natural biological processes to break down waste. They also require less energy.
  • Septic systems operate independently from centralized sewage networks. This gives the homeowner more control over things like maintenance, repairs, and upgrades. 
  • Septic systems provide effective wastewater management in rural or remote areas where centralized sewers are not available.

The cons 

  • It can be cost-prohibitive to install or replace a septic system. By one estimate, the average cost of a septic tank installation is around $7,000 while a complete septic system can run anywhere from $10,000 to $25,000. That said, with proper maintenance, the lifespan of a septic system is generally around 20 to 40 years or longer.
  • Septic tanks are prone to operational failure due to inadequate maintenance, excessive water usage, and improper installation. They can also clog from excessive solids.
  • Septic tanks can potentially contaminate surface and groundwater without proper installation or maintenance. This can lead to significant health risks. In addition, septic systems can produce foul odors when they malfunction, and also when they’re cleaned.
  • A poorly functioning system can negatively impact your property value. Buyers may be unwilling to purchase a property with an outdated or unreliable septic system that’s prone to backing up.
  • You’ll need to find reliable and cost-effective plumbers and septic system companies to help with ongoing maintenance and inspections. Not all companies are reliable or trustworthy, and picking the wrong vendor can lead to costly mistakes. 

What is a sewer system?

A sewer system is a network of pipes and infrastructure for collecting, moving, and treating wastewater. Public sewer systems serve homes, businesses, and public communities. 

Unlike a decentralized septic tank, all sewer processing takes place off-property at a dedicated treatment facility. 

Sewer systems mainly exist in urban and suburban areas where houses and properties are close together. 

How does a sewer system work?

In a sewer system, all wastewater flows through pipes into a main drain pipe — or house sewer — which runs from the house to the municipal line. The municipal sewer line moves wastewater from multiple homes and buildings into a central treatment plant. 

When water enters the wastewater treatment plant, it goes through a series of cleansing processes to remove pollutants, contaminants, and harmful materials. This includes physical, biological, and chemical methods. After the water is clean, it flows back into the environment.

The pros and cons of using a public sewer

The pros

  • Public sewers offer a convenient and reliable way for homeowners to manage wastewater. Homeowners don’t have to worry about things like septic tank pumping, installation, or maintenance, which saves time and money.
  • Homes that connect to a public sewer system may have a higher property value; there aren’t any septic system costs to consider. Buyers often view properties that have reliable and well-maintained systems more favorably.
  • Sewer systems prevent the need to have on-site wastewater storage. This prevents foul odors and unsightly backups.
  • By using a sewer system, homeowners can avoid navigating septic system regulations and permitting processes. When you connect your home to a city or municipal sewer system, you hand over the responsibility of wastewater management to the local municipality, sparing yourself from having to maintain a private septic system.

The cons

  • Homeowners still need to maintain the sewer lateral — the piping that connects their property to a main sewer line. These sewer pipes can occasionally clog and lead to backups that require professional repairs. 
  • Homes that connect to city sewer systems become dependent on them for wastewater removal. If a system fails to work, it can impact the property and take time to resolve.
  • Local governments are responsible for wastewater treatment. Homeowners do not have direct control over their effectiveness and environmental impact. 
  • Sewer systems traverse congested urban areas, making them more vulnerable to external disruptions like construction, accidents, and utility conflicts. 

Septic tanks vs. city sewer: Maintenance costs

As a homeowner, you’re going to wind up paying for wastewater maintenance whether you purchase a property with a septic tank or one that’s plugged into the public sewer system. There’s no getting around it. 

Even so, understanding the differences in maintenance costs and responsibilities can help you make a decision that best suits your preferences, needs, and budget. 

With that in mind, let’s take a closer look at how maintenance costs differ between septic tanks and city sewers. 

Septic tank maintenance costs

Pumping 

Septic tanks require routine pumping in order to eliminate scum and solid waste. Failure to remove waste can lead to clogs and overflow.

Septic tank pumping frequency depends on the size of your tank, water usage, and household size. So, if you opt for a smaller tank to save money, you may wind up paying more over time in pumping fees.

When buying a home, it helps to think about how long you intend to stay in the property. If you’re planning to move again in three to five years, you might be able to avoid having to pump your tank — particularly if you have a larger tank and only two people live in the house.

Inspections

It’s critical to inspect your tank regularly for leaks, damage, and proper functionality. Inspection frequency depends on local regulations and the age of your system. Most homeowners inspect their tanks every one to three years. 

Repairs and replacements

Septic systems require routine repairs or replacements due to issues like clogs, damage, and filters. Keeping up with routine maintenance can help avoid costly repairs.  

Sewer system maintenance costs

Monthly fees

Most municipalities charge taxpayers to use public sewer systems, and the average U.S. sewer bill is $66.80 per month. However, this can vary depending on water usage, the availability of local water supplies, and location. 

Connection fees

If your property doesn’t have a connection to a sewer system, you’ll need to pay a hookup fee to access public lines. This fee covers the cost of extending the sewer from the property to the main network.

In most cases, local governments don’t directly charge for sewer abandonment or disconnecting from a network. However, you may wind up paying indirectly for disconnection permits, plumbing changes, and inspections. Disconnecting from a sewer may also negatively impact your property value.

Permit fees and inspections

Some municipalities charge homeowners to connect to local sewer systems or perform repairs or construction. You may also need to pay for local inspections to ensure compliance with building and safety codes.

Sewer lateral and service

While homeowners don’t need to maintain public sewer infrastructure, they are typically responsible for the sewer service line that connects their property to the main sewer line. This can require maintenance, repairs, or replacements.

Need some advice? Home Approach is here to help

As you can see, wastewater management is a big topic of concern for home buyers — and something that requires careful consideration. Both options have pros and cons, making it difficult to determine which is right for your specific needs. 

Home Approach specializes in helping home buyers like you navigate the first-time purchasing process. Our experts specialize in breaking down complex real estate topics so they’re easy for you to understand. If you’re on the fence about whether to go with a home that has its own septic system or one that’s connected to a public sewer system, Home Approach can provide guidance and support. 

Ready for a consultation? Sign up for Home Approach and speak with an expert today.

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1st Time Homebuyer Downpayment Guides Real Estate

PMI Guide: Your Guide to Private Mortgage Insurance

What is Private Mortgage Insurance (PMI)?

Conventional wisdom says paying less for something like a car or computer upfront is better. But when it comes to real estate and homeownership, this doesn’t always apply. In some cases, paying more upfront can lead to substantial long-term savings. 

While it may seem counterintuitive to part with a larger sum upfront when you’re buying your first home, you can potentially avoid paying private mortgage insurance (PMI) and lower your monthly mortgage payments by putting down at least 20%. While you might find yourself more cash-strapped in the immediate future, you’ll have more money to stash in the bank or make upgrades and renovations over the long term. 

If you’re wondering how PMI works, you’ve come to the right place. This primer provides a complete overview of PMI and addresses the following topics:

  • What is private mortgage insurance? 
  • Who needs private mortgage insurance?
  • What is the cost of PMI?
  • PMI vs. homeowners insurance
  • How to minimize or avoid PMI
  • FAQs about PMI

What is private mortgage insurance?

PMI is a type of insurance that lenders require from borrowers who have a conventional mortgage with a down payment of less than 20% of the home’s purchase price. PMI is designed to protect lenders in the event borrowers default on their loans.

When a borrower puts less money into a property as a down payment, the lender’s potential financial loss from a default is higher. PMI offsets this risk by providing a financial safety net that protects lenders in the event homeowners can’t keep up with mortgage payments.

Who needs private mortgage insurance?

Lenders typically require PMI when a borrower puts down less than 20% of the home’s purchase price. This is due to the fact that lenders often perceive this as a higher-risk investment because homeowners have less equity in the property from the outset. 

When a borrower puts down 20% or higher, this indicates a lower loan-to-value (LTV) ratio, which signifies that a borrower only needs financing to cover a smaller percentage of the home’s value. As a result, the lender is in a less risky position because the borrower has a significant equity stake in the property the day they move in. 

What is the cost of PMI?

According to the Urban Institute, the average cost of PMI with a conventional home loan can be anywhere from 0.58% to 1.86% of the original loan amount. On a $300,000 mortgage, this could translate to anywhere between $145 and $465 extra per month. That said, the total cost of PMI can vary based on several factors, which we’ll examine in this section. 

The loan amount

The PMI rises proportionally as the overall loan amount — or principal balance — increases. This makes sense since a larger loan amount presents a higher risk to lenders. As a result, larger loans typically command higher insurance premiums. 

Credit score

Lenders rely on credit scores to assess borrowers’ creditworthiness and ability to manage debt responsibility. They tend to view homebuyers with higher credit scores as less risky, which translates into offering them lower PMI rates. 

That being the case, it’s critical to check your credit score before applying for a loan. If your score is lower than you’d like it to be, start paying down revolving debt and making on-time payments to credit card bills. By doing so, you can potentially boost your score, resulting in a lower PMI rating. However, paying down your debt leaves you with less money to put toward a down payment — which is just a tradeoff you’ll need to consider. 

Size of the down payment 

Generally speaking, you should aim for an LTV ratio no higher than 80%. For example, suppose you’re buying a house for $300,000 and planning to finance the bulk of it via a conventional mortgage. In this scenario, you need to put down at least $60,000 to avoid paying PMI. 

Home value and appraisal

When calculating potential PMI costs, it’s also necessary to consider the appraised value of your home. As a brief reminder, a home appraisal is conducted by a third party, who assesses the property’s current market value.

Of course, property values can change over time. If your home’s value appreciates significantly, the LTV ratio could drop, decreasing PMI costs — or even eliminating them altogether. 

The terms of the mortgage payment 

PMI requirements tend to vary depending on the type of loan. For example, government-backed Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, and United States Department of Agriculture (USDA) loans all have different rules regarding PMI and down payments: 

  • FHA loans require a minimum down payment of just 3.5% and include mortgage insurance premiums (MIP). Unlike PMI, MIP lasts throughout the loan’s entire life if the down payment is less than 10%. However, the homeowner can eliminate MIP after 11 years if the down payment is 10% or more. 
  • VA loans don’t require any down payment or PMI. Such loans are only available to eligible veterans, National Guard and Reserves members, and active-duty service members.
  • A USDA loan doesn’t come with a PMI. Instead, USDA loans have a guaranteed fee which provides insurance to the lender in the event the borrower defaults. This upfront fee often rolls into the monthly mortgage payment amount. 

PMI vs. homeowners insurance

Any time you use a mortgage to buy a house, you’ll also need homeowners insurance — also known as hazard insurance — which protects the buyer against property damage from covered events like fires, floods, hurricanes, theft, or vandalism.

Homeowners insurance covers the physical structure of the home, as well as personal belongings, injury liability, and additional living expenses if the house becomes uninhabitable. Some homeowners use homeowners insurance to cover valuable items, like engagement rings and expensive artwork.

That said, homeowners insurance doesn’t protect you against defaulting on a mortgage. There are insurance products, like MPI and mortgage payment protection insurance (MPPI), that do cover you. This insurance specifically provides financial assistance to homeowners who face difficulty making their mortgage payments due to disability, critical illness, or job loss. 

How to minimize or avoid PMI

The only real upside to having PMI is that it helps you buy a house while putting less down. Beyond that, there isn’t any glory in making PMI payments; PMI doesn’t build equity or help you financially in any way. As such, it can become a financial burden over time. In light of this, there are some things you can do to minimize your PMI commitment.

Save for a larger down payment

The easiest way to avoid paying PMI is to save as much money as possible when buying your new home. Aim to make a down payment of at least 20% and eliminate the need for PMI. 

That said, in addition to putting 20% down, you’ll also need to set aside cash for closing costs — like loan origination fees, property taxes, inspections and appraisals, and attorney expenses. Unfortunately, closing costs can tack on thousands of extra dollars during home buying, leaving you with less money to put down.

Ask your lender about different options

Don’t be afraid to ask your lender about loan programs that offer alternatives to PMI. For example, you may be eligible for lender-paid mortgage insurance (LPMI). While this might result in a higher interest rate, it could prevent you from having to make separate PMI premiums. 

Review your lender’s PMI policies

If you don’t like a lender’s PMI rate, shop around and compare different options. You may be able to qualify for a lower rate from another lender.

Request PMI removal

Keep in mind that PMI payments aren’t forever. Once your equity reaches 20% of the home’s value based on the original LTV ratio, you can request PMI removal. For conventional mortgages, automatic cancellation occurs when the loan reaches a specific LTV ratio (e.g., 78%).  

Make rapid payments 

If you’re in a position to do so, consider making additional payments on your loan balance. Reducing your mortgage balance can help you reach the 20% equity mark faster and reduce the overall duration of your expenses. 

Choose a shorter loan term

Another option is to opt for a shorter loan term. For example, you may select a 15-year mortgage instead of a 30-year loan. Requesting a shorter mortgage helps build equity faster and repay the loan sooner. The only downside is your monthly mortgage payments will go up.

Refinance

While refinancing doesn’t automatically eliminate PMI, it can save you a lot of money if you have substantial equity in your property (e.g., if you bought your house in 2019). It’s worth talking to your lender or financial advisor to determine whether refinancing can impact what you pay each month. 

Private mortgage insurance: FAQs

How do you pay PMI?

Most lenders allow borrowers to pay PMI in monthly installments tacked on to their regular monthly payments. However, some lenders also give the option to make annual lump sum payments or access lender-paid arrangements. 

Is PMI for conventional loans?

PMI is often attached to conventional loans that lack the support of a government agency like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), which come with their own insurance and guarantee mechanisms. Unless you put down at least 20%, PMI applies to both fixed-rates and adjustable-rate mortgages.  

What is split-premium PMI?

Split-premium PMI is a type of insurance where the borrower pays an upfront premium and ongoing monthly payments. 

With split-premium PMI, the upfront premium is a one-time payment at the beginning of the loan. It’s similar to paying upfront fees with a mortgage. The upfront payment reduces the monthly payment amount, leading to lower overall PMI costs over the life of the loan.

Availability for split-premium PMI can vary among lenders. As with any other aspect of home financing, it’s important to review the terms, costs, and benefits of split-premium PMI compared to other options. 

Is PMI tax-deductible?

Unfortunately, the PMI tax deduction isn’t available for the 2022 tax year. However, some homeowners may be eligible to deduct PMI payments for past tax years (certain restrictions apply). Of course, Congress may act to make PMI deductible once again in the future; time will tell.

What is piggybacking?

Piggybacking is a financial strategy where a borrower uses two loans to purchase a home. In certain circumstances, piggybacking can enable you to avoid paying PMI. 

For example, a borrower might take out a conventional mortgage for 80% of the home’s purchase price and a second mortgage for 10% of the home’s value. Combining these two loans with a down payment of 10% or more covers the entire purchase of the house, enabling you to avoid PMI. 

Do lenders require PMI if you use a HELOC?

Lenders may require PMI if you use a home equity line of credit (HELOC). In this scenario, the primary mortgage and HELOC contribute to the combined loan-to-value ratio (CLTV). If the CLTV ratio reaches a certain threshold, the lender might require PMI to mitigate risk. 

When it comes to PMI, lender policies tend to vary. For example, some may offer alternative options like higher interest rates. To increase the chances you make the best decision, it’s important to communicate with your lender about your situation and explore different options.

Is it better to put down 20% or pay PMI?

If you can afford it, putting down 20% is smarter than paying PMI. Not only will you be responsible for covering lower monthly mortgage payments, you’ll also start your homeownership journey with more equity in your home, leading to greater financial security. 

On the other hand, paying less upfront frees capital for other investments like home improvements and emergencies. A lower down payment also allows you to become a homeowner sooner — something that may be worth it due to skyrocketing home prices

At the end of the day, you need to consider your financial goals, timeline, and risk tolerance to determine whether to put down 20% or pay PMI. To increase the chances you make the best decision, consult with a financial advisor or mortgage professional to learn which option is better for you.

Is it common for borrowers to default on their loans?

While most homeowners don’t default on their loans, it is not uncommon for homeowners to be incapable of paying their mortgages. Even so, the latest data indicates U.S. mortgage delinquency rates reached an all-time low in May due to a strong labor market that helps borrowers make their mortgage payments on time. 

Currently, the share of all delinquent mortgages is hovering around 2.6%. Of this, just 1.3% include early stage delinquencies (30 to 59 days past due) — a 1.1% year-over-year increase. That said, 14 states and almost 170 metropolitan areas saw delinquencies increase annually in May. 

Does Freddie Mac provide mortgage insurance?

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a government-sponsored enterprise that purchases mortgages from lenders. While Freddie Mac doesn’t directly provide any mortgage insurance policies, it influences the market and the availability of loans with PMI through its guidelines and requirements. 

Ready to start shopping for a loan estimate? 

To encourage activity, more and more lenders are now issuing loans to folks who put down 5% or less when they buy a house. As a result, homebuyers are increasingly considering putting less money down and paying monthly PMI to cover a portion of their loans. 

Signing up for PMI is a major personal finance decision that will have a big impact on your monthly mortgage payments. That being the case, it’s critical to assess your financial situation and determine whether it’s a good fit. 

Before you start thinking about PMI, it helps to understand what kinds of loans are available to aspiring homeowners like yourself. In case you’re unaware, there are tons of different mortgage loans available for first-time homebuyers — each with varying requirements for down payments, insurance, mortgage terms, and eligibility. 

To learn more about how to secure financing for a property, check out our mortgage loan primer.

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Real Estate

Pros and Cons of Real Estate Agents

Buying a home is one of the most significant financial decisions of your life. It can also be complex and overwhelming. To navigate the process as smoothly as possible and make the best decision, you need to be aware of a seemingly endless amount of factors. 

That being the case, it’s smart to work with a trained and licensed real estate agent throughout the homebuying process. No matter how much you know about the housing market, construction, and negotiating — or how much you think you do — partnering with the right real estate agent can be a godsend when you’re buying your first home. 

With all this in mind, let’s take a closer look at what real estate agents are, what they bring to the table, and the pros and cons of hiring one to buy a new home.  

What is a real estate agent?

A real estate agent is a licensed professional who helps buy, sell, or rent properties for their clients. Real estate agents serve as intermediaries for buyers and sellers and provide expertise and assistance throughout the transaction.

When it comes to buying homes, the vast majority of consumers opt to join forces with real estate agents. In fact, the latest data reveals 86% of buyers purchase a home through a real estate agent or broker. What’s more, 89% of buyers would use their agent again or recommend their agent to others.

What are the benefits of being a real estate agent?

Before you decide to work with real estate professionals, it helps to understand more about the profession and the role agents play. 

Despite what you may see in the media, most real estate agents will avoid attempting to push you into a home you don’t want or scam you into agreeing to buy a property that isn’t the right fit for your needs. Most agents register through the National Association of Realtors and pledge to act ethically and professionally. Their reputation is paramount to their success. 

Having second thoughts about why someone would want to launch a real estate career? Let’s take a look.

Make your own schedule

One of the top reasons people work in real estate is to become successful and launch their own real estate business. When you have your own business and become your own boss, you can set your own schedule, control your working hours, and achieve a work-life balance. Real estate agents typically work flexible hours, giving them more of a personal life. 

Control your income

Real estate agents have unlimited income potential. In real estate, earning potential depends on having a solid business plan (such as working with home buyers or commercial real estate investors), operating in a desirable market, figuring out how to successfully navigate slow periods, and staying motivated to meet clients and sell houses.  

Help others 

Buyer’s agents typically love working with people and helping them land their dream homes. By working in real estate, agents can directly impact clients’ lives and improve their standard of living. It can be a truly gratifying line of work.

Why homebuyers use real estate agents

Buying a home is stressful. According to one recent report, top fears for first-time homebuyers include missing out on better options (40.4%), being unable to afford a mortgage (36.8%), and rising home prices (31.6%). Of course, the list goes on and on.

A good real estate agent serves as a go-to resource for homebuyers and helps to alleviate any potential uncertainty. The right agent will listen to all of your questions and concerns and help make the purchasing process easier, more predictable, and more enjoyable by supporting you from the beginning of your search to closing.

Search for properties 

As you begin house hunting, real estate agents can tap into multiple listing services (MLS) databases and other lead generation resources to help you find a home that matches your preferences and needs. 

Often, agents get exclusive access to new properties before they hit the general market. As such, you may be able to find homes for sale before other buyers even know they’re available. In real estate, timing is everything, so early access can be as good as gold.

Provide market knowledge

In addition to discovering properties, agents also have in-depth knowledge of their local real estate market. This includes things like sales data, neighborhood information, and pricing trends. Using this information, you can gain a better understanding of property values and market conditions, which should help you make more informed decisions.

Show properties 

Agents are responsible for finding properties and allowing buyers to visit different homes. As you continue your home search, your agent will let you into houses, give you tours, and help you answer any questions you might have. Spending time with the agent also helps them get to know you better, which makes it easier for them to recommend other properties that match your needs. 

Negotiate with sellers

Worried that you’ll have to negotiate to land your dream home? Don’t be. When you hire a real estate agent, they negotiate on your behalf, working to get the best possible deal on a property’s price and terms. 

Assist with contracts 

Real estate contracts can be very complex and full of legal jargon. Agents help you understand your contract inside and out and make sure you know your rights and obligations before signing on the dotted line. 

Liaison with other professionals 

Homebuyers are typically busy working professionals and must balance other family and work responsibilities while looking for a property to buy. Real estate agents can help you save time by working behind the scenes and looping in other professionals in their networks — like mortgage lenders, attorneys, property managers, appraisers, and inspectors — so you don’t have to. As a result, they can help keep the process moving forward while you manage your day-to-day responsibilities. 

Provide post-purchase support 

The first year of homeownership is challenging. It’s not uncommon for new homeowners to have questions about things like homeowners association (HOA) fees, what to look for in lenders, and what upgrades you need to make after you close. A great real estate agent will provide post-sale support and help you transition to homeownership. 

Remember, reputation is everything for real estate agents. The right agent understands this perfectly and will work tirelessly to help you make a wise decision and end up living in a house you love. Such an approach increases the chances you recommend your agent to folks in your own network when the time comes.

How to find a real estate agent

The agent you hire will have a significant impact on your homebuying experience. As such, it pays to take your time and conduct thorough research before choosing one. With that in mind, here are some tactics to consider as you hunt for a real estate agent. 

1. Ask for referrals 

Start by asking for recommendations from colleagues, friends, and family members with experience buying and selling property. You can also hop on to local message boards and ask your community for their advice. Whether you know them or not, other homebuyers can provide valuable insights and introduce you to reliable agents. 

2. Search online 

Unfortunately, referrals may not always be available in your area. For example, you may be moving to a new market where you don’t know anyone. Other times, you may want to start fresh with your own agent because you’ve heard horror stories about other agents. In these instances, you can use the internet to search for agents in your area on sites like Zillow and Trulia and read reviews about them. 

3. Contact local real estate offices

Another way to find a real estate agent is to visit a local realtor or contact one over the phone. An office manager will ask some basic questions and connect you with an agent who may be able to help. 

4. Attend open houses 

Another way to connect with real estate agents is to attend open houses in your target area. This will allow you to connect with an agent on-site. You never know when a simple decision to show up at an open house could change your life.

Best practices for working with a real estate agent

You can’t just hire any real estate agent and expect a productive, joyful experience. Keep these tips in mind to increase the chances you hire the right agent and end up buying your dream home.

Research thoroughly

Always take the time to research a potential agent — even if that person comes as a recommendation. Not only will you want to verify their licensing and credentials, you’ll also want to read some online reviews to make sure they can meet your exact needs. 

For example, not all agents are great communicators. If you’re not necessarily the most patient person in the world, you might want to work with an agent who instantly returns your calls and texts and also checks in regularly. In this scenario, try to get a sense of their responsiveness before committing. 

Interview the agent

After you’ve narrowed down your options, schedule a formal interview with a prospective agent. During the interview, ask about their experience and determine their overall knowledge of your local market. 

As a word of caution, be careful about working with new real estate agents who may lack experience. These folks may be unable to offer the same level of guidance and expertise as a seasoned veteran. 

Respect the agent’s time

Time is valuable for a real estate agent. So, if an agent clears an afternoon to arrange a series of home visits, make sure to respect their time by showing up, taking notes, and asking questions. Remember, agents don’t get paid until you make a deal.

Be prepared to sign an exclusive agreement

A real estate agent will usually ask you to sign an exclusive buyer agency agreement. Essentially, this document indicates that you agree to work exclusively with the agent or real estate brokerage and allow them to represent you in your property search and negotiations. 

This agreement outlines the terms and conditions and length of the arrangement, as well as the agent’s responsibilities and compensation. If you end up partnering with the wrong agent, you can always dissolve this agreement and find a new agent.

The pros of working with a real estate agent

At the end of the day, you have the freedom to decide whether to work with a real estate agent or handle the homebuying process yourself. Here are some of the main reasons why first-time homebuyers would be wise to work with an agent who knows the real estate industry like the back of their hand. 

Save time and money

There’s no getting around it: Real estate is hard work. A real estate agent will save you a significant amount of time during the homebuying process by recommending properties, coordinating visits, and handling complex administrative tasks.

In addition, using a real estate agent can potentially save you money. These folks can negotiate with sellers and their agents and use data to determine a property’s fair market value. In addition, real estate agents can access off-market or pocket listings that aren’t publicly available, which may offer better deals and reduced competition.

Receive guidance and support

Despite what you might see on social media, real estate is not simple. The truth is that most first-time homebuyers don’t have the experience necessary to navigate the buying process on their own. After all, buyers need to comply with tons of legal and financial requirements, which can be very time-intensive. Agents make this complex process easier to navigate by providing ongoing guidance and support until a deal is done. 

Get objective advice

One of the best reasons to use an agent is to receive objective advice about different properties. Agents can help you see the advantages and disadvantages of different places — enabling you to make decisions that aren’t heavily impacted by emotions. 

For example, a property you might see as a dream house an agent might see a money pit. A savvy agent will be able to ensure that you walk away with a house that you love and a commitment you can live with.

Leverage connections and resources

Agents often have real estate teams full of mortgage brokers, contractors, inspectors, assessors, and other professionals. As a result, they can usually recommend other trustworthy professionals throughout the homebuying process to help facilitate the real estate transaction. Since you’re going to be researching so many properties anyway, you might not want to spend your time finding a plumber. 

The cons of working with a real estate agent

Despite these advantages, working with a real estate agent can be challenging at times. Here are some of the potential drawbacks to working with a licensed buying agent. 

Pay a commission 

Real estate agents work for buyers. They often put in a ton of effort, so they don’t come cheap. Agents typically earn a commission of around 5% to 6% of a property’s sale price, with the buyer’s agent and seller’s agent splitting the fee. While you won’t have to pay your agent directly, the funds come out of the sale price, which could cause a seller to list their home for more money.

Before hiring a real estate agent, make sure you understand their commission structure. That way, you can avoid any surprises during the closing process. 

Avoid a conflict of interest

While it’s rare, an agent may encourage you to make a higher offer on a property in order to close a deal quickly and put more money in their own pocket faster. 

If you suspect the agent is acting unethically, remember that you don’t have to rush into a decision regardless of what the agent says. Ask for a comparative market analysis report to verify the market value and seek other opinions if necessary. You can also talk directly to the brokerage the agent works for. Of course, if you still feel uncomfortable with the agent’s actions, you can always walk away from the deal and find another agent.

Work around the agent’s schedule

Coordinating schedules and finding time to drive around and visit different properties with an agent can be challenging. Because of this, it’s a good idea to treat the house search like a part-time job and budget your time accordingly. Be honest about your schedule and maintain open channels of communication.

Trust the agent to handle negotiations

When you hire a real estate agent, you need to trust them to act on your behalf during negotiations and protect your interests. The agent will also be responsible for handling your sensitive personal information. 

With this in mind, proceeding with an agent you trust and feel comfortable working with at every turn is critical. Otherwise, you may have to switch agents or realtors during the house search — delaying your purchase and potentially causing you to miss out on properties you love. 

Looking to become a homeowner? Home Approach can help

Hiring a real estate agent is just one of many important decisions you’ll have to make during the homebuying process. Before you close on your new home, you’ll need to decide if you want a homeowners association (HOA), figure out how to secure financing, and determine what you want in a neighborhood, among countless other decisions. 

During this process, you’re bound to have some questions. Before starting your real estate journey, we recommend checking out our free guide for first-time homebuyers which explains everything you need to know about becoming a homebuyer, including tips on negotiating a deal, hidden homeowner costs, unforeseen challenges, and much more. 

Read the free guide today.

Categories
Real Estate

How To Win a Bidding War on a House

Wondering how to win a bidding war on a house? You’re in the right place.

Let’s say you’re a first-time homebuyer who’s been looking for a dream home and you’ve finally found it after attending an open house. Congratulations!

Unfortunately, once you make a bid, you discover another potential buyer has also submitted one. In the blink of an eye, you find yourself in a real estate bidding war.

Many buyers have found themselves in this situation due to the housing market trends over the past year. Demand for housing has far outpaced supply, creating a seller’s market where many homes sell above asking price and many buyers make cash offers. That’s why most homes end up in bidding wars.

Yet, even with all the obstacles that may come your way, it’s still possible to get your best offer accepted despite other buyers bidding on the same home. You can win a bidding war on a house by making your offer stand out in today’s real estate market by implementing a few strategies.

1. Have your pre-approval letter in hand

Getting a mortgage preapproval from a lender before you begin home shopping is possible if you qualify. It is important to understand the difference between prequalification and preapproval. Often, prequalification is based on self-reported information about your personal finances and your income.

By contrast, a preapproval is based on your W-2s, bank statements, credit score, and other official documentation. This approval of your finances is just a first step; underwriting, which is a more comprehensive vetting process to determine your mortgage rates and how much you can borrow will still be required before you can close on your home loan.

If you’re pre-approved and are going up against bidders who aren’t, sellers may be more interested in working with you, even if your purchase price offer is slightly lower.

2. Be negotiable with contingencies

In home purchase contracts, contingencies allow buyers to back out of the sale if certain conditions aren’t met. However, you’ll want to be careful when using them during a bidding war — even if your bid is over the list price.

Don’t add too many conditions or demands to your offer. In order to be competitive, you might want to forget about any home inspection contingencies. While you certainly want to inspect the home to make sure it’s in good shape after you put down an earnest money deposit and have a tentative deal, you shouldn’t expect that the seller wants to cover fixes.

3. Use an escalation clause

An escalation clause is a clause that allows you to increase your offer’s price can ensure that you win the house without overpaying.

If there’s a bidding war, an escalation clause enables the buyer to increase their offer up to a certain point. The escalation clause specifies that the buyer will pay a certain amount for a home, but if the seller receives another offer letter from a competing homebuyer, the buyer will raise their highest offer by a certain amount.

Let’s say you find yourself in a bidding war for a home in upstate New York that costs $200,000. You make an offer of $150,000 with an escalation clause stating you will outbid any competing offer by $5,000 up to $200,000. As soon as another buyer makes a $150,000 offer, your offer will automatically be increased to $155,000. In contrast, if someone later offers $200,500, you’d lose the bidding war.

With escalation clauses, you can compete in bidding wars without having to worry constantly about being outbid. You can determine ahead of time what you’re comfortable with and make sure you don’t pay more than you have to in order to beat your competition. The most important thing is to keep in mind that not all homeowners are willing to accept offers with escalation clauses, but you should certainly try.

4. Write a personal letter

Adding a human touch to your offer price may convince the seller to accept it over another, even if it is not the highest one. These are sometimes called buyer “love letters” and often include an explanation of why they’re passionate about buying the home.

It’s common to use love letters to win a home sale in a competitive housing market. If a seller feels an emotional connection to their property, knowing the person they sell it to will take good care of it could make the deal go your way.

You should, however, be very cautious when writing a personal letter. In your letter, revealing personal information could have a negative impact on fair housing if it influences the seller’s decision. In fact, the National Association of Realtors forbids Realtors acting as buyer’s agents from delivering such letters to sellers.

5. Work with an experienced real estate agent

Working with a real estate agent to help you win your bidding war is a smart move. They have the experience and skills necessary to help you succeed. Additionally, they have market knowledge, which is crucial when it comes to determining a home’s fair market value.

When bidding wars happen, buyers are prone to making risky financial decisions. When you hire an agent, you can rest assured that you will not offer more than the house is worth or more than you can afford. Throughout the process, your agent will remain level-headed and ensure that all decisions, including when to schedule the closing date, are made for your benefit.

You can get crucial advice from an agent, — such as whether you should waive a contingency — and they’ll ensure that the seller and listing agent aren’t taking advantage of you. Through their connections within the industry, they may even be able to find out what your competition is offering.

The best part is that agents are paid out of the sales price of the home. For buyers, representation is free.

6. Be flexible on the move-in date

Homebuyers who are new to the market and those who have already sold their previous home might be able to negotiate with the sellers about their move-in date. 

When a seller is concerned about potential delays for a new home, they may request more time.

If this is the case, they could go through the closing and then rent the house back from you for a few weeks or months. It may be more valuable to have this flexibility than to submit a higher bid for the property.

7. Increase your down payment

Increasing how much you’re putting down on a home can be extremely helpful if you’re up against another buyer. In the event that a bidding war takes place and the price exceeds the appraisal value, a higher down payment will reduce the amount the bank will need to lend.

Be sure to back up your claim with financial proof in addition to a verbal promise to increase your down payment. You can demonstrate your financial readiness by presenting documents such as pay stubs, tax forms, and your 401(k) balance.

The bottom line

In today’s competitive, fast-paced real estate market, there are no guarantees. But that doesn’t mean you should sit back and wait. Instead, take control of your fate and ensure that your offer is as aggressive and attractive as possible. With the right approach, you’ll be in your dream home before you know it.

Categories
Real Estate

FREE First-Time Homebuyers Guide

How to close on your first property and accelerate your journey to financial freedom

So, you’re thinking about buying a home for the first time. That’s great news! From increased financial security and tax benefits to having a permanent roof over your head and being part of a local community, there’s a lot to like about becoming a homeowner.

If you’re looking to achieve long-term financial independence, a home purchase is one of the smartest investments you can make. According to a recent study from the Federal Reserve, U.S. homeowners have a median net worth of $255,000. Renters, on the other hand, have a median net worth of just $6,300 — a difference of 40x!

While the benefits of being a homeowner speak for themselves, the process of buying your first home isn’t exactly a walk in the park. Truth be told, the experience can be downright crazy and filled with emotional ups and downs.

To make your journey easier, we’ve put together this comprehensive guide that outlines everything you need to know about becoming a first-time homebuyer, including:

  • How to think about financing your first home
  • The pros and cons of working with a real estate agent
  • What to look for in a property
  • Tips on negotiating a deal
  • What to expect after an offer is accepted
  • Hidden homeowner costs to consider
  • Unforeseen challenges you might encounter
  • First-time homebuyer mistakes to avoid
  • Additional resources that can help you throughout the process

Buying your first home: The home loan financial component

There are two main types of loan programs available when it comes to mortgages, and you’ll want to determine your eligibility. First, conventional loans are the most common type of loan, and are not backed by the government. Then there are non-conventional loans which are backed by the government. Much more details on the differences between the two a bit later on.

Whether you’re buying a house for $2 million or $400,000, you should aim to have at least 20% of the purchase price upfront for a down payment. The remaining balance of the home price is the loan amount you are requesting. Having at least that 20% up front will enable you to avoid paying for private mortgage insurance (PMI), which most mortgage lenders require when buyers put down less than 20%.

While it’s possible to procure a home with as little as 3% down payment via the 97% loan-to-value mortgage program or 3.5% down payment by taking out a loan from the Federal Housing Authority (FHA), doing so is unadvisable, since PMI can cost as much as 2.5% of your total mortgage.

Of course, it never hurts to put down more than 20% if you have the money. The more money you put down, the lower your monthly loan payments will be.

For example, if you put down 20% on a $500,000 house and obtain a 30-year fixed mortgage at 4%, your monthly payment would be $1,910 (excluding property taxes and insurance). If you buy that same house with the same mortgage rate but only put down 10%, the payment increases to $2,148 per month (again, excluding property taxes and insurance). Plus, you’ll also be on the hook for PMI!

If you were to put down 30% in this same situation, however, your monthly payment would decrease to $1,671. You get the gist.

Tips for saving for a down payment on your first home

Saving up for a down payment can be a massive undertaking for first-time homebuyers. Here are some tips to make the process easier.

Set a goal

First things first: Know your price range. You need to figure out how much you need to save up to begin with. Again, the smart play is to have enough cash that you can put 20% down towards your home loan, while still being able to afford closing costs and living costs after that. Study your finances, create a budget, determine what your ultimate goal is, and develop a plan that helps you get there.

Cut unnecessary spending

Once you’ve figured out how much you need to save, it’s time to trim the fat off your budget. Do you really need subscriptions to Hulu, Netflix, and AppleTV? Or might you be able to get rid of one of them? Instead of going out for dinner, you might want to plan on cooking more meals at home. And instead of splurging on new clothes, maybe you can ride your wardrobe for another year. Wherever you can cut unnecessary spending, strongly consider doing so.

Optimize your savings

If your money is going to be parked away in an account while you save for a house, you might as well get the biggest return on it. Rather than putting your money in a regular savings account that generates paltry interest, consider a high-yield savings account (HYSA) instead where you’ll earn a lot more.

Set up automatic deposits

Planning to save for a down payment is one thing. Actually doing it is quite another. If you’re serious about saving for a down payment for your first house, consider creating a new bank account (or HYSA account!) and automatically routing something like 5% or 10% of each paycheck there. That way, you get the peace of mind that comes with knowing you’re building up your down payment without having to manually move money.

Pocket any windfalls

Win the lottery? Inherit some money? Win your fantasy football league? Get a huge bonus at work? Any money you receive from windfalls like these should automatically be routed to the account you’re stockpiling your down payment in.

Popular mortgage options for first-time homebuyers

Assuming you don’t have enough money to buy your first home with cash, you’re going to need to secure a mortgage. As you begin exploring your options, you will likely come across a number of government-backed loans, including VA loans, which help active duty military and veterans secure properties; and USDA loans, which help buyers in more rural areas. If you’re like most first-time homebuyers, however, you will probably seek financing in one of two ways: securing an FHA loan or choosing a conventional mortgage.

Whichever route you decide, you then have to choose loan terms, which are generally 15, 20, or 30 years, with 30-year mortgages being the most popular option.

Federal Housing Administration (FHA) loans

If you’re a first-time homebuyer who has a debt-to-income ratio of 50% or less and a credit score of at least 580, you may be able to afford a home by putting down just 3.5%; if you’re able to put down 10%, your credit score can be as low as 500. For cash-strapped borrowers and folks with suboptimal credit scores, FHA loans are much easier to secure and can provide a path toward homeownership.

But if you go this route, you’ll have to pay PMI. Plus, the FHA won’t let you borrow a large amount of money, which could cause you to miss out on pricey properties you really like. And in today’s hyper-competitive housing market, sellers may be less receptive to the idea of working with someone who’s financing the deal with 96.5% debt compared to someone who’s putting down 50% cash.

Conventional mortgages

If you find yourself on solid financial ground, a conventional mortgage may be a better option — particularly if you’re able to put 20% down and have a credit score that is higher than 740, which puts you in a position to get the best terms possible. This is something that simply can’t be overlooked in our era of rising interest rates.

Of course, meeting this high bar is a challenge, and you may still qualify for a conventional mortgage as long as your credit score is at least 620 and you can put down at least 10%.

What is the difference between a fixed and variable rate mortgage?

In addition to choosing the lender you’re going to work with, you’ll also need to choose what type of mortgage you want. For most buyers, this will mean choosing between a fixed rate or variable rate mortgage.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a mortgage that has the same interest rate throughout the life of the loan. For example, if you lock in at 4% for 30 years, your interest rate will be the same until you ultimately pay off your mortgage three decades from now (or sooner!). Though interest is front-loaded on these loans and the amount you pay toward principal and interest varies month to month, total payment remains the same. Due to the predictable nature of these loans, many first-time homebuyers prefer them.

What is a variable-rate mortgage?

A variable-rate mortgage, also known as an adjustable-rate mortgage (ARM), is a mortgage with interest rates that are fixed for the first few years but change over time based on how specific benchmarks like the LIBOR index perform over time. In many cases, lenders entice borrowers by offering ARMs at lower rates than fixed mortgages for a specific period of time. Once that period ends, however, rates could move higher or lower depending on the market.

Popular examples of ARM mortgages include 2/28, where the borrower has a fixed rate for the first two years and then a floating rate for the remaining 28 years, and 5/1, where the borrower has a fixed rate for five years and a rate that resets every year thereafter.

As interest rates continue to rise, more and more borrowers are rolling the dice on ARMs. If you’re planning on living at a property for just a couple of years — and can stomach increased interest rates if your plans fall through — a 5/1 ARM could be a good option; maybe you’ll be out in three years. On the other hand, if you’re looking for a home you plan to live in for many years, you may want to go with a fixed mortgage instead.

How can I get the best mortgage rate possible?

To get the best mortgage rate, you need to be able to put down at least 20% on your home, have a low debt-to-income ratio, and have a strong record of employment or success as a small business owner. On top of that, you need to have a solid credit score. Typically, the most favorable mortgages are given to buyers who have a credit score of at least 740.

Credit scores explained

Your credit score is a fluid measure that represents your creditworthiness, i.e., how likely you are to repay your debts. This score is determined by five categories:1. Payment history (35% of your score), which represents how likely you are to repay debts on time.

2. Amount owed (30%), also known as credit card utilization rate, which reflects how much of your credit is currently in use; if you have a $20,000 credit line and have spent $2,000 against it, your utilization rate is 10%. Best practices suggest keeping your utilization rate as low as you can; below 10% but higher than 0% is ideal.

3. Credit history (15%), which measures the average age of all your credit accounts. The longer your credit history, the better (keep your oldest accounts open!).

4. Credit mix (10%), which represents the different types of credit accounts you have. Most first-time homebuyers might have a mix of credit cards, student loans, and auto loans, for example.

5. Credit inquiries (10%), which reflects how often you’ve opened a new credit line in recent years. When you open a new credit card, for example, the issuer conducts a hard inquiry on your credit, which stays there for two years. Mortgage lenders might raise an eyebrow if they see you’ve applied for several new credit accounts in a short period of time, which will adversely impact your credit score.

How to increase your credit score

No matter what it looks like right now, the good news is that you can take proactive steps to improve your credit score over time. Here are some tips to keep in mind that can help you bring your score to where it needs to be when you buy your first house.

Pay off credit cards on time and don’t carry a balance

Together, your payment history and credit card utilization rate make up nearly two-thirds of your credit score. By paying your debts on time and in full, you can improve your credit score steadily over time. Whatever you do, never make the minimum payment when you’re in the market for your first home. If you can’t afford to pay your credit card bills, it’s probably not the best time to buy a house.

Stop applying for new credit (except your mortgage!)

Since hard inquiries have an adverse impact on your credit score, don’t apply for new credit unless you absolutely have to.

Keep older credit cards open

Oftentimes, people close out old credit cards they never use for convenience. Resist the temptation. If you want to improve your credit score, your oldest credit cards are your friend. Keep them open, even if you just use them to buy a can of soda once a year.

What is the mortgage process like?

In today’s competitive housing market, homebuyers need to be ready to pounce on a property the moment they make up their minds. The easiest way to do that is by getting pre-approved for a mortgage instead of trying to secure financing at the last minute.

As you begin the pre-approval process, you first need to determine how much money you can afford to spend on your house and what type of mortgage makes the most sense for your unique circumstances. Once you’ve done that, get ready to collect a lot of documentation and send it over to your broker. This includes W2 forms, 1099s, profit and loss statements (if you own a small business), bank statements, investment account statements, what your cash outflows are, and how much debt you have, among other things. During this stage, the broker will also look at your credit reports to determine your creditworthiness. By securing a mortgage pre-approval, you demonstrate that you’re a serious buyer who’s ready to make a deal.

After you’ve been pre-approved and have had an offer accepted, it’s time to put down what’s called “earnest money,” which is typically 1% or 2% of the purchase price — a token that you are legitimately interested in buying the home. Once the earnest money has changed hands, your deal is pending, and it’s time to secure your actual mortgage — and also run a title search, conduct an inspection, and get the house appraised.

At this point, you should certainly talk with the lender that pre-approved you. But you should also check in with one or two other brokers to see if you can get a better deal.

If you buy a home for $500,000, put 20% down, and secure a 30-year fixed mortgage at 4%, you will pay $687,478 over the life of your loan (plus insurance and property tax). That same deal with a 3.75% interest rate lowers your total payment to $666,886 — a savings of more than $20,000 over the life of the loan.

In other words, when it comes to mortgage rates, every decimal counts.

After approaching a few lenders and passing over your information, you will receive loan estimates, which you can then compare to figure out which lender is giving you the best deal. During this process, you may be on the hook for credit report fees, which hover somewhere near $30 per lender. Unfortunately, loan estimates don’t last forever. If you don’t act quickly, your lender may have to adjust the terms as market conditions change. To avoid that, consider securing a rate lock, which gives you the peace of mind that comes with knowing your interest rate won’t change over a determined period of time — 30, 45, or 60 days, and even longer.

Once you’ve figured out which lender you want to work with, the underwriting process begins. Generally, underwriters will require borrowers to conduct an appraisal to ensure the home is worth enough to justify the size of the mortgage loan. (Of course, you’ll be responsible for the appraisal fee; that’s another $300 to $800, depending where you’re buying.)

Hopefully the odds are on your side, and the underwriters agree to approve your mortgage. Should that happen, your interest rate will be locked in from that point forward, and you’ll be that much closer to landing the home of your dreams.

Don’t forget about tax credits

As a first-time homebuyer, you may qualify for a tax credit when you close on a new home. In 2008, for example, first-time homebuyers who took the credit received a tax refund of up to $7,500. In 2021, members of Congress introduced the First-Time Homebuyer Act of 2021, which would revive a similar tax credit. At the time of this writing, that bill still hasn’t become law. This is all just to say that first-time homebuyers need to keep their eyes peeled for potential tax credits from both their state and federal governments.

Closing costs: The first-time homebuyer’s often-overlooked financial enemy

You’ve made an offer, it’s been accepted, and now you’re finally ready to close on the property. Get ready to be hit by a deluge of additional closing costs you might not even be aware exist, including:

  • Loan application fees, which some lenders charge to handle your mortgage application.
  • Attorney fees, which lawyers charge to create contracts and analyze transaction-related documentation.
  • Closing fees, which are paid to the entity that facilitates the closing (e.g., a title company or an attorney).
  • Courier fees, which can be levied if the deal is being done with paper documents.
  • Escrow deposits, including prepaying property taxes, which are often required.
  • Homeowners insurance, which generally needs to be paid up front for the first year.
  • Mortgage broker fees, which can range from 0.5% to 2.75% of the home’s purchase price.
  • Title insurance, which protects buyers in the event a previously undiscovered lien or ownership dispute arises.
  • Origination fees, which cover the lender’s administrative costs and can hover near 1% of your mortgage.
  • Real estate commissions, which can be as high as 6% of the final sale price; luckily, the seller is on the hook for these costs (though they often factor into the sale price).
  • Recording fees, which hover near $125 and may be charged by a town clerk’s office to process the public land records.
  • Title search fees, which range between $200 and $400 and cover the costs associated with ensuring no liens or disputes impact the property you’re buying.

Depending on your unique situation, you might get hit with even more fees than this (e.g., private mortgage insurance)! Very broadly, closing costs range between 2% and 5% of your mortgage. So, if you’re taking out a $500,000 loan, you might be on the hook for an additional $25,000 in closing costs.

This is all to say that, just when you think you’ve wrapped your head around how much your first house will cost, more fees will almost certainly come your way. Be ready.

Right now, I can’t get a mortgage. Am I out of luck?

When your mortgage application is rejected, it’s easy to feel dejected. But all hope isn’t lost. Maybe now just isn’t the right time for you, and that’s perfectly okay. In actuality, being unable to get a mortgage can be a blessing in disguise, particularly if interest rates plummet by the time you’re ultimately ready to afford your first home.

If you’re unable to get a mortgage, it could be because you have a poor credit score or haven’t saved up enough for a down payment. If that’s the case, it might be time to start working on stockpiling money away and improving your credit score (or hiring a company to help you do the same; but that’ll hurt your saving-up-for-a-down-payment plan). While you’re at it, you may want to look into debt consolidation services that can help you refinance your debt and pay it off faster.

Additionally, you also might want to take a look at rent-to-own programs, which give you a path to home ownership even if you can’t get a mortgage right now. Under these initiatives, you can rent a property as a tenant and have the option to buy it when your lease ends. This can be a great way to determine if you actually like living somewhere before making one of the biggest decisions of your life. For those with less-than-optimal credit, this is also a great way to help get your credit back on track while pursuing homeownership at the same time.

Real estate agents: Pros and cons

According to the National Association of Realtors®, 87% of recent homebuyers enlisted the services of a real estate agent or broker during their latest transaction. But not every first-time homebuyer needs to hire an agent. With that in mind, let’s examine some of the top advantages of working with a realtor — and some of the reasons you might prefer to go it on your own.

Advantages of working with a realtor

Faster process

By now, you should have an idea of how complicated the home-buying process is. When you work with an agent, you get to leverage the experience of someone who lives and breathes the process day in and day out. Not only does this help you make a better purchasing decision, it also saves a considerable amount of time.

Market knowledge

In today’s booming real estate market, how can you tell that a property is priced properly? The right real estate agent will know the local market inside and out and can help you identify reasonably priced properties and those that are way above-market. This information can help you avoid making a deal you ultimately regret.

Negotiation skills

Are you ready to negotiate with another real estate agent? Because if you don’t hire an agent of your own, that’s what you’re going to need to do. By joining forces with the right agent, they will negotiate the deal on your behalf. This can help you get a better price or get the seller to include more items in the deal — like that nifty wine fridge or the area rug that really ties the room together.

Networking

Hire an agent, and chances are they will know the agent on the other side of the deal. These personal connections can help deals close smoother. Plus, agents can recommend all sorts of folks you might need to hire during the process — like home inspectors, well inspectors, septic tank companies, real estate attorneys, and more.

Disadvantages of working with a realtor

Commission

One of the biggest downsides of hiring a realtor is paying their commission. Generally speaking, realtors get between 5% and 6% of the deal as a commission, which is split evenly between the buying and selling agent (or pocketed by one agent if they’re working both sides of the deal).

If you go through the process on your own, half of that commission is wiped off the books — or all of it, if you’re buying a for-sale-by-owner (FSBO) property. So, choosing not to hire an agent could help you save a good chunk of money.

Intermediary

When you work with an agent, they communicate on your behalf to the agent representing the seller (or the sellers themselves, in a FSBO scenario). As a result, you’re incapable of directly communicating with the people on the other side of the deal. This could slow the process down considerably. It can also cause a lot of stress as you anxiously wait for an update.

Multiple clients

Unfortunately, when you hire a realtor, you’re not their only client. As such, you might have to get used to waiting. In some circumstances, you might even miss out on a deal because your agent is focused on helping someone else. Who knows? Your agent might even represent a different client in a deal you were interested in. That’s just the way it is.

Misalignment

Not every real estate agent is the same. Unfortunately, some homebuyers learn this lesson the hard way. According to the National Association of Realtors, 73% of buyers only interview one agent before hiring them. If you end up with the wrong agent, they may end up leading you down a path where you end up with a bad deal (e.g., because they care more about their commission than helping you find your dream home).

You can avoid this issue by interviewing a couple agents before deciding who to go with. Keep in mind that, once you sign an exclusivity contract with a realtor, you are bound to only use that agent until you formally cancel the contract. If you enlist another agent before doing so, you may end up in legal jeopardy. Keep in mind you can (and should) try to negotiate down the length of these contracts just in case you aren’t happy with your agent’s representation.

Are you interested in getting free advice from expert real estate agents while earning rewards as you explore buying your first property? HomeApproach has you covered.

What to think about when buying your first home

When you’re buying your first home, you’re obviously going to be interested in the house itself, the property, and what other amenities might exist in the deal (e.g., an in-ground swimming pool or an outdoor sauna). Beyond that, here are some other considerations to keep in mind:

  • Neighborhood. You’re buying more than just a house and the property itself. You’re also buying the neighborhood. Is your ideal home within walking distance of restaurants and bars? Or would you prefer to live near open space so you can hike and enjoy the outdoors? Spend some time studying the neighborhood and make sure it’s somewhere you can imagine living. Also, as a general rule, avoid buying the most expensive house in the neighborhood; it could hurt you down the road.
  • Schools. If you have kids or are planning to, you’ll definitely want to do some research on the local school district to make sure you’re happy with the caliber of education. Even if you don’t have kids, education is highly correlated with property values. According to the National Bureau of Economic Research, property values increase $20 per every $1 spent on education. That being the case, you might want to buy your first home in a community that invests in education.
  • Property taxes. Before you sign any contract, you need to wrap your mind around local property taxes and get a sense of how your potential new town’s taxes have changed over time. In addition to taxes on your home, you may also be on the hook for taxes on motor vehicles and boats you own.
  • Location. Are you happy living out in the sticks or would you prefer living closer to public transportation? Does the local pizza place deliver to the address you’re considering? Is your property close enough to the highway? Only you know the answer to these questions.
  • Town politics. If you’re moving to a new area, spend some time researching the town’s politics and finances. The last thing you want is to move to an area undergoing local scandals or involved in high-ticketed lawsuits that may impact your property taxes moving forward.
  • Starter home. You’re buying your first home. Do you plan on living there for as long as possible? Or might you want to flip your house in a couple years and move into your forever home from there? If you’re buying a starter home, don’t sweat it: You can defer capital gains when you buy your next home by using a 1031 exchange.

My offer was accepted! That means the process is done, right?

Not at all. Once your initial offer is accepted, the fun is just beginning

At this point in the process, you hire a home inspector who will thoroughly examine the property to determine the condition of the nuts and bolts, including the HVAC system, furnace, structural components, electrical systems, plumbing, roof, and chimney, among other things. Inspections cost anywhere between $300 and $1,000 on average, depending where the property is located (hey, look, another hidden cost!).

Once you’ve got the home inspector’s report, it’s time to go back to the seller and ask for additional concessions — or keep the deal as-is, if you don’t mind what the report surfaces.

Keep in mind that the inspector may find something that is a dealbreaker (e.g., the house requires a brand-new foundation and septic tank). Should this happen, you still need to pay the inspector — and, if you continue house hunting, you’ll need to pay the next inspector, too.

Real estate negotiation tips for homebuyers

In most cases, you’re probably best off letting a real estate agent negotiate on your behalf. But if you decide to go it alone, here are a few tips to keep in mind:

  • We’re currently in a seller’s market, so be ready to spend top dollar to close a deal.
  • Even so, you may be able to get a better deal by getting a little creative. For example, using an odd number can make your offer stand out (e.g., $450,000 vs. $451,199), forcing the would-be seller to spend more time thinking about your proposal.
  • Remember, there are two rounds of negotiating: before the initial offer is accepted and after the inspection happens. Once you get a seller to accept the original offer, they’ll become emotionally invested in the deal. If a lot of items come up during the inspection, you may be able to get some significant concessions.
  • Real estate negotiation isn’t just about dollars and cents. You can also ask the seller to add physical items to the deal — like gym equipment, a hot tub, or furniture.

Additional hidden homeowner costs to consider

Suffice it to say that being a homeowner is not an inexpensive endeavor. Here are some other hidden costs to consider:

  • Additional taxes. Your new town or city might levy taxes besides property taxes, like fire district taxes. Make sure you understand the totality of your potential transaction’s tax implications.
  • Homeowners insurance. You’ll need to carry homeowners insurance as long as you have a mortgage. On average, a policy with $250,000 in coverage will set you back $1,383 each year.
  • Utility bills. If you’re moving into a larger space, think about how your utility costs might change. As a best practice, make sure to ask the seller for the previous year’s worth of utility bills (e.g., heating oil, electricity, and water). That way, you can wrap your mind around your future costs.
  • Inevitable repairs. Ask any homeowner and they’ll tell you the same thing: It’s only a matter of time before something major goes wrong at your home. Maybe the AC, furnace, or water treatment system fails, for example. As a new homeowner, you’ll have to cover these costs out of pocket; there’s no landlord to help. To protect against this, you might want to consider a home warranty that will help offset costs and cover gaps in homeowners insurance.
  • Moving costs. Unless you’re planning on hauling all of your belongings from your old place to your new one in your sedan, you’re either going to need to rent a U-Haul or hire professional movers to get you settled in. According to one recent report, movers cost anywhere between $800 and $5,700 depending on how long your move is. Add it to the tab!
  • Time off of work. This might be the most hidden cost of them all. You can’t work when you’re moving. If you’re an employee, that means you’ll need to take vacation days off during the move. If you’re self-employed or a 1099 contractor, you’ll likely have to take several days and miss out on generating income.

Unforeseen challenges for first-time homebuyers

Since it’s your first time through the homebuying process, it’s easy to be blindsided by situations you would never expect to encounter. But over the years, first-time homebuyers across the country have seen it all. Here are some of the unforeseen challenges you might encounter along the way.

Falling in love with a property too soon

First-time homebuyers have a tendency to fall in love with a home way too early. You might see a house you think is awesome, decide to make an offer right then and there, and start thinking about your new life and how you’re going to set up your new space. All of a sudden, your agent calls you to tell you the seller accepted another offer. Just like that, your dream evaporates. Avoid dealing with this emotional rollercoaster by only truly falling in love with a property once you’re living in it.

The seller backs out unexpectedly

Your offer has been accepted, you’ve passed the inspection, and your closing date is getting closer and closer. Then the seller has a change of heart and decides to pull out of the deal, and you’re back to square one. A scenario like this isn’t out of the realm of possibility, so be prepared for it.

Something comes up during the home inspection

One of the most common ways deals fall apart occurs when the home inspection reveals some major problems. You might fall in love with a house only to learn it has a rotten roof, mold in the basement, and a structurally unsound chimney. In some instances, you may be able to work through these serious issues with the seller. In many cases, however, major issues are a dealbreaker because sellers don’t want to budge.

Something comes up after the home inspection

Just because you’ve made it past the inspection doesn’t mean your deal is done. For example, your lawyer may uncover serious issues when doing their due diligence — like a seller who’s trying to hide the fact the property used to have an underground oil tank that leaked and caused environmental damage that needs to be mitigated. Upon learning this information, the attorney would likely recommend you pull out of the deal. How could you not take their advice?

Something crazy happens outside your control

If we’ve learned anything over the last two years, it’s that the world can change drastically overnight. A completely unpredictable event — like the pandemic — can always throw a wrench into your plans. If dividend income represents the lion’s share of your salary, a lender might decide to deny your mortgage application when the market takes a significant turn for the worse. Just remember anything can happen at any time, and there might not be anything you can do about it.

First-time homebuyer mistakes to avoid

Since they’ve never navigated the process before, it comes as no surprise that first-time homebuyers make mistakes. Learn about these common mistakes so you don’t suffer the same fate.

Finding a house before securing a mortgage

Without a mortgage pre-approval letter, it’s impossible to act as fast as possible on a deal. In today’s incredibly competitive real estate market, failing to secure financing before shopping for homes probably means you won’t be first to act — which could cause you to miss out on your dream property.

Not shopping mortgage brokers

Since it’s convenient, many first-time homebuyers choose to do business with the first broker they talk to. But by shopping brokers, you may be able to get a better rate. Over the life of a 30-year loan, a fraction of a percent can really make a huge difference. Be sure to engage at least a couple of brokers before signing a contract with a lender.

Not doing an inspection

There’s a tendency among first-time homebuyers to willingly bypass a home inspection. They’ve fallen in love with the property and think it looks in good enough shape to their untrained eye. A few months after the deal is done, they learn the hard way why inspections are necessary when they need to replace their central air system. While inspections can be pricey, they are always necessary. Skip an inspection at your own risk.

Spending more than you should

Saving up for a down payment and closing costs is one thing. Being able to live comfortably on the other side of your first real estate transaction is quite another. Be smart about your finances, and don’t take on a bigger property than you can truly afford. Always be sure to calculate what your monthly mortgage payment would be to determine your affordability. Here is a free online mortgage calculator you can use to help easily figure it out.

Furthermore, be sure to research what assistance programs might be available to you. First time home buyers can often apply for down payment assistance on the local level through state or city programs. Usually the U.S. Department of Housing and Urban Development (HUD) website is a good place to start (link below in resource section). Grants or no-interest loans are two examples of offerings which may be available to help with down payments and closing costs.

Making decisions based on emotion

It’s all but impossible to go through a real estate transaction without emotion. Unfortunately, many first-time homebuyers let emotion guide their decision-making. This is one area where working with a trusted real estate agent can make a big difference. The right agent can walk you through the process and speak to you through an experienced, knowledgeable, and objective lens.

Additional resources for first-time homebuyers

Since you’ve made it this far, you’re no doubt interested in learning as much as you can about buying your first home. Here are some additional resources you may want to check out:USA.gov | Help Buying a New HomeChase.com | The 28% (Monthly Income) Rule
Bankrate | 5 First-time Homebuyer Loans and Programs
Nerdwallet | First-Time Home Buyer Programs by State
Freddie Mac | Three Pro Tips for First-Time Homebuyers
U.S. Department of Housing and Urban Development (HUD) Housing Assistance

Get advice from a real estate expert today!

At Home Approach, we’re all about helping people like you find free advice from experts on how to navigate the first-time home buying process. While this might be your first time through the process, our experts have helped countless people like you end up in the home of their dreams.

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Real Estate

Lexington Law Review

In recent years, credit repair companies have gained considerable popularity. Many Americans are struggling with bad credit but aren’t sure how to repair their negative credit history.

As a result, they might look to a credit repair service like Lexington Law. This experienced firm is one of the biggest names in the credit repair industry, which means you’ve probably heard of it.

In your search for the best credit repair program, this review hopes to shed some light on one of the most reputable firms out there. We’ll also provide valuable background information on Lexington Law, how customers perceive the company, and an overview of how their credit repair process works.

Lexington Law review: Brief history and overview

The Lexington Law Firm began serving customers in 2004. Based in North Salt Lake, Utah, Lexington Law has another office in Tucson, Arizona. Today, it serves customers in 48 states (not including Oregon and North Carolina) and the District of Columbia.

In addition to credit repair services, Lexington Law also provides personal finance tools and identity protection services.

How does Lexington Law work?

As a credit repair firm, Lexington Law’s lawyers will work with credit bureaus on your behalf to challenge negative items on your credit report, which might include:

  • Collections
  • Late payments on credit card bills
  • Bankruptcies
  • Repossessions
  • Dispute letters
  • Charge-offs
  • Foreclosures
  • Judgments

Due to the Fair Credit Reporting Act, credit bureaus — like Equifax, Experian, and TransUnion — must include only accurate and verifiable information on consumer credit reports. If any items on your credit report fail to meet these criteria or stem from a scam, the bureaus must remove them.

Once the bureaus remove any inaccurate or misleading entries on your report, you should see your credit score improve.

Pros and cons of Lexington Law’s credit repair services

Pros

Easy-to-use smartphone app: A customer-friendly, well-made app that gets outstanding ratings from customers.

Free consultation: Offers a free consultation to new clients, which is valuable to users who want to better understand their financial and credit history.

Transparent fees with no upfront charges: Lexington Law doesn’t charge customers an upfront fee unlike most companies in this field.

Personalized services: Lexington Law assigns a paralegal to each case, allowing you to work with the same person throughout the entire credit repair process.

Credit monitoring available: Lexington Law offers two plans that offer credit monitoring services.

Cons

Relatively expensive: The cheapest plan is $89.95, which can be costly for some consumers.

● No money-back guarantee: Many credit repair companies offer clients a refund if results aren’t up to par (i.e. no removal of negative items). However, Lexington Law doesn’t.

Not BBB accredited: Lexington Law has a relatively low Better Business Bureau (BBB) rating of C.

Unavailable in two states: Lexington Law doesn’t offer credit repair services in Oregon and North Carolina.

Alleged legal violations: In 2019, The Consumer Financial Protection Bureau (CFPB) accused Lexington Law of violating federal laws.

Lexington Law services

Lexington Law offers three packages at different price points and service offerings.

1. Concord Standard

This is the basic plan, which covers the essentials of credit repair. This includes credit repair and credit interventions. Their credit dispute process involves identifying errors on your credit report and requesting the credit bureaus to remove those items.

Under the Concord Standard Plan, Lexington Law will also help you overcome bureau challenges by sending out credit intervention letters on your behalf to lenders and collection agencies. These include goodwill letters and debt validation letters.

The monthly fee for Concord Standard is $89.95.

2. Concord Premier

The Concord Premier plan is useful for customers who need additional help with credit repair. This plan includes monthly analyses and ongoing credit monitoring. Aside from the basic credit repair services, Concord Premier will also include:

● ReportWatch

● Credit Score Analysis

● InquiryAssist

● TransUnion Alerts

The monthly fee for this plan is $109.95.

3. Premier Plus

In addition to basic credit repair services, monitoring, hard inquiry removal, and alerts, Premier Plus provides financial planning services. These include:

● FICO Score Tracker

● Identity Theft Protection Services

● Cease-and-Desist Letters

● Personal Finance Tools

Premier Plus will cost you $129.95 a month.

Is Lexington Law the best credit repair company?

With many years of experience helping consumers repair their credit, Lexington Law has established itself as one of the premier credit repair companies in the country. When you work with the firm, they will help you achieve good credit by conducting a credit repair review and facilitating creditor interventions on your behalf — providing a level of service you simply can’t deliver on your own in a time frame you can’t beat.

For more information on the easiest way to end up with better credit — including contact information, how to get a free credit report, and what a credit consultation is like — visit the Lexington Law website at lexingtonlaw.com.

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Real Estate

10 Important Considerations for Buying a House

A home is perhaps one of the largest investments you’ll ever make, which is why you need to keep important considerations for buying a house top of mind during the house-hunting process.

As a first-time home buyer, whether you’re excited or intimidated about the process, there are several factors you want to consider. After all, no one wants their biggest financial move to be a complete failure.

In your journey towards homeownership, take a look at these 10 things to consider when buying a house — whether its an older home, a starter home, or your forever home.

What to know before buying a house

1. Other people’s opinions and experiences

As you plan to buy your home, you’ll likely hear some thoughts and opinions from several different sources. Whether it’s your family members, friends, or colleagues, you’ll probably hear their “two cents” when it comes to homebuying decisions.

Even though it’s probably not feasible to listen to every single piece of advice, it can be a good idea to hear out the ones who have experience in the homebuying process — particularly a trustworthy realtor.

So, when it comes to deciding whose advice to listen to, turn to people who have worked in real estate before or those who have bought two or more homes. They’re likely to have extensive knowledge about all the important details of the homebuying process.

2. The size of your ideal home

When it comes to choosing the right home for you, find one with the exact space and floor plan you need. In other words, don’t buy a home with a ton of square footage when it’s not necessary. More space means more area to clean and maintain as well as higher utility bills.

To figure out how large your next home should be, look at your current space before you begin the house-hunting process.

For example, are you able to live comfortably with the current number of bedrooms you have? Or do you need more due to certain changes (e.g., a new baby or a work-from-home job)? How large is your kitchen? What about your closets? Do you have functional storage space?

Ask yourself these questions as you’re looking at new homes and attending open houses. Doing so can help you decide on a home with just the right amount of space for your unique needs ready for you when you move in.

3. Your loan approval terms

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Getting pre-approval from a mortgage lender doesn’t mean certain terms are set in stone. However, the terms of the loan can give you an idea about your potential mortgage payment, interest rate, principal, property taxes, and homeowners insurance costs. This will help you come up with a detailed budget for what your monthly payments will look like.

Not only that, but your loan approval numbers can also help you determine how much you possibly need for a down payment. If your down payment is 20% of the total purchase price of your home, you can avoid private mortgage insurance — something that can be particularly helpful in an era of high mortgage rates.

If you can’t find a home that’s within your loan pre-approval limit, or if you can’t afford to put down 20%, then it means you should keep looking because your price range is too high. Don’t forget, you’ll have to pay for closing costs, too, which can be prohibitively expensive.

This is why it’s so important to get pre-approved first before looking at a house. Pre-approval defines your search and helps you determine which properties are a good fit for you to look at. After all, no one wants to fall in love with their dream home only to find out it’s entirely out of their budget because they don’t qualify for a big enough home loan.

If you want to get the best deal possible, you need to have an excellent credit score. If yours isn’t where you’d like it to be, you may want to enlist the services of a credit repair agency.

4. What a home inspection includes

Another homebuying nightmare is purchasing a home that has major issues. This is why inspections are so vital during your home search. Home inspections can uncover a wide range of major problems, including:

● Pest infestations

● Roof damage

● Mold

● Rot

● Water damage

● Lead piping or paint

● Water damage

● Water heater damage

● HVAC issues

● Asbestos

● Improper insulation

● Foundation problems

● …and more

It’s important for homebuyers to be aware of these problems and understand what renovations and upgrades may be necessary before closing on a home.

In some cases, certain issues a home inspector finds might result in a completely different offer that requires the seller to pay for repair costs before closing.

5. The home’s neighborhood

If you’ve decided on a particular neighborhood for your dream home, consider taking a walk through there. Look at your surroundings to get a feel for the homes.

What are the home values in the area? What condition are the houses in? Are the yards well-kept? How’s the landscaping? What about the crime ratings and the school district?

If you don’t like what you’re seeing, or it just doesn’t feel right, chances are it’s a deal-breaker and buying a home in that neighborhood isn’t the best move.

6. The age of appliances

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Another important consideration for buying a home is the age of appliances and systems. From washers and dryers to refrigerators and stoves, the age of your appliances can play a huge part in their overall health, functionality, and lifespan.

So, as you look for your first home, get a bit more information about the age of major appliances. An appliance that’s been in operation for over 10 years could signal a replacement is right around the corner.

Not taking into account the age of a home’s appliances could set you up for heartbreaking, budget-busting replacement costs later on down the line.

7. The home’s location

A home with a long commute to work or school can cause an inconvenience. The same could be true of a house that’s not close to public transportation.

So, if commute is important to you, make sure you consider a home’s proximity to essential places. Look up directions or make the drive yourself to get a sense of traffic and potential routes.

8. The orientation of windows

An often-overlooked factor in buying a home is which way the windows face. The direction your home faces affects the amount of sunlight it gets as well as energy efficiency, heating and cooling costs, home maintenance, energy flow, and more.

While the orientation of windows might not be the most important issue, having them in optimal locations is definitely a nice-to-have.

9. Homeowners Association details

Before you buy a property, you need to determine whether the home you’re interested in is part of a homeowners association (HOA).

If it is, you first need to read through those requirements. Determine how much expenses are and what they cover to see whether it makes sense to you. Look at other rules of the HOA that might affect certain actions — like parking, landscaping requirements, or holiday decorations.

10. Whether there are current offers on the house

So, what are other things to do before buying a house — particularly in a competitive market?

One key action is to check if there are any existing offers. Your real estate agent should be able to help you. If your agent discovers other bids, it could mean you’ll have to make counteroffers. This could be especially true for popular homes on the market.

Enjoy the homebuying process!

Before submitting your offer on a home, make sure you’ve considered what’s included in this checklist.

And remember, take the time you need to find the right home for you and your family. Don’t rush the process.

Instead, have fun through every part of the journey. Looking back, you’ll be glad you did!

Categories
Homeowner Real Estate Windows

Window Replacement: The Best Window Buying Guide

When it comes to replacing the windows in your home, the choices can quickly become overwhelming.

That’s a great thing. But there are a wide variety of styles, materials, glass options, grille styles, custom designs, as well as a plethora of colors and textures to choose from.

With all these options, it can be difficult to settle on the perfect window. To get the most out of your home window search, it helps to know what to look for and what questions to ask.

To help you select the best windows for your needs, here’s a convenient guide to window replacement.

Is it worth it to replace your windows?

Unless your home is a new construction with brand-new windows, it’s likely economical to replace windows that make your home uncomfortable, look outdated, and require a lot of repairs, maintenance, and energy.

Low-maintenance, durable, and energy-efficient replacement windows offer a variety of benefits and can add great value to your home. The benefits of new window installation include adding character to your home, increasing its value, and reducing your energy bills:

Greater energy efficiency: Repairs won’t make your windows more energy efficient even if you can fix them for a short time. You can save money over time and reduce your impact on the environment by using less heating and cooling energy when you install energy-efficient windows in your home, such as those that are certified by Energy Star.

Increased comfort: Swap out your old windows with energy-efficient replacement windows to reduce your energy bills and keep your home comfortable throughout the year. New replacement windows are better insulated than those made 10 years ago, and you can have fresh air flowing into your home anytime with easy-to-open screened replacement windows. Plus, many new windows come with a warranty, so you can rest comfortably knowing your investment is secure.

Superior durability: Through the use of modern technology, various window manufacturers have been able to design windows that last for over 20 years with the right care. It’s a sound investment to upgrade your windows with new ones that will continue to pay dividends for decades to come.

Lower maintenance: Replacement windows come in a variety of styles that are easy to clean from the inside. Replacement windows are very low maintenance so they remain in good working condition for a long time. Painting old wood windows every few years and maintaining them can cost a lot of money and time due to rain, snow, and ice damage. Also, old windows tend to break and are difficult to fix or replace due to their hardware.

Increased home value: With replacement windows, your home becomes more attractive, more secure, quieter, and more energy-efficient, which increases its curb appeal to potential buyers. If you replace your windows, the increase in the value of your home will more than offset the cost.

Improved appearance: Choosing the right windows for your home can refresh its appearance. Whether you are looking for single-hung windows, double-hung windows, or accent windows, you will be able to find them in a variety of shapes, sizes, and frame colors. You’ll also be able to choose between single-pane, double-pane, and triple-pane options. By doing so, you can ensure your new windows will fit the existing openings and give your home the look and comfort you’re going for.

How to budget for replacement windows

The cost of a new window depends on many factors. Window costs are affected by several factors, including brand name, quality, material, and size.

The average cost of replacing a window is between $375 and $800. Window costs can range from $375 for basic vinyl to $1,275 for higher-end wood windows.

A contractor or supplier’s estimate will allow you to determine a specific price. The average prices above, however, can still be used to draw up a rough budget.

No matter how well you budget, you might still find that you can’t afford to replace your windows. Here are some options to consider: credit cards and a home equity line of credit.

Credit cards with introductory zero interest rates can help you finance the cost of new windows for your home. Credit card financing is available at many large home improvement stores.

Use a credit card to pay for your window and make sure you can repay the full amount before the introductory period ends. If you don’t, you’ll be charged full interest on the original balance.

You can also borrow money from your bank using the equity you have built in your home. Typically, home equity lines of credit are large loans that can only be used for specific expenses, such as home improvements or medical bills.

It’s worth noting that you may be able to reduce costs if it a DIY project. But if you want to end up with a high-quality job, hire the experts, like the folks over at Andersen or Jeld-Wen.

Learn about the different types of windows

Head to Home Depot, and you’ll see that you can choose from a wide range of window styles that serve different functions in different rooms and locations of your home.

There are many styles available today, including double-hungs, casements, awnings, bows, bays, egress windows, lidings, skylights, pane windows, storm windows, fiberglass windows, awnings, picture windows, and a wide variety of custom shapes. There are also many window brands to consider, too.

Single-hung and double-hung windows

Most homes have single-hung or double-hung windows. In general, these styles are popular because of their low cost and convenience. Their name comes from the fact that they have two panes, one on top of the other. Most are equipped with a simple locking device and can be opened by lifting the bottom panel and frame in-home.

Additionally, double-hung windows have an adjustable top panel that slides forward and backward. The top panel can be removed in hot weather to provide better ventilation. A double- hung window is also much easier to clean, even if it has grids.

In cases where windows are located above ground level, this is a great solution that eliminates the need for expensive (and dangerous) window-washing services. Single-hung and double-hung windows only differ in this top panel.

Casement windows

Most casement windows swing in or out, as opposed to sliding up or down. There’s less effort involved in operating casement windows because they have a handle.

Casement windows with push-outs don’t use cranks, but they’re not common. Due to the fact that the entire window opens rather than just a section, casement windows provide excellent ventilation as well.

Another advantage of casement windows is their size. When it comes to making a statement, casement windows are one of the best options.

Sliding windows

Sliding windows have one or more panels that slide horizontally along an upper and lower track. You can easily open half the window to allow air to flow through. In contrast to the other quality windows, they aren’t as airtight.

Awning windows

Kitchens and bathrooms are perfect places to use awning windows, since they open at the bottom and hinge at the top. So, they’re the opposite of hopper windows (discussed in further detail below), which open from the top and hinge from the bottom, making them ideal for basements.

Picture windows

The best way to highlight a gorgeous exterior view is with picture windows. Although they don’t open, they can add a great deal of charm to your home. You can think of a picture window as a framed painting on your interior walls. The painting’s subject? Stunning unobstructed views.

Arch and radius windows

Arch and radius windows are extremely versatile. This type of window is characterized by a rounded, half-circle top and a square or rectangular bottom.

You can add soft curves to the design of your home with this type of window because it lets in plenty of natural light through pane glass. Traditional doors and windows also have horizontal and vertical lines that complement each other. You can make a statement by installing an arch radius window over an existing window.

Hopper windows

In the basement, the hopper window reigns supreme. Even though these windows are great in basements, they are also useful in garages and attics, as well as any room that requires light and ventilation.

In addition, it’s a smart choice for spaces that have limited window space because of its inward-opening feature.

Bow and bay windows

Bay windows contain three to five windows at angles of 25 to 45 degrees, while bow windows contain three, four, or five windows at angles of 10 to 15 degrees. Whether you create a reading nook or update an existing one, both window styles make a beautiful focal point for any home.

Whether you have a bow window or bay window, you can add end vents in either double-hung or casement styles. Before you move forward with a replacement project with these windows, be sure to understand installation costs.

Garden windows

A garden window is a mini bay window designed to house plants. The name comes from the fact that they protrude from the inside of your home like a tiny greenhouse. By keeping plants and herbs in the mini shelves, you get sunlight into your home while being able to see them from the outside.

Adding garden windows to a room can make it feel more spacious. In kitchens and living rooms, they can be installed using nail fins with side panels that offer ventilation to the plants.

Custom windows

Custom-built windows are another option if the above options don’t suit your needs. When you order custom-made windows, you have the option to choose the shape, size, and angle of the frame, and you can even ask for low-e glass.

If you want a truly unique look for your home, custom windows are a great choice. Custom windows are, however, generally more expensive than standard windows. Make sure you understand your window replacement costs if you go in this direction.

Get familiar with various frame materials

Choosing the right materials for a window frame can influence its thermal performance and also its thickness, weight, and durability. Standard window frame options include:

Wood: Wood-framed windows are renowned for their aesthetic value. They’re available in a variety of shapes and sizes. Maintaining them properly can extend their life and reward energy-conscious homeowners with high R-values (a measure of thermal resistance).

Wood clad: Wood-clad windows provide warmer interior appearances and superior weather resistance compared to traditional wood-framed windows.

Aluminum: Unlike wood-framed windows, aluminum windows are strong, lightweight, and durable. Aluminum, however, is prone to condensation and mold, which can harm your health.

Vinyl: Vinyl is a low-maintenance, long-lasting window material that resists moisture. Additionally, vinyl windows can be customized in an unlimited number of colors, making them less expensive than wood windows.

Fiberglass composite: Fiberglass composite windows offer the fine appearance of wood but with less hassle. In high heat or freezing cold, they don’t warp, sag, or become brittle.

Composite: A composite window combines plastic with organic materials to create a strong, energy-efficient window, making them popular new-construction windows. You can order custom colors if none of the stock colors appeal to you.

Best practices for buying replacement windows

Almost any large city has an abundance of window companies, which makes the replacement window industry highly competitive.

During the process of replacing your windows, salespeople may mislead you about the amount of money you can keep through energy savings. Unfortunately, not every company is completely honest with its estimates. So, doing your research and shopping around pays off. Here are a few tips to get you started:

Get five or more estimates: Nobody enjoys getting estimates. But they’re really important when it comes to making sure you’re getting the best deal. As you search for replacement windows, be sure to get at least five quotes. A wider range of prices puts you in control. The good news is that getting an estimate for replacement windows is easy. It’s rare for companies to charge for estimates, and salespeople usually work around your schedule.

Know your target: Never let a salesperson tell you which windows need replacing. Even honest salespeople may feel tempted to add a few more windows to the estimate.

Find off-brand windows: Rather than just looking at expensive name brands, ask the salesperson to show you a wide variety of window manufacturers.

Sit on the estimate: Be careful not to act on the estimate right away. Before committing, you may be able to negotiate a lower price. There’s a lot of room for negotiation in this industry.

Consider inexpensive windows: Due to fierce competition among replacement window manufacturers, you can find cheap replacement windows that still meet your needs.

Replacement window construction

A window frame’s material will also have a significant impact on its efficiency. Frames made from vinyl with insulation and fiberglass perform better than those made from wood, wood-clad vinyl, and vinyl without insulation. Compared to any of the other materials, aluminum and steel perform the worst.

As you begin replacing your windows, you need to determine which of the three types of window replacements you’re going to do: sash-only, insert windows, and full-window replacements.

Sash-only: New jamb and sash liners are included in sash-only replacement kits for improved operation and durability. Installation is easy, but they should only be used in windows that are in good shape otherwise.

Insert windows: Often called retrofit windows or inserts, they are installed inside existing window frames. It’s only necessary to remove the window stops and old sashes. The existing moldings, both inside and outside, are not affected. It’s easier, less expensive, and less messy to install inserts if the old frames are in good shape, rot-free, and square. The sills are normally custom-made to match the exact dimensions of the openings and angles of your existing sills. One advantage of retrofit windows is they’re available with tilt-in cleaning.

Full-window replacements: It’s typically necessary to remove all of the existing components of the window before replacing it with a new one, including the casings, frames, sashes, and exterior trim. An old window frame that has deteriorated, is out of square, or a new window style or size can be corrected using this method. In spite of the increased labor, cost, and disruption involved with a full-frame replacement, you can better insulate around the window frame, which is one of the most common places where energy leaks occur. You can spray closed-cell foam insulation between the studs and the window frame after removing the trim. You can also spray it between the studs and the window frame after removing the trim. As an added bonus, no glazing area is lost with full-frame replacements.

Window shopping: Which style and material is right for you?

As you can see, there are many types of windows and materials available on the market, each of which has a different purpose.

While you should consider many factors when choosing your ideal windows, the final selection ultimately depends on your taste, perspective, and understanding of your needs.

Voilà, you now have all the information you need on window replacements for your next home renovation project. Here’s to making the best decisions and adding more value and comfort to your property!

Categories
Real Estate

Top 15 Proven Ways to Earn Extra Cash

The expansion in remote and online working opportunities has made it easier than ever to earn extra cash. Imagine what you would do with a few more hundreds or thousands of dollars every month!

Wouldn’t it be nice to have a side hustle that helps you pay your bills, boost your savings, and cover unexpected expenses?

Keep reading to learn about the top 15 ways to earn extra cash in your spare time without risking your full-time job — making it that much easier to save up for a down payment.

1. Become an online blogger

Do you enjoy writing? Do you have a firm grasp of the English language? If so, you should consider trying your hand at being a blogger — a skill that is in high demand today.

While you can always opt to launch your own blog, you may find it easier to make money writing part-time for other companies. For example, you can go to sites like Fiverr, Upwork, and Craigslist to find opportunities. Do a good job, and you can turn your side hustle into a small business with word-of-mouth referrals.

Word to the wise: Writing for the web is different than writing a college essay. If you need some help, consider taking an online course to learn the ins and outs of blogging.

2. Earn money through online surveys

Your opinion is valuable!

Numerous companies are willing to pay a significant amount of money to learn more about their target audience’s preferences and motivations. If you’re the type of person who loves sharing their opinion, this is one of the best part-time jobs there is.

Individual surveys may take between 10 to 30 minutes, and you can do as many as you wish in one sitting. If you sign up with different companies and complete your allotted tasks diligently, you can earn up to $10 per hour working on your own schedule.

Some of the legitimate survey sites include Branded Surveys, Survey Junkie, Swagbucks, and Opinion Outpost. What’s interesting about this line of work is that you can fill out surveys when you have downtime at other jobs — whether you’re babysitting, petsitting, teaching English, searching for your next gig on Taskrabbit, or waiting to pick someone up for Lyft.

3. Get paid to watch viral videos

Watching viral videos is a great way to make extra money while getting worthwhile entertainment. It might not get you rich but this is among the lowest-effort side gigs you can try. Based on your commitment, the estimated monthly income is $225. But you might be able to earn even more.

If this sounds like a scam, it isn’t. If you’re interested in giving it a try, Inbox Dollars is one of the best companies to work with. It only takes a few minutes to create an account and start earning.

4. Earn through shopping and making deliveries

Did you know you can make money online by shopping for products and delivering them to their respective clients?

If you love shopping and helping others, Instacart might be an excellent place to start. This is a site where you shop for groceries in-person and deliver them.

The best part is that you can work for Instacart in your free time. Instacart pays you within one hour of delivery with an instant cash-out option. Not bad!

5. Get paid to deliver with Uber Eats

If you have a bike, car, or scooter, you can use it to make money right now!

Uber Eats gives you a chance to deliver food to different clients and get paid. All you need is to download their app and upload your documents.

Once approved, you will receive a notification that allows you to start working. When you drive for Uber, there isn’t any supervision, which means you’ll be your boss and you’ll get to keep all your tips.

6. Virtual tutoring

If you have subject matter expertise, you can make a side hassle. Virtual tutoring involves a one-on-one online interaction, and you can have as many students as your schedule allows.

The best places to find online tutoring jobs include VIPKid, Education First, and Chegg. Payments can be hourly or per session. Believe it or not, it’s possible to earn up to $1,000 per month with some commitment.

Not interested in working with kids? You might find success as a virtual assistant, essentially helping executives manage their days.

7. Storage space leasing

Do you have an attic, basement, shed, or underutilized garage? If you’re looking to monetize it, Neighbor.com should be your next destination.

This peer-to-peer (P2P) platform connects people in need of extra space with those that have it. Neighbor.com charges 50% of the total rate per storage unit, which is kind of pricey. Although you will earn less, it’s a great way to generate passive income by doing little or nothing at all.

8. Freelance writing

Multiple high school and college students, employees, and retirees earn extra money through freelance writing.

If you’re interested in being a freelance writer, you might want to check out sites like Textbroker, Upwork, and Steady Content. If your sights are set higher, you may want to check out sites like LinkedIn and look for work there, too.

Not the best writer in the world but still looking for a flexible work-at-home job? If you have the skills, search for graphic design freelance work instead.

9. Freelance editing and proofreading

Freelance editing and proofreading involve selling your grammatical skills. In this role, you only need to go through some written copy and ensure it’s polished before submitting them for publishing.

While you’re at it, you may want to try your hand at transcription. Truth be told, you can make good money being a freelance transcriptionist if you can transcribe things like doctor notes and meeting notes.

10. Shop online and get free gift cards

Recent studies show that around 92% of shoppers buy things from online stores.

However, not many people know that they can earn cash back rewards simply by shopping. For example, Mypoints allow you to earn points for every dollar spent online. You can redeem them for gift cards from more than 75 retailers, including Walmart, Amazon, Etsy, and eBay.  

11. Sell your unused diabetic strips

There are millions of Americans with diabetes today. Cash For Diabetics is a newly launched company willing to pay up to $30 for unused diabetic strips.

If you or someone you know is suffering from the disease, you can stop throwing out unused kits and resell them instead. It’s an easy way to make a couple of bucks while preventing waste.

12. Borrow up to $50,000 and invest in your goals

Taking personal loans could help you fund some important projects in your life upfront — like ditching your boring data entry job and starting your dream dog walking business instead, one that rivals Rover.

If you’re looking for a loan, visit AmOne, which is a legit marketplace for finding loan providers. The operator only requires you to provide a few details of the loans you need, and it intelligently connects you with the perfect lenders.

13. Earn $10 for investing in companies like Amazon, Tesla, and Apple

Regardless of what you might think, you don’t need a lot of money to start investing in companies like Apple, Tesla, Google, and Amazon thanks to Stash, which helps you buy fractional shares for as low as $5.

What’s more, Stash gives you $10 to invest when you make your first deposit of $5 into your portfolio. Head over to the company’s website to get started.

14. Become a user experience tester

All online companies need their websites and applications to run seamlessly. When something is wrong, they call user experience (UX) testers to get their feedback.

If you are web savvy and can easily identify dark patterns and areas where the user journey breaks, you can make money testing software. Reputable companies like TryMyUI and UserTesting will pay you via services like PayPal just for giving feedback.

15. Become an influencer

If you have a large social media following on Instagram, Twitter, or Facebook, you might consider becoming an influencer. Just reach out to your favorite brands and let them know that you wish to work for them. For sponsored content or affiliate marketing, you can check out Amazon Associates and ShareASale.

Don’t have that many followers? Don’t worry. You can always try your hand at being a social media manager in your spare time.

Which side hustle will you choose?

Since you’ve made it this far, you know how you can utilize your free time to earn extra cash. But keep in mind that the above list is by no means comprehensive. From dropshipping, starting a podcast, or being a bookkeeper to designing T-shirts, selling things on sites like Poshmark and Facebook Marketplace, or even renting space out on Airbnb, there’s no shortage of ways to make money.

Ultimately, there isn’t a template you can follow to achieve financial freedom. Everyone is different, and everyone has different skills and interests.

Start thinking outside the box and figure out ways to earn more money on the side. Take our word for it: You’ll be happy you did.