Money Management

When I apply for a mortgage, I always make sure to put 20% down. Keep reading to learn why. 

I will soon be applying for a new mortgage loan. I’m going to be buying a new house and taking out the right loan will help me get the property I want at a price I’m comfortable with.

As I look into mortgage lenders and explore my options, there’s one rule I absolutely will not break when getting a home loan. Here’s what it is.

This rule is non-negotiable for me

The rule that I absolutely will follow when purchasing a home has to do with the size of my down payment. Specifically, I will not buy a house unless I have the money to make a 20% down payment.

Many buyers don’t follow this rule. In fact, making a smaller down payment is very common — especially among first-time buyers. And lenders will allow you to put down as little as 3% in many cases. But, despite the fact that I could buy a house with less than 20% down, I won’t do it.

I will only buy a house when I have a 20% down payment

There are a few reasons why I won’t buy with less down. First and foremost, I don’t want to ever worry about being trapped in a house because I’m unable to afford to sell it for enough to repay my entire home loan.

I know there are many transaction costs associated with selling a property, including paying commissions to real estate agents. Commissions alone can cost tens of thousands of dollars. I also know that property values can sometimes decline and it takes a long time for a mortgage balance to go down when you first start making payments on a loan, because most of the money goes toward interest at first.

I don’t want to stress about whether there’s a chance I’d have to sell and need to come up with money to avoid a short sale. By putting 20% down, I am confident that, barring disaster, I’d be able to generate enough from a home sale to pay off all that I owe.

I also want to avoid private mortgage insurance. PMI is insurance lenders require with a down payment below 20%. Although I would have to pay for it, its only purpose is to protect lenders in case of foreclosure. I don’t want to add hundreds of dollars to my mortgage payment just to pay for insurance to benefit a lender.

Finally, I know I can get approved for a loan from more mortgage lenders, and at more competitive interest rates, if I have 20% to put down on a home. Lenders will give me a better deal since they’re taking less risk if I have more equity in the house due to my larger down payment.

For all of these reasons, I don’t consider a home affordable if I would have to put down less than 20% to buy it. I’d rather wait to save more, or purchase a smaller property, in order to get better mortgage rates and have the peace of mind of knowing that my home won’t get me into financial trouble.

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Got a tax refund? Read on to see if investing it makes sense. 

At this point, a lot of people who filed their taxes on time are starting to see their refunds hit their bank accounts. The average tax refund as of April 21, 2023 is $2,753, according to the IRS. If your refund is comparable, it means you might have a fair amount of money to work with.

But should you invest your refund, or use it for something else? Ask yourself these questions to find out.

1. Am I keeping up with my bills?

Investing your tax refund is a great way to grow that money into a larger sum over time, so you may be eager to add it to your brokerage account. But before you do that, assess your current financial situation.

Are you managing to pay your bills in full, or have you fallen short on a few in recent months? If you’re struggling to keep up with your expenses, and there aren’t any you can cut, then you may want to keep your tax refund in your checking account and use it to cover your essential expenses.

2. Do I have a fully loaded emergency fund?

It’s really important to have a large enough savings account balance to cover three full months of essential expenses. That way, if you were to lose your job, you’d have a way to pay your bills while looking for work. That’s also money you’d be able to tap in the event of an unplanned expense, like a home or vehicle repair.

If you don’t have enough money in the bank to cover three months of essential expenses, then rather than invest your tax refund, you should really save it instead. If you don’t, you might end up with costly debt if something in your life goes wrong, whether it’s your job disappearing, your car failing to start, or your roof springing a leak.

3. Do I have high-interest debt?

You don’t necessarily need to use your tax refund to pay off a mortgage loan with a 3.5% interest rate attached to it. In fact, these days, you might get a higher return on your money than 3.5% simply by keeping it in the bank.

But if you’re carrying a balance on one (or more) of your credit cards, then it makes sense to use your refund to pay it off rather than invest it. Over the past 50 years, the stock market, as measured by the S&P 500 index, has delivered an average annual return of 10%. But your credit card might be charging you twice as much interest. If that’s the case, you’re better off eliminating your outstanding balance rather than using your tax refund to buy stocks.

Investing your tax refund is a great way to turn it into a lot more money over time. But ensure that makes sense for your financial situation. It’s more important to make certain your bills are payable, you’re covered for emergency expenses and situations, and you’re out of credit card debt than to stick that money into a brokerage account and hope it does well.

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The next Federal Reserve meeting could result in another rate hike. Read on to see how that might impact you if you’re planning to take out a loan. 

In both February and March this year, the Federal Reserve raised interest rates by 0.25% as part of its efforts to slow the pace of inflation. Those rate hikes, on top of the seven rate hikes the Fed implemented in 2022, have driven the cost of consumer borrowing up.

Meanwhile, the Fed’s next meeting is set for May 2 and 3, and there’s a good chance that a third rate hike in 2023 will come as a result of that gathering. But that’s not the best news for consumers looking to take out personal loans.

Prepare for your personal loan to cost more

There are different factors that dictate what interest rate you’ll pay on a personal loan. One of those factors is your credit score.

Personal loans are unsecured, so they’re not tied to a specific asset (whereas mortgage loans, for example, are secured by the homes they’re used to finance). Because of this, lenders take on a pretty big risk, since there’s no single asset to sell or repossess to be made whole in the event that a borrower defaults on their payments. That’s why personal loan borrowers with higher credit scores tend to get the lowest interest rates — they present as less risky candidates in the eyes of lenders.

But market conditions also play a role in determining personal loan rates. And right now, the cost of borrowing is up across the board due to the aforementioned Fed rate hikes. If the Fed raises interest rates yet again in May, you can expect to pay up even more when you take out not just a personal loan, but really any sort of loan.

Should you hold off on a personal loan?

If you have a truly pressing need to borrow money, then you may have to move forward with a personal loan in the near term, even if that ends up being a more expensive prospect than you’d like. But if you’re borrowing for a purpose that can wait, then waiting might be best. If you hold off and wait for borrowing rates to come down, your personal loan might cost you less.

So let’s say your home needs repairs you’ve been putting off, and not having that work done is impacting your quality of life. That’s a good reason to apply for a personal loan now, even with borrowing rates being less favorable. But if you have a perfectly nice, functional kitchen and simply wish to renovate it to make it more modern and gain a little countertop space, well, that’s the sort of project you may want to put on hold for the time being.

We don’t know for sure that the Fed is going to choose to raise interest rates at its next meeting, but that scenario is very likely. Inflation has cooled since mid-2022, but it isn’t where the Fed wants it to be. And until the rate of inflation drops even more, we’re likely to see the Fed do what it feels it needs to do to bring the general cost of living down.

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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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It’s easy for home prices to stay elevated when inventory is low. Read on to see why. 

There’s a reason 2023 has been such a difficult year to buy a home. For one thing, mortgage rates have remained stubbornly high. But home prices are also expensive, and that, combined with higher borrowing rates, has created an affordability crunch for many people.

So how is it that home prices have remained so high even with mortgage rates rising? You’d think that higher rates for mortgage loans would have pushed more buyers out of the market, thereby lessening the competition.

The reality is, that has happened. Buyer demand is not what it was in 2021, when mortgage rates wound up falling to record lows. And while it’s common to see multiple offers on a home these days, we’re past the point where bidding wars are pretty much a given.

Still, a big reason higher home prices have been sustainable is that housing inventory is markedly low. And until that changes, home prices are unlikely to drop to a notable degree.

The housing market needs more homes

As of the end of March, there was only a 2.6-month supply of available homes on the market, according to the National Association of Realtors. But it normally takes anywhere from a four- to six-month supply of homes for there to be enough listings to meet buyer demand in full.

As mentioned above, some buyers have pulled out of the housing market due to higher borrowing rates. But there are still enough people out there who want to buy homes. And those people have to compete with one another for the limited inventory that’s available. Because of this, sellers aren’t motivated to lower their prices all that much. Why should they be?

Let’s say that in a given neighborhood, there would normally be 12 mid-size homes for sale in May. If this year there’s only one home for sale in that neighborhood, its seller gets a lot more leeway.

This doesn’t mean that the seller can command a ridiculously high price for their home, because buyers might say no to that. But that same seller might also list at a higher price than usual, knowing full well that if a buyer wants a home in that neighborhood, theirs is the only option.

And this is the reason we’re stuck in a holding pattern of higher home prices. Until real estate inventory increases, higher prices will likely be here to stay.

When will housing inventory pick up?

Housing inventory is likely to remain sluggish until mortgage rates drop. Many of today’s homeowners have lower interest rates on their mortgages because they either signed them at a time when rates weren’t as high as they are today, or they refinanced in 2020 or 2021 when rates plunged. So a lot of people are now, understandably, hesitant to sell their homes only to have to borrow at a higher rate for a new one.

Of course, we don’t know when mortgage rates will start to come down, and that may not happen anytime soon. This means that higher home prices may be here to stay a while, and that the much-anticipated cooling of the housing market is probably a ways off.

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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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Having a concert sell out before you get your ticket is rough. Your credit card might be able to help. Here’s how. 

Some of the perks of your credit cards are commonly known. You get statement credits, points, and even travel perks like hotel status or lounge access. But many cards also come with perks that aren’t so obvious.

For example, folks who are already eyeballing the list of upcoming summer concerts might be interested to know that the best cards for concerts can unlock big entertainment perks that make it easier — and sometimes cheaper — to get tickets for all the hottest events.

Get a leg up on the competition

If you’ve ever broken the refresh button on your keyboard trying to score hard-to-get tickets, then you know how important presale access can be. That’s why you should check if you’re eligible for presale access through your credit cards.

Included concerts vary by issuer (and occasionally type of card), but most programs have a ton of options. Of course, as with any presale, the number of available tickets will be finite, so you’ll still need to be on your game if you’re going after an instant-sellout show.

If you don’t have presale access, you may have the next best thing: preferred seating. Some cardholders can purchase from a reserved pool of seats set aside just for you (well, you and thousands of your fellow cardmembers). These aren’t the junky nosebleed seats, either. You’ll often find premium seats close enough to vibrate your eardrums.

And let’s not overlook the VIP services, lounges, and events. Certain events have dedicated entrances for Amex cardholders, for instance. Or your Chase card might help you get free grub in the Chase Lounge at Madison Square Garden. Oh, and maybe you can hit an exclusive sound check via your Capital One card.

Pay with points for free shows

While the extra access is nearly priceless, there’s also a more practical aspect to your credit cards when it comes to concerts: rewards. Sometimes, the tickets are available, but you just can’t afford them. With some cards, you might be able to redeem your rewards points for tickets, thus skipping that pesky having money part.

And let’s not forget the points you’ll earn on tickets when you do have the cash. Choose a rewards card with an entertainment bonus category and you’ll be able to start saving up for the next show.

Who is eligible?

The issuers behind the four most popular travel rewards programs also happen to have some of the best entertainment perks:

American ExpressCapital OneChaseCiti

What kind of perks you get varies by card company — and by card. Most, if not all, cardholders can get access to things like presales and cardholder discounts. However, preferred seating to certain events, and access to invite-only events, may require you to have a premium card.

Another thing to keep in mind is that you may need to enroll in or activate some of these perks. Be sure to look through your card benefits so you don’t miss any important terms or conditions.

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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.American Express is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Brittney Myers has positions in American Express. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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