Money Management

Would-be home buyers need to be ready for this downside of purchasing. 

If you’re thinking about buying a house, you’re probably considering all the fun parts of purchasing a property. You may be dreaming about how you’ll make the place your own or give your children a place to set down roots and grow in a place that will become their family home.

But, the purchase process isn’t necessarily all gorgeous kitchens and gleaming hardwood floors. In fact, some aspects of it can be costly and kind of a pain to deal with. Finance guru Dave Ramsey has warned about some of these downsides of homeownership, including one key part of the purchasing process you absolutely need to be prepared for.

Ramsey warns of a big cost that’s not fun to pay

When it comes to the purchasing process, Ramsey highlighted one key step that many homeowners don’t find very fun. It’s a part of the process that can be very expensive, and comes as a shock to many people who are buying a house for the first time.

“It’s kind of a bummer, but you should plan to pay 3%–4% of the cost of your home for buyer’s closing costs,” Ramsey explained.

He said that although some sellers may be willing to kick in a little bit of cash to help you with this big expense, that doesn’t always happen. “That’s not as common as it was years ago,” he said.

Coming up with this much extra money is probably going to seem like a huge hassle — especially since you have already had to save thousands of dollars for a down payment and will incur moving costs as well. Sadly, it’s a part of the reality of home buying for just about everyone.

“Buyer’s closing costs cover things like inspection and appraisal fees, loan origination and processing fees, property taxes, title insurance, and homeowners insurance,” Ramsey explained. Since your mortgage lender is going to require you to cover these costs, you’ll need to make sure you have the funds for them before you move forward with making an offer on a home.

How can you cover closing costs?

Ramsey is absolutely right that it’s a bummer to be faced with huge additional costs when purchasing a home. But you have a few options for covering these expenses.

In some cases, lenders will allow you to borrow for closing costs, rolling this debt into your mortgage. In others, lenders may cover them but charge you a higher interest rate to make up for the expenses you aren’t paying. Neither of these approaches are great since you end up increasing the cost of your loan for decades.

The best option is to save for them and pay them out of pocket. You can do this in a number of ways, including:

Buying a slightly cheaper house than you can afford, knowing you’ll have to pay a percentage of the purchase price in closing costsSaving a little longer before moving forward with your purchase so you have time to save for closing costsGetting a side job or doing extra work to save up the money for closing costsReducing your budget for fun expenses temporarily to quickly save up the money for closing costs

Remember, you don’t have to rush into a home purchase — be sure you’re ready to cover all the costs, including closing expenses, before moving forward so you don’t end up with regrets.

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What happenedCoinbase, the largest U.S.-based crypto exchange, has agreed to pay a $50 million fine for allowing customers to open accounts with insufficient background checks. In addition, it will invest $50 million to improve its compliance program.Coinbase and the New York State Department of Financial Services announced the settlement on Wednesday. Regulators began investigating Coinbase in 2020 after a routine examination found compliance issues. Although the exchange hired an independent consultant, that didn’t fix the problems, so regulators began a formal investigation in 2021.
Discover: Best places to buy bitcoinMore: Check out our updated list of best crypto apps including one offer with a $100 crypto bonus
They found that Coinbase only performed rudimentary identity verification during its “know your customer” (KYC) process. It also had a backlog of over 100,000 alerts for potentially suspicious transactions by late 2021. Regulators ordered Coinbase to hire an outside monitor during the investigation, with the reason being that “We found failures that really warranted putting in place an independent monitor rather than wait for a settlement,” according to Adrienne A. Harris, New York State’s superintendent of financial services, as reported by the New York Times.So whatMany investors flocked to cryptocurrency in 2020 and 2021. As money flooded into the sector, prices of everything from major cryptocurrencies to smaller tokens increased rapidly. Investors typically buy through crypto apps and exchanges, and in the United States, Coinbase is the most popular option.Because of how rapidly cryptocurrency has grown, authorities have had to catch up and ensure that exchanges are complying with financial regulations. However, many crypto exchanges have skirted the rules. Some exchanges, with FTX being a notable example, have collapsed completely. Coinbase’s situation isn’t that bad, but compliance issues like these are still a major concern for investors.One of the most important parts of choosing a crypto platform is security. Everyone wants to feel confident that their money and cryptocurrency is safe. Exchanges that don’t comply with regulations have been banned from many countries, and some have gone bankrupt. In those situations, you could be locked out of withdrawing money from your account.Now whatCrypto exchanges will likely put a renewed emphasis on complying with financial regulations in 2023. Last year was full of high-profile issues, which caused both crypto prices and investor confidence to plummet.For crypto investors, this could mean going through a stricter KYC process, especially when opening a new account. There may also be lower thresholds for fraud alerts on transactions. These can be somewhat inconvenient, but they’re an important part of ensuring that cryptocurrency isn’t being used for criminal activity.Although Coinbase clearly has had compliance issues, this doesn’t mean it’s a bad place to buy and sell cryptocurrency. It’s still a U.S.-licensed exchange that has committed to working with regulators. Many exchanges set up shop in countries with more relaxed regulations, which is much riskier for investors. While it’s hard to feel 100% confident in most crypto platforms right now, U.S.-licensed exchanges are a safer place to invest your money.
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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. 

What happened

Coinbase, the largest U.S.-based crypto exchange, has agreed to pay a $50 million fine for allowing customers to open accounts with insufficient background checks. In addition, it will invest $50 million to improve its compliance program.

Coinbase and the New York State Department of Financial Services announced the settlement on Wednesday. Regulators began investigating Coinbase in 2020 after a routine examination found compliance issues. Although the exchange hired an independent consultant, that didn’t fix the problems, so regulators began a formal investigation in 2021.

They found that Coinbase only performed rudimentary identity verification during its “know your customer” (KYC) process. It also had a backlog of over 100,000 alerts for potentially suspicious transactions by late 2021. Regulators ordered Coinbase to hire an outside monitor during the investigation, with the reason being that “We found failures that really warranted putting in place an independent monitor rather than wait for a settlement,” according to Adrienne A. Harris, New York State’s superintendent of financial services, as reported by the New York Times.

So what

Many investors flocked to cryptocurrency in 2020 and 2021. As money flooded into the sector, prices of everything from major cryptocurrencies to smaller tokens increased rapidly. Investors typically buy through crypto apps and exchanges, and in the United States, Coinbase is the most popular option.

Because of how rapidly cryptocurrency has grown, authorities have had to catch up and ensure that exchanges are complying with financial regulations. However, many crypto exchanges have skirted the rules. Some exchanges, with FTX being a notable example, have collapsed completely. Coinbase’s situation isn’t that bad, but compliance issues like these are still a major concern for investors.

One of the most important parts of choosing a crypto platform is security. Everyone wants to feel confident that their money and cryptocurrency is safe. Exchanges that don’t comply with regulations have been banned from many countries, and some have gone bankrupt. In those situations, you could be locked out of withdrawing money from your account.

Now what

Crypto exchanges will likely put a renewed emphasis on complying with financial regulations in 2023. Last year was full of high-profile issues, which caused both crypto prices and investor confidence to plummet.

For crypto investors, this could mean going through a stricter KYC process, especially when opening a new account. There may also be lower thresholds for fraud alerts on transactions. These can be somewhat inconvenient, but they’re an important part of ensuring that cryptocurrency isn’t being used for criminal activity.

Although Coinbase clearly has had compliance issues, this doesn’t mean it’s a bad place to buy and sell cryptocurrency. It’s still a U.S.-licensed exchange that has committed to working with regulators. Many exchanges set up shop in countries with more relaxed regulations, which is much riskier for investors. While it’s hard to feel 100% confident in most crypto platforms right now, U.S.-licensed exchanges are a safer place to invest your money.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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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The less I think about savings, the better. 

Investing should be easy and profitable. If it’s easy, you’ll actually start. If it’s profitable, you’ll actually continue. Some of the best investments you can make in 2023 start with forming simple habits. These habits snowball into savings that compound over time.

1. Automate your savings

Automation makes saving money easy. Consider setting up automatic deposits with your bank account, which will deposit a percentage of each paycheck into your account. That way, you’re not tempted to spend money you’d rather save.

I automatically deposit 10% of my monthly income into my savings account. It’s satisfying to watch the account numbers steadily climb every month. The best savings accounts offer high rates and keep your money safe.

2. Automate your investments

If you’re investing through an IRA, consider setting up auto-deposits. Try to take full advantage of employer matching (or brokerage matching offered by Robinhood IRAs). Think of matching as free money — all you have to do is deposit money into your account.

You can make $150,000 each year in retirement through the magic of compound interest. If you don’t have an IRA, shop for one that fits your needs. The best retirement accounts offer bonus perks and give you reasonable control over your investments.

3. Learn one interesting thing

To paraphrase Warren Buffett, “Knowledge compounds.” Learning is exponential. Progress creeps forward, then snowballs as you make connections between unrelated topics.

Over a year ago, I became interested in how to invest. Things started slow — reading a few articles a day — and quickly escalated when I realized I could combine my two favorite interests: writing and finance. Now, I’m proud to have a career in personal finance.

Consider learning about how money works. Going through life with a vague understanding of your finances is like navigating a snowstorm blindfolded. Money affects everything. Understanding money is key to establishing control over your life.

Tech-savvy folks might find learning through apps the easiest way to go. The best financial literacy apps teach you how to direct where money flows.

4. Start one healthy habit

Happier, healthier, wealthier. That’s the motto of The Motley Fool. Trying to build wealth while in poor health is like climbing Mount Everest while carrying a backpack stuffed with rocks. It’s difficult, and all you can think about is how much your lower back hurts.

Consider starting a healthy habit. Anything will do. To make sure you stick to it, consider the Two-Minute rule suggested by James Clear, author of the bestselling book Atomic Habits. The Two-Minute Rule states that all new habits should take two minutes or less.

My legs often ache from sitting in front of a computer screen. So I’ve started a healthy routine: Whenever I fill up my water glass, I spend one minute doing jump squats. I’m a chronic hydrator, so my legs are on fire by the end of the day. The routine keeps my blood flowing.

Keep things easy and profitable

By keeping investments easy and profitable, you get the most out of the new year. The important thing is to start and be consistent.

A few more things to motivate your investment journey:

Are you a student? Pay off debt with the snowball method.Try to avoid loans. But if you must take one out, choose from among the best personal loans.Consider how much money you should really be saving each month.

Here’s another golden Buffett nugget: “It’s just not necessary to do extraordinary things to get extraordinary results.” It takes a million small stones to build a castle. Take pride in your gains — all of them.

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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.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Hint: It’s not a small number. 

There was definitely a point in time when it did not take a six-figure income to be able to purchase a home and keep up with the costs of ownership. But those days may be gone.

While home prices have come down a bit since peaking earlier this year, they’re still elevated on a national level. That alone is a challenge. But compounding the issue is that mortgage rates have risen sharply since the start of the year. And so buyers these days are looking at twice the borrowing rate — or more — than what they would’ve faced had they signed a mortgage a year ago.

It’s not shocking, then, for Redfin to report that home buyers today must earn an annual salary of $107,281 to be able to afford the typical U.S. home. That salary is based on an average monthly mortgage payment of $2,682.

What is shocking, though, is that a year ago, it only took an annual salary of $73,668 to be able to afford a mortgage on the average U.S. home. And that’s largely due to the fact that mortgage rates have pretty much doubled since that time.

Of course, we all know that the typical U.S. worker does not earn $107,281 a year. So this means that right now, a lot of would-be buyers may have to put their plans on hold until mortgage rates and property values start to drop.

Can you afford to buy a home today?

While Redfin’s data shows that it takes a salary of $107,281 to afford an average home, you may be looking to buy a home that’s less expensive than the typical U.S. property being sold today. That could be because you’re willing to purchase a fixer-upper, or you’re buying in an area where home prices aren’t as inflated. Or, it could be that you’re willing to compromise and start off by purchasing a condo or townhouse rather than a detached home.

Earning less than $107,281 doesn’t automatically mean you should kiss the idea of homeownership goodbye. But what you should do is run the numbers to make sure buying is feasible.

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. And that list of costs includes:

Your mortgage paymentProperty taxesHomeowners insurance premiumsHOA fees, which commonly come into play when you buy a condo or townhouse

If you can stick to that 30% limit on a $60,000 salary, there’s no reason not to buy a home. But do be mindful of it, because going above that threshold could mean struggling to keep up with your housing costs and other bills.

A higher salary isn’t a free pass to buy a home

Just as it may be possible to afford a home and earn a lot less than $107,281 a year, so too might it be the case that you earn much more than that but still can’t find a home that allows you to keep your housing costs to 30% of your income or less. If you’re earning $150,000 a year but live and work in an area where the typical home costs $1 million, that might easily be the case.

That’s why it’s so important to run your own numbers before moving forward with a home purchase. In time, we can hope that property values and mortgage rates will start to come down. But until that happens, it’s important to be extra mindful of not taking on too high a mortgage — regardless of what your salary looks like.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Image source: Getty Images
What happenedResidents are preparing for more powerful storms after weeks of heavy rains wreaked havoc in California. The state is on high alert as forecasters warn of further flash floods, mudslides and powerful winds. According to the New York Times, the next storm could bring another four inches of rain as well as winds of almost 40 miles per hour.So whatWith more intense storms on the way, the National Weather Service has warned residents to sign up for alerts, pack go-bags, and prepare for further power outages. “This is truly a brutal system that we are looking at and needs to be taken seriously,” it said. If you live in California, try to have sand bags, plastic sheeting, and other flood protections at the ready. At least two people have already died as a result of the storms and almost 50,000 homes and businesses are without power. While some residents have already been evacuated, others are sheltering in place as road closures make evacuation impossible. Since the ground is already waterlogged, more rain could lead to more serious flooding and damage.Now whatAs millions of Californians prepare for potentially life-threatening weather situations, insurance coverage may be the last thing on their minds. However, understanding what your insurance will cover and where your documents are can be an important part of every household’s storm preparation.If you’re preparing a go-bag, make sure to pack your insurance documents. This includes your homeowners insurance, flood insurance, and auto insurance. You’ll need information like your policy numbers and your insurers’ contact information. Another step you can take before the storm hits is to inventory your home. Walk around and take pictures, document anything of value.You might email or text the files to a friend or family member in another state for safekeeping.
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If the storm has already damaged your home or car, take as many pictures or videos as you can — assuming it’s safe to do so. Don’t put yourself at risk, but if you’re able to make a record of what’s happened, it could help your claim further down the road.Know what your insurance will coverBe aware that standard homeowners insurance won’t cover flood damage. Damage done by storms, fire, and wind are usually included in home insurance policies. That means you’ll likely be able to claim if a tree gets blown into your home, but you may not be able to make a claim for the damage done by rising water levels. If you live in an area that’s prone to flooding, mortgage lenders often require you to take out additional flood insurance. If you own your house outright, you may benefit from separate insurance against flooding.In addition, it’s worth knowing that comprehensive car insurance is the only type of car insurance to cover against flood damage. Other types of auto insurance won’t protect you in the event of flooding or other types of storm damage. Plus, a lot of flood insurance policies don’t include vehicles.Whatever part of the country you live in, don’t wait until a storm’s about to hit to buy insurance or understand exactly what your policies cover. Most insurers put a moratorium on new policies when they discover a storm is on its way. You’re unlikely to be able to take out home or flood insurance once a storm is imminent or has already arrived.Our best car insurance companies for 2022Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy. 

What happened

Residents are preparing for more powerful storms after weeks of heavy rains wreaked havoc in California. The state is on high alert as forecasters warn of further flash floods, mudslides and powerful winds. According to the New York Times, the next storm could bring another four inches of rain as well as winds of almost 40 miles per hour.

So what

With more intense storms on the way, the National Weather Service has warned residents to sign up for alerts, pack go-bags, and prepare for further power outages. “This is truly a brutal system that we are looking at and needs to be taken seriously,” it said. If you live in California, try to have sand bags, plastic sheeting, and other flood protections at the ready.

At least two people have already died as a result of the storms and almost 50,000 homes and businesses are without power. While some residents have already been evacuated, others are sheltering in place as road closures make evacuation impossible. Since the ground is already waterlogged, more rain could lead to more serious flooding and damage.

Now what

As millions of Californians prepare for potentially life-threatening weather situations, insurance coverage may be the last thing on their minds. However, understanding what your insurance will cover and where your documents are can be an important part of every household’s storm preparation.

If you’re preparing a go-bag, make sure to pack your insurance documents. This includes your homeowners insurance, flood insurance, and auto insurance. You’ll need information like your policy numbers and your insurers’ contact information. Another step you can take before the storm hits is to inventory your home. Walk around and take pictures, document anything of value.You might email or text the files to a friend or family member in another state for safekeeping.

If the storm has already damaged your home or car, take as many pictures or videos as you can — assuming it’s safe to do so. Don’t put yourself at risk, but if you’re able to make a record of what’s happened, it could help your claim further down the road.

Know what your insurance will cover

Be aware that standard homeowners insurance won’t cover flood damage. Damage done by storms, fire, and wind are usually included in home insurance policies. That means you’ll likely be able to claim if a tree gets blown into your home, but you may not be able to make a claim for the damage done by rising water levels.

If you live in an area that’s prone to flooding, mortgage lenders often require you to take out additional flood insurance. If you own your house outright, you may benefit from separate insurance against flooding.

In addition, it’s worth knowing that comprehensive car insurance is the only type of car insurance to cover against flood damage. Other types of auto insurance won’t protect you in the event of flooding or other types of storm damage. Plus, a lot of flood insurance policies don’t include vehicles.

Whatever part of the country you live in, don’t wait until a storm’s about to hit to buy insurance or understand exactly what your policies cover. Most insurers put a moratorium on new policies when they discover a storm is on its way. You’re unlikely to be able to take out home or flood insurance once a storm is imminent or has already arrived.

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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.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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