Money Management

An appraisal is just one of the many steps between you and homeownership. Learn what to do if the appraiser says the home is worth less than expected. [[{“value”:”

After a few years of paying off debt, saving money, hoping, wishing, and dreaming, I am finally waiting on a mortgage closing. Thankfully, my road to homeownership hasn’t been as bumpy as I feared, despite 2024’s difficult market — I credit this to having whipped my finances into shape ahead of time and choosing to work with an experienced real estate agent who has been my rock through this entire process.

But one little hiccup I did encounter was the appraisal on my prospective new home coming back lower than the price I agreed to pay for it. This is a problem, because a mortgage hinges on a home appraisal — a mortgage lender will not loan you more money than a home is worth.

In my case, thankfully, the difference between the appraised value and my purchase price was just a few hundred dollars. But what if the value you get from your appraisal is thousands less than you intend to pay? Here are your options when you have a low appraisal.

Get a larger mortgage

If your offer wasn’t at the absolute top of your budget and the appraisal shortfall doesn’t result in needing a larger mortgage than your lender will give you, you could borrow more money to make up the difference. This is one great reason not to borrow as much money in the beginning as the lender says you qualify for, to give yourself more wiggle room in case of a low appraisal. If the lender is willing to let you borrow more to make up for the shortfall (and doing so won’t put you outside the lender’s required loan-to-value rules), then this can be a good option.

This was technically an option for me, as I am putting down 10% to buy the house (and with my credit and income, I qualified to make a smaller down payment). But I decided against it — borrowing a larger amount means paying more interest, and current mortgage rates are already going to make my monthly mortgage payment higher than I wanted.

Increase your down payment

This is what I’m doing to cope with a low appraisal. I agreed to tack a few hundred extra dollars onto my down payment to cover the difference. And while I did have to re-sign paperwork with my mortgage lender, it was a fairly painless solution. (Made possible by the fact that I hit my original savings target to buy a home and then just kept right on saving — the costs of buying and owning a home are no joke, and I wanted to be prepared.)

However, if your appraisal comes back much lower than what you intend to borrow from a lender, you might not be financially able to do this.

Renegotiate with the seller

Another option you have in this situation is to see if the seller is willing to come down on the agreed-upon purchase price for their home. However, you might not have success here, especially if you’re buying in a seller’s market.

Unfortunately, that’s right now, thanks to a stubbornly low supply of homes for sale that can be attributed to current homeowners not wanting to give up the lower mortgage rates they locked in back in 2020 and 2021. The odds are good that your seller will be able to find another buyer who can afford to put more down for a loan and therefore complete the purchase. But it doesn’t hurt to ask.

Request a new appraisal

You can ask for a new appraisal if you feel the first one was off base, but there’s no guarantee a second appraiser will reach a different conclusion. Plus, this will be more money you’ll have to shell out. You could ask the seller to cover the cost, but again — why would a seller do this when the odds are they can find a buyer in financial shape to buy the house anyway?

Walk away

This option stinks, but it’s on the table. By the time you reach the appraisal stage of buying a home, you’re likely already pretty attached to the house in question and could already be daydreaming about the quiet weekday mornings and relaxing Saturday nights you’ll spend there.

But if you’re at an impasse and you can’t borrow more money (or add more from your savings) or get the sellers to lower the sale price, you might have to walk away from the purchase (provided your contract has this contingency). Go back to the drawing board and look for cheaper homes, if possible — doing so might allow you to make up the difference out of your savings if another appraisal comes back low.

There’s a lot of potential for bumps on the road to becoming a homeowner, and once you’ve had an offer accepted and formally applied for a mortgage, the appraisal is the next big hurdle. If the value of the home of your dreams comes in low, you still have options — but just the same, I hope this isn’t a problem you face.

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CDs have been the talk of the town, thanks to the towering rates of late. But take a look at why they may not be the right move for everyone. [[{“value”:”

It can be hard to pass up a good deal, whether it’s a free soda when you buy lunch at the local sandwich shop or a BOGO sale at your favorite clothing store. And certificates of deposit (CDs) are unquestionably a good deal right now. The best CD rates today are sitting around 5.00%, reaching recent record highs. Compare that to 0.16%, the average 12-month CD rate at the end of 2020 during the height of COVID-19, and you’ll see just how sweet a deal snagging one of today’s best CDs can be.

But despite these glowing annual percentage yields (APYs), I’m not planning on opening a CD. There are a couple of reasons why I’ve decided this savings vehicle isn’t for me.

I value simplicity in my finances

Life is complicated. Take a moment to think about how many accounts you have open in the world, from bank accounts to streaming platforms, store loyalty memberships to medical office logins. If you wrote down a list of all your usernames and passwords, would it be dozens of lines long? Hundreds? It’s one of the things that bugs me about modern life.

I like to streamline things where I can, and opening another account that I have to monitor doesn’t feel worth it to me at this time. I already have savings and checking accounts, an emergency fund, a retirement account, and a taxable brokerage account, and I’m comfortable with the way my money is distributed among them. Sure, I could shuffle some of that money around and move it into a CD, or even build a CD ladder out of several CDs with differing term lengths, but I don’t need to. Even with rates at or slightly above 5.00%, I’m happy with the returns I’m earning on my money where it is. In fact…

I can earn high returns elsewhere

There are few places where you can put your money and earn similar returns to what the best CDs are offering right now, but high-yield savings accounts have been a pretty excellent low-risk alternative in recent years. Like CDs, savings accounts are FDIC insured, meaning up to $250,000 per account will be covered in case of bank failure. And savings accounts rates have been gloriously high the past few years thanks to the same Federal Reserve interest rate moves that have led to high CD rates.

The money in my high-yield savings has grown significantly since I opened the account a few years ago, thanks to compound interest and high rates, and I’ve had the peace of mind knowing I can dip into it at any time if an emergency expense pops up. I wouldn’t be able to say the same about a CD. And while savings account rates aren’t locked in and can fluctuate at any moment, they’ve remained high for a few years, and I’m okay if they start to dip again soon since that’s not the only place I keep my money.

I also regularly shift cash I know I won’t need in the short term to my brokerage account. While investing can be somewhat unpredictable and comes with more risk than a CD or savings account, the long-term returns have consistently trended up. In fact, the average annual stock market return over the past 50 years is 10%. I’m not great at math, but I know 10% is twice as much as 5%, so I’m comfortable investing long-term cash in my brokerage account rather than a CD.

Do what’s best for you

Take a look around here at The Ascent and you’ll see plenty of well-reasoned arguments both for and against investing in CDs. It’s clear there’s no one right answer, no one-size-fits-all move. As long as you take a look at your own finances, make decisions you’re comfortable with, and keep some amount of money in emergency savings, you should be able to set yourself up for a successful financial future, no matter which side of the CD fence you fall on.

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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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You can invest your IRA funds in a CD. But should you? Read on to find out. [[{“value”:”

If it seems like just about everyone you know is rushing to open a CD, there’s a reason for that. CD rates are at their highest level in years following a string of interest rate hikes from the Federal Reserve. And while you shouldn’t expect the same returns from CDs as you might get from a stock portfolio, with the former, you’re eliminating the risk that comes with investing in the market.

CD deposits are protected for up to $250,000 per person at FDIC-insured banks ($500,000 for joint accounts). So if you put $5,000 into a CD, you’re guaranteed not to lose your $5,000 even if your bank fails. With stocks, there’s always the risk of investing $5,000 and having it eventually be worth a lot less — or even $0.

Given what CDs are paying today, you may be inclined to open a CD in your IRA. Doing so has its advantages. But whether it’s the right strategy for you depends on where you are in your savings window.

The upside of opening a CD in your IRA

The fact that you can earn risk-free interest with a CD is a good thing. But that interest is also income the IRS gets to tax you on. And interest income is taxed as ordinary income, so it’s subject to the same tax rate as your highest dollars of earnings.

IRAs, on the other hand, give you the benefit of tax-deferred growth. So when you earn interest on CDs in an IRA, you don’t have to pay taxes on that money right away. Rather, you pay taxes when you take withdrawals from your account.

The downside of opening a CD in your IRA

CDs today may be paying around 5% — or in some cases, a little more. But the stock market’s average annual return over the past 50 years has been 10%. So tying up retirement savings in a CD could mean stunting your nest egg’s growth.

Should you open a CD in your IRA?

Whether it’s a good idea to put some of your IRA funds into a CD really depends on where you are in your savings journey. Those near retirement are often advised to shift toward safer investments and away from stocks. So if you plan to wrap up your career in a few years, it could be a good idea to put some of your IRA into a CD, or a series of CDs.

In fact, you may want to open a 48- or 60-month CD instead of a shorter-term one if you’re getting close to retirement. Though you generally won’t get as high an interest rate as you can with a 1-year CD, or a term closer to 12 months, you’ll lock in a reasonably strong rate for a longer period.

On the other hand, if you’re decades away from retirement, you’re generally better off sticking with stocks in your IRA. Let’s say you’re 30 and won’t retire for another 35 years. If you were to earn 5% on $5,000 of your IRA funds, in 35 years, you’d grow that sum to about $27,600. With a 10% return, which is what you might get with stocks, you’d end up growing your $5,000 into about $140,500 instead.

It’s also important to recognize that because today’s CD rates aren’t the norm, opening CDs in an IRA may not be a great long-term strategy. It’s one thing to open a single 1-year CD in your IRA now to get a risk-free 5% or so for a year. But in time, CD rates are likely to drop. And once that happens, the gap between what a CD might pay you versus a stock portfolio is likely to widen.

As such, CDs could be a decent choice for older savers right now within an IRA. But they’re generally not the best option for an IRA in general.

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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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Both Dave Ramsey and Suze Orman have shared their opinions about CDs, but Orman’s stance makes a lot more sense. Read on to learn why. [[{“value”:”

Certificates of deposit (CDs) are one of several safe investment options that come with FDIC insurance coverage. CDs also offer other benefits, including a guaranteed rate of return. But there’s some controversy over whether CDs are a worthwhile investment or not.

In fact, two big well-known financial gurus, Suze Orman and Dave Ramsey, actually have very different opinions about whether buying CDs can be a smart choice. It’s clear, though, whose opinion makes the most sense. Orman is right, and Ramsey is wrong. Here’s why that’s the case.

This is what Orman and Ramsey think of CDs

Orman is a fan of CDs, saying that she believes they “make terrific sense.”

Of course, she does have some caveats. She believes you should build an emergency fund before investing in a CD, and that CDs can be a good complement to a savings account but not a replacement for one. She specifically urges followers to put money into CDs only if they have funds to keep safe for a limited period of time, and she warns CDs aren’t a substitute for putting your money into the stock market over the long term.

Ramsey, on the other hand, has described CDs as nothing more than “glorified savings accounts,” and says CD returns are typically too low to make the investment worth bothering with. He suggests putting your money into a mutual fund instead of a CD.

Here’s why Orman is right and Ramsey is wrong

Of these two different positions, it’s clear that Orman’s makes the most sense. And that’s because she acknowledges there’s a place in your portfolio for CDs under the right circumstances, while Ramsey overlooks this fact.

See, it typically doesn’t make sense to invest money in the stock market (including in a mutual fund) that you’ll need within five years or so. You typically need at least a five-year timeline to reduce the chances you’d have to sell and lock in losses if you happen to poorly time your investments and need money.

That’s because stocks can lose money. If you invest in them with funds you need to access soon, you could find yourself losing a fortune in a market crash and not being able to wait out a recovery that would most likely make you your funds back.

Also, CDs aren’t just glorified savings accounts because they usually (but not always) pay higher rates than savings accounts do (as Ramsey himself acknowledges). And they allow you to lock in those rates for the entire term of the CD, so you’re protected if interest rates decline.

Right now, economic conditions are unusual and savings account rates and CD rates are pretty comparable, with some savings accounts actually paying more than CDs. But since the Federal Reserve is expected to reduce rates sometime this year, only a CD can guarantee you today’s high yields for a fixed period of time — you lock in the rate when you open one. Savings accounts, on the other hand, come with variable interest rates.

By not acknowledging that CDs can be the right choice for short- and medium-term investing, listening to Ramsey could cause you to miss out on an important chance to maximize your return on money you’ll need in the coming three months to five years.

You shouldn’t miss that chance. Instead, follow Orman’s suggestion to put money into a CD once your emergency fund is complete (meaning you have three to six months’ worth of expenses saved up) and once you have retirement savings underway. You can find some great CDs with rates above 5.00% today, so check them out and start investing if you have money you can tie up for a little while — but not for too long.

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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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