Ask a UBT money expert

Questions about money: You have them, and we have people with answers! The following are some of the most often-asked money-related questions, submitted by UBT customers and answered by team members who are experts in their respective fields. To jump to a specific topic, click the corresponding link below.

• Buy Now, Pay Later services
• Investing
• Saving for college
• Buying a home

Buy Now, Pay Later services

You asked: I was denied for a Buy Now, Pay Later (BNPL) loan. How do these services work? Is it based on credit score? (Note: We had more than one inquiry on this, so we combined questions.)

We asked Kylie DeBord, Payment Product Strategist in UBT’s Electronic Banking department, to offer her expertise on BNPL loans. Here’s what she had to say.

Companies like Affirm, Klarna, and Afterpay all provide BNPL services to their customers, and typically pop up as a payment option during your online (or sometimes in-store) checkout experience, and can be offered in a variety of ways. Most often, these loans are paid out over a series of 4-6 payments made biweekly as automatic withdrawals from your bank account.

BNPL providers determine your eligibility for their products using various methods, including a soft pull on your credit. This soft inquiry doesn’t affect your score negatively, but allows the BNPL provider to view your credit report and determine the likelihood of repayment. Research shows that while your credit score is considered, other factors align just as much, if not more.

The other considerations that may affect your ability to be approved for a BNPL include: 

• How many loans you currently have out with the BNPL provider — this can be a biggie, and one tip if you have several is to make an extra payment to existing loans with the same provider (but we can’t guarantee approval)
• The amount of the loan (smaller loans have a greater chance of approval) 
• Your debt-to-income ratio or DTI — how much money you have coming in vs. how much money you pay out monthly for fixed responsibilities like mortgage or rent, car payment, credit cards, and other debt 
• Your repayment history with the BNPL provider — BNPL loans aren’t typically reported to the credit bureaus, unless you miss a payment

A word on your credit score: Federal law allows a free copy of your credit report every 12 months from each credit reporting company. You can do this at www.annualcreditreport.com. This way, you’re able to see recent changes and address any discrepancies. For information on disputing information on your credit reports, check out this helpful article.

Kylie also mentioned the importance of carefully budgeting your BNPL payments, and Brittany Planos, UBT’s Financial Literacy Manager, agrees. You can read her article here.

Investing

You asked: I know that savings accounts, CDs, and bonds are my options for fairly low-risk accounts. If I want to move up just a step or two on the risk scale, are mutual funds my next option? Or is there something else I should be considering?

We asked Samantha Eckhardt, CFP® – Vice President and Senior Wealth Advisor with UBT’s Union Investment Management Group, to field this question.

Savings accounts and CDs are going to be the most conservative low-risk option. While there are some risks associated with bonds, they are typically a lower-risk option than stocks.

Mutual funds are investment vehicles that pool together money from many investors and use that pooled capital to invest in a diversified portfolio of stocks, bonds, or other assets. Mutual funds can span a wide risk spectrum, from low risk to high risk, depending on the type of underlying asset. Some funds focus on stable assets like government bonds, making them relatively low-risk, while others invest in volatile stocks or emerging markets, which can be higher-risk.

Types of mutual funds:*

• Equity (stock) funds: These invest in company stocks. They tend to be riskier due to stock market fluctuations.
• Bond funds: These primarily invest in bonds. They are generally lower-risk than equity funds.
• Index funds: These funds passively track market indices (e.g., S&P 500) and are generally lower-risk due to diversification.
• Balanced funds: These represent a mix of stocks and bonds, aiming for moderate risk.
• Sector funds: These funds concentrate on specific industries (e.g., technology or healthcare), and their risk depends on the sector’s performance.

When investing in mutual funds, there are different risk factors to take into consideration. Market risk is associated with the fluctuations of stock and bond markets, which impacts fund values. Bond funds are sensitive to interest rate risk and credit risk. When interest rates change, the price will change. If the issuer of the bond defaults, the bondholder may lose some or all of their investment. For international mutual funds, currency fluctuations will affect returns.

Saving for college

You asked: How do I start saving for my child’s education?

UBT has as many experts on this topic as there are answers to this question, but since Jace Buglewicz, Assistant Vice President and Account Manager with UBT’s Union Investment Management Group, has provided several options in one handy blog, we’re going the suggest you start there.

Buying a home

We asked Allison Cole, Assistant Vice President and Department Head with UBT’s Mortgage Loan Operations department, to take the next three questions, since they’re focused on home buying.

You asked: How much of the homebuying process does a mortgage officer or banker help with, and what information about myself should I know and bring to meet with one?

Allison’s answer: The assistance a mortgage lender provides can vary depending on the standards of practice at each bank. At UBT, we are there for you every step of the way, from prequalification to the closing table! To begin your homebuying journey, start by getting prequalified. Your loan officer will help you understand your buying power and can refer you to a real estate agent if needed. Once you find the perfect house, the realtor will send your accepted offer to the loan officer. The officer will guide you through the loan process, from the initial application through underwriting approval and approaching closing. They will keep you informed and answer all your questions. Simultaneously, your realtor will assist with property-related matters, such as inspections or repairs, and handle all negotiations with the seller.

Now, when you prepare to meet with an officer, you should have a good understanding of your financial situation. For example, know your budget, how much you make, and how much savings you have for down payment. (Check out our first-time homebuyer’s guide for more tips.) If you have specific questions about loan types, the process, or what to expect when your mortgage is in repayment, we suggest making a list of your questions, so you don’t forget what to ask — you’re learning lots of new things during this initial meeting!

You asked: How much money should I have saved up to buy my first house, and what percentage of my income should I be spending on a mortgage?

Allison’s answer: Every situation is unique, but first-time buyers can make down payments that are as little as 3% of the purchase price. If you think you are ready to buy but don’t have thousands of dollars saved, don’t put off meeting with an officer to find out your options. There are first-time buyer programs that can assist with closing costs and down payment needs; some buyers pay as little as their earnest deposit (typically $1,000-$1,500). Some loan types also allow gifts for down payment, and your realtor may be able to negotiate with the home seller to have them cover some or all your closing costs.

When deciding how much of your income to spend on your home, it’s important to consider your other expenses, lifestyle, and future plans for your home. For loan approval, your housing payment (which comprises PITIA, or principal, interest, taxes, insurance, and association fees if any) should generally be between 28%-32% of your gross income. Your loan payment will include both the repayment of the amount borrowed and escrow. (You can read more about what’s included in your payment here.)

It’s crucial to budget for potential increases in your mortgage escrow, which can annually adjust your mortgage payment amount. And don’t forget about basic home expenses that won’t be included in your payment, such as utilities. When shopping for a home, you can ask your realtor to obtain the average utility costs for a property you’re seriously considering making an offer on. Part of deciding what your payment should be also includes preparing for unexpected essential repairs that come with homeownership, and considering whether you’ll want to make immediate updates to the property, like new paint or flooring.

You asked: How do rent-to-own arrangements work for homebuying?

Allison’s answer: Alternative homebuying paths can be beneficial for those who are unable to qualify for a traditional mortgage loan, giving them time to save for a down payment or improve their credit score. In a rent-to-own situation, you rent a home with the option to buy later, and a portion of your rent is credited as a reduced purchase price. However, these arrangements are rare in the marketplace, and there is no universal standard. Most commonly, we see these agreements between family or parties who are already acquainted with each other. Due to the variety of terms and conditions out there, it’s best to conduct thorough research on rent-to-own arrangements, land contract options, and seller-provided financing. We recommend you consult a real estate attorney for guidance.

We hope you found this feature helpful. Thanks to all who submitted questions! For valuable information and resources on all things financial, written by more of UBT’s friendly experts, visit our Learning Center.