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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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Financial planners say their clients thank them most for 5 smart money tips

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Financial planners say their clients appreciate personalized advice.

  • Financial planners say their clients get the most value from a handful of money tips.
  • Those tips include how to save for the near future, and how to choose the right life insurance.
  • Other advice: Time in the market is better than timing the market, and use your HSA to invest.
  • Vanguard Personal Advisor Services

When it comes to managing your personal finances, there's a lot of advice that gets floated around. You might find yourself asking friends for tips, reading articles for hours, or even scrolling social media to see what your favorite financial influencers have to say.

I spend a lot of quality time learning about finances and trying to figure out how to optimize and enhance my own portfolio. When I talk to financial planners and advisors, I find myself inundated with so much good information that it can be overwhelming. That's why I decided to try to find the best tips that financial planners give to their clients by asking them which tidbits of information make their clients thank them again and again. Here's what they had to say.



Don't just save for the faraway future

Many people work hard now and save for their future retirement. But Jake Northrup, a financial planner and advisor, says that it's not enough to just save for later on in life, and his clients appreciate his strategies that focus on the near future as well.

"You need to save in the right ways to provide you with the flexibility to use money throughout your life, rather than just waiting until age 59.5 when most pre-tax account penalties disappear," says Northrup.

He encourages his clients to save in different "buckets," each with a corresponding investment strategy: zero to five years, five to 15 years, and 15+ years.

"Many people handcuff their ability to enjoy money throughout life because they only save in their 401(k). By also saving into a Roth IRA and brokerage account, you give yourself the flexibility to utilize money much earlier in life," says Northrup.

Get a financial education

If there's one thing I've learned in my own personal finance journey, it's that you have to seek out personalized advice along the way. Financial planner Cody Garrett says that personalized education during the financial planning process always garners tremendous appreciation later on.

Says Garrett, "Unlike financial 'advice' that tells others what to do, education provides the clarity and confidence for families to make their own well-informed decisions. Given the uncertainty and financial variables out of our control on the path to and through retirement, having clarity about one's financial situation and a measurable action plan to refine the plan has greater value than the numbers on the page."

What kind of life insurance is needed

A big part of working with a financial planner or advisor is getting help figuring out what types of insurance you need. Charles H Thomas III, a financial planner, says that it means a lot to clients when he can help them plan for big situations that could happen later on.

"I work with lots of families who know they need life insurance to protect their children, but are unsure where to start or how much they need," says Thomas. "When I work with a family to see what future obligations need to be covered, like college, income replacement, and more, it removes a lot of stress and uncertainty from the decision."

Treat your HSA as a long-term investment account

Perhaps some of the best advice involves strategies that aren't so obvious.

Financial planner Kevin Mahoney finds that one of his most helpful pieces of advice is to treat your health savings account like a powerful long-term investment account.

"Many of the millennials with whom I meet have not considered how an HSA may fit into their overall investment strategy," says Mahoney. "For my peers who do have these accounts, they often spend the contributions in the same tax year or don't take advantage of the HSA's investment option. But the HSA's triple tax benefits mean that contributions invested today in low-cost, diversified funds can grow to significant amounts by the time retirement (and our larger healthcare expenditures) arrives."

Time in the market is better than timing the market

When it comes to getting advice on investing in the market, there are varying schools of thought. Financial planner Keith Onto says clients appreciate it when he reminds them that time in the market is more important than timing the market.

"I can't tell you how many times clients have reached out and asked whether now is the time to sell and move to cash in anticipation of the next correction," says Onto. "No one can consistently time the market, and more often than not the market has gone the opposite direction of what the client may expect. More importantly, the client needs to be reminded of the time horizon for their individual goals."

Related Content Module: More Financial Planner Coverage

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How to Dig Out of a Financial Hole in 5 Steps

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Running into a financial dead-end is no one’s dream. But it is definitely everyone’s nightmare. With the thoughts of lost assets, unpaid debts, and little to no funds, the situation is enough to induce anxiety among the toughest of minds. 

If you find yourself in such a scenario, it can be difficult to find the light at the end of the tunnel. But even though it can be difficult to believe, all is not lost in a financially challenging situation. As long as you keep your wits and perseverance intact, you can make your way out of these difficulties. 

To help you make it through to the other end, here’s how to dig out of a financial hole in 5 steps. 

1. Assess Your Situation

With millions of people struggling with debt, collections, and limited income, you are not alone in your financial problems. But similar to almost every human experience, the challenge looks unique for everyone. Keeping this in mind, make it a point to assess your specific situation. From your existing debts to your current assets, this calls for you to take every detail into account.

From there, you can learn how debt collection laws protect you in your specific situation and how you can manage recovery with your current income. This lets you plan your next steps, such as expense control and debt payments, with a comprehensive picture in your mind. 

2. Speak to a Financial Advisor

While taking note of your specific scenario is a basic first step, its effective resolution calls for professional help. That is where you can speak to financial advisors who specialize in helping people out of financial ruts. With many such professionals now making use of advisor transition services, you can find them running their own private or affiliated practice.

This makes it incredibly easy to reach out to these experts and get the advice that you need for financial stability. These professionals can advise you on aspects such as controlling your expenses and maximizing debt repayments. This ensures that you can recover your finances in a timely manner, while also benefiting from knowledgeable decisions to boot. 

3. Find Ways to Keep Motivated

If you are planning to simply barge on with financial management with no regard to mental health, you might crumble under the process before you have even started. That is why it is important that you find ways to keep yourself motivated. Looking into a mental health app can help you in this regard. 

In recent years, mental health coaching has joined the ranks of flourishing business ideas in the medical industry. This makes it easier for you to reach out to these experts even from the comfort of your home. In many cases, these services also don’t break the bank. This allows you to access them on a budget and lets you follow your goals with their help.

4. Stick to Your Budget

Making your way out of a financial rut requires persistence at every step. This is perhaps more evident in the practice of sticking to a budget, which comes into play in almost all financial recovery plans. That is where a budget planner app can come to the rescue. 

By using these solutions, you can have the information about your financial recovery handy with you at all times. If you ever need to refer to your financial standing before a purchase or a payment, you can simply refer to your phone in your pocket. This convenience is one of the top reasons why you need a budget planner. At the same time, the solution stays critical in terms of following financial recovery plans. 

5. Do Regular Check Ins 

Whether you are going at it solo or getting help from a professional, handling financial management calls for frequent check ins. This not only enables you to determine the efficacy of your budgeting and expense control efforts, but also allows you to tweak your ongoing strategy as you see fit. This particular aspect goes a long way towards helping you out of your financial problems.

Doing so on your own will require intensive calculations and planning. But if you have the help of a financial expert, you can simply hop onto a video chat app to get precise advice about revised strategies. This ensures that you have everything you need to optimize your ongoing plans. 

By keeping these points in mind, you can navigate your way through your financial challenge and towards your ideal recovery. This helps you improve your financial status in a timely manner, while also taking care of your overall well-being.

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Top 4 Reasons to Consider the Help of a Factoring Company for Your Business

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Many businesses fall upon financial strains that hinder their productivity and interfere with their daily operations. The traditional route has been to acquire a business loan to facilitate those needs. There are other ways to stay afloat while in operation though. One of those ways is a method called “factoring”. 

1. What Is Factoring?

Factoring is when a company provides invoice factoring services to alleviate financial pressure. This entails purchasing invoices at a determined discount. A percentage of the invoices are then allocated to the business within days to facilitate those needs. This subsequently enables the factoring company to take claim of the invoices and the payment processes that are accompanied by them. This is very beneficial to the said company for many reasons, one is an immediate increase of monthly cash flow and the shortening of anticipated invoice payments.

Dynamics of a Factoring Company:

  • Service is performed for a customer and then they are invoiced usually encompassing a 30, 60, or 90 payment window.
  • When a batch of invoices is collected, they are then transferred to a particular factoring company. 
  • The business is then advanced a percentage (typically 85%) of the invoices presented. This is usually completed within a 24 to 36 hours timeframe.
  • The factoring company is now responsible for the collection of the invoice from the initial customer.
  • When the invoice is paid in its totality from the customer, the remaining balance is then allocated to the business. A service fee is rendered to the business as well. This is taken directly out of the remaining balance. The fee is usually around 1 to 5%.

There are three types of factoring companies: recourse, non-recourse, and spot factoring.

  • Recourse is when the business owner assumes all liability if the invoices aren’t paid. This factoring type is the most common and affordable. Since the company agrees to be held liable for the risks involved within the transaction.
  • Non-Recourse of course is when the factoring company assumes the liability encompassed in the invoice’s assignment to them. If the customer reneges on their obligation to pay the invoice, the business can’t be held liable for payment.
  • Spot factoring is a type of factoring that accepts one or more invoices excluding a long-term agreement that the other two types entail. Also labeled single invoice financing, spot factoring is a convenient way to monetize invoices for compensation.

Before a business decides on a particular type of factoring, it should analyze certain factors. Evaluating their customer’s payment history and the number of their invoices are to be evaluated. For example, if the amount in question is considered small, the business owner may choose to absorb the risks themselves. 

2. Using a Factoring Company vs. a Bank Loan

Using a factoring company has some key benefits that traditional bank loans strain to accomplish. Here are some comparisons that differentiate the two:

Factoring Companies:

  • A debt-free form of financing
  • Unlimited Capital Allocation
  • Approval times are quicker, usually within 1-3 Days
  • Financing terms are determined upon the client’s creditworthiness
  • Minimal paperwork involved

Traditional Bank Loan:

  • Loan amount determined upon business’s creditworthiness
  • Longer approval period (even for a small loan)
  • Capped funding (loan is limited to a certain amount) 
  • The principal and interest is repaid within a determined duration    

3. Factoring Costs

 The costs of factoring are based upon a set of factors. These factors are mainly determined by the invoice’s creditworthiness and financing volume. Fees typically range from 1% to 3.5% for most companies. With some factoring companies, the fees are tailored to their specific circumstance, while others are charged a flat rate. Depending upon the business’s need the factoring cost vary. Factoring costs also depend upon the type of financing received. The different types of financing are purchase orders, Accounts Receivable, Purchase Order, and Trade Payable Financing. 

  • Accounts Receivables are used to convert credit terms into cash flow.
  • Purchase Orders are a viable option for wholesalers, vendors, and distributors.
  • Trade Payables finances goods and services directly from the supplier to the buyer.

 4. Payroll Funding

Accessing the cash flow needed to meet payroll can be a challenge. Factoring companies can accommodate these needs with efficiency and flexibility. Unlike most bank financing, the right factoring company can provide cash flow to facilitate payroll. Just this aspect of factoring can be a miracle to a business in a strain. 

Payroll funding can range anywhere between 80% to 95% of the accounts payable rendered. Employees should be compensated whether the business is growing rapidly or at a slower pace. Successful companies do just that, take care of their employees to facilitate overall growth. Payroll funding facilitates this need with effectiveness and efficiency.

Conclusion

As you’ve probably discovered within this article, there are many benefits for businesses to utilize a factoring company. From payroll funding to funding purchase orders, to invoice funding and even funding for a startup business as well, having a factoring company as an ally, definitely provides a sense of security for many businesses in need. As a business owner, having the ability to exponentially scale their enterprise is worth the ongoing investment. Cash flow is the key to most businesses ‘ success. Choosing the right one to accommodate you shouldn’t be left to just any company. atLine, a division of The Southern Bank Company can facilitate your Invoicing and Accounts Receivable financing needs.

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