MONEY Credit Scores

The One Graph That Explains Why a Good FICO Score Matters for Homebuyers

young couple outside of home
Ann Marie Kurtz—Getty Images

An analysis from an economic policy group estimates that tight credit standards may have prevented 4 million consumers from getting mortgages since 2009.

When it comes to buying a home, there’s a lot more to the process than just finding an affordable home for sale and having enough money for a down payment. Most people need loans to finance such a large purchase, but even as the housing market has rebounded from the foreclosure crisis and low property values of 2010, mortgages remain very difficult to acquire. A report from the Urban Institute, a Washington-based economic-policy research group, concludes that 1.25 million more mortgages could have been made in 2013 on the basis of conservative lending standards practiced in 2001, years before the housing bubble began to inflate.

Whether or not a lender approves a borrower for a mortgage depends on several factors, like income and outstanding debt, but looking at the credit scores of mortgage borrowers during the last several years shows just how tight the market has been post-recession. Here’s how it breaks down.

Urban-Institute-FICO-Score-distribution

The Urban Institute estimates that the stringent credit score standards for mortgage origination resulted in 4 million mortgages that could have been made (but weren’t) between 2009 and 2013. From 2001 to 2013, consumers with a FICO credit score higher than 720 made up an increasingly large portion of borrowers, from 44% of loans in 2001 to 62% in 2013. Consumers with scores lower than 660 made up 11% of borrowers in 2013, but they represented 28% of home loans in 2001.

The study authors note that their calculations do not account for a potential decline in sales because consumers may not see homeownership as attractive as it had been before the crisis.

“Even so, it is inconceivable that a decline in demand could explain a 76% drop in borrowers with FICO scores below 660, but only a 9% drop in borrowers with scores above 720,” the report says.

On top of that, the authors found that tightened credit standards disproportionately affected Hispanic and African-American consumers. In comparison to loan originations made in 2001, new mortgages among white borrowers declined 31% by the 2009-2013 period, 38% for Hispanic borrowers and 50% for African-American borrowers. Loans to Asian families increased by 8%.

Millions of Americans are still feeling the impact of the economic downturn on their credit scores, because negative information like foreclosure, bankruptcy and collection accounts remain on credit reports for several years. Rebuilding the credit and assets necessary to buy a home takes time, particularly in such a tight lending climate, but by regularly checking your credit — which you can do for free on Credit.com — and focusing on things like keeping debt levels low and making loan payments on time, you can start making your way toward a better credit standing.

More from Credit.com

This article originally appeared on Credit.com.

MONEY renting

These Are the Most—And Least—Affordable Places to Rent

Fieldston Historic District, Riverdale, Bronx, New York
Alamy Fieldston Historic District, Riverdale, Bronx, New York

A New York City borough is the least affordable—but it's not the one you're thinking of.

It’s no secret that renting has become more expensive in recent years. Now, new data a from housing data firm RealtyTrac lets us know exactly where in the country renting is most and least affordable.

In order to find out which areas are easiest on the typical renter’s wallet, RealtyTrac crunched the numbers on 461 counties across the U.S. with a population of at least 100,000 and sufficient data available, to determine the percentage of the local median household income that gets eaten up by the “fair market” rent (set by the U.S. Department of Housing and Urban Development) on a three bedroom property.

The Bronx, in New York City, where fair-market rent takes up a whopping 69% of median income, ranks as the least affordable county in the nation—a result of the borough’s extremely low median income and relatively high rents.

San Francisco, Brooklyn (Kings County, New York), and Philadelphia, are also high on the list, each taking up around 48% of the typical household salary in rent payments.

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On the other end of the spectrum, Delaware County, Ohio, was ranked as the most affordable city for renters, with fair-market rents costing just 14% of the median household income. Delaware was closely followed by Williamson County, Tennessee; Hamilton County, Indiana; and Fort Bend County, Texas.

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RealtyTrac also notes that renting is generally more expensive than buying a house. The firm found monthly ownership costs of a median-priced home—including mortgage payments, property taxes, and home and mortgage insurance, assuming a 10% down payment—account, on average, for just 24% of the median income. Fair-market rents, by comparison, averaged 28% of the typical household income. Overall, RealtyTrac found house payments were more affordable than fair-market rents in 76% of the counties it analyzed.

“From a pure affordability standpoint, renters who have saved enough to make a 10% down payment are better off buying in the majority of markets across the country,” said RealtyTrac vice president Daren Blomquist.

That said, Blomquist warned, “Keep in mind that in some markets buying may be more affordable than renting, but that doesn’t mean buying is truly affordable by traditional standards.” He added, “In those markets renters are stuck between a rock and hard place when it comes to deciding whether to buy or continue renting.”

MONEY mortgages

The Surprising Way to Save $190K on a Mortgage

house on chain
Peter Dazeley—Getty Images

A 30-year fixed-rate mortgage is the standard in the industry right now, but with interest rates so low, is the 15-year loan a better option?

One of the best ways to eliminate your mortgage debt is moving into a 15-year fixed-rate loan. With the average spread a full 1% compared to its 30-year mortgage counterpart, a 15-year mortgage can provide an increased rate of acceleration in paying off the biggest obligation of your life.

Can You Pull It Off?

In most cases, you’re going to need strong income for an approval. How much income? The old 2:1 rule applies. Switching from a 30-year mortgage to a 15-year fixed-rate loan means you’ll pay down the loan in half the amount of time, but it effectively doubles up your payment for each month of the 180-month term. Your income must support all the carrying costs associated with your home including the principal and interest payment, taxes, insurance, (private mortgage insurance, only if applicable) and any other associated carrying cost. In addition, your income will also need to support all the other consumer obligations you might have as well including cars, boats, installment loans, personal loans and any other credit obligations that contain a monthly payment.

The attractiveness of a 15-year mortgage in today’s interest rate environment has mass appeal. The 1% spread in interest rate between the 30-year mortgage and a 15-year mortgage is absolutely real and for many, the thought of being mortgage-free can be very tempting. Consider today’s average 30-year mortgage rate of around 4% on a loan of $400,000 — that’s $287,487 in interest paid over 360 months. Comparing that to a 15-year mortgage over 180 months, you’ll pay a mere $97,218 in interest. That’s a shattering savings of $190,268 in interest, but there’s a catch — your monthly mortgage payment is going to be significantly higher.

Here’s how it breaks down. The 30-year mortgage in our case study pencils out to a $1,909 monthly payment covering principal and interest. Weigh that against the 15-year version of that loan, which comes to $2,762 a month in principal and interest, totaling $853 more per month, but going to principal. This is why the income piece makes or breaks the 15-year deal. Independent of your other carrying costs and other credit obligations, you’ll need to be able to show an income of $4,242 a month to offset just a principled interest payment on the 30-year fixed-rate mortgage. Alternatively, to offset the principled interest payment on the 15-year mortgage, you would need and income of $6,137 per month, essentially $1,895 per month more in income just to be able to pay off your debt faster. As you can see, income is a large driver of debt reduction potential.

What to Do If Your Income Isn’t High Enough

When your lender looks at your monthly income to qualify you for a 15-year fixed-rate loan, part of the equation is your debt load.

Lenders are going to consider the minimum payments you have on all other credit obligations in the following way. Take your total proposed new 15-year mortgage payment and add that number to the minimum payments on all of your consumer obligations and then take that number and divide it by 0.45. This is the income that you’ll need at minimum to offset a 15-year mortgage. Paying off debt can very easily reduce the amount of income you might need and/or the size of the loan you might need as there would be fewer consumer obligations handcuffing your income that could otherwise be used toward supporting a stable mortgage plan.

Can You Borrow Less?

Borrowing less money is a guaranteed way to keep a lid on your monthly outflow maintaining a healthy alignment with your income, housing and living expenses. Extra cash in the bank? If you have extra cash in the bank beyond your savings reserves that you don’t need for any immediate purpose, using these funds to reduce your mortgage amount could pencil very nicely in reducing the 15-year mortgage payment and interest expense paid over the life of the loan. The concept of the 15-year mortgage is “I’m going to have to hammer, bite, chew and claw my way through a higher mortgage payment in the short term in order for a brighter future.”

Can You Generate Cash?

If you can’t borrow less, generating cash to do so may open another door. Can you sell an asset such as stocks, or trade out of a money-market fund in order to generate the cash to rid yourself of debt faster? If yes, this is another avenue to explore.

You may also want to explore getting additional funds via selling another property. If you have another property that you’ve been planning to sell such as a previous home, any additional cash proceeds generated by selling that property (depending upon any indebtedness associated with that property) could allow you to borrow less when moving into a 15-year mortgage.

Are You an Ideal Match for a 15-Year Mortgage?

Consumers who are in a financial position to handle a higher loan payment while continuing to save money and grow their savings would be well-suited for a 15-year mortgage. The other school of thought is to refinance into a 30-year mortgage and then simply make a larger payment like you would on a 25-year, 20-year or 15-year mortgage every month. This is another fantastic way to save substantial interest over the term of the loan, since the larger-than-anticipated monthly payment you make to your lender will go to principal and you’ll owe less money in interest over the full life of the loan. As cash flow changes, so could the payments made to the loan servicer, as prepayment penalties are virtually non-existent on bank loans.

There is an important “catch” to taking out a 15-year mortgage — you also decrease your mortgage interest tax deduction benefit. However, if you don’t need the deduction in 15 years anyway, the additional deduction removal may not be beneficial (depending on your tax situation and future income potential).

If your income is poised to rise in the future and/or your debt is planned to decrease and you want to have comfort in knowing by the time your small kids are teenagers that you’ll be mortgage free, then a 15-year loan could be a smart move. And when you’re mortgage is paid off, you’ll have control of all of your income again as well.

Proximity to retirement is another factor borrowers should consider when carrying a mortgage into retirement isn’t ideal. These consumers might opt to move into a faster mortgage payoff plan than someone buying the house for the first time.

Keep in mind that to qualify for the best interest rates on a mortgage (which will have a big impact on your monthly payment), you need a great credit score as well. You can check your credit scores for free on Credit.com every month, and you can get your free annual credit reports at AnnualCreditReport.com too.

More from Credit.com

This article originally appeared on Credit.com.

MONEY home improvement

5 High-Impact Home Improvements for $1,000 or Less

Simple cosmetic upgrades—and even a good cleaning—can instantly transform your home.

Sometimes all it takes is a little bit of investment to add a lot of value to your home. You can start seeing instant payback with maintenance projects that keep your home running smoothly, such as replacing furnace filters, or upgrades, like new appliances, that help save on energy costs. Although $1,000 is a drop in the bucket compared with a major home renovation project, that dollar amount can go a long way toward fixing or updating things around the house, especially if you’re planning to put your home on the market anytime soon. Here are some smart ideas for $1,000 improvements.

 

  • Update the Lighting

    lighting in living room
    Gallery Stock

    A quality light fixture can burn brightly for decades, but the style can fade. If your lighting fixtures are stuck in the ’70s, updating them will instantly transform the look of a room. Plus, switching out old sconces, pendants, or table lamps is easy to do yourself, saving you money on hiring an electrician. A quality fixture costs as little as $200, or shop floor sample sales or big-box stores for bigger bargains. If you like your current fixtures but want to give them an update, try new shades, or change the color of the metal for the cost of a can of spray paint. You can save additional dollars by swapping your old incandescents for CFL or LED bulbs, which use a lot less electricity and last far longer. Bonus: Adding more lighting to your room will generally make the space feel larger. Read more about interior lighting tips and tricks.

  • Replace the Front Door

    front door
    Dreamstime.com

    Your front door is a key element of great curb appeal, not to mention the first thing your guests see. Updating a door for better looks and added security is a wise investment of your money. The national average cost for a new steel door is $1,230, a bit over the $1,000 budget, but the cost may vary depending on where you live and whether you will be installing it yourself. The best part of this replacement project is that on average, a new steel entry door has a return on investment of 101%, one of the highest ranked projects according to Remodeling’s Cost vs. Value report.

  • Fix Up the Kitchen

    kitchen
    Eric Prine—Gallery Stock

    A grand can go pretty far in making over your kitchen. You may not be able to completely replace your dated cabinets, but you can install new drawer and door pulls (about $2 to $10 apiece) that instantly modernize the cabinet fronts. If you’re handy, you can add a new backsplash tile design for as little as $2 to $5 a square foot. Kitchen backsplashes can add big visual appeal without the cost of a full-on remodel. For appliances, you may not be able to afford the latest five-burner gas range, but you can invest in an energy-efficient stainless steel refrigerator for about $1,000 (check your stores for seasonal discounts, rebates and sales) or dishwasher for about $500. EnergyStar rated appliances will also help save on utility bills, further adding value to your home. Inexpensive cosmetic upgrades like repainting dirty walls, repairing broken shelves, fixing leaking faucets, or changing electrical outlets can all be done for $1,000 or less, many of them without the help of a professional.

  • Freshen the Bathroom

    bathroom
    Morgan Norman—Gallery Stock

    The bathroom is one of the most heavily trafficked rooms in the house, so just keeping the space clean and free from water issues can go a long way to making sure it holds its value. But $1,000 can help give the space an updated look as well as increase its functionality. A new shower curtain, fresh linens, new light fixtures, and accessories like towel bars and robe hooks can instantly modernize a bathroom. Replacing your old toilet with a WaterSense model (about $200) and adding a faucet aerator (about $5 to $15) will reduce water consumption, putting money back in your wallet each month. Some of these tasks may need the help of a professional plumber, especially if you suspect water leaks. Here’s how to tell whether to hire a pro or do it yourself.

  • Hire a Cleaning Pro

    pressure washing house
    Mats Persson—Getty Images

    You might think that $1,000 is a lot of money to spend on a house cleaner, but there are parts of your home that may require deep cleaning on a regular basis. Carpets, for example, should be cleaned about once a year—more often in heavy traffic areas. You can rent portable steam cleaners, but these models don’t have the same vacuum power as professional units, and could potentially leave water and dirt behind. Some professionals can also deep-clean upholstered furniture and area rugs as well. Another great use of your cleaning budget is pressure-washing sidewalks and driveways to remove moss, which is not only unsightly but can also be dangerous because it’s so slippery. Machines can be purchased for less than $500, and once you own a pressure-washer, you can regularly maintain walkways, driveways, patio furniture and other outdoor items. You can also rent machines by the day (check your local home center for costs). Before you attempt to use a pressure washer, though, be sure you understand how to operate it.

    Anne Reagan is the editor in chief of Porch. Get more $1,000 home improvement ideas at Porch.com.

MONEY home improvement

5 Questions to Ask Before You Hire a Roofer

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I’ve been putting off replacing my roof, but after the beating it took this winter, I know it won’t make it through another snow season. Before I spend all that money, though, how do I make sure I’m getting the right professional for the job?

A: After this winter’s snow and ice, spring promises to be a busy season for roofers in much of the northern tier of the country. If you’re in the market for a new roof, proceed with caution, because some roofers deserve the trade’s bad reputation. As with any hire, always get referrals from homeowners or other tradespeople you trust, and check references and licensing. Then ask these five questions:

1. Can I visit a project currently being installed by the crew that will be doing my roof? However smooth the salesman is, it’s the workers that matter, so this gives you a chance to assess their workmanship, the way they keep a jobsite, and their attitudes. “And it probably means the salesman is going to give you one of his best crews, because that’s who’s going to best sell you on hiring his company,” says Dan Bydlon, the president of Craftsmen Home Improvements, a contractor in Edina, Minnesota.

2. What exactly will you be replacing? If you have two or more layers of existing roofing, building codes require that you tear them off before installing a new roof. That adds to the mess and cost no matter who does the job, but some roofers may attempt to cut corners by not replacing the flashing. Unless it’s thick copper with a lot more life left, now is the time to replace it; the contract should specify what material the roofer is going to use. Additionally, the contractor should install a rubber membrane called Ice & Water Shield along the eaves to prevent any future ice dams from causing leaks. And he should install a ridge vent at the roof peak (and soffit vents under the eaves if theyre not there already) to help prevent ice dams from forming in the first place.

3. How will you leave the job site at the end of each work day? It’s best when the roofer strips only as much as he can reroof the same day, to reduce the chance that your house is left open to the elements overnight. At the end of the day, the crew should tarp any open roof and clean up stripped shingles—including running a magnet over the lawn and planting beds to pick up stray nails—before leaving the job site. You might even write these procedures into the contract.

4. Will your insurance carrier provide a personal letter confirming your workman’s compensation and liability coverages? It’s not enough for the roofer to just tell you that he is insured, or even show you a form letter. You need a document from his insurance provider addressed to you, and there’s nothing offensive about asking for one. After all, if one of his guys falls off the roof and he is not properly insured, the injured party could sue you for medical costs and lost wages.

5. What sort of workmanship warranty do you provide? Manufacturers’ warranties do not include labor—that’s up to the contractor. One to two years is standard, and having it in writing (even as a simple clause in the contract) is preferable.

MONEY Millennials

5 Big Myths About What Millennials Truly Want

150119_EM_MillennialMyth
Jamie Grill—Getty Images

We've heard a ton about millennials—where they want to live, what they love to eat, what's most important to them in the workplace, and so on. It's time to set the record straight.

In some ways, it’s foolish to make broad generalizations about any generation, each of which numbers into the tens of millions of people. Nonetheless, demographers, marketers, and we in the media can’t help but want to draw conclusions about their motivations and desires. That’s especially true when it comes to the young people who conveniently came of age with the Internet and smartphones, making it possible for their preferences and personal data to be tracked from birth.

Naturally, everyone focuses on what makes each generation different. Sometimes those differences, however slight, come to be viewed as hugely significant breaks from the past when in fact they’re pretty minor. There’s a tendency to oversimplify and paint with an exceptionally broad brush for the sake of catchy headlines and easily digestible info nuggets. (Again, we’re as guilty of this as anyone, admittedly.) The result is that widely accepted truisms are actually myths—or at least only tell part of the story. Upon closer inspection, there’s good reason to call these five generalizations about millennials into question.

1. Millennials Don’t Like Fast Food
One of the most accepted truisms about millennials—easily the most overexamined generation in history—is that they are foodies who love going out to eat. And when they eat, they want it to be special, with fresh, high-quality ingredients that can be mixed and matched according to their whims, not some stale, processed cookie-cutter package served to the masses.

In other words, millennials are huge fans of Chipotle and fast-casual restaurants, while they wouldn’t be caught dead in McDonald’s. In fact, the disdain of millennials for McDonald’s is frequently noted as a prime reason the fast food giant has struggled mightily of late.

But guess what? Even though survey data shows that millennials prefer fast-casual over fast food, and even though some stats indicate millennial visits to fast food establishments are falling, younger consumers are far more likely to dine at McDonald’s than at Chipotle, Panera Bread, and other fast-casual restaurants.

Last summer, a Wall Street Journal article pointed out that millennials are increasingly turning away from McDonald’s in favor of fast casual. Yet a chart in the story shows that roughly 75% of millennials said they go to McDonald’s at least once a month, while only 20% to 25% of millennials visit a fast-casual restaurant of any kind that frequently. Similarly, data collected by Morgan Stanley cited in a recent Business Insider post shows that millennials not only eat at McDonald’s more than at any other restaurant chain, but that they’re just as likely to go to McDonald’s as Gen Xers and more likely to dine there than Boomers.

At the same time, McDonald’s was the restaurant brand that millennials would least likely recommend publicly to others, with Burger King, Taco Bell, KFC, and Jack in the Box also coming in toward the bottom in the spectrum of what millennials find worthy of their endorsements. What it looks like, then, is that millennials are fast food regulars, but they’re ashamed about it.

2. Millennials Want to Live in Cities, Not Suburbs
Another broad generalization about millennials is that they prefer urban settings, where they can walk or take the bus, subway, or Uber virtually anywhere they need to go. There are some facts to back this up. According to an October 2014 White House report, millennials were the most likely group to move into mid-size cities, and the number of young people living in such cities was 5% higher compared with 30 years prior. The apparent preference for cities has been pointed to as a reason why Costco isn’t big with millennials, who seem to not live close enough to the warehouse retailer’s suburban locations to justify a membership, nor do their apartments have space for Costco’s bulk-size merchandise.

But just because the percentage of young people living in cities has been inching up doesn’t mean that the majority actually steer clear of the suburbs. Five Thirty Eight recently took a deep dive into Census data, which shows that in 2014 people in their 20s moving out of cities and into suburbs far outnumber those going in the opposite direction. In the long run, the suburbs seem the overwhelming choice for settling down, with roughly two-thirds of millennial home buyers saying they prefer suburban locations and only 10% wanting to be in the city. It’s true that a smaller percentage of 20-somethings are moving to the suburbs compared with generations ago, but much of the reason why this is so is that millennials are getting married and having children later in life.

3. Millennials Don’t Want to Own Homes
Closely related to the theory that millennials like cities over suburbs is the idea that they like renting rather than owning. That goes not only for where they live, but also what they wear, what they drive, and more.

In terms of homes, the trope that millennials simply aren’t into ownership just isn’t true. Surveys show that the vast majority of millennials do, in fact, want to own homes. It’s just that, at least up until recently, monster student loans, a bad jobs market, the memory of their parents’ home being underwater, and/or their delayed entry into the world of marriage and parenthood have made homeownership less attractive or impossible.

What’s more, circumstances appear to be changing, and many more millennials are actually becoming homeowners. Bloomberg News noted that millennials constituted 32% of home buyers in 2014, up from 28% from 2012, making them the largest demographic in the market. Soaring rents, among other factors, have nudged millennials into seeing ownership as a more sensible option. Surveys show that 5.2 million renters expect to a buy a home this year, up from 4.2 million in 2014. Since young people represent a high portion of renters, we can expect the idea that millennials don’t want to own homes to be increasingly exposed as a myth.

4. Millennials Hate Cars
Cars are just not cool. They’re bad for the environment, they cost too much, and, in an era when Uber is readily available and socializing online is arguably more important than socializing in person, having a car doesn’t seem all that necessary. Certainly not as necessary as a smartphone or broadband. Indeed, the idea that millennials could possibly not care about owning cars is one that has puzzled automakers, especially those in the car-crazed Baby Boom generation.

In many cases, the car industry has disregarded the concept, claiming that the economy rather than consumer interest is why fewer young people were buying cars. Whatever the case, the numbers show that the majority of millennials will own cars, regardless of whether they love them as much as their parents did when they were in their teens and 20s. According to Deloitte’s 2014 Gen Y Consumer Study, more than three-quarters of millennials plan on purchasing or leasing a car over the next five years, and 64% of millennials say they “love” their cars. Sales figures are reflecting the sentiment; in the first half of 2014, millennials outnumbered Gen X for the first time ever in terms of new car purchases.

5. Millennials Have a Different Attitude About Work
As millennials entered the workforce and have become a more common presence in offices around the world, much attention has been focused on the unorthodox things that young people supposedly care more about than their older colleagues. Millennials, surveys and anecdotal evidence have shown, want to be able to wear jeans and have flexible work hours to greater degrees than Gen X and Boomers. Young people also want to be more collaborative, demand more feedback, and are less motivated by money than older generations.

That’s the broad take on what motivates millennial workers anyway. An IBM study on the matter suggests otherwise, however. “We discovered that Millennials want many of the same things their older colleagues do,” researchers state. There may be different preferences on smaller issues—like, say, the importance of being able to dress casually on the job—but when it comes to overarching work goals achieved in the long run, millennials are nearly identical to their more experienced colleagues: “They want financial security and seniority just as much as Gen X and Baby Boomers, and all three generations want to work with a diverse group of people.”

What’s more, IBM researchers say, millennials do indeed care about making more money at work, and that, despite their reputation as frequent “job hoppers,” they jump ship to other companies about as often as other generations, and their motivations are essentially the same: “When Millennials change jobs, they do so for much the same reasons as Gen X and Baby Boomers. More than 40 percent of all respondents say they would change jobs for more money and a more innovative environment.”

MONEY home improvement

The Best Kitchen Countertop for Your Money

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I’ve been dreaming of granite countertops for years, but now that I’m finally planning my kitchen redo, I’m seeing “quartz” in all the showrooms. What exactly is it, and should I use it instead?

A: Quartz is another way of referring to “engineered stone” countertops—manmade surfaces created from chunks of stone mixed with resins and coloring. (This is not to be confused with “quartzite” or “natural quartz,” both of which refer to a solid-stone alternative to granite.)

Manufactured quartz is now the leading countertop material in the land, according to the National Kitchen and Bath Association. It surpassed granite in 2014, at least for kitchens created by NKBA members. (We’re betting granite still wins if you count all of the kitchens built without a professional designer.)

Quartz has many advantages over granite, including that it’s impervious to stains and stands up to acidic foods, and it does this without ever needing to be sealed. It’s also far more scratch and chip resistant—and it’s generally considered a greener choice because it’s made from waste stone and therefore doesn’t require mining slabs or shipping them around the globe, both of which are carbon-intensive processes for natural granite and marble.

The downside to quartz—at least for some people—has always been that the patterns looked so uniform and consistent that they don’t quite pull off the look of real stone. But lately manufacturers have figured out how to create irregularity in their quartz, effectively mimicking the natural-looking variegation of granite and even the swirls of marble, in a nearly indestructible material.

“Gone are the days of flecked quartz countertops,” says Sacramento kitchen designer Kerrie Kelly. “Now there is movement and veining that mimics the look of real stone.” She no longer even displays granite in her showroom and only shows marble as a backsplash material. “It’s all about functionality today,” she says. “From furniture fabric to tile grout to countertops, low maintenance is the trump card.”

Quartz generally runs about $80 per square foot (installed), Kelly says, putting it right in the middle between granite (about $75) and marble (about $85). Some of the leading brand names include Silestone, Zodiaq, Cambria, and Caesarstone.

If you’re curious, here are the countertop materials most commonly specified by kitchen designers last year, according to the NKBA:

  • Quartz—88%
  • Granite—83%
  • Marble—43%
  • Solid surface—43%
  • Butcher block—35%
  • Other wood—29%
  • Other stone—26%
  • Recycled countertops—22%
  • Stainless steel—17%
  • Concrete—13%
  • Glass—11%
  • Tile—6%
MONEY home improvement

The 7 Best Home Improvements for $500 or Less

AG-Trac Enterprises, LLC

Give your home's look a makeover without breaking the bank.

When it comes to upgrading our homes, there seems to be a never-ending list of things to do. There are the upgrades we’d love to make, like buying new furniture or replacing countertops. And then there are the things we have to fix, like inefficient appliances or a leaking roof. But there are a whole range of inexpensive improvements that don’t take much effort but can go a long way toward increasing your enjoyment of your home—and adding to its value too.

Here are 7 such upgrades you can make for less than $500.

1. Increase curb appeal

Even if you’re not planning on selling your home, curb appeal is important. For you, that might mean pressure-washing the driveway (rent one for about $100 per day), repairing broken stairs, or updating your mailbox (anywhere from $50 to $200, depending on style). Sometimes upgrading curb appeal is simply a matter of spending time in the yard and getting your hands dirty by edging the lawn, trimming hedges, or pulling weeds. To keep costs down, plant perennials that keep their greenery all year long and invest time in maintaining your garden tools so you don’t have to purchase new ones.

Read more about budget-friendly curb appeal projects

Paulsen Construction Services Inc
Paulsen Construction Services Inc

2. Fix the front door

Your front entrance can say a lot about your home. Upgrading to a high-end fiberglass door can cost more than $1,000, but you can get a whole new look for a lot less simply by adding new hardware and a fresh coat of paint. Installing a new doorbell (kits cost about $50 to $100) or updating the lighting (anywhere from $25 to $100) are also inexpensive fixes that can add instant appeal to the front entry. Pair your newly painted door with a clean doormat ($20) or fresh pot of flowers, and you’ll have a whole new entrance for under $500.

3. Repair interior walls and paint

If your walls are a standard height, it’s easy to make simple repairs like patching holes or sanding. It’s also fairly easy to prime and paint your walls, which can instantly upgrade the look of any room. You’ll need to buy paint and primer (most brands start around $30 per gallon) plus painter’s tape, brushes and rollers. (Read this to learn more about how to budget for your painting project.)

Painting can get complicated and expensive if you need to repair a significant amount of drywall, remove mold, or have really tall ceilings, so always consult a professional if you feel you might be in over your head.

4. Update lighting and change bulbs

The lighting fixtures in your home are like jewelry on an outfit—they can instantly add pizzazz or look dated. Switching out a chandelier or sconce is a fairly easy, budget‐friendly project. Shop big-box stores for inexpensive pendants, or ask about floor sample sales at retail outlets. Plan on spending at least $200 for a large fixture, about $100 for a bathroom vanity light, and $100 or less for a wall sconce. If you’re on a tight budget, consider using the fixtures you already have but updating them with a coat of spray paint, a new light shade, or a dimmer switch. To make sure you’re really adding value, switch to energy efficient bulbs like LEDs (about $7 for a 60W equivalent) or CFLs (about $9 for a 60W equivalent) bulb. Although both are more expensive than an incandescent bulb, they last longer and require less energy.

Normandy Design Build Remodeling
Paulsen Construction Service Inc.

5. Install new toilets

Your motivation for buying and installing a new toilet may be for aesthetic reasons, but newer toilets can also save you money. Toilets installed prior to 1995 use as much as 6 gallons of water per flush; newer WaterSense models use as little as 1.2 gallons.

Over time this can represent thousands of gallons of water you won’t have to pay for. Additionally, older toilets are more likely to leak, wasting even more water and money. A slowly running toilet can waste as much as 200 gallons of water a day. Replacing a toilet (about $100‐$200) isn’t hard for an experienced DIYer. But call the plumber if you have other leaks in the bathroom or kitchen; getting them fixed will save you water and money.

6. Maintain your mechanics

Just like maintaining a car, regularly having your appliances and mechanical devices inspected and tuned up can save you lots of money in the long run. Major repairs or replacements can run into the thousands, but a simple check up might be as little as $100. Ask your serviceperson to let you know about any special customer care programs. Sometimes long-term customers are rewarded with free inspections or discounted servicing. (Thinking about DIY appliance repair? Read this first.)

7. Monitor energy usage

There are many smart-home devices on the market aimed at letting you get to know your home habits and helping you save money on energy or utility costs. Devices like Iris (Comfort & Control kit is $80) can help you regulate the temperature of your home and alert you to any unexplained changes. Add-on devices like the Utilitech Water Leak system ($30) can alert you to water leaks. Ultimately these devices help you save money on your energy and utility bills and keep you from expensive repairs down the line.

Anne Reagan is editor-in-chief of Porch.com.

Read more:

How to Budget Your Painting Project
5 Budget-Friendly Updates to Boost Your Home’s Curb Appeal
Fix Leaks & Start Saving Money

MONEY home improvement

7 Things Every Remodeling Contract Must Have

Q: The builder who’s doing my family room addition handed me a fill-in-the-blanks form contract with handwritten details and numbers. It looks about as unofficial as can be. Is that a problem? What should a remodeling contract include?

A: A contract doesn’t have to be printed off a computer—or contain a bunch of legalese—to get the job done. But it should clearly state the arrangement that you and your contractor have about the project, and it sounds like this document probably doesn’t do that very well.

“Putting everything in writing helps clarify both parties’ expectations at the beginning,” says Fairfield, Conn., construction attorney Neal Moskow. “And it’s much easier to fulfill your expectations at the end if they’re clearly stated from the start.”

The safest bet is to have your attorney draw up a contract for you. But even if you choose a less formal approach, here are the basic elements Moskow recommends including—either by typing up a new document or just making handwritten changes on the existing form, as long as both you and the contractor initial each change.

 

1. A description of the project. The contract should include a project description that thoroughly outlines all of the work, materials, and products that will go into the job. That includes everything from what will be demolished to what will be constructed—and each different material and fixture that will be used, with its associated cost. It should also specify that the contractor will obtain all of the necessary permits (and close them out by getting the required certificates of occupancy) and dispose of the debris properly, and that the project is covered by his liability and workman’s compensation insurance.

2. How (and how often) the contractor will be paid. Not only should the contract state the total project price, but it should also outline the timing and amount of installment payments based on project milestones, such as when the foundation is completed, the rough plumbing and electricity are installed, or the wallboard and trim are done. Your initial payment at the start of the job should be no more than 10% of the project cost. If the contractor has to immediately place orders for expensive items such as windows or cabinets, offer to pay the supplier directly. The final payment should be at least 10%, payable only when the “punch list” (the roundup of final project details) is completed to your satisfaction.

3. Lien waivers. Here’s a scary thought: Any worker who comes to your house as part of a remodeling crew could place a lien on your property, claiming he was never paid for his work—even if you have paid the contractor in full. So write into the contract that your contractor must provide you with a “lien waver” for each installment before you pay the next one. What that means is that the invoice for each payment needs to include a signed statement indicating that the contractor used your previous payment to pay for the labor and materials described in its invoice. That gives you some legal protection against liens from him or his employees and subcontractors.

4. Approximate project dates. Discuss approximate start and end dates for the project with your contractor and write them into the contract. The point is not to hold him to an exact date but to ensure that you both have an understanding of when work will commence and—barring weather interruptions or major plan changes—about when it will be completed.

5. A procedure for changes. Write in that no changes to the original plan can commence until the contractor has given you a clear description of the new work, how much it will cost, and how it will affect the schedule—and until you have given written approval. Change orders should be done with pen and ink (or by text or email). If you ever make a verbal agreement on the fly, follow up with an email to the contractor restating the details and your approval, and ask him to respond with a confirming email that you got the details right, so you have a written record.

6. An escape hatch. Some states’ consumer protection laws give homeowners three days to rescind a contract without penalty. And it’s a good idea to write in just such protection for yourself if you’re not in one of them. This prevents you from losing your deposit if, for example, you sign the contract and then find out that there’s a problem with your credit line and you don’t have the funds you thought you did.

7. Signatures. A contract isn’t a binding legal document unless it’s signed by both parties—and in some states, it also must include the contractor’s license number and both of your addresses.

Read next: What Your Contractor Really Means When He Says…

 

MONEY Investing

The Low-Risk, High-Reward Way to Buy Your First Investment Property

150306_REA_INVESTPROPERTY
Fuse—Getty Images

These four questions will help you be a more successful real estate investor.

When I first read Brandon Turner’s article, “How to ‘Hack’ Your Housing and Get Paid to Live for Free,” it was like a light switch flipped in my head. That was the first article that truly made sense to me as a wannabe investor. It seemed so clear, so right, so obvious that everyone’s first real estate investment should be in a small multi-family property.

I immediately set out to implement this strategy — to buy a property, to move into it, rent out the accompanying units, and to start living for free. Unfortunately, I quickly ran into a little problem: I had set myself up to attempt to meet four seemingly impossible criteria:

  1. The property needed to be affordable with conventional financing.
  2. The property needed to be in a location that I wanted to live in.
  3. The property needed to generate positive cash-flow.
  4. The property needed to offer a reasonable chance at appreciation.

After spending six months looking for an investment property to acquire house-hacking style, I’m not convinced that the truly difficult thing for a first time investor is in getting financing, or even in finding properties that cash-flow sufficiently. The truly difficult problem for me was deciding on where I wanted to make that commitment. Buying a rental property that you intend to live in and actively manage is more than just a financial commitment. You are likely going to live, work, and invest in that area for at least the next few years.

I actually feel that I had plenty of opportunities to purchase duplexes and fourplexes that would have been decent from a cash-flow and appreciation standpoint within 20-50 miles of Denver. Those opportunities seemed almost too easy. The real trick in my opinion is buying those types of properties right downtown. I’m talking inside the city limits.

I’ll admit it, I’m a spoiled, immature 24-year-old, and I refuse to live in an area that isn’t near the heart of my city (Denver, CO). I want to be close to where my 20-something friends live — by Coor’s Field, downtown restaurants and nightlife, convenient to I-70 (the highway that grants easy access to the awesome Rocky Mountains), and, of course, right by my workplace.

In this article, I want to walk through why I believe that all four of those previously mentioned criteria are so important to first time investors and explain some of the basic things that I did to buy a property that I believe meets each of them. I think that this approach is possible for many people who live in urban environments and are willing to be patient and methodical.

Here are four questions that I believe every first time house-hacker should ask themselves, and how I personally answered them.

Question #1: Can I afford the property with conventional financing?

There are two obvious followup questions to the “can I afford this?” question:

  • How much money do I have?
  • How much money does property in the area I want to buy in cost?

If you want to house-hack and still live in a reasonable place in an urban area, you need some cash. Even with great owner-occupier financing terms, you’ll need a substantial amount for the downpayment if you want to live in a somewhat desirable spot near a happening city. I’m not interested in living in Detroit and putting down $500 for that $10,000 home. I want to live and invest in Denver, CO, where a comparable structure might cost 10, 20, or even 50 times more than that.

I spent a full year working hard and living frugally to save up an amount that would comfortably cover a 5% down payment on properties in the area that I wanted to live in. If you don’t like this strategy for gathering funds for your first downpayment (the “save more money” strategy), then I’d suggest that you seriously question whether you want to get into real estate investing in the first place.

Another critical thing to keep in mind is that if you are purchasing a property that needs repairs, minor or major, you will need cash to pay for them. Among other expenses, I’ve shelled out thousands in plumbing and electrical work, appliances, and DIY tools and materials. If you are transitioning from renting to an owning property, then there might be a chance that, like me, you don’t own a robust set of tools and don’t have familiarity with the materials needed to work on even relatively simple projects like painting and drywall repair. By ensuring that I bought the property with a good $10,000 cash cushion, I was able to easily cover all the little repairs and contractor costs that came up, and I now have a pretty solid little toolset that has proved to be much more enjoyable to work with than I previously would have thought.

Related: A New Way to Look at the Concept of “House Hacking”

Question #2: Will I be happy living there?

I think that many of us as investors, new and experienced alike, have to acknowledge that we are investing to improve our financial position and in doing so, to improve our lives. I believe that house-hacking does not work if it means that you have to live in an area that you don’t want to be in! For me to be happy with my living situation, I needed to live in the city. It was not acceptable to purchase property in the boonies and move far away from the places I enjoy going to on a regular basis just to get a good return on my first investment. For me, that meant I had to limit my purchasing area to properties close to the heart of downtown Denver, CO.

Buying property actually downtown (less than 5-10 blocks away from Coor’s Field in my mind) was simply not a reasonable option — the only properties that most newbies can reasonably purchase might be condos, which are not a traditional type of investment from which one can generally expect great rental cash-flow. It’s just too expensive in the true heart of the city, and the only properties that are being purchased there are multi-million dollar homes and swanky apartment complexes. There’s a reason why buildings go straight up in big cities.

Fortunately, Denver has several surrounding neighborhoods with properties at price points affordable to folks making less than $50K per year. These neighborhoods are convenient to downtown with good bike routes and cab/Uber rides that are less than $10 a pop. I ended up picking two areas to search for property. Both areas were roughly equidistant from downtown Denver and my workplace (BiggerPockets HQ happens to be about 5 miles directly Southeast of Lower Downtown Denver).

Question #3: Will the property cash-flow?

Here in Denver, CO, we’ve got a little bit of a tough housing situation. Houses and investment properties are being listed for less than one day and then selling for ten, fifteen, or even $20,000 more than asking price. I’ve heard from some readers that cities with similar characteristics, like Austin, TX, have similarly tough markets for investors.

Luckily, as an owner-occupier looking to buy multifamily property, I had a couple of serious advantages over the competition. First, I was looking at properties that most other would-be homeowners weren’t interested in; first-time buyers usually aren’t looking to purchase a duplex, triplex, or fourplex. Second, I had the opportunity to bid on properties before investors that did not intend to inhabit the property because of a special government program — the First Look program from Fannie Mae.

In my opinion, these two advantages that I had as an owner-occupier house-hacker are the trump cards that gave me an edge in looking for great multi-family deals in an urban environment. After months of searching, my agent suggested a duplex to me. This property was listed on the MLS and was like a lot of other opportunities out there that I had looked at, but with one small difference: this property was part of that “First Look” program.

Because investors couldn’t make offers on the property for several weeks, and because the demand for duplexes, triplexes, and fourplexes among first-time homeowners is very small, I had little competition. I was able to run the deal by my friends, family, mastermind group, and by investor friends I’d met through BiggerPockets. That window gave me the confidence I needed to pull the trigger and make the largest financial commitment of my life to that point — while competing investors never even had a chance to offer.

Question #4: Is there a reasonable chance at appreciation?

If you read around on BiggerPockets, you are going to learn that experienced investors refer to appreciation as the “icing on the cake” — it’s usually not even considered in the purchase of investment property. While it’s still a good idea to look at cash-flow first as an owner-occupier, putting in the extra time to look for investment properties that offer a good chance at appreciation as well can reward you handsomely in the long run.

As a house-hacker, appreciation can produce a more powerful financial impact for you than it can for a traditional investor, because of a special tax-law that benefits owner-occupiers:

Assuming that you live in the property for more than two years, when you sell property, much of the capital gains are tax-free.

This tax break is incredibly powerful for those looking to house-hack with small multifamily properties because we have the opportunity to take advantage of appreciation as it relates to both income properties AND smaller residential properties:

As multi-family properties, increasing the income of the property can force appreciation.

As hybrid properties, duplexes – fourplexes can also benefit from appreciation caused by an improving local market.

I carefully selected properties that I felt offered me the opportunity to get both types of appreciation:

  • Forced Income Appreciation: I chose a property that needed what I considered to be a reasonable amount of cosmetic work and that had multiple opportunities for improvement. Since moving in, I’ve had the entire plumbing system overhauled, I’ve added appliances like washer/dryer units and refrigerators, and I’ve put in substantial cosmetic work, Do-It-Yourself style. These improvements should reduce the operating expenses of the property over the long run and give me an advantage in attracting and retaining tenants, hopefully improving the property’s long-term income potential.
  • Market Appreciation: One of the benefits to purchasing properties in an area that you yourself want to live in is that, generally speaking, other folks want to live there, too. This presents a decent opportunity for appreciation in itself if you have personal reasons for desiring to live in a certain area that are applicable to large demographics. However, I didn’t stop there, as I looked for properties within these neighborhoods that were also in the path of government sponsored infrastructure projects.

In my case, a light-rail project is currently under construction and will offer convenient and low-cost transportation options to my neighborhood. It is my hope that infrastructure projects like this one, coupled with the overall tremendous growth of the Denver local economy, will allow me to benefit from market appreciation, though I understand that having purchased the property, this is now out of my control.

The hope here is that I can leverage both types of appreciation to create substantial value from this property over the next few years. I then hope to cash out on that increase in equity, tax-free, and reinvest it in a larger income producing real estate asset.

Related: BP Podcast 086 – House Hacking Your Way to 97 Units (While Holding a Full Time Job!) with Cory Binsfield

Conclusion

This is my first investment property. There is every possibility that I’ve made a huge mistake somewhere along the line. I could be way off in my estimation of expenses, long-term rents, desirability of the neighborhood, or I might have simply gotten ripped off on the purchase in general. I hope that none of those things are true, and I certainly feel that I did my due diligence at each stage of this investment — but only time will tell if I correctly analyzed each critical input.

Maybe I’m slower than other investors, and maybe I suffered from a great deal of “analysis paralysis.” It took me a long time to pull the trigger and finally make a serious offer on my first investment property. I had been researching my market and defining my criteria for at least 6 months — not to mention the full year that I had been saving up for such a purchase!

That said, I believe that my first investment is by far my most important. A bad choice could cripple me financially, discourage me from investing again, or at the very least, significantly slow me down in accumulating the funds to make a second investment. But, in spite of all the potential negative outcomes, because I did just one thing right, I can sleep well at night:

That one thing was buying in an area that I am happy to live in.

At the end of the day, it doesn’t truly matter whether I’m able to keep my unit rented out, or if the market tanks. Worst case scenario, I get an expensive education in real estate investing and live in a place that is slightly smaller than I could have otherwise afforded.

I’ve got the ultimate exit strategy.

This article originally appeared on BiggerPockets, the real estate investing social network. © 2015 BiggerPockets Inc.

More from BiggerPockets:
I Quit My Day Job, Retired Early & Started a New Venture Using Real Estate: Here’s How
3 Smart Ways to Make an Extra $1,000 a Month Through Real Estate Investing
5 Habits of Highly Miserable Real Estate Investors (and How to Kick Them)

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