Tag Archives: loans

The 3 Biggest Mistakes First Time HomeBuyers Make

mortgage

Shopping for a home the first time can be scary: Scouring the market, negotiating the best deal and navigating the fine print is enough to overwhelm any new homebuyer.

If you’re in the market for a new home, check out the results of LendingTree.com‘s poll of major lenders. They’ve identified the three biggest mistakes first-time homebuyers make – along with some essential tips on overcoming them. Happy house hunting!

Mistake # 1: Shopping for a home without a pre-approved loan

Without a pre-approved home loan, most sellers won’t give you the time of day. Many experienced real estate agents will ask you to get pre-approved (or at the very least, get pre-qualified) with a mortgage lender before they’ll take you shopping. It saves time and helps them weed out the dreamers  from real prospective buyers.

But there’s something in it for you, too: It helps you avoid the experience of falling in love with a home, opening escrow, only to then find out you can’t get financing.

Finally, a pre-approved mortgage is almost like paying cash. Bbeing able to say, “I have loan approval and can close in 30 days” puts you in a stronger bargaining position.

o   TIP: You probably don’t want to advertise to home sellers exactly how much your lender will let you spend. When making an offer, ask your loan officer for a custom letter. If you’re approved for a $400,000 purchase and a $320,000 mortgage, but you’re offering $300,000, your letter should probably say that you’re approved for a $300,000 purchase with a $240,000 mortgage.

Mistake #2: Ignoring first-time buyer programs

Home ownership is such a big deal in the US, that there are tons of organizations and programs designed to help you buy. Ignoring these opportunities can cost you a lot of money. Here is just some of what you might be missing:

o   Down payment assistance (low-interest loans or outright gifts of cash to buy a home).

o   Mortgage Credit Certificates (mortgage interest subsidies through local governments).

o   Revitalization programs (grants for buying homes in areas under redevelopment).

o   HUD homes ($100 down and 50% discounts for first responders, nurses and teachers).

TIP: Most first-time home buyer programs define “first-timer” as someone who has not had an ownership interest in real property in at least three years.

Mistake #3: Only considering 30-year “fixed” rate mortgages

With mortgage rates currently near historic lows, it’s understandable that many want to lock in the low rates via a fixed mortgage. But 30-year fixed rate mortgages aren’t the only home loans to consider. For many first-time home buyers, hybrid adjustable-rate mortgages providing a fixed rate for only a specified number of years may actually be a better choice.

According to the National Association of Realtors, younger home buyers and first-time owners tend to sell and move much sooner than older or repeat buyers. Chances are you’ll pay probably pay more money for a 30-year mortgage, but only get five or seven years out of it.

o   TIP: If you’re considering a larger mortgage (a jumbo or super-jumbo), it makes even more sense to test drive the hybrids. The difference between the hybrid rates and the 30-year rates can be even more than it is with smaller conforming loans.

 

 

Yes, You Can Rebuild Your Credit – Here’s How

 

credit

Roughly 47 percent of employers pull credit reports before hiring new employees, according to the Society for Human Resource Management. It’s not uncommon for employers to rescind an offer or decline making one after seeing a poor credit score. Some speculate employers fear such employees are financially irresponsible or prone to suspicious behavior. Poor credit can also prohibit you from getting a credit card, getting a low interest rate on a home loan or securing an auto loan.

So how can you restore your credit to good standing? Banks and big financial institutions make building credit quickly seem like a complex mystery. But all credit building really boils down to is borrowing money and paying it back on time. The hard part is finding credit-building opportunities, especially for those with poor credit scores and mounting debt. Here’s some help:

Use Your Rent

Sites like Experian and TransUnion will include rent data on your credit report. Unfortunately, you can’t just log in and report that information yourself. Instead, your landlord can use an agency like RentReporters to report the data for a small fee. But small and independent landlords may not opt to do this for you and are under no obligation to do so. But there’s another option. Pay your rent through WiliamPaid.com for a small fee and the activity will show up on your credit score.

Get a Credit-Builder Loan

Scout around for a local credit union offering credit-builder loans of up to $1,500. Credit unions typically offer lower interest rates to their customers and are easier to secure loans through than traditional big banks. Customers put the money loaned into a savings account to accrue interest and make regular payments on the loan until it’s paid off. After the loan term ends, collect the interest or reinvest.

If you can’t take out a credit-builder loan, reevaluate your spending and income potential. Those receiving regular annuity payments may get a few hundred dollars a month, which in turn gets spent on bills, groceries and a social life. Your money may serve you better if you sell annuity payments for a lump sum of cash now, and then you apply that money toward a credit-builder loan, a secured credit card or any outstanding debt you have.

Get a Secured Credit Card

Unlike traditional consumer credit cards, a secured credit card requires cash collateral upfront. If you add $400 to the card, that’s exactly how much you can spend, unless the creditor extends a line of credit for good payment activity. Secured credit cards usually carry annual fees and offer less flexibility than traditional cards.

Experts suggest charging 10 percent or less of the amount on a secured card each month to further boost your score. The ratio of debt verses what’s left on your card can inch up points on your score. But this also works in reverse. If you have a $400 secured credit card and charge $390 on it, the high ratio of debt verses your credit line can actually deduct points from your score. But within a year of responsible use, you should see your credit score improve enough to apply for other traditional credit cards with higher limits.

Peter Galvin is a retired financial planner who has enjoyed writing and spending time with his three children since his retirement in ’09. 

Need More Money? Surprise! You Already Have It

walletWhenever people think of saving money, they think in terms of restriction. “Oh, that’s a dollar less I’ll have toward buying what I want,” they’ll say. On the other hand, when they earn more money, they think in terms of additional freedom — how that extra dollar will allow them to buy more of what they want. What they’re failing to realize is that both saving a dollar and earning an extra one can have the same overall effect on your well-being and ability to access the things you really desire. Both can buy you the same freedom. So, why do people prefer to make more instead of saving more?

Let’s think of it in these terms: Say you want to buy a new car, but need $3500 toward a down payment. To get the money, you can either work harder(either longer hours or by asking for a raise/promotion), or you can cut back on your expenses to save the same amount of money. (The third — and incidentally, worst — way to get the extra $3500 is through a loan.)

What would happen under each of these scenarios?

For convenience’s sake, let’s say you make $20/hr, or about $800/week(that’s about 41K – close to the US average income). To make the extra $3500, you’d need to work an additional 175 hours that year.

Alternatively, you could save that $3500 by saving about $10/day. If you’re aggressive and put the money you’re saving in the stock market, you could even have hundreds of dollars more at the end of twelve months (providing, of course, that stock market returns are near historical averages – we all know down markets happen sometimes). Even if you’re risk-averse and prefer to just sock it away in a high-yield bank account or a 1-year CD, you’ll still have about $30 above what you’d need. And you didn’t have to work any harder for it — the money was there, in your pockets, all along.

The worst possible scenario, of course, involves you taking out a $3500 loan for the downpayment. Assuming a 10% interest rate and three-year repayment term, you’re going to pay close to $1000 more. Yep, that’s right. You’ll pay about $4500, instead of $3500 — all because you didn’t just cut back, instead.

Of course, we can’t always afford to save every dollar we need. Sometimes, we’ll have to forestall making important purchases or make do with less. But saving at least part of what you need makes a huge difference in your bottom line over time.

What’s the best possible scenario, you ask? A combination of 1 and 2: Work a little harder to make more dough PLUS save what you need for the car. If you cut back $10/day and put that money in a savings account for a year, you’ll have your $3500, plus an extra $30, or so. Add the extra $3530 you got from your raise or longer hours(remember, you’re earning interest on that money, too), and you’re up to nearly $3600 in savings PLUS you’ve got the original $3500 for your car.

How’s that for making cents?