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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 – How to pay off debts and take control of your financial situation

February 11, 2011 · Filed Under Paying off Debt · 28 Comments 
Ryan Smith is a contributory writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.

In order to take proper control of your life it is very important that you keep a good control on your finances. This means that you must take good control even on your debts and make efforts towards paying them off.

Some tips that you may follow in order to take control of your debts are as follows.

1. Lowering the debt to income ratio: It is very important for you to lower your debt to income ratio. This is because the debt to income ratio is a reflection of your financial state. Most lenders will check your debt to income ratio along with your credit report. In case you have a very high debt to income ratio you may be denied loans. This will have a very bad effect on your financial life. Thus, you are to try and lower your debt to income ratio if the ratio is more than 30%. This will help you take control of your financial life.

2. Setting up a debt repayment plan: If you want to get out of a financial crisis and maintain a healthy financial life, then you will have to pay off your debts. In order to do so you must set up a debt repayment plan. The purpose of formulating such a plan is that it helps you to concentrate all the extra amount of money that you have and use it to pay off your debts. Another advantage of setting up a plan is that the process of debt repayment will be faster than it would have been otherwise.

3. Paying off all your old debts: One of the ways in which you will be able to come back on track is by trying to pay off your old debts. In order to do so you may approach a single company at a single time and gradually pay off your debts. As you keep on paying off your old debts you will be improving your credit score as well. This helps your financial situation greatly.

4. Stopping the usage of credit cards: It is very easy to get into credit card debts because you will not be able to realize that you are sinking into debts until it’s too late. Thus, when you face a financial difficulty and want to take control of your finances, then you will have to stop using your credit cards.

These are a few things that you can do in order to pay off your debts and take control of your financial situation.

Guest Post: How Declaring Bankruptcy Affects Your Life Insurance Rate

April 21, 2010 · Filed Under Insurance · 4 Comments 
Today’s guest post was provided by Denise Mancini of Accuquote. Check out Accuquote.com for free life insurance quotes from top-rated companies.

For some people, debt is a part of life, but when debts careen beyond control to a point where you can no longer repay, filing for personal bankruptcy is a way out. However, before you file for bankruptcy, there are important repercussions you should consider, especially facts related to your life insurance premiums.

Bankruptcy and life insurance
If you own an existing life insurance policy, it is usually left untouched by the bankruptcy court, to protect the interests of your beneficiaries. If you own a permanent life insurance, you will be allowed to retain a portion of the cash value that has accumulated on it. How much you are allowed to retain depends on where you live, because the rules are different from State to State. If you have taken out a life insurance policy on someone else like your spouse or your kids, you will have to surrender the same to the court.

Bankruptcy will affect your life insurance rate.

Most people file for bankruptcy because it wipes the slate clean and helps them to start over. It is common knowledge that a bad credit score will adversely affect life insurance premium rates. However, will bankruptcy improve the situation? Let’s explore the repercussions of bankruptcy on life insurance premium rates.

If you are already in deep debt, it makes sense to file for bankruptcy. Buying life insurance with a bad credit score is not a good idea because of the exorbitant premiums you will be charged, which in turn will worsen your financial situation. For someone in this situation, it makes sense to first file for bankruptcy, and then wait a while before applying for a life insurance.

It definitely won’t be easy then too, because life insurance companies see your bankruptcy as a lack of restraint, and being careless with your finances. They therefore have reservations about your ability to pay premiums. It usually takes about 7 to 10 years until your credit report will stop reflecting your bankruptcy.

Buying a life insurance policy after bankruptcy

Since life insurance is a purchase that can never be put off, waiting out for a decade until your credit report stops reflecting your bankruptcy is definitely not advisable. The better option is to buy a 10-year term life insurance policy. You will be paying higher premiums and it may turn out to be quite a struggle, but it is better than putting your family’s welfare at risk. The first few years on a policy are the most expensive for a life insurance company, and their high up-front costs make them very cautious when approving policies. As someone with a bad credit history, you will be considered a risky customer.

The good news is that there are term life insurance companies out there, who will look favorably on your case if they know that your bankruptcy has been completely discharged. The key is to find such companies. Luckily, with the advent of a host of online life insurance quote providers, it is not difficult to identify such companies. All you need to do is, fill up their online form as accurately as possible. Don’t forget to click ‘Yes’ when you are asked if you have filed for bankruptcy in the last 5 years. Based on the information you submit, you will be given quotes from companies that look most favorably on your bankruptcy and on other information you have submitted. These quotes are unbiased, genuine and correct because they are chosen from among hundreds of policies and reflect information in real-time.

Bankruptcy can be a very difficult experience, and you may be tempted to wait a while before getting your life insurance. However, you will risk putting your family going through dire financial hardships. Once your bankruptcy is taken off your credit report, you can request the life insurance company to review your policy, so that you can qualify for lower premiums.

Financial Peace University Lesson 5 – Credit Sharks in Suits

October 30, 2009 · Filed Under Financial Peace University · 1 Comment 

Understanding Credit Bureaus & Collection Practices

Dave starts out this lesson by exposing one more myth, similar to what he did during the previous lesson:

Myth: You need to take out a credit card or car loan to “build up your credit score.”

Truth: the FICO score is an “I love debt” score and is NOT a measure of winning financially.  I admit that in the past I’ve taken pride in having a “high” FICO score.  It is interesting to really look at how it is calculated, though.  According to Ramsey, if you want a higher FICO score, you should go into debt and stay in debt for a long time.  The more credit cards you have (assuming you don’t have big balances on all of them) and the longer you have had them will generally translate into a higher FICO score.  He also explained that you could inherit a bunch of money tomorrow or get a huge raise and if you don’t change any of your debt, then your score will not change at all.  So, I agree, this is not a measure of how well you are doing financially…it is basically worthless for that purpose.  (He also mentioned that he currently does not have a FICO score at all…and I’m pretty sure that he is doing ok financially!)

Understanding Credit Bureaus

The first portion of this lesson revolves around your credit report.  Some interesting notes from Ramsey:

  • Information remains on your credit report for seven years after the last activity, except for a Chapter 7 bankruptcy, which remains on there for 10 years.
  • Beware of credit clean-up scams – it is not legal to remove accurate information from your report.
  • In a survey done by the National Association of State Public Interest Research Groups, 79% of credit reports of the people surveyed contained mistakes.

It is recommended that you check your credit report annually to make sure there are no issues.  Of course, this can now be done free using annualcreditreport.com.  Through that website, you can get a copy of your credit report from each of the three credit bureaus once a year (FREE – you don’t even have to sign up for credit monitoring or any of the other junk – if you do, you’re most likely at a similarly-named site).  So, you can check your credit report every four months if you cycle through the different credit bureaus.

Correcting Credit Report Inaccuracies

According to the 1977 Federal Fair Credit Reporting Act, a credit bureau is required to remove all inaccuracies within 30 days of you notifying them of the mistake.  To do this, send a letter for each inaccuracy via certified mail to the bureaus with your credit report attached and the account number circled.  The bureau will then request clarification from the company that reported the information in question.  Often, that company will not respond and the credit bureau will remove the offending information.  If the company responds to the bureau and claims that the information is accurate, then you will have to work with that company to clear up the discrepancy.  Most times, the letter to the credit bureau will be sufficient.  If they do not remove the inaccuracy within 30 days, however, you can then request that they remove the entire account from your report.  Finally, if you are having problems with them, then you might need to complain to the Federal Trade Commission and your state’s Consumer Affairs Division.

Dealing with Collectors

During the remainder of this lesson, Dave discussed collection practices and how to interact with debt collectors.  Here are some of the highlights of his teaching:

  • The collector’s job is to get your money – not to be your buddy or to help your overall situation
  • Typically, they attempt to induce strong emotional reactions from you
  • It is illegal for a collector to harass you and they can only call you between 8 AM and 9 PM (unless they have your permission to do so).
  • You are able to demand that they stop calling you at work
  • It is even possible for you to demand that they stop all contact with you (except notification that they are suing you).  Dave does not recommend this, however, as all negotiations then stop and there is no hope of a positive resolution.  In fact, this makes it more likely that you will end up being sued by them.
  • Except for student loan debt or the IRS, it is not possible for a creditor to garnish your wages or take money from your bank account unless they sue you and win the court case; a threat to do so is just a bluff.
  • Of course, it is possible for them to sue you.  If they do, they will win (remember you do owe them money) and then they have the right to garnish your wages after a 30 day waiting period.

The purpose of all of this is ensure your life is bearable while you are trying to deal with your creditors.  It is not to try to avoid paying back your debts. If you borrow money or owe someone money, the honorable thing to do is to pay what you owe.

Luckily, so far I have not had to deal with debt collectors and I have not found any significant errors on my credit reports (though when I had student loans, so many of them show up on the report that it is hard to keep track of whether they are all accurate or not) so this lesson was not as interesting as some of the others.  If you are dealing with collectors, however, Ramsey’s advice is to stay in contact with them once every two weeks and send them more information than they send you.  Send them your budget, send them the plan that you are using to work your way out of debt, show them how much money you have to pay debts after your necessities and try to work something out.  As long as you keep communicating with them and paying them, even if it is less than they want, they will probably work with you instead of suing you.  A lawsuit is expensive and getting some of your money, even if it is slowly, is better than getting none (or spending more on court costs that you actually owe!).

Resources

Request a copy of your credit report:

To reduce direct mail advertising and telemarketing calls:

(So I recently visited both the opt out site and the do not call site.  The do not call site is pretty straightforward but for the opt out site it is so obvious that someone forced them to put that site together.  They are not happy about you coming there to opt out of the marketing.)

Check out my previous FPU posts:

Financial Peace University Lesson 4 – Dumping Debt

October 23, 2009 · Filed Under Financial Peace University · 5 Comments 

Beaking the Chains of Debt

I mentioned in the previous FPU post that Dave Ramsey is very big on creating and using a cash flow plan each month.  I now have to say this week that he stresses even more the importance of getting out of and staying out of debt.  I would probably say that this is the most important facet of his financial peace plan.

If you tell a lie often enough, loud enough, and long enough, it becomes accepted as truth

Ramsey spends the majority of this session presenting and debunking various myths about money and debt – some that I found very interesting.  I’m not going to go through every myth in this post – I’ll just hit some I found more intriguing (I have to leave something for you when you actually take the course, right?).

Myth: Playing the lottery and other forms of gambling will make me rich.

Truth: Playing the lottery is a tax on the poor and on people who can’t do math.  Ramsey asked this question, “Why is the lottery line not filled with rich people?” and also presented this telling statistic: People with no high-school diploma spend on average $173/month on the lottery while people with a college degree spend an average of $49/month.  Do you know how much money $173 will grow to over time if you invested that money each month instead of wasting it on lottery tickets?

Myth: Car payments are a way of life and you’ll always have one

Truth: Staying away from car payments by driving reliable used cars is what the typical millionaire does.  I admit that I totally bought into this myth; I simply did not see a way that you could drive a decent car without having payments every month.  We used to pay $800/month on our two cars.  You know, you can do a lot with $800 if you don’t have to give it away each month.  We’re saving a lot more money these days since we accelerated and paid off our car loans.  In fact, Ramsey states that the average car payment is $464/month and if you invested this amount at a 12% interest rate starting when you are 30, when you reach age 70 you will have $5.5 Million.  Wow, I hope getting a nice, new car every few years is worth $5 M to you!

Myth: Leasing your car is what sophisticated financial people do.  You should always lease things that go down in value.

Truth: The car lease is the most expensive way to finance and operate a vehicle.  I remember reading reading an article in Consumer Reports about this exact topic.  In fact, I found these statistics that Ramsey offered very enlightening: If you buy a new car with cash, the dealership makes an average profit of $82.  If you finance that new car through them, the dealership makes an average profit of $775.  If you lease that new car, the dealership makes an average profit of $1300!

Myth: I’ll take out a 30-year mortgage and pay extra.  I promise!

Truth: Life happens!  Something else will always seem more important, so almost no one pays extra every month.  Never take more than a 15-year fixed-rate mortgage and your payment should be less that 25% of your take home pay.  It is true that using a 15-year mortgage will save you tons of interest!  In fact, on a $225,000 mortgage at 6% interest, you will save more than $143,000 in interest with a 15-year mortgage compared to a 30-year mortgage.

This is a hard one to do though.  When we bought our current house, we didn’t buy one anywhere near what we were qualified for, but we are barely below the 25% of our take home pay and that is on a 30-year mortgage!  Interestingly, this advice is the opposite of what Crown Financial Ministries will tell you to do.  They suggest paying extra on a fixed 30-year mortgage to make sure you can still afford the payments even if something changes in your financial situation (of course, that’s probably why Ramsey tells you to keep the payment below 25% of your take-home pay).

Myth: It is wise to take out an adjustable-rate or balloon mortgage if “I know I’ll be moving.”

Truth: You will be moving when they foreclose!  Remember, an adjustable rate mortgage transfers the interest rate risk from the bank to you.  They are good for the bank, not for you.  (Disclosure: we currently have a seven-year adjustable rate mortgage).

Myth: You need a credit card to rent a car or to make purchases online or by phone.

Truth: A debit card will do all of that, except for a few major rental companies (check in advance).  Remember that you get the same level of protection as a credit card when you swipe your debit card like you would for a credit card (not when you enter your PIN number).

Myth: “I pay my credit card off every month with no annual fee.  I get brownie points, air miles, and a free hat.”

Truth: A Dun and Bradstreet study found that when you use plastic instead of cash you spend 12-18% more because spending cash hurts.  So what if you get 1% back!  I am currently struggling with this actually.  We typically use credit cards for most of our purchases but I am really re-evaluating this strategy as we go through this class.  I hope to start moving to cash or debit card for some purchases next month as a trial to see if we spend less and if we can do a better job tracking it as we move through the month.

Myth: I’ll make sure my teenager gets a credit card so he/she can learn to be responsible with money.

Truth: Teens a huge target of credit card companies today.  This is chilling: more young adults filed bankruptcy last year than graduated from college.

Myth: Debt is a tool and should be used to create prosperity.

Truth: The borrower is slave to the lender.  In a survey, the Forbes 400 were asked, “What is the most important key to building wealth?”  75% responded that becoming and staying debt free was the number one key.  Think of it this way, your largest wealth building tool is your income so don’t waste it on interest payments each month.  Now think about this: How much money could you save, invest, blow, and give away if you had no debt payments each month?

Steps Out of Debt

Getting out of debt is hard and you have to be focused and serious about it to get it done.  “You can wander into debt but you can’t just wander out.”

Dave presents the following five steps to getting out of debt:

  1. Stop borrowing!
  2. You must save money
  3. Prayer really works
  4. Sell something.  (His famous line: “Sell so much that the kids think they’re next!”
  5. Take a part-time job or overtime (temporarily)

The Debt Snowball

A key component of Dave Ramsey’s FPU plan is the debt snowball.  You’ve probably heard about it and seen countless debates over whether paying off your debt this way make sense or not.  I’ll admit that in most cases, this is not the most “interest-efficient” way to pay off your debts but as Ramsey himself states, this is about behavior modification not about math (“besides, if you could do math you wouldn’t be in debt to begin with.”).  The debt snowball relies on seeing that you are actually making progress and that tangible progress motivating you to stick with it and make more and more progress.

Here is the debt snowball process:

  1. List all of your debts from smallest remaining balance to largest.
  2. Pay the minimum amount on each debt except for the first one.  Put all the extra money you can scrape together towards paying off the first one as quickly as possible.
  3. When the first one is paid off, put all the money that you were paying on the first one towards the second one.  So, the money from the first debt will be added to the minimum amount you were already paying on the second debt thus increasing the payment.
  4. Repeat this process for each subsequent debt.  As you can see, the amount of money being paid on each debt gets larger and larger as you pay off the smaller ones – hence the “snowball” concept.

This debt stuff is important!

I feel that this is one of the most important lessons in FPU.  Most people just assume that car payments, mortgages, home equity loans, credit cards, and so on, are just a way of life but it doesn’t have to be that way!  We strove for a few years to pay off our cars early and get rid of my wife’s student loans.  At one point, we were paying $800 on our cars and $2000 on student loans – that adds up to a lot of money each month!  Now, we’re saving that money.  Instead of giving away $2800 each month, we’re giving it ourselves.  That’s a great feeling.

My parents never made a ton of money through their working careers.  They rarely use credit cards, paid off their mortgage years ago, and live fairly simply though.  As a result, they can basically do whatever they want in retirement without even touching the principle of their savings.  They’re not just sitting around listening to the radio all day either.  Their indulgences are going out to eat a lot, getting a new car every couple years (and they lease!), and taking a three-week vacation to Florida each year.

Get out of debt – keep the money for yourself! If you want to give it away, it’s a lot more fun to choose whom to give your money to instead of being forced to give it to your bank.  And I’m sure your church or some missionaries or some people who are struggling need that money a lot more than your bank does!

Check out the previous FPU posts:

http://www.borrowfromnone.com/2009/10/financial-peace-university-lesson-3-%E2%80%93-cash-flow-planning/

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