Foreclosures and Loan Modifications

Saving your home mortgage from foreclosure is possible and obviously worthwhile. Now, more than ever, lenders are motivated to avoid having to foreclose on homes that they have financed. Why is this? Simply put, when a lender forecloses, they almost always end up losing money.
Very rarely is a lender able to recover the original mortgage balance that was owed at the time of foreclosure.

Why is this?

The lender incurs expenses during the foreclosure process. Foreclosing on a property is a legal process with stringent rules and almost all lenders will use a law firm to execute the foreclosure. This creates attorney's fees. Also, the lender will generally have to spend a certain amount of money to get the property back into shape to sell it. Then, the lender will have to pay a sales commission to the Realtor who sells the property. All these fees combined with the fact that foreclosed properties usually sell at a significant discount anyway, makes the foreclosure a losing proposition for the lender.

A significant portion of people facing foreclosure fall into a general group; People who have an adjustable rate mortgage and have experienced a significant increase in the monthly payment due to the interest rate adjusting upward. Many borrowers bought their homes with no down payment and were placed on a loan program with an adjustable interest rate. Most of these loan programs had an initial two or three year period during which the interest rate was fixed. Many borrowers went into these adjustable rate loans with the intention of refinancing to a lower fixed rate loan before their loans transitioned to adjustable. However, due to larger issues such as the meltdown of the mortgage market and the credit crisis, approval standards changed, and the majority of people with adjustable rate mortgages no longer qualified for a refinance. They ended up stuck with their original loan. Most borrowers experienced a 30% increase in their monthly payment when their loan made the first rate adjustment. For many, such a large increase in the monthly payment was simply unaffordable.

Knowing this back story is important to the large pool of borrowers out there attempting to cope with their rising monthly mortgage payments. Almost every major mortgage lender has created their own version of a note modification program to help borrowers who are stuck with an adjustable rate mortgage. Essentially, the lender modifies the interest rate back down to the original lower contract rate and keeps it there.

Remember, it is in the lender's best interests to work with the borrower to help them avoid the foreclosure.

Even though lenders are very motivated to work with a borrower to avoid having to foreclose, the borrower will still have to take initiative to avoid the foreclosure. Specifically, the borrower needs to communicate with the lender's loss mitigation department and clearly explain the situation, detailing what factors have made the monthly payment unaffordable.

With this knowledge, the loss mitigation department can go to work and attempt to work out a solution to avoid the foreclosure. Typically, the lender will want the borrower to provide the following in order to process a note modification request:

Hardship Letter: This is a simple written statement the borrow makes, detailing their financial situation and why the monthly mortgage payment is unaffordable and how a reduced monthly payment would allow them to keep the loan current.

Proof of Income: The lender will want to verify the precise amount of household income the borrowers currently receive. This usually involves faxing in pay stubs or tax returns.

A detailed list of all monthly obligations, including utilities, food, etc.

The lender usually takes close to 30 days to process note modification requests, so it is a good idea for the borrower plan for this delay and attempt to budget for it. Again, communication is key. The lender has to be able to talk openly and honestly with the borrower in order to assess the situation and come up with solutions to avoid foreclosure.

An important side note to the loan modification process can be found in this post about what to watch out for when dealing with a third party loan modification company.

By Personal Financial Guide

Loan Modification--Beware

The mortgage crisis has spawned a new niche industry--loan modification. Loan modification can be defined as a lender agreeing to "modify" the interest rate on an existing mortgage to help the borrower avoid foreclosure. It is in the Lender's best interests to help the borrower avoid foreclosure, because the Lender is never able to recapture the balance of the mortgage when they foreclose on a property.

There are a number of individuals and companies that advertise as loan modification specialists. For a fee, they will negotiate with your lender on your behalf to obtain a modification to your interest rate to help you avoid foreclosure. There are a number of very talented, honest and effective people working in this niche industry, but unfortunately, there is also a large group of unscrupulous, untrained and incompetent people and companies in the industry.

Here is what to watch out for if you are communicating with a loan modification rep:
If they tell you that you need to be behind in your mortgage payments for them to obtain your modification, terminate the conversation and do not use them. This is a dangerous misconception when it comes to loan modification. You do not have to be behind on your mortgage payment to get a modification from your lender. If your lender is convinced that your current mortgage payment is a financial hardship and that you will not be able to sustain it in the future, they will grant a modification in most cases and you will not have to ruin your credit by missing mortgage payments.

By Personal Financial Guide

Websites for Small Business

Small business online marketing has become an almost crucial factor in the success or failure of many small businesses. Today, a business without a website is regarded by many as behind the times or even with suspicion. A website should be regarded as a standard business tool. For some businesses, a static website that simply lists the location, contact information and a brief bit about what the business is and what it does is enough. However, for many businesses, remaining competitive depends on having a dynamic, optimized site that attracts and funnels targeted traffic into a marketing machine.

A good example of this is the real estate industry. Almost all Realtors have a web presence, and the effectiveness of their sites has a direct impact on their contacts, listings and ultimately sales. As with any business, the Realtor's website should be designed with two goals in mind: attracting the right sort of targeted traffic and then feeding that traffic into a marketing machine. The targeted traffic is primarily attracted through the correct use of keywords that are relevant to the housing market the Realtor is in. The marketing machine is the mechanism by which the Realtor gets that traffic to contact them or gets that traffic to register their information to be contacted.

For almost any small business starting up, a website that is properly optimized with relevant keywords and that contains the elements that filter traffic into the marketing machine should be regarded as a standard business tool.

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Credit Repair---Old Charge-Off Strategy

Credit repair is mostly about paying debts on time and about getting credit limits paid down. There are, however, a number of other factors to consider when you are trying to fix your credit. Charge offs can be defined as debts that were not paid, and were eventually written off by the original creditor and sold to a collection agency. Once a collection agency has bought a charge off account, they will aggressively attempt to collect the debt, using collection tactics including persistent phone calls, letters, and in many cases settlement offers.

Obviously, you should make every attempt to meet your obligations and pay your bills on time. Unfortunately, with the current state of the economy, paying bills has become a major challenge to many hard working people. Once a credit card has gone unpaid for a certain amount of time--usually around 5 to 6 months---the card company will charge off the debt. Once you have a debt that charges off, you have that blemish on your credit for the next seven years.

Should you attempt to make payment arrangements or accept a reduced settlement offer from the collection company that buys your bad debt from the original credit card company?

Maybe. Keep this in mind: Once your credit card company has reported you 30, 60, 90, 120 days late and then reported the account as charged off, that is the worst they can do to your credit. It will remain there for seven years, but if you do a settlement, enter into a payment agreement and in some cases dispute the account, you run the risk of re-setting that seven year clock. Simply put, if you have charge offs on your credit report, you might want to consider trying to hold out until they fall off at the 7 year mark.

We in no way advocate not paying debt that you legitimately owe, but if you have a choice between making payment arrangements on an old charge off account and having the account update and remain on your report for another 7 years, or just holding out a bit longer until the original collection account reaches the initial 7 year mark, you might want to seriously consider waiting.

On the other side of the coin, having charge off accounts on your credit report, regardless of how old they are can prevent you from getting home and auto loans and can even prevent you from getting certain types of jobs. The main point is to be aware of the timetable and the potential negative affects of paying off old bad debt accounts as opposed to just letting them fall off at the seven year mark.

By Personal Financial Guide

Refinance and Rescission---Mortgage Tip

Refinance mortgage transactions are different from purchase mortgage transactions in a number of ways, but the two most important differences are:

How the closing costs work

Rescission period.

In a refinance mortgage, your closing costs can be included in the loan amount and do not have to be paid separately as they usually do in a purchase mortgage transaction. This allows you to refinance your home for a lower interest rate or to consolidate other debt and not have to pay any money out of pocket.

In a refinance mortgage, there is a mandatory 3 day cooling off period called the rescission period. During this time, the borrower has the right to rescind or back out of the loan with no penalty. Although the borrower has signed all the paperwork and the loan is closed, the loan funds are not disbursed and interest does not start accruing until the rescission period is over. For example, if you sign all of your final loan paperwork on a Monday, your loan is not funded until Friday. The 3 day rescission period does not include the day you sign your paperwork.

It is very important to factor in this three day cooling off period when you do your refinance, especially if you are paying off other debt with the loan.


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Credit Card Basics

Credit cards can be useful tools or they can be your financial downfall. Credit cards are a quick, easy way to establish credit history, but can easily get out of hand and become the very thing that destroys your credit.

The basic problem with credit cards goes back to how easy they are to use. Too many people over use their credit cards and quickly find themselves maxed out and with a moderate to large sized loan to pay back. Credit cards that are maxed out are usually difficult and expensive to pay back. The outstanding balance is on a line of credit, so there is no set amount of time in which the balance must be paid off. This means that when the balance is paid down, credit becomes available and typically gets used again by the cardholder, thereby maxing it out again. Also, the minimum monthly payments on a maxed out credit card have very little impact on the princple balance.

What is the moral of the story?

Simply put, don't max out your credit cards. Don't treat your $5,000 credit limit as if you have an extra $5,000 to spend. Rather, regard it as a safety net to be used in emergencies. In a perfect world, that is the way to handle your credit cards. In a perfect world. Most people, however, end up maxing out their credit cards at some point and end up making only the minimum monthly payment. Again, the credit cards make spending money very easy and most credit cards have a healthy interest rate as well as various fees that make it difficult to get paid off.

If you are one of these people, the best thing you can do is to put all of your disposable income that you can into gettng that card--or cards--paid off as quickly as possible. Having a balance on a credit card that is more than half of the total limit has a negative effect on your credit score. When you pay your balance down below the 50% mark and when you pay it off entirely, you will see an increase in your credit score.

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Auto Insurance Tip--Avoid Coverage Gaps

Auto insurance rates go up if you have a gap in coverage. In other words, if you do not have auto insurance in force for a period of time, you will pay a higher rate when you get new insurance because of that gap.

A common mistake that people make is to cancel their auto insurance policy when they have been in an accident that is the other driver's fault and their car is totalled out. In some cases, people will take awhile to get a new car or use the settlement money for other purposes and either cancel or let their existing insurance policy on the wrecked car lapse.

While it is true that it does not make sense to maintain coverage on a wrecked, undrivable vehicle, it makes less sense to cancel the policy, wait, and then get a new car with higher insurance rates because of that gap in coverage. To avoid this, keep the policy in force on the original vehicle, even if it is wrecked, until you get the new vehicle. Then, simply have your insurance agent swap out the vehicles and you will not pay a higher rate because you kept continuous coverage.

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Home Buying--Getting Ready

Buying a home is one of the largest financial transactions that most of us will make in our lifetimes. Especially considering the new and higher standards of mortgage approval, it is a very good idea to take the time to prepare before buying a house. Here is a quick checklist of some of the most important and relevant things you can do to prepare:

Know what is on your credit report before you apply for the loan. You can use the free annual credit report option and pay a little extra to get your three FICO scores and all three complete credit reports. This can be done online in a matter of minutes. It is a good idea to do this prior to making a loan application, because it will allow you the opportunity to anticipate and deal with any issues on your credit report that could otherwise slow your loan process down and cause you to miss a sales contract closing date.

Budgeting: Knowing what your FICO score is will allow you to have a hypothetical conversation with a loan officer and find out what kind of rate, payment and down payment you would have on your purchase loan. This will allow you to factor in and budget for the money out of pocket, the new monthly mortgage payment, and will give you a rough idea of what price range you should be looking in when you are shopping for your new home.

Down Payment: Another result of the mortgage meltdown is that it is very hard if not impossible to buy a house with no down payment. Unless you are able to qualify for a VA loan, you will have to make a down payment of at least 3% of the purchase price. Depending on the price of the home, even 3% can be a large amount. Plan for this and be aware that most lenders will require valid documentation of where the down payment is coming from and some will even require that the down payment funds will have been in your account for at least 30 days.

Reserves: In addition to having funds available for the down payment, many lenders also require verification that you have reserves---money in the bank---sufficient to cover two months of payments on the new loan including principle, interest, tax and insurance---your loan payment plus escrow, in other words.

Pay off Debt: Be aware that lenders will look closely at your debt to income ratio. Anything that shows on your credit report as an open account with a balance will be factored into your monthly outflow. Most lenders will require that your monthly outflow including your new mortgage payment be less than 45% of your gross monthly income. If you can----keeping in mind the down payment and liquid reserve requirements---pay off as much existing debt as you can a full month before you start applying for mortgage financing. This will give your credit reports time to update and reflect your new, lower debt load. This can also have the affect of improving your credit score.

These are just a few of the most important things you can do to prepare yourself for the home-buying process.

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Closing Costs--How to Avoid Them

Mortgage closing costs can sometimes be an ugly surprise, especially when you are the buyer in a purchase transaction. Knowing how the closing costs work in a mortgage purchase transaction can save you a lot of grief and can potentially save you a lot of money. Here are a couple of key things to understand about the closing costs in a purchase transaction:

The closing costs cannot be financed into the loan amount on a purchase mortgage.

In a refinance transaction, the entire amount of the closing costs can be added to the loan amount, so there is no need for the borrower to pay any money out of pocket.

In the purchase transaction, the buyer must pay his or her portion of the closing costs out of pocket, in certified funds at the closing.

To avoid having to pay for the closing costs out of pocket, the buyer can ask the seller to pay for the closing costs. If the seller agrees, the closing costs that the buyer would normally have to pay are simply deducted from the amount that the seller would net from the sale of the house.

Aside from getting the seller to agree to pay closing costs, there are two other important factors at play in this situation. For this to work, the sellers will sometimes increase the sale price of the house to compensate for the closing costs they are paying for.

In this situation, it is essential that the house appraise for enough to cover the original sales price plus the closing costs.

Also, almost all lenders will limit the amount of closing costs that the seller can pay for the buyer. Typically, the limit is either 3% or 4% of the total loan amount.

As long as the closing costs can be limited to 3% to 4% of the loan amount and as long as the home will appraise for enough, a buyer can ask the seller to pay all closing costs and increase the total sales price to compensate. The moral of the story is that the buyer does not have to come up with any money at the closing.

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Homeowner's Insurance Deductible--Quick Tip

A growing trend in the insurance industry is to place--sometimes mandatory--a wind and hail deductible that is a percentage of the coverage on the structure on homeowners insurance policies. For example:

A house is covered for $200,000
The deductible is $1,000 for all perils except wind and hail, for which there is a 2% deductible.
For a wind or hail claim, the deductible is 2% of $200,000---$4,000.

As you can see, a wind and hail claim might not go so well for you if you had to pay the first $4,000 of it. There are a few insurance companies that force the 2% wind and hail deductible on customers and other companies have it as an option. If possible, this is a good thing to avoid, as it makes the claims potentially so much more expensive for you.

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Auto Insurance Tip---Uninsured Motorist

If someone with no auto insurance slams into your car, what happens? The short version is that hopefully, you have a low comprehensive deductible and you also have Uninsured Motorist coverage.

When you are in a wreck and it is the other driver's fault, their insurance pays to fix your car, to rent you a car while your car is being fixed and to pay for your bodily injury and the bodily injury of your passengers. If the at fault driver has no insurance, and if you have Uninsured Motorist coverage, it will pay for your bodily injury and your passenger's bodily injury. Your only other recourse in this situation would be to go after the at fault driver in civil court.

Uninsured Motorist coverage varies from state to state. Some states will only offer Uninsured Motorist bodily injury, which does not pay to fix your vehicle when damaged by an uninsured driver. Some states will offer both UM bodily injury and UM property damage.

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Homeowner's Insurance Basics

Homeowner's Insurance is a type of insurance that virtually all homeowners have, but that almost no homeowners pay attention to except when they are buying or refinancing a home. It is important to understand the basic terminology of homeowner's insurance to avoid gaps in coverage and to avoid over paying for coverage you don't need.

Dwelling Coverage (Coverage A): The dwelling coverage is the part of the homeowners policy that covers the main structure.

Contents/Personal Property (Coverage B): The contents coverage covers your personal property, all the stuff in your house and in separate structures.

Personal Liability: This is a standard part of almost all homeowners policies that gives you coverage for personal liability arising from accidents that occur on your property.

Deductible: The deductible is the amount deducted from the money you are paid for a claim. Traditionally, homeowners deductibles are either $500 or $1000.

Replacement Cost: Replacement cost is the cost to replace an item or rebuild the structure at today's prices.

Actual Cash Value (ACV): The opposite of replacement cost. ACV allows for depreciation. For example, if your 10 year old TV was stolen from your house and your contents were covered at ACV instead of replacement, your claim would get you reimbursed for the TV minus depreciation.

Loss of Use: This covers your lodging & living expenses while your house is unlivable due to damage.

This is a list of the most common and important terminology in a homeowners insurance policy. There are many more features to homeowners insurance, but this will give you a good start on understanding the basics of a homeowners policy.

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Mortgage Closing Costs 101

At some point in time, virtually everyone will have to deal with a mortgage. A mortgage is usually the largest financial transaction that we make in our lives. Understanding all the costs associated with a mortgage transaction is very important.

Points: Points are fees that are either paid to the lender or to the mortgage broker. Points are assessed as a percentage of the loan amount.

Origination Fees: If the points are paid to the broker, or to a mortgage company, they are called a loan origination fee. This is the primary way that brokers and mortgage companies make their money.

Discount Points: If the points are paid to the lender as discount points, this means that the borrower is paying an extra fee to get a lower interest rate. This is also known as "buying the rate down".

Appraisal Fee: When the property is appraised, the Appraiser charges a fee, usually $350 to $500. In many cases, the mortgage company or mortgage broker will require that this fee be paid up front by the borrower.

Processing Fee: This is a flat fee charged to "process" the loan---handle all the paperwork, etc. This fee can range anywhere from $150 to $500.

Underwriting Fee: This is a flat fee charged by the lender to underwrite the loan. This fee is usually seen on loans that are originated by a broker and underwritten by a wholesale lender.

Title Insurance: This fee is universal for mortgages in all states. Title insurance insures the borrower against defects in the title of the property. On all loans, a title company will do a title search, verifying who is on the title to the property and how many liens of what amount are on the property. Title insurance rates will vary from state to state and company to company, but they are all based on the loan amount---the larger the loan, the more the title insurance will cost.

Closing Fee: This is a fee paid to the person or company who "closes" the loan, or who sits down with the borrowers and explains what documents they are signing. This fee is usually $150 to $250.

Filing Fees: All states and counties have fees associated with filing a mortgage, based on loan amount. Some states will have an additional mortgage tax.

Yield Spread Premium(YSP): YSP is a fee paid from the wholesale lender to the broker or mortgage company. The YSP is a bonus that the wholesale lender pays the broker or mortgage company for selling the customer a higher interest rate than they qualify for. The YSP is paid outside of the loan and is not part of the loan amount. In most states, mortgage brokers have to disclose a range for the YSP, but many mortgage bankers and mortgage companies do not have to disclose the YSP at all.

This is not a comprehensive list of closings costs, but this does cover the most common and most important types of closing costs. Keep in mind that closing costs will vary by loan type, by state, and by the broker or mortgage company doing the loan.

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Auto Insurance Basics

Auto insurance is something that we all have to have, by law, but not all auto insurance is created equal, and different people have different needs when it comes to insuring their vehicles. Here is a quick guide to the basics of auto insurance terminology:

BIPD(Bodily Injury Property Damage) This is the basis of all auto insurance policies. BIPD is the liability coverage that all drivers are required by law to carry. On insurance forms, BIPD is expressed by three numbers such as 25/50/25. This means:

$25 thousand dollars of liability coverage for bodily injury that YOU cause to one person

$50 thousand of coverage for bodily injury that you cause per occurance---multiple people

$25 thousand for property damage that you cause.

So, the basic 25/50/25 liability insurance is to protect you from liability caused by your accidents. The mimim limits will differ from state to state, but by law, all drivers must at least carry the state minimum liability insurance.

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Tips to Save Money

Saving money, cutting costs, and budgeting are all very popular buzzwords lately, and with good reason. There is a wealth of information available online and in print about personal finance, and much of it is relevant and useful. However, many people are able to save significant amounts of money on their own by following a few basic, and sometimes mundane steps:

1. Avoid Eating Out: While taking yourself or your family out to dinner on a regular basis obviously costs quite a bit, even eating out for lunch or breakfast on a regular basis can funnel away significant amounts of cash over time. Assume that the average lunch during the work week will cost you $7.00. That's $35/week, $151/month, $1820/year. Think about how much more quickly you could pay off your credit card debt by putting an extra $151 per month toward it, or the impact of making one or two extra mortgage payments per year with the $1820. That $7.00 a day five days a week could be put to much better use.

2. Use a List: Don't go grocery shopping without a list. Plan out what you need before you go and avoid impulse purchases. Planning out a shopping list helps avoid unnecessary purchases and can save a shocking amount of money.

3. Shop in Bulk: Invest a couple of hundred dollars in a large deep freeze and shop in bulk. Buying in bulk saves money on the quantity discount and it saves money by cutting down trips to the store.

4. Plan Meals: When you are cooking at home, time becomes an issue. Planning out a weekly menu fits right in with shopping in bulk, not eating out, and using a list. Having a weekly menu makes it a lot easier to plan ahead for meals to be cooked at home and allows you to budget your grocery money better.

5. Cut Utility Costs: There is a long list of ways to cut utility costs, but investing in a programmable thermostat, making your home air-tight, and getting a tankless hot water heater are some popular and effective methods of saving money on utilities.

6. Insurance: Make sure you are getting a good deal on your home and auto insurance. Most insurance companies will give substantial discounts for writing your home, auto and sometimes life insurance as a package. If you have your insurance policies scattered out among different companies, consider combining them at a lower price at one company. The savings can be surprising.

These are just a few basic money-saving tips, but if take to heart, they can be effective. A big component of saving money and cutting costs is planning and discipline. Planning out a budget and sticking to it instead of spending blindly, paycheck to paycheck can make a huge difference.


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Online Marketing for Small Business--Overview

Having an online presence has become a standard in the business world today. Businesses that do not have a website are in the minority and businesses that do not take advantage of online marketing are missing out. For new and growing small businesses in particular, establishing an online presence and an online marketing plan is an important if not crucial factor in their success or failure.

For small businesses that are serious about establishing an online presence, the website should be optimized for the keywords or keyword phrases relevant to the products or service from the ground up. A common mistake that small businesses make is to design and publish a website without doing any keyword research. Keywords are what the search engines zero in on to find and categorize websites. The search engines---especially Google---especially pay attention to relevant content. In other words, the search engines pay close attention to the text, including the domain name of websites. The online marketing industry is so competitive, that it behooves you to play every card you can when it comes to optimizing your website. With that in mind, the best practice is to do keyword research prior to purchasing a domain name. There are a number of free keyword research tools available, including Google's Adwords Keywords Tool.

With these tools, you can see what keywords or keyword phrases relevant to your product or service are the most popular on the search engines. Once you have established a number of the best keywords and phrases, you can then determine what domain names are available that most closely match. Also, you can use those keywords throughout your site for further optimization. Many online marketers also make use of keywords in a blog that is designed to drive traffic to the primary website.

Taking site optimization a step further, the images on your website can be "tagged" with relevant keywords. This is just another way to attract the attention of the search engines for your particular keywords or phrases.

Again, the moral of the story is website optimization from the ground up through careful keyword research and planning. It is much easier to design the site around the keywords and phrases rather than to overhaul an existing site that was built without your keywords in mind.

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Getting a House Ready to Sell

With mortgage approval standards tightened and with the general tough state of the credit markets, it is hard enough already to find a qualified buyer. Sellers in many real estate markets across the country are having to wait longer and longer to get their property sold. It makes sense, then, to make every effort to avoid any potential issues in the selling process. The old saying, "you never get a second chance to make a first impression" is extremely important and relevant when it comes to real estate. When you put your house on the market, you need to make sure it is in a condition that "wows" the buyers and has "curb appeal". These highly technical real estate terms simply mean that when a potential buyer pulls up to your property, you want their first glance and first impression to be as favorable as possible. Here are some basic tips to help you get your property in shape to sell:

Curb Appeal: Again, the first impression starts when the potential buyer pulls up at the curb. The front of your house, your lawn, your flower beds, everything the buyer can see when they first pull up, should be immaculate and should stand out from houses around it. Would you be interested in a house that had an overgrown lawn, flower beds with lots of weeds, obvious signs of neglect at first glance?

Flower Beds and Landscaping: This goes back to curb appeal, but deserves specific mention. Cleaning up or adding tasteful and attractive flower beds and other landscaping features is a quick and effective way to enhance the look and feel of your property. In many cases, you can accomplish this for relatively little money especially if you do the work yourself.

Privacy Fences: If you don't have one for your back yard, you need one. Without question, privacy fences enhance the value and marketability of a property.

Kitchens and Bathrooms: These two areas of the house are where you get the most "bang for your buck". Money you spend enhancing kitchens and bathrooms is money well spent. Simple cosmetic upgrades like tiling the floors, or tiling the back splashes or upgrading the sinks or counter tops can greatly enhance the perceived value of your house. Almost every buyer will pay particular attention to the kitchens and bathrooms.

New Paint: Another simple cosmetic upgrade you should do is to re-paint the entire house. Avoid unusual colors and go with something that is neutral yet tasteful. This is another upgrade that is simple and relatively cheap to do.

Get a Home Inspection: Invest the $150 and get a home inspection done by a local reputable home inspector. The buyer will most likely end up doing his or her own inspection, but doing your own prior to putting the home on the market is a smart move. Your inspection will help you uncover, anticipate and eliminate any potential issues with the property and avoid having them come up as a surprise and slow down or sabotage the sale.

It should go without saying that when you or your Realtor shows the house that it should be clean and uncluttered. Again, put yourself in the buyer's shoes and understand that you are trying to present your property in the best possible manner and that appearances do matter when it comes to selling a house.

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Mortgage 101

Mortgages are among the most important financial transactions that we make during our lives. It is very important to understand how they work, how the loan process works and to understand basic mortgage terminology.

1003: Form 1003 is the standard mortgage loan application form. The loan officer will fill this form out when you initially apply for the loan. The information will include names, addresses, social security numbers dates of birth, employment and income information, asset information, a projected payment for the new loan, and liabilities taken from the credit report.

Term: The term of the loan is the length of time or duration of the loan. Traditionally, mortgages last for 30 years, but there are other term options available, including 10, 15, and 20 years.

Rate: The rate is the interest rate at which you pay back the loan. The higher the interest rate, the higher your payment and the lower the amount of your payment which is applied to the principle balance of your loan.

PMI: Private Mortgage Insurance(PMI) is not to be confused with homeowners insurance. PMI is a specialized type of insurance, that insures the lender against default by the borrower to a certain extent. On conventional loans, the lender can make PMI mandatory if the loan to value(LTV) is above 80%. In general, the higher the LTV and the lower the credit, the more the PMI will cost. PMI is tacked onto the monthly payment.

LTV: Loan to Value(LTV) is the percentage of the appraised value or purchase price that you are financing. It is important to understand that LTV is figured differently on purchase transactions than it is on refinance transactions. The LTV on a purchase transaction is whatever percentage of the purchase price that you are borrowing. On a refinance transaction, LTV is whatever percentage of the appraised value you are borrowing. In general, the lower the LTV, the easier it is to get approved and the better the interest rate.

Appraisal: The appraisal is the document or the process that establishes the current market value of the property. The Appraiser does an interior and exterior inspection of the property and does an analysis of other similar properties in close proximity that have sold recently.

Title Insurance: Title insurance and title inspections are a requirement of all mortgage loans. The title inspection is the process of analyzing the chain of ownership of the property and establishing how many liens/loans are on the property. Title insurance is a specialized type of insurance that protects the buyer or borrower against errors or other issues that might arise in connection to the title of the property. The title inspection will also uncover any civil judgements lodged against borrowers.

Tri-merge: This is a term that refers to a merged credit report that pulls information from all three major credit bureaus: Transunion, Equifax and Experian. Generally, mortgage companies will use the middle of the three scores from the three credit bureaus.

These are just a few of the basic terms associated with a mortgage, but they are important ones for new borrowers or buyers to understand.

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Learn Financial Responsibility Young

Credit cards, credit history, auto loans, mortgages, insurance, savings, retirement........these are just a few of the things that people should have a basic understanding of from an early age. In fact, a personal finance course should be a mandatory part of high school curriculum, to be taken in the senior year. Many high schools offer a personal finance or consumer economics course as an elective, but it should be a standard part of the basic curriculum.

Why?

There is a long list of valid reasons why high school seniors should have to take a practical finance course, but what it boils down to is this: credit history, credit cards, auto loans and mortgages can have a huge impact, positive or negative, on a person's life. The fact is, many young adults learn about credit history, credit cards and auto loans the hard way. They have not received any structured training in these matters and are not aware of the serious consequences of bad credit and of the pitfalls of credit cards and loans.

If there was a federal mandate to include a personal finance course as a mandatory part of the high school curriculum, the instances of bankruptcy, foreclosures and bad debt charge-offs would decrease significantly over the next 5 to 8 years. Young adults would be introduced to the concept of financial responsibility before they get into the "real world".


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Credit Repair Basics

If you are in a situation in which you need to repair your credit, the first thing you you need to do is to find out what exactly is on your credit report. Actually, you need to find out what is on all three credit reports. There are three primary credit reporting agencies that almost all lenders use: Transunion, Experian and Equifax. Your credit score and accounts will be different from report to report. Almost all mortgage lenders will pull all three reports and use your middle FICO score for loan qualification and pricing purposes.

The main point is that you could have credit issues on one report that might not show up on another, so it is very important to monitor all three reports. There are a number of places that you can go online to get your credit reports and scores, and ongoing monitoring services, but they will charge you anywhere from $20 to $50 for the scores and reports and a monthly subscription fee for the monitoring.

Everyone is entitled to view all three of their reports at http://www.annualcreditreport.com/. There is no charge, but if you want to see your scores, you will need to pay a little bit. It is still a very good idea to go ahead and look at the free reports even if you are not willing to pay for the scores. You should review the reports and look for the items that are negatively affecting your credit. If you have charge offs or late payments, the only remedy for that is time. The negative items---with the exception of bankruptcies---will fall off your report after 7 years. However, you need to review the reports to make sure that there are no negative items that are over 7 years old that are still reporting. This has been known to happen, but you can dispute the items on the basis that they are past the 7 year mark and get them removed.

Again, the first step toward repairing your credit is to know what exactly is on your reports that is affecting your score. The next step is to get your finances under control to the point that you are able to meet your monthly obligations. Easier said than done for most people, but spending less than you make is the basis of financial health and the building block of good credit. You have to be able to meet the monthly obligations on time to re-establish good payment history.

A quick way to boost your scores is to pay down or to pay off credit cards and charge cards. Your score will drop when your balance exceeds 50% of your total credit limit. Paying your balances down under 50 % will give you a quick score increase. The best way to do this is to focus on one credit or charge card and pay as much extra over the minimum monthly payment as you can until it is paid down or off. Once it is paid off, roll the monthly amount you were paying on that card into the monthly amount you are paying on another card. Obviously, this does not reduce your monthly obligations, but it dramatically reduces the amount of time it takes to pay off your debt and will save you large amounts of money in interest charges.

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Quick Tips for Home and Auto Insurance

When you are shopping for home insurance or auto insurance, what should you consider when making your decision? Should you make your decision solely upon cost? What about the quality of the coverage and the level of service? Here are a few key things to keep in mind when shopping for auto insurance:

Can I get local face-to-face service?

Are the billing options flexible?

What discounts do I qualify for?

Remember this; you should get a discount for:

multiple policies with the same insurane company

You should get a discount on your auto insurance if you have your homeowners with the same company and vice versa

You should get a discount if you have more than one vehicle insured with the same company

You should get a discount if you are willing to set your bill up on electonic draft from you checking account

You should get a discount for defensive driving courses

for being ticket and accident free for 1, 3 or 5 years.

On your homeowner's insurance, you should get a discount for:

Having an interior/exterior inspection done

Being able to prove you updated your wiring/plumbing/heat and air system

Having a life insurance policy with the same company

various occupations qualify for discounts---teachers, military, nurses, etc

Various age classes will qualify for discounts.

These are the discounts that you should think of as standard discounts. You may not qualify for all of them, but you should qualify for some of them. If the company your are talking to does not offer these, you should consider shopping around.

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Homeowners Insurance and Your Mortgage

Let me outline a situation that happens all too often in the loan process; the customer has been pre-approved, the titlework is done, the appraisal has come in above the purchase price, everyone is just waiting on final approval and closing instructions. Then, out of the blue there are problems. The homeowners insurance is higher than the loan officer initially estimated in the loan application.

So what?

Here is why this can be a potentially huge problem; The loan officer can only make a somewhat educated guess as to how much the insurance premium will be. The debt to income ratio--a ratio of your income verses your monthly obligations including your new mortgage payment with insurance included--- is affected by the insurance premium and if the premium comes in higher, the underwriting decision is invalidated and has to be re-run.

For loans underwritten to conform to Fannie Mae/Freddie Mac guidelines, debt ratio can be a huge issue; sometimes causing an otherwise clean deal to be either turned down or put in a different pricing tier---higher rates.

While it is true that the insurance premium is derived in a large part from the property itself, an equally important factor in deriving premium is the individual borrower's insurance score. In other words, I'll pay a different rate than you will to insure the same exact property for the same exact amount of coverage. Why? My consumer history is different from yours. My credit history is different from yours and my claims history is different from yours.

What's the point?

The point is, until the loan officer or realtor or the customer gives an insurance agent the exact customer specific and property specific information, the insurance premium the loan officer used to get the pre-approval is a guess. Which means the debt ratio is a guess, which means the pre-approval could be meaningless.

A loan officer can take a customer's information, input it, pull credit and generate an automated Fannie Mae/Freddie Mac underwriting decision in minutes. This almost always has to happen first, because realtors and sellers usually will not take an offer seriously until they know a customer has been pre-approved for the loan. The pre-approval process is done by the loan officer, not by an insurance agent, so there is simply no way for the LO to know the true premium. Most LO's will overestimate the premium to protect against premium swings. A truly experienced LO will ask permission to get an insurance quote as well, or instruct the borrower to obtain one BEFORE issuing a mortgage pre-approval letter and BEFORE the deal goes to contract.

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Apply for a Mortgage---How to Prepare

When you apply for a mortgage to buy a home, there are a number of factors that can influence the rate, terms, downpayment and your ability to qualify for the loan at all. When you apply for a mortgage, the loan officer will gather basic personal information on you and your spouse including:

Employment information, both current and previous

Exact income information

Asset information covering all liquid assets

SSN, date of birth, etc. to pull credit reports

Approval standards have risen in the past couple of years as a result of the crisis in the mortgage credit markets. Today, unless you are getting a VA loan, you will have to make a down payment of at least 3% of the purchase price when you buy a home. In many cases, buyers will have to make 10% or even 20% down payments.

Before applying for the loan, make sure that you can come up with the following documents:

2 recent paystubs

Last 2 years of W2s or last 2 years of complete tax returns

2 most recent bank statements

2 most recent statements showing any other liquid assets.

Having these documents available for the loan officer at the start of the process will allow him or her to submit your loan application with precise and accurate information. Your approval depends upon your credit history, your ability to document the source of the funds that you will use for a down payment, and your ability to prove your income.

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Buying a Home--Things You Need to Know

Buying a home will most likely be the largest and most important financial transaction of your life. There are a number of basic things you should know about the home buying process that can help you avoid potentially serious financial problems:

Get Pre-approved for a mortgage before you even look at a house: Going to a mortgage professional and getting a pre-approval for a loan will do a lot to avoid problems during the buying process. Doing this before you look at houses will allow you to discover any potential problems with your credit, income verification or asset verification, it will show you exactly what you will need to come up with for a down payment, and it will show the listing Realtors and Sellers that you are a serious and qualified buyer. Contact a local mortgage company to get pre-approved for a loan.

Get a Home Inspection: Once you have settled on a house, make sure that you have a licensed and reputable local home inspection company check out the house. This will allow you to discover any problems with the house prior to closing. Home inspections uncover problems with the roof, foundation, plumbing, wiring, etc. that can cause you serious financial hardships after closing. If the inspection points out issues with the house, you can go back to the Sellers and ask for a repair allowance, a price reduction or ask that the reparis be made at their expense prior to closing.

Get an exact insurance quote: The amount of the insurance will affect your monthly mortgage payment which affects your debt-to-income ratio. This ratio is important to your loan officer because it must fall within a certain range to meet loan approval requirements. Get a quote from a local and reputable insurance agent during the loan pre-approval process and make sure your loan officer is aware of it. Homeowners insurance quotes are fairly quick and easy to get.

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Credit Basics

Credit history can be a factor in people's lives that can have a dramatic positive or negative impact. Many people do not learn about the importance of building and maintaining a good credit rating until it is too late. Today, bad credit and no credit can influence:

Your insurance rates

Your mortgage rates

Your auto loan rates

Your employment opportunities

Obviously, the worse your credit history is, the higher rates you will pay on insurance, auto loans and home loans. In fact, especially lately, bad credit can cause you to be unable to get any type of mortgage or auto loan. It has also become more common for employers to include credit screening as part of their background check when considering a job applicant. In some cases, bad credit history can cause you to not get a job.

The best way to maintain and improve your credit score--FICO--is to pay bills on time and to keep credit card balances paid down below half of the total credit line. Avoiding late pays and avoiding maxing out credit cards are not the only factors that make up your credit score, but they are two of the most important. Other factors that influence credit score are:

Amount of available credit(The higher the credit lines, the better the score

Age of accounts(The longer you pay on your mortgage the better your score

Number of accounts(Generally, people with a mortgage, auto loan and at least one credit card will score better then people with only an auto loan or a single credit card.

If you are in a situation where you need to repair your credit, understand that it will take time. The fundamental basis of having decent credit is to be able to pay your bills on time. Understandably, being able to pay bills on time has been a big challenge for many of us over the past couple of years and will most likely continue to be one. However, once you are able to pay on time, the best option for repairing credit is to get credit cards paid down at least below half of the total credit line and re-establish payments on all other loans that you might have that have not charged off. Most derogatory credit stays on your report for at least seven years, so the best thing to do is to start rebuilding perfect pay history as soon as possible.

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Welcome To Personal Finance

Welcome to Personal Finance, where Nickels and Dimes Make Sense. Corny titles aside, the purpose of this blog is to serve as a practical, real-world guide to personal finance. Upcoming post topics will include the basics of credit, a guide to every type of insurance, a guide to buying and selling houses, a guide to small business fundamentals and advice on budgeting.