Money Management

A 20% down payment is recommended when you buy a home. Keep reading to learn why one writer decided to put down more. 

Since 2018, the average down payment first-time home buyers make has been around 6% to 7%. Those who have bought a home before typically put down a higher amount, with the average down payment coming in at 17% in 2021.

When I made an offer on the home I’m buying, I opted to make a much larger down payment — 31%. This is larger than the amount I’ve put down on any prior home purchase, and there were a few key reasons why I put so much down.

Since the house is a fixer-upper, I was worried about whether it would appraise for enough for a mortgage lender to give me an affordable loan. I also wanted to make my offer as strong as it could be to maximize the chances of it being accepted, and a larger down payment did that.

If you’re buying a home of your own, you may also wonder whether you should make a large down payment as well. Here’s how to decide.

These are the benefits of a big down payment

In my situation, making a big down payment made sense because I didn’t want to have a problem with the home not appraising for as much as I needed.

Lenders will typically limit how much you can borrow relative to what the home is worth. In some cases, you can borrow up to 97% of what a home is worth, but many lenders limit you to borrowing 80% or 90% of its market value. If your home doesn’t appraise for as much as you’re paying for it, this could create problems with your loan-to-value ratio. If you suspect this might be an issue, a larger down payment makes sense.

A larger down payment can also make sense if you are trying to compete with other buyers, like I was, since sellers will feel more confident in your ability to get financing if you are putting more down.

Other benefits of a larger down payment include:

A lower mortgage payment since you aren’t borrowing as muchA lower interest rate in many cases, since a lender isn’t taking on as much riskA wider choice of lenders, since you won’t be limited to those that allow low down paymentsAvoiding private mortgage insurance (PMI), which you’d have to pay if you put down less than 20%

If you want to make your home more affordable or your offer more attractive, putting more down just makes good sense.

These are the downsides

There are some downsides to a larger down payment as well.

One big issue is you might have to put off homeownership longer in order to save up enough money. You could also have less cash to cover emergencies or other expenses.

You’re also tying up money when you put more down on your home. The average mortgage rate has recently been hovering at between 7.00% and 8.00% for a 30-year fixed rate loan, but in the recent past, it’s been as low as 3.00% or 4.00%. It often makes little sense to put extra money down when you could invest it and get a higher rate of return than the return on investment (ROI) from reduced mortgage interest.

Ultimately, you need to consider whether putting more money into your home is worth the potential benefits that could result from a larger down payment. Generally, you should aim for around a 20% down payment on a mortgage loan to avoid PMI, but probably don’t want to go above that amount unless there’s a very good reason to, like the reasons that apply in my situation.

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Costco is great for some, but not right for everyone. Here are five signs that you could benefit from being a Costco member. 

Worldwide, 71 million households have a Costco membership, and each of those members once had a decision to make: Should I or shouldn’t I? Each potential member had to decide if a Costco membership would help them end each month with a little more money in the bank.

If that’s the crossroads at which you find yourself, that’s a good sign. It means you take your time making financial decisions. As much as members appear to love Costco, the warehouse giant is not for everybody. Here are five signs you may want to take the leap.

1. Buying in bulk makes sense

There are many reasons you might buy in bulk, including:

Your growing family could easily eat you out of house and home, and you need to save money.You’re not prone to food waste. What you buy is what you consume.You regularly donate to local food banks and plan to keep some of the food for your pantry but donate the rest.You regularly entertain and need access to low prices on food in bulk.

If you’re single, rarely entertain, and are concerned that food will expire before you have time to consume it, you may want to pass on a Costco membership. However, if you routinely find a way to use what you buy, it might be the right choice for you.

2. You’re into unique items

It’s possible to buy just about anything online these days, but it may also be more expensive than popping into Costco. Let’s say you decide to buy a 7-foot teddy bear for your nephew. That’s precisely the kind of item you’re likely to find at Costco. Or maybe you love nothing more on a Saturday morning than to curl up with a good book, a cup of coffee, and an authentic French pastry. Costco carries those pastries.

Simply put, Costco carries products you can’t find at your local grocery store (or toy store, for that matter).

3. You like tying several loose ends up at once

If you do not particularly enjoy running errands, Costco allows you to check off several tasks during a single trip. Let’s say you need to:

Pick up ingredients for a special dish to impress your friendsHave that eye exam you’ve been putting offSave on the sky-high cost of medication by refilling a prescriptionReduce the cost of filling your car by taking advantage of low Costco gas prices

It can all be accomplished during a single visit. And if you’re particularly organized, it will feel great to get so much done in a matter of hours.

4. You enjoy the hunt

Costco continually moves products around the store. Something once located on the aisle closest to the pharmacy is now several aisles away. That’s Costco’s way of getting you to look the shelves over and find new favorites to buy. After all, anything that inspires you to pull out your Costco Anywhere Visa® Card by Citi is good for business.

Not everyone enjoys the hunt, but if it sounds like fun for you, a Costco membership will likely be a good fit.

Apply now for the Costco Anywhere Visa® Card by Citi.

5. There’s not much competition

In some areas, Costco has little in the way of competition. There may be other grocery stores, but none that carry your favorites. There may be other tire stores, but none offer the same discounts. There may be other stores that sell electronics nearby, but none provide free tech assistance.

There’s a good reason that Costco had a renewal rate of 92.5% in the first quarter of fiscal 2023. Costco members appear to be happy with their experience and satisfied with the bargains they find. While that doesn’t necessarily mean that a Costco membership is suitable for you, it’s a good sign.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dana George has positions in Target. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Visa. The Motley Fool has a disclosure policy.

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CDs can be excellent ways to lock in high yields on your money without risk. But which CD term is the best fit for you? Read on to find out. 

If you have savings in the bank that you aren’t going to need anytime soon but that you don’t want to put at risk by investing, certificate of deposit, or CD, accounts could be a great option. Yields on CDs have increased dramatically over the past couple of years, and while yields on savings accounts have done the same, CDs allow you to lock in a specific yield for a period of time.

But what is the right CD maturity term for you? Here’s a quick comparison of the pros and cons of two of the most popular CD terms, 1-year and 5-year, as well as a discussion of an alternative strategy that could be better than choosing a specific maturity term.

Reasons to use a 1-year CD

The most obvious advantage of using a 1-year CD instead of a 5-year CD is that your money won’t be locked up for quite as long. If you’re pretty sure you won’t need your money for the next year but may need it to cover expenses within the next five years, a 1-year CD is probably the better choice for you.

In addition, while this isn’t typically the case, in the current higher-rate environment, shorter-term CDs actually have higher yields than longer-term CDs do in most cases. As an example, one bank on our top CDs list currently has a 5.5% APY on 1-year CDs, while the same bank’s 5-year APY is 4.5%.

It’s also important to note that if you do need your money before your CD matures, you’ll likely have to pay a penalty, but penalties can be less severe on shorter-term CDs. Early withdrawal penalties for CDs are usually a certain number of months’ worth of interest, and many banks impose larger penalties for early withdrawals from long-term CDs.

Benefits of a 5-year CD

As mentioned, 5-year CD rates are generally lower than 1-year yields in the current interest rate environment. But even though this is the case, a 5-year CD could still be more appealing to some people.

For one thing, if you plan to rely on your CD for steady income, it could make sense to lock in a 5-year CD APY, so you’ll know exactly what your income will be for the next five years. After all, while you can get a better APY now with a 1-year CD, there’s absolutely no guarantee that you’ll be able to renew it at a similar rate when it matures in a year. I’ll spare you an economics lesson, but the reality is that 5-year CD rates are generally lower because interest rates are widely expected to get lower within the next few years.

Which is right for you?

The better CD maturity term for you depends on a few factors, particularly the likelihood of needing the money before the CD matures, whether you rely on your CDs for income, and your financial goals and risk tolerance.

An alternative to consider is a CD ladder, which involves dividing your money across CDs of different maturity lengths. For example, if you have $10,000 to put into CDs, you might use $2,000 to open a 1-year CD, $2,000 to open a 2-year CD, etc. The idea is that some of your money will be locked into stable long-term CD rates, while some will also mature and become available once a year. And if you don’t need the money as the CDs in your ladder mature, you can use them to fund new long-term CDs and keep the ladder going.

The bottom line is that both 1-year and 5-year CDs have their pros and cons, but it’s a mistake to think of it as an either-or decision. While one or the other could be the clear choice in certain situations, the best answer for you might be a combination of CDs with different maturity lengths.

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Are you regretting your decision to purchase I bonds? Read on to see what you can do about it. 

Last year, a lot of people rushed to buy I bonds on the heels of rampant inflation. Between May and October of 2022, the interest rate on I bonds was 9.62%. That’s a pretty generous return.

As a reminder, I bonds don’t have a single, preset interest rate. The rate on I bonds resets every six months and is tied to inflation directly.

But right now, I bonds are only paying 4.3% interest. And while that rate will reset in November, you may feel that you no longer want to hold I bonds in your portfolio. If that’s the case, you may have options, but it’s important to understand the consequences of selling I bonds.

It’s a matter of timing

Hopefully, you were made aware before buying I bonds that you’re required to hold them for at least a full year before cashing them out. So if you bought your I bonds in November or December, you’ll need to sit tight a bit longer before selling them.

If it’s been more than a year since you purchased your I bonds, you could sell them now. But you should know that if you cash out I bonds before five years, you’ll be penalized to the tune of three months of interest. That penalty, however, may be worth it.

Let’s say your home needs major repairs and you don’t have the money in your savings account to pay for them. Borrowing rates are way up right now following a string of interest rate hikes on the part of the Federal Reserve. So it might cost you a lot of money to take out a $5,000 home equity or personal loan.

If you have $5,000 in I bonds sitting in a Treasury Direct account (remember, you can’t hold these bonds in a regular brokerage account), then it could be worth it to cash them out and access your money, even if it means facing a penalty. This is an option especially worth considering if your credit score is poor and you don’t think you’ll qualify for a loan, but need money.

If your bonds have been earning 4.3% interest, a three-month penalty on $5,000 is about $54. If you’re forced to take out a $5,000 personal loan at 9% interest that takes you five years to pay off, you’ll end up spending over $1,200 on interest.

There may be a better investment opportunity for you

Even if you don’t need the money you’ve got tied up in I bonds, you may want to put your investment dollars to better use by loading up on stocks instead. So in that case, taking a penalty and freeing up that cash could be a smart move.

The stock market’s return over the past 50 years has been 10%, as measured by the S&P 500 index. Even if the rate on I bonds ticks upward in November when it resets, you’re not going to be looking at a return that high. It may be worth it to take a small penalty and invest that money for a more favorable long-term return.

You might also decide to put your money into a savings account, since banks are paying more interest these days. That’s worth considering if you think you’ll need your money in the next year or so and therefore don’t want to invest it.

If you’re no longer happy with your decision to buy I bonds last year, know that you’re not stuck with them forever. But you may need to wait a bit longer to cash yours out, and expect a penalty regardless of when you bought those bonds in 2022.

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Many Americans report that convenience stores provide good food at a good price. Learn whether it’s worth ordering your next lunch from one. 

Finding an affordable place to dine out can feel like a major challenge — especially if you just need a quick meal to eat during the workday or while you’re on your way somewhere. You don’t want to spend a fortune out of your checking account to get a bite to eat, of course. But you also want quality food that you’ll enjoy.

If you’re looking for dining options that won’t leave you with a large credit card bill, you may be overlooking some that many of your fellow Americans love. Here’s what they are.

Convenience stores may offer the food-service options you’re looking for

According to a recent survey conducted by Acosta Group, a growing number of consumers have found that convenience stores may be one of the best places to buy lunch. In fact:

52% of consumers polled indicated they shopped in convenience stores at least once a week.92% of all convenience store shoppers reported that buying food and drink were the primary reason for their visit.45% of shoppers indicated they purchase specifically hot foods from convenience stores at least once weekly.The top choices among people buying hot food at convenience stores were pizza, sandwiches, and breakfast foods.51% of shoppers indicated that hot food items from convenience stores were as good as, or better than, the food from quick service or fast food restaurants.

Anyone who has ever had a Wawa sub or Sheetz mozzarella sticks is probably not surprised by these stats. The food does taste good, and, in most cases, these convenience stores offer touch-screen ordering so you can get in, place your order, and get out quickly with a delicious meal to go.

Should you try a convenience store for your next lunch?

Convenience stores can undoubtedly provide good value and a quick, tasty meal for less than many quick service restaurants would. Of course, there are some downsides.

The food is always going to be more expensive when you purchase it out rather than preparing it yourself at home. And, in many cases, you’re not necessarily going to be getting the healthiest stuff in the world. A lot of the options are fried or processed or just generally not great for you — although soups and salads may be available as better alternatives for those who aren’t up for a fried appetizer or cold cuts for a meal.

The reality, though, is that many people are going to want to be able to grab a fast bite to eat somewhere — especially if they’re on the go. And you can often find better prices by picking up your products at a convenience store instead of getting takeout from a restaurant. The Sheetz mozzarella sticks, for example, are $4.59 while the same order from a local restaurant comes in at $5.89.

If you’re looking for a bargain-priced lunch and you haven’t yet checked out what your local convenience store has to offer, why not join many of your fellow Americans and give it a try? Just remember to avoid exceeding your dining-out budget and keep track of how much you’re spending on restaurant purchases overall so paying for lunches doesn’t interfere with your more important financial goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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A personal loan is reported to the credit reporting agencies. Take a look at what this could mean for your credit score. 

A personal loan is one of several borrowing options available to you. You might want to take out a personal loan instead of using a credit card if you’re financing a larger purchase, want a lower interest rate, or would prefer a set payoff schedule.

If you do take out a personal loan, though, you may be wondering how that debt will impact your credit score. Here’s what you need to know.

You’ll get an inquiry on your credit report

If you apply for a personal loan, lenders will check your credit. When this happens, an inquiry is listed on your credit report. An inquiry simply shows future lenders and the credit reporting agencies that you made a request for new debt. But too many of those requests can adversely affect your credit — borrowing a lot of money over a short time period could make it seem as if you’re spending irresponsibly and may run into trouble paying the bills.

Typically, inquiries take about five points off your credit score. However, people with a short credit history or who get a lot of inquiries may see their score drop more. So you need to take this factor into account when understanding how applying for a personal loan will impact you.

The inquiry will stay on your credit report for around two years. During that time, future lenders may also ask you about the inquiry and whether it resulted in you actually borrowing.

You’ll shorten your average age of credit

The age of your credit history typically accounts for about 15% of your credit score in most scoring formulas, including FICO(your FICO® Score is the one most commonly used by lenders). When you take out a personal loan, you have a new account on your record. This makes the average age of your credit accounts younger.

You could see your score go down as a result of having a shorter average credit age, although the specifics of the decline will vary based on many factors, including how long your credit history was in the first place.

Over time, however, your personal loan will become another older account on your credit record that actually helps your score — especially if you didn’t have any of these types of installment loans before (loans that you pay back with fixed payments). Revolving debt (like that on credit cards) has variable payments depending how much you’ve charged each month.

But despite the fact that the personal loan may benefit you over the long run by giving you another type of credit, your credit is likely to take a short-term hit.

You’ll develop a personal loan payment history

Finally, your personal loan will affect your credit either positively or negatively as you develop a payment history. If you pay your loan on time every month, this can help improve your credit since you’ll have a record of timely payments that future lenders can see. If you pay late, this can hurt your score because you will have a record of payments that are 30 or more days late (or, eventually, you could have a defaulted loan on your record).

Ultimately, while your credit score may decline in the short term due to a personal loan, if you borrow responsibly and pay your loan back on schedule, the loan could end up helping you in the long run.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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