If you’re ready to purchase a new home, you may be wondering just how long the process will take. After all, it’s possible you need to figure out some of the logistics of your move.
For example, you may need to decide whether to ask your landlord for an extension on your lease. Or, perhaps you need to consider your child’s school schedule or how much notice to give your employer. With this in mind, it’s smart to learn and understand how long buying a house usually takes.
The timeline of any home sale can vary based on a broad range of factors. However, each step can be fairly predictable on its own.
Key Takeaways
The home-buying process typically takes between two to six months, depending on factors like credit preparation, finding a home, and closing procedures.
Key steps include preparing your credit, getting preapproved for a mortgage, finding a home, and negotiating an offer, followed by the closing process which can take 30–50 days.
It’s important to keep your credit in good shape and save for a down payment to improve your chances of securing the home of your dreams.
How Long It Takes to Buy a House
Here’s how much time you should expect to wait for each step of your home sale as you plan out the next important steps in your life.
1. Preparing Your Credit for Homeownership: (0–12 Weeks)
The credit score required to qualify for a mortgage can vary depending on the mortgage lender and type of mortgage. However, you will always have a better chance of qualifying for a mortgage loan with the best rates if you have good credit.
According to myFico.com, consumers with FICO scores of 740 or above have the best chance at qualifying for a mortgage with excellent terms and a low interest rate. Meanwhile, consumers with “good credit,” or FICO scores between 679 and 740, are not guaranteed the best terms. The chances of qualifying for one of the best home loans is much lower for anyone with a score below that level.
That’s why, if your credit history isn’t great, you should work on improving it before you apply for a mortgage. The most important steps you can take to improve your credit include:
Get a copy of your credit report and check it for errors. You can get a free copy of your report from all three credit reporting agencies — Experian, Equifax, and TransUnion. You get one copy for free each year at AnnualCreditReport.com.
Pay all your bills on time. This is important since your payment history makes up 35% of your FICO score.
Pay down debt. Many credit-scoring models consider how much debt you have when determining your credit score. So, paying down some of your existing debt may help improve your credit in the short term and the long haul.
If your credit is already good or excellent, you can skip this step altogether. If it’s not, you have some work to do.
2. Get Preapproved for a Mortgage: (1–2 Days)
Your credit is ready for a mortgage, so now what? Before you start house hunting, the next step is checking in with mortgage providers to get preapproved. There are a few reasons you should bother getting preapproved before you start shopping.
A preapproval is a lender’s written commitment to loan you a certain amount of money for a home purchase. It’s based on a review of your credit and financial information and is one way to prove to sellers that you’re a serious buyer. This gives you an advantage over other buyers who aren’t preapproved if you have a letter.
Getting preliminary preapproval for a mortgage will also help you discover how much money the bank is willing to lend you. This figure or range of figures will let you know the price range of homes you should search for.
If you’re in the process of shopping for a new home, it’s important to understand the difference between prequalification and preapproval. Prequalification can help you get an idea of what your budget should be. However, to move forward with a purchase, you’ll need a preapproval.
See also: What Is the Minimum Credit Score to Buy a House?
What Is a Preapproval Letter?
A preapproval letter is a document from a lender stating that a borrower has qualified for a loan up to a certain amount based on their credit history, income, and other financial information.
The preapproval letter is not a guarantee of loan approval, but it does give the borrower an idea of what size loan they may qualify for and the terms of the loan.
Shop Around for the Best Rates and Terms
As you prepare to get preapproved for a home loan, make sure you’re checking with several mortgage lenders so you can compare interest rates and fees. Some websites let you enter your information once to receive multiple offers from lenders who are competing for your business.
What You Will Need to Get Preapproved
Make sure to research lenders and mortgage websites that connect you with multiple home loans before you decide whom to work with.
To get preapproved, you typically need to supply the following:
At least one month of pay stubs
Employment information for the last two years
Two years of W-2s
One or two years of tax returns
Three months of bank statements
Even more information if you’re self-employed.
The lender will then use this information to determine your loan amount and interest rate.
When you apply for a mortgage preapproval, the lender will pull your credit report. This can result in a hard inquiry on your credit report, which can temporarily lower your credit score.
Keep in mind that this step can take a few days or several weeks. Make sure you have a mortgage preapproval letter in your hands before you move onto the next step.
3. Finding a Home and Getting an Accepted Offer: Varies
Once you’re preapproved and have a good idea of how much house you can afford, it’s time to start searching for your dream home. Unfortunately, this is one step that can vary dramatically in length and scope. You might find the perfect home on your first day of searching. However, it could also take months of searching for a home you actually want to buy.
You’ll likely want to work with a real estate agent during this part of your journey. They can help you find homes in your price range. They also set up times for you to enter and inspect homes you’re interested in.
Once you find a home to buy, you can also rely on the help of a realtor to write up an offer. This part of the home buying process can also take days or weeks, depending on how quickly the sellers respond. They might submit a counteroffer that requires you to think long and hard about the home sale for a few days. Heck, you could each submit several counteroffers back and forth, each taking a few days to execute.
4. Closing on Your Home: (30–50 Days)
Once you have reached an agreement with the home’s seller, you’ll begin moving toward the closing process. During this step of the mortgage process, your lender may need more financial paperwork that helps them verify you qualify for the loan.
To prove you are still in the same financial position you were when you were preapproved for your loan, you may need to provide additional bank statements or pay stubs.
Home Inspection
While you’re waiting to close on your home, you’ll also want to hire a home inspector to look over the property to check for needed repairs. The home inspection usually takes a few days to schedule, but only a few hours to inspect. After the home inspection, you may also negotiate back and forth with the seller to agree on who will pay said repairs and if any concessions should be made.
Sometimes closing takes as little as one month, but it can often take a lot longer than that. Either way, it helps to get back with your lender quickly if they ask you to submit additional documentation. You don’t want to leave them waiting and prolong the home buying process unnecessarily.
Once your closing date arrives, you’ll sit down with all parties. This includes lawyers when applicable, buyer and seller’s real estate agent, title company, the closing agent, and perhaps even a representative of the lender.
You’ll sign all the important documents pertaining to your home loan. You’ll also bring money to the table to cover your share of closing costs and your down payment. Once you’re done, the keys and the home are finally yours.
Bottom Line
The details above describe what usually happens when someone purchases a home. However, there are many variables that could throw these timelines out of whack. You may find you have trouble qualifying for a mortgage altogether, for example. Or maybe you spend months or years finding a home you like!
Whatever hurdles you encounter, make sure to keep your credit in good shape and continue saving for a down payment. The better financial shape you’re in, the better chance you have at winding up with the home of your dreams.
Frequently Asked Questions
How long does it take to buy a house?
Generally, it takes between two and six months to purchase a house. This timeline may vary depending on the complexity of the transaction and the availability of financing.
What factors can affect the timeline for buying a house?
Factors that can affect the timeline for buying a house include:
The availability of financing
The complexity of the transaction
The number of buyers in the real estate market
The availability of properties
What are the steps involved in buying a house?
The steps involved in buying a house include:
Researching the housing market
Finding a real estate agent
Getting preapproved for a mortgage
Making an offer and negotiating
Securing financing
Closing on the purchase.
How can I get preapproved for a mortgage?
To get preapproved for a mortgage, you will need to provide documentation such as your income and employment information and your credit report. Your lender will then review your information and provide you with a pre-approval letter.
What is the difference between pre-qualifying and pre-approving for a mortgage?
Pre-qualifying for a mortgage involves providing information to a lender, who then estimates how much you can afford to borrow. Pre-approval involves providing documents to a lender, who then verifies your information and issues a letter of pre-approval that you can use when making an offer on a house.
How can I find a real estate agent?
You can find a real estate agent by asking friends, family, and colleagues for recommendations, or by searching online. You can also look for an agent through the National Association of Realtors or by visiting your local real estate board.
How long does the underwriting process take?
The underwriting process can take anywhere from a few days to a few weeks. The timeline depends largely on the complexity of the loan and the number of documents the lender needs to review.
What is a closing?
A closing is the last step in the home-buying process. It is when the transfer of ownership is finalized and the buyer and seller sign the closing documents. At the closing, the buyer pays the remaining balance of the purchase price and the deed is transferred from the seller to the buyer.
What documents should I bring to the closing?
At the closing, you will typically need to provide a valid photo ID, proof of homeowner’s insurance, a copy of the purchase agreement, and a certified or cashier’s check for the remaining balance of the purchase price.
Should I use a mortgage broker?
Deciding whether to use a mortgage broker largely depends on your unique requirements and preferences. By engaging a mortgage broker, you stand to gain access to a broader range of lenders, thus increasing the likelihood of securing the best mortgage rates and terms.
In addition to providing access to lenders, mortgage brokers can offer valuable guidance and advice throughout the process, which can be especially beneficial if you are unfamiliar with the ins and outs of securing a mortgage. However, it’s worth noting that mortgage brokers do charge a fee for their services, which can add to the overall cost of obtaining a mortgage. Ultimately, it’s up to you to decide whether the benefit is worth the cost.
Can I buy a house with cash?
Yes, you can buy a house with cash. However, the seller may still request evidence of your available funds.
The seller may request to see bank statements or other financial documents that demonstrate that you have the necessary funds to complete the transaction. This process can provide the seller with peace of mind that the sale will go smoothly. It can also help to prevent any misunderstandings or disputes from arising during the purchasing process.
Editor’s note:On the evening of June 24, a U.S. federal judge in Kansas blocked the SAVE updates from occurring as planned on July 1. This is a developing story.
A generous federal student loan repayment plan is about to get even more affordable.
On July 1, the Education Department will roll out the last remaining features of the Saving on a Valuable Education (SAVE) plan — and millions of borrowers with undergraduate loans could see their monthly bill slashed by half.
SAVE debuted to borrowers last summer, but only some of the plan’s features were available at that time, like $0 payments for lower- and middle-income borrowers and an automatic interest subsidy. In February, the White House began forgiving SAVE borrowers’ remaining debt after 10 years of repayment if they took out $12,000 or less — compared to 20 or 25 years on other repayment plans. Nearly 8 million borrowers have enrolled in SAVE and 4.6 million qualify for $0 payments, as of May.
If you’re not enrolled in SAVE yet, take another look and see if you can get a lower payment starting in July. You can gauge your payoff journey with the Education Department’s loan simulator; the Community Service Society of New York also offers a SAVE calculator that estimates payments before and after the July recalculation.
“There’s no downside to seeing what’s available to you,” says Devin McCombs, a Denver-based certified financial planner and certified student loan professional. Apply for SAVE on StudentAid.gov/IDR, or reach out to your student loan servicer directly.
And if you’re already enrolled in SAVE, the smaller bills and other changes will be automatic. You also could get a payment pause in July as servicers implement the changes.
SAVE student loan benefits coming in July
Payments cut in half for undergraduate loans
SAVE is an income-driven repayment (IDR) plan, which means that it calculates your monthly payments based on your income, rather than how much you owe. Starting in July, borrowers with undergraduate loans only will see their monthly SAVE payments cut in half, from 10% down to 5% of their discretionary income. So, if you previously had a $400 SAVE bill, that could shrink to $200. Borrowers who enroll in SAVE for the first time will also have access to that new, lower payment.
Borrowers who only have graduate school debt will be unaffected by this change. Their payments will remain 10% of their discretionary income.
Borrowers who have both undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income, based on the original principal balances of the student loans they took out.
For example, if you borrowed $10,000 for your undergraduate degree and $15,000 for your master’s degree, your monthly SAVE payment would be 8% of your income. If you took out $10,000 for undergrad and $10,000 for grad school, your payment would be 7.5% of your income.
Automatic forgiveness credit for forbearances, deferments
Under the SAVE plan, borrowers can get their remaining debt forgiven after 10 to 20 or 25 years of payments, depending on their original loan balance and whether they have undergraduate or graduate school debt. Borrowers eligible for Public Service Loan Forgiveness (PSLF) can get forgiveness after 10 years, regardless of amount or type of debt.
In the past, periods of deferment and forbearance didn’t usually count toward this forgiveness clock. But starting July 1, SAVE borrowers will automatically get forgiveness credit for specific payment pauses — like those related to unemployment, cancer treatment, military service and natural disasters. Credit for deferments also can be retroactive.
Ability to make up for past missed payments
Borrowers will be allowed to make additional “buyback” payments to get credit for most other periods of deferment or forbearance that don’t qualify for automatic credit.
“If someone was on an income-driven repayment plan, then went into forbearance and then went back into the income-driven repayment plan, they can actually buy back those months, or go back and make those payments,” explains Jantz Hoffman, executive director of the Certified Student Loan Board of Standards, a nonprofit that helps financial planners and their clients make student loan decisions.
This is significant for borrowers eligible for Public Service Loan Forgiveness, who can get forgiveness after 10 years of payments while working a qualifying job. However, there’s currently a PSLF program transfer underway from the servicer MOHELA to the Education Department — so it’s unclear how exactly this buyback process will work in practice, Hoffman says.
“It’s ‘to be determined’ on how it will actually take place,” Hoffman says. “But, in theory, the borrower should be able to make payments which equate to the lower of the two income-driven repayment calculations, either when they went into forbearance or when they came out of it, which creates an opportunity for borrowers to actually have an even lower payment longer.”
Automatic enrollment for borrowers with default risk
Borrowers with payments at least 75 days late will be automatically enrolled in the SAVE plan if they previously agreed to give the Education Department access to their tax information.
Many borrowers in this situation may qualify for $0 SAVE payments, based on their income. A borrower must have an income below $32,800 as an individual or $67,500 as a household of four to qualify for $0 payments.
Why some SAVE borrowers don’t have payments due in July
If you’re already enrolled in SAVE, you might be allowed to skip your July bill without consequences.
The Education Department directed federal student loan servicers to place some SAVE borrowers into an administrative forbearance in July as they apply the smaller payment amounts to borrowers’ accounts, according to the department.
“While borrowers are in this specific forbearance, no payment is required, their interest rate will be set to 0%, and they will receive credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF),” a department spokesperson said in a statement.
Borrowers put into the July forbearance will begin making their recalculated SAVE payments in August. All other SAVE borrowers will start making their recalculated SAVE payments in July.
However, a July payment pause isn’t guaranteed if you’re enrolled in SAVE. Affected borrowers received emails from their servicers earlier this month with the subject line: “Your Student Loans Have Been Placed into A Forbearance,” according to a copy of the email reviewed by NerdWallet.
Contact your student loan servicer if you’re on the SAVE plan and haven’t received a notification about administrative forbearance, says Nichole Coyle, a certified financial planner and certified student loan professional based in Westlake, Ohio.
Editor’s note:On the evening of June 24, a U.S. federal judge in Kansas blocked the SAVE updates from occurring as planned on July 1. This is a developing story.
A generous federal student loan repayment plan is about to get even more affordable.
On July 1, the Education Department will roll out the last remaining features of the Saving on a Valuable Education (SAVE) plan — and millions of borrowers with undergraduate loans could see their monthly bill slashed by half.
SAVE debuted to borrowers last summer, but only some of the plan’s features were available at that time, like $0 payments for lower- and middle-income borrowers and an automatic interest subsidy. In February, the White House began forgiving SAVE borrowers’ remaining debt after 10 years of repayment if they took out $12,000 or less — compared to 20 or 25 years on other repayment plans. Nearly 8 million borrowers have enrolled in SAVE and 4.6 million qualify for $0 payments, as of May.
If you’re not enrolled in SAVE yet, take another look and see if you can get a lower payment starting in July. You can gauge your payoff journey with the Education Department’s loan simulator; the Community Service Society of New York also offers a SAVE calculator that estimates payments before and after the July recalculation.
“There’s no downside to seeing what’s available to you,” says Devin McCombs, a Denver-based certified financial planner and certified student loan professional. Apply for SAVE on StudentAid.gov/IDR, or reach out to your student loan servicer directly.
And if you’re already enrolled in SAVE, the smaller bills and other changes will be automatic. You also could get a payment pause in July as servicers implement the changes.
SAVE student loan benefits coming in July
Payments cut in half for undergraduate loans
SAVE is an income-driven repayment (IDR) plan, which means that it calculates your monthly payments based on your income, rather than how much you owe. Starting in July, borrowers with undergraduate loans only will see their monthly SAVE payments cut in half, from 10% down to 5% of their discretionary income. So, if you previously had a $400 SAVE bill, that could shrink to $200. Borrowers who enroll in SAVE for the first time will also have access to that new, lower payment.
Borrowers who only have graduate school debt will be unaffected by this change. Their payments will remain 10% of their discretionary income.
Borrowers who have both undergraduate and graduate loans will pay a weighted average between 5% and 10% of their income, based on the original principal balances of the student loans they took out.
For example, if you borrowed $10,000 for your undergraduate degree and $15,000 for your master’s degree, your monthly SAVE payment would be 8% of your income. If you took out $10,000 for undergrad and $10,000 for grad school, your payment would be 7.5% of your income.
Automatic forgiveness credit for forbearances, deferments
Under the SAVE plan, borrowers can get their remaining debt forgiven after 10 to 20 or 25 years of payments, depending on their original loan balance and whether they have undergraduate or graduate school debt. Borrowers eligible for Public Service Loan Forgiveness (PSLF) can get forgiveness after 10 years, regardless of amount or type of debt.
In the past, periods of deferment and forbearance didn’t usually count toward this forgiveness clock. But starting July 1, SAVE borrowers will automatically get forgiveness credit for specific payment pauses — like those related to unemployment, cancer treatment, military service and natural disasters. Credit for deferments also can be retroactive.
Ability to make up for past missed payments
Borrowers will be allowed to make additional “buyback” payments to get credit for most other periods of deferment or forbearance that don’t qualify for automatic credit.
“If someone was on an income-driven repayment plan, then went into forbearance and then went back into the income-driven repayment plan, they can actually buy back those months, or go back and make those payments,” explains Jantz Hoffman, executive director of the Certified Student Loan Board of Standards, a nonprofit that helps financial planners and their clients make student loan decisions.
This is significant for borrowers eligible for Public Service Loan Forgiveness, who can get forgiveness after 10 years of payments while working a qualifying job. However, there’s currently a PSLF program transfer underway from the servicer MOHELA to the Education Department — so it’s unclear how exactly this buyback process will work in practice, Hoffman says.
“It’s ‘to be determined’ on how it will actually take place,” Hoffman says. “But, in theory, the borrower should be able to make payments which equate to the lower of the two income-driven repayment calculations, either when they went into forbearance or when they came out of it, which creates an opportunity for borrowers to actually have an even lower payment longer.”
Automatic enrollment for borrowers with default risk
Borrowers with payments at least 75 days late will be automatically enrolled in the SAVE plan if they previously agreed to give the Education Department access to their tax information.
Many borrowers in this situation may qualify for $0 SAVE payments, based on their income. A borrower must have an income below $32,800 as an individual or $67,500 as a household of four to qualify for $0 payments.
Why some SAVE borrowers don’t have payments due in July
If you’re already enrolled in SAVE, you might be allowed to skip your July bill without consequences.
The Education Department directed federal student loan servicers to place some SAVE borrowers into an administrative forbearance in July as they apply the smaller payment amounts to borrowers’ accounts, according to the department.
“While borrowers are in this specific forbearance, no payment is required, their interest rate will be set to 0%, and they will receive credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF),” a department spokesperson said in a statement.
Borrowers put into the July forbearance will begin making their recalculated SAVE payments in August. All other SAVE borrowers will start making their recalculated SAVE payments in July.
However, a July payment pause isn’t guaranteed if you’re enrolled in SAVE. Affected borrowers received emails from their servicers earlier this month with the subject line: “Your Student Loans Have Been Placed into A Forbearance,” according to a copy of the email reviewed by NerdWallet.
Contact your student loan servicer if you’re on the SAVE plan and haven’t received a notification about administrative forbearance, says Nichole Coyle, a certified financial planner and certified student loan professional based in Westlake, Ohio.
Saving for a down payment is one of the biggest obstacles to homeownership. Can you buy a house with no money down? It’s possible, but the conditions to qualify for a no-down-payment mortgage are highly specific. If you aren’t eligible, it might be easier to qualify for a low-down-payment mortgage.
No-down-payment loans include VA loans, backed by the Department of Veterans Affairs, and USDA loans, guaranteed by the U.S. Department of Agriculture. VA loans are available to current and veteran service members and eligible spouses, and USDA loans are available for people buying property in specific rural and suburban areas.
However, even a no-down-payment mortgage may still require some cash: You’ll likely have up-front expenses like fees, closing costs and mortgage insurance (or you might be able to roll them into your loan).
Low-down-payment mortgages include FHA loans, insured by the Federal Housing Administration, which require down payments as low as 3.5%. And even some of today’s conventional loans allow down payments as low as 3%.
The lenders on this list offer home loans with no down payment (zero-down mortgages) and/or low-down-payment FHA or conventional loans.
The star ratings shown are specific to the product featured from each lender. The list includes a mix of FHA, VA and conventional loans.
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Mortgage interest rates trended lower across all terms from a week ago, according to rate data collected by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans all declined.
Inflation has cooled somewhat, but homebuyers are still being challenged by high prices and rates. At the close of the Fed meeting on June 12, policymakers again held off on changing interest rates. The next Fed meeting concludes July 31.
“With [the June 12] announcement, the Fed confirms its higher-for-longer position on interest rates,” says Dr. Selma Hepp, chief economist at CoreLogic. “But the stance is looking more untenable as more American households continue to pull back on spending. As more economic indicators begin to confirm this and unemployment begins to rise, the Fed will then look to cut rates. What’s not clear yet is when exactly the disinflation signs will be consistent enough for the first rate cut — we hope it’s still this year.”
Often, though, the decision to buy a home isn’t based on what’s happening in the economy — it’s more personal. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than waiting for a time when rates and prices are more favorable.
Rates accurate as of June 21, 2024.
These rates are averages based on the assumptions indicated here. Actual rates listed across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Friday, June 21st, 2024 at 7:30 a.m. ET.
30-year fixed-rate mortgage falls, -0.08%
The average rate you’ll pay for a 30-year fixed mortgage today is 6.92 percent, a decrease of 8 basis points from a week ago. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.08 percent.
At the current average rate, you’ll pay principal and interest of $659.94 for every $100,000 you borrow. That’s $5.36 lower, compared with last week.
15-year mortgage rate slides, -0.08%
The average 15-year fixed-mortgage rate is 6.35 percent, down 8 basis points over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost approximately $863 per $100,000 borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more rapidly.
5/1 ARM rate drops, -0.12%
The average rate on a 5/1 ARM is 6.59 percent, ticking down 12 basis points since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for those who expect to sell or refinance before the first or second adjustment. Rates could be much higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.59 percent would cost about $638 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo mortgage eases, -0.15%
The average rate for the benchmark jumbo mortgage is 7.02 percent, a decrease of 15 basis points over the last seven days. Last month on the 21st, the average rate on a jumbo mortgage was above that at 7.17 percent.
At the average rate today for a jumbo loan, you’ll pay $666.65 per month in principal and interest for every $100,000 you borrow. That’s down $10.11 from what it would have been last week.
The average 30-year fixed-refinance rate is 6.93 percent, down 6 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was higher at 7.09 percent.
At the current average rate, you’ll pay $660.61 per month in principal and interest for every $100,000 you borrow. That’s $4.02 lower, compared with last week.
Where are mortgage rates going?
The rates on 30-year mortgages mostly align with the 10-year Treasury yield, which changes with the market, while the cost of variable-rate home loans more directly mirrors the Fed’s moves.
If and when the Fed cuts interest rates depends on evolving economic data, such as inflation and the jobs market. While inflation is down from its peak in 2022, it’s still well above the Fed’s target rate of 2 percent. Unemployment is still low, though in May it hit 4 percent for the first time since 2022.
“Much like that flight where departure keeps getting delayed 15 minutes at a time with no end in sight, the timetable for when the Fed begins to cut rates is equally uncertain,” says Greg McBride, CFA, Bankrate chief financial analyst.
While the Fed bases its decisions on rate changes due to broader economic factors, your rate is also affected by personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
What today’s rates mean for your mortgage
Mortgage rates fluctuate daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
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Trinity Public Utilities District’s power lines snake through the lower reaches of the Cascade Range, a rugged, remote and densely forested terrain in Northern California that has some of the highest wildfire risk in the country. But for several years, the company has been without insurance to protect it from such a threat.
Trinity’s equipment was blamed for causing a 2017 wildfire that destroyed 72 homes and three years later its insurer, a California public agency called the Special District Risk Management Authority, told the utility that it would no longer cover it for fires started by its electrical lines. Trinity could find no other takers.
The utility’s exposure comes as wildfires are already flaring up across the U.S. West in what could be a dangerous and prolonged fire season.
READ MORE: Homeownership’s hidden costs rise 26% in four years
“If a fire were to start now that involved one of our power lines, it would likely bankrupt the utility,” said Paul Hauser, general manager of the local government-owned utility that serves about 13,000 rural customers in Trinity County, 200 miles (322 kilometers) north of Sacramento. That’s because without insurance, a lawsuit could put the utility on the hook to pay for damages to private homes and businesses, which could easily top the utility’s annual revenue of about $16 million.
Western utilities and beyond are finding it prohibitively expensive, if not impossible, to insure against potential fire-related claims. The trouble comes after power companies from Hawaii to Texas have collectively faced tens of billions of dollars in damages from wind-driven wildfires linked to their equipment. The issue will become more pressing as climate change makes droughts more intense and frequent, heightening the chances of more destructive infernos.
“Wildfire risk is the number one issue for utilities,” said Michael Kolodner, the practice leader for the U.S. power and renewables industry at Marsh & McLennan Companies Inc., a US insurance broker. “This is impacting every single utility in North America.”
READ MORE: Treat home insurance costs like a 1-year ARM, climate risk experts say
The insurance companies set up by the utilities are now limiting how much coverage they will provide to power companies exposed to wildfire risk, leaving them at the whim of the commercial marketplace where premiums are rising.
Overall, commercial wildfire insurance rates have gone up as much as 30% this year with premiums also increasing the past several years, according to Marsh. Portland General Electric, based in Oregon, said their fire insurance premiums doubled.
The insurance challenges are now making it more expensive and difficult for some utilities to attract the capital required to harden their grids against climate risks and build out the infrastructure needed to meet President Joe Biden’s goal of a carbon-free grid by 2035.
“If utilities can’t get insurance or if the insurance is really expensive, it’s harder for them to construct new facilities they need to build like transmission lines and distribution lines,” said Michael Wara, an expert on utility wildfire risks who serves as director of the Climate and Energy Policy Program at Stanford University. The problem is akin to potential homeowner being unable to secure a mortgage to buy a house because they can’t get property insurance, Wara said.
Randy Howard, general manager of the Northern California Power Agency, which has 16 public power utility members including Trinity, says the lack of commercial insurance is making it hard for some his utilities to attract financing to build high-voltage transmission lines that the state wants to connect to renewable energy projects.
“It’s impacting investors’ willingness to invest in these projects that we need to build,” Howard said.
READ MORE: Home insurance woes threaten mortgage lending, experts warn
The utility industry is openly discussing the need to set up a federal program that could provide a type of insurance backstop for smaller power companies that have limited financial resources. Such a fund would cover claims for utilities that have agreed to meet certain fire risk reduction standards. The fund could be modeled after one set by California after PG&E Corp. filed for bankruptcy in 2019 in the wake of starting some of the worst wildfires in state history.
As it stands now, utilities have become the “insurer of last resort” when it comes to damage claims from wildfires tied to their equipment, said Emily Fisher, general counsel at the Edison Electric Institute, an investor-owned utility trade group. The industry has become difficult to insure because there isn’t a limit to their potential wildfire liabilities, Fisher added.
Power companies also need to spend billions of dollars to make their infrastructure less prone to start fires, funding fixes such as installing weather monitoring equipment, burying power lines and replacing old poles. “It’s not a sustainable regime,” Fisher said.
Warren Buffett agrees. In the billionaire investor’s recent annual letter to Berkshire Hathaway shareholders, Buffett said he’s reconsidering his utility investments due to the heightened wildfire risk in the West. Berkshire’s PacifiCorp utility, which operates in six Western states, was found liable in 2023 for destruction caused by the 2020 Labor Day fires in Oregon. PacifiCorp is appealing the decision. The utility faces wildfire claims estimated to be as much as $8 billion, according to a regulatory filing.
“We are basically in the position of being the insurer of last resort because we cannot get enough commercial insurance,” PacifiCorp Chief Executive Officer Cindy Crane said at a S&P power markets conference in April. “We had a pretty good volume of wildfire insurance and we blew through that.”
PacifiCorp has obtained wildfire insurance, but its premiums have increased more than 400% from 2019 through 2022, a spokeswoman said.
Utilities also have been turning to state governments for help. PacifiCorp backed legislation passed earlier this year in Utah that sets up a catastrophic fire insurance fund for utilities and caps non-economic damage claims arising from utility-linked fires.
In 2019, California set up a $21 billion wildfire insurance fund to prevent additional investor-owned utility bankruptcies after PG&E was driven into Chapter 11 for sparking fires in 2017 and 2018 that killed more than 100 people and destroyed thousands of homes.
California investor-owned utilities, which contributed to half of the fund, can qualify for the coverage if they meet certain fire safety standards. The fund covers claims above $1 billion, with the utilities having to find insurance up to that amount.
Even that has proven to be difficult. PG&E decided to self-insure against wildfire risk in 2023 after the utility saw its cost for commercial wildfire insurance as a percentage of coverage jump from 4.6% in 2015 to nearly 80% in 2022, when the utility paid about $746 million for $940 million in coverage, according to regulatory filings.
PG&E estimates its self-insurance program, which works by putting aside money collected from bills for possible claims, will save customers up to $1.8 billion over the next four years compared to commercial insurance coverage. Southern California Edison has also opted to self-insure after seeing its commercial coverage rates skyrocket.
However, publicly owned, government-run utilities like Trinity aren’t part of California’s wildfire insurance fund, leaving them entirely exposed. The state’s legal regime holds utilities responsible for damage claims from fires started by their equipment — whether they were negligent or not. (While the liability standard is looser in other states, it hasn’t gotten utilities off the hook in places like Oregon).
Trinity Public Utilities District is stuck in a problematic cycle where it can’t do the work required to make its own property safer from fire. The utility wants to widen the clearing around its existing lines on federal land from 20 feet to up to 130 feet to reduce fire risk, but it cannot start that work without a new federal permit. And it cannot get a new permit unless it has wildfire insurance.
“We are kind of the poster child for this issue,” Hauser, the general manager, said. “No one will insure us.”
Inside: The decision on where you live is a big life choice. Learn how an HCOL vs LCOL area will impact you financially. Plus find the cost of living city that fits for you.
HCOL. LOCL. MCOL. What do these acronyms mean and why should I care?
Back when I was trying to decide where to live, there wasn’t a big discussion about the high cost of living or low cost of living areas.
You just picked a city close to family or branched out to a new area. Were you drawn to the big city or not? Plain and simple.
Today, there are many tools at our disposal to try and figure out what is the best city to live in based on income, expenses, and the lifestyle that you desire.
In this post, you will see how to analyze what type of city you want to live in and see if it makes financial sense for you.
Why such the price difference between HCOL and LCOL?
In a low cost of living city, you can buy a house for $50,000. In contrast, a median home price in a high cost of living city can cost $1.5 million. This is a correlation between supply and demand in the market.
The more people who want to live in a certain area that has less available space will naturally drive up prices. Whereas most low cost of living areas, the supply is abundant since there is plenty of space to spread out and find your own neck of the woods for much less.
Here’s a quick comparison of HCOL vs LCOL vs MCOL.
New York City has the highest cost of living at 100, followed by Los Angeles and San Francisco. This graph highlights the difference in cost of living in these example cities.
HCOL Seattle, WA
MCOL Las Vegas, NV
LCOL Knoxville, TN
Cost of Living Index
85.57
69.33
63.26
2 Bed Apartment Rent
$2,724
$1,176
$788
Median Home Price
$826,200
$441,771
$256,188
Median Income
$92,263
$56,354
$33,229
Data from Nerdwallet, Census.Gov, and Numbeo
What is HCOL area Mean?
Simply put, HCOL means a high cost of living.
This type of acronym is to describe certain areas or cities where expenses that impact your budget the most, such as housing, food, and transportation, are more expensive than other areas.
When defining an HCOL area, it is a comparison of the cost of living based on other areas around other cities, states, and countries.
There is no hard line to define high cost of living since it is compared to the other cities.
Is it possible to live in a high cost of living area? Absolutely, it all depends on how you choose to live, the income you make, your lifestyle choices, and your savings percentage.
VHCOL are VERY high cost of living areas, such as Manhattan, Honolulu, San Francisco, Singapore, or Hong Kong.
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Pros and Cons of HCOL
Just because an area is labeled HCOL does not mean that you shouldn’t call the city home and stay away from these areas.
There are plenty of advantages and disadvantages of living in a high cost city.
There are always drawbacks to living in a high cost of living area and you have to decide whether or not what works for you.
In order to make a solid decision on where the best place is for you to live, you need to know this information.
Advantages of HCOL City
Job Market is Solid
First of all, in HCOL cities, the job market is stronger, there are more jobs available, and typically those jobs have a higher paying threshold than other areas.
That is why many companies are attracted to these areas because they know the talent pool of potential employees is much stronger in high cost of living area versus other areas where there are not as many skilled workers.
Income is Higher
Since companies know they must pay their employees a fair wage living in a high cost of living area, incomes are higher to support the increased expenses.
This helps those municipalities collect more taxes, which feed back into the system to provide more for their residents.
More Opportunities
More opportunities abound in a high cost of living cities.
Not only in the job market but there is access to public amenities and conveniences. Some examples include museums, sporting events, transit, best medical services, endless entertainment options, quality restaurants, high-end shopping, and quick access to international airports.
Even better, you can find free entertainment each and every day that does not cost a penny. Here is a list of 101 things to do with no money.
There are many benefits of living in a high cost of living area just because their opportunities are endless. You will always find something to do and there is always stuff going on.
Better Schools
Typically, in your high cost of living cities, that is where you will find the better schools. This is in direct correlation to the job market and skilled workers.
These skilled workers tend to have a higher instance of college graduates and they tend to want the best for their children. As a result, the schools tend to be much better than you would find in other areas.
Higher Chance of Home Equity
Another advantage of big cities is the variety of neighborhoods you can find in a bigger city. You can find the type of house you want to live in and the diversity you crave.
While home costs are much higher, there is also a greater chance of income increasing your home equity much faster than other areas.
For example, in Michigan, you could pay $100,000 for the exact same house in 5-10 years since appreciation will not happen at the same rate as other cities. Whereas, if you look at some of the hot markets, like Denver, Phoenix, or Austin, the home prices have been skyrocketing.
Thus, if you live in those quickly appreciating housing areas, there is a higher chance to increase the value of your house.
Disadvantages Of HCOL Cities
Higher Basic Cost of Living – Specifically Housing
First, housing costs can break the bank. It is the biggest expense for any household.
If you were unable to secure a salary to justify the housing cost, it makes it nearly impossible to be able to afford to live in a high cost of living area.
This is where you would have to get creative and look for housing subsidies or other means to stretch your housing budget.
Harder to Find Houses
Another con of a high cost of living areas is it is much harder to find housing! House and rent prices are higher, jobs are tougher to find where there’s opportunities abound, and you may feel like you are searching for a needle in a haystack.
You need to have the right opportunity to find the proper house for you. If you are looking at buying, you need things to line up properly and in your favor.
Stretch Yourself Too Far Financially
Since incomes tend to be much higher, many people find the urge to spend more discretionary income.
In many cases, this means that the average household may stretch themselves a little bit further by keeping up with the Joneses. They tend to spend more frivolously and not live as frugal.
This is a trap to be aware of if you are in a high cost of living area. You can be savvy with your money and save, but you have to be cognizant of how you spend your hard-earned salary.
HCOL Cities…
These are the HCOL areas. Do you need to avoid them? No, but going into those areas, you must realize the cost of living will be higher.
Here’s a list of all of the cities that are the top 20 cities that are high cost of living areas according to Kiplinger:
1.
Manhattan, New York
(145.7% above U.S. average)
2.
San Francisco, California
(94.7% above U.S. average)
3.
Honolulu, Hawaii
(97.6% above U.S. average)
4.
Brooklyn, New York
(80.5% above U.S. average)
5.
Washington, D.C.
(60.7% above U.S. average)
6.
Seattle, Washington
(56.7% above U.S. average)
7.
Oakland, California
(53.9% above U.S. average)
8.
Arlington, Virginia
(50.5% above U.S. average)
9.
Orange County, California
(50.2% above U.S. average)
10.
Boston, Massachusetts
(48.8% above U.S. average)
11.
Queens, New York
(47.8% above U.S. average)
12.
Los Angeles, California
(46.6% above U.S. average)
13.
Bethesda, Maryland
(45.5% above U.S. average)
14.
San Diego, California
(41.4% above U.S. average)
15.
Alexandria, Virginia
(40.0% above U.S. average)
16.
Stamford, Connecticut
(36.4% above U.S. average)
17.
Portland, Oregon
(34.3% above U.S. average)
18.
Fairbanks, Alaska
(27.9% above U.S. average)
19.
Bergen County & Passaic County, NJ
(26.6% above U.S. average)
20.
Anchorage, Alaska
(24.4% above U.S. average)
Source: Kiplinger
What Is LCOL Area Mean?
LCOL stands for lower cost of living.
These cities have a lower average cost of living versus the average.
Simply put…your ability to stretch your income goes much further in a low cost area compared to a high cost of living area. This is where you can get a bigger bang for your buck.
Pros and Cons of LCOL
The differences in the area where you can live can be vastly different. Thus, providing benefits or drawbacks of choosing to live there.
The cons are typically the reasons that most people want to stay away from these cities.
This is where personal preference tends to play the biggest reason for choosing one location over another.
Just like with a high cost of living area, you need to weigh the pros and cons of living somewhere where expenses are not quite as high.
Advantages of LCOL –
Slower Pace of Life
One of the biggest benefits is a slower pace of living in low cost of living area.
Life doesn’t move as fast.
There is more time to breathe, there is more time to step back and take a bigger picture. It is not go, go, go, go 24/7. Time to enjoy the fresh air and slower pace.
Cheaper Housing
This is why people choose to live in a low cost of living area. Period.
You are able to afford much more house for much less.
That right there, over the long term can make or break somebody financially.
Lower Taxes
Many of the lower cost of living cities also benefit from lower taxes as well. They have lower income taxes, and even possibly, lower property taxes. So, this is something to take into consideration when looking at a low cost of living area.
Check what the difference would be from where you’re currently at to where you are considering moving.
Remote Work
This is the bread and butter spot! When you can take in a higher pay and still live in a LCOL city.
After 2020, remote work is becoming more and more popular. In addition, it is an added benefit companies are including to attract skilled employees.
This is one scenario where you can get the best of both worlds.
Disadvantages Of LCOL Cities
Less Opportunities
First of all, there are fewer opportunities. There are fewer things to do, there are less things going on. The airport is a further drive away.
In a big city, you can always find events happening. It may not be the same in other cities. However, some cities have created programs to draw in residents with the big city feel like Bellefontaine, Ohio.
Income Potential is Lower
The job market doesn’t have the high-paying jobs that you would find in the bigger cities. The income potential in one of these cities does not compare.
Let’s face it… a good majority of your working years are about built around making an income. With a lower cost of living city, the income limitations can be cumbersome and it takes longer to be able to reach your financial goals.
LCOL States and Countries with LCOL
Geographic arbitrage can give you great value for your money.
Arbitrage is the spread of differing prices for the same thing like rent, food, or transportation.
This means you can save more money by living in LCOL state or spend less of your nest egg by living in a LCOL countries.
These are the areas you can find the lower cost of living. There are many LCOL cities to be found as well.
LCOL States:
1.
Mississippi
(84.10% of U.S. average)
2.
Kansas
(86.67% of U.S. average)
3.
Oklahoma
(88.09% of U.S. average)
4.
Alabama
(88.80% of U.S. average)
5.
Arkansas
(89.16% of U.S.average)
6.
Georgia
(89.30% of U.S. average)
7.
Tennessee
(89.49% of U.S. average)
8.
Missouri
(89.75% of U.S. average)
9.
Michigan
(90.54% of U.S. average)
10.
Indiana
(90.57% of U.S. average)
Source: US News
LCOL Countries:
Listed in alphabetical order because there are many to chose from based on your personal preferences.
The definition of MCOL is any area that just has an medium cost of living.
There is not one extreme or another. These cities are just plain average. Maybe slightly above or below the median cost of living.
This can be a sweet spot of reaching your financial goals while enjoying a higher quality of life.
Benefits of MCOL Area
As you can read on Reddit personal finance threads, there are plenty of reasons to live in an MCOL area.
Mostly because these types of cities you can get the best bang for your buck, and still have the pros of living in a high cost of living area, as well as the pros of living in a low cost of living area.
This is where the job market may be very stable with good wages but the cost of living is not going to cost you a fortune.
Also, you can find tons of cities that meet the criteria of a MCOL city.
Cost of Living Varies within Cities
Regardless of whether you choose, HCOL, LCOL, or MCOL areas, the cost of living will be dramatically different between these cities.
Whether you are looking at the downtown area, the outlying suburbs, or maybe even the cities that have popped up around near the main city.
Just because the city is HCOL or LCOL, there will be neighborhoods that will be the outliers to the main part of the city.
So, when you are looking at cost of living, you must know the things that are most important to you and what type of neighborhood that you would want to live in because they can be found.
That is what I call hidden gems.
It is possible to find a cheaper house in a low cost of living or high cost of living area, you just have to do your homework and know what you’re looking for.
Vice versa, it is very possible to find a neighborhood in a low cost of living area that is much higher than the surrounding areas.
How can I buy a house in a high cost of living?
It is possible to be a homeowner in a in a high cost of living area. You just have to be able to afford the down payment on the house to make being a homeowner justifiable, if possible.
Before you decide to buy a house, here are some factors you need to take into consideration..
1. Does it make sense?
First, you have to make sure that it makes logical sense to buy a house. Especially in a high cost of living area because the house prices may not match up to what the income that you are bringing in.
Will you still be able to reach your money goals by purchasing a house? Or will you be house poor?
2. Compare rent to potential mortgage
Will it be cheaper to rent? Or cheaper to have a mortgage?
To figure this out, take what the average rent is in your neighborhood. Then, use a mortgage calculator to figure out the maximum amount you can afford.
Since those calculators will leave you house poor. Decide what you are able to justify in spending on a mortgage and figure out what the mortgage payment is.
Is the mortgage payment less than average rent in the area?
For example, it may cost in a high cost of living area, like San Diego, it may cost $3,000 a month to rent a house. Whereas you might be able to buy a similar home in the same neighborhood and have your mortgage payment of $2,259.
Thus, making buying makes more financial sense than continuing to rent.
3. Expand your horizons
Another tip to afford your dream house – do not be set on that one specific neighborhood in a high cost of living area.
Many times you can find an up-and-coming neighborhood that is much less than the trendier and hip current neighborhoods that you want to live in.
Thus, you can typically save a good chunk of money. Plus in the long run, you greatly increase the potential for home equity.
4. New Homebuyer Programs
If this is the first time you are buying a house, then look into first-time homebuyer programs and grants. (Hint… this is like free money!)
There are many out there because cities want their residents to buy in their neighborhood and their cities because that means they are going to be there for a longer-term.
Also, there are programs for the military, teachers, nurses, single moms, minorities, graduate students. You just have to look.
5. Save for Down Payment
When you are looking at buying a house, this is the time to become serious about saving for a down payment.
You may have to find ways to save more money each month.
This could include things like downsizing your lifestyle to make it possible. Living with friends or family while you save up more money. Or just spending less for a certain period of time until you reach your downpayment goal.
6. House Hacking
The last step is one of the best ways to reach financial independence in a high cost of living city. Plus the concept works well in any city… house hack.
Find a multi-family housing property that you were able to buy. For example, plan to live on one side of the duplex and rent out the other. This will help you pay for your mortgage, by using the rent collected from your renters.
Thus, lowing your overall housing cost, which is your biggest expense.
Where Does Your Income Go the Furthest?
This is a comparison that you may be surprised by the outcome. Thus, proving why you need to do cost comparisons to see what financially makes the most sense when deciding to move from one to the other area.
comparison of income, expenses, taxes, and potential savings!!!!!!!!!!!
Once again, this is personal to your situation. So, take a moment and use the cost of living calculator yourself.
Paying taxes is one option to increase what you take home in each paycheck.
No Income States
These are the states that don’t pay state income taxes on wages:
Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
For most people, that is an instant decrease in overall taxes!
Higher Taxed States
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
Wisconsin
These states tax income somewhere between 7.65% – 13.3%.
Property Taxes
Property taxes vary from state to state.
In some states with large property taxes, it may even out with no income taxes. While other states, like Illinois, where property taxes are high and income taxes are above the national average as well.
Moving From HCOL to LCOL
The reason that most people move from HCOL to LCOL area is to save money. They want to decrease their expenses – that is the primary driver. Other times, it may be that they’re looking for a different type of lifestyle.
But as you can read on Reddit, everybody has a different personal experience.
It may have been beneficial and may have been bad timing. It may have been the best choice. It may have been the worst decision.
Make sure to factor in the costs associated with the move. Also, any ongoing expenses like travel if you are moving away from family.
How to Choose HCOL or LCOL?
Deciding where you live is one of the most personal decisions that you can make. Nobody can make it for you. You know what you want in life, how you want to live, and where you would feel more comfortable.
So, let’s look primarily at the financial side of making this decision of what is best.
1. Lifestyle You Desire
There are massive differences between HCOL and LCOL cities!! In big cities, life moves at a faster pace. While most cheaper cities areas move at a slower pace, so you have to make the decision of what type of lifestyle.
Do you want you want the big city? Do you want suburbia? Or do you prefer more of a country lifestyle?
When looking at this first factor, your answer should not include money. This is where your heart is. This is where your home. This is the life that you plan on living. This doesn’t include the financial sense.
This includes what makes your heart happy.
2. Your Money Goals
One of the things that discussed the most on this site is the 10 Money Bliss Steps to Financial Freedom. That is where most of our readers find their current money goal. And for good reason, you must build a strong foundation with money one step at a time.
In order to achieve long term financial success, the decision on housing is critical as it is the biggest expense in any budget. And that is can have the greatest impact on your budget!
On the flip side, the amount of income you are capable of making can also make the biggest impact on what you can afford to spend.
You must decide on your current money goal as well as the longer term money vision. Maybe you are looking at wanting to retire early? Love to live a slower life in the future?
It is possible to live in HCOL area where you are able to live extremely frugally and save more money. This is what my friend did over at Tuppennys FIREplace. For them, it was a smarter decision. On the flip side, maybe you are happier living a slower pace of life. Income is not the primary driver and you just want to enjoy life more.
At the end of the day, you must prioritize what you want, how your budget and your expenses correlate, and how your saving rate is impacted in various cities.
3. Season of Life
For those in their younger years may not understand this as much, but as you go through seasons of life, you will realize that you have different goals, objectives, and desires along the way.
When deciding where to live, your current season of life will probably have a very high impact on what you are looking for.
If you have young kids, you probably want to find a neighborhood where you have other families nearby that your kids can interact with.
If you are close to retirement, you may look decide to move out of the good school district because you do not need to pay the premium of living here. You may choose to move to a lower cost of living area, so you have the freedom to travel and help my kids and grandkids.
4. Potential Income & Career Opportunities
The greatest benefit of a high cost of living area is the income potential and the career opportunities. Both are much greater in the bigger cities than you would find in the smaller cities.
If your primary goal is increasing your income and advancing your career, then looking at high cost of living areas an absolute must. Plus you might be able to find something on the outskirts of expensive neighborhoods, that would make the most financial sense.
Then, living in HCOL is justified and necessary and the income can justify the higher costs associated.
On the flip side, there is plenty of income potential as a small business owner in a low cost of living area. You just have to know the market, what your skills are in, and what the needs are in your area.
4. Fixed Expenses
Fixed expenses can be dramatically different in each area.
Write out a list of your top fixed expenses and make sure to compare those as well.
For example, child care costs and tuition are going to be much more expensive in a big city than in the suburbs. Maybe in certain neighborhoods, a car would not be needed; thus, eliminating another big cost and associated maintenance.
While some fixed expenses seem meniscal, over time, they can add up significantly. Thus, helping or hurting your financial picture.
Unspoken Price Tag to Live Somewhere
As we covered in this post, there is a lot to consider when deciding between HCOL, LCOL, or MCOL areas.
It is a highly personal decision that you must take the time to make the best decision for you!
Not someone else, but for you.
One thing to watch out for when looking at where to live is what I call the “price tag” of a beautiful city.
Many times, employers know that the city that people want to live in their city for whatever reason. Thus, you will experience what I like to call the “income hit” to living there.
For example, Fort Collins, Boulder, and Austin are highly desirable areas for postgraduates to live in because they fall in love with the town and they want to stay here for the long term. Thus, employers know that this!
As a result, income for jobs maybe 10 to 15% less than they could make in any other type of market or city. So, that is something just to be aware of when wanting to stay in the city that they have grown to love.
In conclusion, when you’re looking at a high cost of living area versus a low cost of living area, there are two sides to the coin.
One – what makes financial sense. Two – your home is where your heart is.
Consequently, you have to make the decision on what makes sense for you.
While it makes financial sense to move to a lower cost city, at the same time, it may move you away from your family and your support system, and everything that you enjoy, and you may not be as happy in the long run.
Enjoy weighing the alternatives between all of the options available.
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.
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. It can be useful if you can no longer afford your life insurance premiums but you still need the coverage.
Most permanent life insurance policies, like whole life insurance, charge higher premiums than term life and use part of this money to build cash value over time. These policies typically contain a “nonforfeiture” clause, which means you won’t lose the cash value that’s accumulated if you cancel the policy or allow it to lapse.
Extended term insurance is a nonforfeiture option that lets you keep your life insurance coverage for some amount of time, even though your permanent policy ends. It replaces your permanent policy with a term policy, typically of the same face amount, paid for by your accumulated cash value.
The length of the term depends on how much cash value the policy has, as well as your age when you stopped making payments. If you have an outstanding policy loan, your insurance company will deduct the amount from its cash value first. The insurer will use the remaining amount to determine how much term life insurance you qualify for
.
Pros and cons of extended term life insurance
The advantage of extended term insurance is that you can stop paying premiums and keep some coverage in place. If you die during the policy’s term, your loved ones will still receive a death benefit, which is the payout from a life insurance policy.
The downside is that you’re replacing permanent life coverage — which is typically meant to last your entire lifetime or until an advanced age — with short-term coverage. If you outlive the policy’s term, the policy will expire and your survivors won’t get a payout when you die.
If you decide you no longer need coverage or you can no longer afford premiums on a permanent policy, you’ll also typically have the option of trading in the policy for its cash surrender value.
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Mortgage of first-time buyer tops £1,000 a month as house prices and rates rise
Average monthly payment has risen by 61% since 2019, pushing borrowers into smaller homes or ultra-long loans
The monthly mortgage of a first-time buyer has soared by more than 60% to exceed £1,000 a month since the last general election, according to figures that underline the financial challenge facing Britons trying to gain a foothold on the housing ladder.
Over the last five years, the average mortgage payment for a typical first-time buyer in Great Britain has risen by 61% to £1,075 a month, up from £667 in 2019, according to the property website Rightmove.
The increase of about £400 a month is linked to the march of house prices and interest rates, which have heaped financial pressure on borrowers, whose average wages have grown by just 27% over the same period. The financial squeeze has forced many younger borrowers to either look for smaller properties or to take out an ultra-long mortgage.
“As rates have increased over the last five years, the amount that a typical first-time buyer is paying each month on a mortgage has outstripped the pace of earning growth,” said Tim Bannister, a Rightmove property expert. “Some first-time buyers are looking at extending their mortgage terms to 30 or 35 years to lower monthly payments, or looking at cheaper homes for sale so that they need to borrow less.”
Are 25-year UK mortgages a thing of the past?Read more
The calculations made various assumptions, including that first-time buyers would have a 20% deposit to put down, that their mortgage term would last 25 years and that they were taking out a five-year fixed-rate mortgage on an average rate.
The average first-time buyer home in Great Britain now costs £227,757, a 19% rise since 2019. At a regional level, the north-west has recorded the biggest jump in first-time buyer prices, at 33% since 2019 to £177,588. Prices remain highest in London, where they have grown just 6% but now stand at £507,049.
Bannister is urging the next government to support first-time buyers with “well-thought out policies” that could address the difficulties of saving up a large enough deposit and qualifying for a mortgage.
The manifestos contained a number of polices aimed at this group. The Conservatives will make the current temporary stamp duty threshold of £425,000 permanent for first-time buyers while also promising a “new and improved” help-to-buy scheme for those with small deposits. Labour says it would introduce a “permanent, comprehensive mortgage guarantee scheme”, extending the current guarantee, which supports banks to offer 95% home loans.
It comes just days after the Bank of England held interest rates at 5.25% for the seventh consecutive time, keeping borrowing costs higher for longer. Millions of homeowners have had to remortgage at much higher interest rates in the past 18 months. This has led to a collective bill that is likely to reach £12bn by the end of the year, according to the Resolution Foundation thinktank.
A survey of investors conducted by the Bank of England showed that 50% believed there would be a rate cut at the monetary policy committee meeting in August. Three-quarters of respondents to the survey said they expected a cut in September.
Separate research published today shows that average UK salaries fell slightly in May, down for the first time since last October 2023, as the job market treads water ahead of the election. The average advertised salary was £38,765 in May, which was down £45 or 0.11% on April, according to the Adzuna monthly jobs report. The number of job vacancies was little changed at 854,248, it said.
“Hopes that a return to growth [in the economy] in the first quarter would result in greater confidence in hiring were not reflected in job vacancies in May,” said the Adzuna co-founder Andrew Hunter.
“Salaries have fallen slightly month-on-month pointing to a slightly less tight labour market and perhaps indicating that companies are beginning to post more junior and entry-level roles. This is balanced by the recent news that unemployment has reached its highest level in two and a half years, at 4.4%.”