Low Credit Score?: 6 Immediate Steps To Raise It
Posted by: Dave Landry, Jr.
on Wednesday October 23, 2013 at 10:25 AM (-07 GMT)
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Tags | Loans | Categories: | Debt - Credit Card, | Finance - Managing your money
Low Credit Score?: 6 Immediate Steps To Raise It
When taking out a loan, a borrower's FICO score sums up his or her reliability in the eyes of the lender. While many other factors may come into play, credit conveniently represents in a number the score of risk which a person presents when borrowing money. As a result, borrowers with lower credit scores receive less beneficial interest rates to compensate for this increased lending risk, ultimately paying more in interest.
However, there are many methods and services available online that boast the ability to boost your credit score. Although many of these options are dubious at best, find out these tried and true methods to raising your credit score as soon as possible:
1. Find and Fix Credit Report Errors:
First and foremost, get a copy of your credit report for evaluation. Typically, borrowers are entitled to one free credit check per year, although additional requests are generally inexpensive. Once you have received the report, thoroughly review it for any misrepresented figures or errors. If you find any inaccuracies, report them to your credit agency for immediate results.
2. Pay Off Any Accounts That Have Gone Into Collection:
If you have an account that has been transferred to a collections agency, you may be able to expunge the outstanding debt from your credit report by agreeing to pay the balance. Referred to as "paying for deletion" or "paying for removal," this little-known option can resolve collection debt with minimal hassle, although borrowers should always obtain an agreement in writing prior to making any commitments. Specifically, request a written contract stating that the company will delete the outstanding balance from the three major credit agencies: Equifax, Experian, and TransUnion.
3. Request a "Good-Will Deletion":
For those who have only had a few credit slips here and there, a good-will deletion will remove one or two minor incidents from a credit report, raising the borrower's FICO score. Only available to good credit borrowers, these requests will often be granted, provided no evidence indicates habitual lateness on payments. In other words, if you have regularly missed payments, you probably will not be granted a good-will deletion. For those who do, this deletion can rapidly raise FICO score.
4. Pay More Than the Minimum Payment:
While this may tip seem like common sense, it can be easy to fall into the habit of only paying off the minimum necessary, making the original purchase significantly more expensive as interest accrues. If you want to improve your credit, try never making just the minimum payment and make an effort to pay any outstanding balance down as soon as possible. A site like National Debt Relief can also provide information on lowering your credit score and staying out of debt.
5. Keep Your Credit Balance Low:
While credit cards often allow for a decent amount of spending considering their maximum limits, it is a fatal credit mistake to continually draw out a significant portion of this limit. Despite having this spending power available, borrowers should always maintain a credit balance that is less than 25% of the maximum allowable limit.
6. Maintain Old Lines of Credit:
When managing your credit card debt, closing a line does not make that credit history disappear. In fact, when trying to build a solid credit score, keeping open older lines of credit can be tremendously helpful. Essentially, credit reports attempt to evaluate how reliable a borrower is when making payments, and removing part of that history will make evaluation difficult. Instead, borrowers should keep these lines open and practice better payment habits to avoid credit damage. This will demonstrate a clear desire to take control of one's finances and make payments on time, sending a much more clear message than a deleted credit history.
While some of these options may provide an immediate credit boost, the most effective way to get and maintain good credit is to practice responsible payment habits. Most often, low credit scores derive from missed or late payments, and those who want to achieve high credit should avoid these delinquencies at all costs. Remember, when trying to raise your credit score, good credit is not simply given; it is earned.
The questions raised about investment in stocks
Posted by: Leona Jones
on Wednesday December 19, 2012 at 9:37 AM (-08 GMT)
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Tags | Investing, | Stocks | Categories: | Finance - Managing your money, | Financial Markets - Stocks
The last few years have provided the USA with a rude awakening; prior to the Collateralized Debt Obligation (CDO) problems everyone was fairly relaxed. Their real estate was rising in value and credit card companies were happy to provide all the credit needed to buy as required.
Things changed fairly dramatically and as the recession set in, many people lost your jobs unexpectedly. The balances on their credit cards were just one of the problems they faced. Once anyone defaults on a payment their credit score is damaged; their eligibility for anything other than bad credit loans is in danger.
Although there are signs of the economy moving slowly ahead again, there is still the need for extreme caution. The current impasse between the Republican House of Representatives and Obama’s Administration is still to be resolved; the fiscal ‘cliff’ is approaching quickly. Unless there is a resolution before 1st January, spending cuts and tax increases will kick in.
Experts believe that that would take the USA back into recession; more people would need those bad credit loans if that happened. Even if that is solved as it must surely be corporate figures still reflect the problems that still face the world’s economies. There are no forecasts that predict USA growth in 2013 reaching 3%, the level that can reduce the unemployment statistics to the pre CDO level and allow more people to borrow again, even bad credit loans.
With depressed demand comes static business and there is certainly a case not to invest in stocks until there are clear signs that the problems have gone. There is not necessarily a correlation between the return on stocks and a weak economy but certainly it is a time for caution. Stocks however have actually produced a 15% return this year against a 2% growth in the economy so it is a subject that requires some research.
That research has been done over a prolonged period of time. The areas of research include GDP and business profit, forecasts of growth in earnings, interest rates, Federal Debt and historical returns. The conclusion was that there was no conclusive strength in any financial research that could accurately predict the performance of stocks in the following year. The timescale of a single year’s forecast as simply just too short.
There has often been a view that coming change has been factored into the market anyway. It has happened at times with changes in government. The market movements resulting from a different Administration often begin far before a result is confirmed. Although there may be a sudden fall for a few days, it is purely a temporary phenomenon because the market has already readjusted.
There may be some stocks which suffer more than others based upon the Administration’s expected targets. Financial, energy and environmental companies each face different challenges. Financial issues of regulation can for example hit banking stocks. The increased pressure on energy companies to sign on for environmental policies remains an issue.
There might well be an argument that in an atmosphere of low expectation, it is a good time to invest. Ultimately by all means take advice but there may be a number of different viewpoints. The best route is probably one of balance; do not over extend yourself and find yourself in financial trouble; you may find your future options may be bad credit loans. There is certainly a case for looking for opportunity however.
The Danger of Debt Settlement to Your Credit Score
Posted by: Ethel Wilson
Credit Score Resource
on Tuesday November 6, 2012 at 1:48 PM (-08 GMT)
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Tags | Legal, | Loans | Categories: | Debt - Credit Card, | Debt
The Danger of Debt Settlement to Your Credit Score Rating
credit score ratings could be negatively impacted by what you may consider a positive and responsible act. Though you might feel that making arrangements to settle a debt with someone you money to is a good, positive thing, it could seriously damage your credit score and ability to obtain credit at some point in the future. A settlement is when you make an agreement to pay off less than what you owe as a final settlement of the debt. Though it relieves your debt and helps the lender avoid the expense of hiring a collection agency, it could leave a big black mark on your credit score rating.
How Working With a Debt Settlement Company Can Affect Your Credit Score Rating
You can come to an agreement with a lender yourself, but more often settlements are made by arrangement through a debt settlement company. These are the companies you see advertising to consolidate all of your debt into one grand sum. They take an upfront fee from you, and then you pay them over a period of around six months instead of paying to those you owe. At the end of that period, the settlement company negotiates a deal with the lenders, usually to pay about thirty to fifty percent of what is owed, or what they have collected so far. If your account is more than ninety days overdue, credit card companies will generally accept the offer. They follow the “bird in the hand” philosophy in such cases.
The Effect Settling Has on Your Credit Score Rating
Your credit score rating will already have taken a good beating by the time it has reached the settlement stage. Your credit history will show a number of late and missed payments, many of them possibly more than ninety days overdue. Some will be at least thirty and sixty days over. Such a string of late payments can lower your score by as much as two hundred or more points. The way a settlement affects your report depends on how the lender reports it. If they report it as “paid as agreed”, or “paid in full”, your score will not be damaged any further. If they report it as “settled” however, your score could drop even further.
Negotiate How Your Settlement is Reported to Save Your Credit Score Rating
It is possible that you or the settlement company you are working with can negotiate with your creditors that they report your settlement as “paid as agreed” as part of the conditions of your settlement. They are not obligated to do so, but many will want to have the situation put behind them. In any case, it doesn’t hurt to ask, and their agreeing will benefit your credit score rating.
How to Have a Debt Settlement Removed From Your Credit History
Debt settlements and related payments should be automatically removed from your credit report after seven years. Sometimes, either because it wasn’t correctly reported by the lender, or just because of human error, they are not. If you have had any debts go to settlement, it is crucial that you obtain a copy of your credit report to check how it is listed. Wait about six months before doing so to give the lender time to report it. It should show up as “paid in full” or the account being closed. If it is still recorded as an open account with credit due, you need to contact the lender to have them fix it. If after seven years it is still in your record, you need to contact the credit bureau by means of a credit dispute letter to have it corrected. Debt settlement may not be the best tonic for your credit score rating, but it is better than having a debt go to a collection agency.
Emergency Fund Basics
Posted by: Alex Watson
on Tuesday November 6, 2012 at 2:28 PM (-08 GMT)
| Comments (4)
Tags | RainyDay, | Savings | Categories: | Accounting, | Debt, | Finance - Managing your money, | Finance - Personal Investing
The personal finance blogosphere is abuzz with the topic of emergency funds and how and if you need one. Though opinions vary on what form your emergency fund should take and how big it should be, all agree that you should have some kind of financial plan for when emergencies do come. If you just want to take some basic steps toward being prepared for a rainy day, experts recommend building an emergency fund consisting of 3-6 months’ worth of expenses.
So, how does one go about creating such a fund?
First of all, start with a manageable goal, and break that goal up into smaller ones. Evaluate your circumstances and lifestyle, and determine what you would like your emergency fund to look like. Everyone should have some cash in a liquid asset such as a savings account to cover emergencies, but how much you choose to have will depend on your situation and personal preference. For example, a single person renting an apartment will probably not need as large an emergency fund as a family with a mortgage payment to cover the cost of most emergencies. Also, some people may feel comfortable with 3 months of expenses, and other may not want to settle for any less than 12 months’ worth. Thus, whether your goal is $1,000 or $10,000, set a goal and work towards it.
Second, open a new account. Shop around for the best savings rate, and keep your fund separate from your other accounts to avoid accidentally dipping into it. Some prefer to take a mixed approach, putting some of their emergency fund money into CDs and other investments with a higher return rate and keeping a smaller amount in savings accounts, which have lower rates of interest.
Third, start building. Right—easier said than done, you’re thinking. There are bills to pay, after all, and pizza to eat, and Prada handbags to buy. But start now, because emergencies wait for no one. Jackie Beck on MoneyCrush.com outlines three basic strategies for getting your emergency fund started.
• Go crazy: This is a short-term strategy to get a quick start on your emergency fund goal right out of the gate, and it’s just like it sounds—you use whatever means possible to generate extra cash to put toward your emergency fund. These means might include reducing expenses (less eating out, for example), selling your gold jewelry, having a yard sale, doing odd jobs, whatever you can think of. Put every extra penny into your savings account for a short period of time, like two weeks or two months.
• Windfall: This method utilizes unexpected/extra funds to put toward your emergency stash. For example, save your tax return instead of spending it. Got some birthday money from Aunt Flo? Put it into your emergency fund. Bonus at work? Into the emergency fund it goes.
• Percentage: For this strategy, determine a percentage of each paycheck that goes toward your emergency fund. Many have reported success with treating their emergency fund as another bill and paying themselves each month just as they would the power company or the water company. Also, you can arrange direct deposit from checking to savings so you don’t have to think about it, and you can set up a payroll deduction with your employer that goes directly into your emergency fund. The automatic deposit approach helps particularly if you have trouble exercising the discipline to write a check to yourself every month.
To sum up:
Is an emergency financial plan important? Yes.
Does everyone’s emergency fund look the same? No.
Utilize strategies that work for you, and start your own emergency fund today.
Steps when you’re knee deep in payday loans
Posted by: Barbara Delinsky
on Thursday September 20, 2012 at 11:35 PM (-07 GMT)
| Comments (0)
Tags | Loans | Categories: | Debt - Payday Loans
If you're knee deep in payday loan debt, it's obvious that the resulting financial stress is turning things awful for you. However, such things only occur if you give up entirely or take so much mental stress. If you have self-confidence and want to regain the control of your finances once again, you can do that very easily. You just need to take some wise financial steps. There is no doubt that payday loan burdens grow very fast and overwhelm your whole financial life. Though it may seem impossible to get out of the endless cycle of payday loan debt, if you have determination and work in a disciplined way, you can certainly put an end to your payday loan debt woes. To shed off your payday loan debts, you can get help from traditional debt relief programs like debt consolidation or settlement. But could only payday loan consolidation help you become debt free? Read below to know some other alternatives.
Start saving more: If you are falling behind your payday loan bills, then it means that you don't have the required cash flow or you're not saving enough for your payday loan debts. To get some extra cash to pay off your payday loans doesn't mean that you've to borrow again. You can simply do this by reducing your expenses. Try to wise up and live a frugal life. You will easily save a few bucks to successfully pay off your payday loan debts.
Prioritize all your debts: You should know which debts are more important to you and which are not. If you go on paying your payday loans neglecting your mortgage bills, you can lose your home in the end. So it's not a wise idea to play with your mortgage payments. However, you can follow the "debt snowball method" as it really works.
Bankruptcy should always be the last resort: If the debt burden is too high and you are not getting a single way out, you may (like many) think of filing for bankruptcy. You may think it an easy solution to get out of your never-ending debt burden. Nevertheless, this is a misconception. Though bankruptcy is a viable debt relief solution, it should always be treated as the last resort. You should make use of it when there are no alternatives available for you.
Get help from a CC: You can get help of a professional and licensed credit counselor. A credit counselor can help you by assessing your financial condition and preparing a budget for you so that you can affordably pay off your debt burdens. You will be happy to know that these days many credit counselors provide you the first consultation free of cost. Moreover, there are many non-profit credit counseling agencies who just receive a few dollars from you to help you with your finances.
Get help of a professional debt relief company: If nothing is helping you, get help of a professional debt relief company. These companies will work on your behalf and negotiate with your creditors so that you can pay off your debts by an affordable repayment plan.
Well, these were some of the alternatives that you could try before approaching straight to a settlement or consolidation company. If any of these works out, you are the winner!
Solid reasons for debt consolidation loans
Posted by: Barbara Delinsky
on Saturday April 14, 2012 at 11:17 AM (-07 GMT)
| Comments (3)
Tags | Loans | Categories: | Debt - Credit Card, | Debt
you someone who is carrying a mortgage loan, an auto loan, student
loans and credit card debts? If answered yes, you’re probably
going through a tough financial state splitting your payments among
multiple creditors and lenders. With the tough credit situation that
defines the current debt industry, debtors are left with no cash to
make payments to their creditors and they’re desperately
looking for ways that can alter their debt repayment structure and
make it favorable for them. During such a situation, settling with a
debt consolidation loan that carries lower interest rate than what
you were paying on your credit cards can prove to be beneficial for
you. But what are the solid reasons to consolidate
through such loans? Are you aware of them? If no, then read on.
will be bundled into a single monthly payment:
When a credit card holder accrues debt on all his cards, he usually
goes through a tough time splitting his payments among multiple
creditors. But when you take out a debt consolidation loan, the
proceeds can be immediately used to repay all your creditors and
then you can start paying back the actual debt consolidation loan in
small and affordable monthly payments. The repayment plan becomes
affordable for your present financial state.
of the interest rates:
The sky-high interest rates on the credit cards are the most
probable reason for the increase in the credit card defaults. Thus,
when you take out a debt consolidation loan, you can particularly
benefit as the interest rate on this loan will be much lower than
what you were paying on the credit cards individually. With lower
rates on the loan, you can even repay with ease as the monthly
payments will be much lower than what you were paying previously.
repayment term will be extended:
The repayment term of the debt consolidation loan will be extended
enough and therefore you can pay back your creditors throughout a
longer period of time. Extended repayment period will ensure lower
monthly payments and you can thereby save a considerable amount of
money every month.
can boost your credit score in the long run:
Though it is true that when you take out the debt consolidation loan
in order to repay your debts, there will be a slight mark against
you in your credit report, yet this will be nullified as soon as you
start making the monthly payments on time. You can therefore repay
the entire amount and boost your credit score by choosing this debt
word of caution for all the debt consolidation loan borrowers
out a debt consolidation loan will give you a symptomatic relief if
you don’t have a solid plan. Repaying debt through a debt
consolidation loan will only help you delay the inevitable if you
don’t change your financial habits. Forget habits like whipping
your plastics for every small purchase and try using cash while
buying things. Manage your finances properly so that you can make
payments on time and complete the deal successfully. A missed payment
can cancel the entire agreement with the financial institution and
you may even lose the money that you’ve already paid.
Therefore, when it
comes to getting out of debt, ensure taking out a debt consolidation
loan only after making a comprehensive market research. Choose a loan
with the lowest rate so that you can easily save loads of money by
combining your debts through a debt consolidation loan.
Refinancing - should I - or not?
Posted by: Joseph E Poff, CPA CITP
Auburn Software, Inc.
on Monday January 16, 2012 at 3:58 PM (-08 GMT)
| Comments (4)
Tags | Loans, | Mortgages, | Real Estate | Categories: | Real Estate - Apartments, | Real Estate - Commercial Building, | Debt - Home Mortgage, | Real Estate - Personal Residence
Refinancing - should I - or not?
I'm getting lots of questions regarding refinancing - on personal residences and
investment property (rentals and commercial) - and it's such an important topic
- something we really need to look at and explore - so let's do that.
There are several reasons people don't refinance - one of the most common is a
lack of understanding of the process and how they might fit in to that process
and being afraid of the complexities.
But, first, in some cases, realistically, it just won't work. Some of those
reasons would be
- Unemployed (without any other source of income)
- Seriously underwater on the mortgage - you owe a lot more than what your
house is worth (still may be some options)
- Bad Credit
If you're unemployed - it doesn't matter that you always pay your bills - I hear
that a lot. From a lender's perspective - you have no way of paying back the
loan. For the most part this is going to be a no starter. I'm sorry, I didn't
create the economic mess - but trouble or not - this is usually a no go on the
process. You need to show steady income.
Note that 'income' doesn't have to be from wages - if you get money from
investments; Social Security; Rentals; Trusts; Contract Sales on property (Real
Estate, Land, Airplanes), business sales and the like - well, you do have
income. You would qualify - assuming everything else was ok. You
don't need a 'job'.
Being seriously underwater on your mortgage can also be a deal killer, but let's
look at some options on that when we look at the process. Depending on your
situation - this is ok, it may still make super great sense to refinance.
We'll explore this later.
A serious deal killer. I explain over and over to clients how significant this
factor is and they will often say - oh, I've got great credit - yet their scores
are actually quite low. Maybe not low enough to disqualify them, but low enough
to where it will cost them tens of thousands of dollars. Pay
attention people! We'll cover this more later too.
If you have a really low credit score you'll have a lot of work to do. Honestly,
if you've got a loan, you'll probably have to stick with it until you can
improve your credit.
If your credit rating is bad from the economy, for medical bills - that type of
thing - I'm super sympathetic to you. If it's because you've just not paid much
attention to it - and let bills get missed - well, we need to work on you - most
of the time it's just being more organized.
Review your situation
Because of the constantly changing nature of terms for refinancing - we'll work
on big picture - concept issues.
1. Generally, you want to be able to save about .50% (less than 1%) or more on
So, if your mortgage is at 6% and the rates are now 4% - well, you need to move
fast - a great candidate. If your rate is 8% and they are now 4% - well, what's
the problem? Have you been in a deep sleep?
Conversely, let's say your rate is 5% and you can get 4.25% - should you
refinance? Most likely yes.
The general rule would be that if you can save 2% on your rate - you'll pay back
the loan fees in 1 year. If you can save 1% on your rate, it will take you about
2 years to pay back the loan fees.
Again, conversely, let's say you can save 3% - well, at that you'll recover your
fees in about 6 months. Save 4% - you'll recover your fees in about 3 months.
See how that works?
So, look at the rate difference and use the above general rules to determine how
long your recovery period would be. If it's 2 years, and you're going to live
there another 10 year or even another 3 years - basically more than 2 years -
then - yes, it would be worth the effort to refinance.
2. Property valuation
Getting a value
If it's a personal residence, you'll generally need a 5% difference between your
mortgage and your property's value. For investment property you'll generally
need about a 20% difference.
So, a home is valued from an appraisal - and there isn't a big mystery to that.
Someone physically compares your house to nearby ones that have sold recently.
Since obviously, two houses aren't the same - he or she makes judgments on what
an extra bedroom or a view is worth.
I remember when the website Zillow was launched - and I have no connection to
them in any way other than both being in the same city - but anyway, when it was
launched I laughed because the whole premise seemed so ridiculous. In case you
don't know, it's a free online site that 'values' every property in the US as
far as I know - maybe even further.
In the beginning, Bill Gates' house - who lives here in Seattle - they had it
valued at a ridiculous number. I think he put like $130 million into it - and
that was when $130 million meant something - ha ha.
As you can imagine, it probably wouldn't fit a normal valuation algorithm. So,
that got them off to a bad start, but they quickly recovered, and honestly, they
do a pretty good job now. I'm pretty impressed.
For the most part, you can get a good valuation from their site. If your
property has some really unique things - like views - lakes - whatever - well,
yeah, that might not be counted. They give a range and so that should give you
There are other ways I'm sure, but Zillow is free and a good place to start.
After determining your value and mortgage balance
Ok, so somehow you've got an idea of your property value. So, let's look at the
difference. So, if your property value is $300,000 and your loan balance is
$285,000 or less (95% of the value) - you're good to go. If you have investment
property and the value is $300,000 then your mortgage is $240,000 or less (80%
of the value) then you too are good to go.
If your loan percentage is at or less than these thresholds then you are a great
candidate for a refinance and should be looking at doing that.
Now, let's say your home property is valued at $300,000 and your loan is
$295,000 ($10,000 over the limit of $285,000 or 95%). Let's further say your
current rate is 6% and you can get 4%.
Well, wow - let me tell you - I'd be trying to find a way to come up with
$10,000 to refinance. The 2% difference in the rate would save me about $475 a
month in this example. Yes, $475 a month - ($285,000 * .02 / 12 months = $475).
And think about it - the $10,000 you'd pay to refinance - it's not like you're
giving that money away as a fee - you are paying down your own loan. So, now
instead of owing $295,000 - you owe $285,000 'and' and and - you are saving 2%
in interest!! Are you kidding - it's a no brainer!
But - of course you have to have $10,000 in that example. So, you really have to
look at your situation - the point is - if you have money in the bank and can do
a pay down on your mortgage without cutting it too close - well, it may make a
lot of sense. A 'lot' of sense. What creative things can you do to make that
happen? Try and think outside the box.
The Actual Interest Rate
While you do need to shop around a bit for the best rate and fees - your credit
score can play a huge difference in what you pay. Someone with a near perfect
score may get say a 4% loan where someone with a weaker score 4.75% and the
lowest and still qualify might be 5.5%.
On a $300,000 loan the weaker score pays $187.50 more a month and the one with
the lowest credit score pays $375 a month. That's $2,250 and $4,500 a year
respectively. I don't even want to multiply that over 30 years. Oh, my. I think
I could find some other use for that money.
So, obviously, you want to have the best credit score possible. And as I've said
before, if it's from the economy or health things - I'm sorry - otherwise - what
the heck are you thinking. Get your act together - seriously. You're destined
for a life of financial insecurity unless you get that under control.
Honestly, most of the disasters I see in people's finances is self generated.
Everyone has ups and downs and as I said, I'm sorry for those in that situation.
But, refusing to be involved in your own finances - burying your head in the
sand - totally relying on someone else - is - well, consider yourself smacked
upside the head. If you don't understand something - ask questions until you do.
Ok, everything else checks out - enough of a difference in the interest rate,
credit ok, appraisal ok - so should I do it? Well, why in the world would you
not? Too hard? Seriously? Go back and reread this sentence until you think -
Sure, it's a little work but to get the kind of savings you can get - once you
do it you'll be saving money every month. Pretty much you'll just spend time
filling out some forms and making copies of bank statements - things like that.
Honestly, there isn't that much work for you to do - but do it you must and
don't dilly dally either - just do it and get the process going. Your bank or
mortgage broker will do most of the work.
Common fees would be a Title Report - showing there are only disclosed loans
on the property. This runs from about $300 - $1,000. You'll also have an Escrow
fee - which is a charge for who handles the actual paperwork and filings. It's
typically $250 - $750. Additionally, you'll also have a couple of hundred
dollars in miscellaneous fees like credit reports and filing fees and appraisal
The biggest fee is typically a 'loan fee' or 'origination fee' - it can come in
many names but conceptually, it's a one time fee for borrowing the money. So, if
your loan amount is $280,000 and your loan fee is 1% then your one time loan fee
is going to be $2,800. Loan fees vary from no loan fee to perhaps 1.5% or so.
Obviously, the lower this is the less time it will take you to recover the fees.
A loan may also offer the opportunity to 'buy down' the rate. So, they may offer
you 4.5% or 4.0% with a buy down cost of .375% of the loan. So, if your loan is
$300,000 then the buy down cost would be $1,125 ($300,000 * .00375). Basically
the way to look at this is will you live there long enough to recover that extra
fee. In my example that buy down of $1,125 would be made up in less than a year.
$300,000 * .005 rate savings = $1,500 a year. Your cost was $1,125 - so in this
example - probably obviously yes - makes sense.
So, there are your biggest fees - Origination or Loan fees, Title Report and
Escrow fee. Compare those fees to your monthly interest rate savings to see how
long of a recovery you have. Generally the rules stated earlier will apply. Do
the buy down calculation separate.
Now, a lot of people want to count in Insurance and Tax reserves as part of the
cost and that just isn't the case. They are only collecting an estimate of the
costs - if your present loan is collecting for these - you'll get that money
back. Don't confuse the issue.
Interest adjustment - same thing - that's not really a loan cost - if you look,
you'll end up skipping a payment so this should wash out for you as a no cost -
except your new payment will be less because your rate is lower.
Common statements I've heard
I'm not going to be saving that amount every month. Your minimum
payment difference is a permanent decline in a fixed rate situation as described
here. The amount of actual interest you save true - it won't stay the same,
because the balance will be going down and so the amount you save will decline
as the loan is paid down. So what? Your savings over the loan period is
tremendous. What you want is to recover your fees and the rest is gravy. Plus
you have a permanent - up to 30 year - reduction in your rate.
I'm starting over on the 30 years.
Well, that's true, and you'll actually have a change in your payments from two
angles - one is your actual true interest rate savings that I've based all this
on and two from the extending of your payment out to 30 years or your new loan
I like to have the 'minimum' I have to pay on something be as low as possible.
So, by setting the payments so low - if I have some issues such as a drop in
income - my minimum payments will be a lot less.
Depending on your age and situation - do you really care that it's now 30 years?
In a lot of cases, I'm not sure it really matters - the client isn't going
anywhere - they have steady but not climbing income - well, yes, they have extra
cash flow - so that's going to be great for them.
If your desire is to have your home paid for - well, a worthy goal, but look at
the overall. Is it to leave more to your child who won't return your phone calls
unless they need something? Ha ha. Seriously, don't let emotion work your
decisions. Make good logical choices for you.
The simplest solution though and the smartest would be to continue making the
same payments you are used to making now and you'll have a pretty good excess
coming off the principal each month. That loan balance will reduce at a
phenomenal rate - except it's really not phenomenal because we can explain it.
But consider if you want to do that - look at your age - income future - present
situation to decide.
But, the bottom line is that if you can do it you'll save money if you can
refinance. Of course if it's not in the cards there's nothing you can do - but
there are still a lot of people I've seen that could do it and could benefit a
lot and just haven't. It might take being creative, but it's up to you - pay
more money if you want - personally I'd rather have more to spend on the things
I really want.
Take some charge of your finances. You'll feel better about it.
Joe Poff, CPA
LinkedIn got screwed?
Posted by: Joseph E Poff, CPA CITP
Auburn Software, Inc.
on Wednesday May 25, 2011 at 1:08 PM (-07 GMT)
| Comments (5)
Tags | Businesses, | Economy, | Stocks | Categories: | Financial Markets - Stocks, | Economy - United States
So, wow - don't know if you followed the LinkedIn IPO- what a story - and perhaps a message for us too.
It was set to go public at $38 or $40 - something like that and when it was issued it immediately hit about $85 before hitting $115. I think a day or so later it was around $85 again.
So, what does that tell us? Well, a couple of things.
One is that LinedIn got screwed. The company itself got the $40 a share - they didn't participate in the run up to $115 or even to $85. The company got whatever it contracted for - the Initial Public Offering price of $40.
So, whoever set the IPO price of $40 should be flogged if not worse. It didn't take a braniac to figure out this stock would take off.
In fairness though, let's look at what happened. When a private small business is sold it's typically sold at the price of 3 to 7 times earnings - plus the assets. So, if the business is making $150,000 a year (after an owner's salary) and has $10,000 in equipment and $50,000 in assets then a good starting point on a price might be between $510,000 and $1,110,000 or (3 or 7 times $150,000) plus ($10,000 + $50,000). So, again, 3 to 7 times earnings plus assets.
A public company will usually go for a higher multiplier - so you'll probably find them selling for 5 - 25 times earnings.
If you think of it like this it might help to understand it. If a company is selling for 5 times earnings, then in theory you'd make all your purchase price back in 5 years and would still have your investment. A great deal.
Now, if it is at 20 times earnings - well, in theory that's 20 years......
But, what are earnings? Well, they can be based on the prior few years or using the current year as the basis for your projections. Or, you can base it entirely on projected earnings. Which is correct?
Let's say the earnings in the last 3 years were - Loss - $65,000, Loss - $22,000, Loss - $5,000. Let's also say the current earnings are $70,000. How would you determine how to value it?
It's not hard to see that since the earnings are one of the multipliers then it's probably more important in the formula than the assets in a sale. So, how this is determined is critical.
Usually, a buyer is going to want to use the lowest, most pessimistic earnings projections while a seller will paint the most optimistic projections of the future. Probably, a good number is somewhere in between.
So, as I indicated, usually in private companies 3 - 7 times earnings and in public companies 5 - 25 times earnings with the lower number 'usually' meaning a better bargain - assuming the earnings you're basing it on are reasonable.
In the LinkedIn situation, my understanding is that it reached 500+ times earnings. Oh, wow. In my simple mind, that told me it will really need a turn around to greatly increase the earnings to make that price be anywhere near reasonable. A lot of pressure on this stock - that's for sure.
This reminds me of the tech crash. When companies where coming off the IPO's (and even regular trading) and the prices were 200 times earnings - or in a lot of cases had 'never' turned a profit - I just could not understand it. It really went against all my years of training - and defied logic. But, like a dope - I finally caved in and bought into the tech bubble because even taxi drivers were making more in the market than me - not long before it did crash. (No offense to taxi drivers - it's a subtle reference to the taxi driver stock 'guru' who is now in jail)
So, 500 times earnings is like - wow. Is this the start of a new movement for stocks?
When you look at what happened, it's hard to blame the underwriter for letting the stock come out of the gate at $40 - to set it higher would have been irresponsible, but if I was LinkeIn - the company - I'd be annoyed that extra money - or some of it - didn't find it's way into the company.
Who got it then? Well, the big industrial investors got the IPO's - so they pretty much had a lock - they knew they'd be buying at $40 and selling at probably $80 - at $115 - after one day - a banker's kind of wet dream.
Of course, the founder's do well too. But, they are limited on how much stock they can sell for a few years, so they are happy to see it go to $85 or whatever. Great for them. Hard to be critical here - but notice I didn't say that about the industrial investors. But, without them a lot of lesser know IPO's might not happen.
The whole idea of a public offering is to get money for the company to expand - to do things they couldn't do without a huge infusion of cash - the kind you don't have to repay - and that only comes from a stock offering. Too bad they missed out on hundred's of millions - but all is not lost - the big Wall Street guys made out ok! Unfortunate there isn't a better system for us all to be able to participate in an IPO - I mean - what does that second letter stand for? Public I think...
All in all - an interesting side note to today's economy and perhaps a sign of optimism - a sense that better times may be coming.
Joseph E Poff, CPA
Real Estate Investing
Posted by: Joseph E Poff, CPA CITP
Auburn Software, Inc.
on Wednesday August 4, 2010 at 8:04 PM (-07 GMT)
| Comments (0)
Tags | Investing, | Mortgages, | Real Estate | Categories: | Debt, | Economy, | Real Estate
The Real Estate market has been and will continue to be a highly
leveraged commodity. Sure, right now it's in the dumps - hardly anyone can get
loans - those that can are too afraid. But there are signs it's already easing.
For example, appraisals now must be made by those familiar in the area - there
are issues about whether foreclosed properties should be in samples.
Applications are becoming less restrictive too - ever so slightly but they seem
to be easing. Credit score minimums have also been lowered.
The near or at 100% financing we had enabled a lot of people to buy property -
residential and commercial alike who otherwise may not have been able to do so.
Under some circumstances that 'can' and 'does' work - but you can't just blindly
do it - you need to really look at the situation. Something that wasn't
happening in the industry just prior to the collapse. But with or without the
100% financing 70-98% was common place and most of the time worked and still
will work. It will be common place again.
In business you make money by leveraging yourself by your employees (or perhaps
by machines). If you never had employees a business would have difficulty in
growing or surviving. It's the same in Real Estate - many clients of mine
bought their own buildings to house their business in highly leveraged loans. It
was rare when they didn't work out. Everyone won in those - my client was in
better shape than renting - the bank did fine - things were great.
The concept of cheater intro interest loans, negative amortizations, the
borrowers 'pretending' they didn't understand and the borrowers that really
didn't understand - no wonder the Real Estate market had what the stock market
calls a major correction. But we will go back to the heavily leveraged loans -
it just has to happen. Along the way - Real Estate values will go up.
The market is still in a state of flux but smart - nerves of steel investors
could make some money by buying some Real Estate. While prices might still drop
- say another 10% if you buy now - the likelihood is that would be the extreme
and we are probably at or near the bottom now. Signs of stabilization are
showing up - not great - but stabilization. Also, pressure will be on our
elected officials as the election season starts.
So, depending on your cash situation and investment strategy you might want to
investigate the availability and pricing of some properties be that commercial,
residential or land - all depending on your personal situation.
Be smart - don't over commit either physically, mentally as well as financially.
Real estate transactions can be stressful but the more of them you do the easier
it becomes. If you're planning on developing a property - well that's a lot of
work - research it first - know what you are doing. If you want to be a landlord
be prepared for it being vacant and the dead beats that leave your rental house
in shambles. On the positive side - don't look for a quick return, but given
time you will come out ok. Just think of the population increases -
mathematically, they will have to increase in value.
As an alternative to investing directly into a project you could invest in a
mutual fund or similar type investment that specializes in Real Estate projects.
Joseph E Poff, CPA
Welcome to the Blogs of Economics 411
Posted by: Joseph E Poff, CPA CITP
Auburn Software, Inc.
on Tuesday June 1, 2010 at 5:55 PM (-07 GMT)
| Comments (0)
Tags | Author, | Blog | Categories: | General Information, | Write for us
In the years – decades really – that it took me
to design and develop the financial game Economics 411 (
http://www.Economics411.com ) – I
often thought of enhancements I wanted to add. One was a Blog that brought
together many different authors - all interested in the Economy and in
Investing. Each would write a little bit about their knowledge and experience on
For example, as a CPA, I’ll have topics that relate to my
experiences and my clients in the accounting finance area as well as Information
Technology. A Stock Broker, Real Estate Agent, Mortgage Broker or fellow CPA
will be viewing things from a different angle and their topics will undoubtedly
be different than mine.
One thing my 30 years in public practice taught me is that some
of the keenest insight of investments and businesses came from clients that
weren't in the financial - accounting industry. So, while we’ll have
professionals as authors I'd also like to encourage others that want to share
their insights with others to participate.
Let me know if you'd like to become a contributor on this
site. We already have several people that will be coming on board shortly.You
can leave comments and rate any story you read here and then check back to see
what responses you generated.
If you have Questions – you can submit them too for our
anonymous Q&A page. You can also contact any of the Authors directly for a
personal answer, but keep in mind that they often only have their time to sell
and so if you are taking up some of their time you should expect to pay them for
their time. I’m sure any of them would be more than happy to consider taking you
on as a client.
It took a long time to get Economics 411 up and running and I'm
sure this will take some time too. I'm excited as The Blogs of Economics
finally launched – roughly a year after Economics 411 launched.
I think there could be some great practical posts for people to
read and hopefully help them with their own personal finances. Perhaps in 20
years, someone that has read some of the articles on The Blogs of Economics
411 and played Economics 411 - perhaps they'll have a little more
money that they would have if they passed us by - who knows - I'm going to think
Joseph E Poff, CPA