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We’re currently in a strange sort of housing crisis where existing homeowners are in a fantastic spot, but prospective buyers are mostly priced out.
The issue is both an affordability problem and a lack of available inventory problem. Namely, the type of inventory first-time home buyers are looking for.
So you’ve got a market of haves and have nots, and a very wide gap between the two.
At the same time, you’ve got millions and millions of locked-in homeowners, with mortgages so cheap they’ll never refinance or sell.
This exacerbates the inventory problem, but also makes it difficult for mortgage lenders to stay afloat due to plummeting application volume.
The solution? Offer your existing customers a second mortgage that doesn’t disturb the first.
Loan Servicers Want to Do More Than Service Your Loan
Over the past several years, mortgage loan servicers have been embracing technology and making big investments to ramp up their recapture game.
They’re no longer satisfied with simply collecting monthly principal and interest payments, or managing your escrow account.
Realizing they’ve got a goldmine of data at their fingertips, including contact information, they’re making big moves to capture more business from their existing clientele.
Why go out and look for more prospects when you’ve got millions in your own database? Especially when you know everything about your existing customers?
Everyone knows mortgage rate lock-in has effectively crushed rate and term refinance demand.
And cash out refinances are also a non-starter for many homeowners unless they have other really high-rate debt that’s pressing enough to give up their low-rate mortgage.
So lenders are left with a pretty small pool of in-the-money borrowers to approach. Still, thanks to their investments, they’re getting better and better at retaining this business.
Instead of their customers going to an outside lender, they’re able to sell them on a streamline refinance or other option and keep them in-house.
But they know the volume on first mortgages just isn’t there, so what’s the move? Well, offer them a second mortgage, of course.
Your Loan Servicer Wants You to Take Out a Second Mortgage
I’ve talked about loan servicer recapture before, where new loans like refis stay with the company that serviced the loan.
So if you have a home loan serviced by Chase, a loan officer from Chase might call you and try to sell you on a cash out refi or another option.
I’ve warned people to watch out for inferior refinance offers from the original lender. And to reach out to other lenders when they reach out to you.
But that was just the tip of the iceberg. You’re going to see a big push by servicers to get their existing customers to take out second mortgages.
This is especially true on conventional loans backed by Fannie Mae and Freddie Mac, for which borrowers are mostly locked-in and streamline options don’t exist.
They know you’re not touching your first mortgage, but they still want to increase production.
So you’ll be pitched a new HELOC or home equity loan to accompany your low-rate first mortgage.
As a result, you’ll have a higher outstanding balance and blended rate between your two loans and become a more profitable customer.
This is Pennymac’s approach, as seen above, which launched of closed-end second (CES) mortgage product in 2022. They are one of the nation’s largest mortgage servicers.
It allows their existing customers to access their home equity while retaining their low-rate, first mortgage. And most importantly, it keeps the customer with Pennymac.
Notice how much higher the recapture percentage is once they tack on a CES.
Other servicers are doing the same thing. Just last month, UWM launched KEEP, which recaptures past clients for its mortgage broker partners.
Second Mortgage Push Might Allow the Spending to Continue
One major difference between this housing cycle and the early 2000s one is how little equity has been tapped.
In the early 2000s, it was all about 100% cash out refis and piggyback seconds that went to 100% CLTV.
Lenders basically threw any semblance of quality underwriting out the door and approved anyone and everyone for a mortgage.
And they allowed homeowners to borrow every last dollar, often with faulty appraisals that overstated home values.
We all know how that turned out. Fortunately, things actually are a lot different today, for now.
If this second mortgage push materializes, as I believe it will, consumer spending will continue, even if economic conditions take a turn for the worse.
Lots of Americans have already burned through excess savings squirreled away during the easy-money days of the pandemic.
And you’re hearing about folks being a lot more stretched, not even able to weather three months without income. But if they’re able to access a new lifeline, the spending can go on.
Then you start to envision a situation similar to the early 2000s where homeowners are using their properties as ATMs again.
In the end, we might start to see CLTVs creep higher and higher, especially if home prices flatten or even fall in certain overheated metros.
The good news is we still have the highest home equity levels on record, and home equity lending remains quite subdued compared to that time period.
But it should be noted that it hit its highest point since 2008 in the first half of 2024. And if it increases substantially from there, we could have a situation where homeowners are overextended again.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Another fintech has been quietly growing in the mortgage space, looking to solve the age-old “buy before you sell” conundrum.
A major challenge for prospective move-up buyers these days is unloading their old property while securing a new residence.
Exacerbating the issue is a continued lack of for-sale inventory, coupled with waning affordability thanks to high home prices and mortgage rates.
This can make it difficult to float two mortgage payments while finding a buyer for their old home.
Enter Calque, which partners with local mortgage lenders to ensure the home loan piece is solved.
Calque’s Trade-In Mortgage
The Austin, Texas-based company actually offers two products to make it easier to buy and sell a home at the same time.
Their so-called “Trade-In Mortgage” allows home sellers to gain access to their home equity ahead of time without needing to sell first.
This second mortgage acts as a bridge loan, freeing up liquidity so you can make a stronger offer.
And it comes with a guaranteed back-up offer where Calque will buy your old home, allowing you to submit cash-like offers.
This gives buyers increased purchasing power in a number of different ways, whether it’s an increased down payment, larger cash reserves, or the ability to pay off other high-cost debt.
It can also make the buyer more competitive in a housing market that continues to be plagued by low inventory.
If you find yourself in a bidding war, coming in with a larger down payment can help you win the property over other bidders.
Even if competition isn’t strong, a larger down payment may allow you to make a low-bid offer, as the seller will favor an offer with more money down.
In addition, you can offset the cost of a higher mortgage rate on the replacement property by putting more money down.
A few months back, a friend of mine sold his old home with a super cheap mortgage and used the sales proceeds to pay down the new high-rate mortgage.
While this was a good solution to cut down on his interest expense, it didn’t lower his mortgage payments, which still amortize normally despite the extra payment.
This means he’ll either need to request a loan recast to lower future payments, or he’ll need to wait for a good opportunity to apply for a rate and term refinance.
The Trade-In Mortgage allows you to apply a larger payment on the new home upfront before you sell your old one.
As a result, you won’t necessarily need to refinance or complete a recast since lower monthly payments will be reflected by the smaller loan amount.
You may even be able to get a lower mortgage rate thanks to a lower loan-to-value ratio (LTV), and/or avoid private mortgage insurance (PMI) in the process.
And you can use some of the money from the bridge loan to fix up your old home so it sells for a better price!
Calque’s Contingency Buster
Recently, Calque rolled out a “lighter” buy before you sell option known as “Contingency Buster.”
It allows home buyers to achieve the same basic result without taking out a second mortgage.
In the process, they can make offers without home sale contingencies and exclude the old mortgage payment from their DTI ratio.
As long as your lender is approved to work with Calque, you can make a non-contingent offer on a new home while not worrying about having to qualify for two mortgages.
It’s hard enough to afford one mortgage, so attempting to float two at the moment is likely a deal-breaker for most.
Like the Trade-In Mortgage, Contingency Buster leverages the company’s Purchase Price Guarantee (PPG).
It’s a binding backup offer put in place that will only be employed if your current home doesn’t sell within 150 days.
The agreed-upon price will likely be below-market, with the sample calculator on their website displaying 70% or 80% of estimated value offer.
So obviously you’d still want to sell your home on the open market to a buyer other than Calque.
How Much Does Calque Cost?
There are three possible fees depending on which program you choose.
This includes a $2,000 flat fee paid to Calque, along with 1% of the Purchase Price Guarantee amount.
For example, if they offer to buy your old home for $600,000, it’d be $6,000 + $2,000, or $8,000 total, taken from your sales proceeds.
If you needed the bridge loan to access your equity ahead of time via the Trade-In Mortgage program, there’s also a $550 flat fee. And the interest rate is apparently 8.5% on that loan.
So you’d be paying some interest until you closed on the new home and were able to pay off the bridge loan with the proceeds.
Those simply using the Contingency Buster would only owe the $2,000 plus 1% of the offer price. This seems to be the case whether they sell the property on the open market or not.
Is This a Good Offer?
Whenever I come across programs like this, I try to determine if they’re a good deal or not.
Ultimately, many prospective home buyers can’t buy a new home without it being contingent on the sale of their old home.
It’s just impossible for a lot of folks to carry two mortgages from a qualification standpoint.
Even if they could, there’s also the uncertainty of the old home being stuck on the market and continuing to carry that cost.
So from that perspective, this alleviates those problems and concerns. But as noted, there are costs involved with the program.
And the biggest potential cost is selling your home for just 70% or 80% of its value. While the other fees are reasonable sounding, selling for a 20-30% haircut isn’t great.
In other words, Calque could be beneficial, but you’d still want to sell your old home to a third-party buyer for top dollar (or as close to it as possible).
Otherwise you could be leaving a ton of money on the table. And it kind of defeats the purpose of using the program to begin with.
For me, this means understanding upfront how easy it’d be to sell your current home and at what price to avoid any unwanted surprises.
Lastly, you’d need to use a mortgage lender who is approved to work with Calque. So you’ll also need to ensure this lender is competent and well-priced!
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
When buying a home, one of the most significant decisions is whether to purchase a newly constructed home or a resale property. Each option has unique advantages and challenges, and the choice ultimately depends on your priorities, lifestyle, and financial goals. Learn the pros and cons of new construction and resale homes to help you make an informed decision.
The Pros of New Construction Homes
Customization Options
One of the biggest benefits of buying a new construction home is the ability to customize it to your taste. Many builders offer options for floor plans, finishes, and fixtures, allowing you to create a space that suits your preferences from day one. You can choose everything from the kitchen countertops to the type of flooring, ensuring the home reflects your personal style.
Modern Features and Technology
New homes are typically equipped with the latest energy-efficient systems, smart home technology, and modern appliances. These innovations can lower utility bills and reduce carbon footprint, providing long-term savings. Features such as energy-efficient windows, modern insulation, and state-of-the-art HVAC systems are often standard in new builds.
Lower Maintenance Costs
Because everything in a new construction home is brand new, you’re less likely to face immediate repairs or replacements for major systems or appliances. Builders also often include warranties, covering many issues that might occur in the first few years of ownership.
Modern Features
New homes are built with the latest materials and construction standards that usually have features and amenities that older homes do not. Walk-in showers, heated floors, security systems, and smart lighting are just some of the features that you find in new builds.
Modern Design and Layouts
New construction homes tend to feature open floor plans, larger kitchens, walk-in closets, and modern designs that match contemporary living preferences. This can offer better flow for daily life, with spaces that are more suited to the needs of modern families.
The Cons of New Construction Homes
Higher Price Tag
New construction homes typically come at a premium compared to resale homes in the same area. The cost of modern materials, labor, and customization options can drive up the price. Additionally, upgrades to the base model of a new home can quickly add up, potentially pushing the final cost beyond your initial budget.
Limited Landscaping and Established Neighborhoods
With new construction, you might find yourself in a developing neighborhood where landscaping and community amenities are still being developed. Mature trees and fully grown greenery are usually missing from new developments, and the sense of community might take years to establish.
Potential Delays
Building a home from the ground up can take time, and unexpected delays due to weather, labor shortages, or supply chain issues are common in new construction projects. This can result in a longer waiting period before you can move in.
Location Limitations
New construction is often located in suburban areas or on the outskirts of cities where land is available. This means you may be further away from city centers, schools, and established infrastructure, which could lead to longer commutes or less access to in-demand amenities.
The Pros of Resale Homes
Established Neighborhoods
Resale homes are often located in well-established neighborhoods with mature landscaping, nearby amenities, and a sense of community that has developed over time. Many buyers appreciate the character and charm of older homes and the fact that these neighborhoods tend to have more history and personality.
More Affordable
On average, resale homes tend to be less expensive than newly built homes. You can often get more square footage or a larger lot for the same price as a smaller new construction home. Additionally, you may have more negotiating power with a resale home, especially if the seller is motivated. However, in high-demand areas the opposite is usually true. Resale homes are typically more expensive when compared to new builds if they are in a particularly desirable location.
Move-In Ready
If you’re on a tight timeline, a resale home may be the better option since you can move in as soon as the sale is finalized. You won’t have to wait for construction to be completed or deal with potential delays.
Layouts and Square Footage
Resale condos and houses tend to be bigger than new builds, offering more spacious layouts and living space. Square footage, when compared to new builds, is larger in older homes as they used to be built to account for larger families and a decreased demand for real estate.
The Cons of Resale Homes
Higher Maintenance and Repair Costs
While a resale home may be more affordable upfront, it could require ongoing maintenance and repairs. Older systems, such as plumbing, electrical, or roofing, may need to be updated or replaced. These unexpected expenses can add up quickly and increase the total cost of ownership.
Less Energy Efficiency
Older homes were often built before modern energy-efficient standards were in place. This can result in higher utility bills due to less efficient heating, cooling, and insulation. Retrofitting an older home with energy-efficient upgrades can be costly.
Outdated Layouts
Resale homes may have layouts that are less conducive to modern living. Older homes typically have closed-off rooms, small kitchens, and fewer bathrooms, which may not suit today’s lifestyle preferences. Renovations could be necessary to create an open-concept floor plan or add additional space.
Limited Customization
Unlike new construction, what you see is often what you get when it comes to layouts inresale homes. Major changes such as altering the floor plan, expanding the kitchen, or upgrading bathrooms require costly renovations. You’ll also need to work within the existing footprint and structure of the house.
Choosing between new construction and a resale home is a personal decision that depends on your priorities. If you value customization, modern features, and lower maintenance, a new construction home may be the best fit for you. On the other hand, if you’re looking for a home with character in an established neighborhood, or you want a more affordable option, a resale home could be the better choice.
Ultimately, it’s essential to weigh the pros and cons of each option and consider your long-term needs before making a decision. Both new construction and resale homes offer unique advantages, so take the time to explore both before committing to your dream home.
Are you looking to enter the real estate market this fall? Give us a call today! One of the experienced agents at Zoocasa will be more than happy to help you through the exciting home-buying process!
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When people think of Indianapolis, they often picture its bustling downtown and sports-centric culture, but the true essence of living in Indianapolis extends far beyond the urban core. The suburbs of Indianapolis are diverse residential areas that offer a quieter, more relaxed lifestyle while still providing easy access to the city’s vibrant amenities. These Indy suburbs are spread across various parts of the metropolitan area, each with its own unique character and appeal.
In this ApartmentGuide article, we’ll explore some of the most notable Indianapolis suburbs—from community-oriented hubs to rapidly growing areas with new developments—highlighting key aspects such as population, average rent, and what makes each area stand out. Whether you’re searching for the perfect apartment in Indianapolis or curious about the different Indianapolis neighborhoods, let’s discover the best parts of Indianapolis to call home.
Cost of living in Indianapolis
Before we dive into the top Indianapolis suburbs, let’s cover how much it costs to live in Indy. The overall cost of living in Indianapolis is about 10% lower than the national average, making it an affordable place to call home. Housing plays a significant role in this, with the median sale price for a home in Indianapolis at $237,500, which is lower significantly than the national average of $432,657. Rent is also more budget-friendly, with the average rent for a one-bedroom apartment in Indianapolis at $1,253, lower than the national average of $1,514.
While some suburbs around Indianapolis offer even more affordable options, others can be slightly higher depending on the area and amenities offered. Here, we’ll explore a range of top suburbs, providing different lifestyle and housing opportunities depending on your budget and preferences.
If you’re looking for more specific rental insights, check out our guide on the 12 Most Affordable Neighborhoods in Indianapolis, IN for Renters in 2024.
1. Carmel
Known for: Excellent schools, vibrant arts scene, suburban luxury
Carmel is a well-known affluent suburb just north of Indianapolis, offering a suburban oasis with an urban flair. Its vibrant downtown area, the Carmel Arts & Design District, is lined with galleries, boutique shops, and local cafes, creating a lively atmosphere. Residents of Carmel enjoy top-rated schools, expansive parks, and cultural events like the Carmel International Arts Festival. Housing options range from upscale condos to spacious single-family homes, making it one of the most sought-after places to live in the Indianapolis metropolitan area.
Population: 102,000 Average rent for a one-bedroom apartment: $1,685 Median home sale price: $485,375 Carmel transportation scores: Walk Score 19, Bike Score 54
Apartments for rent in Carmel, IN | Houses for rent in Carmel, IN | Homes for sale in Carmel, IN
2. Fishers
Known for: Growing economy, suburban convenience, and nature trails
Fishers is a booming suburb northeast of Indianapolis that offers a perfect blend of suburban living and outdoor amenities. The city has experienced rapid growth, attracting new businesses, restaurants, and shops. The popular Nickel Plate District serves as the city’s downtown area, offering a variety of entertainment, dining, and events. Fishers is also home to the Ritchey Woods Nature Preserve and ample green spaces, making it a great place for those who enjoy nature. Housing options range from modern apartments to newly built homes in planned communities.
Population: 99,000 Average rent for a one-bedroom apartment: $1,668 Median home sale price: $413,000 Fishers transportation scores: Walk Score 18, Bike Score 52
Apartments for rent in Fishers, IN | Houses for rent in Fishers, IN | Homes for sale in Fishers, IN
3. Plainfield
Known for: Small-town charm, outdoor parks, and close proximity to Indianapolis Airport
Plainfield offers small-town living with the convenience of being close to downtown Indianapolis. Known for its parks, including the large Splash Island Family Waterpark and the Plainfield Greenway Trails, it’s an ideal place for those who enjoy the outdoors. Housing in Plainfield consists of a range of traditional single-family homes and newer developments. The area has a laid-back atmosphere, with plenty of local businesses and amenities to keep residents happy.
Population: 37,000 Average rent for a one-bedroom apartment: $1,100 Median home sale price: $297,000 Plainfield transportation scores: Walk Score 22, Bike Score 46, Transit Score 1
Apartments for rent in Plainfield, IN | Houses for rent in Plainfield, IN | Homes for sale in Plainfield, IN
4. Avon
Known for: Rapidly growing, community-oriented, and access to parks
Avon is one of the fastest-growing suburbs in the Indianapolis area, attracting new developments, shopping centers, and businesses. The suburb has a community feel with regular events and festivals for residents. Avon is also known for its many parks, like the Avon Town Hall Park and the Washington Township Park. With both newer developments and more established neighborhoods, Avon offers housing options to suit a variety of preferences.
Population: 21,000 Average rent for a one-bedroom apartment: $1,443 Median home sale price: $354,950 Avon transportation scores: Walk Score 60, Bike Score 50
Apartments for rent in Avon, IN | Houses for rent in Avon, IN | Homes for sale in Avon, IN
5. Zionsville
Known for: Historic charm, boutique shopping, and top-rated schools
Zionsville, located northwest of Indianapolis, is renowned for its charming, brick-paved Main Street lined with boutique shops, art galleries, and restaurants. The town offers a mix of modern suburban living and historic charm, making it a unique place to call home. Zionsville is also known for its excellent schools and friendly environment. With a range of homes from historic properties to new developments, it offers a wide variety of housing options. The surrounding green spaces, like Starkey Nature Park, provide residents with ample opportunities for outdoor activities.
Population: 30,000 Average rent for a one-bedroom apartment: $1,363 Median home sale price: $580,000 Zionsville transportation scores: Walk Score 75, Bike Score 58
Apartments for rent in Zionsville, IN | Houses for rent in Zionsville, IN | Homes for sale in Zionsville, IN
6. Greenwood
Known for: Growing retail centers, parks, and affordable housing
Located just south of Indianapolis, Greenwood is a rapidly developing suburb known for its retail centers like the Greenwood Park Mall and an array of restaurants and entertainment options. It’s a popular choice for those seeking affordable housing options with easy access to downtown Indianapolis. Greenwood also offers plenty of parks, including Freedom Park and Craig Park, making it a great place for outdoor recreation. The housing market is diverse, with a mix of traditional homes and new developments.
Population: 63,000 Average rent for a one-bedroom apartment: $1,205 Median home sale price: $280,450 Greenwood transportation scores: Walk Score 25, Bike Score 40
Apartments for rent in Greenwood, IN | Houses for rent in Greenwood, IN | Homes for sale in Greenwood, IN
Methodology: The suburbs included in this list were selected based on their overall popularity, determined by search trends and housing demand in the Indianapolis area. Average rent and home sale price data were sourced from Redfin and Rent.com as of October 2024. Transportation data, including Walk Scores, Bike Scores, and Transit Scores, was sourced from Walk Score.
Oops, mortgage rates did it again. After playing with your heart in September — briefly flirting below 6% — they’ve gone up five weeks in a row.
The 30-year fixed-rate mortgage averaged 6.6% in the week ending Oct. 24, an increase of 14 basis points over the previous week. A basis point is one one-hundredth of a percentage point.
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A long climb
Rates have climbed unceasingly in the five weeks since Sept. 19, when the 30-year mortgage averaged 5.89%. Have mortgage rates lost all their senses? No, they’ve been so typically themselves, falling when it looks as if the economy is slowing, and rising when the economy seems to be revving up:
Mortgage rates fell in September because investors knew that the Federal Reserve was about to cut short-term interest rates. There were “concerns about potentially weakening in the labor market,” said Lisa Sturtevant, chief economist for Bright MLS, a multiple listing service in the mid-Atlantic region.
But mortgage rates turned upward and then got lost in the game in early October, rising nonstop after the September employment report was released. That report showed better-than-expected job creation. There’s a risk that strong job growth could push wages higher as employers compete for workers, which in turn could stall progress on taming inflation. That possibility is pushing rates higher.
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Lower than a year ago
Housing economists are quick to remind prospective borrowers that mortgage rates have made a lot of progress. A year ago this week, the 30-year mortgage averaged 7.95%. It has fallen 1.35 percentage points since then.
“Even though rates have been on a recent upswing, they are over a full percentage point lower than a year ago, which has kept some home buyers in the market,” said Joel Kan, the Mortgage Bankers Association’s deputy chief economist, in a statement.
But the housing market is not that innocent: Lower mortgage rates are undermined by higher prices, taking some would-be buyers out of the market. The median sales price of an existing home was $404,500 in September, according to the National Association of Realtors. That’s 3% higher than a year earlier, when the median house cost less than $400,000.
First-time home buyers in September accounted for 26% of sales, which is on the low side, says Lawrence Yun, chief economist for NAR. “First-time buyers continue to struggle in the current environment.”
Yun holds out hope that September’s rate dip will end up lifting sales. “We know that the homebuying process is not a snap decision,” he says. “It’s a long process of searching for homes, signing the contract and going to the closing table. So it takes several months.”
Much ink has been spilled on the 4% rule, including here on The Best Interest.
The short and sweet definition? The 4% rule is a retirement strategy that suggests withdrawing 4% of your portfolio’s value annually, adjusted for inflation, to ensure your savings last for a 30-year retirement.
If you’d like to dive deeper on some nuance of the rule, read this: Updated Trinity Study and the 4% Rule.
And if you’d like to avoid the common mistakes of using the 4% rule, read this: You’re Probably Using the 4% Rule All Wrong
Today, though, I want to show you some compelling data about the optimism and conservatism built into the 4% rule.
Ultimately, you’ll see that the 4% rule comes with major risks.
All Models Are Wrong
All models are wrong?
No, not that kind of model. I’m talking about numerical models. The idea that you can use numbers and figured to represent or simulate reality. Your numbers will never, ever be a perfect representation of reality – you can’t predict the future. All models are wrong!
…but some are useful. Models are used all over modern society. One hopes that their models can “bound” reality, providing bookend scenarios to how reality might shape up (good vs. bad, optimistic vs. conservative, etc). We can use models to explain how particular variables will or won’t affect reality.
Weather forecasting is a terrific example. Meteorologists use numerical models to simulate the atmosphere by solving complex mathematical equations based on physical laws, such as the conservation of mass, energy, and momentum. These models take in data from satellites and weather stations, then simulate how the atmosphere will evolve over time.
They’re never perfect. In that way, they’re always wrong. But they’re certainly useful.
Further reading: The Madness of Forecasting
Retirement Forecasting
It’s a fool’s errand to predict the future performance of investing markets. But the 4% rule provides a numerical “bookend,” giving direction to retirees.
The hardest pill to swallow about the 4% rule is that we know it’s wrong. We just don’t know which direction it’s wrong in.
Most likely, as you’ll see below, it’s too conservative. It’s important for retirees to internalize that truth!
But there’s a possibility the 4% rule is too aggressive. And that’s a scary possibility. It means you might run out of money in retirement. Yikes.
Visualizing the 4% Rule
I used the terrific 4% rule visualizer from Engaging Data to create the charts you’ll see below. I recommend playing around with that tool yourself.
As with any modeling, the input assumptions are vitally important. I assumed:
We’re investing in a diversified 60% stock, 40% bond portfolio.Yes, this varies slightly from the 4% rule’s original assumption of a 50/50 portfolio. But 60/40 is more in line with retirement best practice.
I assumed a 30 year retirement timeline. To make the math easy, I assumed a $1 million starting portfolio. Thus, a 4% withdrawal in Year 1 is $40,000, and each future withdrawal is adjusted up for inflation.
I assumed that taxes and investment fees are included in annual spending. This is a key assumption, but one that’s often overlooked. In other words:
Are you withdrawing 4%, and then paying taxes on those withdrawals (perhaps another 0.4%), and then paying investment fees on those assets (perhaps another 0.2 – 1.5%)? That’s actually more like a ~4.5+% annual withdrawal.
Or, are you withdrawing 4%, which includes the requisite taxes and fees. Perhaps you’re only “netting” ~3.5% to spend on your lifestyle, and the other 0.5% pays taxes and fees.
I’m using the second scenario, not the first.
While the Engaging Data website does look at market history back to 1871, I don’t care too much about anything before World War 2. The American and global economic systems were far different then. I can’t cut that data out of my results, but I recommend focusing on 1950 onward.
Caveats Apply…
I’m beating a dead horse here in the world of retirement planning. There’s an asterisk on everything. But, to pre-empt any guff, let’s be clear:
The 4% rule is way more rigid than how any normal human would spend in retirement. Lifestyle variations, taxes, inflation rates, healthcare costs, and the potential for longer retirement periods make any withdrawal rule an imperfect one-size-fits-all strategy.
The 4% rule doesn’t account for Social Security, which I think is a huge mistake.
The 4% rule uses past market results to make future retirement decisions – it’s a numerical model! We know the risks involved there.
Results – How Does the 4% Rule Hold Up?
In short, the 4% rule is like playing rec league basketball with Lebron James on your team. You’ll win, and it will be overkill.
Out of the 123 unique 30-year periods we can observe, only one of them leads to “failure.” It ran out of money in Year 28 (barely a failure, at that).
The median result not only supported our retiree’s lifestyle, but also left them with $2.8 million at death. Again – that’s the median result. 30 years worth of withdrawals, and still another $2.8 million leftover. That’s overkill!
We’ve made a trade-off using the 4.0% rule. That trade-off is: in order to avoid a ~1% chance of retirement failure, are you willing to accept the 50% chance that you underspend in retirement so severely that you end up with 3x the assets at death as when you retired?”
That’s what we’re talking about here. Severe underspending. Severely not enjoying the fruits of your labor. It’s worth thinking about that trade-off. Personally, I don’t think it’s worth it. I don’t mind increasing my “failure odds” above 1% if it means I get to spend a bit more.
Another crazy stat: let’s compare the 90th percentile result against the 10th percentile result. These two scenarios are equally likely, one being on the good side of fortune and the other on the bad side:
90th percentile: our retiree dies with $6M after 30 years.
10th percentile: our retiree dies $800K after 30 years
The 10th percentile result is pretty close to, “I died with as much money as I started retirement with.”
The 90th percentile result is, “I died with 6x more money than I started retirement with.”
And they’re equally likely to happen. Wild!
While it’s important to acknowledge the one failure of the 4% rule (albeit after 28 years of withdrawals), it’s hard to walk away thinking anything other than, “The 4% rule is overkill.”
Adjust the Rate, Adjust the Timeline
So let’s play around with the numbers a bit.
Let’s extend the timeline beyond 30 years.
And let’s toggle the withdrawal rate higher.
But we should first ask – what’s an appropriate “failure” metric? The answer, by nature, will be completely arbitrary. After all, we’re using a numerical model that we know cannot be correct. Nevertheless, I vote for the following:
If more than 20% of test retirements fail, then I think our scenario is too aggressive, too risky.
If the median result spends down more than half of our retirement nest egg (e.g. dies with less than $500K after starting with $1M), then I think our scenario is too risky. Why? Because retirement research clearly shows that retirement failure is a slippery-slope/accelerating problem. If our median result is down 50% after 30 years, then many of those individual scenarios would accelerate toward near-term failure.
Timeline Failure
If we keep our withdrawal rule at 4%, but extend the timeline out to 53years (!!), then we reach ~20% of our test retirements failing.
The median scenario ends with $5.5M. The best timelines here finish with upward of $65 million.
We’re saying that a 40-year old can retire on the 4% rule and reasonably (~80% odds) expect to still have assets at age 90.
That leads me to a similar takeaway as before: the 4% rule has historically skewed toward overkill!
Withdrawal Rate Failure
Let’s go back to a 30-year timeline, but let’s now dial up the withdrawal rate above 4.0%. When do we reach one of failure criteria?
At 4.85%…
Using a 4.85% withdrawal rate, we see that:
20% of our test cases fail before 30 years, the earliest of which being after Year 20.
Our median case still has $1.7M after 30 years – more than we started with!
As a reminder, 4.85% equates to 21% more spending every year than the 4% rule. That’s a big difference in lifestyle.
Let’s Get the Median Below $1M
I want to press our luck and push the limits. What withdrawal rate does it take so that our median result has a retiree with less than $1M at death? In other words, I want to see more than half of our simulations outspending their investment growth.
The answer: a withdrawal rate of 5.2%
In this case, about 28% of our scenarios outright fail, and another 22% finish between $0 and $1M.
Let’s Get Failure to 50%
One more experiment: at what withdrawal rate do 50% of scenarios outright fail? Clearly this is too much risk to bear. But it’s helpful to use numerical models to “define your limits,” and this is just that.
The answer: a withdrawal rate of 6.25%
You’d never want to start retirement knowing that you have a 50% chance of go broke prior to death. But it’s worth understanding where the limits of withdrawal rates lie.
“But I’ve Read About 3.5%, 3%, and Lower Rules…”
Yes, some conservative retirement commentators combine multiple factors that result in low withdrawal rates like 3.5%, 3.0%, and less.
Quite simply, I think 3.5%, 3.0%, or lower withdrawal rates are simply beyond the pale. Those commentators are suffering from the crushing costs of conservative retirement planning.
Simply look at the 3.5% withdrawal rate chart below:
3.5% is a recommendation that someone chronically underspends their potential, knowing that anyone who would have done so in the past would have at worst died with the same $1M they started with (for 3.5% withdrawal rate) or at worst died with $1.6M (for 3.0% withdrawal rate).
It’s like driving at 40 miles per hour on the Interstate. “But I want to be safe!”, they clamor as normal traffic wizzes around them. Their obsession with safety causes more harm than good.
What’s Jesse’s Answer?!
My big takeaway from this fun experiment: I plan on starting higher than 4.0%, and adjusting as I go.
On one hand, I would hate to start at 4.75%, then live through an “unlucky future” and ultimately run out of money.
But I would equally hate to start at 4.0%, then live through a “normal” (or better) future, and ultimately end up with many multiples of my original nest egg at death.
The “adjust as I go” takes this into account. If I need to be more conservative for a few years, I will be. If I can press on the gas for a few years, I’ll do that too.
Quite simply, the biggest risk of the 4% rule is underspending your retirement potential. And it’s biggest flaw is its rigidity.
It’s a numerical model. And a helpful one at that. But it’s not real life.
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-Jesse
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While TPO purchase volume has dipped in recent years amid a wider mortgage market cooldown, a similar drop on the retail side means neither has seen a sizable fall in market share. “What we see is between 2018 and [around] 2021, the volume of TPO purchase originations had been relatively stable,” Ige said, “but then … [Read more…]
Many landlords will only consider prospective tenants with decent credit scores. However, some private landlords who are eager to fill empty rentals quickly may advertise “no-credit-check” apartments. In other cases, smaller family-owned buildings just don’t have the same documentation requirements as bigger complexes handled by property managers or brokers. Even if the building you’re interested in does require a credit check, there may be ways to get around it.
If you have bad credit or no credit, we’ll explain all the ways you can still rent an apartment.
• Renting with bad credit or no credit is possible through no-credit-check apartments, which are often managed by private landlords who prioritize consistent rent over credit checks.
• Strategies include finding a cosigner, paying a higher security deposit, or providing proof of financial stability.
• Subletting or sharing an apartment can bypass credit checks, as these arrangements often require less documentation.
• Building credit history by becoming an authorized user on a credit card or paying bills on time could improve rental prospects.
• Being honest about credit issues and providing references from previous landlords may help secure a rental agreement.
Are There No-Credit-Check Apartments?
A handful of landlords will rent an apartment without a credit check. However, apartment hunters should approach advertised “no-credit-check apartments” with caution. The term can sometimes be code for “these units are problematic,” or “this landlord is difficult,” or even “this is a scam.”
Sometimes, however, private landlords in smaller buildings just don’t see the need for credit checks. They don’t advertise this, but “for rent by owner” (or FRBO) listings can offer a clue.
Instead of pulling a credit report themselves, some landlords will accept a credit reference with the rental application. Credit reference documentation can be a recent credit report that the tenant provides (saving them from paying a fee), or pay stubs and W-2s, or letters from previous landlords or lenders — basically, anything that shows your ability to pay the rent.
Recommended: Trying to Rent in a Tight Housing Market? 4 Steps To Win the Lease
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Why Landlords Perform Credit Checks
Landlords perform credit checks for apartment rentals for the same basic reason that employers run credit checks for employment: to help determine whether a prospect is financially responsible.
Landlords want tenants who pay their rent on time. By checking an applicant’s credit report, a landlord can see how reliably the person pays their bills and manages their credit. If someone has a history of late payments or outstanding debts, a landlord may think twice before renting to them.
When landlords run a credit check, it will be a soft credit inquiry, which won’t affect your credit score.
How the Process of No-Credit-Check Apartments Works
Depending on the landlord, the application process for a no-credit-check apartment can be pretty standard or very casual. Landlords generally ask for the following as part of your application:
• Proof of identity
• Proof of employment, income, or financial stability
• Vehicle information, if parking is provided
• Personal references
• Application fee
Typically, it takes one to three business days to process an application. Afterward, you’ll be given a lease to sign. At this time, you can negotiate the security deposit, move-in date, and any details such as minor repairs to be made. When you receive the keys, the place is yours.
Should I Sell My House Now or Wait?
Be Honest
No one likes an unhappy surprise. If you haven’t established credit yet, say so. If you have credit problems, say so. Have a conversation with the landlord before you apply to gauge their flexibility and warn them of red flags in your credit history. Then include a cover letter with your application repeating your explanations. Glowing reference letters also help offset a poor credit score.
Recommended: What Is a Tri-Merge Credit Report?
Get a Roommate
Finding a roommate with good credit can help make the deal go through. A landlord may accept using their name alone on the lease (assuming the roommate is OK with taking full responsibility for rental payments). Or you may be able to put both of your names on the lease.
Look for Sublets and Shares
Sometimes, a leaseholder will “sublet” their apartment while they pursue opportunities elsewhere. This allows them to return to their former home in the event they want to move back. Rather than paying rent to the landlord, the subletter will often pay the leaseholder, so financial documentation may not be required. This is a common arrangement in big cities, especially among leaseholders of rent-stabilized apartments.
In share situations, roommates who are on the lease may sublet an extra room without requiring much, if any, documentation. As long as you make a good impression, they may give you a chance.
Find a Cosigner
A cosigner is someone who promises the landlord to cover your rent if you cannot pay — usually a good friend or family member with great credit. Cosigners may or may not live in the apartment.
Pay a Higher Security Deposit
If you’re brainstorming how to rent an apartment with bad credit and no cosigner, consider laying some cash on the line. Whether you dip into savings or build up your reserves with an online budget planner, putting down several months’ rent as a security deposit can reassure the landlord.
Show Financial Proof
Perhaps you make a decent income that will make it easy to pay your rent. Or you saved up some money as a cushion. Share proof with the landlord in the form of pay stubs and bank statements.
Use Previous Landlords as References
If you’ve rented from other landlords and made those payments on time, bring a reference letter or two to prove it. Ideally, the reference should be on letterhead or at least look neat and professional. That might mean creating the letter yourself and having your previous landlord sign it.
Promote Yourself
Have superior presentation skills? You can use them to persuade your landlord what a great tenant you’ll make. Turn on the charm. Bring homemade baked goods. It works.
Build Your Credit History
If there’s somewhere you can stay for now — with a friend or family member — spend that time building your credit history. To build up poor credit, focus on paying bills on time and paying down credit card balances. During this time, it may help to sign up for free credit monitoring. What qualifies as credit monitoring varies by service, but look for one that offers alerts whenever your score changes.
When you have no credit, you can start to establish your history by becoming an authorized user on a credit card or putting a utility in your name. Just be aware that it may take six months or more for the system to generate your credit score. You may be able to check your credit score for free through your bank, credit card company, or credit counselor.
The credit score needed to rent an apartment varies by location and landlord. But according to FICO®, a credit score of at least 670 is usually enough to rent an apartment.
The Takeaway
If you haven’t yet established credit or have a problematic credit history, no-credit-check apartments are one option. However, there are many other ways to secure a rental, from finding a sublet or share situation to paying a higher security deposit. Beware of shady no-credit-check apartments: There’s no reason to settle for an unsafe or unhygienic environment just because of your credit score.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
See exactly how your money comes and goes at a glance.
FAQ
What happens if you don’t have credit but want to rent an apartment?
Let the landlord know up front and ask what you need to do to rent the apartment. Their suggestions may include getting a roommate or cosigner with good credit, or putting down a larger security deposit. If you’ve rented in the past and made payments on time, ask your previous landlords for reference letters and build a case about why you’ll make a great tenant.
Can I rent an apartment with collections?
If you’re planning to rent a no-credit-check apartment, then the landlord won’t consider issues on your credit report. If your credit will be checked, talk to the landlord up front to see if renting with collections on your report is somehow possible.
What’s the minimum score to rent an apartment?
It’s up to the individual landlord. If a landlord requires a “good” credit score, FICO considers that to be in the range of 670-739.
I’m wondering how to pay rent with a credit card, no fee. What can I do?
If you’re renting right now, ask your landlord. If you’ll be seeking an apartment to rent, ask prospective landlords if this is possible. Each landlord has their own policy about credit cards.
Photo credit: iStock/StefaNikolic
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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Once you’ve found the place you’d like to rent, you need to go through the entire rental process from filling out the application, providing proof of income, background and credit checks, and more before you can sign the lease. All of these tasks can be daunting, but it’s all part of the leasing process. You may also need to provide personal references, which can cause additional stress. You’re eager to get the apartment and want your reference to reflect you in the best light. So, who do you choose as your personal references? Whether you’re hoping to move into an apartment in Dallas, TX or eyeing a Raleigh, NC rental, we’ll walk through who to include (or exclude) when it comes to choosing a personal reference for your apartment.
Who to choose as your personal reference for an apartment application
Most landlords or property managers will request a list of personal references as part of the application process. This is another way for them to verify who you are, get to know your character, and gauge if you’ll be a reliable tenant. Likewise, you may want to check out who your future landlord is.
Because personal references can influence a landlord’s decision to rent to you or not, you want to choose your references wisely. Here are some people who make for good references on a rental application.
1. Past landlords
The best choice for a personal reference is a past property manager, assuming you left on good terms. Previous landlords will know how you were as a tenant, how you left the apartment when you vacated it, and your ability to pay rent on time. If you can include your previous landlord as a personal reference, their words will carry a lot of weight.
2. Managers or coworkers
While you may be friends with your manager or coworker, they’re your professional colleagues first and foremost. This relationship allows them to speak to your professionalism and conduct, which is what a landlord is looking to better understand. Your manager will be able to speak to your reliability and work ethic.
3. Coaches or mentors
Coaches and mentors are also good options when it comes to choosing a personal reference. They’ll likely know your goals, values, and strengths, and will be able to speak to your landlord about those things.
4. Professors or teachers
If you’re a student or recent graduate, academic professors or teachers can be good personal references because they’ll also know your work ethic and drive. If a student is dedicated to their work, it’s a good indicator they’re dedicated and motivated in other areas of their lives, like maintaining an apartment.
Who not to choose as a personal reference
Keep in mind, a landlord is using your personal reference as a way to understand if you’re reliable and will make a good future tenant. Landlords are looking for red flags so they don’t sign a lease with someone who will end up causing stress and problems in the future. While the people listed above are all good options of who to choose as your personal reference, there are people you’ll want to exclude as well.
1. Partner or spouse
Your significant other may know you the best, but they’re likely biased, and the future landlord will know that. Avoid listing a partner or spouse as your rental reference because a landlord will likely take their opinion with a grain of salt.
2. Close family members
For similar reasons, family members are not your best choice as a personal reference. Obviously, your family members want the best for you, so they may not give the landlord an honest opinion on your rental eligibility. If the landlord can’t get an unbiased opinion from a reference, they’ll likely disregard what they have to say.
3. Close friends
Just like family members or romantic partners, a close friend is not the optimal choice as a personal reference. Property owners are looking for references who can vouch for your ability to pay your bills on time or your reliability as a potential tenant.
Why do landlords ask for personal references?
Landlords assume a degree of risk whenever they lease an apartment to a tenant. The last thing they want to do is approve a renter who doesn’t pay their rent on time (or at all) or causes problems for themselves or other tenants. References give the landlord a window into the character and reliability of a potential tenant.
Information they might want to learn includes potential tenant’s income and ability to pay rent, reliability, ability to take care of the property. If a tenant has any potential red flags such as a low credit score or prior evictions, references can provide additional context or assure the property manager that steps are being taken to resolve these issues.
Best practices for choosing references for an apartment
Now that you have a list of who to choose as a personal reference, here are a few best practices to keep in mind.
1. Always notify your references beforehand
If you’re going to use a previous landlord or professor as a reference, it’s common courtesy to ask if they’re willing to be a reference and let them know you’ll be giving out their contact information. It can look unprofessional if a landlord were to call a reference and they had no idea what was going on.
2. Provide multiple options in case someone isn’t available
It’s smart to provide a list of at least two personal references in case the first person is unavailable. Landlords want to speak to personal references, and if they can’t get a hold of anyone, they may pass on your application.
3. Clearly identify your references
To make things easier for the landlord, clearly annotate your references’ relationship to you in the apartment application. This helps the property manager understand who they’ll be calling and what to expect on the call.