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Guest Post: 4 Home Loan Fees to Be on the Lookout For

February 9, 2012 · Filed Under Random · 18 Comments 
Today’s post has been contributed by Sara Lennon on behalf of Merlin Insurance – the Quebec Insurance Broker.

For most people, buying real estate is something you do once or twice in your lifetime, giving you few opportunities to familiarize yourself with the process. You are swamped by mountains of paperwork to sign, a strange new vocabulary to deal with, and numerous fast-talking sales people – from real estate agents to mortgage brokers – who smile, point and tell you where to sign.

It’s an exciting time, but it’s all too easy to lose track of what you’re paying for and how much everything costs. Aside from the mortgage, there are numerous charges lumped into ‘closing costs’. Let’s look at four home loan fees to be on the lookout for; this may save you a few hundred dollars.

What are Closing Costs?

Closing costs are the several dozen potential expenses associated with purchasing and financing real estate. They are categorized as “recurring” and “nonrecurring.”

Recurring costs:

Recurring costs not only get paid at closing, but also on a monthly basis thereafter, and include real estate taxes, homeowners insurance, and, if you’re putting less than 20% down, private mortgage insurance (PMI). These expenses need to be paid in advance at the time of purchase, so put them in an account to cover next year’s obligations.

Nonrecurring costs:

Nonrecurring costs are also paid at closing. These include:

  • Application fee
  • Loan fees such as appraisal, credit report, and underwriting fees
  • Any lender-required inspections
  • Broker’s service fee
  • Federal Housing Administration (FHA) fees
  • Veteran’s Administration (VA) fees
  • Title charges
  • Land survey

Most Common Fees

The four most common home loan fees are:

  • Application fees
  • Appraisal fee
  • Private Mortgage Insurance
  • Prepaid Interest

How much should they cost?

The Federal Reserve Board provides some general guidelines for how much these fees should cost:

  • Application fees range from $75 – $300 (including the cost of a credit report for each applicant)
  • Appraisal fees range from $300 – $700
  • Private Mortgage Insurance can be up to 1.5% of the loan amount prepaid and between 0.5 – 1% of the entire loan amount annually.
  • Prepaid Interest varies depending on loan amount, interest rate and number of days that must be paid. $300 – $700 is not that uncommon.

How to Save:

  • Try and make a larger down payment to avoid PMI. If you can afford to make a 20% down payment, do so. PMI is hard to cancel, can be expensive, and offers no real benefits.
  • For lower appraisal fees, direct your loan officer to work with local appraisal companies. Local appraisers have a deeper knowledge of the surrounding neighborhood and will likely be more readily available for the home inspection, to speed your appraisal process.
  • Negotiate with the seller to reduce closing costs. They may be willing to pay your application or appraisal fee for a better deal.
  • Look for special deals on lenders websites. You might be able to apply for free or save on the cost of a credit check. Try to apply direct if possible, rather than going through a broker. You can compare deals online and go straight to a lender if there’s a particular deal you want to apply for. Don’t let a pushy salesperson force you into a bad deal.

Guest Post: Start Up on a Shoestring: Resourceful Entrepreneurs’ Space Solution

September 3, 2010 · Filed Under Random · 4 Comments 
Today’s guest post was provided by Art Decker. Art is a division manager with Self Storage Company, which operates a group of websites, including a Texas self-storage locator. Art leads a busy life, but enjoys meeting new people and interacting with customers when traveling between sites all the way from California to the Massachusetts self-storage centers.

It always surprises people to learn that about 30 percent of the tenants of self storage facilities are small businesses. I am not sure why — businesses need, if anything, more storage than the average family. I find that many of our small business tenants have turned to self storage either because they need to minimize the overhead costs for their business, and must keep the official retail or office space small or home-based, or because they need a simple way to merge storage and shipping. Small businesses that need to arrange their own regular shipping or local deliveries often prefer to rent space at a facility that offers moving trucks for rent as well. That way, the business does not have to invest in a delivery truck (which then has to be stored as well, in addition to needing maintenance, insurance, and licensing).

The obvious example of an entrepreneur using storage space is an online retail business, such as an eBay store. However, I find that many entrepreneurs are using self-storage units in ways that are not so obvious:

Watercraft Detailing & Winterization: At one of our North Carolina facilities that offers winter boat storage, I met a man who told me that he figured out that he had a budget for space for a boat cleaning and repair business, but only for a few months out of the year. He was delighted to learn that self storage units do not have to be rented year round — they can be rented on a month to month basis, or only when you need them. He now uses a self storage space at a facility near a marina to offer boat cleaning and maintenance to boat owners who are about to put their boats in storage for the winter. He offers the service for two months in the fall. Then he packs up his tools and takes them home — he needs the space primarily for the boats he works on, as the tools themselves are fairly compact. In the spring, he rents another unit and offers the same service to boat owners who are taking their boats out of storage.

Wine Delivery: I chatted with a northern California business owner who is the middleman between wineries and local businesses and wine collectors. She needed trucks, but only occasionally, to transport wine. It streamlined her business considerably to be able to transport wine via truck to a climate-controlled facility, and to unload the wine and return the truck simultaneously. Then she rented the truck again later, when she went out to make deliveries. She was glad to be able to cut costs on shipping, since she also had to comply with state regulations related to shipping alcohol.

Hand Crafted Signs: An Oregon woodworker who rented a self-storage unit last year told me that he was glad to find a facility that also had trucks for rent. He produces custom handmade wooden signs for local businesses, and then delivers them. If he can, he deliver the signs using his own car, but occasionally he has a sign that is quite large and must be moved using a truck. In addition to using the trucks to deliver his signs, he told me that it is very nice to be able to rent one occasionally when he needs to bring in new materials, or when he participates in art fairs over the summer. For art fairs, he not only loads quite a few of his latest signs, but he also brings shelves and tables to display them on, and a large tent (in case of rain). The rest of the time, though, he tells me that he doesn’t need a truck — nor does he need to be budgeting part of his business income every month to pay for parking, maintenance or insurance.

Computer Solutions: Some of our tenants, on the other hand, have their own trucks, but they need a secure place to park them because they keep their trucks full of expensive equipment. One of our Chicago units is rented by a business that does IT consulting for larger corporations. They travel to sites where businesses are having trouble with their computer networks (in this recession, many companies have laid off their information technology (IT) departments). When they travel to a business site, they bring a van full of computers that can run diagnostic tests on a system. They also bring commonly used replacement parts, network cables, and the like. But they don’t want to park that van, full of electronics, out on the street. Moreover, it’s easier for the “Geeks” — there are two of them — to drive to our self storage facility and park in our parking lot, which is usually not full because most tenants don’t stay all day. Then they take the van out and drive to the site where they will be working for the day. As a result, they not only get affordable security for their business equipment, but they also save on parking for their private vehicles. I thought it was an ingenious way to solve the perennial Chicago parking problem.

Sometimes business owners have to think creatively to stay out of debt. I used to think that anyone starting a new business would have to go into debt just to have the start up capital to provide a place of business, equipment, and/or inventory (depending on the business). But I’ve come to realize that it is possible to start a business with very little capital. No one wants to think that their business is going to be the one to fail, but if your business does fail, you will be far better off walking away from it free and clear — rather than with a mountain of debt. I’ve grown to admire entrepreneurs who refuse to let the excitement of a new business sway their judgment when it comes to personal finance. In my experience, those entrepreneurs who stick to their principles become more than just successful businessmen and women — they become leaders in their community. And we need leaders like that — leaders who have a strong sense of personal responsibility, and who will take the motto “borrow from none,” and apply it whenever possible to our state and local governments.

Guest Post: 4 Tax Penalties Every Taxpayer Should be Aware of

August 19, 2010 · Filed Under Random · 5 Comments 
This blog post was provided by Matt Robinson of TaxDebtHelp.com. If you are looking for more information on IRS Penalty Abatement or would like to be kept abreast on various tax news and changes visit their tax debt blog today.

Being aware of the various tax penalties the IRS could impose will help you avoid them. Here are four tax penalties every taxpayer should be aware of and avoid:

Failure to File Penalty

The Failure to File Penalty is imposed on taxpayers who do not file their tax return or request a tax filing deadline by the due date of April 15th. If you are unable to complete your return before the deadline, make sure you request an extension which will give you until October 15th to file. If an extension is granted, and you still do not file your taxes by the new deadline, you will be charged a Failure to File Penalty which is 5% of the total amount of tax liability per month for a maximum of 25% of your total tax liability.

If it is found that you didn’t file your taxes for fraudulent or negligent reasons, your fine can be increased as much as 75% of your original, total tax liability.

Avoid having to pay this penalty simply by submitting your tax return on time.

Failure to Pay Penalty

The Failure to Pay Penalty is calculated from the original payment deadline of April 15th, and is .5% per month for each month you don’t pay your owed taxes in their entirety. This penalty can exceed 25% of the unpaid balance on your taxes.

This penalty is in addition to the interest rate charged to taxes owed. The average IRS interest rate for underpayment of tax liabilities is around 4% currently, but the rate changes every three months.

Avoid the Failure to Pay Penalty by paying your taxes by the due date. If you cannot pay your total tax liabilities in full, then it is best to pay what you can in order to reduce the failure to pay penalty.

Accuracy Penalty

If the IRS finds that your tax return is inaccurate, there will be accuracy penalties and interest imposed. If the mistakes do not appear to be intentional, the accuracy penalty is normally 20% of the total understatement of tax. If the mistakes appear to be fraudulent or there were gross valuation misstatements, the penalty may be as much as 40%.

If you believe the penalty you receive for inaccurate information on your tax return is due to inaccurate advice you received from an IRS employee, you may be able to file a penalty abatement and have the penalty removed.

There are some other situations which may result in the removal of the penalty as well, and a tax professional can assist you with determining if your reason for the inaccurate information would be considered with reasonable cause or a valid excuse.

You can avoid the Accuracy Penalty by checking your tax return carefully to ensure everything on it is correct. Use the assistance of tax professionals if you need help filing your tax return.

Tax Fraud Penalty

If you have underpaid taxes owed due to fraud, you will receive a tax fraud penalty of 75% of the underpayment. The IRS will examine each return with a tax underpayment to determine whether or not there is evidence of fraud. Negligence, or not understanding tax laws is not considered fraud. You can avoid a tax fraud penalty by completing your tax return with accurate information, and following IRS rules.

Reader Question – Buy Me Now or Buy Me Later?

August 12, 2010 · Filed Under Random · 4 Comments 

I was recently presented with this question from one of my readers:

Thought you might be interested in weighing in on the decision we are needing to make. We are nearly entirely on a fixed income now, so there is no cash from the working budget for any large purchase. Our clothes washer is at least 13 years old and has been making strange noises for some time. The repair man said not to put any more money into it if breaks down again. So here is the decision: do we gamble and wait for the thing to die and then possibly have to pay a larger amount (from savings) for a new one OR do we take the money (again from savings) and purchase a new one now, hopefully on sale and while we can get a little Energy Star appliance “clunker” rebate from the government? Which move is more financially prudent?

I think the key here is to not have to put the purchase on a credit card and pay a high interest rate on it thus making a difficult purchase even more so.  In either case you describe, you are using your own money to purchase the washer.  If you were saving up to be able to buy one later but had to use a credit card to buy one now, I would say wait and save.  That is not the case for you.

Let’s look at the details a bit more.  We’ve already established that you are using money from your savings.  The question is should you wait or do it now.  The advantages of buying now are that you can be proactive about finding a sale and use the appliance clunker rebate (of course, each state handles this differently).  Another advantage of waiting would be to earn interest on the money in your savings account while it sits there.  That is not going to amount to a significant amount of money even if you do get another year or two out of your washer.  At $1000 with current rates maybe at 1%, that’s $10 a year – not very much.  As long as we’re talking small sums of money, don’t forget to consider how much more energy efficient a new washer would be compared to one that is 13 years old.  A new one will most likely save you some energy costs and the sooner you purchase one the sooner you’ll start realizing those savings.

On the flip-side, the pros for waiting are that your washer could in fact continue to work for a long time thus saving you that cash outlay for months or possibly years.  I guess that’s all I can come up with as a pro for waiting (I’d have a better argument for waiting if you told me you were going to charge it and pay it off over the next 24 months!)

Again, I think the overarching key to this question is whether you can make the purchase now with your own money or if you have to use a credit card.  If I were in your position with money in the bank to purchase a new washer, I would start looking for one.  Do your research for price, effectiveness, and reliability, check out different stores, search for coupons and sales, etc.  Basically, I’m suggesting that you prepare yourself ahead of time so you can take your time but still be ready to pounce when you find a great deal.  Good luck!

I’d love to hear if any readers would like to chime in with some (possibly different) advice…

I Just Saved $200 Repairing My Washing Machine…or did I?

March 24, 2010 · Filed Under Random · 8 Comments 

“What in the world?” I said as I opened the lid of our washing machine.  My wife had asked me to put the load of laundry into the dryer but it was still soaking wet.  The washing machine had drained but the clothes were still full of water and detergent.  “Uh oh,” was the next thing that crossed my mind.  Being the optimist that I am, though, I set the control dial to “Spin” and pulled the knob. “Uh oh,” again…noise was being emitted by the washer but not the right noise and, even worse, no movement of the agitator.

Numbers, with dollar signs in front of them, started wracking up in my head (and up and up).  The last time someone came to repair our refrigerator, it was $90 just to come to the door.  Then there would be the cost of the part(s), and the labor to take the thing apart, fix the offending piece, and put it back together.

I’ll fix it myself!

My workspace with the machine taken apart..note the laptop in use

So, I told my wife I would look into fixing it myself.  It was Saturday afternoon and this was our last load until the middle of next week, so I could buy myself some time.  Actually, it took just a few seconds on Google to find what was most likely the problem and the part would only cost $10-$20!  I’m all in now, I decided.  I was going to go for it and try to repair it myself!  Now, I had never even attempted to do such a repair before.  Sure, I occasionally take electronic equipment apart for tinkering purposes, but I’ve never successfully repaired anything that I’d taken apart (when I was a kid I made a flashlight, does that count?).  This would be different, though; this washing machine had to be repaired!  (I thought: worst case scenario I would have to pay someone to fix it, but that’s where I was already…just maybe I could make it work).

Fixed!

And I did!  I fixed it!  I took it apart and fixed it and I have the pictures to prove it!  By the grace of God, I was able to disassemble it without hurting myself or anyone else, replace the part, put it back together, and make it work!  Let me tell you, accomplishing that was a phenomenal feeling! (Not spending money while simultaneously finding that feeling of accomplishment – now that is a win-win!)

I saved $200!

So what did I end up saving?  Let’s see, I wildly guess that the repair would have cost somewhere between $150-$200.  Ok, so I spent $20 for the part plus I donated $10 to the guy who put the pictures up on his website that showed all the steps to complete this repair (This is the site you want to check out if you need to repair a Kenmore washing machine!).  So, that saves me about $170 – time to celebrate!!  Let’s hit the town for a celebratory dinner maybe?  Maybe I’ll get me some bike gear that I’ve been coveting.  Oh, I know, how about a tuner for my guitar. Man, that extra $170 is going to come in handy!

Am I sure I saved $200?

Now hold on a second, if you’ve been reading this blog for a while, you might know what I’m going to say next.  Let’s ask the question again: How much money did I save today?  $0…in fact, I actually spent $30.  Sure, I do have a working washing machine.  God provided for us such that it only cost $30 instead of $200.  That’s all true.  But that doesn’t mean I should go and spend the amount I “saved.”  I’m sill worse off by $30 than I was Saturday morning.

I know, I’m being a total buzz-kill.  I’m not trying to be completely goofy about this.  Fixing the washing machine was an awesome feeling!  I came into the family room yelling about it (much to my wife’s chagrin as she was trying to talk to her sister on the phone….and later to her mother on the phone…yes, the yelling went on for some time).  Just remember not to tell yourself these little lies about money that get us into trouble.  You can’t save money by spending money (even with a coupon!).

That’s what we tend to do, though, right?  Look up to the title of the post, “I saved $200!”  Did I really save that much?  First, I just guessed the repair would be $150-$200.  Of course, I then rounded up and started touting the higher number but that’s not even correct as I spent $30 to do the repair.  Ok, so I saved $170, I’m going to go spend that $170!  No!  In situations like this, people tend to feel like they made $170…no, no, no!  Be honest with yourself and don’t play these games with money.  I’m thrilled to not have spent $150 or $170 or $200 on the washing machine repair, but that does not mean I now have an extra $170 to go spend!  Again, I do not now have $170 more compared to Saturday morning, I have $30 less!

Did I really fix it?

I took pictures to prove that I fixed it.  Unfortunately, it didn’t strike me until afterward that I was the one taking the pictures so none of them show me actually working on the machine!  You’ll have to take my word for it!  Here’s proof that it was actually working after the repair (ignore all the shoes floating at the top, I have no idea what my wife was doing with those in there…yes, yes, washing them, of course, but it just looks strange!).

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