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How a Mortgage Nerd Bought a House in a Seller’s Market

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I closed on my house about eight months ago, but it feels like it was in another lifetime. Yes, the COVID-19 pandemic makes time feel bizarrely elastic, but also, the housing market has undergone dramatic changes during that time period. As a writer focused on mortgages and homeownership, it’s my job to watch this stuff, and what I’ve seen in 2021 has been legit bananas.

If you’re struggling to find a home you can afford or trying (and failing) to get an offer accepted, I just want to say — take it easy on yourself. It’s not you. This is really hard.

For those of us who aren’t already rolling in dough, it may take big sacrifices to afford a home: sacrifices like taking on an extra job while living on a spartan budget, breaking a financial “rule” like borrowing from retirement funds, pooling resources to create a multifamily or multigenerational household, moving from a high-cost part of the country to a low-cost one, or any combination of the above — plus all the things I did.

Here’s how I bought a house. It wasn’t glamorous, and most of it wasn’t fun, but these are the kinds of moves people determined to become homeowners are making in this market. And if you’re not in a position to follow suit (or just don’t want to) don’t sweat it: There’s no shame in continuing to rent and bolster your financial health in the meantime.

I moved in with my mom

Is moving in with a parent when you’ve been living independently for years the coolest move? No. Was it a smart one for me? Yes, and I am beyond grateful to have had that support; I realize not everyone does. Working remotely from my childhood bedroom let me sock away the money I’d been spending on rent. And, hey, because I moved in summer 2019, when COVID hit, I was way ahead of the moving-back-home curve.

The National Association of Realtors found that from July 2019 to June 2020, roughly 4% of all home buyers said they’d moved in with family or friends to save money for a home purchase. That number’s around 7% for first-time home buyers.

Kristen and Robert Toth Jr. weren’t first-timers, but they opted to move in with Robert’s mother not long after listing their Allentown, Pennsylvania, starter home in October 2019. That way, they’d have some breathing room before buying again and would be able to bulk up their down payment. They ended up staying for 10 months, anxiously watching as properties were snapped up sight-unseen for tens of thousands of dollars over the asking price during Pennsylvania’s shutdown last spring.

“There was zero way we could have moved out of our old house and moved into an apartment, paid rent, and been able to afford this house,” Kristen says of their three-bedroom, 1950s ranch home in the suburbs of Lehigh Valley. “If we weren’t living with a relative, we don’t know what we would have gotten.”

Kristen and Robert Toth Jr. closed on their Pennsylvania home in October 2020. (Photo courtesy of Kristen Toth)

I made a 20% down payment

Same, Kristen, same — there was no way I could have swung my 20% down payment without cutting an expense as big as rent. Even though I’d managed to pay off my car and student loans, without drastically reducing my monthly spending it would have taken me years to save up for a down payment.

In the first quarter of 2021, the median sale price of an existing home was $319,200, according to the NAR. You’d need to skip nearly six years’ worth of lattes to make a 3% down payment (the minimum down payment for a conventional loan) on a house at that price. Assuming a $4.50 cup of java, that’s like 2,128 lattes — and that doesn’t even include the other upfront expenses involved in a home purchase, like paying closing costs or hiring movers.

Another issue? While making the minimum down payment is easier on your bank account and, with mortgage interest rates at historic lows, lets you borrow more money cheaply, it can be a liability in a hot market. That’s especially true now, with home prices at times outstripping appraisals and sellers concerned with a mortgaged buyer’s ability to cover an appraisal gap.

“When you’re evaluating offers as a seller, and you’ve got a 3.5% [Federal Housing Administration loan] and a 20% conventional, if they’re both equal and both are trying to hit a $350,000 appraisal, naturally you’ll choose the one with the higher down payment, since you know they’ll be able to hit that gap,” explains Mike Ferrante, a real estate agent with Century 21 Homestar in Cleveland.

In other words, since the 20% buyer has more cash on hand, a seller may assume they could use some of those funds to cover an appraisal gap and simply make a lower down payment. An appraisal gap occurs when the appraised value of a home is less than what you offered.

Lenders won’t allow you to borrow more than a house is worth. So if you want to keep going despite a low appraisal, you have to be able to make up the difference in cash. (Or the seller has to reduce the price, something unlikely to happen in a super-hot market.) Buyers who plan to put down 20% are better positioned to shift some of that cash to cover an appraisal gap, while still meeting minimum down payment requirements. That may be one reason why in March 2021, 29% of first-time home buyers put down 20% or more, according to NAR data.

I got a mortgage preapproval

When I was ready to stop just scrolling through real estate listings and actually see properties, I researched lenders and ended up applying for mortgage preapproval with about half a dozen. Full disclosure: I don’t know that I would have thought to do this, or even compare lenders at all, if I didn’t write about mortgages for a living.

By the time I was looking at homes in spring 2020, my local real estate market was hot, but sellers were also wary of too many strangers trooping through their homes. Many sellers asked buyers to show proof of financing before allowing them to view homes in person.

A year later, it’s less about coronavirus concerns and more about sellers anticipating multiple offers over the listing price. “We won’t even take people out if they don’t have prequalification or preapproval; you’re not going to get accepted if you don’t have an offer in hand,” says Re/Max Key Properties agent Brent Landels, who’s based in central Oregon. Landels advises looking at homes that are listed below your preapproval amount because it gives you room to bid higher.

The author standing outside the front door of her yellow house.

The author closed on her home in September 2020. (Photo courtesy of Kate Wood)

I bought a fixer-upper

I walked through more than 20 homes in person and scrolled through who knows how many more online. Finally, in September 2020 I closed on a 1740s Cape Cod-style home in eastern Connecticut that needed a lot of love (you read that right, it’s almost 300 years old). It had loads of period charm, a large lot with plenty of mature trees, but had it been move-in-ready, I doubt I would have been able to afford it.

That low upfront sticker price can come with a cost, something Monica Lee and her partner, Dan Hart, have also found to be true of the fixer-upper they bought just outside Washington, D.C. “We found a house in Takoma Park that was ridiculously inexpensive, but it was unlivable,” Lee explains. In August 2020, the couple purchased the home, which Lee says had been unoccupied for roughly 10 years, with an FHA 203(k) loan covering the cost of the home loan as well as their planned renovation.

The logistics of their loan proved more difficult than anticipated. “I’ve worked in government, I get permitting, I thought I was going into it with eyes wide open and I could keep things moving,” Lee says. Red tape and trouble securing contractors pushed back the couple’s timeline again and again, but Lee says, “You do learn a lot. You feel like you accomplished something. I will feel like we love the house.”

Be patient with yourself and the market

Buying a house in a seller’s market has definitely meant even more work (and money) than I anticipated. I ended up staying at my mother’s for months after closing while I got the house into livable condition. But I’m coming to love my house, too.

If you can hang in there, make the sacrifices this market demands, and end up with a place to call your own, congrats. And if you choose to bail on your home search for now, I can’t say I blame you.

Yeah, you’ll have to keep renting longer, but you’ll also have more time to save for a down payment and maybe tune up your credit score, which can help you get a better interest rate. The market could even become a bit friendlier to buyers. There’s still plenty of time for you to become a homeowner — and if this isn’t the right time for you, that’s totally OK.

Top photo: The author’s circa 1747 Cape Cod-style home. (Photo courtesy of Kate Wood)

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Finance & Accounting

Find Out What Big Data Says About You — and Fix It

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I thought I knew all about the information that consumer reporting agencies were collecting on me. Then I discovered The Work Number — a database that reports every paycheck I’ve received from my company, with net and gross amounts, going back to my hire date six years ago.

Another consumer reporting agency shows the results of a 2016 echocardiogram. (It was normal.) Yet another tracks insurance claims on my home and car. If I’d made too many returns at retail stores or bounced a check at a casino, that could show up in a database as well.

“Any data point that someone can track, there’s going to be a bureau or someone gathering information and selling that information,” says Matthew Loker, a consumer protection attorney in Arroyo Grande, California.

Unfortunately, not all the information being reported is accurate — and mistakes can have serious consequences. Loker says one of his clients lost a lucrative job offer because an employment screening company confused her with a drug smuggler. By the time the error was fixed, the position was filled. Other people have been denied insurance, apartments, bank accounts and government benefits because of database errors.

But discovering and correcting mistakes is no small task.

Dozens of companies are tracking us

The Consumer Financial Protection Bureau maintains a list of consumer reporting agencies that’s currently 38 pages long. In addition to the big three credit bureaus — Equifax, Experian and TransUnion — the list includes 22 employment screeners, 10 tenant screeners, six check and bank screeners, four insurance reporting agencies and two medical information companies, among others.

Checking all those reports would be a monumental task, says consumer advocate Chi Chi Wu, a staff attorney at the National Consumer Law Center. Even narrowing down the options to the agency most likely to have relevant information can be tough, Wu says.

“Let’s say you’re applying for an apartment,” Wu says. “There are all these companies and you don’t know which one your landlord is going to use.”

You can ask the prospective landlord, of course, but by the time you spot and fix an error in the report, that apartment may be long since rented.

Pick your targets

Privacy advocate Evan Hendricks recommends you start by targeting some of the larger databases. For tenant screening, that could include RealPage or TransUnion SmartMove.

One of the largest consumer data aggregators is LexisNexis, which provides various types of background screening. The report you get back could be hundreds of pages long, detailing everything from traffic tickets and concealed weapons permits to the amount of every mortgage you’ve ever had, bankruptcies, tax liens, evictions and criminal records. LexisNexis also operates the Comprehensive Loss Underwriting Exchange, or C.L.U.E., which collects and reports auto and personal property claims. You can request your comprehensive report at https://consumer.risk.lexisnexis.com/consumer.

If you’re employed, check The Work Number, which is owned by Equifax and has current payroll data for more than 136 million jobs. If your salary information is there — and it probably is — you’ll also see which companies and government agencies have checked it recently.

Government agencies also consult The Work Number files to fight unemployment fraud and determine eligibility for public benefits, among other uses. That alone is a good reason to check your file for errors, Wu says.

“People have been kicked off or risked being kicked off of benefits or accused of an overpayment because of The Work Number,” Wu says.

Request your ChexSystems report if you plan to open a new bank account or had problems with a previous account, such as not paying an overdraft fee or bouncing a check.

If you plan to apply for individual life, health, long-term care or disability insurance, request your files from MIB and Milliman IntelliScript. MIB collects information about medical conditions, while Milliman IntelliScript collects prescription drug purchase history.

What to do once you have your reports

You typically don’t have to pay to request your data, but you may have to wait to get it. Some companies allow you to see your files online, but many require you to submit a form or call a toll-free number to request a report. A company has 15 days to respond once it receives your request, the CFPB says.

If you find any errors, follow the company’s dispute process. If you can’t get the problem resolved, you can file a complaint with the CFPB.

A few companies — including the credit bureaus, RealPage, LexisNexis, ChexSystems and The Work Number — give you the option to freeze your reports. That generally prevents companies from accessing your data without your permission. Freezes can involve some hassle since you’ll have to keep track of a password or PIN, and a freeze could slow down credit or other applications. The trade-off is more privacy.

Speaking of credit bureaus: You’re currently allowed free weekly access to your credit reports through the end of the year. But many other consumer reporting agencies limit your free reports to one every 12 months. So mark your calendar, since checking your data for errors is likely to be a never-ending task.

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Why You (and I) Should Name a ‘Trusted Contact’

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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

For the past few years, financial services companies have been bugging me to name a “trusted contact.” Banks, brokerages and insurers increasingly want to have someone to call or email in case they notice suspicious activity and can’t reach the account holder.

I ignored these requests. Trusted contacts are a great idea for older people experiencing cognitive decline, I thought, but that’s not me.

Then a younger friend developed early-onset dementia, and I realized we don’t always get enough warning to put such protections in place.

Clearly, trusted contacts aren’t just good for older people. Anyone’s financial accounts could be vulnerable if they’re displaced by natural disaster, wind up in the hospital, suffer a brain injury or are traveling and hard to reach. Helping your brokerage, bank or insurer connect with someone who knows what’s going on in your life could protect your money and prevent financial catastrophe.

“I love the idea of the trusted contact, because it can really head off any fraud or exploitation before it snowballs out of control,” says Amanda Singleton, a family caregiving expert for AARP and an estate planning attorney in St. Petersburg, Florida.

Trusted contacts can’t make changes

Naming a trusted contact doesn’t give that person authority over your accounts or the ability to see balances or make changes, explains Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, known as FINRA. FINRA is the nongovernmental organization that regulates the securities industry, including brokerages.

Instead, your trusted contact can help financial services companies reach you (if you’re reachable) or identify others who might help. If you’re incapacitated, for example, your contact might connect the company to your legal guardian or the person with power of attorney over your accounts. If you’ve died, your trusted person could provide contact information for the executor of your estate or the successor trustee of your living trust.

You aren’t required to name a trusted contact, but financial services companies — along with regulators and consumer advocates — recommend it. You can change your trusted contact whenever you want, or name more than one. Ideally, a trusted contact is someone you’re confident will protect your privacy and act responsibly.

“It could be an adult child, a close friend, an attorney or some other trusted person that the financial institution can reach out to for extra help to try to reach you,” says Deborah Royster, assistant director for the Consumer Financial Protection Bureau’s Office for Older Americans.

A trusted contact could thwart fraud

The push to name trusted contacts started out of concern for older Americans being scammed out of their life savings. More than 369,000 cases of financial fraud of older adults are reported to authorities each year, causing an estimated $4.84 billion in losses, according to a January report by Comparitech, a cybersecurity research company.

But this kind of fraud is notoriously underreported, often because victims are embarrassed, worried that others will think them incapable, or protective of the perpetrators, who may be loved ones, caregivers or neighbors. Comparitech estimates the real toll may be 8.68 million cases and more than $113.7 billion in losses each year.

To help reduce that toll, two new FINRA rules were approved in 2017. The first allows brokerages to put temporary holds on withdrawals when financial exploitation is suspected, and the second requires brokerages to “make reasonable efforts” to get customers to name trusted contacts.

So far, other financial services companies such as banks, credit unions and insurers don’t have similar rules. Even so, some are offering the opportunity to name trusted contacts on accounts, Royster says.

Beware fraudulent email requests

One thing you shouldn’t do is respond to emails that seem to be from your financial institution asking you to name a trusted contact. Those may be scams to steal your passwords or create other havoc, FINRA’s Walsh says. Instead of replying to those emails, consider calling your financial institution or looking on its website for a form that lets you name a trusted contact.

If your financial institutions offer the option, it’s a relatively quick and easy way to add a layer of protection on your accounts, says Abby Schneiderman, co-founder and co-CEO of the end-of-life planning site Everplans and co-author of “In Case You Get Hit by a Bus: How to Organize Your Life Now for When You’re Not Around Later.”

“People should take two minutes out of their day and name a trusted contact,” Schneiderman says.

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Personal Finance

3 Times You Need Money Advice From a Human

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You can now manage most aspects of your money without ever consulting another human being. You can budget, borrow, save, invest, buy insurance, prepare your tax return and create a will — among many other tasks — by using apps, websites and software.

But technology still has limitations, especially when you’re facing a money situation that’s complex or involves judgment calls. Consider consulting a human expert in the following situations:

1. You’re dropped by your homeowners insurance

Insurers typically can’t cancel a policy after 60 days unless you fail to pay premiums, commit fraud or make serious misrepresentations on your application, according to the Insurance Information Institute, a trade group. However, insurers can decide not to renew your policy when it expires.

With auto insurance, you often have many options after such a “non-renewal.” Even if you’ve had accidents or multiple claims, you typically can find coverage with companies that specialize in higher-risk drivers.

If a homeowners insurance company dumps you, however, you may have trouble finding coverage, says insurance consumer advocate Amy Bach. That’s especially true if you were dropped because you made too many claims, or your area is considered high risk because of wildfires, extreme weather or crime, for example.

How would other companies know? Insurers share such information in databases, and application forms typically ask if you’ve been “non-renewed” by another insurer, Bach says.

Bach’s nonprofit organization, United Policyholders, recommends seeking out an independent agent or broker who has relationships with several insurance companies. The agent or broker should know which insurers may be more receptive to your application and can put in a good word for you, Bach says. While most underwriting decisions are made by computers, there are still ways for human beings to override the algorithms.

“It will make a difference if [the agent or broker] can call an underwriter that they know and vouch for you as a good bet,” Bach says.

If your area has been labeled high risk, ask your neighbors for referrals to agents or brokers who helped them find coverage. Otherwise, you can ask an accountant, attorney or financial planner if they have recommendations. Friends and family may be able to provide leads as well.

2. You’re facing a “face-to-face” tax audit

Most IRS audits are conducted through the mail and are relatively routine. The IRS sends a letter requesting additional documentation to support a deduction or other tax break you’ve taken. If you mail back sufficient evidence, your case will be closed with no taxes owed. Otherwise, the IRS will mail you a bill.

However, if the IRS wants to meet with you, the stakes get much higher. In fiscal year 2020, the average amount of additional taxes recommended in face-to-face audits was nearly 10 times larger than the average for a correspondence audit: $72,210 versus $7,658, according to IRS statistics.

Even tax pros hire someone to represent them in face-to-face audits, says Leonard Wright, a San Diego certified public accountant and financial planner. Wright has plenty of experience: He was chief financial officer of a company that was audited, and his personal tax returns have been audited four times. In each case, he hired another CPA to represent him.

It’s all too easy to say something you shouldn’t when you’re under scrutiny, Wright says. You could volunteer information that might not be helpful to your case, or get defensive or confrontational.

“You don’t want it to become personal, and you don’t want to ruffle the feathers of the auditor,” Wright says.

If you used a tax preparer, you may assume that person can represent you in an audit, but that’s not always the case. Typically CPAs, attorneys and enrolled agents can represent clients in IRS audits, but other tax pros usually can’t. Your tax preparer may be able to refer you to someone who can represent you, or you can get referrals from friends, family or financial advisors.

3. You’re creating an estate plan

Will-making software and estate-planning sites can help you create essential legal documents if money is tight. Otherwise, you should probably consult an attorney, says Betsy Hannibal, senior legal editor for self-help legal site Nolo.

“Why not get personalized advice that’s tailored to your situation, if you can?” Hannibal says.

Getting help is particularly important if you need or want to do something complicated with your estate like putting conditions on a bequest, providing for someone with special needs or creating a trust, she says. You’ll also want an attorney’s help if you have a lot of debt, because there may be ways to protect your assets from creditors. Finally, consult an attorney if you think someone might contest your will. A lawyer can put additional protections into place and serve as a professional witness that you knew what you were doing, Bach says.

“If someone doesn’t think you were in your right mind, going through an attorney can help make sure that (a legal challenge) can’t go forward,” she says.

This article is meant to provide background information and should not be considered legal guidance.

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

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