Money Management

Not putting down 20% on a conventional mortgage could cost you in other ways. Read on to learn about the additional costs you could face. 

When you take out a mortgage, you’re generally required to make a down payment on your home (though some loan programs, like VA loans, allow for a 0% down payment). The amount you’re required to put down on a home can vary by mortgage lender. Some lenders might accept a 5% down payment on a conventional home loan, while others might require 10%.

But if you’re taking out a conventional mortgage, it’s generally in your best interest to try to put down 20% of your home’s purchase price at closing. If not, you could get stuck paying private mortgage insurance, or PMI.

An added expense you probably don’t want

PMI might sound like something designed to protect you. But don’t be fooled — the purpose of PMI is to protect your lender in case you don’t make your mortgage payments when you’re supposed to.

PMI comes into play when you don’t make a 20% down payment when you close on your home. And Experian says that PMI generally costs between 0.2% to 2% of your mortgage amount per year, but that it can also sometimes be higher.

So let’s say you’re borrowing $200,000 to buy a home. If you’re looking at 1% PMI, that means you’re paying $2,000 a year, or about $167 a month extra to own your home. If you’re looking at 2% PMI, it means you’re looking at $4,000 a year, or an extra $333 a month.

And remember, that expense is on top of the other expenses you’ll face as a homeowner, from property taxes to homeowners insurance. So if you can avoid PMI, you may find that homeownership is far more affordable for you.

How to avoid PMI

If you want to avoid paying PMI, you’ll need to come up with 20% of your home’s purchase price in time for your mortgage closing. It’s really that simple. To do that, you may need to delay homeownership a few extra years until you have more funds socked away for a down payment. But going this route could help you avoid a costly monthly expense.

Now if you don’t want to wait to purchase a home and you don’t have a 20% down payment, you could make a smaller down payment, deal with PMI for a bit of time, but aim to put extra money into your mortgage month after month to get rid of PMI as quickly as you can. You can contact your lender and ask to have your PMI canceled once the principal balance of your mortgage is equal to 80% of the original purchase price of your home.

So, let’s say you bought a $250,000 home and only put down 10%, or $25,000. That means you’ll be liable for PMI until you’ve chipped away at another $25,000 worth of mortgage principal, bringing that balance down to $200,000.

All told, PMI is something many homeowners resign themselves to. But if you want to avoid it, wait until you have a 20% down payment to move forward with a home purchase.

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This simple piece of advice from Warren Buffet can have a profound impact on your life. Read on to learn what it is. 

Warren Buffett is not only one of the most successful investors in the world, but also a source of wisdom about achieving success. In a recent interview with Bill Gates, he shared one key piece of advice: “Associate with people who are better than you are.” This might sound counterintuitive to some, but Buffett’s rationale is that surrounding oneself with people who challenge and push you to improve will ultimately lead to personal and professional growth.

Who you hang around with matters

Want to become wealthy? Hang out with wealthy people. What to become smarter? Hang out with smarter people. The idea of associating with people who are better than you are is not new, and it has been echoed by many successful leaders throughout history.

Jim Rohn, a motivational speaker, famously said, “You are the average of the five people you spend the most time with.”

This means that the people you surround yourself with significantly impact your mindset, behavior, and even your level of success with your personal finances. By surrounding yourself with people who are more knowledgeable, experienced, or driven, you can learn from their example and be inspired to aim higher.

Who should you associate with?

But what does it mean to associate with people who are better than you are? It doesn’t necessarily mean seeking out celebrities, billionaires, or industry leaders and trying to become their friends or mentors (although, that wouldn’t hurt).

Rather, it means actively seeking out individuals who possess attributes or skills that you admire or seek to develop, and finding ways to learn from them. This could be through attending industry events, joining networking groups, taking classes, or even following them on social media.

The point is to make a conscious effort to surround yourself with people who can provide value and inspiration. On top of that, you don’t want to just surround yourself with “yes” people either. You want people who will be honest with you and tell you the truth. Negative feedback is how we get better.

Be humble

Of course, associating with people who are better than you also means being humble and receptive to feedback and criticism. It can be intimidating or uncomfortable to be around people who seem to have it all figured out, but true growth comes from being open to new perspectives and willing to learn from mistakes.

Additionally, associating with people who are better than you are can help you identify weaknesses and blind spots, and create opportunities to work on them. As Buffett put it, “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.”

Don’t just be a taker, be a giver

Another benefit of associating with people who are better than you are is the potential for collaboration and mutual growth. Surrounding yourself with diverse and talented individuals can lead to partnerships, joint projects, or even mentor-mentee relationships.

This can not only broaden your knowledge and skills but also create opportunities for career advancement and business success. However, it’s not enough to just take from them. We should also offer something of value in return.

Instead of focusing on what we can gain from others, we should think about what we can do for them. Whether it’s offering our expertise, our time, or our support, being a giver can help us establish deeper and more meaningful connections. Ultimately, the key to building lasting relationships is to approach them with a combination of humility and generosity.

Warren Buffett’s advice to associate with people who are better than you are is a simple yet powerful approach to achieving success. By surrounding oneself with people who challenge, inspire, and teach, individuals can elevate their own mindset, behavior, and level of success. It requires being proactive, open-minded, and humble, but the potential rewards are substantial. You don’t have to do it alone. Seek out mentors and like-minded people who are willing to support you. So, go out there and start elevating your game by associating with people who can help you achieve your goals.

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Just because mortgage rates and home prices have increased doesn’t necessarily mean it’s a bad time to buy. Read on to learn why. 

Even though they have stabilized recently, home prices are up sharply over the past few years. And not only that, but mortgage rates are hovering near their highest level in years. This has caused many would-be home buyers to stay on the sidelines, but there’s a case to be made that now isn’t necessarily a bad time to become a homeowner.

Your mortgage rate isn’t necessarily forever

As of this writing, the average mortgage rate in the United States is just under 7% for a 30-year fixed-rate loan. However, many home buyers view this with the mentality that they are stuck with this rate for the entire 30-year loan term.

However, one of the best features of mortgages is the ability to refinance them. In fact, billionaire Warren Buffett, who is notoriously against taking on debt, makes a special exception for the 30-year fixed-rate mortgage, which he has called one of the best tools available to American consumers.

One of Buffett’s favorite things about mortgages is that if rates fall, they are relatively easy to refinance. As Buffett has said, “It’s a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you’ve got a one-way bet.” In other words, if mortgage rates continue to rise to 10%, your payment won’t go up. But if they fall to 3% again, you can simply refinance and save tons of money on interest.

If the 2020-2021 period is any indicator, there will be lenders lining up to refinance mortgages if and when rates drop. And while refinancing isn’t free (there are closing costs), the long-term savings of even a 1% drop in interest rates can add up to tens of thousands of dollars.

The point is that as long as you can afford the payments, don’t necessarily let relatively high mortgage rates stop you from buying a house.

If rates drop sharply, prices could rise again

Waiting for interest rates to drop might seem like a smart strategy, but there are some experts who say that might backfire.

Most notably, real estate expert and Shark Tank star Barbara Corcoran recently said that if interest rates drop by 2% (to an average 30-year mortgage rate of about 5%), housing prices could jump by another 20%.

She says there’s currently a lack of sellers, who don’t want to have to give up their low mortgage rates. And there are many buyers who are afraid to buy at today’s higher rates. But she said that if interest rates come down, sellers will list their houses and people who are currently renting will come into the housing market and “prices are going to go through the roof.”

It obviously remains to be seen whether Corcoran will be right (or if rates will come down at all). However, it could be a better move to buy at today’s prices and refinance if and when rates drop than wait until rates go down and prices rise — and spend tens of thousands of dollars on rent in the meantime.

The bottom line

The real estate market is slow right now and it isn’t hard to see why. Between home prices that are about 55% higher than they were five years ago and mortgage rates roughly doubling since the beginning of 2022, many people are waiting for a “better time” to sell their home and buy another, or to buy their first home. While nobody has a crystal ball, there’s a solid case to be made that buying your first home now could still be a smart move despite these factors.

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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.
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Americans believe a net worth of more than $2 million makes a person wealthy. Read on to find out which age group feels the most rich. 

The concept of wealth may be subjective, but Americans still have a specific dollar amount in mind for how much money they think makes a person wealthy — and it’s a lot. A recent survey by Charles Schwab found that Americans believe you need a net worth of $2.2 million to be wealthy.

Curiously, nearly half of the survey’s respondents said they feel wealthy and yet have an average net worth of just $560,000. Among the four age groups surveyed, millennials (aged 26-41) were the most likely to view themselves as wealthy, while baby boomers (aged 58-75) had the highest net worth at $692,000 — yet were the least likely to say they felt wealthy.

One more interesting result of the survey was that just one-third of respondents said they had a formal financial plan, and among those that did, 92% of them are confident they’ll achieve their financial goals. If you’re among the two-thirds of Americans without formal financial goals, here’s how to get started.

Be specific about your financial goals

While it may not seem as if it matters, being very specific about what financial goals you want to achieve and writing them down can help you achieve your goals. A popular study by Dr. Gail Matthews, a psychology professor at Dominican University of California, found that people are far more likely to achieve their goals when they write them down.

Being specific about your financial goals — like paying off debt, raising your credit score, or buying a house — will help remind you to stay on track when you’re tempted to veer off your financial goal path. There are even some great budgeting apps you can use to help you progress towards your goals.

Set a deadline for yourself

If you’re anything like me, you need a deadline to finish things. I’m in the early stages of house hunting and I have a rough timeline set. I recently noticed that talking about a potential timeline (which I need to write down!) with my wife has helped me focus more on what practical steps I need to take to make my house-buying goal a reality.

If you want to pay off debt or build an emergency fund, break your specific goal into smaller milestones, each with a deadline. For example, if you want to build your retirement savings, a simple first step would be opening an online brokerage account.

Setting small goals and giving them a deadline will help you track of how well you’re progressing and keep you focused on your long-term financial plans.

Keep your eyes on your own paper

The Schwab survey found that nearly half of the respondents said that being able to afford a similar lifestyle as their friends and family made them feel wealthy. That means more than half of the respondents may not feel wealthy because they’re too busy looking at their neighbor’s new car or latest fancy vacation.

While it’s always tempting to try and keep up with what friends and family are buying, doing so can distract you from your own financial goals. Instead, apply a simple rule you likely learned in grade school when taking your tests: Keep your eyes on your own paper.

Most importantly, remember that your personal finances are, well, personal. Someone’s definition of wealthy may not match your own personal definition anyway, so there’s no need to try to keep up.

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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.Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

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