In This Issue
6 Factors Homebuyers Should Consider Over Interest Rates
by US News


When the Federal Reserve stopped buying Treasury bonds last fall, experts predicted interest rates would rise, sparking a sense of urgency among prospective homebuyers to take advantage of historically low rates before it was too late.


Now the rise in interest rates - also predicted in 2014, but not realized as the Fed eased off on bond buying - is looking less certain. Some experts believe rates will fall; others believe they will stay the same and even those who predict an increase say the increase will be small.


"There is no rush to buy for the interest rates because we don't see rates moving very quickly or very much from this year to next," says Nela Richardson, chief economist for Redfin in the District of Columbia, who expects mortgage rates to rise slightly this year. "The housing market is not one where anyone should feel an urgency to buy now."


The average rate for a 30-year, fixed-rate mortgage fell to 3.66 percent this week, according to Freddie Mac's weekly mortgage market survey. That's the lowest rate since May 2013.


Interest rates, however, should not be the primary factor that determines when you purchase a home. For most buyers, other factors are much more important. Rather than buy now for fear that rates might suddenly increase, for example, it might be smart to wait so you can save up a bigger down payment.


"Small changes in interest rates don't make large changes in your payment," says Casey Fleming, author of "The Loan Guide: How to Get the Best Possible Mortgage" and a mortgage broker in the San Francisco Bay Area. Fleming actually believes interest rates may drop further. "Interest rates are not the most important piece of [homebuying]."


If you're ready to buy a home, 2015 could be a good year. The inventory of homes for sale is likely to rise and fewer flippers are scooping up the best homes with all-cash deals, Richardson says.


Low interest rates are contributing to the higher inventory, she says, because homeowners who are ready to sell their homes and move to a bigger or smaller home, or a new neighborhood, are willing to abandon their low-rate mortgages if they can secure an equally good loan. Plus, home appreciation has slowed, so there is less reason to stay put. "The payoff to waiting [to sell] is not going to be a lot," Richardson says. "Right now it's the best it's going to get," she adds. "Maybe it's time to rush and sell but not time to rush and buy."


For most prospective homebuyers, other factors are likely to be more important than interest rates when they do the math about whether 2015 is the right year to buy.


"If you can afford a down payment now and you're going to be in the home a long period of time, it's a very attractive time to buy a home," says Stan Humphries, chief economist for Zillow. But he cautions buyers against making their decision based on what they've heard about imminent interest rate increases. "There's no need to rush out and beat an interest rate increase. You can walk, not run, to your bank the way interest rates are going."


Interest rates fluctuate and may change countless times between the moment someone decides to buy a home and when they actually close the deal. "It's very hard to time your purchase. Interest rates go up and down week to week and month to month," says Jed Kolko, chief economist for Trulia. "Buying a home is a slower process." He expects interest rates to rise slightly this year, but he notes that all the economists predicted higher rates last year, when rates ended up falling.


Here are six factors that may be more important than interest rates when deciding whether to buy a home this year.


Length of time you'll stay in that home. How long you have to live in a home to make it more economical than renting varies by locality and, in fact, by the individual home a person is considering buying or renting. "On average, it takes four to seven years to break even on a home, where you've got enough appreciation where it can pay you back for the cost of the transaction and cost of ownership," Fleming says. "If you're thinking about buying a home, selling it in two years and think it's going to be cheaper than renting, it's very unlikely to be."


Job security. You don't want to buy a home and then discover you'll need to relocate to get a new job in six months or, even worse, end up unemployed and unable to make payments. Lenders typically like to see two years of job history, though that isn't always necessary if you have changed jobs within the same field.


Down payment. Fannie Mae and Freddie Mac have announced plans to back loans with down payments as low as 3 percent, while the Federal Housing Administration offers loans with down payments of as little as 3.5 percent. But if you put less than 20 percent down, you have to pay private mortgage insurance every month, which could cost you more than a slightly higher interest rate. "If they're looking at an FHA mortgage, paying PMI is a lifetime proposition," Humphries says. With a conventional mortgage, you can ask to have the PMI removed once you have 20 percent equity in your home. That's not possible with an FHA mortgage.


Emotional readiness. Not everyone is ready to own a home. If your dream is to travel the world, you should do that first. Or, you might not be sure you want to stay in your current city. Plus, homeownership brings additional responsibilities. "Your life changes a great deal when you go from being a renter to an owner," Fleming says. "When things break, it's your responsibility to fix them, not the landlord's."


Financial readiness. Before you buy a home, you want to make sure you have good credit, a steady income and some money in the bank beyond what you'll need for a down payment. You likely will have to pay a year's worth of homeowners insurance and property taxes up front. All homes, even new homes, require maintenance. And you don't want to be stuck with no reserves if the air conditioner or furnace dies shortly after you move in.

Your local housing market. In some cities, buying a home is significantly cheaper than renting. In others, the calculation is less clear. Macro math aside, you might also discover that you can't afford a home in a neighborhood you want or the type of home you want is in short supply this year.



Financial Slackers Missed Mortgage Opportunities in 2014
by HSH.com



Are you a financial slacker? If so, you're not alone.

A recent HSH.com survey of 1,906 U.S. adults found that 40 percent of respondents hadn't refinanced or prepaid a mortgage, saved more for retirement, paid off credit-card debt or tried to boost a credit score in 2014, and 30 percent had no intention of taking those actions in 2015.

What's more, only about 39 percent of the survey respondents said they'd taken even one action, even with so many on the list from which to choose.


Analysis paralysis

Why were people so disinclined to improve their financial situation?

Did nothing 2014

True, some folks don't have a mortgage or credit-card debt and are already retired or saving plenty toward that goal. But those people aren't typical.

One reason people don't act is what PJ Wallin, founder and lead adviser at Atlas Financial, a financial planning firm in Richmond, Virginia, calls "analysis paralysis."


"Some people are perfectionists," Wallin says. "It's hard for them to get started."

Many people know they should save for their children's education, their own retirement and an emergency fund, for example. But which of those is the top priority and how much should be allocated to each? Trying too hard to resolve that puzzle can prevent even conscientious people from moving forward, Wallin suggests.

Missed mortgage opportunities

Did nothing 2015Another cause of inaction is a "set it and forget it" mindset, Wallin says.

This pitfall might explain why some people opted not to refinance to lower their payment because their current payment was manageable or they were in wait-and-see mode, hoping their home would appreciate so they could refinance at 80-percent equity and without mortgage insurance.


Only 15 percent of the 825 in the HSH.com survey who said they had a mortgage had refinanced in 2014. Even fewer -- just 9 percent -- said they intended to refinance in 2015, despite the fact that mortgage rates are expected to remain quite favorable for much of the year.


Moreover, only 3 percent said they'd prepaid a portion of their home loan in 2014 and just slightly more than 11 percent said they planned to prepay some of their mortgage in 2015.



Mental laziness can also lead to inactivity, says Ronit Rogoszinski, wealth adviser at Arch Financial Group, a financial planning and investment firm in Long Island, New York.

"Unless people are sophisticated enough or willing to actually look at the number and savings they will have over time, they seem to take an attitude of: 'It's so much bother and what's the point?'" she says.


That sort of unexamined thinking can stop people from refinancing or saving more for retirement, Rogoszinski says. Rather than increase their investments steadily over time, they try to time the markets, waiting for the next buying opportunity, which they then miss and continue to wait.


"When the downturn comes, they're busy or they didn't listen to the (financial) news that day, then they wake up three months later and say, 'I missed it again,'" Rogoszinski says.


Financial slackers 2015

Financial peer pressure

So what motivates slackers to take action to improve their financial situation?

Peer pressure, often in the form of cocktail party chatter, can be one factor.

"You hear somebody else did it and you think maybe you should think about doing it, too," Wallin says. "That's a common theme."


Education and awareness can prompt action, too, Rogoszinski suggests. As people become better informed, taking even small steps can be a way to start. "A willingness to at least try to do the right things even if, financially, it's not enough to make a point is still getting the habits in place so when the dollars can be more substantial, the habits are already there," she says.

Celebrate personal financial wins

Alan Moore, a certified financial planner at Serenity Financial Consulting in Milwaukee, Wisconsin, says people who want to improve their financial situation need to figure out what motivates them to achieve their other goals and apply those insights to their finances.

Whether that's an accountability group, friendly wager or other approach, the point is to "recognize your weaknesses and strengths and use that to find out what works for you," Moore says.


It's also important not let naysayers turn modest on-the-road-to-success achievements into negatives.


"Societally and culturally, we have a problem celebrating wins. That holds us back because we accomplish a few things and there's no one to celebrate with. When we get a small win, we think, 'I have so much more to do,'" Moore says. "Ultimately, every step matters."



HUD's Castro says factors right for first-timers to buy homes by Housingwire


As a follow-up to Tuesday night's State of the Union, Housing & Urban Development Secretary Juli´┐Żn Castro sat in for a fireside chat moderated by Zillow (Z) Chief Economist Stan Humphries to discuss housing challenges going forward.


The two chatted over how housing has fared since the crash, and Humphries offered his own questions along with questions submitted through social media. (Check out #HousinginAmerica on Twitter)


Most of the questions on social media came from challenged homebuyers in expensive markets on the cost of rental housing, and first-time buyers facing uphill issues like poor credit.


Castro said that the problem is that while credit got too easy in the run up to the housing crash, the pendulum swung too far to the restrictive side, and that steps are being taken to find a middle ground that ensures lending doesn't get reckless again.


The issue of student debt also came up as a headwind for millennial buyers.

It's notable that most of the questions came from first-time buyers since they've been on the sidelines, but Castro said that it's time for them to get in the game.


"Investment in a home is an investment in the long run in creation of wealth," Castro said. "A confluence of better economy, wages starting to go up and gas prices going down create some breathing room for people stuck in that rut to save some money to buy that first home."  


Castro also touched on the reverse mortgage program, promoting it for those in the right circumstances, and said that he thinks that America is close to the right level of homeownership.


"Homeownership is not going to be right for everyone out there. It makes sense for more Americans to own a home," Castro said. "A home is often a primary source of wealth in a family. Aside from the challenge of incomes, so many Americans have a net worth close to zero. Having a home is generational way to pass that wealth on. We want people responsible enough to own a home to have that opportunity."


Castro said that the Obama Administration promotes more private capital in the mortgage finance market, but given that Fannie Mae and Freddie Mac account for 90% of home loans and the push is to expand that, many in the industry would be hard-pressed to find examples of initiatives to get more private label capital in the market.


"Government should have a significant role (but I) think we'll see a continued trend of more private capital," he said.  

5 Smart Ways to Use Your Bonus

by Fox Business





If you get a little something extra in your paycheck, whether it's once a year or a few times a year, you are probably ready to celebrate. But, before you get started, it's a good idea to have a plan for this new sum of money in your lap so it doesn't disappear as quickly as it came. You worked hard for this bonus - make sure it works hard for you. Consider the 50/30/20 rule where 50% goes to pay off debt, 30% goes to savings and 20% goes to fun. These aren't the right percentages for everyone so it's important to look at where you currently stand financially, what your goals are, and these five tips so you can use this bonus the smartest way for you.


1. Pay Off Debt


The first debts that should be paid off with this cash influx are probably personal loans and credit card debt since they usually have the highest interest rates. Get these numbers down to zero, if possible. After you finish these debts, tackle debt with lower interest rates like student loans so you can save on interest and finish these payments ahead of time. The lifetime cost of debt is staggering, so the sooner you can tackle it, the more you can save. Paying down debt can also boost your credit scores, which can save you money in interest on other loans down the road. (You can see how your debt is impacting your credit scores for free on Credit.com.)


2. Max Out Retirement Contributions


If you aren't at the contribution limit on your tax-deferred plans like 401(k) or a traditional IRA, you may want to put a sizable chunk of your bonus here and reap the rewards later. You can defer paying taxes on the amount contributed, build your retirement savings and compound savings with larger future interest earnings. If your employer makes matching contributions, you can essentially boost the size of your bonus this way.


3. Work on that Mortgage


If you got your mortgage at higher interest rates, you could do some research to see if refinancing your home could save you money in the long run. The bonus could cover the closing costs. Also consider making prepayments to your mortgage to build more equity sooner (only good if you won't be subject to a prepayment penalty). A lump sum payment now can mean you pay less interest overall. If you don't own a home, consider creating an emergency fund specifically for rent or a down payment fund to buy a home in the future.


4. Get a Better Savings Account Rate


Since you should hopefully be putting some of your bonus into a savings account, take the opportunity to make sure your account is offering a competitive rate. Shop around and calculate potential yields so you can choose the best savings account for you. You may even qualify for higher rates because of the larger deposit.


5. Indulge Yourself - a Little


Now, the fun part - you used the majority of your bonus for debt repayment and savings, but you worked hard for that cash and, if you can afford it, can get at least a small reward. Splurging may not be common financial advice, but it can be motivational to treat yourself to a massage, new pair of shoes or any possession that was just out of financial reach before. Also consider experiences like a weekend getaway or concert tickets. Just be sure you set limits and don't get used to this inflated lifestyle - this is a one-time treat.

Remember, the percentages of how you use your bonus are not as important as making sure you are using this money the way it will benefit you most. Assess your current financial situation then calculate the different options and create your own budget for this cash influx.