Things to Consider
Should you pay off your mortgage before retiring?
With an estimated 10,000 Americans retiring by the day, according to estimates from the Pew Research Center and the Social Security Administration, baby boomers nationwide appear to be assessing their financial situations. Many are asking themselves questions like:
- "Do I have enough to retire comfortably?"
- "What kind of payments do I still make on a regular basis?"
- "How long will it be before I finally pay off my mortgage?"
Conventional wisdom suggests the fewer expenses you have, the better off you'll be in terms of financial freedom and able to make use of funds on the discretionary purchases that give meaning to retirement being the "golden age." As a result, the question, "Should I pay off my mortgage before I retire," might seem like a no-brainer.
"Not so fast" is the advice countless wealth advisors across the country seem to be giving their clients. Catherine Collinson, president of the Transamerica Center for Retirement Studies, told The Wall Street Journal that it all depends on your situation.
"It's absolutely imperative to run the numbers," Collinson explained. "Every case is a little different."
More retirees still owe on mortgages than in the 1980s
Although certain polls suggest more Americans are spurning retirement life by remaining in the workforce - some doing so willingly, while others are forced to as a result of insufficient savings - nearly 80 percent of Americans who have already called it quits from their careers indicate they have enough money to live without needing to pinch pennies, a Gallup poll showed.
This may explain why more people are entering retirement still owing money on their mortgages. According to analysis conducted by researchers from the Center for Retirement Research at Boston College, individuals in the 60-plus age bracket are over three times more likely to own a mortgage compared to people their age back in the 1980s.
In addition to more people preparing themselves financially, the trend shift may also stem from baby boomers of today being less reluctant to own debt, theorized Jennifer Molinsky, Ph.D., a senior research associate at the Joint Center for Housing Studies at Harvard University. The interest rate environment of today is much more affordable as well than it was back then.
"Holding debt in the 1980s when rates were in the teens is a lot different than holding it now," Molinsky told the Journal.
Still, a closer look at the numbers suggests even those capable of affording retirement may not be in as comfortable a position as they ought to be. For example, in a separate Gallup survey, 57 percent of respondents said Social Security is a "major" income source in retirement, an institution that financial experts warn is on the verge of insolvency, given just 2.8 people contribute to it for every one that collects.
Should you pay off your home loan before retirement?
How do you know which retirement and mortgage route is the best path? Experts say it all depends on your goals. Jamie Hopkins, director of the retirement income program at the American College of Financial Services, told the Journal it may boil down to doing whatever makes you the most comfortable.
"If you're able to afford to pay off the mortgage, and you'll have all the retirement assets you'll need, you might just feel better paying off the mortgage, and that's OK," Collins stressed. "There are benefits because it does help with cash flow."
On the other hand, if you're not sure or are on the fence about balancing retirement wellness with paying off the mortgage in full, there's nothing wrong with exiting the workforce still possessing debt.
If you're still unsure, financial experts recommend talking to a wealth adviser to discuss your options. From there, make a plan on the best course of action. This may include refinancing, which can help you lower the interest rate or change the length of the loan term. Additionally, Hopkins said it's best to not use retirement funds to pay off a mortgage because you may be hit with a tax penalty of 10 percent or more for early withdrawal.
Who should I talk to first when buying a home?
You've decided to enter the housing market. Now what? Well, if you're like most people, aside from looking at what houses are available for purchase on various listing websites, you probably think talking to a real estate agent is the first person with whom to speak. You shouldn't have a problem finding one, as there are over 1.1 million of them in the U.S., according to the National Association of Realtors®.
While a real estate agent will certainly help you locate your forever or for-the-time-being home, listing agents actually aren't the first people to go to. Your best bet in the early going are loan officers. But what, exactly, are loan officers. More to the point, what makes them a go-to source starting out?
What does a loan officer do?
Loan officers perform many different functions in the mortgage realm. For the sake of simplicity, they serve as the gateway to obtaining a home loan.
When you meet with a loan officer, he or she will go over various personal details that will tell them whether you're a good candidate to buy a house. Some of these items they'll look through are pretty basic: whether you're gainfully employed, what you earn per year in salary, what kinds of assets you have available, and so on.
Loan officers will also run a credit check to get a determination of your credit score. The credit scoring bureaus - TransUnion, Experian and Equifax - use slightly different scoring metrics, but they all work from the fundamental premise of gauging how consistent you are about making your payments on time. The higher your score, the better chances you have not only of being approved for a loan, but securing one at a lower rate of interest compared to someone with a low score.
In short, loan officers help you get the proverbial ball rolling as it pertains to home financing.
Who employs loan officers?
Much like real estate agents, loan officers work for various entities. As noted by the Bureau of Labor Statistics, there are approximately 318,600 loan officers to choose from throughout the U.S., 80 percent of whom are employed by "credit intermediaries." That's an umbrella term for credit unions, mortgage companies and commercial banks.
It's fitting that loan officers work for credit intermediaries, because loan officers serve as the middleman. These individuals talk to loan applicants like you to gather and evaluate the personal information you provide, who then get in touch with management to make a decision on mortgage approval.
Consumer loan officers - the kind that you'll meet - specialize in loans for individual borrowers, but there are other varieties, such as commercial loan officers. They primarily deal with business owners interested in obtaining property for business purposes.
What makes loan officers truly significant?
Aside from explaining the details of what you need to apply for a mortgage, loan officers can give you a better sense of how much house you can afford. Home values go up and down, largely depending on supply, demand and what other properties in the area sell for. Loan officers help you determine the types of houses that fall in your budget, ensuring you don't settle on a place that you can't afford.
Additionally, loan officers can supply you with something that can provide you with an advantage: a prequalification letter. The current housing market favors sellers, meaning more people are looking to buy a house than sell. As a result, the market is highly competitive.
With a prequalification letter, though, your odds of getting the house you want improve because sellers know you have the means with which to buy. With due diligence - like meeting with a loan officer first - you're one step ahead of the game compared to people who met with a real estate agent at the outset.
Choices are a great thing to have when you're looking to buy a house. Loan officers provide them and, at the same time, help to narrow the market down so you avoid wasting time. So, what are you waiting for? Enter the market today by meeting with a reputable lender.
3 home renovation suggestions to consider this year
Whether you're a brand-new homeowner or have longed to have a place to call your own, you've probably thought about various home renovation ideas at one point or another. Refurbishing your home can provide a lot of pizzazz to your cozy confines and better yet, increase its resale value should you ever decide to list it.
Perhaps the most difficult aspect of renovating, even more than what it takes to actually do it, is knowing where to begin. With so many options available, coming to a final decision can be daunting. But it doesn't have to be, so long as you have a general idea of which room - or rooms - in your residence could use a good pick-me-up.
Here are three of the more popular projects homeowners choose to take on:
The most trafficked room of the house, the kitchen is the gathering place for conversations, meal planning, dining and snacking. In 2017, according to figures compiled by Houzz, the kitchen was the most frequently chosen room to remodel - and it paid off, quite literally. Roughly 80 percent of renovating homeowners acknowledged that the refurbishing of their kitchens increased the value of their properties, the Houzz survey revealed.
Ask any real estate agent, and they'll acknowledge just how invaluable would-be buyers consider the bathroom. Given how frequently people opt to modernize it, that certainly seems to be the case, as in 2017, more than a quarter of homeowners who remodeled chose the guest bathroom.
Perhaps the only room of the house that gets more use, outside of the kitchen, is the bathroom, which may explain why nearly 40 percent of Americans who renovate it do so to upgrade drab, worn-out surfaces, be it the floor, tub, vanity or all three according to the National Association of Realtors' 2017 Remodeling Impact Report.
3. Home security and automation systems
Automation has made homes more secure and enjoyable, thanks to systems synced to interior lighting and setting alarms. In 2017, home security installations accounted for 15 percent of interior renovation projects, a dramatic uptick from 10 percent during the previous year, according to the Houzz poll.
By doing some self-reflection and running the numbers so you can properly budget, you'll come to a decision on the renovation project that feels right.
Things to Consider
Should you buy a flipped house?
If you ever watch home improvement shows, you've definitely seen "flipped" houses. From HGTV's "Flip or Flop" to A&E's "Flip This House," there are many shows that have featured the ups and downs of the tasks involved in restoring homes. The trials and travails can make for enjoyable reality show entertainment.
But have you ever thought about actually buying a home that's been flipped?
Home flipping - and buying - is as popular as ever. Last year, for example, nearly 208,000 single-family houses and condominiums were flipped, the largest amount in more than a decade, according to ATTOM Data Solutions. Sales for these residences are booming nationwide - particularly in Pennsylvania, Ohio, Baltimore, Tennessee, Nevada, Alabama and Arizona.
ATTOM Data Solutions Senior Vice President Daren Blomquist said there's been a surge in home flipping, especially in the last three years, as lenders are more willing to provide the appropriate financing for those doing the renovations and buyers take advantage of the newly installed furnishings and accouterments.
The question is: Should you? Here are a few tips that can help you decide if it's the right move for you:
Do your research on flipped houses for sale
Just as every person has a story, every house has a history, especially properties that require fixing up. As noted by the Washington Post, the longer a house has been around, the more owners have likely lived within its confines.
Talk with your real estate agent about where you can go to obtain details about the flipped home's background. You'll be able to figure out key aspects about the house that can provide more context about how extensive upgrades have been over the years and the makeup of its foundation.
For instance, colonial homes were often built on fieldstone, which may be more vulnerable to rodent infestation or crumbling.
Know who completed the home upgrades
No two properties are built the same - nor are the people that did the renovating. If a flipped home experienced prior renovations, those can affect the nature of the latest ones.
When a flipped property is up for sale, check with your agent to see if he or she can find contact information about who completed the upgrades. This will help you get a sense of their expertise and whether all of the appropriate permits were signed and submitted.
Also, be aware that the point person for renovations may have hired a contractor to do them, which entails more research into the builder's qualifications and due diligence regarding the firm being licensed to operate within the state.
Ensure property has a certificate of occupancy
As its name suggests, a certificate of occupancy is a document that certifies the flipped property is safe to inhabit. These are made available after a property has gone through a series of inspections by licensed professionals. It's a series because they may involve more than one if the property has received more than one renovation.
As noted by Realtor.com, it's usually the seller's responsibility to ensure that the inspection has been done, but it's good idea to mention this to your agent so you have it for your records.
Other "to-do" items to check off your list include requesting an updated disclosure statement from whoever is selling the property and obtaining warranties from any interior or exterior installations.
Buying a flipped house may be best move you'll ever make, but it could be a mistake if you don't know what you're getting into. By doing your due diligence, you'll make the move that's right for your family.
Home sales are down: What that means for you
If you're considering buying a new house, you've probably noticed the pace of people purchasing homes continues to rise in many areas nationwide. But, if you take a more recent look at the data, the trend has shifted a bit in many regions.
According to the latest figures from the National Association of Realtors, existing sales have fallen for three consecutive months. The most recent evidence was in June 2018, when transactions dropped approximately 0.6 percent from May and 2.2 percent on a year-over-year basis.
The same was true among pending home sales, a statistic that measures contract signings which have decreased for six months in a row, NAR revealed, sliding 2.5 percent on an annual basis.
Even newly constructed single-family property buys dipped in summer's opening month. As noted by the U.S. Department of Housing and Urban Development, new-home sales plunged nearly 5.5 percent in June to a seasonally adjusted annual rate of 631,000 units.
So, what does this all mean for you? If you're a first-time homebuyer aiming to land a residence at a price you can afford, here's what you may be able to expect should the trend continue:
Home prices poised to pull back
Perhaps the only thing more certain than Americans buying homes is the upward trajectory of asking prices. The median for existing homes climbed yet again in June, marking the 76th straight month they've done so on an annual basis, NAR reported. However, with home sales down virtually across the board, the direction of home values may follow suit. What's been preventing this from happening sooner is supply not being replenished at a fast enough clip.
But the inventory situation appears to be improving, based on the most up to date numbers from the NAR. At the conclusion of June, unsold properties totaled around 1.9 million, the equivalent of a 4.3-month supply, according to NAR. This means it would take right around a quarter of the year for inventory to run dry were no other properties to enter listings. The most noteworthy aspect of these numbers is 1.9 million. Up 0.5 percent from a year ago, it's the first time in three years that inventory rose compared to 12 months earlier.
Listings to remain 'active' for longer
Twenty-six days: That's how long it takes before a for-sale house is snatched up by a prospective buyer, according to NAR's latest figures, down from 28 days compared to last June. In fact, more than half of the houses that sold then were on the market for a month or less. That houses are claimed so quickly can be extremely frustrating, but if the sales slowdown persists, those for-sale signs should hang around for lengthier stretches.
Waiting until winter may be wise
When is the best time to buy a house? That's a question all prospective buyers asks themselves at some point. Generally speaking, it's the summertime, when more listings become available with kids out of school and the weather pleasant. However, if you're looking to buy at a low price, it may behoove you to wait until the temperatures plunge. Real estate professionals note that buying in the winter can really pay off - literally - because if sellers haven't had luck, they'll be more inclined to sell for less than their initial price point. And if the sales dip continues, that's a scenario you're bound to happen upon.
The housing market is a roll of the dice - you never know what's going to happen from one moment to the next. But if you play your cards right, slumping sales can work to your benefit.