Mortgage Rates are in for a Bumpy Ride in June

June mortgage rates forecast

Mortgage rates might be volatile in June. A graph of them may resemble the cutting side of a handsaw, with sharp daily ups and downs. I predict that the average rate on a 30-year mortgage will be higher in the last week of June than in the last week of May.

I’m not brimming with confidence in this forecast. One source of uncertainty arises in the middle of the month, when the Federal Reserve meets to hash out monetary policy. As of late May, financial markets were expecting the Fed to raise the overnight federal funds rate by half a percentage point on June 15.

Experience tells you that when the Fed raises short-term interest rates, then long-term mortgage rates will go up, too. But when the stock market takes a beating (which is what happened in May), that tends to depress mortgage rates. What if investors worry that the Fed’s aggressive rate increases will cause a recession soon? In that case, mortgage rates might not rise much, or they could even fall.

To summarize: Mortgage rates probably will rise in June, but that’s not a sure thing. Meantime, we could see substantial bumps and dips day to day.

Exiting a period of steady rates

Mortgage rates were relatively tranquil from autumn 2020 to the middle of December 2021. A graph of rates during that period would be a more-or-less straight line with little squiggles day to day and week to week.

Government intervention was responsible for that era of steady mortgage rates. The Federal Reserve accomplished it by buying billions of dollars’ worth of mortgage-backed securities every month. This meant that lenders knew they would easily find investors to buy the mortgages they underwrote: If private investors didn’t want them, the Fed would buy them.

Lenders kept rates low and steady during this time, knowing they could easily find buyers for their loans. But the period of tranquility ended when the Fed announced in mid-December that it would quickly reduce its purchases of mortgage-backed securities at the beginning of the new year. Lenders didn’t wait until January for the Fed to follow through; they raised mortgage rates at the end of December, and kept raising rates into the spring.

Then, in January, the Fed announced that it would slam the brakes on mortgages even harder in February. In March the Fed said it would no longer increase its mortgage holdings. Mortgage rates steadily increased.

Entering an era of unstable rates

The central bank has accumulated hundreds of billions of dollars’ worth of mortgage-backed securities since the beginning of the pandemic. In May, it pledged to start shrinking those holdings in June. The Fed plans to reduce the amount of mortgage-backed securities it owns by up to $17.5 billion a month from June through August, then by up to $35 billion a month after that.

This means that the government is reversing its intervention in mortgage markets. Instead of adding mortgage-backed securities to its balance sheet, the Fed is letting them drain off. When the Fed was accumulating mortgages, rates remained low and steady. Now that the Fed is shedding mortgages, it’s reasonable to expect rates to trend upward, and to have bigger up-and-down swings day to day and week to week.

This volatility will add stress when deciding whether to lock a mortgage rate today or wait until tomorrow. The time-honored advice is to “lock on the dips” — to lock on a day when the rate falls, on the theory that it will soon rise again. Your loan officer may offer guidance, but keep in mind that day-to-day rate movements are unpredictable.

What happened in May

Mortgage rates rose in May, as I predicted. The 30-year fixed-rate mortgage averaged 5.32% in May, compared with 5.09% in April. My predictions have been correct in eight of the last 12 months.

The article Mortgage Rates Are In for a Bumpy Ride in June originally appeared on NerdWallet.

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Beware of These Overhyped Financial Strategies

A good rule of thumb when you’re trying to eat healthy is to beware of any food you see advertised. The most beneficial fare — whole grains, fruits, vegetables — tends not to have a marketing budget.

Similarly, investments that are enthusiastically pushed by commission-earning salespeople may not be the best for your financial health. Before you buy any of the following, you’d be smart to investigate lower-cost alternatives and to consult an objective, knowledgeable third party, such as a fee-only financial planner.

Equity-indexed annuities

Equity-indexed annuities are insurance products that base their returns on stock market benchmarks. They’re often promoted as a way to benefit from stock market gains while being protected from losses.

But the contracts typically limit how much investors get when the stock market rises, says certified financial planner Anthony Jones of Groveport, Ohio. Two clients, who had purchased equity-indexed annuities before joining his firm, received only a fraction of last year’s 30% increase (as measured by the Standard & Poor’s 500 benchmark).

“They expected bigger returns in 2019 and were very disappointed,” Jones says. “They each had less than a 3% return.”

Equity-indexed annuities typically come with high commissions and surrender charges that can make it expensive to get your money out, says CFP Scott A. Bishop of Houston. The contracts can be extremely complex, and many buyers don’t understand what they’re getting, he says.

“They are not necessarily bad products, but they are really more like bond alternatives than stock alternatives,” Bishop says.

Reverse mortgages

Reverse mortgages allow homeowners 62 and older to convert some of their home equity into a lump sum, a series of monthly checks or a line of credit. Borrowers don’t have to make payments on the loan, which doesn’t have to be paid back until they die, sell or move.

But borrowers don’t always realize that their debt is accruing monthly interest. The amount they owe may grow so high they no longer have any equity in their homes, says Barbara Jones, an attorney with the AARP Foundation.

Reverse mortgages typically aren’t a good fit for people who may need to rely on their equity for future expenses, such as medical bills or nursing home care. Reverse mortgages could be a way to avoid foreclosure if a homeowner can’t afford to make payments on a regular mortgage, Jones says. There may be no equity left for their heirs, “but at least the person gets to age in place,” Jones says.

Non-traded real estate investment trusts

Real estate investment trusts allow people to invest in commercial real estate without having to buy and manage the properties themselves. Most REITs are publicly traded, so it’s easy to buy and sell them.

Non-traded REITs also invest in real estate but are designed to reduce or eliminate taxes. The trade-off is that your money could be locked up for years. Also, non-traded REITS tend to have high upfront fees that reduce the return on your investment.

“Non-traded REITs make my heart sink when I see them in a new client’s portfolio,” says CFP Jonathan P. Bednar of Knoxville, Tennessee. “These are very complex products, with high fees, and oftentimes not the greatest-quality underlying holding.”

Bednar prefers that clients own investments they can easily sell if needed, such as an exchange-traded fund that invests in real estate.

Cash-value life insurance

Cash-value life insurance combines a death benefit with an investment component. (Whole life, universal life and variable life policies are all types of cash-value life insurance.) Sometimes the policies are promoted as a tax-efficient way to invest for high earners who have maxed out their other retirement savings options, says CFP Alex Caswell of San Francisco.

But the premiums aren’t deductible, and the policies tend to have high costs, Caswell says. Many investors have better alternatives, such as using a tax-efficient investment strategy in a regular brokerage account, he says.

Also, premiums for cash-value policies tend to be much higher than premiums for the same amount of term insurance, which has a death benefit but no investment component. The higher premiums can lead buyers to skimp on coverage or to drop the policy because it’s too expensive. And sometimes policies are sold to people who don’t need life insurance at all, such as single people with no financial dependents, says CFP Tess Zigo of Lisle, Illinois.

Zigo says the higher commissions paid by cash-value policies can lead insurance agents to recommend them even when there are better alternatives.

“If all you have is a hammer, everything looks like a nail,” Zigo says.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston is a writer at NerdWallet. Email: Twitter: @lizweston.

The article Beware of These Overhyped Financial Strategies originally appeared on NerdWallet.

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5 Financial Tasks You Should Tackle by Year-End

A task without a deadline is just wishful thinking.

Sometimes, you can get away with procrastinating. If you never get around to alphabetizing your spices, no one’s life will change. But putting off some tasks could have a huge impact on loved ones.

The close of the year is a good time to set some firm deadlines to make sure you won’t leave a financial mess for people you love if you unexpectedly die or become incapacitated. Consider putting these items on your to-do list with a Dec. 31 due date:

1. Check your beneficiaries

If you need convincing that updating beneficiaries is important, consider the case of David Egelhoff, a Washington state man who died two months after his divorce was final in 1994. Because he had not changed his beneficiaries, his life insurance proceeds and pension plan were paid to his ex-wife rather than his children from a previous marriage. The children sued, and the case went all the way to the U.S. Supreme Court, which ruled in 2001 that the beneficiary designations had to be honored.

You’re typically prompted to name beneficiaries when you sign up for a 401(k) or other retirement account. Beneficiaries also are usually required when you buy annuities or life insurance. You often can check and change beneficiaries online, or you may need to call the company to request the appropriate form.

2. Review pay-on-death resignations

You may not have been required to name beneficiaries when you opened your checking account or a non-retirement investment account. Instead, financial institutions may offer a “pay on death” option. This allows you to name a beneficiary who can receive the money directly. Otherwise, the account typically has to go through probate, the legal procedure to distribute your property after you die.

Some states also have “transfer on death” options for vehicles and even real estate. Like pay-on-death accounts, these options allow you to pass property directly to heirs without the potential delays and costs of probate.

Beneficiaries can be added to vehicle registrations in Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Indiana, Kansas, Maryland, Missouri, Nebraska, Nevada, Ohio, Oklahoma, Texas, Vermont and Virginia, according to self-help legal site Nolo. To add or change a beneficiary, you apply for a certificate of car ownership with the beneficiary form.

Transfer-on-death deeds for real estate are available in Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Virginia, Washington, West Virginia, Wisconsin and Wyoming, according to legal site RocketLawyer. To add or change a beneficiary, the deed must be submitted to the appropriate county recorder.

3. Update insurers — and your heirs

Insurers usually don’t pay out life insurance proceeds until someone files a claim. But far too often, heirs are unaware that the money exists. A Consumer Reports investigation in 2013 found about $1 billion in life insurance proceeds waiting to be claimed.

Updating your contact information with your insurer also may help prevent policies from lapsing. I just heard from a reader who lost her long-term care coverage because she’d moved, forgotten to tell her insurer and failed to notice she hadn’t been billed. Many insurers will allow you to name someone who can be notified if a payment is overdue or they can’t find you. You’ll want to keep the contact information for those back-up people updated with the company, as well.

4. Visit your safe deposit box

If you forget to pay your annual fee and your bank can’t find you, after a few years your safe deposit box will be drilled and the contents turned over to the state. Photos and documents could be destroyed and family heirlooms sold at auction. Visit your box once a year to make sure your payments and contact details are current. Leave clear instructions with your executor or your heirs about where to find the box and its keys.

5. Create or revise powers of attorney

Powers of attorney allow others to make financial and health care decisions for you if you become incapacitated. If you don’t have these documents, or the designated people have died or are otherwise unavailable, your loved ones may have to go to court to take over. The expense and delay can add trauma at an already difficult time. Spare everyone that pain by naming a backup person or two and reviewing the documents every year to make sure the people named can still serve.

This article was written by NerdWallet and was originally published by The Associated Press.

The article 5 Financial Tasks You Should Tackle by Year-End originally appeared on NerdWallet.

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Here’s What Homeowners Must Remember at Tax Time This Year

Homeownership traditionally comes with some great tax breaks, but lots of things are different this year due to new tax rules. Here are four things that could put a wrinkle in your tax return this filing season if you’re a homeowner.

1. The mortgage interest deduction is different

Mortgage interest is tax-deductible, but this year the deduction has been adjusted. The deduction is limited to interest on up to $750,000 of debt ($375,000 if you’re married filing separately) instead of $1 million of debt ($500,000 if married filing separately).

The key date here is Dec. 15, 2017. If you took out your mortgage before then, the rule change likely doesn’t affect you, according to Ruthann Woll, a certified public accountant and principal in the tax services group at RKL LLP in Wyomissing, Pennsylvania. There’s an exception for people who were under contract to buy a home before Dec. 15, 2017, as long as they were scheduled to close by Jan. 1, 2018.

Also, the law treats refinanced mortgages as if they originated on the old loan’s date, which means the old limit of $1 million still applies. (If you refinance to borrow more than your current mortgage balance, different rules may apply, though.)

2. The property tax deduction is now capped

Property taxes are generally still tax-deductible, but this year the deduction is subject to a total cap of $10,000, which includes property taxes plus state and local income taxes or sales taxes paid during the year ($5,000 if married filing separately).

“That’s, obviously, huge for everybody, especially wage earners who have high state and local taxes to begin with,” Woll says.

3. The HELOC deduction has new rules

New rules around home equity lines of credit, or HELOCs, can affect whether the interest on those loans is tax-deductible. Now you can deduct HELOC interest only if you used the HELOC money “to buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the IRS. In other words, if you used the money to improve your house, you can probably deduct the interest.

“But if you’re using that line to pay off personal expenses, like credit cards or things like that, then you can’t deduct it,” Woll warns.

4. Moving expenses aren’t deductible for most anymore

Under the old tax rules, you may have been able to deduct the cost of moving. But under the new tax rules, moving-expense deductions are largely limited to military members.

“If you’re on active duty, or if it’s a move pursuant to a military order, change of station, then those deductions are allowed,” Woll reminds homeowners.

A word about itemizing this year

Although many tax deductions associated with homeownership are still around this filing season, you might decide not to take any of them. Woll says financially it may not be worth it.

That’s because something else happened to the tax rules in 2018: The standard deduction increased dramatically to $12,000 for single filers and $24,000 for joint filers. The effect is that a married couple filing jointly would probably need to have more than $24,000 in itemized deductions — those related to owning a home and any others as well — in order to make itemizing the better route financially.  And so, many people might save more money (and time) this year by scrapping the itemized deductions for mortgage interest, property taxes and all the rest and just taking the standard deduction.

People shouldn’t stop keeping track of their deductible expenses, though. For some, itemizing could still be the better route. “They could be leaving money on the table,” Woll says.

The article Here’s What Homeowners Must Remember at Tax Time This Year originally appeared on NerdWallet.

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How to Stay Afloat Financially in a Federal Shutdown

When you have a pile of bills and no paycheck, address the essentials first. That means the roof over your head, medicine, food, heat, electricity and — for those who still must report to jobs despite a government shutdown — getting to work.

What can wait? Almost everything else.

Communicating with creditors is key to surviving a federal government shutdown and recovering afterward. Here’s a guide to navigating the process if a furlough for federal workers has hit your household.

How to deal with creditors

Missing one payment on a credit account — such as a credit card, mortgage, auto loan or personal loan — can knock as much as 100 points off your credit score, and it can take up to three years to fully recover. Sometimes there’s no way to avoid that, but it’s worth asking lenders if they have programs to help you avoid credit score damage.

  • First, visit each creditor’s website or call the customer service center to see if it has programs in place for furloughed government workers.
  • Second, if a lender doesn’t have a specific furlough program, ask about policies to accommodate short-term disruptions.
  • Finally, you may have to make strategic choices about which bills to pay. Make use of the social services safety net, too. Call 211 or visit to connect with local assistance programs.

Here’s what to know about specific types of accounts, plus some ways to cope with any income disruption:

Credit cards

If you are able to make your minimum payment, do so, even if it’s a bit late. You likely will be charged a late fee, but if you make the minimum within 30 days of the due date, your account won’t be reported as “delinquent” to credit bureaus. A delinquent payment damages your credit score — and so does making only a partial payment, not the full minimum.

If you can’t make a payment but are in good standing, call your card issuer to explain. Some may extend your due date, waive the late fee and continue to report a “current” payment status to credit bureaus.

If you’re already late on payments, ask if there’s a hardship plan that could lower your interest rate or reduce the minimum payment.

Auto loans

How or whether your lender will work with you depends on the lender, your situation and the status of your loan. Make contact before you miss a payment, to avoid damaging your credit and risking repossession. The lender may provide options like forbearance or extending your loan term to lower your monthly payment.

Additionally, some large banks and financing companies associated with carmakers have said they’re making arrangements to help federal employees, according to Automotive News. For instance, qualified customers of Toyota Financial Services, Ford Credit, Hyundai Capital, GM Financial and Mercedes Benz Financial Services may be able to defer payments or have late fees waived.

Student loans

Make a minimum monthly payment if you can. If not, ask your loan servicer or lender about options to lower or postpone payments.

If you have direct or PLUS federal student loans and can’t make a payment, contact your loan servicer to request forbearance. It will temporarily halt payments or reduce your payment amount.

Most private lenders offer postponement, temporary payment reduction or other flexible repayment options for borrowers experiencing economic hardship.

When you postpone payments for any reason, interest will typically continue to grow. If you can, make payments on the interest during this time.

When you’re getting paid again, contact your lender or servicer to cancel the rest of your forbearance so you avoid racking up more interest, suggests Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

The Department of Education and all federal loan servicers are still operating as usual during the shutdown. You can still complete the FAFSA; apply for or recertify an income-driven repayment plan; and submit employment certification for Public Service Loan Forgiveness.


Call your lender before you miss a payment or make a partial one. It may offer a forbearance plan or short-term loan.

If you’re buying a home, the shutdown may delay loan approvals or closing dates, especially if you’re taking out a government-backed loan. If that looks likely, work with your real estate agent or current landlord to seek flexibility on moving dates.

Personal loans

If you’ve covered your essentials and can still make the monthly payment on your personal loan, you should. Otherwise, call your lender to see if your account is eligible for relief.

Some lenders may offer a flexible payment schedule or hardship plan, or waive late fees. Lenders might also forgo reporting missed payments to the credit bureaus.

Small businesses

Loans backed by the U.S. Small Business Administration cannot be approved during the shutdown. If your business needs working capital, alternatives include non-SBA bank loans, business lines of credit and online loans, although rates are likely to be higher.

SBA disaster assistance is still available for businesses and homeowners seeking help as a result of federally declared disasters. You can also apply for small business grants through the government’s website.

Other ways to cope

Find a no- or low-interest loan

Many credit unions and some banks are offering furloughed federal workers no-interest or low-interest loans during the shutdown. Among them are California Credit Union, Navy Federal Credit Union, USAA and U.S. Employees Credit Union.

Eligibility and terms differ across credit unions, so make sure you understand what you’re applying for.

Especially during a time when your next payday is uncertain, resist the convenience of payday loans, which are typically due in two weeks and come with triple-digit interest rates.

Use your tax refund to catch up

The IRS will pay tax refunds despite the federal government shutdown, the White House has said. Income tax-filing season will begin Jan. 28, and you can begin preparing your return as soon as you receive all your tax documents. The IRS recommends filing electronically for a faster refund.

Boost your income to dig out

When bills pile up for any reason, taking on a side hustle can help you find breathing room. The gig economy makes it easier to find temporary earning opportunities.

The article How to Stay Afloat Financially in a Federal Shutdown originally appeared on NerdWallet.

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What the Government Shutdown Means for Home Loans

The partial federal government shutdown is complicating the already complicated process of getting and managing a mortgage. For one thing, the political storm is like severe weather at a major airport: You can expect minor delays or worse. Also, it could mean financial hardship for some federal government employees facing mortgage payments without their regular paychecks.

Here’s how the shutdown is affecting home buyers and homeowners — and what you can do about it.

If you’re getting an FHA, VA or USDA loan

If you’re getting a Federal Housing Administration or Department of Veterans Affairs loan, it’s likely you can expect delays in the underwriting process, and it’s possible your closing date will be pushed back as well.

There’s good news for most FHA-qualified home buyers: Single-family FHA loans are being funded, even during the shutdown. FHA home equity conversion mortgages (known as reverse mortgages) and FHA Title I loans (financing for permanent property improvements and renovations) are the exception — and won’t be processed during the shutdown. The processing of VA loans will continue, according to the Mortgage Bankers Association, but you may have to wait.

Support staff at the VA and at the Department of Housing and Urban Development who handle underwriting or entitlement questions “are unavailable, so FHA/VA borrowers may experience delays,” says Ted Rood, a senior loan officer in St. Louis.

The U.S. Department of Agriculture isn’t approving new USDA loans during the shutdown.

If you’re seeking a conventional loan

Most mortgages are considered conventional loans, meaning they aren’t backed by the federal government. However, they are facilitated by government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

As private companies, Fannie and Freddie aren’t directly affected by the shutdown. Mortgage processing is continuing as usual, except in cases where the federal government provides information required for underwriting.

“The IRS has not been processing 4506-T tax transcripts — tax return verifications — which are required on most files, although that service is restarting,” Rood says. “There will still be a backlog due to requests that have been piling up since Dec. 22.”

Self-employed borrowers are particularly affected by the lack of access to federal income tax transcripts. Some lenders may accept signed tax returns in lieu of transcripts.

And the shutdown could also stall verification of employment for government employees.

If you need flood insurance

Getting flood insurance if you’re buying in a flood-prone area shouldn’t be a problem despite some earlier troubled waters.

The Federal Emergency Management Agency announced on Dec. 28 that it would resume selling and renewing flood insurance policies. That reversed a Dec. 26 decision to suspend policy sales and renewals during the partial shutdown.

“This new decision means thousands of home sale transactions in communities across the country can go forward without interruption,” National Association of Realtors President John Smaby said in a press release.

If you own a home but aren’t getting paid

If the lack of a paycheck has you worried about paying an existing mortgage on time, contact your loan servicer immediately. Explain your situation and ask about alternatives.

One common option is forbearance, an arrangement designed to help homeowners during periods of financial hardship. Forbearance temporarily reduces or suspends your mortgage payments while money is short. For example, Wells Fargo and LoanDepot list forbearance on their websites, though cases are approved on an individual basis.

A short-term loan that makes up for missed pay is another possible option. Navy Federal Credit Union, for example, is offering one-time 0% APR loans of up to $6,000 for federal employees and active-duty members of the Coast Guard who typically use direct deposit for their paychecks.

Talking with your lender before you miss a payment could keep your credit score from suffering a hit.

“We will work with each customer individually and can help with things such as late fees and not reporting to the credit bureau,” Tom Kelly, a JPMorgan Chase spokesman, said in an email.

If you’re considering a mortgage rate lock

Mortgage rates already had been falling when the shutdown began Dec. 22, and they fell more than an eighth of a percentage point in the two weeks that followed. That’s why the shutdown could give you a chance to grab a good mortgage rate.

“Our expectation is that this will be a short-term blip and you’ll be glad if you were able to take advantage of the drop in mortgage rates,” says Danielle Hale, chief economist for Her forecast assumes that the shutdown won’t last for months and that mortgage rates will rise this year.

‘Lenders are closing thousands of loans a day’

Shutdown-related issues are causing delays of up to two weeks on typical loans, according to Alan Rosenbaum, CEO and founder of Guardhill Financial in New York City. Still, one industry leader thinks it’s mostly business as usual.

“The government shutdown is having a minimal impact on the mortgage industry,” Mat Ishbia, president and CEO of United Wholesale Mortgage, says. “Lenders are closing thousands of loans a day. Everything is moving forward.”

Unfortunately, government employees who are already homeowners — with a mortgage and facing cash flow issues from the lack of a paycheck — may be the ones who feel the biggest impact.

NerdWallet writers Beth Buczynski, Hal M. Bundrick and Barbara Marquand contributed to this article.

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Don’t Believe the Hype About Millennials and Money

Millennials are killing fast food. They’re wiping out golf. Thanks to them, mayonnaise is as good as dead.

If you believe the latest survey — no need to specify which survey here, they’re all virtually the same — there’s very little millennials can’t do. Except, of course, save for retirement, control their spending and keep their grubby young hands off luxuries like coffee and avocados.

So what’s true and what’s false? Much of the above falls into the latter category. Millennial stereotypes make good headlines, but they’re often just that.

Here are some myths about the way millennials handle money, followed by the facts.

Myth 1: Millennials don’t save for retirement

Let’s be clear: As a whole, no generation is saving or has saved as much as it should. Millennials — generally considered to be between ages 22 and 37 — are no different. But it’s not for lack of trying, and they’re not doing significantly worse than their parents or grandparents did.

According to the most recent Survey of Consumer Finances, households headed by someone under age 35 have a median $12,300 in retirement savings. That’s not enough. But neither is $120,000, which is the median for ages 55 to 64 — and those people are actually on the brink of retirement age.

One thing holding millennials in particular back: lack of access to employer-sponsored retirement plans. According to research from the Pew Charitable Trusts, more than two-thirds of millennials don’t have one. The National Institute on Retirement Security says that of millennials who are eligible to participate in employer plans, more than 9 in 10 do.

And they do it at rates that meet or exceed other generations: According to a Transamerica Center for Retirement Studies analysis, millennial participants in 401(k)s or similar plans contribute a median 10% of salary, the same rate as baby boomers, and more than Generation X, which contributes 8%. The report classifies 39% of millennials as “super savers,” which means they’re contributing 10% or more. That’s more than any other generation in the study.

Myth 2: Millennials blow their money on frivolous things

This is a survey favorite, particularly when framed as a reason millennials aren’t saving. Somehow, you can be responsible for killing everything most people spend money on — dining out, department stores, vacations — and still be shamed as a careless spender.

The reality: According to a NerdWallet analysis of last year’s Consumer Expenditure Survey, millennials actually spend less than other generations in several categories that could be considered frivolous, including clothing, entertainment and alcohol.

Myth 3: Millennials are job hoppers

The truth: They’re right in line with Generation X when it comes to changing jobs. According to a Pew Research Center analysis of government data, 22% had worked for their current employer for five years or more in 2016, compared with 21.8% of Generation X workers in 2000 (when they were the same age). The analysis found that college-educated millennials actually have longer track records with their employers than Generation X workers did in 2000.

Incidentally, there’s nothing particularly wrong with moving on to a new and better opportunity — in fact, it could very well be financially savvy, assuming that opportunity comes with a pay increase. Which brings us to …

Myth 4: Millennials are unambitious

Millennials have one habit that could greatly increase their net worth, and that’s advocating for themselves at work.

According to research from Bank of America, millennials are more likely to ask for a raise. The data found that 46% of millennials have asked for one in the past two years, compared with 36% of Generation X and 39% of baby boomers. Even better, they have a good batting average: Of those who asked, 80% received.

This is key to financial security because raises are an opportunity to build retirement savings. If you increase your savings rate each time you get a raise, you’ll easily and painlessly work your way up to saving 10% to 15% of your income for retirement, which is the general goal. (To get a more personalized retirement savings goal, use a retirement calculator.)

Myth 5: Millennials don’t want to buy houses

Alternate phrasing: They’re killing homeownership. Reasons range from an unwillingness to put down roots to financial instability.

Either way, it’s not entirely true: While many millennials struggle to afford their own home, they’re working toward it. NerdWallet’s own research from this year found that 82% of millennials say buying a home is a priority. In fact, they were the generation most likely to say they’d like to buy a home to rent out for extra income. (What was that about a lack of ambition?)

This article was written by NerdWallet and was originally published by Forbes.

The article Don’t Believe the Hype About Millennials and Money originally appeared on NerdWallet.

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Debt-to-Income: What It Is, and Why You Should Understand It

In any kind of lending, the organization giving the money wants to be sure that the borrower can actually afford to pay it back. Since a mortgage is typically the largest loan that a home buyer will have, lenders find it important to confirm that a borrower is not taking on too much debt. They use a couple different versions of the debt-to-income ratio to determine how much money a person can reasonably borrow.

What Is the Debt-to-Income Ratio?

People who spend less of their income on housing tend to have more money available for other things, like groceries, utilities, services, and incidental expenses. Homeowners who spend too much on their mortgage payments may not be able to save money in case of an emergency. That might make it harder for them to keep making the payments if something goes wrong . To help prevent this from happening, lenders use industry standards to calculate how much a person should be able to borrow. It is related to their income, debts, and expected mortgage payment. The ratio of debt to applicable income (DTI) ranges from 36 percent to 45 percent or higher, depending on the borrower’s:

  • credit score
  • funds available for down payment
  • employment history
  • assets in reserve

Certain loan programs may require that applicants meet higher restrictions on credit score or down payment in exchange for a higher DTI. While many homeowners understand that 20 percent down payments are customary, there are other options available to them, DTI depending.

How Does DTI Affect Buying Power?

The DTI matters to home buyers because it could seriously restrict their buying power, and thereby affecting their ability to get a mortgage, depending on the conditions in the market where they intend to look. Buyers with no other debts will encounter the first cap on the front-end ratio, since both ratios would be the same for them. Applicants with some other debts could be capped by either the front-end ratio or the back-end ratio, depending on the price of the homes they want to buy, and the total debts they will have to carry outside of the mortgage. Unless people have an income much higher than the regional average, or plan to buy homes that are comparatively inexpensive, their DTI ratio will limit their buying power in some way.

What Is Front-End vs Back-End DTI Ratios?

There are two versions of the DTI ratio. The first is tied to the monthly mortgage payment. This payment is made up of principal, interest, taxes, and insurance. This ratio, known as the “front-end ratio,” relates only the mortgage payment to borrowers’ gross income. Although lenders may set this ratio as low as 28 percent, some loan programs will allow a front-end ratio as high as 31 percent.

The back-end DTI ratio adds the mortgage payment to all the other debts that the borrowers have to make payments on each month. This might include payments that are not officially debts but are still required every month, like child support. Ideally, lenders want applicants to have a back-end ratio of 36 percent of their gross income. However, conventional and government-backed loan programs will approve qualified applicants with a back-end DTI of 43-45 percent. Some lenders may choose to approve loans for borrowers with a total DTI as high as 50 percent, although this is uncommon.

Can One Change Their DTI Ratio?

Fortunately, buyers have some options if they would like to alter their existing debt-to-income ratios. The first is to increase income, while the second involves decreasing debt load. Lenders will consider income from a variety of possible sources, as long as the borrower can adequately document it and its frequency. Although borrowers are not required to document income from a side business, they may choose to do so to improve their DTI. On the other side, people might opt to pay off some debts before they start shopping for a mortgage. Eliminating a certain percentage of monthly payments may decrease the back-end DTI enough to make a difference in buying power.

The debt-to-income ratio is one of the first things lenders look at to determine if an applicant can manage a mortgage. With an understanding of the DTI ratios and how they affect buyers, people can decide if they have what it takes to get a mortgage.

Daniel Ramos loves writing about personal finance, lifestyle, and interior decorating topics. When he’s not writing, he helps design snazzy home interiors in Denver.

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When Renting Your First Place, Good Credit Can Open Doors

When first-time renter Angelica Fattu-Logan, 20, started applying for apartments, she braced for rejection. But those rejections never came — in part because she had good credit.

“I applied to about three or four different apartments, and they all accepted me right away,” says Fattu-Logan, a drugstore manager and college student from Peoria, Arizona, who recently moved into an apartment with her fiancee. “It was a pretty quick process, like two days. It was just a matter of picking which one I liked better.” She maintains her credit by paying for groceries with her credit card and paying off the balance right away.

For young folks fearing rejection from landlords, Fattu-Logan’s positive experience is heartening. It also illustrates an important point: Good credit can be especially helpful for first-time renters.

Better chances of approval

When you’re new to renting, good credit can make up for other shortcomings in an application.

“If [applicants] have a good credit score, even if they haven’t rented before, that means that they’ve handled their finances well and that they’re responsible,” says Laura Agadoni, a landlord and real estate writer based in Marietta, Georgia. That could be enough to make up for a lack of a rental history, otherwise a major factor in rental decisions, she says.

“My bottom line is, I just want to get my rent on time,” she says.

Requirements can vary, but Agadoni says many landlords look for credit scores of 640 or higher for renters. They also consider factors such as income, debt and employment.

In some cases, those with good credit scores might not need to find a co-signer, a person — often a parent — who’s equally responsible for making payments. But Agadoni notes that she might still require a first-time renter with good credit to get a co-signer if they’ve worked at their job for less than a year and have limited savings, for example.

“Every situation is different,” she says.

Savings on rent and deposits

If you’re approved with good credit and meet all the landlord’s requirements, you’ll generally just have to pay the security deposit and rent described in the rental listing. But if you’re approved with bad credit, you may have to pay a premium — not just on rent, but potentially for utilities, too.

“We’ve definitely seen consumers with more challenged credit having to put higher deposits down in order to rent a property,” says Jim Triggs, senior vice president of counseling at Money Management International, a nonprofit credit counseling agency.  The firm offers counseling to renters, among other services. He adds that landlords sometimes also charge higher rents to these applicants.

Many utility companies — such as electricity and gas providers — also charge upfront deposits to those with poor credit.

“Normally, the better your credit, the better arrangements you’ll have with any of those utility companies, up to and including zero deposits,” Triggs says.

More bargaining power

In cities where the rental market is extremely competitive — say, San Francisco or New York — having good credit is just table stakes. But in areas where landlords have trouble finding tenants, a good score can give you bargaining power.

That’s because good credit is a crystal ball that tells landlords you’re reliable. “How you pay your bills is predictive of how you’re going to pay your bills in the future,” says credit expert John Ulzheimer. “That includes rent.”

If a landlord is eager to find a renter and you have good credit, “the apartment [landlord] is absolutely going to want you to move in, and move in lickety-split, because they’re going to want to start getting paid,” Ulzheimer says. “And you can lean on them a little bit.”

For example, he says, you may be able to negotiate a good parking spot or extra garage remote controls, even as a first-time renter.

Before renting, check your credit

Before you go apartment-hunting, check your credit reports and credit scores to see where you stand.

Doing so is free and doesn’t hurt your scores. If you have good credit, you can walk into property viewings with confidence, knowing you’re set up for success. If you have bad or no credit, you can focus on making improvements. Be upfront with landlords about what steps you’re taking to work on your credit and, in the meantime, budget for a larger security deposit. It may take longer to find a space that’s right for you, but with persistence — and maybe some help from a co-signer — you’ll get there.

The article When Renting Your First Place, Good Credit Can Open Doors originally appeared on NerdWallet.

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Budgeting for New Homeowners: Plan for Additional Expenses

The stress and excitement of buying a house has come and gone — it’s time to hang a welcome sign and call it home.

But a new journey in budgeting begins once you’ve paid the closing costs and tipped the movers. Now it’s time to learn to budget as a homeowner.

If you’re new to budgeting, buying a home marks a good time to start. The 50/30/20 budgetingapproach is a good foundation, where 50% of your household income goes to needs, 30% to wants and 20% to debt repayment and savings. See how your income breaks down using a budget calculator or a budgeting worksheet with pencil and paper.

Even if you’re not new to budgeting, there are many additional things to consider now that you own a home. Start with the following.

Account for new regular expenses

You may have already been covering household expenses, such as electricity and water bills, at another residence, but be prepared for many other regular homeownership costs — beyond your mortgage payment. Here are expenses unique to homeowners.

Real estate taxes and homeowners insurance: These are typically, but not always, included in your monthly mortgage payment. Even if you have a fixed-interest mortgage, your payment can fluctuate from year to year because of changes in taxes and homeowners insurance premiums.

Homeowners association: If you live in a planned neighborhood, you’ll likely be part of a homeowners association, which comes with dues that can cost several hundred dollars a month. Even if your HOA fees are due annually, earmark the amount each month so you’re not hit all at once.

Home maintenance and upkeep: Taking care of repairs and updates can get expensive. Whether you plan on staying in your new house forever or selling it some day, you’ll want to stay on top of maintenance. Rob Jones, a certified financial planner with Hutchins & Haake CPAs in Overland Park, Kansas, recommends that homeowners set aside 1% to 2% of the value of their home each year for upkeep. If your home is older and may need more repairs, plan on the higher side of this range.

Anticipate bigger project costs each year

Estimating just how much you’ll spend on home maintenance is difficult. The 1% to 2% range is a good place to start, but high-value repairs may push your annual home maintenance spending over this range.

When you revisit your expenses annually, think about upcoming expensive projects. For instance, you may have a 20- or 30-year-old roof, or a deck that may need replacing every decade or so. Include these projected expenses in your budget in addition to the 1% to 2% for general maintenance.

“These things shouldn’t be a surprise,” Jones says.

Revisit your savings and life insurance

You may already have an emergency fund, life insurance policy and retirement account in place, but a review would be good in light of your recent purchase.

Emergency fund: In a perfect world, it contains enough cash for you to cover living expenses for three to six months. With homeownership, your living expenses — or those considered “needs” in your budget — likely have increased.

Life insurance: If you want your life insurance to cover your entire mortgage and several years’ of living expenses in the event of your death, you may need to purchase a higher amount. Make sure you’re getting the best value by pricing at least two different-sized policies — one that would cover only your new liabilities (the house) and one that would cover your home and any existing policies.

Retirement contributions: Will your current retirement contributions cover your new household expenses after you leave the workforce? You may want to allocate more, particularly if you’ll still be paying a mortgage when you hit retirement age.

Know where your mortgage fits in debt priorities

Your mortgage is likely your biggest debt, but that doesn’t mean it’s the biggest priority. In judging debt as good or bad, your mortgage — like student loan debt, typically — is one of the good guys. A home loan generally comes with a lower interest rate and allows you to purchase your largest asset, one that will hopefully grow in value over time.

Before you make extra mortgage payments or tack a few hundred dollars onto your regular monthly bill, eliminate these debts if you have any:

  • Credit cards
  • Payday loans
  • Title loans
  • High-interest personal loans

Start thinking of making extra payments on your mortgage only after all toxic debt is eliminated, your retirement is on track and your emergency fund has ample cash.

Be proactive when faced with challenges

Life happens, and there may come a day when you struggle to make your monthly payment. If this occurs, be proactive. Consider refinancing your mortgage at a lower interest rate if you anticipate difficulties ahead. If you’ve been on time with payments, you may also qualify for the Home Affordable Refinance Program, or HARP, through the federal government.

“Don’t let your lender have to come find you because you haven’t made your payment,” Jones says. “Call them and tell them what’s going on — they don’t want to have to foreclose on homeowners.”

Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @ElizabethRenter.

The article Budgeting for New Homeowners: Plan for Additional Expenses originally appeared on NerdWallet.