Top Personal Finance Blogs
Monday December 22nd 2014

Why and How You Should Avoid Late Payments on Your Mortgage

In this tough economy, home owners are increasingly struggling to make mortgage payments. The good news is that being a few days late paying your mortgage is not a big deal; most lenders give a 15-day grace period and as long as you get payment in during that time, there is no penalty whatsoever. After the grace period, you have an additional 15 days during which you will be charged a late fee. As long as you pay during this period, you are still considered to have paid on time. Now onto the bad news…

If you are 30 days late, your credit takes a hit. Depending on your beginning credit score, being just 30 days late can lower your score by 60-110 points and can take between 9 months and 3 years to fully recover from. The higher your score was before the late payment, the longer it takes to fully recover. If you start with a score of 780 and are 90 days late with a mortgage payment, your score may drop by 130 points, almost as much if you go through foreclosure. A low credit score can cost you more in many other areas too – they drive credit card rates up, affect auto loans and even drive up auto insurance premiums.

Clearly, it’s in your best interest to remain current on your mortgage payments. What should you do if you are having problems? First, keep your wits about you and don’t panic. Refusing to admit there’s a problem will not solve anything. Be proactive; contact your lender with your issues. Most of them are willing to work with you, but communication is key. Don’t just hope they won’t notice if you are late; they will.

Secondly, you need a plan. Track all of your expenditures to see where your money is going. Do it by hand, do it by computer spreadsheet; just do it. Keep track of everything for a month or two. This exercise alone may open your eyes. You may not have ever realized that you spend $15 a month on office birthday cards, for example, and may find something right away that you can cut out or reduce easily. It’s important to find out where your money is going.

Once you do that, you get to look for “extra” money. Don’t look at it as cutting things out or depriving yourself. Make it a challenge; make a game out of it. Cut back on obvious things first, like excessive shoe shopping or those office birthday cards. Analyze the expenditures you identified, and see what can easily be discarded without much trouble. Be ruthless, but make it as painless as possible. You may love your morning Starbucks coffee, but could you buy it at the grocery store and still enjoy it for less?

Then, take a closer look. There are tons of ways to save money you may not have considered. Cook more from scratch. Not only will you save money, you will eat healthier. Use generic products when possible; clip coupons and couple them with sales. Grow spices. Cut out commercial cleaners and start cleaning with baking soda and vinegar. You’ll breathe fewer toxins and help the environment at the same time. Be creative with your cost-cutting, but don’t make it painful or you will have a hard time sticking to it for long.

As you identify areas you can trim, take the “extra” money and pay that mortgage payment on time every month. You may find enough that you can even begin paying down other debts like credit cards too.

Hard times have a tendency to cause people to panic and get stressed out. You don’t need the added burdens that late mortgage payments and lower credit scores can bring. Remember, denial is never a good plan. Get help from your lender if you need it; then make a plan and stick with it.


How Much Car Can You Handle?

When you start shopping for a car, it is important to remember that there are more expenses involved in car ownership than just the initial sticker price. Once you pay for the car, you will need to purchase the title, pay the state taxes, and deal with regular maintenance costs. The amount of insurance that you carry on your vehicle may depend on what kind of car you purchased and how you paid for it. Many lien holders will expect you to carry full comprehensive coverage as long as the car is being paid off. Because of the various expenses involved in car ownership aside from just the sticker price, you must consider all expenses before you understand how much you can afford to pay for a car.

Factor in Tax and Registration Costs

The tax and registration costs can vary depending on the age of the car and the state you live in. The older the car is, the less expensive it will be to purchase and the lower the tax rate will be. Usually the tag and title is less expensive on an older car, as well. Make sure you remember to factor in the possible costs of registering your car when you are building your car shopping budget. You can get an estimated tax and title cost for any car by calling your local tag agent or looking the information up on the state department of motor vehicles website.

Monthly Maintenance Budget

Once you own your car, you will need to keep it running in good condition. There are several parts that will wear out eventually due to the normal operation of the car. Create a savings account or space in your budget to cover regular maintenance, like oil changes, tire rotations, and fluid checks. Car tires can be expensive, and the kind of car you buy will make a difference. Remember to look into the tire size and the typical costs for replacing tires on the models that you are interested in.

Planning for Insurance Payments

Your insurance costs are based on several factors. Some of those factors are directly related to the kind of car you purchase. A brand new car should be covered with a comprehensive policy to make sure that the car can be repaired or replaced if it is involved in an accident. Comprehensive coverage can be more expensive, but it is a necessity on a new car because repair work on new vehicles is also very expensive. If you plan to purchase your car through a loan, you may be required to carry full comprehensive coverage. Make sure you can afford to make those insurance payments once you have purchased the car.

You can lower your car insurance costs by purchasing slightly older vehicles. Look into the types of cars that are stolen most often in your area and avoid buying those cars. You can find information about local crime rates online, or you could contact your local police department to find out where the information is compiled. Some research into the safety ratings of the cars you are interested in can also save you money on your car insurance. The safer your car is, the less you will need to pay.


Realtors Trying to Head High Down-payments Off at the Pass

The housing and financial crisis of the past few years has caused Congress to take another look at the regulations surrounding these two industries. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama last July, contains a number of new regulations and reforms many others. Several of these relate to home mortgages, and, unfortunately, the end result may be that it becomes almost impossible for the average household to purchase a home.

The ultimate reason this is so comes down to the risk retention section of the Act. The inter-agency group working on this act is considering a change to the loan standards for a Qualified Residential Mortgage (QRM) that would necessitate extremely high down-payments –as much as 10 or even 20%. As the vast majority of home loans are QRMs, this will effectively rule out home ownership for anyone who can not come up with the requisite large down-payment.

A quick look at the numbers will show why this is the case. The median home price in 2009 and 2010 was $170,000. Assuming closing costs of 5% of the home value, this translates into a 20% down-payment of $42000, or $27,000 for a 10% down-payment. A family making the median income of $49,777 would take 14 and 9 years, respectively, to save enough to meet these requirements, and that’s assuming a savings rate of $3,000 a year, or more than 6%. The current national savings rate is 5.8%.

Families who make less than the median income, or those who live in areas with high home prices, would have to save even longer. A newlywed couple might have children leaving for college before they managed to save enough to put down on a home. The institution of these requirements would be a disaster for the real estate industry and put home ownership out of reach for tens of millions of families.

Fortunately, the National Association of Realtors is fighting these new regulations. On March 16 they, along with two other organizations, sent a joint letter to the group of regulators considering these requirements and urged them to abandon the plan in favor of more reasonable approaches. There are other options the group could pursue, as NAR pointed out in their letter. A better approach would be the adoption of stronger core standards for mortgage underwriting. This would lower the risk of default. Such standards would include strong documentation requirements, prohibitions on high-risk loan features like balloon payments, and requirements that the lender assess the borrower’s ability to repay the loan.

All of these reasonable requirements were ignored by many lenders during the housing boom, and now all homeowner’s may pay the price. Low down-payment loans have been around for decades and have tended to work quite well. If regulations are put into place that will prohibit predatory lending, they will continue to work in the future. There is no need to arbitrarily lock tens of millions of families out of home ownership to achieve the goal of stability in the housing market.


The End of Tax Return Loans

Each person who has had their taxes prepared by H & R Block or Jackson Hewitt has heard of refund anticipation loans, also referred to as RAL. Regulation changes for this tax season has taken H & R Block out of the race on these. However, in the future they will no longer be offered at all.

What is a refund anticipation loan? It is basically a loan against the tax refund you are expecting at an outrageous interest rate. For some people, their refunds are available in days, making the rate even higher. People request these loans because they need the money right now, not in a few days. However, the FDIC considers these to be unsound as well as unsafe, taking millions of dollars away from people that need it the most.

With the increasing number of people filing their federal taxes electronically, the time which it takes to receive your refund is greatly reduced. For this reason, a refund anticipation loan may only be in effect for up to 15 days. If there were no loans available, people would learn to wait for the deposit from the Federal Government.

The history behind refund anticipation loans goes back many years. When they were first initiated, tax refund payments could take weeks to receive, even months. This was a time when almost no one had the ability to file their taxes on their own, online. Today, everyone has the ability to file their own taxes online or have them done for them at a low cost or at no cost.

Because of the recent changes in the financial sector and regulatory changes, this type of loan will soon be discontinued. As it stands today, only one bank will continue these loans if they win their case against the FDIC which is pending. All of the three banks that are still offering this type of loan for the current tax season were told that they will have to discontinue them. Only one has chosen to dispute this.

People today need the cash fast, but they need to not throw away hundreds of dollars to get their cash fast. The fact is that filing online and using direct deposit will provide them with their refund quickly. Depending on the timing of the filing it can take as little as eight days to get the deposit into your account. This process will not cost any additional fees.

It is believed that as the ability to process returns and send deposits is improved by the Federal Government, the need for this type of service will be greatly diminished. Improvements in technology and screening software allow for many returns to be processed and approved without ever being looked at by a person. Computerized processing accounts for the majority of the speed that has been added to the time for processing. As further improvements are made, it is expected that the time that is now required will be further reduced.


Five Tips for Buying Your First Home

Buying a home can be an intimidating process if you have never done it before. These five tips are a great place to start if you are considering becoming a homeowner.

Clean up Your Credit Rating

Most homeowners need to acquire a mortgage. The recent problems in the housing market have led to a large number of foreclosures, so lending institutions have become much stricter in their lending policies. Your best bet is to have an excellent credit rating before you approach a bank for a mortgage loan. Before you begin house hunting, look into your credit report to see what your rating looks like. Take care of any outstanding problems prior to speaking with a lending institution about a mortgage.

Buy in Good School District

Whether you have children or not, a good school district is a great selling point for any home. The biggest benefit of living in a high quality school district is that it will help your home sell faster when you are ready to move. Most buyers place a high priority on school districts.

Work With a Professional

Some of the details of home buying can be confusing for someone who has never gone through the process. A professional realtor will be able to help you create a more successful strategy for shopping for the home as well as guide you through the steps involved in the purchasing process. Home shoppers have great access to home listings online, but a realtor can provide advice based on years of working in the housing market.

Lowering the Interest Rate

Many mortgages will allow you to choose to pay a higher down payment in return for a reduced interest rate. If you plan to own your home for more than a couple of years, the interest rate reduction will save you more money the longer you are paying on the loan.

Become Pre-approved

Pre-approval for a mortgage can help you become a more informed shopper while you are house hunting. You will know exactly how much you can afford to pay for a home, so you can avoid spending time looking at houses that may be outside your price range. Pre-approval helps speed up any offer you might want to make on a house that you like, as well. During the pre-approval process, the bank will examine your financial data to determine a realistic mortgage offer for you before you find a house.


Should You Pay Off Your Student Loans Early?

Should you pay off your student loans early? Absolutely! Paying off your student loans as soon as you possibly can is the best thing you can possibly do with your money. Tons of people graduate from college with thousands of dollars worth of student loans and completely forget or neglect to pay the money back once they are out college. This is one of the worst mistakes you can make. There are a number of reasons to pay your loans off as soon as possible.

Better Credit

First of all, paying your student loan as soon as you can will lower your debt to income ratio. This will allow you to have more money when you start to make important financial decisions later on down the road. Having a good debt to income ratio will allow you to afford a nicer house, car, and other objects you may desire. You may even be able to take the extra money afforded to you and invest it in order to start making even more money. Bottom line, the financial position you will be in later will be well worth the money you pay now.

Interest Savings

The longer you wait to pay your loans the more your loans will cost. Each month you don’t pay is more interest being added to the previous interest your loans have accumulated. The longer you wait to pay the more interest you will have to pay. The sooner you pay your loans the less you will pay altogether which could potentially save yourself thousands of dollars.

You’ve Got to Do it Sooner or Later Anyway

You cannot escape your student loans. You still have to pay your student loans even if you declare bankruptcy. Should your finances tank you will still have to climb back up with your student loans weighing you down. Paying your student loans early will allow you to deal with a financial crisis easier.

Most people start out with student loans as their only source of debt. Why not start your debt free life sooner than later by paying off your only source of debt as quickly as possible? You have nothing to lose and everything to gain from paying your loans right away.

Even if you can only pay off a portion of your loans you will still benefit more than not. Getting your finances in order as quickly as possible should always be your number one priority.


What You Should Know About Hard And Soft Credit Inquiries

A credit report is the key to your financial security. Credit reports tell lenders all of the information they need in order to determine your creditworthiness. They look at your credit score and base credit decisions and interest rates off of that. There are many components that make up your credit score. Payment history, average age of accounts, debt to credit ratio, and several other components go in to calculating the credit score a lender will see. One component involved in the credit score is the number of inquiries you have. A credit inquiry exists in two forms. A hard inquiry is one that counts against your score while a soft inquiry does not.

Essentially, a hard inquiry is initiated by you. When you apply for a new loan or a credit card, a company will run your credit. Rather you are approved or not, that inquiry will count against your score for up to two years. This means that when you open up a new credit account, your score will lower a bit because of the inquiry and the reduction in the average age of accounts. As you make regular payments, they will outweigh the score impact of the inquiry and improve your credit score.

There are many examples of hard inquiries. Opening a new loan such as car or home loan is one of them. Credit cards also count as hard inquiries. Some banks may also cause a hard inquiry when opening a new account for you. In addition, some utilities and cell phone companies that run your credit may also result in a hard inquiry. One thing you should know is that when you are applying for a car or home loan, you are allowed to rate shop. This means that within a 14-45 day span depending on the credit bureau, all of your auto applications will count as one hard inquiry against your score even though all will be listed on your credit report. The same rule does not apply for credit cards.

In addition to hard inquiries, you will also see soft inquiries listed on your credit report. Soft inquiries are listed on your credit report but have no impact on your score. The most common soft inquiry is when you pull a copy of your own credit report. Also, many lenders will initiate a soft inquiry in order to prequalify you for a loan or credit card. These soft inquiries result in the offers you get in the mail. If you don’t initiate the process, that inquiry won’t hurt you. However, if you respond to an offer you receive in the mail and apply for a credit card through that it will count as a hard inquiry at that point.

Employers nowadays also check credit when screening applicants. When they do it will count as a soft inquiry. Insurance companies and several utilities also use soft inquiries. These are needed services, so you do not hurt your credit by using them. Lastly, if you have an existing account with a company they might check your credit periodically. This is what leads to credit limit increases with a credit card company or a change in interest rates with a bank.


Small Business Lending Basics

Businesses of all sizes frequently acquire loans for numerous needs. Before journeying into the world of company management and ownership, individuals require some knowledge of small business lending basics. Some lenders prefer to work with companies established for 3 to 5 years, while others readily assume the risk of new business ventures. Lenders provide various loan types to accommodate different business aspects including start-up expenses, cash flow, expansion, investments and inventory.

Small business owners must understand that each loan application, regardless of intention, automatically transfers to the individual’s credit report. Here, other creditors have the opportunity to view a company’s borrowing and payment history. For this reason, ensure loan acceptance by filling out applications thoroughly, providing all the necessary documentation and detailed business plan or records requested.

Pre-loan Preparedness

Company owners and potential owners must prepare appropriate documentation prior to the loan application process. An applicant must prove the ability to repay the loan and the commitment to the business. Part of the paperwork a first-time business owner requires includes personal financial statements, and 3 years of tax returns.

Financiers desire a well-constructed, detailed business plan, featuring monetary requirements, cash on hand, necessary equipment and facilities, collateral, projected income and expenses, in addition to contingency plans. Include personal experience and qualifications and the experience and qualifications of associates or employees. Established business loans require similar documentation, but also include profitability and loss records in addition to the company‘s tax returns.

Choosing a Business Partner

Consider a loan officer or creditor as a business partner. During every part of the company’s lifespan, this person or institution invests in the venture and expects a return on that investment, albeit the loan amount plus fees and interest. Include a personal bank as the first place of loan inquiry. As an established client, potential or established business owners already have a relationship with the facility. Acquiring a loan from a familiar environment may improve chances of acceptance.

Before choosing a specific financier, ask the lender for references or interview other business owners. Determine which facility treats clients fairly, provides assistance with applications and documentation, supplies entire loan amounts, and how the institution handles small business hurdles. Loan brokers evaluate the needs of small businesses and provide suggestions regarding other lending institutions. Higher rates accompany these loans for services rendered. However, in many instances, the firms supply approvals not otherwise easily acquired.

Loan Types

Small business applying for loans can expect interest rates ranging from 8% to 14%, plus application fees (typically <$100) and other stipulations. Beware of low cost loans that add hidden fees that in effect cost the proprietor more in the end. Loan types vary in the amounts available and the time of repayment. If desiring to pay off a loan in its entirety prior to the projected period, ensure no early repayment penalties apply.

Term loans require monthly payments over a specified length of time. Proprietors use short-term loans for needs that ensure a quick return. Companies repay the loan in one lump sum in a year or less. Line of credit loans provide small increments of money to generate constant cash flow. Many businesses acquire and pay off these loans annually.


FHA Short Refinance: Help in Hard Times Without Destroying Your Credit

Many families continue paying monthly mortgages by tightening monthly budgets, scrimping and saving. As the housing market declined, homeowners became strapped with properties worth less than the original mortgage amount.

Property Value Declines

Overall statistics indicate 23% of owners experienced property value decreases. In certain locations, the numbers climb to 68%. Selling the property would not eliminate the mortgage and lenders were reluctant to refinance. Up until now, there was little hope for these struggling people.

The government recently developed a finance program that helps stabilize the housing market by decreasing the difference between a property’s actual value and cost. Some programs provided lowered interest rates or extended loan payments in an attempt to lower monthly payments.

However, the newly introduced FHA program chips away at the loan principle to more accurately reflect current property values. Individuals must meet specific criteria before using an FHA short refinance to get help.

FHA Stipulations

  • Homeowners must owe more on the property than it is currently worth. In other words, the original loan amount must exceed the current property value. This does not include fees or interest.
  • The loan applies only to those who did not acquire FHA backed financing when obtaining the property.
  • Individuals must be current on monthly mortgage payments.
  • A personal credit score, or FICO score, must be equal to or greater than 500.
  • The home must be a primary residence with an original loan. There are other requirements for persons attempting to refinance a second mortgage or a rental property.
  • Owners must obtain present mortgage lender approval. Financiers owning mortgages voluntarily participate in the FHA program and agree to forgive up to 10% of the principle debt.
  • FHA refinance loans are available now through the end of 2012.

Homeowners and financiers searching for specific information find details at the following HUD website:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf

Benefits to Lenders

While financiers generally look out for the best interest and profitability of the institution, many allowed risky mortgage loans. Reducing a percentage of loan principle is a more lucrative alternative to owners defaulting on loans. The program also assists lenders in recouping the losses on these investments. The FHA provides lenders with cash incentives while participating in the program.

Each relinquished loan provides $500 in cash, in addition to a percentage of the difference between the initial loan amount and the decreased principle. Homeowners are not restricted to obtain refinancing through the same institution; however, the refinanced amount cannot exceed the minimum loan to value ratio of 97.5%.

Caution to Homeowners

Closing costs, fees and possibly mortgage insurance accompany FHA backed refinance loans. The amount of excused principle triggers negative marks on personal credit reports. If not refinancing through a current lender, beware of many refinancing scams.

Some fail to disclose the amounts of closing costs, interest rates and loan terms, although the law requires institutions to do so. Also, obtain the time frame required to close the deal before interest rates are eligible for reevaluation. Use extreme caution when lenders request signatures on documents containing false information or no information at all.


Borrowing from Peter to Pay Paul with a Money Merge Account

Reduce mortgage repayment time by half or more! That’s an attention-getting message, isn’t it? Money Merge Accounts advertise that you can eliminate monthly mortgage payments sooner, saving thousands of dollars in interest. But these ventures do not provide their services for nothing. In the end, you’re probably better off just passing that offer by.

Money merge accounts or accelerated mortgage repayment systems originated in Australia and recently infiltrated the US. Despite rapidly growing in acceptance and admiration, many financial experts caution customers to tread slowly. Though the program effectively reduces mortgage repayment time, the concept is not without flaws or hazards. In effect, these accounts get you to borrow from Peter to pay Paul.

How Money Merge Accounts Work

Customers must first buy the accelerator software program. Expect to pay anywhere from $695 to well over $4,000 for the use of the technology. The tool regulates the cash flow between a high equity line of credit (HELOC), monthly wages, monthly living expenses and a regular fixed rate mortgage. Clients must monitor transactions closely to detect possible errors.

Then you must obtain an HELOC through the company or an affiliate. This is essentially a second loan based on a home’s equity value. The interest rates vary and more times than not, exceed the amount of the first mortgage. Consumers must then agree to deposit all wages into the account, which relinquishes control over spending. After the determination of monthly expenses, the client receives a credit card. The card is the only resource for paying bills. A dashboard allows clients to adjust the number of years until pay-off, the pay-off date and to visualize the amount of interest paid.

The software deposits the paychecks into the account in order to begin paying back the HELOC. The HELOC pays the mortgage payment, allows withdrawals from the credit card for living expenses and adds the excess to the mortgage loan principle. The more frequently money is applied to the principle, the faster the amount decreases. Money continuously flows from one area to another.

Fees and Pitfalls

Pitfalls with the system include the initial cost of the software, the accuracy and effectiveness to circulate funds without error and interest rates of the HELOC. In order to prevent negative balance occurrences, consumers must diligently track finances. The software’s first priority is to pay down the mortgage. Monies moving out of the account may or may not coincide with paycheck deposits or bill deductions.

Insufficient fund or late fees are the sole responsibility of the client. Subsequently, credit history becomes affected. In order for the program to operate properly, individuals must have substantial excess income after paying the mortgage and other monthly bills. In addition, customers may incur penalties after using the card for unnecessary expenses.

The software programs are available through financial and insurance advisors, mortgage brokers and realtors. Clients gain information from one on one meetings, networking systems or seminars. Experts suggest conferring with legal consultants prior to signing any documents. Examine the fine print for refund policies and warranties and receive thorough answers to all questions.