FHA vs. Conventional Loans: Which Is Better?

When it comes to affording a new home, you have a few types of home loans to choose from. Prospective homebuyers often compare the FHA vs. the conventional loan when researching loans. Each loan type has certain stereotypes associated with them, but we are here to give you the facts about both FHA and conventional loans. This post will help you understand what each loan is, familiarize you with the differences between them, and provide some guidelines for how to pick which one is best for you.

What Is An FHA Loan?

An FHA loan is insured by the Federal Housing Administration (FHA). These loans are issued by private lenders, but lenders are protected from losses by the FHA if the homeowner fails to repay. FHA loans are generally used to refinance or buy a home.

What Is A Conventional Loan?

A conventional loan is supplied by a private lender and isn’t federally insured. Requirements for obtaining a conventional loan vary depending on the lender. When used to buy property, conventional loans are typically known as mortgages.

What Is A Conventional Loan?

Differences Between FHA and Conventional Loans

The main difference between FHA and conventional loans is whether or not they are insured by the federal government. Conventional loans aren’t federally backed, so it’s riskier for the lender to loan money. On the other hand, FHA loans are protected by the government, and as a result of less risk, they can typically offer better deals.

This difference in federal insurance is the reason why FHA and conventional loans vary when it comes to the details of the loan. Keep reading to learn the differences regarding credit requirements, minimum down payments, debt-to-income ratios, loan limits, mortgage insurance, and closing costs.

FHA Loan Conventional Loan
Minimum Credit Score 500 620
Minimum Down Payment 3.5% 3%
Maximum Debt-to-Income Ratio Credit score of 500: 43%
Credit score of 580+: 43-50%
Credit score of 620: 33-36%
Credit score of 740+: 36-45%
Loan Limits Low-cost counties: $356,362
High-cost counties: $822,375
Contiguous US: $548,250
High-cost counties, AK, HI, and US territories: $822,375
Mortgage Insurance Mortgage insurance premiums required. Private mortgage insurance required with down payments less than 20%.
Property Standards Stricter standards, property purchased must be a primary residence. Flexible standards, property purchased doesn’t have to be a primary residence.

Sources: FHA Single Family Housing Policy Handbook | Fannie Mae 1 2 | Federal Housing Finance Agency | Freddie Mac | HUD 1 2 | Consumer Financial Protection Bureau 1 2

Credit Score

Your credit score is a determining factor in your loan eligibility. Your credit score is measured on a scale of 300 (poor credit) to 850 (excellent credit). Good credit helps you get approved for loans more easily and at better rates. FHA and conventional loans differ in their credit score requirements and represent financial options for individuals at either end of the credit spectrum.

Minimum Credit Score for FHA Loan: 500

  • Accepts a credit score as low as 500, but usually with a 10% down payment
  • These loans accept lower credit scores because they are insured
  • Note: Some lenders may only issue FHA loans with higher credit scores

Minimum Credit Score for Conventional Loan: 620

  • Accepted score may vary from lender to lender
  • These loans are usually offered to individuals with strong credit because they present less risk to lenders

Minimum Down Payment

A down payment is the sum of money that is paid as a percentage of your purchase up-front.

Minimum Down Payment on an FHA loan:

  • 10% of your purchase with 500 credit score
  • 3.5% of your purchase with 580+ credit score

Minimum Down Payment on a Conventional Loan:

  • 3% of your purchase can be put down with good credit
  • 5% to 20% of your purchase price is typical

Debt-to-Income Ratio

Your debt-to-income ratio is the amount of money paid toward debt each month divided by your total monthly income. To be eligible for a loan, you must be at or below the maximum debt-to-income (DTI) ratio.

Maximum DTI Ratio Guidelines for FHA loans:

  • 43% with a credit score of 500
  • 43–50% with a credit score of 580

Maximum DTI Ratio Guidelines For Conventional Loans:

  • 33-36% with a credit score lower than 740
  • 36-45% with a credit score of 740 or higher
  • 50% highest allowed through Fannie Mae

Loan Limits

Both FHA and conventional loans have limits on the amount that you can borrow. Loan limits vary based on your location and the year your loan is borrowed. Find 2021 loan limits specific to your county through the Federal Housing Finance Agency.

2021 FHA Loan Limits

  • High-cost counties: $822,375
  • Low-cost counties: $356,362

2021 Conventional Loan Limits

  • Contiguous US (excluding high-cost counties): $548,250
  • Alaska, Hawaii, US territories, and high-cost counties: $822,375

Mortgage Insurance

Mortgage insurance is taken out to protect the lender from losses in case you fail to repay your loan. Whether you will pay private mortgage insurance or mortgage insurance premiums is based on your loan type and down payment percentage.

FHA Loan

  • Mortgage insurance is required for all FHA loans.
  • It is paid to the FHA in the form of mortgage insurance premiums and includes an up-front and monthly premium.
  • MIP payments last the entire life of your FHA loan.
  • To get rid of MIPs after paying 20% of your loan, you can choose to refinance into a conventional loan.

Conventional Loan

  • Private mortgage insurance (PMI) is only required when a down payment below 20% is made.
  • PMI comes in different forms: monthly premium, up-front premium, and split premiums.
  • PMI requirements stop once you have met one of three requirements:
    1. Principal loan amount is reduced to 80% before the loan term ends.
    2. At least 78% of the principal balance is scheduled to be paid down.
    3. The halfway point of your loan term has passed.

Property Standards

There are different property standards that must be met to use each loan. FHA loans have stricter requirements, while conventional loans have more flexibility.

FHA Loan

  • Property purchased with FHA loans must be your principal residence, meaning the borrower has to occupy the residence
  • FHA loans can’t be used to invest in property (e.g., renting out or flipping)
  • Title must be in the borrower’s name or name of a living trust

Conventional Loan

  • Property purchased with a conventional loan doesn’t have to be a principal residence — second or third residences are allowed
  • Conventional loans can be used to purchase investment properties

Pros and Cons of FHA vs. Conventional Loans

As a result of the various differences between FHA and conventional loans, each type has its respective pros and cons.

FHA Loan

Conventional Loan

Pros

  • Qualify with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit
  • Lowest option for down payments with good credit
  • PMI cancellable
  • More affordable with good credit
  • Property doesn’t have to be your main home

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your main home
  • Need higher credit and lower DTI to qualify
  • Typically has larger down payments
  • PMI required with a down payment less than 20%

Pros and Cons of FHA Loans

FHA loans are government-regulated and insured to extend flexible opportunities for homeownership. They’re flexible regarding credit and DTI, but stricter about insurance and property standards.

Pros

  • Flexible qualification with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your primary residence

Pros and Cons of Conventional Loans

Conventional loans can also offer flexibility, but generally only if you have good credit and demonstrate reduced risk to the lender. These loans have stricter qualifications, but flexibility in other areas.

Pros

  • Lowest option for down payments (3% with good credit)
  • Private mortgage insurance can be canceled (must meet requirements)
  • More affordable with good credit
  • Property purchased doesn’t have to be a primary residence

Cons

  • Strict qualifications require higher credit and lower DTI
  • Larger down payments are typical
  • Private mortgage insurance required with a down payment less than 20%

Which Loan Is Better For You?

Both FHA and conventional loans have their advantages and disadvantages. Here are some general guidelines for when to use an FHA loan or a conventional loan.

When To Use an FHA Loan

  • You have a low credit score (500–619)
  • Your DTI ratio is on the higher side (between 45–50%)
  • You can only afford a small down payment
  • You plan to use the property as your primary residence

When To Use an FHA Loan

When To Use a Conventional Loan

  • Your credit score is fairly good (620 or above)
  • Your DTI ratio is on the lower side (33–36%)
  • You can afford a larger down payment
  • You want flexibility with insurance and repaying your loan

When To Use a Conventional Loan

It’s important to thoroughly research your options before choosing a loan. A key takeaway when comparing FHA vs. conventional loans is that FHA loans are federally insured and conventional loans aren’t. This distinction results in different qualification and payment requirements for each loan.

Use the information in this post to carefully compare the differences in accepted credit scores, minimum down payments, loan limits, maximum debt-to-income ratios, mortgage insurance and property standards. In doing so, choose the loan that works for your circumstances and helps you best afford the home of your dreams.

Sources: FHA Single Family Housing Policy Handbook | US Dept. of Housing and Urban Development | Federal Housing Finance Agency | Freddie Mac

The post FHA vs. Conventional Loans: Which Is Better? appeared first on MintLife Blog.

Source: mint.intuit.com

Gardening Tips That Save You Green

If you’re a gardener, chances are you know how rewarding growing your own food can be. Whether you run an at-home farm, tend to a small patch of blueberry bushes, or have an apartment window herb garden, you know how satisfying that harvest of something you’ve grown is. Gardening has been linked to some serious health benefits, too—even significantly lowering levels of cortisol and feelings of stress.

Turns out, growing your own food at home offers much more than a chance to get outside and get your hands dirty. Growing your food can be an incredibly cost-effective hobby, with a 600 square-foot garden producing about 300 pounds of fresh produce worth around $600 annually. When packs of seeds cost around $3 each, the opportunity to grow your investment, literally and figuratively, is clear.  

Just by planting and tending to tomatoes, lettuce, or potatoes, you could save some serious money as a result. The average American spends close to $6,800 a year on food, which equals 12.6 percent of their total spending. Of that, $760 is spent on fruits and vegetables. By spending under $100 to build up your own plot of fruits and veggies, you could save around $800 a year—money that you could then save or invest in more seeds to save even more at the grocery store!

You don’t need a green thumb to see how that math adds up. If you’re worried about a black thumb ruining your chances of saving some serious green yearly, learn more about gardening tips that will turn even the smallest of garden plots into a bountiful harvest. Plus, read up on the many benefits of gardening on your health and overall happiness—you’ll be grabbing gardening gloves and mulch before you know it!

Sources: Country Living | An Oregon Cottage | Balcony Garden Web | The Penny Hoarder | Earth Easy | PSECU | Good Housekeeping | AARP | Money 

The post Gardening Tips That Save You Green appeared first on MintLife Blog.

Source: mint.intuit.com

How to Find a Home in ID

Idaho has some of the best potatoes in the world, but it has more to offer than just that. It’s also dubbed the Gem State, with over 70 precious and semi-precious stones found within its bedrock and streams. The real gems of Idaho are its national parks, friendly people, and a range of real estate deals for buyers looking to maximize value without breaking the bank.

Finding an amazing home in Idaho is easy if you know what to look for and have the top tools and professionals on your side.

What to Look for in an Idaho Home

In Idaho, you can have your pick of beautiful homes and properties with stunning natural backdrops. To narrow down your list, you may want to keep a few things in mind.

Proximity to Employment

The capital of Idaho, Boise, is a major draw for many homebuyers due to its impressive list of corporate and boutique employment opportunities. If you’ve already landed a job at a powerhouse like Boise’s Micron, Hewlett-Packard, Clearwater, IDACORP, or St. Luke’s you will want to look for a home in or around the Boise area. If you haven’t scored a job yet, being close to the city can only help your search and prospects.

With the Homie app, you can narrow down your search using the city or town of your current or future job. Whether you are looking in Boise’s Bench or North End, Garden City, Meridian, Nampa, Caldwell, Kuna or some other area, you can find what you are looking for. You can then collaborate with a Homie agent to decide which homes you may want to make an offer on in Boise.

The Lot the Home Sits On

Even though much of Idaho’s real estate sits on predictable, easy-to-manage land, in some cases, a property could have hidden issues. Keep an eye out for the following when evaluating where your home sits:

  • Setback regulations that may limit where and if you can put on an addition
  • Easements put in place that may limit what you can do
  • How fences, hedges, trees, and other things at the edges of the property sit in relation to the actual, registered boundaries of the lot

Check the Available Utilities

Particularly in the more rural areas of Idaho, you will want to double-check the utilities at your disposal. In the more urban sections of the state, you may have multiple options for handling sewage, as well as heating your home. However, other parts of the state have far fewer choices. It’s best to decide ahead of time how you will deal with:

  • A septic system instead of a town sewer
  • Limited heating fuel options—and the extra expense that may involve
  • Getting a back-up energy source in case there’s a blackout due to a storm and crews are delayed in fixing it

In most cases, any inconveniences can be overcome with a little planning. The more rural sections of Idaho more than make up for it with their natural beauty.

Energy Efficiency

Idaho’s temps can dip below zero degrees Fahrenheit in the winter and push the mercury above 100 degrees in the summer months. To keep comfy, whether you want to be cozy or cool, it’s important to try to find a home that’s energy-efficient. Focus on both the insulation and the mechanical system.

If there’s no information available for the insulation used in the home, you can often gauge its efficiency based on the thickness of the walls. Two-by-six construction tends to be better at maintaining inside temps than two-by-four walls. Likewise, single-pane windows allow more heat loss or gain than a modern dual pane window filled with argon. A quick trip to the attic can reveal the kind of insulation between the roof and living spaces below.

The Importance of Using an Agent

Enlisting the assistance of a Homie agent can make the buying process easier and save you thousands of dollars, not to mention peace of mind. Here are some of the top advantages of using a Homie agent instead of trying to DIY your home purchase.

Getting the Best Deal

Making the right offer is a fine art and skill. Often, a homebuyer may have a number they think reflects the value of the home, but even a thoughtful figure may be skewed by a number of subjective factors. With an agent from Homie, you’ll get a dedicated professional that knows the local area, how its prices have fluctuated over the years, and how well homes tend to hold value.

A local agent from Homie also knows how long properties tend to stay on the market in a given area, as well as the infrastructure and municipal projects in the works that may influence the value—present or future—or a home. With this store of data and insights, a Homie agent can help you nail the best offer and earn you a great deal.

Work With Experienced Professionals

When you work with Homie, you not only get to work with some of the top agents, but Homie also helps you find the best providers for all your needs through Homie Marketplace. The Marketplace is a list of partners that we know do amazing work in things like home inspections, warranties, and moving services.

Finding trusted professionals for each part of the home buying process is essential. A good home inspector will tell you what types of repairs your potential home needs. This important information to have so your agent can help you negotiate a fair price.

You’ll also want a good home warranty to protect against any unexpected issues that might come up after you move in. Instead of hunting all over the place to find each of the providers you need, our Homie team will help connect you with the right people.

Familiarity With Legal and Paperwork Requirements

There’s a lot more to buying a home than writing a check and grabbing the keys. The legal landscape can get tricky, particularly when it comes to the paperwork. Even well-meaning sellers can include clauses in the contract that could put you at a disadvantage.

Work With a Homie

If you’re digging for an Idaho real estate gem, a Homie professional can help you as you prospect for your prize. Whether you’re looking for the perfect starter home, an upgrade as your family grows, or a lovely investment property, your Homie agent will help you score a great deal and have a smooth process. Click here to start working with Homie to find your Boise home today!

For more tips on home buying, check out the articles below!

4 Ways to Outsmart the Competition When Buying a Home
5 Tips to Help You Afford Your First Home
Common Home Buying Fears and How To Overcome Them

Want to learn more about buying or selling? Sign up to get more info directly to your inbox!

What are you interested in?

The post How to Find a Home in ID appeared first on Homie Blog.

Source: homie.com

How to Create Your Own Retirement Plan

One of the good things of working for a company is that they create a retirement plan for you. As an employee, you don’t have to do anything else but to participate in the plan. However, when you’re self-employed or a small business owner, you’re responsible of setting up your own retirement plan.

When it comes to operating your own business, time is of the essence. However, even if you’re crazy busy, saving for retirement should be a priority. Indeed, a retirement account allows you to contribute pre-tax money, which lowers your taxable income.

Luckily, a financial advisor can help you save time and help you choose the right plan that is best for you. Below are four retirement saving options you can create as a self-employer individual.

1. Solo 401k

A solo 401k is for small businesses or sole proprietors who don’t have any employees other than a spouse working for the business. The solo 401k mirrors a typical 401k plan that most companies offer. The main difference is that you can contribute as an employee and employer.

In other words, because you’re both the boss and the worker, you get to contribute in each capacity. That in turn allows you to contribute a higher amount each year. However, your total yearly contributions cannot exceed $58,000 or $64,000 for individuals age 50 or older as of 2021. To set up a solo 401k, you have to get in touch with a financial institution.

2. SEP IRA

If you’re an independent contractor, self-employed, or has a small business with 25 employees or less you can set up a SEP (Simplified Employee Pension). It’s very easy to establish and don’t even require you to incorporate your business to qualify.

In a SEP IRA, the employer alone contributes to the fund, not the employees. You can contribute up to 25% of your annual salary or $58,000 in 2021, whichever is less.

3. Keogh Plan

Keogh plans are available to self-employed people, including sole proprietors who file Schedule C or a partnership whose members file Schedule E. This type of plan is preferable among those who have a high and stable income.

But the main advantage the Keogh has is the high maximum contribution you can make. In 2021, you can contribute up to $58,000. To set up, you will need to work with a financial institution such as Charles Schwab. 

4. Simple IRA

The Simple IRA was created by the Small Business Protection Act to help those who work at small companies to save for retirement. The small business can offer the plan if it has 100 or fewer employees.

Both the employer and the employee can contribute up to $13,000 in 2021, plus an additional catch-up amount of $3,000 if you’re 50 or older. If a company offers a Simple IRA, it must match an employee’s contribution dollar for dollar, up to 3% of each participant’s annual salary or make a nonelective 2% contribution to all employees.

Where to Invest Your Keogh, SEP IRA, Solo 401k, Simple IRA

As a small business owner, there is always an investment program that suits your needs for your IRA, SEP, Keogh and solo 401k. Places such as banks, brokerage firms and mutual funds institutions such as Vanguard, Fidelity, Charles Schwab are great options. But before opening account, make sure you consider how much money you have, your appetite for risks, the annual fee, etc.

The Bottom Line

If you’re a small business owner or self employed, you should take advantage of the tax benefits offered by these plans mentioned above. Creating a retirement plan is important, because not only will you be able to grow your retirement savings faster but also no one is going to do it for you. 

Related:

  • 4 Simple Ways to Accelerate Your Retirement Savings
  • How to Retire at 50:10 Easy Steps to Consider

Tips on Retirement Planning

Retirement planning can be a major challenge, but you don’t have to go in it alone. Speak with a financial advisor who can help you come up with a unique plan based on your circumstances and situations. Use SmartAsset advisor matching tool to get matched with fiduciary financial advisors in just 5 minutes.

 

The post How to Create Your Own Retirement Plan appeared first on GrowthRapidly.

Source: growthrapidly.com

How Does Cash Back Work?

How Does Cash Back Work?

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

Credit card companies typically offer a plethora of rewards options for their cardholders to take advantage of. But cash back has long been a favorite of many, as it gives you the chance to earn cold, hard money for making everyday purchases. If you’re confused about how cash back works, read on for a full explanation.

How Cash Back Works

At its core, cash back refers to a predetermined percentage of a purchase you make being returned to you as cash rewards. Cash back rates typically range between 1% and 5%, though there are some outliers to be mindful of. Credit card issuers will usually clearly label what types of purchases earn what level of cash back. But like anything in the credit card industry, you must read the fine print.

This is mainly because all purchases and cash back rewards are governed by merchant category codes, or MCCs. Credit card companies ultimately determine these designations, with Mastercard, Visa, American Express and Discover calling the shots. Some common codes are “restaurant,” “department store,” “airline” and “entertainment,” among others. So if you earn 5% bonus cash back at restaurants and you go to Burger King — which has a restaurant MCC — you’ll get that 5% back.

But what these limiting MCCs sometimes don’t take into account are businesses that could fit into more than one category. Included in this group are hotels, superstores like Walmart, tourist attractions like museums and other multi-faceted establishments. In turn, you could lose out on cash back if you’re confused about which category a purchase you made falls into.

As an example, let’s say your family orders room service while on vacation in The Bahamas. You pay with your credit card thinking you’ll get the advertised 3% cash back on dining. When your credit card statement comes in the mail, however, you’ve only received the base 1% earnings. This is because the MCC of your hotel is just that, a hotel, which leaves your credit card issuer blind to what you really bought.

Unfortunately situations like these often offer very little recourse, as your card’s issuer has no ability to change these codes. In fact, only the major credit companies can change their own code selections.

New cardholders will often receive cash back promotions and bonuses. These offers can either be recurring — monthly, quarterly, yearly, etc. — or simply for just one period of time, usually at the beginning of your account’s life. Hypothetically, a recurring bonus might look like this: “Earn 3% cash back at supermarkets and wholesale clubs, up to $1,500 in purchases each quarter.” On the other hand, a one-time promotion might allow for 5% cash back on airfare purchases made during the first three months you’re a cardholder.

Depending on your card, cash back may be capped or it could expire after a period of time. While some cards feature both an earnings limit and expiration dates, others may have no restrictions. All cash back cards have their own, unique system surrounding them. So it’s important to refer to your documentation whenever you have a particular question.

Using Your Cash Back Earnings

How Does Cash Back Work?

The vast majority of cash back credit cards offer variations of the same choices for redeeming rewards. Most often, you’ll see statement credits, checks, bank account deposits, gift cards and charitable donations available to you.

  • Statement credit – Instead of receiving your cash back in-hand, you can apply it to your upcoming monthly bill, saving you money in the process.
  • Check – As one of the more direct ways of redeeming cash back, checks allow you to basically do whatever you want with its value.
  • Bank deposits – Eligible accounts usually include checking accounts, savings accounts or investment accounts.
  • Gift cards – With this option, you can convert cash back into retail credit at a store or website at which you want to shop.
  • Donations – Many card issuers have open relations with charities. These partnerships open the door for you to aid your favorite causes with real money.

It’s by far the easiest to redeem cash back through your card issuer’s website that it provides. Here you’ll not only see your rewards status, you will also know every possible redemption you could make. If you’d rather talk to a real person, most companies still have rewards phone lines you can call, as well.

Those who’d rather not have to worry about where their rewards currently stand will find that a redemption threshold might be helpful. Not all cards offer this feature. But if yours does, set a threshold at which your cash back is automatically redeemed in any manner you desire. Additionally, some cards require you to attain a certain amount of cash back before redeeming is possible.

Cash Back With Each Major Credit Card Company

what is cash back

There are tons of different cash back cards, depending on your credit score you may be eligible for some but not others. While it’s impossible to give universal specifics for each credit card company, below we’ve provided overviews of some of the most popular cash back cards.

Citi Double Cash Card (Mastercard)

Cash Back Rate: 1% at the time of purchase, 1% when you pay them off

Limit or Expiration: No limit; Expires if no eligible purchases are made for 12 months

Redemption Options: As a check, statement credit or gift card

The “double cash” nature of the Citi Double Cash Card means you effectively earn cash back twice: first when you make the initial purchase and again when you pay your credit card bill. The 12-month expiration is fairly standard and the lack of limits on how much cash back you can earn is generous. Statement credits, checks and gift cards are three of the most common redemption choices, so it’s no surprise to see them offered here.

Bank of America® Cash Rewards credit card (Mastercard)

Cash Back Rate: 3% in the category of your choice, 2% on purchases at grocery stores and wholesale clubs, 1% on other purchases

Limit or Expiration: Cash back on choice category, grocery stores and wholesale club purchases is limited on up to $2,500 in combined purchases each quarter; No expiration dates

Redemption Options: Once you have $25 or more, you can redeem as a statement credit, a check or a deposit to an eligible Bank of America® or Merrill Lynch® account

Take note of the combined $2,500 quarterly limit on 3% and 2% cash back in category of choice and at grocery stores and wholesale clubs, respectively. The Bank of America® Cash Rewards credit card also requires cardholders to have a minimum of $25 in earned cash back before they can redeem.

Blue Cash Everyday American Express Card
(American Express)

Cash Back Rate: 3% on U.S. supermarket purchases, 2% on U.S. gas stations and select U.S. department store purchases, 1% on other purchases

Limit or Expiration: 3% rate at U.S. supermarkets is limited to $6,000 a year in purchases then drops to 1%; No expiration dates

Redemption Options: After earning at least $25, redeem as a statement credit in $25 increments; Gift cards and merchandise redemptions from time to time

Amex offers some of the strongest rewards cards around, and the Blue Cash Everyday American Express Card is no exception. It does come with some limits; namely the 3% cash back rate on U.S. grocery store purchases is capped at $6,000 in purchases a year. At that time, cardholders earn 1% in cash back on groceries.

Discover it® Card
(Discover)

Cash Back Rate: 5% in rotating categories like gas station, supermarket, restaurant, Amazon.com and wholesale club purchases, 1% on other purchases; Full cash back match at the end of your first year

Limit or Expiration: $1,500 cap on purchases that earn the 5% rate each quarter; No expiration dates

Redemption Options: Statement credits, deposits to a bank account, gift cards and eCertificates, pay with cash back at select merchants and charitable donations

Discover cards offer great first-year cash back matches and distinctive cash back categories. These traits are on full display with the Discover it® Card. This includes 5% cash back on purchases ranging from dining to Amazon.com. However, there are limits for this rate and you have to opt in to categories each quarter to qualify. This card also offers five redemption options — the most on this list.

Tips to Maximize Cash Back Potential and Minimize Credit Risk

  • Cash back is one of the most prolific perks that the modern credit card market has to offer. But it’s important that you don’t overspend outside of your means just for the sake of rewards. Because many cash back cards come with higher annual percentage rates (APRs), this could force you into large, unsustainable interest payments.
  • Whenever possible, swipe your card for purchases in bonus categories. Not all cards have these to offer, but most do. So make sure you know which cards in your wallet offer bonuses at places like gas stations and supermarkets.
  • Know what types of redemptions — statement credits, bank account deposits, gift cards etc. — work best for you. This will drastically narrow down your card options, making the decision process much simpler.

Photo Credit: ©iStock.com/4×6, Â©iStock.com/Pgiam, Â©iStock.com/Ridofranz

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

Advertiser Disclosure: The card offers that appear on this site are from companies from which SmartAsset.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). SmartAsset.com does not include all card companies or all card offers available in the marketplace.

The post How Does Cash Back Work? appeared first on SmartAsset Blog.

Source: smartasset.com

3 Lessons From GameStop Stock’s Shocking Highs and Lows

Pretend you invested $10,000 in GameStop stock at 10 a.m. Eastern time Thursday. You would’ve had $2,684 by 11:20 a.m. By 2:10 p.m., you’d have been back in the black with $10,481. By Wall Street’s close at 4 p.m., your $10,000 investment would have come crashing back down to $4,124. By 5:41 p.m., after-hour trading […]

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions

Using donor-advised funds is a more advanced tax strategy that has gotten more popular recently with the introduction of the Tax Cuts and Jobs Act (TCJA) in February 2020. The TCJA nearly doubled the amount of the standard deduction, which makes it less advantageous to itemize deductions such as charitable contributions. For people with a lot of charitable contributions, donor-advised funds are one option to still get a deduction for charitable contributions.

What is a donor-advised fund?

A donor-advised fund (DAF) is a registered 501(c)(3) charitable organization that accepts contributions and generally funds other charitable organizations. While the concept of a donor-advised fund has been around for nearly 100 years, they were typically only used by the ua-wealthy. And while it is true that donor-advised funds are still not going to be useful for the vast majority of people, recent tax law changes have made their use more prevalent.

You can set up a donor-advised fund with most brokerages, including Fidelity, Vanguard, and Bank of America. You can donate cash, securities, or other types of assets to the DAF. The exact list of assets eligible for donation depends on the brokerage. After you have contributed, you can then make charitable contributions from the balance of your account.

You can maximize your charitable tax deductions in one year

One common reason that people set up donor-advised funds is to maximize their charitable tax deductions in a particular tax year. To show why this can be beneficial, I’ll use an example:

Our example family files their taxes married filing jointly and has regular charitable contributions of $20,000 per year. The standard deduction in 2020 for married filing jointly is $24,800. Because their amount of charitable deductions is less than the standard deduction, they may not see any tax benefit from their charitable contributions (depending on their amount of other itemized deductions). In 2021 they again plan to contribute $20,000 to charitable organizations and again are unlikely to see any tax benefit from doing so.

Now consider this same family now decides to set up a donor-advised fund in 2020. They have extra money sitting around in low-interest savings or checking account or in a taxable investment account. So they set up a donor-advised fund in 2020 and fund it with $40,000 in cash, stocks, or other assets. They are eligible to take the full $40,000 as an itemized deduction, even if they only use $20,000 to donate to the charity of their choice. Then in 2021, they can donate the remaining $20,000 to their preferred charity. They will not be able to deduct any charitable contributions in 2021 but can instead take the raised standard deduction amount.

You may be able to deduct the full value of stocks or other investments

Another reason you might want to set up a donor-advised fund is that you may be able to deduct the full value of stocks or other investments. Again, I’ll use an example to help illustrate the point.

Let’s say that you have shares that you purchased for $20,000 that are now worth $50,000. Many charities, especially smaller organizations, are not set up to accept donations of stocks or other investments. So if you want to donate that $50,000 to charity, you may have to liquidate your shares. This will mean that you will have to pay tax on the proceeds.

With a donor-advised fund, you can donate the shares to your fund and deduct the full fair market value of your shares. Then the fund can make the contribution to the charity of your choice.

Donate a wide range of assets

Another benefit to setting up a donor-advised fund is the ability to donate a wide range of different classes of assets. As we mentioned earlier, many charities are not set up in such a way to be able to accept non-cash donations. While the exact list of assets that a donor-advised fund can accept varies by the firm running the fund, it generally will include more types of assets than a typical charity.

Why you might not want to set up a donor-advised fund

While there are plenty of advantages to setting up a donor-advised fund, there are a few things that you might want to watch out for.

  • It’s definitely more complicated than just making charitable contributions on your own. You may find that the tax savings are not worth the extra hassle.
  • On top of the added layer of complexity, most firms with DAFs charge administrative fees that can cut into your rate of return.
  • You may be limited on the charities that you can donate to. Each donor-advised fund typically will have a list of eligible charities. So you may find that a charity that you want to donate to is not available.
  • You also lose control over the funds that you donate – the donation to the fund is irrevocable, meaning once you’ve donated to the fund you cannot get the donation back. While most advisors state that they will donate the money as you direct, they are not legally required to do so.
  • The money in a DAF is invested, so it may lose value. That means that the amount you were hoping to donate may be less than you were anticipating. You also typically have a limited range of investments available for your investment, and those funds also often come with fees.

It’s also important to keep in mind, the annual income tax deduction limits for gifts to donor-advised funds, are 60% of Adjusted Gross Income for contributions of cash, 30% of AGI for contributions of property that would qualify for capital gains tax treatment; 50% of AGI for blended contributions of cash and non-cash assets.

The post 3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions appeared first on MintLife Blog.

Source: mint.intuit.com

How to Copy Warren Buffet’s Biggest Investment of 2020

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Warren Buffett is notoriously a good investor. Sure, he’s made some mistakes along the way (who hasn’t?), but whatever move he makes, you can bet he’s thought it through, and it will pay off — big time.

Which is why when Mr. Buffett made his biggest stock purchase of the year into Apple, we thought, “Isn’t it too late to do that?” Apple is already trading at the highest price it ever has. It feels out of reach for us non-billionaires.

But it turns out, that’s not the case. While we don’t have the ability to own $111 billion (yes, billion with a B) in AAPL shares, we can still get our hands on some — and reap the rewards as the market goes up.

One of our favorite ways to get into the stock market and be a part of infamous big-tech returns, without risking billions is through a free app called Stash.

It lets you be a part of something that’s normally exclusive to the richest of the rich — on Stash you can buy pieces of other companies — including Buffett’s choices — for as little as $1.

That’s right — you can invest in pieces of well-known companies, such as Amazon, Google, Apple and more for as little as $1. The best part? If these companies profit, so can you. Some companies even send you a check every quarter for your share of the profits, called dividends.1

It takes two minutes to sign up, and it’s totally secure. With Stash, all your investments are protected by the Securities Investor Protection Corporation (SIPC) — that’s industry talk for, “Your money’s safe.”2

Plus, when you use the link above, Stash will give you a $5 sign-up bonus once you deposit $5 into your account.*

Kari Faber is a staff writer at The Penny Hoarder.

1Not all stocks pay out dividends, and there is no guarantee that dividends will be paid each year.

2To note, SIPC coverage does not insure against the potential loss of market value.

For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

*Offer is subject to Promotion Terms and Conditions. To be eligible to participate in this Promotion and receive the bonus, you must successfully open an individual brokerage account in good standing, link a funding account to your Invest account AND deposit $5.00 into your Invest account.

The Penny Hoarder is a Paid Affiliate/partner of Stash. 

Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk. 

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com