Know Your Debt-To-Income Ratio
September 22, 2009
Not all debt is bad debt. A mortgage, student loan, or even a home-equity loan are considered good debt, because they create value.
To calculate your debt-to-income ratio, follow these steps:
- How much do you pay each month in bills-mortgage, credit cards, etc? Come up with a total for all bills, excluding utilities and taxes.
- What is your monthly income? Be sure to include investments and child support.
- Divide your monthly payments by your monthly income.
What does it all mean? What is a good debt-to-income ratio?
36% or less – This is the target area we should all aim for
37% – 42% – You need to start paying off some debt before it gets out of control
43% – 49% – The danger zone – a high DTI ratio. Immediate action is needed to pay down debt
Above 50% – A professional financial advisor can help get you back on track to reduce debt
Purchasing a Foreclosed Home
September 22, 2009
A home in foreclosure may offer a great deal, but buying one isn’t easy, and there are many risks involved. The key is to do your research, and find the foreclosure purchase option that works best for you.
Auctions: When you think of an auction, imagine standing at the steps of the county courthouse or in front of the foreclosed property. This is how most foreclosures go down. Transactions are cash only, and paid on the spot. Unfortunately for the buyer, they are unable to inspect the property prior to the auction. In very few cases, it’s possible that the homeowners have not vacated the property.
Real Estate Owned (REO): If a foreclosed home isn’t sold at auction, the bank can repossess it. This would happen if the highest bid at auction is less than what the homeowner owes the bank. There’s no guarantee at this point that the bank will offer a rock-bottom price to unload the property. It can also be a lengthy process.
Pre-foreclosure: For a fee, you can access websites that have homes listed that are in foreclosure. In this case, you would need to offer the bank more than what is owed, but less than market value. This would be the best option for most people.
Disputing Your Property Tax Assesment
September 22, 2009
It won’t be easy, but you CAN dispute the assessed value of your home. But you’ll need to do your homework first.
Meet the Deadline: An appeal needs to be filed by certain deadlines. Washington state, for example, has a deadline of July 1st of the assessment year, or within 60 days after the date listed on the Assessor’s value change notice – whichever is later. Make sure all appeal forms are completed by downloading and printing out all necessary forms from your county assessor’s website.
Get the Facts: Gather information on comparable homes in your area. Use real estate websites, such as Zillow, to research homes values within a mile of your home. With the help of a realtor, you can view the last few months of home sales in your area to help establish your own home value. Five “comps” should help support your case.
Present your case: Review your case with assessor staff at the county level. Remember, your county assessor’s office has been inundated with appeals from disgruntled homeowners. Be pleasant. Provide your research to further support your request. Meeting goes nowhere? Apply for a formal appeal at the state level.
Home Warranties: Peace of Mind for Sellers & Buyers
September 22, 2009
What is a Home Warranty, and who would benefit from having one? A Home Warranty provides coverage, ranging from 6 months to several years, for repair or replacement of a home’s major appliances or systems. Costs for this service? Typically, costs run $200-$400 a year, with service-call fees of $50-$100, though these amounts can vary by state.
A warranty can protect homeowners from unexpected costs and breakdowns that occur in a home. The types of repairs warranties cover often are not covered under a homeowners insurance policy. It is often possible for existing homeowners to obtain a warranty, but most likely, there will be a waiting period, depending on providers and the type of plan. So, who benefits most by purchasing a warranty? Sellers and buyers. The seller can use a warranty as a selling tool, and provide peace of mind for a potential buyer. The buyer can rest easy knowing that a seller has secured a warranty, and that it is in place should something unexpected happen after they move in.
Many home-warranty companies prefer to repair broken appliances, rather than replace, so always make sure you read the fine print.
Website Launched To Help With Credit Card Debt
September 17, 2009
As credit-card companies are dealing with increasing defaults on credit-card payments, a new website has been launched to assist those with mounting balances. The website, www.helpwithmycredit.org, is intended to offer assistance and options. Additionally, a toll-free number is available for callers and it will offer two options: they will be transferred to a customer service representative at their card issuer, or to a local credit counselor. The number is 866-941-1030.
Cash Or Mortgage? Let’s Do The Math
September 17, 2009
Deciding on whether to obtain a mortgage, or pay cash, for your new home purchase? Use the “Future Net Worth” spreadsheet from Jack Guttentag to help you decide. Click on the link to access his article in the Seattle Times.
http://seattletimes.nwsource.com/html/realestate/2003586078_guttentag25.html
Annual Percentage Rate-What Is The Real Cost Of Financing?
September 17, 2009
Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it’s important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.
The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.
Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.
Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.
If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don’t, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the homebuyer only expects to stay in the home for five years, there’s not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son’s college education, then once again, APR is not a realistic factor to take into consideration.
The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the ‘amount financed’ listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.