5 Reasons to save for a bigger down payment

If you are reading this article you could be excited about purchasing a home especially if you are a first time home buyer. You also probably already know its take time and hard work to save up for a large down payment. Working hard and saving up for a larger down payment has several positive advantages which we are going to discuss right now.

 

Most individuals and families have to finance most of the homes purchase price with a mortgage. The dollar amount you put down on the home determines the size of the mortgage. A conventional mortgage loan typically requires a down payment of 20% of the purchase price of the home.

There are several good financial benefits for saving for more than just a basic 20% down payment.
We came up with 5 good reasons.

 

#1 Reduced monthly payments.

The more money you put down on the down payment of your home, the smaller your mortgage payments will be every month. This can definitely have a positive effect on your monthly budget. More importantly, you will save thousands of dollars in money over the long run. For example, let’s say on a 30 year fixed mortgage at a 5% interest rate, you put an additional $15,000 into the down payment you will wind up saving $13,987.50 in interest payments over the life cycle of your home loan.

 #2 Lower interest rates

Financial lenders often offer better interest rates to borrowers with a lower loan to value ratio, or the percentage of the home purchase price that you are going to be financing. An increase in the down payment will lower the ratio and reduces the risk to the lender that you will be unable to pay your full mortgage balance. Lower interest rates will also save you money over the life of your home mortgage.

 

#3 No mortgage insurance fees

If you can’t afford the typical 20% down payment required by most lenders you will likely be required to take out mortgage insurance. This special insurance protects the lender in case you fall behind and cannot afford to pay your mortgage. There are federal insurance programs that are available to qualified purchasers, in addition to the private insurance options that are out there. Mortgage insurance isn’t cheap and can be quite expensive. The cost of mortgage insurance usually ranged anywhere from 0.5% to 1% of the home’s value to several thousand dollars per year. The insurance premiums are an extra bill you will have to pay and they are not applied to the balance of your mortgage.

 

#4 Less risk when selling your home

Real estate values move up and down every day with the economy. This means the value of your home will go up and will go down after you purchase a home. If the economy and market are in a down swing and you have to sell your home, you will find that your mortgage balance is higher than the value of your home. This is also known as being “underwater” or “upside down” on your mortgage or loan. This very situation gives you much less flexibility in accepting offers and may make it difficult to sell your home and pay your mortgage. If you made a 20% or larger down payment on your home when you purchased your home then you are much less likely to wind up “upside down” on your mortgage – loan.


#5 Ability to ride out financial crises
We all know the future is unpredictable. You may someday encounter a financial crisis or emergency such as loss of your job, serious illness or disability which can impair your ability to pay your mortgage – loan. If you have financial equity in your home because you were smart and made a larger then required down payment, then you can better survive a financial storm should one arise.  Your mortgage – loan payment will be smaller, and should you need you can borrow against the equity in your home.

 

The conclusion here is pre planning and taking the time to save up for a more then basic 20% down payment on your mortgage is not only a smart decision but it is a rock solid investment in yourself and your livelihood. It can and will save you thousands of dollars over the course of your mortgage and that means more money for you.

 

 

Top 10 causes of debt

The top ten causes of debt are:

  1. Reduced income with same or higher expenses
  2. Divorce
  3. Poor money management skills
  4. Underemployment / not earning enough money
  5. Gambling / addictions
  6. Medical expenses
  7. Saving too little or not at all
  8. No money communication skills / has a history of leading  to #2
  9. Banking on a windfall / spending before you get paid
  10. Financial illiteracy

 

Now here is an explanation of the top 10 causes of debt.

1. Reduced income with same or higher expenses.
Essentially this means you start earning less money each month and your bills go up each month.  The next thing you know you are unable to keep up with your bills and you wind up deeper and deeper in debt.

2. Divorce.
More and more couples wind up in divorce court nowadays compared to previous years. In most cases both husband and wife spend large amounts of money beating each other up in legal fees. Divorce and family lawyers are not cheap and the more you fight in court the more money you spend. The bottom line is people divorce rates are soaring and generally speaking divorce is not cheap especially when there is property and children involved.

3. Poor money management skills.
A monthly budget – spending plan is essential for surviving in the real world. Without keeping track of how much money you bring home along with the cost of your bills you are going to get yourself in financial trouble. Managing your money is keeping track of how much money you bring home each month along with keeping track of your bills. Ideally you should be bringing home more money then your bills are and it is also important to save some money every month.

4. Underemployment / not earning enough money.
This is pretty close to #1 above. People who experience underemployment may feel it will only be a short and temporary experience. This can lead to a false sense of financial relief especially when you are collecting unemployment and it runs out. Sure you deserve to take a break but at the same time it is very important that you earn more money then your bills are so you don’t wind up in a financial hole.

5. Gambling / addictions.
Gambling addiction and other addictions are outright dangerous in many ways. Being addicted to anything usually ends up costing you more and more money not to mention the many other problems gambling and addictions create. Gambling may feel like fun at first but once you get addicted it can ruin your life. If you have a gambling problem or any kind of addiction please seek the help and guidance of a professional therapist, counselor or speak to a doctor.

6. Medical expenses. Let’s face it we all know medical bills are not cheap especially if you do not have medical insurance. Most doctors, dentists and plastic surgeons take credit cards and many offer financing. If for one minute you think that this is for your convenience you better thing again. Doctors, dentists and plastic surgeons all love money and the fact of the matter is the medical industry wants to get paid at the time they render medical services. They know if they don’t their chances of getting paid dwindle down. This means more debt for you and less debt for them. To be completely fair here doctors are not in the lending business but the fact is most offer financing and accept credit cards which can get you in financial trouble should you spend more then you can repay.

7. Saving too little or not at all. I have preached the importance of saving money for many years and no matter what you do for a living it is imperative that you save something each and every month. Whether you are a low paid clerk at a convenience store or a highly paid lawyer it is important that you same something each and every month. There are many reasons why it is important and financially responsible to save money. Ideally you want to have a minimum of 6 months of living expenses saved up in case something bad happens such as you are laid off, are fired, are ill – sick, get divorced. An old saying that is very important goes “pay yourself first”. Do it now and keep it up and when you need money for an unexpected emergency or problem you will be safe. Besides nobody in their right mind ever regretted having extra money in the bank.

8. No money communication skills / has a history of leading to #2 which is divorce.
It is important to communicate with your significant other – spouse about finances. Be honest and keep those lines of communication open and discuss financial goals and spending habits with your partner – husband or wife. If you are a saver and your partner is a spender you will want to discuss a financial strategy that will give you both what you really want. Know what credit accounts – credit cards you each have and promise each other to be completely honest about what each of you spends to avoid any unpleasant surprises.

9. Banking on a windfall / spending before you get paid. Spending money right now sometimes may feel tempting even before you get paid. The attitude of tomorrow will always come may get you in real financial trouble if you are not careful. A planned bonus from your job may not always come into play. The extra work you expect to come may not come, then what? The financial lesson here is do not spend the money until the money is physically in your hands or in your bank account.

10. Financial illiteracy. Far too many people don’t understand how money works, how money grows, how interest rates function or how to save money and invest for their future. Some people don’t even know how to balance their checkbook. Generally speaking schools do not teach this. Perhaps your mom and dad never sat you down and explained this to you. Regardless it does not matter. What matters is you are responsible for your life, your future and your money. Financial mistakes can get expensive fast and can easily become complicated to resolve. The bottom line is pay attention, get educated and learn and get in the driver’s seat of your life and take control and set some financial goals for yourself.

Son sticks mom with $30,000 debt

A retired elderly woman who was generous and co signed for her adult son is now legally responsible for his debt including credit card bills that are  more then than she can afford to pay. What can she do and what are her options?

QUESTION: I am a private investigator for an organization that investigates financial crimes against the elderly. I have been working with a 77 year elderly  woman who was financially abused by her adult son.

Her son asked her to co sign on two credit cards and for a Nissan SUV, which she did. She believed her own son would honor his word and pay the bills on time. She had no idea he had  several civil actions against him in Philadelphia Pennsylvania alone, his home was recently foreclosed on, and he has liens and judgments levied against him that exceed over a hundred thousand dollars of unpaid bills! He charged up the credit cards plus one more he opened without her knowledge or permission, and then he declared bankruptcy, leaving his mother with the debts.

My client was left with a $9,000 debt from the two co signed credit cards, an $14,000 bill from automobile loan and a $7,000 balance on the fraudulent credit card. So far, we have had the $7,000 credit card balance that was opened without her knowledge dismissed due to fraud, and we have negotiated the automobile bill down by half and transferred it to another card.

That leaves us her with just over $23,000 in  debt to deal with

A Philadelphia bankruptcy attorney looked at her case and said if she filed for Chapter 13 bankruptcy, her court ordered payments would be at least $500 per month, plus she would have to pay attorney’s fees and have the bankruptcy on her record. He also could not guarantee that she would not be forced to sell her home, which she has a good amount of equity in.

This woman is living on supplemental Social Security income and her bank accounts are running low.

Is there anything you recommend? I truly appreciate any help that you can provide.

ANSWER: I am so impressed that a 77 year old woman whohas a host of medical problems is now looking for work so she can pay her bills. I don’t know where her son learned his irresponsible behavior, but it certainly wasn’t from her.

You’ve done a good job so far of getting the $7,000 on the fraudulent card dismissed and negotiating the automobile loan payment down. As you discovered, filing for bankruptcy isn’t always cost effective, especially with a relatively small debt of $23,000. The costs and effort involved are too great in proportion to the benefits, and according to the bankruptcy attorney who looked at the facts, she would probably have to pay back the debts anyway.

She may have a good case for negotiating down debts however negotiating debt does negatively affect a person’s credit score, and there’s no guarantee of success. With her low income, however, it’s certainly worth a try.

What your client needs now is income. Here are my top three recommendations for where to get it:

Her son got her into this mess. He can help get her out. The fact that he just filed for bankruptcy is good news for your client  most or all of his many other debts are gone. He can afford to focus his energies on helping Mom.

Maybe her son not a bad person. He’s not the first young man to become overextended in this recession. When people can’t pay their bills, they start shuffling money from one place to another, never believing they won’t be able to make good. Does he know how desperate her situation is? Letting him know and giving him a chance to repay his mother would be the best thing for him and his own self respect at this point.

She has equity in her home, but with her low income and high debt levels, she’s not going to have much luck getting a home equity line of credit. A reverse mortgage might be the solution. And instead of adding a bill to her budget, she can have a steady stream of income to make her life more comfortable and secure.

The biggest downside of a reverse mortgage is that it can be expensive to set up. It generally costs a little more than getting a home loan of the same size. It’s a far better option, however, than losing her home because she can’t pay her bills.

A good credit counselor, from a nonprofit credit counseling agency affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, can help your client go through her options and decide what to do. The counselor may even be able to help her negotiate her  debt balance and interest rates.

This woman is fortunate that you are helping her. I hope her financial situation, not to mention her relationship with her son, will be on the road to recovery soon.

Buyer Beware Credit Repair Scams

Nobody can magically erase negative information from your credit report if it’s true and accurate. Only false and incorrect information can be removed. Accurate information stays on your credit record for 7 years from the time it’s reported (10 years for bankruptcy). Even information about bills you fell behind on but now are paid will remain on your report for these time periods.

By federal law a Credit repair service company or credit repair consultants can not accept your payment for services until they first provide you with a written explanation of your legal rights, a detailed written contract outlining exactly what they are going to do for you, and three day / 72 hour time frame to cancel the written agreement should they choose to back out. This only applies for profit services such as an LLC or a corporation. This does not apply to non-profit organizations, banks, credit unions, or creditors themselves.

NEVER EVER under any circumstances reply to or contact an unsolicited email offering to repair your credit.  These emails are fraudulent scams and these con artists will take your money and outright RIP YOU OFF.

NEVER EVER under any circumstances pay a mortgage broker or anybody else that promises they can fix your credit report. Many mortgage brokers are slick talking sales men or sales women and will say almost anything to take your money. A legitimate credit repair business will NOT promise any guaranteed results but will rather promise and deliver a service such as contacting the credit bureaus and collection agencies on your behalf to dispute your inaccuracies.

If a credit repair company or consultant promises they can raise your credit score RUN AWAY FAST.
NONODY and we mean nobody can deliver on such promises. Remember from the above  – A legitimate credit repair business will NOT promise any guaranteed results but will rather promise and deliver a service such as contacting the credit bureaus and collection agencies on your behalf to dispute your inaccuracies.

You can attempt to correct the mistakes on your credit report yourself if you know what to do and how to do it. You can learn about how to help yourself by reading the articles written in our Fair Credit Blog and you can find legitimate resources in our blog to refer you to companies that will not rip you off.

 

 

Will unpaid student loans ruin your life?

Will unpaid student loans damage your credit score and ruin your life?

Let’s start by first stating that defaulting on any loan including a student loan can have serious negative consequences.

If you are able to recognize you have a problem in time then there are usually ways to repair the damage caused by defaulting on your student loan.

For the sake of argument let’s say you went to college to improve your life by getting a good education then walking away with a $85,000 debt from student loans.

Over the past ten years 2001 – 2011, college students have had many good reasons to borrow money for their college education and little reason not to. College costs exceeded inflation by as much as 7 percentage points in any given year.
The United States Congress raised the maximum on federal student loans and introduced a loan called the Grad Plus Loan which enabled graduate students to borrow money up to the cost of school attendance. Before 2008 which is when lenders started to tighten, lenders were handing out private student loans like was candy on Halloween.

The end result? Duh…. more and more college students borrowed more and more money. The average student debt at graduation was right around $27,000 in 2010, up 7% from 2009. This really understates the dramatically higher student debt that some college students racked up. Many of these college students got hit hard by their bills almost immediately after graduation. Of the 3.5 million federal loan borrowers who entered repayment mode in 2008 (as the United States economy) slid into a recession, 8% of these college students defaulted on their student loans within 12 months which is the highest percentage in more than ten years! This statistic does not take into account or include the thousands of borrowers who fell behind on the student loan payments without defaulting, or those graduates who couldn’t keep up[ with their private student loan payments.

Missing just a few student loan payments is an invitation for harassing phone calls from creditors along with letters demanding repayment. Defaulting on a student loan has the real potential to destroy your future. Being on the dim side of a federal student loan debt means the feds can demand repayment in full, turn your case over to collection agencies, garnish your wages, take any state or federal refunds owed to you and even go after your retirement benefits when you are a senior citizen. We have seen people who defaulted on their student loans in the 1980’s and 1990’s who’s social security benefits were garnished by the federal government. Not to mention an unpaid student loan can carry years and years of fees, interest and collection costs. A $5,000 student loan that defaulted for 20 years is now an astonishing $75,000 or more.

The federal student loan program offers several plans that can get your finances back on track. With private loans you will have to negotiate with the lender. Regardless and either way you need to pay close attention and know what kind of student loan or loans you have, where they originated and who loaned you the money for them.

For federal loans, visit the National Student Loan Data System website and reach out and talk to them.

For private student loans, dig up your paperwork – loan agreements which will include the terms of your student loan and repayment options. Additionally step up and reach out and call your private lender and talk to them.

With federal student loans which are also known as Stafford Loans now part of the Federal Direct Loan system as well as the Grad Plus Loans. These federal loans do go into delinquency when your payment is anywhere from 21 to 300 days late. If you fall 60 days behind, the loan agency will report the delinquency to the three national credit bureaus also known as EQUIFAX, EXPERIAN and TRANSUNION and meanwhile the late fees and interest will compound and will multiple and your debt can really get out of control.

If none of the federal student loan repayment programs offer you a solution another alternative is to apply for what is called a deferment or forbearance.  A deferment or forbearance essentially lets you forgo monthly payments, usually for a year at a time, for up to three years. The feds pay your interest on subsidized Stafford loans but not on unsubsidized loans.

Accrued interest does get added to the principle of your student loan or loans. You do have a legal right to deferment if you meet certain criteria, including economic hardship or the status of as a half time student or being a member of the military serving “active duty”.

Forbearance gets you off the hook on your student loan payments for up to five years, in year-long increments.
Generally speaking, the lender will decide whether or not you qualify. Interest does accrue on all of your student loans, including subsidized Stafford student loans. Forbearance makes the best sense for the borrowers who are really experiencing a short term financial problem, not really for those with situations that are not likely to improve.
If you are facing long term financial problems then you are most likely better off with in an income based repayment plan, which can reduce your student loan payments to as low as zero and offer forgiveness after 25 years.

Defusing into Default.

If you neglect to make a payment on your student loan for more than 270 days, your student loan is technically in default. Now most lenders but not all wait 365 days before making your loan default status. This gives you a window to redeem yourself and start making payments. Now if you are really stuck in a financial bind then you really need to step up and reach out and call your lender immediately to discuss your financial problems and student loan repayment options. Under no circumstances are you to just ignore your debt. After your loan defaults you will lose access to forbearance and deferment, as well to future financial aid should you want to pursue your education even move. Did we mention this defaulted loan will go on your credit report and will tarnish your credit score and credit report?

Good ole Uncle Sam does give you several ways to get back on track. One way is to rehabilitate the loan, in which you contact your lender and arrange to make nine timely, “reasonable and affordable” payments over a period of a ten month period. The department of education sets guidelines as to what “constitutes reasonable and affordable” and stipulates that the lender can’t require a minimum payment.

In common everyday practice negotiating the amount with the lender can really be a huge problem according to the fair credit lawyers – attorneys we spoke to in Philadelphia Pennsylvania that specialize in this particular field of law.
If you and your lender can’t come to terms then contact the Federal Student Aid Ombudsman and ask for help.

Another strategy is to consolidate your student loans with the Federal Direct Loan program, which lets you enter into one of the income based repayments almost immediately. On the other hand if you have already consolidated your student loans in the Direct Loan program, you generally are not eligible to do so a second time. The advantage of student loan consolidation is that it is faster. You don’t have to make nine payments first, says another law firm that specializes in Fair Credit Laws located in Narberth Pennsylvania which is located right outside of Philadelphia Pennsylvania. The fair credit attorney we spoke to did state to us that the default remains on your credit record – report for up to seven years.

You may now conclude that your student debt is now impossible to repay and make an attempt to file for bankruptcy but not so fast, according to another Fair Credit and debt lawyer in Philadelphia Pennsylvania that specialized in Credit Laws. You cannot simple file for bankruptcy and erase your student loan debt like you generally can with a conventional loan.
Under a few special and rare circumstances, such as death or permanent disability, or if the college closed while you were enrolled, your federal student loans are eligible for cancellation. In order to be relieved from your debt due to these examples of special circumstances you first must hire an attorney that practices law in Federal Court which is located in Philadelphia Pennsylvania and doing so is not cheap and then you will have the opportunity to ask a federal judge to dismiss your student loans and we will remind you this is not cheap or easy to attempt. For more details you can contact the Student Loan Borrower Assistance website.

Help with private student loans is an entirely different process in itself.
Private student loan lenders consider you to be in default as soon as you pass by the due date of your payments and you can count on your debt being turned over to a collection agency and phone calls and letters will follow demanding you take action and repay your student debts.  To avoid this from occurring, some but not all lenders will allow you to make lower payments for a few years and catch up on your student debt later in the future. These private lenders may also grant and allow you forbearance, for three months at a time, during which interest continues to accrue and is added to the principle of your student loan. But do not expect these private lenders to bend over backwards and go out of their way to extend these special deals.

Now unlike the federal government, which has the authority to garnish your wages and pursue your student debt indefinitely, lenders of private student loans must sue you to collect on a defaulted student loan, and they are subject to your state’s statute of limitations which is usually six years. Private lenders often can and will take borrowers to court.
If the private lender does sue you and win you can count on a court to garnish your wages, put a lien on any property you may own including you own home, and even put a court ordered freeze on your bank accounts. As with federal student loans, private loans are extremely difficult to simply discharge in bankruptcy court and require that you meet the same stringent standards.

How can a speeding ticket or traffic infraction damage your credit score?

While your ability to drive an automobile does not directly have anything to do with your credit score an unpaid ticket will affect your credit score in a negative way.

Dear Fair Credit Blog,

I received a speeding ticket while traveling from Jacksonville Florida to Philadelphia PA to visit a friend. I have not yet paid the traffic citation which mind you is labeled as a civil infraction and not a criminal infraction. I recently received a letter in the mail reminding me that if I do not pay the speeding ticket that Duval County will report it to a collection agency, which will in turn have a negative impact on my credit score. Can my credit really get damaged from not paying a speeding ticket?

Yours truly Joy Wells – Jacksonville Florida.

 

Hey Joy!

My advice to you is to definitely pay the ticket or dispute it in court but do NOT just ignore it as like the letter you received from the Orange County clearly states the unpaid speeding ticket which is seen as an unpaid debt will be given to a collection agency which will in turn have a negative impact on your credit score.

While traffic safety and credit scores are not directly related you can think of your ticket as an unpaid debt to the County that issued your traffic citation. Just with any financial lender, the County wants its money and will take legal steps to collect.

 

 

How to get a perfect credit score?

Is it really possible to have a perfect credit score?

YES and there are approximately 1 million Americans that have earned a perfect credit score.
If you want to be a part of that elite group you better pay attention to the articles in this credit blog.

Most people’s credit scores rank in the 700 range on their credit reports and approximately 1 million people in America have a perfect credit score of 850. That elite group of is less than 1% of the population in the United States.

While you may put forth tremendous effort to try and earn a perfect credit score of 850, a perfect credit score is not necessary to achieve the same benefits of a person with a perfect credit score. Generally speaking if you have a credit score of 760 or above you will likely get the same financial benefits as someone with a credit score of 8oo or 850.

Now maintaining a credit score of 760 is not so easy either but is definitely can be done.

To reach the 760+ range you will have to learn how to master more than just the basics such as.

Maintaining a positive payment history and a low debt to credit ratio are both very important.

The bulk of your credit score is graded by your past and current payment history and the amount of debt you may or may have currently on file. Those with perfect or near perfect credit scores use their credit on a regular basis while steadily paying their debt off on time and are consistent in this positive and responsible financial behavior.

This also means this elite group of people holding an 850 credit score usually have spotless records and when we say spotless we mean spotless. We are talking about NO LIENS, NO BANK REPOSSESSIONS, and NO SETTLEMENTS. Nothing but positive and responsible behavior.

These people usually maintain a diverse set of accountants.

Credit lines fall into two major categories.
Installment financial accountants are closed ended and require the borrower to pay a fixed amount each and every month back to the financial lender until the balance is paid off. These types of credit lines generally include home mortgages and or automobile – car loans.
Revolving financial accountants on the other side of the spectrum limit the credit line but the balance often fluctuates. These kinds of accountants are credit cards.

People with the highest credit scores have a carefully blended mix of both kinds of financial accountants “Installment accountants and Revolving accountants“. They will usually have a home mortgage, a car loan and a few credit cards.

These people also have a well aged credit record.

A perfect or near perfect credit score does not come over night and takes years of responsible behavior on your end to achieve.

The bottom line here is PAY your bills early or on time EVERY TIME.
Use your credit responsibility and do not spend more than you can afford.
Do this and over the course of several years you should have a good credit score but you are probably reading this because you want a perfect credit score and there is good news! This Credit Blog is here to provide you with answers to your questions and this is just the first article!