Freddie Mac’s chief financial officer, Christian Lown, notified the company of his intention to resign at the end of this month.
The government-sponsored enterprise (GSE) will “begin the process of identifying a successor,” Freddie Mac said in an 8-K filing with the Securities and Exchange Commission (SEC) on Friday. Lown’s resignation, was was announced on June 5, takes effect June 28.
A spokesperson for Freddie Mac said the enterprise will release updates as they become available but did not provide further details, including the reason for the resignation.
Lown joined the GSE in June 2020 amid plans for the enterprise to exit conservatorship, whichended up not happening.
Previously, Lown was the chief financial officer of Navient Corp., a student loan servicer he joined in 2003, and was a managing director for the financial institutions group at Morgan Stanley.
When Lown joined Freddie Mac, then-CEO David Brickman said in a statement that his background in the debt and equity capital markets, as well as mergers and acquisitions, would be “invaluable” in preparing the enterprise to end the conservatorship.
At that point, the Federal Housing Finance Agency (FHFA) had moved in that direction by issuing a rule that allowed allowing Fannie Mae and Freddie Mac to build capital.
Freddie Mac has faced some recent leadership changes. Its CEO, Michael DeVito, retired in the first quarter of 2024, less than three years into the job.
In March, Freddie Mac announced that its president, Michael Hutchins — a 30-year veteran of the mortgage industry who joined the GSE in 2013 — had been appointed as interim CEO.
Meanwhile, the enterprise continues its search for a permanent CEO.
Freddie Mac reported a full-year profit of $10.5 billion in 2023, a 13% year-over-year increase. The enterprise financed 955,000 mortgages last year, with 56% of eligible loans deemed affordable to low- and moderate-income families.
Average fixed mortgage rates fell slightly this week, with the 30-year rate continuing last week’s dip below 7%.
The average rate on the 30-year fixed-rate mortgage fell to 6.84% in the week ending June 13, according to rates provided to NerdWallet by Zillow, a decrease of five basis points from the previous week. A basis point is one one-hundredth of a percentage point.
Don’t expect rates to change too much anytime soon. The Federal Reserve’s meeting on June 11-12 concluded with a move to leave the federal funds rate — which influences mortgage rates — unchanged at a range of 5.25% to 5.5%. The Fed hasn’t touched this benchmark rate since last July, and it’s currently at a 23-year high.
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Just one rate cut by end of year
The Fed tempered expectations by indicating plans to cut rates just once by the end of the year, down from an estimated three cuts that were anticipated back in March.
“If the economy evolves as expected, the median participant projects that the appropriate level of the federal funds rate will be 5.1% at the end of this year,” Fed Chair Jerome Powell said in remarks following the meeting. He reiterated that these projections are “not a committee plan” and that the Fed would maintain current rates if the economy remains solid and inflation persists.
Among the 19 members of the committee, eight projected two rate cuts by the end of the year, seven projected one, and four projected none at all.
When could a rate cut be coming?
The latest consumer price index from the Bureau of Labor Statistics shows that consumer prices rose 3.3% in May year over year, slightly better than initial projections of 3.4%. The inflation index has been steadily trending downward since September 2022, when it was at a peak of 6.64%.
If data continues to point to cooling inflation, the Fed is more likely to entertain the idea of a rate cut.
Despite inflation hovering above the committee’s target 2%, central bankers noted “modest further progress” toward this goal in their post-meeting press release, along with an opinion that recent job gains and a low unemployment rate point to strong economic activity.
The next Federal Reserve meeting is July 30-31, and more “good data,” as Powell calls it, will need to materialize before consumers can get excited about any future rate cuts.
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A stunning private estate in Weston, MA, has just been listed for $15 million, offering a rare opportunity to own one of the area’s most luxurious properties.
This magnificent Boston-area mansion sits on over 8 acres of conservation land, ensuring that no future neighbors or developers will be changing the current landscape — or causing a ruckus in the future.
Custom-built in 2010, the 14,620-square-foot home has been meticulously maintained by its current owners, who purchased the land back in 2008 for $1,675,000.
Now, for the first time in 16 years, this exquisite home is available for discerning buyers looking for a grand estate in one of Weston’s most exclusive south side neighborhoods — with Jamie Genser of Coldwell Banker Realty holding the listing. And since Jamie was kind enough to give us all the deets on this remarkable property, we’re going to take you on a quick tour of the suburban Boston mansion.
A custom-built, stately mansion
The current owners bought the land back in 2008 for $1,675,000 and built their dream home in 2010. With over 14,000 square feet of living space, 6 bedrooms, and 11 bathrooms, and amenities that range from an indoor basketball court to a massive pool pavilion, the custom-built mansion is made for grand living and entertaining.
Luxurious living spaces
There’s no shortage of eye-catching spaces throughout the house’s generous 14,620 square feet, and most feature elegant finishes like hardwood flooring, French doors, recessed lighting, and coffered ceilings. So let’s take them one by one.
Formal living room
The formal living room, with its elegant arched doors, opens into an expansive dining room capable of seating up to 24 guests. Featuring a custom coffered ceiling, large bay window, and 24-inch mahogany wainscoting, this space is perfect for hosting grand dinners.
Ultra-elegant dining room
Featuring show-stopping design details like coffered ceilings, an arched doorway with double pocket doors to the living room, a custom bay window, and 24″ mahogany wainscoting, the formal dining room seats 20 people and can be extended to seat 24.
It also connects to a butler’s pantry and a back hallway, ensuring seamless service during gatherings.
Chef’s dream kitchen
The kitchen is a chef’s dream, equipped with top-of-the-line appliances and exquisite finishes.
See also: In Brookline, MA, a stately $24.5M mansion has a storied past, an Olympic-sized pool, and a 60-foot underground tunnel
The family room
The adjacent family room, with its circle wood-paneled dome ceiling, includes an oversized gas fireplace and a custom room divider. This room overlooks the pool and opens onto a three-season porch with a herringbone mahogany ceiling and bluestone floor.
Primary suite and additional bedrooms
The serene primary suite offers a sitting room and two dressing rooms, providing a luxurious retreat. Each of the additional five bedrooms comes with its own en suite bathroom, ensuring privacy and comfort for all family members and guests.
Standout entertainment and leisure facilities
While no corner of this house is what we’d call “ordinary”, it’s the entertainment level that truly makes it stand out.
Featuring everything from a game room with a movie theater to an indoor lap pool, indoor basketball court, gym & spa, and a bunk bed room, this level is like a playground for adults.
Indoor lap pool and spa
One of the estate’s standout features is its incredible indoor lap pool.
The 25-yard pool features a jetted hot tub, a waterfall with a mahogany bridge, and a kitchen area with quartz counters and high-end appliances. Access to the pool is available via the lower level or a stainless-steel staircase leading to the family room.
Like being in a snow globe in the winter
The pool area, described by listing agent Jamie Genser as feeling like a “five-star hotel,” includes cathedral greenhouse units with venting skylights, limestone flooring, and Venetian plaster walls.
“I adore the pool area. It feels like a 5-star hotel,” Jamie tells us. “The moment I walk into the pool area, I feel relaxed and calm. I can only imagine what it would be like in the winter. It’s cold and snowy and you are in a snow globe.”
Game room, gym, and movie theater
The entertainment level also includes a game room with a theater, a gym overlooking the basketball court, and a movie theater with fabric sound-absorbing walls, surround sound, a projector with an 8-foot screen, and cove lighting.
The gym features triple impact-resistant windows, adding to the space’s functionality and safety.
The bunk room
The bunk room, which sleeps nine, includes an en suite bathroom with frameless glass showers and mosaic tile accents.
See also: What happened to Aaron Hernandez’s North Attleboro mansion?
Exclusive neighborhood and outdoor features
Situated in one of Weston’s most exclusive south-side neighborhoods, this estate offers the perfect blend of privacy and convenience. The property is located on a private road, surrounded by conservation land and the MWRA reservoir, which offers miles of dog walking and hiking trails.
Despite its secluded feel, the estate is just a short distance from the elementary school, town center, and highway access.
Insights from the house’s real estate agent
Jamie Genser, the real estate agent representing this property, highlights the estate’s exceptional design and thoughtful amenities, while also emphasizing the property’s prime location — that offers privacy, convenience, and proximity to top-notch schools and the town center.
In Genser’s words, “This custom-built home on over 8 acres of land surrounded by conservation land is pretty incredible. The house is large but feels very homey. The materials used in building the house were all top of the line, with thoughtful design throughout.”
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The model proved extremely profitable during the pandemic housing boom as home prices and rents soared amid severe supply shortages. But it has quickly unraveled as the Federal Reserve’s aggressive rate hikes make those leveraged bets unaffordable. “When you’re at a casino, you know what you’re doing is gambling,” said Aleksey Chernobelskiy of Centrio Capital … [Read more…]
Inflation and high interest rates are having a big impact on many of us, including American homeowners. Many have put their plans to buy a new home on hold. Rob Cook, Vice President of Discover Home Loans, joins us to share insights from a recent Discover survey of U.S. homeowners, top trends in the U.S. housing market, and home loan financing options to navigate economic uncertainty.
Across several countries in West Africa, skilled artisans are hand carving furniture and accent pieces, passing down and preserving skills that are slowly being wiped away by mass production.
As the founder of the newly established Roots Décor Co., Iman Abubakar is determined to not only preserve these traditions but introduce them, along with West Africa’s cultural heritage, to a new and wider audience.
Roots Décor, which is based in Naples, Fla., offers highly carved mahogany wall panels, rocking chairs, chests, consoles, armoires and picture frames. The wood is sourced from the roofs of 80 -to 100-year-old colonial buildings that are earmarked for demolition. They are made in a factory in Lagos, Nigeria. Each piece, depending on its size and intricacy, takes about one to three months to produce (their artistry is highlighted on Instagram.) Retail prices range from about $250 for a picture frame to $7,500 for wall décor.
“We try as much as possible to make sure they are one of a kind,” Abubakar said. “We can try to reproduce a piece, but it is never exact because each piece of wood is unique.”
Roots Décor is also committed to empowering local communities. “We get underprivileged kids and kids from local communities that need help,” said Abubakar. “We get them enrolled in a training program where they shadow experienced artisans. After the one-year training program, they can stay or go off on their own.”
Abubakar arrived in Naples, where she has family members, in March, after two years of preparation and planning and just ahead of the first furniture shipment. Her initial plan was to get into furniture showrooms and work with furniture retailers and then return to Nigeria to focus on vocational training and production. “As much as it is a business, that part of it is very important to me,” she said.
But she soon discovered that this heavily carved style of furniture is a little out of step with coastal Florida, although she is confident that it is a look that people in other regions of the country would like. “This is rustic design. However, you can always use it as home accents in a more modern setting,” she said.
She has changed direction and is now reaching out to designers and selling directly to consumers online. She hopes to exhibit at High Point Market in October and might consider Las Vegas.
She is also planning a private gallery exhibition in London in August and a larger one in November with Nigerian-born painter Lanre Olagoke, who was recently awarded the MBE (Member of the Order of the British Empire) by King Charles. His studio and gallery are located on Regent Street. Olagoke, who overcame drug addiction to become a successful artist, founded the Art-Alive Trust which works with vulnerable young adults to develop their artistic skills.
Roots Décor is partnering with Art-Alive to provide vocational training programs.
“We believe this partnership will create lasting positive impacts on the lives of young vulnerable individuals in Nigeria, helping them find their place in society through the power of arts and craftsmanship,” Abubakar said. “We are excited about the possibilities this collaboration brings.”
A cloudy mortgage outlook might cause consternation among lenders, but it is opening the door a bit wider for growth in home equity investments.
A confluence of events over the past few years, including rising interest rates, a dearth of refinances and surging property values are driving some consumers to borrow against home equity. With a spate of securitizations and new issuers recently entering the market, investors are seeing a range of opportunities on offer as a result, coming from both established home equity lines of credit or loans and new alternative credit platforms.
“It will take years and years for the market to recover. And our thought is that even if interest rates were to fall 100 basis points, you’re still not going to see a refi boom,” said Bill Banfield, chief business officer at Rocket Cos.
Rocket Mortgage introduced a closed-end home equity loan in 2022 and has since issued three securitizations backed by its originations, with hopes to at least double that total for the remainder of 2024. The Detroit-based lender rolled out the lien in the same period several other nonbanks launched similar products.
Since that upswing in product offerings, the secondary market has seen a wave of aggregators or originators offering HELOC-backed residential mortgage-backed securities, including Figure, Achieve, JPMorgan and Goldman Sachs all with issuances over the past 12 months. As the number of securitizations increase, it brings with it better pricing.
“In 2022, there was really no liquidity. There was not a secondary market for HELOC or home equity loans. Now that’s materially changed,” Banfield said.
“We’ve gone from taking the leap of faith that we’re going to use portfolio money to do proper risk management around that, to building out a buyer base, to then ramping up our securitization platform,” he said about Rocket’s strategy.
Huge potential — on a theoretical basis While growing, numbers today just represent a tiny slice of the total addressable second-lien market that totals into trillions. In May, ICE Mortgage Technology reported home equity rising to a record $17 trillion in the first quarter this year, but other reports estimate it to be as high as $35 trillion. Home equity totals hit a record high in 2017 and the amount only increased in the years since, according to Vadim Verkhoglyad, vice president and head of research at dv01, a Fitch Rating subsidiary.
“This is a real market, massive, huge,” he said. “It’s a borrower-demand question much more than a supply question at this point.”
According to Clayton, a due diligence solutions provider and reviewer of MBS pools prior to issuance, $12 to $14 billion worth of second-lien products are expected to be securitized in 2024 based on current trends. Volumes have grown by at least threefold in the past three years, the company said.
The rate of growth the market sees depends on what the consumer decides to do. “Borrowers in general, homeowners in America — are just not using that much debt,” Verkhoglyad said.
Although home equity securitizations have existed for years, the growth in issuances coming to market over the past several months may seem like a new development to some in the investment community, leading to hesitation. But the sentiment is largely shifting, as issuers have addressed some of the initial reasons driving investor wariness.
Concerns emerged in some industry offerings that included both closed-end junior loans and HELOCs, according to Banfield. “It made it more difficult to be transparent.”
“The investor has to understand what they’re investing in,” he said.
Rebuilding a market framework and investor confidence With home equity originations languishing for a prolonged period when mortgage rates were at historically low levels, the financial structure supporting the secondary market also had to be created.
“The correspondent relationship had to get redeveloped around second liens,” said Pete Pannes, chief business officer at Covius, parent company of Clayton.
“It was something that had to re-emerge from the credit crisis,” but as those issues have resolved, “I think the market became very efficient,” Pannes said.
“There were entities that came to the table, like our clients, to regenerate capital to put back into the market and go upstream to the originators,” he said, referring to independent mortgage banks and other nonbalance sheet lenders.
Meanwhile, borrower performance also eased worries, according to Kyle Enright, Achieve’s president of lending. Since late 2022, the personal finance company has issued four rated securitizations backed by HELOCs from its home loan unit. Target customers for the HELOCs are concentrated among consumers with credit scores under 700, below the average of American homeowners.
For Achieve’s first securitization, “Nobody really looked at it seriously,” Enright said.
“We basically didn’t talk to almost anybody who was a traditional RMBS buyer because it was just too weird,” he added. But sentiment has shifted as some of the first originations reach their five-year point.
“I think a lot of the questions that investors had back early in the day have been answered for the most part. Other people joining the party has helped us,” Enright added.
HEIs bring something new to the table The growth in home equity is also driving an influx of alternative credit platforms entering the field in recent years, including companies such as Aspire, Button Finance and Easyknock. Through equity sharing agreements with originators, homeowners tap into their appreciating property values for financing needs.
Home equity investment, or HEI, products represent a new frontier for the secondary markets, though, as they are based on what seems like an unfamiliar business model. “It’s not a loan. It’s junior, and you’re living in equity appreciation,” Verkhoglyad said.
HEIs’ recent arrival means much of the industry will be learning about product performance and possible risk in real time, particularly if homeowners end up struggling or face foreclosure.
With the first lien prioritized, “There’s not going to be equity appreciation because you’re taking sales proceeds,” according to Verkhoglyad.
“The servicer is going to advance; they are going to be recouped. Legal fees, they’re going to be recouped. All those things are kind of going into the fold.”
A more significant question in the short-term might be whether HEI volume can build to a point to sustain demand in secondary market trading.
“Where do you consistently find these borrowers?” said Pannes, whose company also provides originations services for companies in the home equity investment community.
“There’s certainly enough equity out there. Can you find those borrowers? Can those borrowers find you to create substantial, substantially sized securities consistently enough, so it’s not a flash in the pan?” he asked.
Still, despite the unanswered questions, HEI securitizations are hitting the market, recently coming from the likes of Unison and Point, which issued its third in mid 2024. Other platforms have publicly announced intentions to issue transactions later this year.
The aggregators and investors drawn to the newer HEI products thus far appear to fit a different profile than purchasers of more established loans.
“We’ve got a set of clients that are your more traditional securitizers and investors that are dealing in closed-end seconds and HELOCs. We’ve got some of the newer folks in the niche for HEI. There is a little bit of crossover but not much to speak of at all,” Pannes said.
Recognition by stakeholders A potentially pivotal point for HEI development in the investment community came with the addition of a ratings methodology by Morningstar DBRS a year ago. Kroll Bond Rating Agency followed with its own in early 2024.
“Based on the feedback we have received from the issuers, rated transactions allow for expanded investor base (and consequently better pricing) as certain investors are mandated to invest only in rated securities,” Morningstar’s leaders and researchers said in a comment.
In an April 2024 primer, the ratings service said it “anticipates continued interest in the features of the HEI product as it is a diversified source of funds for homeowners, as well as an attractive source of returns and diversification for investors.”
The value of a rating assigned to any type of home equity loan pool can be significant, making some attractive to a set of investors who might look for long-term returns based on creditworthiness, Enright said.
“These folks have been there since day one, participating in the AA tranche, buying that AAA slice, and they continue to do so,” he said of Achieve’s issuance history. “I think that appetite is also growing quite substantially,” he said.
Recent developments shone a spotlight on the role home equity liens might end up having in the home finance system, with Freddie Mac’s proposal to potentially purchase some closed-end home equity loans. The controversial plan garnered a range of reactions, with concerns raised that the government-sponsored enterprises might displace current issuers. Some leaders, though, welcomed the likelihood of additional liquidity it would bring should the proposal come to pass.
No resolution appears to currently exist that the entire industry would likely find agreement. Freddie Mac said it intends to make a decision on the proposal in June.
But the suggestion of GSEs participating in the second-lien market points to how recent trends have shifted the conversation within the home finance system, as mortgage originations return at a slower pace than what many lenders would prefer.
The future of the market, though, is not entirely in lenders’ hands.
“We’re still talking about a space that is largely very nascent, and the question of how much it’s going to grow is far more a question of what borrowers want to do than lenders,” said Verkhoglyad.
Inside: Learn what 16 an hour is how much a year, month, and day. Plus tips to budget your money. Don’t miss the ways to increase your income.
You’re probably wondering if I made $16 a year, how much do I truly make? What will that add up to over the course of the year?
Is $16 a living wage?
Is this wage something that I can actually live on? Or do I need to find ways that I can increase my hourly wage?
In this post, we’re going to detail exactly what $16 an hour is how much a year. Also, we are going to break it down to know how much is made per month, bi-weekly, per week, and daily.
That will help you immensely with how you spend your money. Because too many times the hard-earned cash is brought home, but there is no actual plan for how to spend that money.
By taking a step ahead and making a plan for the money, you are better able to decide how you want to live, make sure that you put your money goals first, and not just living paycheck to paycheck struggling to survive.
The ultimate goal with money success is to be wise with how you spend your money.
Knowing 16 dollars an hour is how much a year will help you manage money wisely.
If that is something you want too, then keep reading. You are in the right place.
$16 an Hour is How Much a Year?
When we ran all of our numbers to figure out how much is $16 per hour is as an annual salary, we used the average working day of 40 hours a week.
40 hours x 52 weeks x $16 = $33,280
$33,280 is the gross annual salary with a $16 per hour wage.
As of June 2023, the average hourly wage is $33.58 (source).
Let’s breakdown how that number is calculated.
Typically, the average work week is 40 hours and you can work 52 weeks a year. Take 40 hours times 52 weeks and that equals 2,080 working hours. Then, multiple the hourly salary of $16 times 2,080 working hours, and the result is $33,280.
That number is the gross income before taxes, insurance, 401K, or anything else is taken out. Net income is how much you deposit into your bank account.
That is just above the $32000 salary, which is a lower starter salary, but well below where you want to start about a $43000 salary.
Work Part Time?
But you may think, oh wait, I’m only working part time. So if you’re working part time, the assumption is working 20 hours a week at $16 an hour.
Only 20 hours per week. Then, take 20 hours times 52 weeks and that equals 1,040 working hours. Then, multiple the hourly salary of $16 times 1,040 working hours, and the result is $16,650.
How Much is $16 Per Month?
On average, the monthly amount would average $2,773.
Annual Amount of $33,280 ÷ 12 months = $2,773 per month
Since some months have more days and fewer days like February, you can expect months with more days to have a bigger paycheck. Also, this can be heavily influenced by how often you are paid and on which days you get paid.
Work Part Time?
Only 20 hours per week. Then, the monthly amount would average $1,387.
How Much is $16 per Hour Per Week
This is a great number to know! How much do I make each week? When I roll out of bed and do my job, what can I expect to make at the end of the week?
Once again, the assumption is 40 hours worked.
40 hours x $16 = $640 per week.
Work Part Time?
Only 20 hours per week. Then, the weekly amount would be $320.
Here are jobs that pay weekly.
How Much is $16 per Hour Bi-Weekly
For this calculation, take the average weekly pay of $640 and double it.
$640 per week x 2 = $1,280
Also, the other way to calculate this is:
40 hours x 2 weeks x $16 an hour = $1,280.
Work Part Time?
Only 20 hours per week. Then, the bi-weekly amount would be $640.
How Much is $16 Per Hour Per Day
This depends on how many hours you work in a day. For this example, we are going to use an eight-hour workday.
8 hours x $16 per hour = $128 per day.
If you work 10 hours a day for four days, then you would make $160 per day. (10 hours x $16 per hour)
Work Part Time?
Only 4 hours per day. Then, the daily amount would be $64.
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$16 Per Hour is…
$16 per Hour – Full Time
Total Income
Yearly Salary (52 weeks)
$33,280
Yearly Wage (50 weeks)
$32,000
Monthly Salary (173 hours)
$2,773
Weekly Wage (40 Hours)
$640
Bi-Weekly Wage (80 Hours)
$1,280
Daily Wage (8 Hours)
$128
Net Estimated Monthly Income
$2,117
**These are assumptions based on simple scenarios.
Do you know how many work days in a year you work? This answer may surprise you.
Paid Time Off Earning 16 Dollars an Hour
Does your employer offer paid time off?
As an hourly employee, you may or may not get paid time off.
So, here are the scenarios for both cases.
For general purposes, we are going to assume you work 40 hours per week over the course of the year.
Case # 1 – With Paid Time Off
Most hourly employees, get two weeks of paid time off which is equivalent to 2 weeks of paid time off.
In this case, you would make $33,280 per year.
This is the same as the example above for an annual salary making $16 per hour.
Case #2 – No Paid Time Off
Unfortunately, not all employers offer paid time off to their hourly employees. While that is unfortunate, it is best to plan for less income.
Life happens. There will be times you need to take time off for numerous reasons – sick time, handling an emergency, or even vacation.
So, let’s assume you take 2 weeks off without paid time off.
That means you would only work 50 weeks of the year instead of all 52 weeks. Take 40 hours times 50 weeks and that equals 2,000 working hours. Then, multiply the hourly salary of $16 times 2,000 working hours, and the result is $32,000.
40 hours x 50 weeks x $16 = $33,000
You would average $128 per working day and nothing when you don’t work.
$16 an Hour is How Much a year After Taxes
Let’s be honest… Taxes can take up a big chunk of your paycheck. Thus, you need to know how taxes can affect your hourly wage.
Also, every single person’s tax situation is different.
On the basic level, let’s assume a 12% federal tax rate and a 4% state rate. Plus a percentage is taken out for Social Security and Medicare (FICA) of 7.65%.
Gross Annual Salary: $33,280
Federal Taxes of 12%: $2,994
State Taxes of 4%: $1,331
Social Security and Medicare of 7.65%: $2,546
$16 an Hour per Year after Taxes: $25,409
This would be your net annual salary after taxes.
To turn that back into an hourly wage, the assumption is working 2,080 hours.
$25,409 ÷ 2,080 hours = $12.22 per hour
After estimated taxes and FICA, you are netting $12.22 an hour. That is $3.78 an hour less than what you planned. A very significant amount when managing your money.
This is a very highlighted example and can vary greatly depending on your personal situation. Therefore, here is a great tool to help you figure out how much your net paycheck would be.
Plus budgeting on a just over $12 an hour wage is much different.
$16 an Hour Salary
Now, you get to figure out how much you make based on your hours worked or if you make a wage between $16.01-16.99.
This is super helpful if you make $16.25 or $16.35.
You are probably wondering can I live on my own making 16 dollars an hour? How much rent can you afford on 16 an hour?
Using our Cents Plan Formula, this is the best case scenario on how to budget your $16 per hour paycheck.
When using these percentages, it is best to use net income because taxes must be paid.
In this example, above we calculated $16 an hour was $12.22 after taxes. That would average $2,117 per month.
According to the Cents Plan Formula, here is the high level view of a $16 per hour budget:
Basic Expenses of 50% = $1,058.72
Save Money of 20% = $423.49
Give Money of 10% = $211.74
Fun Spending of 20% = $423.49
Debt of 0% = $0
Obviously, that is not doable for everyone living above the poverty line. So, you have to be strategic in ways to decrease your basic expenses and debt. Then, it will allow you more money to save and fun money.
To further break down an example budget of $16 per hour, then using the ideal household percentages is extremely helpful.
recommended budget percentages based on $16 per hour wage:
Category
Ideal Percentages
Sample Monthly Budget
Giving
10%
$139
Savings
15-25%
$416
Housing
20-30%
$777
Utilities
4-7%
$139
Groceries
5-12%
$211
Clothing
1-4%
$14
Transportation
4-10%
$111
Medical
5-12%
$139
Life Insurance
1%
$14
Education
1-4%
$21
Personal
2-7%
$55
Recreation / Entertainment
3-8%
$83
Debts
0% – Goal
$0
Government Tax (including Income Taxes, Social Security & Medicare)
15-25%
$656
Total Gross Income
$2,773
**In this budget, prioritization was given to basic expenses. Thus, some categories like giving and saving were less.
A great way to lower your transportation costs is to buy a beater car.
Can I Live off $16 Per Hour?
Even living above the minimum wage by $3-4 can be a very difficult situation.
Is it doable? Absolutely.
You just have to be wiser (or frugal) with your money and how you spend the hard-earned cash you have been blessed with.
A lot of times when people are making under near the minimum wage mark or slightly above, they feel like they are in this constant cycle that they can never keep up. They are not good enough to make more money. Feel like they are constantly struggling to keep up with bills and expenses. And things just keep adding on top.
You need to do is change your money mindset.
This is what you say to yourself… Okay, this is my season of life right now. I have aspirations and goals to change how much I make, but for now, I am going to make sure that I am able to live on my 16 dollars per hour. No going into debt for me.
In the next section, we will dig into ways to increase your income, but for now, is it possible to live on $16 an hour?
Yes, you can do it, and as you can see it is possible with the sample budget of $16 per hour.
Living in a higher cost of living area would be more difficult. So, you may have to get a little creative. For example, you might have to have a roommate. Move to a lower cost of living area where rent is cheaper.
Also, you must evaluate your “fun spending” items. Many of those expenses are not mandatory and will break your budget. You can find plenty of free things to do without spending money.
5 Ways to Increase Your Hourly Wage
This right here is the most crucial section of this post.
You need to figure out ways to increase your hourly income because I’m going to tell you…you deserve more. You do a good job and your value is higher than what your employers pay you.
Even an increase of 50 cents to $16.50 will add up over the year. An increase to $17 an hour is even better!
1. Ask for a Raise
The first thing to do is ask for a raise. Walk right in and ask for a raise because you never know what the answer will be until you ask.
If you want the best tips on how specifically to ask for a raise and what the average wage is for somebody doing your job, then check out this book. In this book, the author gives you the exact way to increase your income. The purchase is worth it or go down to the library and check that book out.
2. Look for A New Job
Another way to increase your hourly wage is to look for a new job. Maybe a completely new industry.
It might be a total change for you, but many times, if you want to change your financial situation, then that starts with a career change. Maybe you’re stressed out at work. Making $16 an hour is too much for you and you’re not able to enjoy life, maybe changing jobs and finding another job may increase your pay, but it will also increase your quality of life.
Many low stress jobs after retirement pay in this range.
3. Find a New Career
Because of student loans, too many employees feel like they are stuck in the career field they chose. They feel sucked into the job that they don’t like or have the potential they thought it would.
For many years, I was in the same situation until I decided to do a complete career change. I am glad I did. I have the flexibility that I needed in my life to do what I wanted when I needed to do it. Plus I am able to enjoy my entrepreneurial spirit.
4. Find Alternative Ways to Make Money
In today’s society, you need to find ways to make more money. Period.
There is no way to get around it. You need to find additional income outside a traditional nine to five position or typical 40 hour a week job. You will reach a point where you are maxed on what you can make in your current position or title. There may be some advancement to move forward, but in many cases, there just is not much room for growth.
So, you need to find a side hustle – another way to make money.
Do something that you enjoy, turn your hobby into a way to make money, turn something that you naturally do, and help others into a service business. In today’s society, the sky is the limit on how you can earn a freelancing income.
5. Earn Passive Income
The last way to increase your hourly wage is to start earning passive income.
This can be from a variety of ways including the stock market, real estate, online courses, book sales, etc. This is where the differentiation between struggling financially and being financially sound.
By earning money passively, you are able to do the things that you enjoy doing and not be loaded down, with having a job that you need to work, and a place that you have to go to. And you still make money doing nothing.
Here is an example:
You can start a brokerage account and start trading stocks for $50. You need to learn and take the one and only investing class I recommend. Learn how the market works, watch videos, and practice in a simulator before you start using your own money.
One gentleman started with $5,000 in his trading account and now has well over $36,000 in a year. Just from practice and being consistent, he has learned that passive income is the way for him to increase his income and also not be a slave to his job.
Tips to Live on $16 an Hour
In this last section, grasp these tips on how to live on $16 an hour. On our site, you can find lots of money saving tips to help stretch your income further.
Here are the most important tips to live on $16 an hour. Highlight these!
1. Spend Less Than You Make
First, you must learn to spend less than you make.
If not you will be caught in the debt cycle and that is not where you want to be. You will be consistently living paycheck to paycheck.
In order to break that dreadful cycle, it means your expenses must be less than your income.
And when I say income, it’s not the $16 an hour. As we talked about earlier in the post, there are taxes. The amount of taxes taken out of your paycheck is called your net income which is $16 an hour minus all the taxes, FICA, Social Security, and Medicare are taken out. That is your net income.
So, your net income has to be less than your net income.
2. Living Below Your Means
You need to be happy. And living on less can actually make you happier. Studies prove that less is better.
Finding contentment in life is one thing that is a struggle for most.
We are driven to want the new shiny toy, the thing next door, the stuff your friend or family member got. Our society has trained you that you need these things as well.
Have you ever taken a step back and looked at what you really need?
Once you are able to find contentment with life, then you are going to be set for the long term with your finances.
Here is our story on owning less stuff. We have been happier since.
Learn how to live below your means.
3. Make Saving Money Fun
You need to make saving money fun. If you’re good, since you must keep your expenses low, you have to find ways to make your savings fun!
Find new ways of saving money and have fun with it.
Even better, get your family and kids involved in the challenge to save money. Tell them the reason why you are saving money and this is what you are doing.
Here are things to do with no money. Free activities without costing you a dime. That is an amazing resource for you and you will never be bored.
And you will learn a lot of things in life you can do for free. Personally, some of the best ones are getting outside and enjoying some fresh air.
4. Make More Money
If you want if you do not settle for less, then find ways to make more money. If you want more out of life, then increase your income.
You need to be an advocate for yourself.
Find ways to make more money.
It could be a side hustle, a second job, asking for a raise, going to school to change careers, or picking up extra hours.
Whatever path you take, that’s fine. Just find ways to make more money. Period.
Here are the best ways to make money online for beginners!
5. No State Taxes
Paying taxes is one option to increase what you take home in each paycheck.
These are the states that don’t pay state income taxes on wages:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
It is very interesting if you take into account the amount of state taxes paid compared to a state with income taxes.
Also, if you live in one of the higher taxed states, then you may want to reconsider moving to a lower cost of living area. The higher taxes income tax states include California, Hawaii, New Jersey, Oregon, Minnesota, the District of Columbia, New York, Vermont, Iowa, and Wisconsin. These states tax income somewhere between 7.65% – 13.3%.
6. Stick to a Budget
You need to learn how to start a budget. We have tons of budgeting resources for you.
While creating a budget is great, you need to learn how to use one.
You do not have to budget down to every last penny.
You need to make sure your expenses are less than your income and you are creating sinking funds for those irregular expenses.
Budget Help:
7. Pay Off Debt Quickly
The amount that you pay interest on debt is absolutely absurd.
Unfortunately, that is how many of these companies make their money from the interest you pay on debt.
If you are paying 5% to even 20-21% or higher, you need to find ways to lower that debt quickly.
Here’s a debt calculator to help you. Figure out your debt free date.
Make that paying off debt fast is your target and main focus. I can tell you from personal experience, that it was not until we paid off our debt that we finally rounded the corner financially. Once our debt was paid off, we could finally be able to save money. Set money aside in separate bank accounts and pay for cash for things.
It took us working hard to pay off debt. We needed persistence and patience while we had setbacks in our debt free journey.
Jobs that Pay $16 an Hour
You can find jobs that pay $16 per hour. Polish up that resume, cover letter, and interview skills.
Job Search Hint: Always send a written follow-up thank you note for your interview. That will help you get noticed and remembered.
First, look at the cities that require a minimum wage in their cities. That is the best place to start to find jobs that are going to pay higher than the federal minimum wage rate. Many of the cities are moving towards this model so, target and look for jobs in those areas.
Possible Ideas:
Administrative assistant
Customer service representatives
Housecleaning specialist
Delivery drivers
Bus drivers
School Paraeducators
Warehouse workers
Companies that pay more than $16 per hour:
Target
In-N-Out Burger
Whole Foods
McDonald’s
Macy’s
Advance Auto Parts
Whataburger
Most local grocery chains
Many hotels
Charter Communications
Wells Fargo
Bank of America
JP Morgan
most local schools
Plus many more in HCOL areas only!
$16 Per Hour Annual Salary
In this post, we detailed 16 an hour is how much a year. Plus all of the variables that can impact your net income. This is something that you can live off.
How much is 16 dollars an hour annually…
$33,280
This is slightly over $33,000 per year. Consequently, we highlighted ways to increase your income as well as tips for living off your wage.
Use the sample budget as a starting point with your expenses.
You will have to be savvy and wise with your hard-earned income. But, with a plan, anything is possible!
Learn exactly how much do I make per year…
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Hello! Today, I have a great debt payoff story to share from Davina (from the blog Davinas Finance Corner). Here’s how Davina went from being in payday loan debt for 1.5 years to being debt-free, saving over $50,000 and building a five-figure investment portfolio. Enjoy! In this post, I will share how being stuck in…
Hello! Today, I have a great debt payoff story to share from Davina (from the blog Davinas Finance Corner). Here’s how Davina went from being in payday loan debt for 1.5 years to being debt-free, saving over $50,000 and building a five-figure investment portfolio. Enjoy!
In this post, I will share how being stuck in payday loan debt for 1.5 years completely changed my relationship with money. I will detail how I saved over $50,000, became debt free and built a five-figure investment portfolio.
I’ll talk about the mistakes I made, the lessons I learned, and the crucial changes that helped me turn my financial life around.
I understand that many people struggle with their finances and I want to share my story to inspire you.
I want to show you that no matter how bad your situation may seem, you can make changes and achieve your goals. You don’t have to deprive yourself, it’s possible to create a plan that works for you and still enjoy life.
Related:
My Story
I grew up in a single-parent household with my mum and older brother and we did ok. We had everything we needed but I was aware that we were a low-income household.
My friends had the latest name-brand shoes and clothes, but my mum couldn’t afford to buy those things for us. FOMO is real when you’re in school so I felt it.
I remember thinking when I get older I want to create a life for myself where I don’t have financial restrictions.
When I was younger I was actually good at managing my money. My mum drilled the importance of saving into my head, so when I got my first job that is what I did.
I had a part-time retail job while I was a college student and we were paid weekly. Each week I would calculate my hours to work out how much I would be paid and plan my spending.
You would think that I was destined to have a good relationship with money but somewhere along the way, my good money habits got lost.
How I got into debt
I got my first credit card when I was 18, I didn’t need it for any particular reason I just signed up because the bank offered it to me. When I received it in the mail I didn’t use it, it was just sitting there.
Then a few months later I was made redundant from my job so I activated the credit card and used it to maintain my lifestyle. This was my first mistake.
I was unemployed so I had no money to repay the balance, but I wasn’t thinking about that. All I cared about was maintaining my lifestyle which consisted of socialising with friends.
Eventually, I got another job and was back on my feet but I didn’t pay off the credit card I just ignored it. For a very long time!
A few years later I turned 21 and wanted to buy a car but instead of saving up for it, I decided to get a loan. So I took out the loan, bought a second-hand car and less than a year later I was made redundant again!
I didn’t have any savings (clearly I didn’t learn from the past) so I was back to square one. I was unemployed, but this time I had $6,200 debt ($2,000 credit card, $1,200 overdraft and $3,000 loan). The banks were chasing me for payment but I told them I wasn’t working and ignored the payment demands.
The final debt I incurred was the worst. It was a few years later and I had a good job. I was making decent money for someone in their 20s who still lived at home and my expenses were low.
I was living life and having fun, but that fun was expensive. Every weekend I was out with friends. We were going out to clubs, dinners, concerts, festivals and going on holidays.
I was living paycheck to paycheck and still didn’t have any savings so if I ran out of money I had to borrow it from family or friends. Some months were ok and I could get by, but it was tight. Then one month I made a terrible mistake.
It was the week between Christmas and New Year’s and I was broke. We were paid a week early and I had spent all my money on Christmas presents and festivities.
My cousin asked me to go out, I had no money so I should have said no. But instead, I said yes and I took out a payday loan. I received the money instantly so I got ready and went out.
The next month the company took the loan repayment plus a lot of interest from my account so I was broke again. But it was my birthday month so I got another payday loan so I could fund my celebrations.
The next month, the same thing happens. The loan repayment was taken so I took out another loan to get by and this cycle continued for the next 1.5 years!
Every month once I repaid the loan I was left with no money. I had no savings to fall back on and I had debts that I had ignored for years so I was stuck.
At this point, I started to feel the weight of the mistakes I had made (finally). Every month I was worried about how I would get by. I felt embarrassed and stressed. I also felt disappointed with myself because I was making decent money and I knew better.
So I finally decided to do something about it. I needed to figure out a way to get out of the hole I had been digging myself over the past few years.
I Got Help
I did a Google search to try and find some resources. I found a debt charity that could help so I called them up and explained my situation.
We went through all of my debts explored my options and agreed the best option would be to go on a debt management plan.
The way this worked is I would make a monthly payment of what I could afford to the charity and they would distribute it among all of my creditors.
This wasn’t going to pay off my debt fast, in fact, it barely made a dent in the balance. But it was a step in the right direction and it would stop the creditors from chasing me and ease my stress.
A Lucky Break
Side note: Have you read The Alchemist? If you haven’t I highly recommend you do. In the book, there is a quote that says “When you want something the universe conspires in helping you achieve it.” That is what this lucky break felt like.
The following year I found out I was being made redundant again! (Clearly, I have bad luck with jobs lol) But this time I was going to receive a payout. Initially, I was excited and thought yes big payout I can use the money to buy a new car.
But the whole process took about three months and during that period I had time to think. And I decided to use the money to pay off some of my debt and save the rest.
At this point, I didn’t want to make the same mistakes and I knew that I needed to build up my savings and change my spending habits.
Once I received the redundancy payment I stuck to my plan and repaid the payday loans and the overdraft and I put the rest in my savings account.
Debt recap:
Credit card – $2,000
Loan for the car – $3,000
Overdraft $1,200
Payday loans – $3,600
Total debt = $9,800
Redundancy payment = $7,000 – $4,800 towards debt and – $2,000 in savings – $200 to spend on myself.
Remaining debt = $5,000
I wasn’t completely debt-free at this point, but I reduced my debts and finally had some money in savings. I got a new job shortly after and every month I made sure I contributed to my savings.
I was determined to change my relationship with money so I tried to learn as much as I could about personal finance. Once I applied my learnings I was able to pay off all my debt, completely change my relationship with money and save over $50,000.
How I paid off my debt and saved over $50k
To put things in perspective, I work in Finance and make decent money but I’m not well off. I did get a lucky break with the redundancy payout which I am very grateful for. But it wasn’t enough to pay off all my debts. And it took me about 3 years to save this money.
The most important thing I did to help me was to educate myself about money, change my money mindset and create a plan that worked for me.
Below, I will share the steps I took to get there.
Changed My Mindset
Before I received the redundancy payment I had a reality check. I had to admit to myself that I was living above my means and I had to take responsibility. No one was going to save me I had to make changes to get out of this mess.
I looked at the facts and thought to myself I make decent money so there is no reason I can’t build up my savings and spend money on things I enjoy. But I needed to learn how to manage my money and stop letting my money manage me.
This meant making changes to my lifestyle and sometimes saying no to social invitations. I didn’t like the way I felt when I was stuck in the payday loan cycle so I was committed to this new journey.
If you’re in a similar situation the first step is to understand what got you to where you are. Once you understand this you can put things in place to help you improve.
I Educated Myself About Money
Now that I was committed to making changes I started to research how money really works. I wanted to understand how people manage their money, learn healthy money habits and implement them into my life.
I started to listen to podcasts and watch finance YouTube videos and came across a lot of people who were once in debt but managed to create financial freedom.
This was super helpful for me because they were regular people who managed to change their circumstances and they were sharing the blueprint.
I also started reading books about money. I read the classic personal finance book Rich Dad Poor Dad I also read The Psychology of Money and The Millionaire Next Door. Here is what I learned from all of the information I consumed.
To create financial stability or financial freedom you need to do the following.
Stick to a budget
Live below your means
Avoid spending money on liabilities
Find ways to grow your money
Invest in yourself
One thing I did and I recommend others do the same is I took the information I learned and adjusted it to fit my lifestyle. I didn’t take everything I heard and copy it. Instead, I used it as inspiration. Personal finance is personal so always do what works best for you.
For example, investing in the stock market was highly recommended, but I wasn’t ready at the time. So I focused on saving instead but I made sure I used a high-yield savings account. This way I could earn interest so money was still growing.
Here are the YouTube channels that I learned the most from:
Nischa
Jennifer Thompson
Earn Your Leisure
I Got My Priorities In Order
My number one priority on this journey was to build up my savings. I understood that aside from my poor spending habits not having money set aside led me to get into debt. So that is what I focused on.
I didn’t have a specific amount I wanted to save, I just wanted to have a cushion to fall back on. So every month when I got paid I made sure I contributed to my savings. I started off small but once I changed my spending habits and cleared all my debt I was saving about 50% of my income.
Looked at My Spending Habits
My spending habits were the biggest factor for me so once I committed to repaying my debt through the charity I knew that I needed to make some changes and get my spending under control.
I got my bank statements, looked at my spending over the last few months and used an Excel spreadsheet to categorise everything.
Most of my money was being spent on eating out, takeaways, shopping and socialising. The most shocking part for me was the amount of money I was spending on food.
I was spending over $300 a month on eating out with friends and takeaways! I knew I was spending too much, but seeing the actual number was the wake-up call I needed.
This was something I could change so I started planning my meals and doing weekly grocery shopping. Having my meals planned saved me so much money because at meal times I didn’t have to overthink about what to eat. And it helped me reduce the amount of takeaways I was eating. I also cut back on going to dinner with friends.
I didn’t change everything at once, I focused on the areas that made the biggest difference and over time I made more changes. It can be overwhelming to change everything at once so you can start small and build up over time.
Once I started to see improvements like having money left over in my account before payday and seeing my savings build up I was hooked and wanted to keep going.
Created a budget
I knew that I needed to create a budget to help me manage my spending. But it had to be the right budget for me.
I didn’t want to be rigid and stop doing the things I enjoy. I believe in balance and knew that if I restricted myself I wouldn’t stick to it.
So I thought about the things that I valued and found a way to include them in my budget. For me, those things were travelling, going to the theatre and having dinner with friends.
I sat down at my laptop and put all of my numbers in an Excel sheet. It looked a bit tight but I knew if I made some changes I could make it work.
I Made Some Changes
I looked at my monthly direct debits and subscriptions and got rid of what I didn’t need. I was paying $90 for a gym membership that I was hardly using so I cancelled it.
I had cable for over a decade but I found a cheaper TV alternative so I made the switch.
Once my phone contract expired I switched to a SIM-only contract and saved $50 a month.
To optimise my budget, I paid any bills I could upfront instead of on a monthly basis. This included bills like car tax and insurance and Amazon Prime. By doing so I was able to take advantage of discounts offered by providers as an incentive for full payment. And it meant I had fewer expenses every month.
Doing weekly grocery shopping was working well for me, but I was spending about $250 a month which is a lot for one person. So I fined-tuned my grocery items and switched to a cheaper grocery store which saved me over $100 a month.
I also signed up for a loyalty card at the grocery store so I would get discounts and collect points when I was shopping.
I gave myself a monthly personal allowance to spend on fun so I was still able to do the things I enjoyed, I just did it within a budget. And once that allowance was finished so was my fun for that month lol I used a separate bank card for this allowance to help me stay accountable.
I created a sinking fund for my holidays and I made sure I saved a portion of my paycheck every month no matter what. I treated it like a bill.
Another change I made was I started working as an independent contractor which increased my income by about $20,000 a year. I was doing the same job, I just figured out a way to work smarter.
Even though I was making more money, I didn’t increase my spending, instead, I increased my savings. This is one of the best tips I can give to avoid lifestyle creep.
Once I started seeing the impact of these changes I became obsessed. I turned into a savvy spender and was always looking for ways to spend smarter and save money.
At this point, I was managing my money well and my spending habits were under control. So I finally called up the debt collectors and agreed to repay the rest of my debt in equal payments over 6 months. I was so happy and relieved when I made the final payment!
I put my money in places to grow
Once I paid off the rest of my debt and had saved up about $20,000 I knew the next step was to invest my money. So I did more research and decided the best option for me was to invest in index funds.
I am risk averse so I took a long-term approach and committed to investing an amount I could afford consistently every month. I also put my savings in a high-yield account so I was earning interest on my savings.
I was able to do this because I finally had some room to breathe in my budget. I wasn’t living paycheck to paycheck. Also, my mindset and my priorities had changed.
It Worked
By the middle of 2023, I was completely debt-free, had $54,000 in savings and had built a five-figure investment portfolio. It wasn’t easy, but I am proud of myself because I came a long way.
Upon reflection, I am grateful for the lessons I learned because they completely changed my relationship with money. It also helped me learn to prioritise spending money on things I value instead of material things.
I love to travel and now I can afford to travel at least twice a year. I have been on some amazing trips and I am looking forward to many more.
This money journey also taught me that sometimes less is more. Now I buy less stuff because I am content with what I have. I only buy what I need and I feel lighter and more free.
Here is a picture of me in Thailand. I felt so happy on this trip because I could afford to do the things I enjoy and wasn’t stressing about money.
Future Plans
I plan to use some of the money I have saved to buy an investment property because I understand the importance of buying assets. And I will continue to invest in the stock market. I am also working on my blog davinasfinancecorner and hope to monetise it this year.
Having financial stability is priceless and it has given me more options. I am intrigued by digital nomads at the moment so we’ll see where the future takes me 🙂
Do you have debt? Do you have a plan to pay it off?
Author Bio: Hey there! I’m Davina. I have worked in accounting and finance for over a decade and have learned the best ways to budget, save and make more money. Now I have created Davinas Finance Corner to help you do the same. I have experienced first-hand the struggle of being in debt, living paycheck to paycheck and not having enough money to do the things I enjoy.
I didn’t like that feeling so I was determined to break free from that cycle and change my circumstances. Once I applied the principles I learned from my career in accounting and personal finance I was able to pay off my debt, save my first $50,000 and build an investment portfolio.
Through my blog, I aim to empower women to take control of their finances, build wealth and work on their personal growth. Whether it is finding ways to save more, make extra money or improve yourself I am here to provide information to help you on your journey.
A mortgage commitment letter is a step beyond prequalification and preapproval and could give a homebuyer an edge in a competitive market. It lays out the loan details and indicates that a buyer has an agreement for a mortgage.
But who should obtain a mortgage commitment letter and when? Let’s take a look at those answers and more.
What Is a Mortgage Commitment Letter?
A mortgage commitment letter — conditional or final — is a step closer to finalizing a mortgage but short of “cleared to close.” The letter signals to the seller that the buyer and a chosen financial institution have forged an agreement.
Buyers may seek a conditional mortgage commitment letter when they’re house hunting, and a final commitment letter when they’re ready to make an offer on a specific home.
In both types of loan commitments, the lender outlines the terms of the mortgage.
Recommended: Buying in a Seller’s Market With a Low Down Payment
Types of Mortgage Loan Approvals
In the mortgage loan process, buyers will hear “approval” thrown around a lot. But not all approvals are built equally, and each type signifies a different part of the process.
Prequalification
Getting prequalified is often an early step for buyers in the home search. It’s quick, can be done online, and doesn’t require a hard credit inquiry.
To get prequalified, buyers provide financial details, including income, debt, and assets, but no documentation, so this step serves as an estimate of how much home they can afford.
Prequalification can help buyers create a realistic budget, but the amount, interest rate, and loan program might change as the lender gets more information.
Preapproval
Preapproval is slightly more complicated, requiring a hard credit inquiry and documentation from the buyer. Lenders may ask for the following:
• Identification
• Recent pay stubs
• W-2 statements
• Tax returns
• Activity from checking, savings, and investment accounts
• Residential history
Armed with this information, a lender will give buyers a specific amount they’ll likely qualify for.
Preapproval also shows sellers that a buyer is serious about a home, as it means a lender is willing to approve them for a mortgage.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Conditional vs Final Commitment
Prequalification and preapproval can be important steps during the home search. But especially in a seller’s market and in certain cities, the mortgage commitment letter can become an important tool.
While a mortgage loan commitment letter can show a seller that the buyer is serious, not all letters are the same.
A conditional mortgage approval letter, the most common type, means that the lender will approve buyers as long as they meet certain conditions.
Conditions could include:
• No change to the buyer’s finances before the closing date
• Proof of funds to cover the down payment and closing costs
• Passing of a home inspection
• An appraisal
• Proof of homeowners insurance
• No liens or other problems with the property title
A final commitment letter means the lender has unconditionally approved the buyer for a loan to purchase a home. However, this doesn’t mean the buyer is guaranteed a loan; it just means the lender is ready to approve the mortgage.
Having a mortgage commitment letter in hand is a good way to ensure that nothing will go wrong during underwriting.
Recommended: See Local Housing Market Trends by City
How to Know If You Need a Mortgage Commitment Letter
Buyers don’t need to provide a mortgage commitment letter to a seller. Still, that extra step beyond preapproval indicates how serious they are about a property.
Since it may require a little extra work, it shows sellers that a buyer is less likely to back out, especially due to financing issues.
A mortgage commitment letter could convince a seller to take a buyer more seriously in a seller’s market. And it could calm the nerves of buyers who face home-buying angst, including the challenge of covering a down payment and closing costs (even if they plan to roll closing costs into the loan).
How to Get a Mortgage Commitment Letter
Getting a mortgage commitment letter might sound like a hassle during an already stressful home-buying process, but doing so could save buyers time and provide a sense of relief as they creep closer to closing.
First off, buyers will need to be preapproved. If they have chosen a home, once under contract, their lender or underwriter will want more information, which may include:
• A gift letter if another party is helping with the down payment
• Employment verification
• Explanation of any late payments
• Proof of debts paid and settled
From there, it could be a back-and-forth between the lender and buyer, with the lender asking for clarification or additional documentation. Common issues that arise include:
• Tax returns with errors or inconsistencies
• Unexplained deposits into buyer bank accounts
• Multiple late payments or collections on a credit report
• Unclear pay stubs
At this point, the lender may grant a conditional commitment letter, with the caveat of additional information and an appraisal. If the buyer has an appraisal and meets lender expectations with documentation, they’re likely to get a final commitment.
Contents of a Commitment Letter
A commitment letter will vary from lender to lender but generally include the following details:
• Loan amount
• Loan number
• What the loan is for
• Mortgage loan term
• Type of loan
• Lender information
• Expiration date of the commitment letter
What happens after the commitment letter? The lender and underwriter will continue to iron out the mortgage details, aiming for cleared-to-close status before the closing date on the property.
The Takeaway
A mortgage commitment letter is like a short engagement before the wedding: It signals an agreement before the real deal. Buyers in an active seller’s market might find a mortgage commitment letter advantageous.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How long does it take to get a mortgage commitment letter?
It typically takes 20 to 45 days to get a mortgage commitment letter. The average closing process takes 50 days.
Does a mortgage commitment letter expire?
Yes.
How long is a mortgage commitment letter valid?
Timing can vary by lender, but the length of commitment is typically 30 days.
Photo credit: iStock/MartinPrescott
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