Housing

You’ve Paid Off Your Escrowed Mortgage. Now What?

July 22, 2019 By Kathryn Vercillo Leave a Comment

When you make payments toward your mortgage, you’re actually paying off several different things. Most of the time, you probably don’t even think about it. You just want to get that balance down so that you owe less on your home. However, it’s important to understand all aspects of your home mortgage payment. If you don’t, then it can come back to bite you later. In particular, if you aren’t fully aware of what your mortgage escrow means, then you might run into some trouble once you’ve paid it off.

Key Parts of Your Mortgage Payment

If you take a detailed look at the statement for your mortgage payment, then you’re going to find that your money tends to go to three different things:

The principal. You borrowed X amount of money for your mortgage. This is the principal. Every time that you make a mortgage payment, you pay back some of this principal. However, that’s not the only thing you’re paying each time that you make a mortgage payment.
The interest. As you probably know, part of your payment also goes to pay the interest on the loan. You’re familiar with this because you’ve likely paid back student loans, credit card payments, and so forth. You know that if you borrow X amount at Y rate of interest, then you’re not done paying it all back until you’ve paid both X and Y. Some of your monthly mortgage payment goes towards the interest. In other words, if you pay $1000 per month, you’re not paying $1000 back on your original loan. You’re paying some to interest.
Escrow. This is the important part of your home mortgage that you might not fully understand. You’ve paid principal and interest back on other types of loans. But mortgages also have an escrow balance. Let’s take a closer look at that …

What is Your Mortgage Escrow Balance?

When you own a home, you have to pay certain additional costs on that home. The two major costs (besides repaying the loan itself, of course) are the costs for your homeowner’s insurance and your property taxes. Sometimes you also have mortgage insurance.

When you have a mortgage, your lender concerns themselves with those additional costs. Therefore, some of your money is set aside to allow the lender to make those payments for you. The annual costs are broken down into monthly costs, which show up in your mortgage payment.

On your end, that’s all wrapped up in what feels like one bill. You probably know what you owe each month, make the payment, and don’t think much about where it’s all going. However, it’s crucial that you understand that some of the money goes toward your escrow balance.

Why Is It Important to Know Your Mortgage Escrow Balance?

Of course, you should always make an effort to understand every aspect of your finances. The more you know, the more power you have. However, simple knowledge isn’t the only reason that it’s important to understand your mortgage escrow. It’s important because someday you’ll have paid off that balance. However, that doesn’t mean you’ll never have payments to make again.

You are going to ow property taxes and homeowner’s insurance for the duration of the time that you own a home. As you repay your mortgage loan, your lender deals with those things for you. However, when your mortgage loan is paid off, you have to start taking over those payments on your own. If you aren’t prepared for that, then you could end up getting a big financial shock.

Payments Required After Mortgage Payments Are Complete

You’ve accounted for your mortgage payments in your budget. They’re done now. However, you have to think about what you will still owe each year. The quickest way to figure this out is to go back through your mortgage statements, looking carefully at the line about your escrow balance. This will start to give you a good sense of your monthly and annual costs that will still be ongoing despite repaying your principal and interest on the mortgage itself.

Pay for Homeowner’s Insurance

First of all, you still need homeowner’s insurance. Now that you have repaid your mortgage, it’s a good time to review that insurance. Do you have the right plan? Does it cover everything that you need? Could you get a better deal elsewhere? Some companies actually offer discounts to people who have successfully paid off their mortgages. Ask about that.

Make sure that you’ve got the insurance that you need for your home at the best cost possible. Then make sure that you have adapted your budget to make those payments.

Pay for Property Taxes

You also have to keep paying property taxes. You’ve been paying them all along using your mortgage escrow balance. However, since you might not have paid close attention to that as you were repaying the mortgage, it can feel like a big new expense. Don’t let it take you by surprise.

The big difference you’ll face is that property taxes come due once per year. Your mortgage escrow broke those payments into monthly smaller chunks, so they weren’t as overwhelming. Once you’re paying your own property taxes, it’s imperative to prepare for a big annual payment.

Here are some key steps to take regarding property taxes once you’ve paid off your mortgage:

Contact the lender to see if they owe you money. Sometimes they keep extra in the escrow balance, and you get that back when you repay the mortgage.
Make sure that the property tax bills will now get sent to you directly instead of to your previous lender.
Start setting money aside monthly in a special account to be used only for those annual property tax fees.
Find out if you can pay these taxes (and also your homeowner’s insurance) on a rewards credit card. This allows you to get cash back for those payments. Just make sure that you pay them off immediately, so you don’t pay interest.

Paying back your home mortgage loan is a huge deal. Celebrate it. Just make sure that you’ve done everything you need to secure your finances moving forward.

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Buying a House? A Credit Union Mortgage Might Be Best

June 25, 2019 By Kathryn Vercillo Leave a Comment

You have so many different options for banking today. In addition to traditional banks, there are online-only banks. You can invest with robo-advisors and apps. If you need money, you can get a personal line of credit or set up a Go Fund Me account. With so many options available, it can be difficult figuring out what the best choice is at any given time. If you’re looking for a home mortgage, then you might want to consider going with a credit union. They’re almost always cheaper than a traditional bank for mortgage loans.

What is a Credit Union?

A credit union is a type of bank. However, a regular bank is owned by a company or corporation. For example, Wells Fargo and Bank of America are regular banks.

In contrast, a credit union is a co-op. When you join a credit union, you become a member who partially owns the credit union. Therefore, credit unions tend to work harder than traditional banks to secure the best options for their members. After all, the members themselves own the bank.

Credit unions historically served particular groups of people. For example, there are firefighter’s credit unions and teacher’s credit unions. However, today, you can find a credit union for just about anyone. For example, San Francisco Credit Union is open to any resident of the city.

You Get More and Pay Less at a Credit Union

A traditional bank is a for-profit company. In contrast, a credit union is non-profit. As a co-owner of the bank, the extra “profits” or benefits go back in your own pocket. Therefore, you get better rates and lower fees when you use a credit union instead of a traditional bank.

In terms of rates, you get more interest. For example, if you open a savings account at a bank and open another at a credit union, you’ll most likely discover that you earn more interest on the credit union savings account.

In terms of fees, you often find that you aren’t charged for things at a credit union that a typical bank would charge you for. ATM fees, overdraft fees, and similar charges are often not a problem at credit unions. Of course, each credit union is different, so you’ll always want to check the terms of your own account. Don’t assume anything. Generally speaking, though, you’ll pay less and earn more when banking with a credit union.

People Choose Credit Unions for Loans

Although there are benefits to opening a checking/savings account with a credit union, the real reason that people opt for credit unions is often because of the loans.

First of all, if you’re already a member of the credit union, then loan approval usually happens very quickly. You can apply to become a credit union member just to get a loan. However, you’ll have the best luck if you’re already a member. Therefore, if you know that you’ll need a loan in the near future, you might want to set up a checking and/or savings account with the credit union first.

More importantly, credit unions often offer the best rates for loans. If you were to apply for a loan through your regular bank and also apply for one through your credit union, chances are that the interest rate would be a lot lower on the latter than the former.

In other words, you can borrow money more easily from a credit union, and you won’t have to pay back as much in interest. Of course, your credit history will still play a role in the decision process for a loan. However, your credit union will also consider other factors, which your regular bank may not. They’re more people-friendly and consider different human circumstances. Therefore, if you have irregular or non-traditional income, a higher-than-average debt-to-income ratio, or some other credit history quirk that would cause another bank to turn you down, then you might have better luck with a mortgage company.

Get Your Mortgage Through a Credit Union

You can get any number of different types of loans through a credit union. However, it’s an especially good choice for people who need to get a mortgage. After all, a mortgage is probably the most significant loan you’re ever going to get. When you’re taking out that money, to be repaid over such a long period, it’s critical to get the best rate possible. You’ll find better rates at your credit union than through a regular bank.

The most important difference is the interest rate. When you’re taking out such a huge loan, even a small percentage difference can make a huge impact on how much you end up paying overall. But that’s not the only way you’ll benefit when you get your mortgage through a credit union. You might also find that your closing costs are significantly cheaper. When you work with a traditional bank (or a mortgage bank), you work within a system that’s designed to rack up the fees. When you get your mortgage through a credit union, you work within a system that’s designed to give you the best rates.

Plus, you get the personal touch that banks just don’t offer. When you buy a house, especially for the first time, it’s a really huge decision. It’s confusing. You will probably have a lot of questions. And while you can certainly get many questions answered by your real estate agent, it also helps to have your financial team on your side. Your credit union will go the extra mile to provide customer service that helps you understand each step of the process, what your options are, and how to make the best decisions as you buy your home. They’ll also help you with funding a non-traditional home that other banks might turn their noses up at.

A Mortgage is a Long-Term Relationship

No matter how long you have an account at a regular bank, it usually feels like an impersonal service. In contrast, you truly build a relationship with your credit union over time. This is particularly important as a homeowner. Inevitably, you’re going to need some additional financial help for your home. Perhaps ten years down the line you’ll need to replace the roof. Maybe you’ll grow your family and want to add on to the home. Or maybe you’ll just need money for something else, and you’ll want to refinance your home to get that cash. Whatever the reason, you’ll have a better chance of getting a great home-related loan if you’ve established a relationship with your credit union over the years. Getting your home mortgage with them and paying it off consistently is a great way to establish that relationship.

Plus, your credit union is likely to stick with you throughout the loan. Many traditional banks sell and re-sell their loans over time. As a result, you might start out sending payments to one company only to find a few years later that your checks need to go somewhere else. While that’s usually not a big deal, it can feel like a hassle when it happens. Things can go awry. Moreover, you can really start to feel like you don’t know who’s dealing with your money. You don’t have those issues when you work with a credit union, which is typically unlikely to sell your mortgage.

Use These Steps to Save Money on Moving Expenses

June 11, 2019 By Tamila McDonald Leave a Comment

While moving to a new home can be exciting, it is often surprisingly expensive. Luckily, there are a few simple and creative options that can help you reduce the cost. If you want to save on moving expenses, here’s how.

How to Save on Moving Expenses

The financial stress of relocating is typically compounded by the work involved in coordinating a move, so finding a way to save on the cost can help you remain calm during what can be a challenging time.

Get Rid of Excess Stuff

The more items you need to move, the more it costs. By getting rid of things you no longer need, you can bring your moving bill down.

Since everything needs to be packed for a move, examine each item before you pop it into a box to see if it is worth taking. Anything that you don’t need should be sold, donated, trashed, or given away. That way, you can lessen the size of the load and reduce your moving price tag.

Find Free Supplies

When you move, you usually need a lot of boxes. However, buying boxes can cost a lot. Instead of purchasing them, consider hunting some down for free. You can save boxes from deliveries, talk with friends or family to see if they have some, or even speak with area retailers and ask for boxes. Just make sure that any you use are in good shape. Old boxes may tear or bend, making them less than ideal.

For packing breakables, also look to items you may have on hand. Weekly sales flyers you receive in the mail can be great options. Similarly, using towels or clothing that you want to pack to pad breakables can be a cost-effective approach.

Consider the Mail

Most households focus on loading a truck for a move. However, in some cases, mailing at least a portion of your stuff might be more cost-effective, especially if you don’t need it immediately.

The U.S. Postal Service offers a Media Mail service for books, computer media, and certain other educational materials. The rate is far below typical package mailing costs and may be worth exploring. Just keep in mind that what can be in a Media Mail package is highly restricted, so you can only include items that meet the requirements. However, if you plan to use a moving company and the weight of your shipment affects the price, it is worth checking this service out.

There may be other instances where mailing is cheaper too, so check out what all of the major companies offer and see if it can help you save.

Compare Costs and Negotiate

If you are renting a truck or hiring a moving company, always comparison shop. Rates can vary greatly from one company to the next. Plus, once you know the various available rates, you can use that information in the negotiating process. Many moving companies are open to negotiating, though your chance for success may depend on demand and the availability of services on your preferred moving date.

Choose the Right Time

As with nearly any other sector, the moving industry experiences predictable fluctuation in demand. For example, summer is typically moving season. Similarly, weekends experience higher rates of demand than weekdays, and the start and end of the month are more popular moving dates.

If you are open to moving during the middle of the week, you may be able to get a moving company or rental truck at a lower cost. Similarly, if you can move during the off-season or in the middle of the month, you may be able to score a deal.

Reach Out to Friends and Family

If you aren’t moving far and know friends or family members with trucks, SUVs, or vans, asking for their help might help you keep the cost down. In many cases, you can possibly get their assistance for the cost of a meal and some gas.

However, this approach can have drawbacks. Since these people don’t work for a moving company, they might not be as punctual or hardworking. However, if they are reliable and in good shape, it doesn’t hurt to ask. Just don’t be insulted if they decline. Most people hate the moving process and, of course, they may be genuinely busy during that time, so don’t take a “no” personally.

Maximize the Movers

Many moving companies charge by the hour or factor time into their quote. As a result, if you can shorten the amount of time they need to spend on your move, you can reduce the cost.

For example, instead of having the company pack your boxes, do it yourself. Disassemble large furniture items in advance. Stay out of the movers’ way while they are working.

If the moving company is only taking some of your stuff and you’re handling the rest, get all of those items in a central location, preferably by the door. If you can take your stuff to the curb before they arrive, then that can expedite the process further.

Ultimately, all of the steps above can help you save money on your next move. Consider using some or all of them to make your move as affordable as possible.

Do you have any tips that can help people save on their next move? Have you ever been surprised about the costs of moving? Tell us about your experience in the comments below.

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3 Cities You Should Consider Moving to for Cheaper Housing

June 6, 2019 By Tamila McDonald Leave a Comment

Where you chose to live can play a big role in your financial well-being. For most households, housing is one of the largest line items on their budget. By choosing to live in a metro area known for lower housing costs, you can spend less of your income in this area. As a result, paying down debt, managing expenses, and planning for the future may be easier to handle. If you are open to relocating to save on housing, here are three cities with cheaper housing that should be on your list of potential destinations.

1. Huntsville, Alabama

Considered one of the most affordable metro areas in the entire country, the median household in Huntsville spends only 19.3 percent of their income on housing costs. The 2018 median home price and median monthly rent costs are $167,300 and $779, respectively, making this critical budget area easier to handle.

Plus, unemployment in Huntsville is just 2.9 percent (as of April 2019), which is lower than the national average. Couple that with a higher average annual salary ($53,600 compared to the national average of just under $47,000), and the area can be an excellent choice for relocating.

When it comes to other everyday costs – like groceries and transportation – Huntsville sits close to the national average. As a result, the lowering housing costs aren’t offset by higher prices in other areas, making the city incredibly affordable.

2. Fort Wayne, Indiana

Another metro area where living expenses come in at under 20 percent of the median household’s budget, Fort Wayne is a great option for those looking to save on housing. The median home price is below $150,000, and the median monthly rent is just $714.

Fort Wayne also has lower than average unemployment rates, coming in at just 2.6 percent compared to the national average of 3.6 percent (as of April 2019). The average annual salary is slightly under the national average, coming in at $43,590.

However, the overall cost of living is far below the national average, so even a slight decline in your income doesn’t necessarily mean you are losing out financially, depending on where you move from. Since you can save on utilities, groceries, gasoline, health care, and transportation along with housing, don’t let the lower income levels scare you away from this city.

3. Des Moines, Iowa

Households in Des Moines spend approximately 20.11 percent of their income on living costs. The median monthly rent, sitting at $857, is higher than other cities on this list, though it is still quite affordable for many professionals. The median home price is just shy of $179,000, making it competitive for a metro area.

Des Moines also has an unemployment rate far below the national average, coming in at just 2.2 percent (as of April 2019). With an average annual salary of $50,600, notably above the national average, and a lower overall cost of living, the city is incredibly affordable.

Living in downtown Des Moines is often your best bet if you want to save on housing. Once you head into the suburbs, including Ankeny and Urbandale, housing prices do go up.

These Cities Are Worth Checking Out

If you are open to relocating to help you find cheaper housing, all three of the cities above are worth checking out. Couple the lower costs of living with low unemployment and solid salaries, and each of these metro areas is a budget-friendly option for those tired of paying higher prices in other major cities across the country.

Plus, as a bonus, all of the cities above have lower than average daily commute times, coming in near the 20-minute mark. If you’d rather spend less time on the road and more time at home, these metro areas can be a way to do just that.

How expensive is housing in your area? Do you feel like it’s a good deal? Share your thoughts in the comments below.

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Is a Cash Out Refinance a Good Idea?

June 3, 2019 By Tamila McDonald Leave a Comment

If you want to tap the equity in your home, cash out refinancing is one way to go about it. Essentially, you obtain a new mortgage that pays off your existing one and provides you with additional money. Then, you can use that cash to handle other things, like paying off debt, making a major purchase, or covering home improvements. While a cash-out refinance can seem like an attractive option, it isn’t without risk. Before you go forward, here’s a look at why it may or may not be a good idea.

What a Cash Out Refinance Involves

Cash-out refinancing is similar to getting a traditional mortgage. The application process is essentially the same. You contact a lender and submit an application. A lender will review your financial details – including everything from your income statements, tax returns, and credit report and scores — and they decide if you qualify for the new mortgage.

The main difference is that, instead of just requesting enough financing to cover the remainder of your mortgage, you ask for additional money. The new loan is larger than your existing mortgage. Not only does it cover what you owe on your current loan, but it also allows you to receive cash back when it is approved, processed, and closed.

What You Can Do with the Money

With a cash-out refinance mortgage, only some of the money goes to specific things. First, the new lender typically pays off your original mortgage using funds from the new loan. This ensures that the old mortgage is paid in full.

Second, depending on your financial situation, your new lender may require that some of the money goes to pay certain other debts. This is more common if your existing debt load is high (based on your income) and if you have to pay at least a portion of it down to qualify for the loan. When this occurs, the lender commonly pays those creditors directly with some of the loan, guaranteeing that it gets handled.

Finally, any remaining funds are sent to you. Usually, the new lender sends the cash to your bank account as a direct deposit or issues you a check that you can take to your bank. You can use this money on essentially anything you want.

How a Cash Out Refinance Impacts Your Credit

As with any new loan, a cash-out refinance does impact your credit. A hard inquiry against your credit report is part of the process which does affect your score whether you are approved or not. Additionally, you will have a larger mortgage loan on your credit report after it goes through. Finally, since your existing loan is older, the average age of your accounts will change once the new mortgage is reported.

However, how you use the money you receive can also impact your credit score. For example, if you use the additional funds to pay off certain debts, like credit cards or other loans, your credit score will change because of that as well. Your score may go up or down depending on the choices you make.

Is a Cash Out Refinance a Good Idea?

In most cases, a cash-out refinance is only a good idea if you will come out financially ahead in the end. If you use the money for home improvements, the investment could increase the value of your house. Many consider this a solid financial move in the long run. However, it only works out in your favor if the improvements are desirable in the eyes of potential buyers, as that determines the end value of the work.

Using the additional cash to pay off other debts can also be a wise financial decision. You may be able to decrease your monthly bills, improve your credit score, or both. Ideally, you only want to use the money to pay down debts if the interest rate on your new mortgage is lower than the ones associated with the other debts. That allows you to experience the greatest financial benefit, so focusing on high-interest credit cards or loans is the best approach in many cases. However, paying off debts to make your monthly budget easier to manage could still make it worthwhile.

Potential Uses of the Money

There are also other potential uses for the additional money that might be smart, depending on your circumstances. Using the cash to fund further education can be wise if you are reasonably sure that it will boost your income enough to justify the expense. However, there are alternatives for paying for education that could be better financial options.

Similarly, using the money to fund a business venture may or may not be a great idea. Starting a business is always risky, and many fail, so you need to make sure you can still repay the mortgage even if things don’t go to plan.

Using the cash to fund a vacation or large purchase also may or may not be a smart move. That depends on how sound your financial situation is otherwise, such as whether you have a healthy emergency fund in place, are actively saving for retirement already, and don’t have any high-interest debts.

Ultimately, a cash-out refinance can be a good idea, but only if you use the money wisely. If not, then you could be making your financial situation more precarious, and that could lead to hardship down the road.

Have you ever done a cash out refinance? Why did you think it was the right move for you? Share your thoughts in the comments below.

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Property Tax Bill Too High? Here’s How to Appeal

May 31, 2019 By Tamila McDonald Leave a Comment

Many homeowners have seen the value of their homes rise dramatically over recent years. As a result, property taxes are generally trending upward too. You can’t always avoid a tax increase based on the higher value. However, if your new property tax bill is unreasonable in comparison to appreciation in your region, you might have grounds for an appeal. If your appeal is justified and determined to be sound, your property tax bill may go down. If you believe your property tax bill is too high, here’s what you need to know about appealing.

When You Can Appeal Your Property Tax Bill

Once you receive your new property tax bill, you only have a limited amount of time to appeal. Exactly how much time you get depends on your jurisdiction, so it can vary from one state or county to the next.

In most cases, you have 90 days to appeal after you receive the new assessment. However, some locations only give you 30 days, so it is best to act quickly.

If the appeals window closes, you will have to pay the amount on your property tax bill. Failing to do so comes with consequences. First, you’ll have penalties and fines for missing your payment. The government can also put a tax lien on your home. In the worst-case scenario, a tax lien can lead to a foreclosure.

Thoroughly Read Your Assessment Letter

Before you initiate an appeal, read your property tax bill carefully. Make sure the details about your property are accurate and take a look at the value assigned to your home and land. If there is an error in the property description, such as an incorrect lot size, the wrong number of bedrooms, or similar error, then that could lead to a high bill that is fairly easy to appeal.

Then, if you don’t spot a blatant error, look over the calculations that determined your property tax bill. How a jurisdiction assigns value for tax assessments differs from determining fair market value for home sales. In most cases, the math itself will be sound. However, it is always wise to learn how the numbers are calculated before you appeal.

Get the Lowdown on Neighboring Properties

You never want to appeal your property tax bill without having a reasonable case showing that it is too high. While appealing without just-cause won’t necessarily lead to a penalty, it does mean you could waste valuable time on a fruitless venture.

Often, the easiest way to make sure you have a decent case is to explore comparable nearby properties, or “comps,” as realtors call them. Research your neighborhood and identify nearby homes. Look for houses with similar features to yours, including the overall size, style, condition, and the number of rooms. Additionally, make sure you compare lot sizes as well, as differences in the amount of land can lead to dramatically different tax assessments.

Once you find a few comps, you need to look up the tax assessments on those properties. Usually, local governments maintain publicly accessible databases, making the information relatively easy to track down. Head to your local Tax Assessor’s Office or Land Records Office website to see if the database is available. If not, you may need to speak with a real estate agent or those neighbors to see if they will share the details.

If you discover that your property tax bill is higher than the comps, you may have a good case. However, even if theirs are similar, if you can demonstrate that those properties are better than yours, you may also be able to get your tax bill lowered.

Present Your Case to the Local Assessor

Once you have built your case, you’ll need to contact your local assessor. Usually, your property tax bill will have instructions on how to proceed with an appeal. However, if you need additional guidance, contact the assessor’s office to discuss the next steps.

Most appeals processes are incredibly formal. You need to follow them precisely if you want your appeal to move forward. Typically, you’ll need to complete a form and submit your evidence. Once complete, the review period can take several months. When they have rendered a decision, you’ll usually receive notification in writing.

Appealing the Decision

If the initial appeal didn’t go your way, you could opt to appeal that review. Usually, you’ll have to pay a small filing fee and submit a request to the appeals board. Then, you can challenge the decision and hope for a better outcome.

Appealing the review can be a lengthy process, especially in larger jurisdictions. In some cases, it may take a year to get a decision.

Risks of Appealing Your Property Tax Bill

Appealing your tax bill can come with risks. While the chance is fairly small, the assessor or appeals board could determine that your property assessment was too low, leaving you with an even higher tax bill.

At times, even if your bill is lowered, the amount is so small that it may not be worth the effort. Similarly, if the change is slight, you may come out financially behind if you paid more than your bill was lowered when you filed for an appeal.

Finally, if you intend to sell your home soon, a drop in the assessed value of your home could hurt you. You may get stuck with a lower sales price since the assessor or board reduced the value.

Have you ever had to appeal your property tax bill? Share your experience in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.