Alternatives to putting 20% down on a home

It's a mantra often repeated in the real estate industry: If you want to buy a house, you need a 20 percent down payment. But with the average house in the U.S. costing $311,400 as of December 2013, according to the Census Bureau, all one has to do is the math to get a coronary. Raising a 20 percent down payment isn't an easy thing to do.

Fortunately, you don't have to. "It's a myth that all homebuyers must have a 20 percent down payment to buy a home," says Nancy Herrera-Siples, a Riverside, Calif., branch manager at Primary Residential Mortgage.

"Putting less than 20 percent is OK with most banks," agrees Christopher Pepe, president of Pepe Real Estate in Brooklyn, N.Y. So why do you constantly hear that you need to put 20 percent down? Because if you don't, it usually means you'll have to shell out money for either private mortgage insurance or government insurance, which is usually financed by the Federal Housing Administration. Mortgage insurance protects the lender in case you can't make your payments and the house is foreclosed on. But PMI payments don't last forever. When your loan-to-value ratio is 80 percent, you can ask the lender if you can stop paying PMI; at 78 percent, the lender is required to cancel it.

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Still, PMI can easily cost a couple hundred dollars a month, assuming your house is valued in the neighborhood of $200,000. Pepe says the average he sees is $700 a month just for PMI. But keep in mind that he's based in New York City, which boasts one of the highest costs of living in the country.

So if you really want a house and you're looking for alternatives to putting 20 percent down, here's what you need to know.

Figure out financing before looking for a house. There are numerous programs that will help you buy a home without 20 percent down, says Dan Smith, president of Private Mortgage Solutions, a mortgage bank in Atlanta.

But, Smith adds, "All of these programs have various lender, property and borrower qualify requirements and restrictions. A knowledgeable mortgage banker or mortgage originator should be able to provide assistance and details."

You'll have to hook up with a lender eventually, and Smith suggests doing it early. "Don't pick a property and then work backward toward financing," he advises. "You'll only frustrate yourself."

Another reason to have a mortgage banker in your corner: "Lenders can layer programs to help each borrower overcome dilemmas," Herrera-Siples says, citing common problems like not having a down payment or needing lower monthly payments.

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Try your own bank first. This is advisable especially if you have a good relationship with the bank, says Amanda Monette, a real estate lending officer with Rockford Bank & Trust in Rockford, Ill. "You may have a better shot of getting a loan, even if you don't have the money for a down payment."

If you do all of your banking at your local bank, including investments and a savings account, Monette says this will work your favor. "Extra points," she says, "if your parents, grandparents and other relatives bank with the same institution as you do. A banker may be more willing to go the extra mile because he or she knows you and your family and knows that you will be a good risk."

Some common but unconventional routes you might take. "There are a variety of options available to consumers," Smith says, citing the FHA, which offers mortgages in which the homeowner can put as little as 3.5 percent down. "The [U.S. Department of Agriculture] offers a program that allows buyers to purchase a qualified property with zero down. And many conventional leaders will allow subordinate financing to bridge the gap between the down payment and first mortgage loan amount."

But, of course, there's no free lunch, and some of these unconventional roads lead to an expensive toll booth. For instance, FHA loans, which were once considered great loans for first-time, low-income homebuyers, are much more expensive than they used to be because of mortgage insurance. With subordinate financing, you're taking out another loan to make up for not having the 20 percent down payment, and the second loan often has a higher interest rate than the first. Make sure the math works out so that you're not paying more in the long run than if you paid the PMI.

USDA loans, available for people who want to purchase a home in an area considered rural, are generally still well-regarded and coveted by many homeowners with incomes considered low to moderate. There are a range of limits depending on the type of USDA loan you're eligible for and state you live in, as well as a lot of criteria to meet. For example, if you are part of a Colorado family with one to four people and a household income of around $70,000 or less, you'd probably qualify.

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Check with your state. While you're figuring out how to finance your home, don't forget that your state may have loan programs to help homeowners -- especially first-time buyers.

For instance, Illinois recently announced its "Welcome Home Illinois" program, in which first-time buyers or people who haven't owned a house in Illinois within three years can get $7,500 in down payment assistance with an interest rate as low as 3.99 percent for a 30-year fixed rate mortgage. It's aimed at working class families -- a family of three in Chicago can earn as much as $106,000 in annual household income and qualify. In other parts of the state where the cost of living is lower, the same family of three can earn no more than $82,915 to qualify. And the homebuyer must have a credit score of at least 640.

Whatever you do, don't get too cute. If you don't have the 20 percent, it may be best to keep saving until you reach that amount, or at least get closer to it. Just because you find a way to finance your move-in doesn't mean you should take it. You want have enough left over in your budget to enjoy your house, not worry every month about how you're going to pay the mortgage. In other words, you can live under a roof without 20 percent down -- but is the alternative something you can live with?

Original Post https://homes.yahoo.com/news/alternatives-to-putting-20--down-on-a-home-003554316.html

You can’t be financially secure without these 10 products

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Being money smart is about more than having a budget and eliminating dumb purchases. It means creating a financial foundation that will carry you and your family comfortably through whatever life throws your way.

To create that foundation and find lasting financial security, you need to own these 10 products. (Hint: You’re about to hear a lot about insurance.)

1. Checking account

Let’s start with the basics. You need to have a centralized place to manage and monitor your money. After all, it’s hard to have a balanced budget if you have only a hazy idea of where your money is going.

Prepaid cards are an increasingly popular option, but they can come saddled with lots of fees. Plus, disclosures for these cards can be spotty, making it hard to know exactly how much your card is costing you.

Instead, look for a free checking account. Many institutions have scaled back their offerings, but there are still ways to get free checking from a bank or credit union.

2. Debit card

Along with your checking account, sign up for a debit card. Make sure it has a Visa or MasterCard logo and can be used like a credit card.

Having a debit card can eliminate your need to go into debt for purchases, particularly those where it is impossible to use cash or a check. Although I know that some people are fans of credit cards, my personal experience has shown the temptation to overspend when buying on credit negates card benefits for many people.

If you can’t bear the thought of giving up your credit card rewards, look for a bank that offers a debit card rewards program. After backing away from them, many banks have brought them back.

3. High-yield savings account

Every household should have an emergency fund; it’s your own personal form of insurance.

Typically, you’ll want your fund to be large enough to pay at least three to six months’ worth of expenses. Since that can be a fairly significant amount of money, you don’t want it languishing in a typical savings account where it will earn next to nothing.

Savings rates aren’t great right now, but if you park your money in an online account or a money market account, you may be able to yield close to 1 percent on your emergency fund.

4. Health insurance

Let’s forget for a moment that you are now required by law to have health insurance.

Instead, let’s talk about the enormous cost of health care in the U.S. If you walk into a New Jersey hospital with chest pain, you could walk out with a nearly $33,000 bill, says Governing Magazine. It’s no wonder medical debt is theleading cause of bankruptcy in the U.S.

You may think you’re healthy and young, but even healthy and young people get in car accidents or are struck down by devastating illnesses. Unless you’re worth millions and can easily pay your own bills, going without health insurance is just plain dumb.

5. Homeowners or renters insurance

If your home burns down, will you be left on the street?

Unfortunately, that’s what happens to some people who fail to insure their property. Homeowners policies are relatively inexpensive for the coverage they provide so there is no reason not to own one.

Not only will they pay to rebuild your house in the event of a total loss, these plans will also repair storm damage and vandalism and will likely pony up the dollars needed for temporary housing in the event you can’t stay in your home during repairs.

However, don’t expect your policy to cover damage from flooding. You’ll need a separate policy for that.

If you’re renting, don’t think your landlord’s homeowners policy will pay for your stuff. Instead, cover yourself with some cheap renters insurance.

6. Auto insurance

After your house, your car may be your most valuable asset.

While many states require a minimal level of coverage, you may want to consider more, depending on your assets and income. See “How Much Car Insurance Should You Buy?” from partner site CarInsurance.com.

For more information on how to get the coverage you need at a price you can afford, we’ve put together 10 tips to cut car insurance costs.

7. Disability insurance

Most insurance purchases are no-brainers for many people. However, disability insurance can trip up some otherwise money-savvy individuals.

Disability insurance provides money in the event you are unable to work for an extended period of time. The details may vary by policy, but most generally provide payments equal to 60 percent of your gross income.

If you’re on the fence about whether to buy disability insurance, consider whether you have a big enough emergency fund to pay the bills if you are unable to work. Social Security Disability will provide benefits if you are unable to work for at least a year or are terminally ill, but even if you’re approved, there is a six-month waiting period before benefits begin.

Disability plans are often offered through voluntary workplace benefit programs, or you can purchase coverage directly from insurance companies. For more information, read Stacy Johnson’s primer on disability insurance.

8. Life insurance

The final insurance product you need to own isn’t about protecting your own financial security but rather that of your family.

If you were to drop dead tomorrow, could your family pay the bills? Do they even have the cash to bury you?

Again, unless you have plenty of cash in your coffers, you need to buy life insurance. Even if you’re wealthy, you might want a policy to help your family pay off estate taxes.

Beyond that, life insurance can come with added bonuses that make it a smart buy. Some offer living benefits that let you tap into your death benefit if you’re terminally ill. Others allow policyholders to use money for long-term-care expenses.

And of course, you can count on our resident money expert to have some more tips on buying life insurance coverage.

9. Retirement fund

Someday you’ll want to retire, and God help you if you plan to live off Social Security. In 2014, the average Social Security benefit is $1,294 a month. That gives you a whole $15,528 each year – just a smidge above minimum wage.

If that seems like a pathetically small amount, the Social Security Administration provides this explanation in its 2014 benefits guide:

But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisers say retirees will need 70 percent or more of pre-retirement earnings to live comfortably. To have a comfortable retirement, Americans need much more than just Social Security. They also need private pensions, savings and investments.

So take a cue from the SSA and make sure you have another source of income for your golden years.

Your first stop for retirement savings should be a 401(k) if your employer provides a match of any kind. After that, look for a tax-sheltered plan such as an individual retirement account.

10. College savings account

If you’re childless, you get a pass on this final must-have financial product. For everyone else, you should start planning for college now.

Even if you’re of the bent your child will be paying her or his own way, you never know what the future may hold or how your views may evolve over time. Best to put some money aside in savings now just in case.

The 529 plans and Coverdell educational savings accounts are the most common ways to get tax advantages for college savings. However, you have to use the money for educational purposes (you can always transfer the money to another child if things don’t pan out for student No. 1) or you’ll get hit with a tax penalty.

If you aren’t confident you’ll actually be paying college expenses for your children, you may want to put money aside in an investment fund. Then, if they get a full-ride scholarship or burn out in the first semester, you’ll have a nice chunk of money for retirement or maybe a dream vacation to celebrate or de-stress.

You need more than a steady job to be financially secure. You need to have enough money in the bank and enough insurance behind you to weather all the unexpected events Murphy’s Law is bound to deliver during your lifetime.

 

This article was originally published on MoneyTalksNews.com as 'You Can’t Be Financially Secure Without These 10 Products'.

P.S. Want to make extra money and increase your bank account(s)? This book can be helpful. 

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Can Gratitude Give You More?

“We should, all of us, be filled with gratitude and humility for our present progress and prosperity. We should be filled with awe and joy at what lies over the horizon. And we should be filled with absolute determination to make the most of it.”

Bill Clinton

Gratitude Gives More

The little girl patted the seeds into the soil, pat, pat, pat, pat, over and over as she asked her mother, "Mommy, will these seeds really grow into sunflowers?"

"Yes, sweetheart. They will as long as we water the seeds and they don't get too thirsty or too wet."

The little girl did not want that to happen, desiring to see the mixed packet of seeds blossom into sunflowers. Imagining the harvest of bright sunflowers, she took great care watering the seeds. She thanked God for the harvest and prayed that the sun would not scorch the seeds. Soon the seeds began to bud into plants reaching for the sky and big, happy flowers. The little girl excitedly thanked God for the sunflowers.

The mother cut bunches of sunflowers, some of each kind, and took them to a florist who paid for the blooms. The mom is so pleased with her daughter's diligence in caring for the plants she gave the child the money. The little girl jumped into her mother's lap, hugged her with little arms curled around her mom's neck, and repeatedly kissed her check.

"With those seeds we got pretty sunflowers... some money," the little girl tallied, then excitedly added, "and whoever buys those sunflowers will be happy, too!"

That Christmas the mom found a shiny, red present with a big, gold ribbon wrapped around it. Curious, the mother reached for the present and read the label, "To the best Mom in the world." She opened it to reveal a starter Pandora charm bracelet.

"That is what you always wanted, right, Mommy?"

With tears in her eyes, she replied, "Yes, yes! Thank you! Merry Christmas!"

The mom and her daughter planted the seeds. The daughter watched over the seeds, prayed for, and expected healthy plants. When the sunflowers began to bloom, the mother took them to a florist, who compensated her for the variety and beauty of the flowers. The mother gave the money to her daughter, who in turn took some of that money and bought a present for her mother. The mother and the daughter had more than when they started.

The more you focus your mind on the good things that have come to you, the more good things will come, and the more rapidly they will come. GRATITUDE will keep you humble, and you will not give in to competitiveness and anything else inharmonious to your created thought. For instance, if your created thought expresses your intention to become a professional basketball player, but you accept negativity from family and peers who tell you that you aren't tall enough to be a pro player, that negativity is a major hindrance in creating harmonious, intentional thoughts that can bring about a new reality.

If your mind dwells upon the inferior, it becomes inferior, and you will surround yourself with inferior things. However, by fixing your attention on the best, you surround yourself with the best and become the best. The "creative power" within you makes you into the image on which you focus your attention. Proverbs 23:7 says, "For as he thinketh in his heart, so is he."

So you must think positively and cast off every thought arising that is incongruent to your planned intentions. Give gratitude for the desired image in your mind even before it manifests.

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