With strong demand and limited options for existing homes, many homebuyers are turning to new construction.
Mortgage applications for new construction home purchases increased 35.5% in July on a year-over-year basis, according to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data. On a monthly basis, applications ticked up by 0.2%. This change does not include any adjustment for typical seasonal patterns.
MBA’s survey tracks application volume from mortgage subsidiaries of homebuilders across the country.
“Applications for purchase loans on newly constructed homes remained strong in July, up 36% annually, as new homes continued to account for a growing share of homes available for sale,” said Joel Kan, MBA’s vice president and deputy chief economist.
Overall, 24.2% of purchase applications came from the FHA , the highest share since May 2020. Additionally, the share kept increasing in four of the last five months.
“FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions,” added Kan.
According to MBA estimates, new single-family home sales were running at a seasonally adjusted annual rate of 677,000 units in July 2023. It’s down 1.5% from the June pace of 687,000 units. On an unadjusted basis, MBA estimates that there were 56,000 new home sales in July 2023, a decrease of 6.7% from 60,000 new home sales in June.
By product type, conventional loans made up 65.3% of loan applications. Meanwhile, FHA loans composed 24.2% of total loan applications while RHS/USDA loans composed 0.3% and VA loans composed 10.2%. Simultaneously, the average loan size for new homes decreased to $397,148 in July from $400,281 in June.
However, the 7% mortgage rates and reduced housing affordability pushed down the homebuilder’s confidence index, which fell to 50 in August. New home sales also dipped 2.5% in June.
Source: housingwire.com
According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), 40.5% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $96,300. This is down from 45.6% posted in the first quarter of this year, and the second-lowest reading since NAHB began tracking affordability on a consistent basis in 2012.
As another reminder of ongoing housing affordability challenges, the second quarter 2023 HOI reading remains lower than the second quarter 2022 score of 42.8%.
The HOI shows that the national median home price increased to $388,000 in the second quarter, up from $365,000 in the previous quarter. Meanwhile, average mortgage rates were 6.59% in the second quarter, up from 6.46% in the first quarter.
The top five most-affordable major housing markets in the second quarter of 2023 were:
The top five least-affordable major housing markets were all located in California:
“While builders continue to face a number of affordability challenges, including a shortage of distribution transformers, elevated construction costs and a lack of skilled workers, they remain cautiously optimistic about market conditions,” says NAHB Chairman Alicia Huey. “A lack of existing inventory is fueling demand for new construction, and mortgage rates are expected to stabilize in the weeks and months ahead as the Federal Reserve nears the end of its tightening cycle.”
“Rising mortgage rates in 2023 that peaked near 7% recently have been a major factor in declining affordability conditions,” says NAHB Chief Economist Robert Dietz. “Given the Fed’s limited ability to address rising construction costs, the best way to satisfy unmet demand and ease the nation’s housing affordability crisis is to enact policies that will allow builders to construct more homes.”
Source: windowanddoor.com
Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Q1. Sara and Greg from St. Cloud MN: Hello Brian, Our question might need the help of a marriage counselor but it’s real estate related so we thought we would ask for the pros and cons first. We’re in our late 20s and have been saving to buy a home since before we got married 2 years ago. We talked a lot about starting a family and having a yard for children but didn’t talk much about the specific house we wanted until just a recently. Turns out we couldn’t be further apart on what we want in a home. I want a charming older home, maybe from the 1920s and Greg wants a new home with all of the modern amenities and new technology. What are the pros and cons of each?
A1. Hi Sara and Greg. First off, I’m not a marriage counselor (twice divorced) so I’m only answering from a real estate perspective. Buying a home is such a personal choice that you’ll need to find another way to work that out.
The pros and cons really depend on your prospective and preferences. Older homes tend to cost less to purchase but can be much more expensive to maintain and costly to remodel if they haven’t had a major face-lift in a few decades. Still there are advantages such as older homes often have much larger lots and even acreage. Older homes will have mature landscaping (that may need serious pruning), while new homes may not have any landscaping, particularly nothing in the backyard.
If you’re buying brand new, you’ll have several floor plans to choose from, be able to pick the colors, and have some say in the modern appliances that come with it. While a DIY repainting project for an old house is relatively inexpensive, upgrading to modern appliances can easily cost $30k to $40k. Keep in mind that most young couples are a bit cash strapped for a year of two after buying their first home. You may need to live with the old appliances for a while. Even before you get to the appliances, make sure you know what is going on with the utility systems. Houses from the 1920s had dangerous electrical systems but most were upgraded decades ago. You’ll also want to know the age and condition of HVAC, plumbing, roof, foundation, possibly water well and septic, etc. If these have been upgraded and maintained over the years, you probably won’t have problems. Still, you’re going to want a good Home Warranty plan. Brand new homes shouldn’t have problems with these systems and should come with a warranty from the builder.
Modern amenities are usually a big deal with older homes. Don’t expect a TV cable outlet in every room and you’ll probably find fewer electrical outlets than you’re used to. You can mostly forget internet, surround sound, and security system cables being buried in the walls (think about going wireless when remodeling). Still, if you’re planning a major upgrade, you can have these done to your own preferences and still have the elegance of a sturdy old home.
There are other things you want to consider. Older homes sometimes have lower property taxes because of a lower value and maybe because of the neighborhood. The neighborhood is almost certainly fully developed which means it isn’t likely to experience growth and changes that can come with new developments.
It’s all about trade-offs. Older homes that have stood the test of time come with a quality and timeless beauty that you don’t find in new construction. On the other hand, newer homes are built to more exacting standards such as fire safety and energy efficiency. However, newer homes tend to have veneer finishes rather than old-growth solid wood. Many new homes have had that veneer pulled back over the years to reveal substandard building materials or shoddy workmanship.
Sara and Greg, I hope this helps you better understand the major differences between purchasing a new –v- old home. Ultimately it’s a big decision that you’ll live with for many years.
Readers are encouraged to comment with their thoughts and experiences about what should be consider when comparing old and new homes. Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.
Source: realtybiznews.com
Despite yet another increase in homebuilder sentiment, the sales pace of new homes declined month over month in June, according to data published on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
In June, the sales pace of new homes fell 2.5% compared to May, dropping to a seasonally adjusted annual rate of 697,000. On a year-over-year basis, however, new home sales were up 23.8%.
That more or less lined up with mortgage application data for new builds, which showed demand up 26% year-over-year in June but down 5% from May.
“New home sales continue to be an outsized share of the housing market,” Lisa Sturtevant, Bright MLS’ chief economist, said in a statement. “The market for new homes is booming because the number of existing homes coming on the market has slowed to a two-decade low. It’s a unique housing market, unparalleled in recent years, for the active inventory to be so heavily skewed towards new construction. As a result, it is forcing buyers to make trade-offs, in terms of both characteristics of the home as well as the home’s location.”
At the end of the month, there were 432,000 new homes for sale, up 0.7% from a month prior, but down 3.6% compared to June 2022. At the current sales pace this inventory represents 7.4 months of supply, which is better than the 7.2 months of supply recorded in May, but down 22.1% year over year.
As the sales pace slowed month over month, the median sales price of new homes also dropped in June, falling roughly $2,000 to $415,400. A year ago, the median sales price was $432,700.
“The restricted supply of existing homes is a boon for homebuilders this year, as weary homebuyers find more open doors when walking through new floorplans and neighborhoods,” George Ratiu, the chief economist at Keeping Current Matters, said in a statement. “Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points and extending financing incentives for cash-strapped first-time buyers or rate-locked homeowners looking to trade up. At the same time, builders continue to face higher materials and labor costs, keeping a lid on how much lower they can go with product prices.”
Regionally, the sales pace was up in the Northeast (41,000 homes) and the South (460,000 homes) on a month-over-month basis, with the Northeast recording the larger increase at 20.6%.
The West (143,000 homes) and the Midwest (53,000 homes) fell on a monthly basis, recording decreases of 13.9% and 28.4%, respectively.
On a yearly basis, the Northeast (141.2%), the West (34.9%) and the South (21.4%) recorded increases, while the Midwest (-13.1%) recorded a decline.
“Scanning the new home landscape over the next few months, we can expect continued improvement in supply, especially in markets with the largest number of filed residential permits, such as Houston, Dallas, Atlanta, Charlotte, Austin, and Orlando,” Ratiu said. “These predominantly Southern markets have experienced a major influx of new residents over the past few years, as many Americans have been attracted to strong local economies, warmer weather, affordable housing, and lower cost of living. We can expect affordability to continue being a central driver of demand for new homes.”
In the South, which is the epicenter of homebuilding activity, homebuyers benefit from the incentives homebuilders can offer.
“With inventory of existing homes dwindling, many home shoppers are turning up empty handed. Those buyers who turn to the new construction market are seeing more available options to snatch up, leading to strong new home sales compared to a year ago,” said Zillow Senior Economist Nicole Bachaud. “And with many builders offering incentives like rate buydowns, new construction is an attractive offer for buyers who are seeking affordability. The new construction market will continue to play a vital role in unlocking buyers who are left with few other options as builders continue to churn out much needed inventory into this market.”
Source: housingwire.com
Despite yet another increase in homebuilder sentiment, the sales pace of new homes declined month over month in June, according to data published on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
In June, the sales pace of new homes fell 2.5% compared to May, dropping to a seasonally adjusted annual rate of 697,000. On a year-over-year basis, however, new home sales were up 23.8%.
That more or less lined up with mortgage application data for new builds, which showed demand up 26% year-over-year in June but down 5% from May.
“New home sales continue to be an outsized share of the housing market,” Lisa Sturtevant, Bright MLS’ chief economist, said in a statement. “The market for new homes is booming because the number of existing homes coming on the market has slowed to a two-decade low. It’s a unique housing market, unparalleled in recent years, for the active inventory to be so heavily skewed towards new construction. As a result, it is forcing buyers to make trade-offs, in terms of both characteristics of the home as well as the home’s location.”
At the end of the month, there were 432,000 new homes for sale, up 0.7% from a month prior, but down 3.6% compared to June 2022. At the current sales pace this inventory represents 7.4 months of supply, which is better than the 7.2 months of supply recorded in May, but down 22.1% year over year.
As the sales pace slowed month over month, the median sales price of new homes also dropped in June, falling roughly $2,000 to $415,400. A year ago, the median sales price was $432,700.
“The restricted supply of existing homes is a boon for homebuilders this year, as weary homebuyers find more open doors when walking through new floorplans and neighborhoods,” George Ratiu, the chief economist at Keeping Current Matters, said in a statement. “Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points and extending financing incentives for cash-strapped first-time buyers or rate-locked homeowners looking to trade up. At the same time, builders continue to face higher materials and labor costs, keeping a lid on how much lower they can go with product prices.”
Regionally, the sales pace was up in the Northeast (41,000 homes) and the South (460,000 homes) on a month-over-month basis, with the Northeast recording the larger increase at 20.6%.
The West (143,000 homes) and the Midwest (53,000 homes) fell on a monthly basis, recording decreases of 13.9% and 28.4%, respectively.
On a yearly basis, the Northeast (141.2%), the West (34.9%) and the South (21.4%) recorded increases, while the Midwest (-13.1%) recorded a decline.
“Scanning the new home landscape over the next few months, we can expect continued improvement in supply, especially in markets with the largest number of filed residential permits, such as Houston, Dallas, Atlanta, Charlotte, Austin, and Orlando,” Ratiu said. “These predominantly Southern markets have experienced a major influx of new residents over the past few years, as many Americans have been attracted to strong local economies, warmer weather, affordable housing, and lower cost of living. We can expect affordability to continue being a central driver of demand for new homes.”
In the South, which is the epicenter of homebuilding activity, homebuyers benefit from the incentives homebuilders can offer.
“With inventory of existing homes dwindling, many home shoppers are turning up empty handed. Those buyers who turn to the new construction market are seeing more available options to snatch up, leading to strong new home sales compared to a year ago,” said Zillow Senior Economist Nicole Bachaud. “And with many builders offering incentives like rate buydowns, new construction is an attractive offer for buyers who are seeking affordability. The new construction market will continue to play a vital role in unlocking buyers who are left with few other options as builders continue to churn out much needed inventory into this market.”
Source: housingwire.com
Despite yet another increase in homebuilder sentiment, the sales pace of new homes declined month over month in June, according to data published on Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
In June, the sales pace of new homes fell 2.5% compared to May, dropping to a seasonally adjusted annual rate of 697,000. On a year-over-year basis, however, new home sales were up 23.8%.
That more or less lined up with mortgage application data for new builds, which showed demand up 26% year-over-year in June but down 5% from May.
“New home sales continue to be an outsized share of the housing market,” Lisa Sturtevant, Bright MLS’ chief economist, said in a statement. “The market for new homes is booming because the number of existing homes coming on the market has slowed to a two-decade low. It’s a unique housing market, unparalleled in recent years, for the active inventory to be so heavily skewed towards new construction. As a result, it is forcing buyers to make trade-offs, in terms of both characteristics of the home as well as the home’s location.”
At the end of the month, there were 432,000 new homes for sale, up 0.7% from a month prior, but down 3.6% compared to June 2022. At the current sales pace this inventory represents 7.4 months of supply, which is better than the 7.2 months of supply recorded in May, but down 22.1% year over year.
As the sales pace slowed month over month, the median sales price of new homes also dropped in June, falling roughly $2,000 to $415,400. A year ago, the median sales price was $432,700.
“The restricted supply of existing homes is a boon for homebuilders this year, as weary homebuyers find more open doors when walking through new floorplans and neighborhoods,” George Ratiu, the chief economist at Keeping Current Matters, said in a statement. “Builders are also responding to this shift by bringing slightly smaller homes to market in an effort to meet lower price points and extending financing incentives for cash-strapped first-time buyers or rate-locked homeowners looking to trade up. At the same time, builders continue to face higher materials and labor costs, keeping a lid on how much lower they can go with product prices.”
Regionally, the sales pace was up in the Northeast (41,000 homes) and the South (460,000 homes) on a month-over-month basis, with the Northeast recording the larger increase at 20.6%.
The West (143,000 homes) and the Midwest (53,000 homes) fell on a monthly basis, recording decreases of 13.9% and 28.4%, respectively.
On a yearly basis, the Northeast (141.2%), the West (34.9%) and the South (21.4%) recorded increases, while the Midwest (-13.1%) recorded a decline.
“Scanning the new home landscape over the next few months, we can expect continued improvement in supply, especially in markets with the largest number of filed residential permits, such as Houston, Dallas, Atlanta, Charlotte, Austin, and Orlando,” Ratiu said. “These predominantly Southern markets have experienced a major influx of new residents over the past few years, as many Americans have been attracted to strong local economies, warmer weather, affordable housing, and lower cost of living. We can expect affordability to continue being a central driver of demand for new homes.”
In the South, which is the epicenter of homebuilding activity, homebuyers benefit from the incentives homebuilders can offer.
“With inventory of existing homes dwindling, many home shoppers are turning up empty handed. Those buyers who turn to the new construction market are seeing more available options to snatch up, leading to strong new home sales compared to a year ago,” said Zillow Senior Economist Nicole Bachaud. “And with many builders offering incentives like rate buydowns, new construction is an attractive offer for buyers who are seeking affordability. The new construction market will continue to play a vital role in unlocking buyers who are left with few other options as builders continue to churn out much needed inventory into this market.”
Source: housingwire.com
A lot of people including Jerome Powell who runs the Federal Reserve assume high interest rates will make housing cheaper. They believe that higher rates make houses less affordable and therefore, prices will decrease. There are many things wrong with this line of thinking, but they are missing an incredibly important concept. High rates may cause a temporary drop or leveling off in prices, but over the long term, they are certain to cause higher prices. This is because higher interest rates make it more expensive to build houses. As a result, fewer people and developers will be able to afford to build, which will lead to a decrease in inventory. We already have a massive shortage of houses in the United States which has caused big increases in prices. Reducing building will make that shortage even worse and make prices higher in the future.
Many people including Powell assume high rates make prices drop or level off. This is one of Powell’s quotes from 2022:
“Housing is significantly affected by these higher rates, which are really back where they were before the global financial crisis,” Powell said during a news conference. “The housing market was very overheated for a couple of years after the pandemic, as demand increased and rates were low. The market needs to get back into a balance between supply and demand.”
When he said this, rates were lower than they are now and mortgage rates are much higher than they were prior to the global financial crisis. People were also used to higher rates from the 80s and 90s back then whereas people are used to very low rates now.
However, historically raising interest rates has never lowered housing prices. There are even multiple studies that show high interest rates have never caused prices to drop. The 70s and 80s had some of the highest interest rates in our history and the 70s also had the highest appreciating real estate market in the last 100 years.
High rates make it more expensive to buy homes but they also reduce the inventory because people do not want to sell and lose the lower rate they currently have. High interest rates often reduce sales but not prices. High rates also make many things more expensive.
Here is a video I did two years ago talking about what raising rates would do to the real estate market:
Building houses is not easy in today’s government-regulated environment. Building codes and development requirements get stricter by the minute. The harder you make it to build or develop, the higher new construction costs are but that is another topic. Here is why higher rates cause new construction to be more expensive:
Not only do high interest rates increase the cost of new construction, but they also decrease the number of new builds. I mentioned before how prices usually do not decrease with high rates but sales often do. While prices may not decrease, or only decrease for a short amount of time, sales almost always decrease with higher rates. It is harder to sell houses because of the higher rates which makes builders wary to build more. It can take more than a year to build a house and if the builders have a concern about real estate demand, they will hold off and not risk building or building as much.
With higher rates, we also see higher construction costs as discussed earlier. If the price to build goes up, that will also make builders hesitant to start new builds. How can they be sure the market with higher rates will support the higher prices? Historically, the market has supported higher prices even with higher rates but that is still a big risk to take!
The graph below shows single-family new construction starts. We saw record low building for years after the housing crash and we were starting to get back to normal when interest rates spiked. You can see the huge drops in new builds in 2022 and while it has increased some, it is nowhere close to where it needs to be to catch up to demand.
single family startas 2023
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single family startas 2023
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The USA has a housing shortage as do most areas of the world. The governments keep making it harder to build and develop and then wonder why there is less building! If there is a shortage of housing, that means more people are fighting over fewer houses, and that increases prices. The less building there is, the higher prices will go as the population will keep increasing and moving around the country looking for new housing that is not available.
Powell may have thought higher rates would make housing more affordable, but I am not sure if he considered the long-term impact higher rates have. They will most certainly decrease new construction and raise the cost of construction which in the long-term will increase prices. The longer rates are high, the worse the problem will get. Ever heard the term kicking the can down the road? They may not want to lower rates now because a buying frenzy could ensue, but the longer they wait the worse they are making the problem.
How to find a great contractor.
Overall, higher interest rates are likely to have a negative impact on the construction industry. This is because they will make it more expensive to borrow money, finance projects, and hire workers. As a result, we can and have seen a decrease in new construction which will make the inventory problem worse, which will most likely make housing even more expensive in the future.
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Source: investfourmore.com
Mortgage rates are mostly holding steady despite ongoing economic headwinds. The 30-year fixed-rate mortgage averaged 6.39% this week, Freddie Mac reports. It’s a rate home buyers are getting used to.
“Economic crosscurrents have kept rates within a ten-basis-point range over the last several weeks,” says Sam Khater, Freddie Mac’s chief economist. “After the substantial slowdown in growth last fall, home prices stabilized during the winter and began to modestly rise over the last few months. This indicates that while affordability remains a hurdle, home buyers are getting used to current rates and continue to pursue homeownership.”
Steady rates are instilling more confidence in home buyers who are turning to new construction for greater inventory options. Home builders also report feeling more optimistic about the outlook for new-home sales and resuming more single-family construction.
Mortgage rates, though moderating, may experience slight fluctuations from week to week, but economists predict they’ll fall over the remainder of the year. “With inflation easing further and the Federal Reserve expected to pause its rate hikes soon, mortgage rates will stabilize near 6% in the second half of the year,” says Nadia Evangelou, senior economist and director of real estate research for the National Association of REALTORS®.
With a 6.4% mortgage rate, the typical home buyer can afford to purchase a home up to $380,000—just 2% less than the national median home price—if the buyer puts 20% down, Evangelou notes. About 45% of listings fall within this price range, she adds.
Freddie Mac reports the following national averages with mortgage rates for the week ending May 18:
Source: nar.realtor
Freddie Mac’s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 6.96% as of August 10, up from last week’s 6.90%. By contrast, the 30-year fixed-rate mortgage was at 5.22% a year ago at this time. The 15-year fixed-rate mortgage also rose this week to 6.34%, up 9 basis points from the prior week.
Other mortgage rate indices showed higher rates on Thursday morning:
HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.99% on Wednesday, compared to 7.02% the previous week. At Mortgage News Daily on Wednesday, the 30-year fixed rate for conventional loans was at 7.05%, down 8 basis points from the previous week.
“For the third straight week, mortgage rates continued creeping up and are now just shy of 7%,” said Sam Khater, Freddie Mac’s chief economist. “There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again. However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”
The economy, indeed, remains on strong footing. In spite of higher prices, consumer spending remains strong and consumer confidence has hit a two-year high. Job growth has slowed but wages are still rising and the unemployment rate is low. The second quarter GDP growth exceeded expectations but manufacturing indices continue to show a slowdown.
According to George Ratiu, chief economist at Keeping Current Matters, real estate markets have benefited from more people gaining jobs and better paychecks this year.
“While sales of existing homes have been lagging, the challenge comes mainly from too many buyers chasing not enough available properties,” said Ratiu. “Considering that prices have been rising over the past six months and mortgage rates have been pegged above 6.5% since May of this year, the 4.2 million annual sales pace is a highlight of solid demand.”
Additionally, economists have observed a rebound in new home sales this year, with buyers seeking to leverage new construction options and any competitive builder incentives.
When rates were around 7% in late October and November of 2022, demand for housing slowed down significantly, said Bright MLS Chief Economist Lisa Sturtevant. However, demand bounced back after the winter holiday, yielding a surprisingly strong spring housing market.
Ratiu predicts that borrowing costs will stay high as long as financial markets are dreading the next Fed’s meeting. At the moment, the spread between the 30-year fixed rate mortgage and the 10-year Treasury is significant — It hovers around 300 basis points, a level rarely seen in the past 50 years. Ratiu analyzes that without the elevated risk premium and with a spread closer to a historical average of 172 basis points, today’s 30-year fixed mortgage rate would be around 5.7%.
Historically, mortgage rates tend to start cooling once inflation abates. There is typically a six-to-eight-month lag. If inflation maintains its current trajectory, homebuyers can expect to see rates slide back toward 6% in the Fall, concluded Ratiu.
Source: housingwire.com
Mike On The Money: Paying off student loans, credit interest, and mortgage rates
THE MONEY. WE WELCOME MIKE GIORDANO, FINANCIAL ADVISOR WITH WILLIAMS WEALTH MANAGEMENT AND A NEW DADDY OF BEAUTIFUL MARGOT. WE SHOWED YOU THE PICTURE LAST WEEK. SHE WAS VERY APPRECIATIVE TO MAKE HER DEBUT. SHE’S LIKE, WOW. JANE KNOWS SHE LOOKS STUNNING. AND YOUR WIFE LOOKED LIKE NOT EVEN 24 HOURS LATER. BUT WE’RE SO EXCITED ABOUT YOUR FAMILY. SO TODAY WE WANT TO TALK ABOUT STAYING A STEP AHEAD BECAUSE YOU’VE GOT THREE LITTLE ONES LIKE MIKE DOES. YOU KNOW HOW TO STAY A STEP AHEAD, PAYING BACK STUDENT LOANS. LET’S START THERE, MIKE, BECAUSE STARTING IN SEPTEMBER, PEOPLE WHO HAD HAD THOSE LOANS DEFERRED BECAUSE OF COVID ARE GOING TO HAVE TO START PAYING IT BACK. HOW DO THEY MAKE PLANS NOW TO HAVE RE BUDGET? YEAH, WELL, THE BEST THING TO DO IS START FOCUSING ON THAT NOW. START THINKING ABOUT HOW CAN I, HOW CAN I SET ASIDE THE MONEY THAT I’M GOING TO NEED? SAY YOU NEED $200 FOR THOSE PAYMENTS, START FIGURING OUT HOW YOU’RE GOING TO GET THAT $200 RIGHT NOW, IF YOU CAN SKIMP OUT ON SOME EXPENSES, THEN THAT’S THE PERFECT WAY TO GO. MAYBE YOU CAN FIND A WAY TO RAISE YOUR INCOME. THAT’S ANOTHER THING. SO THE BEST THING TO DO, THOUGH, IS FIND A WAY TO MAKE UP THE MONEY SO YOU CAN MAKE THE NORMAL PAYMENTS. IF FOR SOME REASON YOU CAN’T MAKE NORMAL PAYMENTS, THERE ARE A WHOLE BUNCH OF INCOME BASED PAYMENT PROGRAMS THAT ARE MORE PEGGED TO YOUR INCOME. SO THE PAYMENTS MAY BE LOWER EARLIER AND THEN THEY GO HIGHER LATER, BUT YOU MAY END UP PAYING MORE INTEREST OVER TIME. SO IT’S A GREAT FALLBACK OPTION, BUT THE BEST THING TO DO IS BE ABLE TO MAKE NORMAL PAYMENTS. GREAT. AND JUST GET IT DONE. ABSOLUTELY. I MEAN, IT’S VERY MUCH LIKE IF YOU HAVE A CAR, YOU PAID OFF YOUR CAR FOR A LITTLE PERIOD OF TIME. YOU DIDN’T HAVE ANY PAYMENTS, BUT THEN ALL OF A SUDDEN YOU WANT A NEW CAR, YOU GOT TO START BUDGETING FOR THAT STUFF. THAT’S GREAT ADVICE TO STAY IN AHEAD OF THE CAR THING. WHAT ABOUT INFLATION? WE’RE TAKING A LOOK AT EVERYTHING HAPPENING WITH INFLATION. EVERYTHING COSTS MORE, INCLUDING WHAT I’M PAYING ON CREDIT CARD. DO I PAY OFF MY CREDIT CARD OR DO I SAVE MONEY? OR IS THERE A WAY TO DO BOTH? THERE’S A WAY TO DO BOTH FOR SURE. THE BEST THING TO DO IS THAT WHEN YOU THINK ABOUT PAYING OFF CREDIT CARDS, ANYTHING THAT’S DOUBLE DIGIT INTEREST OR HIGH SINGLE DIGIT INTEREST, THOSE ARE THE THINGS YOU WANT TO PAY OFF AS QUICKLY AS POSSIBLE. IF YOU’VE GOT ALL THAT, IF YOU DON’T HAVE ANY OF THAT KIND OF DEBT, THEN YOU CAN START LOOKING AT AT PUTTING MORE MONEY INTO SAVINGS. AND WHEN YOU’RE TAKING A LOOK AT TRYING TO COUNTER INFLATION OVER THE LONG TERM, THE BEST WAY TO COUNTER INFLATION ARE GROWTH ASSETS LIKE STOCKS, REAL ESTATE THAT WAY TO A LESSER EXTENT LONG TERM BONDS. BUT IN THE SHORT TERM, IF YOU CAN’T HANDLE ANY PRICE VOLATILITY BECAUSE YOU NEED THE MONEY OVER THE NEXT YEAR OR TWO, THEN YOU WANT TO LOOK AT THOSE HIGH YIELD SAVINGS ACCOUNTS OR MONEY MARKET FUNDS IN A BROKERAGE ACCOUNT BECAUSE THEY’RE PAYING UPPER FOURS 5% INTEREST, WHICH IS BETTER RIGHT NOW THAN THE 3% INFLATION RATE. YEAH, AND THAT’S GREAT TO KNOW, TOO. NOT ALL SAVINGS ACCOUNTS ARE CREATED EQUAL, SO REALLY MAKE SURE THEY AREN’T. SO MAKE SURE YOU’RE LOOKING AT WHAT YOU’RE GETTING PAID. OKAY. SOME PEOPLE WANT TO BUY A HOUSE. MORTGAGE RATES ARE THE HIGHEST THEY’VE BEEN IN A REALLY LONG TIME. HOW DO YOU EVEN BEGIN THIS? LOOK AT THIS 30 RATE, 30 YEAR FIXED RATE, 7.37. WHAT DO WE GO FOR IT? OR DO YOU HOLD OUT AND WAIT TO BUY THE HOUSE? WELL, IT DEPENDS. YOU WANT TO KEEP YOUR YOUR FIXED COSTS UNDER 50% OF WHAT YOU’RE MAKING, RIGHT. AND REALLY DEBTS YOU WANT TO BE UNDER ABOUT A THIRD OF WHAT YOU’RE MAKING. SO THAT’S THE FIRST THING. SO THAT’S HOW YOU MAINTAIN A FINANCIAL RESPONSIBILITY IN TERMS OF THE INTEREST RATES AND ALL THAT STUFF. THE BEST THING TO DO IS IF YOU CAN SOMEHOW SAVE A LITTLE BIT MORE MONEY AND GET A BIGGER DOWN PAYMENT, THEN THERE’S LESS MONEY FOR YOU TO HAVE TO BORROW. IT DEPENDS ON WHAT KIND OF HOUSE YOU’RE LOOKING TO BUY, TOO. IF YOU’RE LOOKING TO BUY A NEW HOME, NEW CONSTRUCTION, THERE’S A LOT OF BUILDERS THAT HAVE PROGRAMS THAT WILL BUY DOWN SOME OF THAT FINANCING COST AND ON THE FRONT END FOR THE FIRST FEW YEARS. AND THEN HOPEFULLY IF RATES FALL BACK DOWN, THEN YOU CAN REFINANCE FOR THE LONGER TERM. IF IT’S AN EXISTING HOME, YOU DON’T REALLY HAVE THAT OPTION. AGAIN, YOU’VE GOT OPTIONS, TAKE A LOOK AT IT AND THEN CREDIT RATINGS, WE ALWAYS KIND OF LOOK AT LIKE, IS IT WHAT IS YOUR CREDIT SCORE? SOMETHING THAT CAN SAVE YOU MONEY AT SOME POINT? WELL, JANE, I MEAN, IT DEFINITELY IT DEFINITELY CAN SAVE YOU MONEY. THINK ABOUT IT. IF YOU WERE LENDING MONEY TO A FRIEND, YOU GOT A RELIABLE FRIEND AND AN UNRELIABLE FRIEND WHO ARE YOU GOING TO MAKE THE WHO ARE YOU GOING TO LOAN THE MONEY TO? RIGHT. AND CERTAINLY AND IF YOU’RE WILLING TO LOAN MONEY TO BOTH BECAUSE YOU’RE SUCH A NICE PERSON. YES. YOU’RE GOING TO LEND MORE MONEY TO THE RELIABLE FRIEND THAN THE UNRELIABLE FRIEND. IT’S THE SAME THING. THAT’S WHAT CREDIT SCORES ARE. THE HIGHER YOUR CREDIT SCORE IS, THE MORE RELIABLE YOU ARE TO PAY BACK THE MONEY THAT YOU BORROWED. AND SO IF YOU’RE MORE RELIABLE, YOU’RE GOING TO TYPICALLY GET A BETTER INTEREST RATE AND YOU’RE GOING TO BE ABLE TO BORROW MORE MONEY AND STAY IN AHEAD OF WHAT YOU MIGHT WANT TO BORROW FOR THE FUTURE. MOST IMPORTANT THING, THERE ARE SO MANY FACTORS CREDIT SCORES. BUT THE MOST IMPORTANT THING IS MAKING THOSE PAYMENTS ON TIME. EXCELLENT. MIKE GIORDANO, IT’S ALWAYS GREAT TO B
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Mike On The Money: Paying off student loans, credit interest, and mortgage rates
Mike Giordano with our Jane Robelot discusses paying off student loans, credit interest, mortgage rates, etc.
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Mike Giordano with our Jane Robelot discusses paying off student loans, credit interest, mortgage rates, etc.
Source: wyff4.com