Millennials Want Small, Affordable Houses

A lot of people think young people won’t ever buy a home. Only 33% of people between the ages of 25 and 29 own a home—lower than previous generations.
But recent surveys have found that millennials are finally starting to enter the market—albeit slowly.

We get the reluctance. The financial crisis began in part because people bought homes they couldn’t afford, and those homes became a huge financial burden both for them and the economy.

But a home loan doesn’t have to mean huge debt and a McMansion in the suburbs.
Many young couples today are tired of living in apartments that feel impersonal—where they can’t make any changes. They’re looking for small, affordable, well-built houses that are close to many amenities.

A recent MarketWatch article rounded up a bunch of real estate surveys about what young people entering the housing market want. No. 1 is amenities. They don’t want to be stuck in the suburbs with long commutes to work or to coffee shops. They want walkability.

They want good schools. Fifty-two percent of millennials said the quality of a school district could be a deal breaker compared to 31% of all buyers.

And they want smaller, flexible homes—homes that are cost and energy efficient. They don’t want to pay to cool or heat rooms that are rarely used. They want the house to be sustainable, both environmentally and economically.

Owning a home also can be sort of like a forced savings plan. Your monthly mortgage payment most likely is more than what you were paying for rent, but you might not have been saving or investing the extra money you had left when renting.

After you factor in the lucrative tax deductions of owning a home and the fact that every month that passes the equity—the amount you could sell your house for minus what you still owe on it—grows. Buying a house is often a smart money move.

In a lot of ways, houses reflect people’s values. As long as buying a house continues to make smart financial sense, more millennials will buy them. They just probably won’t look like the houses that were built during the build-up to the housing crisis.

Hopewell Federal Credit Union wants to help you get into the house that’s right for you. Stop by or call today at Hopewell to talk to a home loan specialist about achieving home ownership.

Easy Money: Take Advantage of 401(k)

Long gone are the days of traditional pensions. With many companies offering 401(k) plans, how successful you are in saving for retirement is up to you.

Here’s advice to help you engage in your 401(k) and how to maximize this opportunity:

* Take advantage of your company match. Contribute at least as much as you need to get your employer’s match. If you don’t, you’re leaving free money on the table.

* Play catch up. If you’re age 50 or older, take advantage of the catch-up provision which lets you contribute an additional $5,500 into your plan each year.

* Increase your contribution each year. Even by increasing your contribution by 1%, this amount will add up quickly. Also consider bumping up your contribution percentage each time you get a raise or a bonus.

* Don’t forget about 401(k)s at former employers. If you leave your job you have several paths you can take with your 401(k): Leave savings with your former employer, roll over your plan to a traditional or Roth IRA (individual retirement account), move savings to your new employer’s plan, or cash out and pay taxes. Each scenario will require research to determine what’s best for you. Cash out your plan only as a last resort.

* Don’t take early withdrawals. Experts advise not borrowing from your 401(k). Think about whether you’ll be able to contribute to your 401(k) while you’re paying back your loan. If you can’t, this is derailing your savings even more. If you leave your job, you’re responsible for paying back the loan, usually within 60 days. If you can’t pay it back you’ll be subject to taxes and penalties. A better alternate for borrowing money is getting a low-interest loan from your credit union.

* If you delay retirement, keep your 401(k). Once you turn 70 1/2 you have to start withdrawing a minimum distribution. If you’re still working you don’t have to take the distribution until you actually retire.

* Aim to save 10% to 13% of your gross pay. This includes your employer match if you get one. If you’re already saving enough in your employer’s retirement plan to get the company match, consider opening a traditional or Roth IRA at Hopewell Federal Credit Union as well.

Pros and Cons of College-Payment Strategies

Portrait of a male graduate holding out a diploma

Good Information for Graduates

College students who borrow for school graduate with a debt load equivalent to a new-car purchase or a down payment on a house, averaging $25,000.

Some borrowing might be inevitable. To keep it to a minimum, explore the features of other college payment strategies.

529 savings plans

Pros: Your savings grow tax-free and earnings escape federal tax if you use withdrawals for qualified college expenses. Your state might give you a tax break for contributions. You may invest in other states’ 529 plans.

Cons: If you use the money for noncollege expenses you’ll have to pay taxes and a penalty on earnings. A state-appointed firm manages the account you so lose direct control.

Prepaid tuition plans

Pros: You can lock in tuition at in-state public colleges years in advance. The tax benefits are the same as for a 529 savings plan. If your student goes to an out-of-state or private school instead, you can transfer the value of the account or get a refund.

Cons: Not all states participate. If you use the money for noncollege expenses you’ll have to pay taxes and a penalty on earnings.

Coverdell education savings accounts

Pros: The tax benefits are the same as for a 529 savings plan, and Coverdells expand the definition of “qualified” to include tuition at private elementary schools and high schools.

Cons: Your contributions can’t exceed $2,000 a year and the beneficiary must be younger than 18; contributions are limited by your modified adjusted gross income.

Roth IRAs

Pros: The money in a Roth grows tax-free. Withdrawals are not limited to qualified education expenses. You can avoid taxes on withdrawals as long as they don’t exceed your contributions. You can avoid a 10% early withdrawal penalty on earnings if you use the money for educational expenses.

Cons: If you are younger than age 59 ½, you will owe tax on any earnings you withdraw. If you are 59 ½ or older you must have held the account for five years to avoid taxes on earnings you withdraw. The ability to contribute to a Roth IRA is governed by modified adjusted gross income limits.

Custodial accounts

Pros: You manage the account until the child reaches 18 or 21, depending on your state. After that your adult child owns the account (this could be a con).

There are no limits on how the money can be used. There’s no limit on how much a parent can put into a custodial account.

Full-time students younger than age 24 pay no tax on the first $950 of unearned income and pay the child’s rate on the next $950. Earnings above $1,900 are taxed at the parents’ marginal rate. Investment choices aren’t restricted.

Cons: If your contributions surpass $13,000 a year you’ll have to pay a gift tax. Large balances in a custodial account can hurt chances for financial aid.

Private scholarships

Pros: The money is free and many scholarships are awarded to students based on need or special interests.

Cons: Schools might reduce aid if scholarships and aid combined are more than a student’s calculated need.

With soaring tuition costs, borrowing is often necessary even after accounting for savings and scholarship money. Investigate government-sponsored loans, federal work-study programs, state programs, and institutional aid with the Free Application for Federal Student Aid (FAFSA) form.

Consider federal PLUS loans as well as a private loan from your credit union. Private student loans come into play after all other resources are exhausted.

Whether college expenses are in the distant future or weighing you down today, the professionals at Hopewell Federal Credit Union can help you figure out the best savings strategy to avoid negative tax consequences and the best loan options when all other sources are exhausted.