Fund other life expenses Archives

February 27, 2023February 27, 2023

How to Choose a Home Security System for Your House

A break-in occurs every 26 seconds in the United States — and homes without security systems are 300% more likely to be targeted than those with them. Everyone deserves to feel safe and protected in their home, and a security system can help give you that peace of mind. However, there are so many different options that it can be overwhelming to decide on the best one for you and your family. Here are some factors to consider in order to make a smart and informed choice.

Why Get a Home Security System?

Perhaps the biggest benefit of a home security system is that its mere presence has been proven to actually prevent burglaries: studies show that 83% of potential burglars check for an alarm system before attempting a break-in. Beyond the clear and tangible safety benefits of both deterrence and faster emergency response, a security system can offer some level of psychological comfort for your family as well. Not to mention, there are even some unintentional benefits that can come along with a security system beyond guarding against break-ins, like carbon monoxide detection, temperature detection, and leak sensors.

Features and Fees

There are several characteristics you’ll want to look at when choosing a security system, but cost is probably toward the top of your list. The average price of a home security system is $700, though they range from $280 to $1,150.

It’s important to note that this is just for the system, and doesn’t include ongoing monitoring fees. While you can usually customize the level of monitoring you receive, these services require a landline, broadband, or cellular connection and have monthly or annual charges attached.

You’ll also have the choice between a wired or wireless system, with the major difference being that the former links the system’s sensors to a control panel through wires in your walls and floors, while the latter connects the sensors and control panels with radio frequency technology. While these days, a completely wired system is uncommon, some do still have plug-in control panels. Many modern systems are also smart-device compatible and have various levels of interactivity that you can adjust to meet your specific needs.

Another consideration is installation — while you can do it yourself in some cases, it may be worth arranging for a professional to handle it. And since each security company knows the ins and outs of their equipment, paying a little extra for one of their professionals to install the system can prevent any issues that could arise from DIY efforts.

Though the features and equipment that are included vary by specific system, here are some of the standard characteristics of a complete package:

Control panels
Door/window sensors
Floodlights
Doorbell cameras

Finally, most security system companies require that customers sign a contract for a specific term length — these range from 12 to 60 months, but the average is 36.

Frequently Asked Questions About Home Security Systems

Is it worth it to have a security system?

While the decision to have a security system in your home completely depends on your own priorities, concerns, and budget, it can often be worth it for the protection and peace of mind it brings.

How important is a home security system?

A home security system can be important for many different reasons. In addition to helping you feel more protected, they have the potential to actually deter burglars (more on that below), and can accelerate emergency response in case of a break-in.

Is it better to have a home security system or cameras?

Both cameras and a full system can be beneficial. For those that aren’t interested in a full-scale system — or at least not at first — installing a camera or two is often a good way to see what works for you and your family before making a more involved and expensive commitment.

Do burglars avoid homes with security systems?

They often do. Research shows that 83% of potential burglars check for the presence of an alarm system before attempting a break-in. So a security system can not only assist you during an in-progress burglary, but it might even help thwart one.

What questions should I ask before buying a home security system?

Above all, you want the security system you choose to provide you and your family with a level of safety that makes sense for you. In addition to finding out about the features and costs attached to the system(s) you’re considering, here are some smart questions to ask:

Can I use my smartphone and/or devices to control the system?

As we mentioned above, one big decision to make is whether or not you want to have interactivity with your phone or tablet, or just keep control of the system to the central control panel. If you have a smart device already, you’ll want to check if your home security system is compatible with the device.

Does your security system qualify me for a homeowners insurance discount?

Often, insurance companies will give homeowners a discount on their premium if they have a security system installed, which can put some money back into your pocket. Check with your homeowners insurance provider to see if they offer a discount.

What happens to the system if I move?

While many security system providers will allow you to move your entire security system to your new home — and even uninstall and reinstall it for you! — it’s worth checking into any moving fees, contract stipulations, or notice requirements just in case.

Which is better, a wireless or wired alarm system for my house?

Neither system is “better,” per se — again, it all goes back to what you prioritize and value for your home. Though wired systems generally have signals that are more reliable, wireless systems can often be installed in more areas than wired ones. And in fact, the majority of modern systems are fully wireless except for the control panel. However, some companies still offer limited options for completely wired systems.

How much should I spend on a security system?

The amount you spend on a security system all depends on your own budget and security goals, but most home security systems range from $280 to $1,150, with the average at $700.

Choosing the Right System

There are a few tips that can work for all homeowners when it comes to deciding on the right system.

Prioritize the features you need

One size doesn’t fit all in terms of security systems, and you might be able to “mix and match” depending on what’s most important to you. For example, in addition to standard security or doorbell cameras, there are a variety of sensors that detect everything from motion or floods/leaks to broken glass. Some providers like SimpliSafe offer starter kits and more elaborate kits to match your needs.

Set a budget and compare security systems

Sitting down and running the numbers as you weigh your options not only makes it easier to determine a ballpark cost for a security system, but will also highlight the most affordable options by quickly eliminating the ones that are out of your price range.

YOU SHOULD KNOW…
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

October 18, 2022October 18, 2022

3 Ways a Home Equity Investment Makes Moving Homes Smoother

Traditionally, homeowners only had a few financial options to pick from when it came to moving from one home to another. These included temporarily juggling two mortgages with a bridge or other loan (and taking on debt), or selling their home prematurely to gain access to their equity and finding short-term accommodations at hotels, rental properties, or family members’ homes until moving into the new home. Some homeowners have even gone as far as dipping into emergency savings or their retirement fund to cover the cost of two mortgages.

Timing the transition between houses can be tricky, but planning ahead to ensure everything goes smoothly and according to schedule is essential. Home equity investments are a fairly new option that can alleviate some of the pain points that come along with moving between homes in a few different ways while potentially saving you money as well.

A home equity investment is a loan alternative that allows you, the homeowner, to access a portion of your home’s equity in exchange for a percent of its future value. Unlike a loan, you receive the cash upfront, with no monthly payments and no interest. Here are some of the ways homeowners can leverage a home equity investment when buying and selling.

Fund Renovations and Repairs on Your Current (or Future) Home

If you need to renovate your home prior to putting it on the market — something as small as making several minor repairs or remodeling your entire kitchen to add value — a home equity investment can allow you to tap into your equity to make the necessary updates without taking out a traditional home equity loan or adding debt. Then, when you sell, the investor receives a previously agreed-upon percentage of the sale price.

Similarly, if the home you’re purchasing needs work before you move in, you can also use the equity from your first residence to cover those improvements before you sell it, all without dealing with interest or monthly payments.

It’s important to note that while you can receive a home equity investment for your new property, you’ll typically need at least 25% equity in the home before you can qualify.

Pay for Moving Expenses and Closing Costs

Beyond the purchase price (which can end up being significantly higher than the listing price in today’s competitive market), buying and moving into a new home certainly isn’t cheap. There are the costs of transporting your furniture and housewares, plus the costs and fees that you’ll encounter at closing time. A home equity investment can help you pull cash from your first residence — before it sells — to put toward these expenses without paying out of pocket.

Maintain Two Mortgages, Debt Free

Finally and perhaps most importantly, a home equity investment can help you manage the mortgages of both your first home and your next one without taking on debt in the process. Often, homeowners use home equity investments as a bridge loan alternative when they need to gather enough money for a down payment to secure the property but haven’t sold their first home yet.

While the best option for you always depends on your personal financial situation and goals, a home equity investment can be a better choice than a bridge loan for several reasons. While bridge loan approval is relatively easy and funding is quite quick if you’re in a pinch — typically three to five days — that convenience usually comes with high interest rates and fees. And, of course, the loan still needs to be paid back on top of your existing mortgage(s), potentially adding more stress to an already tense time.

Most home equity investment companies don’t have prepayment penalties, making it more convenient to settle the investment whenever it makes the most sense for you.

It only takes five minutes to see if a home equity investment from Hometap might be a good way for you to handle the transition between homes. Take the quiz now.

March 21, 2022March 22, 2023

You’ve Inherited a House — Now What?

If you’ve inherited a house, you probably have a lot of questions. There’s a high likelihood it’s your first time dealing with this kind of situation and it can be tough to know exactly what to do. And if the home belonged to a parent or close relative who recently passed away, emotions can run especially high, so it’s typically a good idea to consult an objective, third–party financial advisor who can help you decide on a sensible course of action before you make a final decision.

So, what happens when a house is willed to you?

Ultimately, you have three options:

Sell the home
Rent the home out to tenants
Move into it yourself

The best way to determine which of these options is for you is to weigh all the pros and cons of each, really thinking through what makes the most sense for you personally. Of course, if there are other family members involved (which we’ll discuss below), you’ll need to take their wishes into account as well, but the last thing you want is to be stuck paying for or managing a home you don’t want to live in. Or conversely, having sold a home you had emotional ties to and weren’t quite ready to part with. Here, we’ll cover the most common choices and how to navigate your path forward with the house you’ve inherited.

Handle Any Necessary Housekeeping and Paperwork

Regardless of whether you decide to sell the home, rent it out to tenants, or move into it yourself, there are a handful of items you should make sure you take care of first:

Update the homeowners insurance policy on the inherited home — in many cases, it may need to be rewritten
Cancel any unnecessary utilities for the home and take care of any outstanding bills
Pay the property taxes and any delinquent mortgage payments
Pay for upkeep of the property if necessary

You’ll also want to handle the disposal or distribution of any belongings that remain in the home. If there are sibling inheritors, experts advise that you all meet at the home and take turns choosing the items you want — once you do that, you can open up remaining items to grandchildren or other relatives, and if there are any items left, you can donate them to charity or hold an estate sale. While this step may seem frivolous, it’s important to take care of quickly, as it can be time consuming and hold up the process of selling or renting out the home if all of the belongings are still there. The faster you deal with this, the faster you can move forward.

Educate Yourself on the Tax Implications of Inheriting a House

It’s important to note that typically, inheriting a home doesn’t automatically mean that you’ll have to deal with tax obligations, but, the specifics largely depend on the state you’re in. For example, there is no federal inheritance tax on a house one is willed, but Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania all have state inheritance taxes.

There are also potential estate taxes to be aware of. As of 2022, a federal estate tax applies if the estate’s combined gross assets and prior taxable gifts exceed $12.06 million for individuals, ($24.12 million for married couples) and 12 U.S. states are subject to these taxes as well: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington, as well as Washington, D.C. Tax obligations can make or break your decision to sell, rent out, or move into the home, so it’s critical that you determine what you might owe before figuring out your next move.

2022 Estate Tax by State

Connecticut: 10.8-12% on estates above $7.1 million
District of Columbia: 11.2-16% on estates above $4 million
Hawaii: 10-20% on estates above $5.5 million
Illinois: 0.8-16% on estates above $4 million
Maine: 8-12% on estates above $5.8 million
Maryland: 0.8-16% on estates above $5 million
Massachusetts: 0.8-16% percent on estates above $1 million
Minnesota: 13-16% percent on estates above $3 million
New York: 3.06-16% for estates above $5.9 million
Oregon: 10-16% on estates above $1 million
Rhode Island: 0.8-16% on estates above $1.6 million
Vermont: 16% on estates above $5 million
Washington: 10-20% on estates above $2.2 million

2022 Inheritance Tax by State

Iowa: Inheritance tax of up to 15%
Kentucky: Inheritance tax of up to 16%
Maryland: inheritance tax of up to 10%
Nebraska: Inheritance tax of up to 18%
New Jersey: Inheritance tax of up to 16%
Pennsylvania: Inheritance tax of up to 15%

Options for Handling the House You’ve Inherited

Option 1: Sell the Home

The biggest and most obvious advantage of selling an inherited house is that if you either can’t afford or don’t want to handle the upkeep and mortgage of the house, it’s an easy way to relinquish control. This option also provides you with fairly quick cash, so long as the home’s value exceeds the mortgage once you make any required repairs. Relatedly, before you put the home on the market, it will be to your benefit to get a home inspection to identify any major issues that need to be addressed, like a roof or water heater replacement, so you don’t run into unexpected problems and delays during the sale process.

If you find you’ll need to make renovations or repairs that are too costly to pay out of pocket, you’ll want to consider your financing options. Renovation loans, home equity loans, cash-out-refinances, or home equity lines of credit (HELOCs) can potentially get the funding you need to make renovations, but they could delay your timeline for getting the house on the market.

A home equity investment on the inherited home or your primary home could give access to as much as 30% of the equity in the home in as little as three weeks.

While you may face a tax for capital gains on the inherited house when you sell, the amount won’t be based on the house’s original price, as its fair market value resets when the owner dies. With inherited property, the IRS employs what’s known as a “step-up cost basis” that starts with the cost of the home when you inherit it, so you’ll only be on the hook if the home sells for more than the value of the home when you became the heir.

If you inherit a house with a mortgage that is underwater — which means that the balance is greater than the home’s value — and you want to avoid foreclosure, you may be able to arrange a short sale through a bank that allows you to accept less for the home than the outstanding loan amount.

Option 2: Rent the Home Out to Tenants

You can retain ownership of the home and use it as a rental property, which can be a good source of passive income and tax benefits. Not to mention, if you don’t want to immediately leave your current home but also aren’t quite ready to permanently part with the home you inherited by selling it, this may be a reasonable temporary compromise as you figure out what solution makes the most sense for you.

However, you should make sure that you’re prepared for the responsibilities that come along with being a landlord, including making repairs and handling tenants’ needs. Here are some tips to help you understand some of the ins and outs of being a landlord.

If you go this route, there is also the possibility that the home may need renovations before you’re able to rent it out — so, just like if you’re making improvements before selling, it can be helpful to research funding choices to find the best fit for your financial situation.

Option 3: Move into the Home

Lastly, you have the option to move into the house yourself. If the house is in your family and you have fond memories associated with it, or you’re currently renting and ready to become a homeowner, it might be a no-brainer to go this route.

And if you’re inheriting a house that is paid off, you won’t have to worry about making any additional monthly payments, which can be a relief — especially if you came into the inheritance unexpectedly.

Keeping the house might mean you’re eligible for a capital gains exclusion of up to $250,000 from your income as a single filer or up to $500,000 if you file a joint return with your spouse, provided that you meet two conditions:

The home is used as your primary residence for at least two out of five years.
In the two years preceding the sale of the home, you haven’t used the capital gains exclusion on another property.

However, if there is still an outstanding mortgage balance on the home, you’ll want to run some numbers to determine whether it makes sense to take on that financial burden. In many cases, as mentioned above, the balance on the mortgage may exceed the home’s value, the costs of maintenance and taxes may be unaffordable for you, or principal and interest (P&I) might simply be too much to handle. While it may seem like the easiest decision, you want to make sure you’re not getting in over your head before taking ownership of the property.

Let’s recap; If you’ve recently inherited a home, here are the first things you’ll want to check off of your list:

If You’re Not the Only Heir….

There are some situations in which you may not be the sole heir to inherit the home, and it is actually pretty common for families with multiple children to have the siblings jointly inherit the property. In certain cases, it might be fairly easy to come to a mutual agreement on whether to sell or rent out the home, but different personalities and different priorities can clash when it comes to determining the best path to take.

You might have the option to buy out the other heirs by paying them cash for their share and having them sign the deed over to you, but it’s important to note that this may mean a larger mortgage payment for you to deal with as a result. You also may need to pay closing costs on the home as well as an appraisal to determine the home’s value.

If you’ve recently inherited a home or expect to in the future, consider using the equity you’ve built up in your primary property to get cash for repairs or renovations, or even to help handle outstanding debts on the home.

October 30, 2020June 23, 2022

Are Pool Costs Worth the Plunge? What Homeowners Should Know

Given the growing amount of time that families are spending at home lately, it may not come as a huge surprise that data points to a recent boom in pool installations. In August of 2020, Reuters talked to a number of pool installers in Indiana; one reported that steel and composite wall orders rose by 200% in a two-month period during the spring of 2020, and another saw a 43% increase in sales from the year prior. New York’s Latham Pools, an international supplier, reported 400% more sales leads than in 2019 as homeowners sought ways to have fun and be safe during the pandemic. Likewise, as pool installation requests boomed, so did the search for pool financing solutions.

While a pool can be both a great long-term investment and a great place for you to make memories with your family, the decision shouldn’t be one that’s taken lightly. There are several things to keep in mind before you take the plunge, including the issue of affordability, whether you’re looking for above-ground or in-ground pool financing or loans for pool installation. Learn about your options for pools, pool loans, and alternatives below.

Kinds of Swimming Pools

Before you can crunch the numbers on costs, you’ll need to decide what kind of pool you want: saltwater or freshwater, above- or in-ground. Both freshwater and saltwater use the same general equipment and, despite what their names might suggest, both require chlorine. However, a saltwater pool can be more expensive to install, but its chlorine is generated through a system that breaks down salt, which is quite inexpensive. Freshwater pools require chlorine tablets or chemicals to be added to the water on a regular basis, making them pricier in the long term. So as long as you opt for an energy-efficient system for your saltwater pool, that tends to be the more economical choice.

The difference between above-ground and in-ground pool financing is a bit more clear-cut. According to HomeGuide, the average cost of an in-ground pool ranges from $28,000 to $55,000, with the typical installation coming in at $35,000. Above-ground swimming pool prices are much lower: professional installations can cost anywhere from $1,000 to $3,000, with the standard around $2,800. With the addition of a deck and stairs, the price tag can increase to $11,000. If you opt to build the pool yourself, you’ll save even more; the typical kit is just $1,500. However, this approach leaves much more room for error, so it’s almost always a good decision to spend the extra money on a professional who makes sure everything is hooked up correctly — and may help you avoid expensive issues down the road due to do-it-yourself mistakes.

There’s also the consideration of timing. You can actually save money by having a pool installed in the fall given the reduced demand. This can be a wise move from a practical perspective as well, since the process can take up to six months to complete. If you wait to start until the spring, it may not be finished in time to enjoy it for the summer!

Additional Pool Costs

Putting in a pool will have an impact on your homeowners insurance, since it adds an extra level of liability in the event that a guest is injured. While many of the potential hazards may be covered by your existing policy, it’s a good idea to inform your insurance agent in case they can increase your coverage.

Of course, needs like landscaping, fencing (required in most states), building permits, electric work for pumps and filters, and continual maintenance will add even more costs beyond the installation and insurance. HomeAdvisor estimates that you can expect basic annual upkeep to run about $1,200 to $1,800 — and that’s not taking into account the additional repair and utility expenses, which can bring the total up to $3,000–$5,000. And while a pool can add value to your home, it may not be as much as you think: according to Houselogic, it adds a maximum of 7%, and not all buyers will see a pool as an advantage.

See the chart below for a quick comparison of total annual in-ground versus above-ground pool costs.

Average Pool Installation Costs

Financing a Pool Installation

There’s much more to a pool installation than meets the eye, and the last thing you want is to find yourself in the financial deep end. Fortunately, when it comes to pool financing, you have options, including taking out a loan to build a pool. The most common choices for pool installation loans are personal or home equity loans, which both come with interest and monthly bills. The average pool financing rates currently vary widely depending on the lender, ranging from 6% to 36%.

And as you can see in the chart above, the higher installation cost means that you’d likely need to take out a larger loan for an in-ground pool than an above-ground one.

Or, if a home equity loan for a pool doesn’t work for you, a home equity investment, like Hometap provides, could be an ideal solution. It allows you to access the cash you need now without the hassle of loans, monthly payments, or additional debt, so you can forgo the pool loan and fund your pool installation without adding more debt.

See if a Hometap Investment can help you fund the pool of your dreams.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

September 28, 2020March 22, 2023

Growing Pains: Covering the Costs of Children and Childbirth

Are you financially ready to have a baby? It’s a complicated question, and the answer differs for every individual. If you’re considering expanding your family, it’s helpful (and yes, also a little daunting) to understand how much a child costs throughout their adolescence.

In 2015, the U.S. Department of Agriculture (USDA) estimated that the average cost to raise a child in the United States from birth through age 17 is more than $230,000—or more than $280,000 if you factor in an average of 2.2% yearly inflation.

And while the USDA notes that raising a child costs 27% less in rural areas than in the urban Northeast, that still adds up to nearly $10,000 per year—without factoring in saving for college.

Childbirth Costs

Based on a NerdWallet survey, most Americans significantly underestimate the cost of having a child. In fact, the survey found that even parents who saved money to cover costs of their child’s first year didn’t save enough. First-year costs begin with the birth, which costs an average of $4,300—without complications and even if you have health insurance. That number is higher in some states than others, with costs more than doubling for those without insurance.

The costs of growing your family can significantly skyrocket if you’re using in vitro fertilization (IVF), or if you’re planning for adoption or surrogacy. As with the other costs of raising a child, the costs of IVF, adoption, and surrogacy can range significantly depending on your needs, your location, and other variables.

Costs of IVF

FertilityIQ notes that the average patient undergoes two or more cycles of IVF treatments and only a handful of states push employers to cover the costs of treatment within insurance plans. And while the average cost of IVF treatments is often cited around $12,000, IVF may range from $40,000 to $60,000 when factoring in multiple treatments, fertility medications, ultrasound monitoring, and other related expenses. As CCRM Fertility’s cost breakdown shows, costs also vary whether using fresh or frozen eggs.

Surrogacy Costs

Verywell Family points out that surrogacy is one of the most expensive options, ranging from $50,000 to $100,000. West Coast Surrogacy, providing services to those in California, notes that the state has a higher demand for surrogates, creating prices as high as $130,000. The agency’s site provides a helpful breakdown of some of the costs associated with surrogacy beyond the base pay for your surrogate, such as screening costs for the surrogate and intended parents, as well as legal fees. According to Physician’s Surrogacy, the compensation received by surrogates usually covers health-related expenses as well as a fee unrelated to medical expenses.

There are surrogacy loans, grants, and surrogacy financial assistance that can aid families that choose to go this route. You can also see surrogacy laws by state with this helpful resource from Family Inceptions.

Adoption Costs

There are many routes you can take when adopting a child, including agency adoption (an agency helps you through the entire process), independent adoption (you hire an attorney or agency to help you with the legal aspects), international adoption (adopting a child from outside the U.S.), and foster care adoption (giving a child currently in foster care a permanent home).

American Adoptions breaks down some of the typical costs for each of these types of adoptions, with foster care adoptions averaging less than $3,000 and agency adoptions, such as those through American Adoptions, ranging from $40,000 to $50,000.

Whether you’re considering one of these ways to grow your family or your family has already expanded, there are ways to cover the additional costs (or to reduce any debt you’ve taken on).

Using Your Home Equity

When it comes to learning how to budget for a baby, one of the most significant costs is housing, which accounts for 29% of the total expense of having a child. But as a homeowner, that cost is also an opportunity. You have an additional option for accessing the funds you need now to raise your child: home equity.

The best way to tap into your home equity will depend on your financial situation and goals, with factors like credit score and loan-to-value ratio playing a part in the qualification process. If you have debt, you may not want to take on an additional monthly payment or interest.

But there are ways to access your home equity without the burden of additional debt.

Home equity investments, like Hometap, allow you to access a portion of your home equity without monthly payments or interest. Since it’s an investment, you get cash now in exchange for a share of the future value of your home. For many families, this option lines up with their larger plans for eventually selling their home and moving to one that better fits their growing families’ needs. This allows the homeowners to settle the investment using a portion of the proceeds from the home’s sale.

No matter how you choose to grow your family, getting your finances in order will allow you to focus on your new family member with more joy and less stress.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor. All links are provided for information purposes and should not be relied upon for legal advice or guidance.

April 23, 2020June 23, 2022

A Beginner’s Guide to Creating a Diversified Portfolio

Whether you dream of buying a second home, retiring abroad, or paying for your children’s college, investing can help grow your wealth, allowing you to achieve your goals. Diversifying your portfolio is one strategy that can help you accelerate your returns, weather downturns, and build toward your future plans.

What Is A Diversified Stock Portfolio?

Diversifying your portfolio is akin to “not putting all your eggs in one basket.” In other words, diversification means spreading your money across the 11 investment sectors; different industries, such as entertainment, oil, and media; and different vehicle types, such as stocks, bonds, and mutual funds.

There are many benefits to diversification, but the primary one is managing risk. Markets go up and down all the time, but individual sectors, industries, and investment types don’t necessarily follow the same timelines. A variety of investments helps protect you from dips in one sector or industry while maximizing returns in another.

For example, imagine pharmaceuticals and gas utilities are thriving, but software is lagging. With investments across all of these sectors, you ensure your portfolio can still realize gains, while withstanding some loss. Although diversifying doesn’t prevent risk, this strategy does lower your overall risk by placing your eggs in many baskets.

Stocks, Bonds, or Mutual Funds?

With diversification, you have lots of options. Whether you engage a financial professional or prefer DIY investing, understanding all the investment choices available to you is a critical first step.

Here’s a cheat sheet to jump-start your knowledge on investment basics:

Stocks: Also known as an equity, stock is owning a piece of a publicly-traded company. Stock prices or shares can range from single digits to hundreds of thousands of dollars. The key is to invest in a variety of individual stocks across many sectors.

For example, making huge bets on two Consumer Packaged Goods (CPG) companies may seem like a sure thing, but these industries face the same pressures and therefore the same market risks. For a built-in mix of individual stocks, consider mutual funds.

Bonds: These lower-risk investments are equivalent to a loan that will be paid back in a set timeframe. That loan could be to a company or a government. On the upside, you’ll gain interest as the loan ages, but with lower risk comes lower, and often slower, returns.

Mutual Funds: If you have a 401(k) already, it’s likely you have a mix of mutual funds. A mutual fund is a variety of individual stocks and bonds that are packaged together. Some mutual funds are managed by a financial professional, while others track the performance of a stock market index, which means lower fees than an actively managed mutual fund.

Target Date Funds are also a class of mutual funds that seek to grow assets for a future date, e.g. retirement. This class of funds typically invests in riskier stocks when you’re young and grows more conservative with more bonds as you age.

Exchange-Traded Funds (ETF): Similar to a mutual fund, an ETF is a mix of investments. However, they do behave similarly to an individual stock in that they are traded daily and are purchased at a share price. ETFs often have a lower minimum investment than a mutual fund.

Foreign Investment: Diversifying your portfolio also extends to the geography of where you spread your wealth. Just as you should avoid investing solely in one industry, like automotive, it’s wise to invest outside the U.S. Many emerging markets around the globe play a significant role in economic growth. The BRIC (Brazil, Russia, India, China) “account for roughly 40% of production globally.” The other advantage is these markets often experience highs and lows independent of the U.S. market.

Real Estate: As a homeowner, you know the value of owning your home. But real estate is also a sound investment to grow your wealth. Whether buying a second home, flipping a home to sell for a profit, or investing in REITs, real estate is a reliable long-term investment opportunity. Just be sure that you’ve done your homework on which cities are best to invest in.

Your Own Business: Investing in your own business venture has multiple benefits in addition to the monetary ones. Having greater control of your income and your retirement options are just a few of the benefits of starting and growing a small business.

How to Start Diversifying Your Portfolio

The first step to investing is getting on strong enough financial footing that you’re ready to invest. According to financial coach Chris Hogan, “As long as [your money is] tied up in monthly debt payments, you can’t build wealth.” Your investment strategy should look something like this:

Pay off bad debt. Bad debt, like high-interest credit cards, can easily snowball and have debilitating effects on your credit score and can even impact your job prospects. Debt-free may feel unattainable but there are practical steps you can take today to see the light at the end of the tunnel sooner.

Build a rainy day fund. Once you’re in the black in terms of debt, it’s a sound idea to squirrel away money for a rainy day. Unforeseen disasters and unwelcome surprises happen, such as leaky pipes, medical expenses, accidents, and unemployment. The best part of a rainy day fund is it can help you stay out of debt, enabling you to pay for that hospital visit or car repair bill without taking out a loan or putting expenses on high-interest credit cards.

Secure the money to invest. As a homeowner, you may be sitting on the means to take care of debt, and potentially have money left over to build a rainy day fund and invest. Accessing your home equity can give you the cash needed now to realize your other financial goals. You have several ways of unlocking your home equity, including debt-free options like a Hometap Investment.

As with any investment strategy, diversification shouldn’t take a set-it-and-forget-it approach. Many financial experts advise rebalancing every six months to a year depending on performance, your financial situation, and your personal goals.

Educate yourself as much as possible of all your options. To read more on diversification, use credible resources such as NerdWallet, Investopedia, and InvestorJunkie to keep yourself informed.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

November 8, 2019June 17, 2022

Is Accessing Your Home Equity a Smart Car Loan Alternative?

Buying a car is often a necessity, particularly in areas where public transit leaves no other options for getting to and from work. But the costs of purchasing a car—new or used—are often greater than we imagine.

A recent Experian report shows the average monthly car payment is $554 for new vehicles. That cost doesn’t include gas, car insurance, and routine maintenance, such as oil changes, tire rotation, and replacing air and cabin filters. It’s no wonder Americans are saddled with a total of $1.16 trillion in car loan debt.

Like home equity loans and home equity lines of credit (HELOC), auto loans come with interest. The worse your credit score, the higher the interest. The average interest rate for auto loans is 4.21% for a 60-month loan, with rates as high as 10% or more depending on your score. Many drivers are funding cars with auto loans that last more than five years, at which point the interest increases and you’ll likely face additional costs, such as replacing brake pads, tires, and your battery, if you haven’t already.

So, what’s the smartest way to secure a low monthly auto payment?

When to Use Home Equity Instead of a Car Loan

Unlike a house, which has the potential to appreciate in value, a car depreciates in value as soon as you drive it off the lot, meaning whatever you pay towards your car, you’ll likely never recoup.

Home equity funds are best suited for appreciating assets, such as purchasing a second property, funding an education that can increase your earning potential, or paying off debt so you can grow your finances.

However, when auto cost is standing in the way of reaching other goals (like getting to and from work reliably) then finding a way to finance a vehicle becomes a priority. If you are faced with extremely high auto loan interest rates, tapping into your home equity may offer a lower-interest solution than a car loan. Compare your financing options before finding the one that’s best for you. If you’re hesitant about taking on any type of loan and the interest that comes with it, you may want to consider a home equity investment product like Hometap. Unlike a loan, a Hometap Investment gives you cash now without interest or monthly payments in exchange for a share of the future value of your home.

If you’ve already purchased a vehicle, but are unable to make the payments and/or are quickly accumulating interest due to a high interest rate, you also may consider tapping into your home equity to pay down or pay off the high interest loan. Compare your current loan with alternatives, taking into account the interest rate, fees, and payment schedule, among the other terms of the loan. You’ll want to do the math to verify that tapping into your home equity is the smartest option.

When a Car Loan or Alternative Makes More Sense

Although there is no interest or monthly payment with a Hometap Investment, the investment must be settled within a ten year term with the sale of the house, a refinance, or loan. This may not be an attractive solution for a homeowner that doesn’t plan to sell their home within ten years.

Homeowners with a solid credit score may be able to secure interest rates of two percent or lower on an auto loan. Shop around and compare bank offers to dealership offers: many offer financing at competitive rates, particularly on new cars.

While some people don’t like the idea of the debt that comes from loans, including auto loans, the math can sometimes work in your favor. If you can secure a low-interest loan, it may be worth taking, particularly if the interest on your loan is lower than the average stock market return and you can afford to squirrel extra money away into your retirement or other investment accounts.

If you’re not already looking at used cars, particularly certified pre-owned vehicles, consider doing so. You can often find low-mileage cars only a couple of years old for thousands off the current model’s price. The average monthly car payment for those purchasing a used vehicle is $163 less per month, saving you thousands each year.

If you want to use your equity to fund a luxury vehicle or nice-to-have second or third car, you may want to think twice. Generally, you want to use your home equity to get your finances back on track rather than risk foreclosure on unnecessary purchases. As Bankrate points out, that’s what got a lot of homeowners in hot water after the 2008 crash.

While there are several ways to tap into your home equity and many allow you to use your money how you see fit, temper your short-term wants against your long-term financial needs to ensure you’re using your equity the most effective way possible.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

September 18, 2019May 13, 2022

Preparing for the Financial Impact of a Natural Disaster

This summer, Hurricane Dorian skirted the Atlantic coast, putting multiple states on high alert. It was a wakeup call for the entire country.

As the trio of major storms in 2017 proves, if you live in an area prone to natural disasters, which can include earthquakes, fires, floods, tornadoes, etc., you need more than extra flashlights and bottled water. You need a plan for dealing with the financial aftermath of the storm.

Hurricane Harvey and Hurricane Irma resulted in more than 160,000 mortgage delinquencies, while past-due payments on home equity loans and HELOCs also spiked in areas impacted by the storms. In Puerto Rico, more than 140,000 homeowners fell behind on their mortgage payments after Hurricane Maria.

Keeping up with your mortgage, especially when your home is uninhabitable, may be the last thing on your mind. But missed payments can have a significant impact on your credit score and financial standing, at best. At worst, you could lose your property.

Here’s how you can get your finances in order before the next natural disaster strikes so, if you’re impacted, you can focus on picking up the pieces without worrying about rebuilding your financial standing, too.

Learn from the Past

After major storms hit, life doesn’t go back to normal once the clouds clear. Nearly a month after Hurricane Harvey hit in 2017, 3,900 homes in Texas still did not have power and many of the more than 135,000 homes damaged were located outside of the city’s predicted flood zone and weren’t insured for water damage. Some people in Puerto Rico waited almost a year for the electricity to be turned back on after Hurricane Maria devastated the island.

It could take months before you’re able to return to your home—or, in the most unfortunate of cases, begin building a new home. The California wildfires in 2018 left more than 22,000 buildings destroyed, and many are still waiting for federal funding to begin rebuilding.

You may also find yourself out of work—or unable to get to work safely as roads are being cleared. In addition to coughing up cash for costly storm-related home repairs, you may also need to pay for temporary lodging and unplanned expenses like car rentals, lawyers, and generators.

This requires you to have a significant amount of cash on hand, as you’ll want to keep making mortgage payments until you’ve spoken with your lender.

Understand Financial Relief Programs

Fortunately, there are special programs for homeowners affected by hurricanes, tornados, fires, and floods that are designed to ease your financial burden immediately following a storm. These include:

Mortgage payment holds that allow you to pause or defer your monthly payments.
Special financing for repairs, whether through Small Business Administration loans, FEMA grants, or other aid.
Foreclosure freezes, which put a pause on any lender’s effort to seize your home due to lack of payment.

However, these programs may not work for every situation. For example, if you’re able to defer your mortgage payments, your lender may insist those deferred payments be paid back in full after just a few months.

And while special aid may be available to help restore your home, it could take months for those checks to arrive, forcing many homeowners to rely on high-interest credit cards to cover repairs and basic necessities.

Build an Emergency Fund

One of the best ways to stay ahead of the next storm is to have a large emergency fund. For many people, the rule of thumb is to have enough money put aside to cover three months worth of expenses. But if you live in a disaster-prone area, you may want to aim for six months worth of expenses, if not more.

There are many reasons to have an emergency fund.

Even two years after the 2017 hurricane season, homeowners affected by the storms are still reeling, with thousands of homeowners struggling to make their monthly mortgage payments.

Having a large emergency fund will not only help you pay for repairs and cover your living expenses if you’re out of work, it will also help you avoid high-interest debt and stay ahead of potential scammers posing as bank and insurance representatives or government agents, a common occurrence after storms.

But coming up with three-to-six months or more worth of savings before the next storm season isn’t an easy task for most.

That’s why some homeowners partner with home equity investors like Hometap, that offer you a percentage of your home’s equity in cash now in exchange for a share of the future value of your home. You could use this investment to stockpile a large emergency fund without taking on additional debt, selling your home, or committing to an additional monthly payment.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

June 21, 2019June 23, 2022

4 Ways Homeowners Can Pay for Divorce

Though not as costly as a wedding, divorce is rarely an inexpensive affair. The national average cost per person for a divorce is approximately $15,000. If that number makes your head spin, read on for alternative ways to pay for your divorce without breaking the bank.

4 Ways to Pay for Your Divorce

1. Opt for a flat legal fee

When you’re strapped for cash or your finances are frozen due to divorce, planning for a set amount for legal representation may be a good strategy. Talk with your lawyer about setting up a payment plan to avoid owing a large lump sum at any one time. Alternatively, you can opt to use platforms like Wevorce that replace an hourly billing mediator or divorce attorney. These “pay-as-you-go” options offer a flat fee with no hidden costs so you’ll know exactly how much to plan for.

2. Borrow from retirement

You’d be hard-pressed to find a financial advisor who would endorse borrowing from your 401(k) under normal circumstances. The reason why is it will cost you up to a 10% penalty fee as well as the responsibility of paying that cash withdrawal back. Remember, too, that your retirement account is considered a marital asset. If your divorce requires a division of this account, you may be able to avoid the penalty fee by transferring the owed amount to “an alternate payee” before age 59. Taxes still apply, however, at the regular rate.

3. Take out a personal loan

Divorce can wreak havoc on relationships with family and friends. Many fear burdening their loves ones further by borrowing money to pay for a divorce. When your savings won’t suffice, a personal loan may be a good solution. A divorce loan can help pay legal fees, costs of moving out, or even eliminating your joint marital debt. As with any loan, do your due diligence first. Update your budget to make sure you’ll be able to cover the monthly payments without the assistance of your spouse’s income.

4. Cash in your home’s equity

In all likelihood, your primary residence represents the largest marital asset to divide. You don’t necessarily need to sell your home, however, to split its liquidity or help finance your divorce. Rather, tapping into your home’s equity may be a good bet to cover expenses, especially if you want to retain your home post-divorce.

Home equity loans and cash-out refinancing offer access to needed funds but also come with the responsibility to pay back that amount—with interest. Alternatively, a Home Equity Investment like Hometap transforms your equity into debt- and interest-free cash in exchange for a share of the future value of your home when you eventually decide to sell it.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

June 18, 2019November 5, 2020

5 Divorce Costs That May Surprise You

You may not be in a fiscal frame of mind when initiating divorce proceedings. But in addition to the emotional toll of divorce, both you and your partner need to brace for a financial hit. From attorney fees and court costs to alimony and real estate appraisers, the costs of a divorce can compound quickly. As The Street points out, the national average cost of a divorce is around $15,000—per person! Here’s how to prepare yourself and your checkbook for five of the most common divorce expenses as well as how you can prepare for them.

#1 Legal fees

If your split is amicable, you may not need or want an attorney. However, with significant assets, child custody, and real estate, for example, it may be in both of your best interests to hire representation. Know that lawyer fees can differ drastically, from a fixed retainer to an hourly rate. You should also account for court and filing fees, all of which can add up fast when two parties fail to agree on terms.

#2 Debt

“For richer, for poorer” applies to not only your marriage but also your debt. If you jointly incurred a loan or debt during the course of your marriage, this tie is binding until repaid. No matter what settlement you reach, you will be responsible for your half of paying down that balance.

#3 Insurance

Perhaps you or your spouse had a better insurance package, so one of you signed on to the other’s health plan and never gave it another thought. But now it’s time for a “life event change,” which means no more shared health and dental, in addition to your bundled auto and home insurance. The dissolution is one challenge to prep for and shopping for new coverage can be more costly than you expected or bargained for.

#4 Taxes

As Ben Franklin famously said, two things are certain in life: death and taxes. The financial benefits of filing jointly will end with your divorce. And, in other news, single persons do tend to pay more in taxes. The impact may be even greater with recent tax law changes in effect in 2019. Be particularly careful about drawing from a retirement account or transferring funds from one 401(k) to another as these can have steep implications come April 15.

#5 Assets

Rarely do couples agree on dividing the assets acquired in a marriage. The heightened emotions of divorce can cloud your better self’s instinct of what’s fair and equitable. Assets can include artwork, stocks and bonds, real estate, and more—all of which will need to be split with the end of the marriage. When you own a home with equity, the situation can be a bit trickier. Selling the residence may be required to create the necessary liquidity for your divorce settlement. In addition to a 6% realtor commission, be sure to factor in closing costs, minor maintenance or repairs, and legal fees.

Stay in Your Home & Out of Debt

Many people would prefer to remain in their home after a divorce, but the costs of separation seem insurmountable. Tapping into your home’s equity may provide the financial safety net you need and give you one less major life event to tackle

(finding a new home) amid all the other stressful items on your to-do list.

With a Hometap Investment, you can access the equity in your home to help fund the hidden costs of divorce. Unlike a loan, you’ll have no debt to repay, which means no additional monthly costs or interest to worry about. Instead, Hometap gives you the cash you need now in exchange for a share of the future value of your home. And best of all, you can keep your home.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.