Few things in life signify a fresh start like New Year's. At the risk of stating the obvious, the concept of a fresh start is the most appealing to those who need it. It's only when you've been struggling, floundering or have been through some trials and tribulations that you even need to start over.
And trials and tribulations are precisely what many of us have been through over the last few years, when it comes to our personal finances.
If you've lost a job, lost a home or simply lost a lot of equity in your home or on the stock market, the latest entry to The Wall Street Journal's Guide series might be just what the doctor ordered to help you reboot your money matters this year.
In "The Wall Street Journal Guide to Starting Fresh: How to Leave Financial Hardships Behind and Take Control of Your Financial Life," Wall Street Journal columnist Karen Blumenthal takes an understanding -- and understandable -- approach to tackling the daunting exercise of financial rehab.
This book is not about fancy tricks or secrets; rather, its power lies in the simple, systematic and comprehensive approach it presents, and in its offering of customized prescriptions for special situations (i.e., recently divorced or widowed, recent health disaster, etc.) without overly complicating the book for everyone else.
Blumenthal starts out walking readers through the exercise of conducting an inventory of their life priorities, assets and liabilities, and creating a basic foundation of daily stability (i.e., functional home, transportation, emergency funds, etc.) from which a deeper financial recovery effort can be launched.
This book represents a step-by-step approach to getting your finances under control, resetting your daily finances to align with your new reality, and getting your financial goals and aims back on track. Here are three steps Blumenthal provides for starting fresh, after experiencing money trauma:
1. Build your "trust team." Blumenthal recommends interviewing and seeking advice on your financial plan from a trustworthy financial adviser, attorney and tax preparer.
In addition to providing interview questions for these folks, she also recommends avoiding debt settlement firms (most cannot do anything you can't do for yourself) and accessing low- or no-cost resources like nonprofit credit counselors, the IRS' Volunteer Income Tax Assistance program and even support groups.
It might seem unrealistic to pay for advice if cash flow is tight, but I've seen many strapped households make costly errors as a result of doing some things on their own. Especially if you're considering a short sale or walking away from your home, it behooves you to consult with a local attorney and tax preparer first; I would personally add a local agent and mortgage broker to the list.
2. Adapt to your new reality. Have you ever known someone who's fallen on hard times, but can't seem to give up the creature comforts of his or her former life? Blumenthal reality-checks such readers, exhorting them to recalibrate their monthly budget and expenses in line with their new situation.
From deciding whether to move or stay in your home, whether and how to seek a loan modification, and making necessary alterations to plans around college and car expenses, Blumenthal walks readers through the big decisions and changes they must consider to press the financial reset button.
3. Invest for your future. When we encounter financial hard times, it's easy to get stuck in survival mode, and continually postpone turning our attentions back to our future financial plans. Blumenthal tries to snap readers out of this, reminding them to shift their viewpoints from right now to the future, and to re-up their focus on investing, saving and insuring.
As she provides resources for configuring a new financial plan, Blumenthal provides some very user-friendly tools for necessary need-to-knows around reading and understanding stock market information.
To be sure, this book is a better fit for those who have a job and can pay their monthly living expenses, but are seeking to reconfigure their savings, investment and housing strategies to thrive over the long term in light of recent life and economic changes.
(If you are truly struggling just to make ends meet or have a problem with chronic debt, I would recommend Karen McCall's "Financial Recovery" as a more appropriate starting point; you can circle back to "Fresh" after things have stabilized.)
Tuesday, January 10, 2012
Monday, January 2, 2012
Mortgage Moves To Buy a Home In 2012
Mortgage Moves To Buy a Home In 2012
Grabbing a mortgage loan has become a challenging task in recent years. Don't expect that to change anytime soon.
Lending standards will remain tight in 2012, but that doesn't mean you won't be able to snag a mortgage with an attractive rate. Savvy borrowers who understand the rules and prepare in advance will improve their chances of success.
These tips will help you stay on top of your game as you try to secure a mortgage in 2012.
Study your credit
Good credit is the key to snagging a mortgage in this tight lending environment. Get copies of your credit scores and credit history from the three main credit reporting bureaus. Study the reports carefully to make sure there are no errors or issues to resolve before applying.
Most lenders require a minimum credit score of 680 to comply with Fannie Mae and Freddie Mac's guidelines. Federal Housing Administration loans, which are guaranteed by the FHA, allow for lower scores, but most lenders want to stay away from scores lower than 620.
Prepare before you start
There are some basic documents every lender requests when you apply for a mortgage. Don't wait for them to ask.
Have these documents ready when you walk into the lender's office: your last two pay stubs, W-2s, income tax returns and bank statements.
Save these documents and any additional ones the lender requests in an electronic format, so you can easily resend them if anything gets lost in the process.
Know how much you can afford
Don't rely on your lender to tell you how much mortgage you qualify for and then borrow the maximum amount. Plan your budget, and leave room for unexpected expenses. That's especially the case when you are buying a house.
Bankrate's calculators can help you determine how much house you can afford and estimate your monthly mortgage payments.
Shop around
Shopping around for a mortgage should go beyond comparing interest rates. Rates are important, but would-be borrowers must consider points, closing costs and different types of loans. Get estimates from three banks and three mortgage brokers before you decide which combination works for you.
Time is of the essence
Once you submit your mortgage application to the lender, the clock starts ticking. Make sure you quickly send in any documents requested during the approval process.
For buyers, a delay in closing the loan could kill the purchase and cost them their deposits. When refinancing, a delay could mean losing the interest rate the borrower originally locked in. Ask for an expected closing date, and follow up with the lender periodically until the loan closes. Keep in mind, some lenders close more quickly than others.
Mortgage approved? Your credit must stay put until closing
After the lender pulls your credit and says you've been approved, don't assume you've won the battle. Most lenders will pull your credit again before the loan closes.
It's wise to avoid any moves that may affect your credit. Don't apply for new credit cards or credit lines. Pay your bills on time. Don't close any accounts. Don't finance a new car. Stay put until closing.
Consider a refi with no closing costs
You don't always have to spend money to save money when refinancing. Many lenders offer mortgages with no closing costs. No, it's not a free ride. Lenders usually make up for those costs by charging the borrower a slightly higher interest rate. Sometimes the slight increase translates into a few extra dollars in the monthly payment, and the borrower can save thousands in closing cost.
Consider a shorter-term loan
Because interest rates are at or near rock bottom, short-term loans have become more affordable for many borrowers.
Those who currently have a 30-year mortgage with an interest rate of 6 percent or higher may be able to refinance into a 20-year or 15-year loan while keeping their monthly mortgage payments close to what they pay now. Consider this option even when the short-term loan means slightly higher monthly payments. This is your chance to pay off your mortgage more quickly.
Receive a gift? Be ready to explain it
Did your parents or in-laws give you a few thousand dollars as a gift to help out with the down payment? If so, congratulations -- but make sure you can document and explain where you got the money.
FHA loans allow borrowers to receive their down payment as a gift from a relative. For conventional loans, borrowers may receive gifts, but at least a 5 percent down payment must come from their own funds.
Borrowers receiving a gift are required to present a gift letter signed by the donor, and they will need a paper trail of the money transfer. Be ready to present statements to show where the money came from when it was deposited into your account.
Unless the money is being used for the down payment, avoid receiving large cash deposits in your bank account until your mortgage closes. Any large deposits other than your paycheck will have to be explained to comply with federal regulations.
Be persistent
If one lender rejects your mortgage application, that doesn't mean all lenders will. Most lenders follow Fannie Mae and Freddie Mac guidelines. In addition, they have their own internal underwriting guidelines, and some are stricter than others.
Ask exactly why your mortgage was denied. Depending on the reason, you may be able to take some quick steps to improve your credit, or you might just need to try a different lender.
Appraisal isn't enough? Try again
If the home appraisal your lender received isn't enough to back the mortgage loan and you think the appraiser is mistaken, try another lender.
You can't order a second appraisal or pick which appraiser the lender hires, but you can dispute the first appraisal or apply with a different lender.
In a perfect world, the appraised value of a home shouldn't vary drastically from one appraiser to another. But you may find that they do. If you believe the first appraiser is wrong, try a different lender and hope that lender's appraiser does a better job.
Seek help
If you are behind on your mortgage or are struggling to keep up with your mortgage payments, seek counseling.
The U.S. Department of Housing and Urban Development has counseling agencies throughout the country. Homeowners can receive free foreclosure-prevention counseling from HUD-approved counselors. To find a housing counseling agency near you call (800) 569-4287 or visit the HUD website.
Grabbing a mortgage loan has become a challenging task in recent years. Don't expect that to change anytime soon.
Lending standards will remain tight in 2012, but that doesn't mean you won't be able to snag a mortgage with an attractive rate. Savvy borrowers who understand the rules and prepare in advance will improve their chances of success.
These tips will help you stay on top of your game as you try to secure a mortgage in 2012.
Study your credit
Good credit is the key to snagging a mortgage in this tight lending environment. Get copies of your credit scores and credit history from the three main credit reporting bureaus. Study the reports carefully to make sure there are no errors or issues to resolve before applying.
Most lenders require a minimum credit score of 680 to comply with Fannie Mae and Freddie Mac's guidelines. Federal Housing Administration loans, which are guaranteed by the FHA, allow for lower scores, but most lenders want to stay away from scores lower than 620.
Prepare before you start
There are some basic documents every lender requests when you apply for a mortgage. Don't wait for them to ask.
Have these documents ready when you walk into the lender's office: your last two pay stubs, W-2s, income tax returns and bank statements.
Save these documents and any additional ones the lender requests in an electronic format, so you can easily resend them if anything gets lost in the process.
Know how much you can afford
Don't rely on your lender to tell you how much mortgage you qualify for and then borrow the maximum amount. Plan your budget, and leave room for unexpected expenses. That's especially the case when you are buying a house.
Bankrate's calculators can help you determine how much house you can afford and estimate your monthly mortgage payments.
Shop around
Shopping around for a mortgage should go beyond comparing interest rates. Rates are important, but would-be borrowers must consider points, closing costs and different types of loans. Get estimates from three banks and three mortgage brokers before you decide which combination works for you.
Time is of the essence
Once you submit your mortgage application to the lender, the clock starts ticking. Make sure you quickly send in any documents requested during the approval process.
For buyers, a delay in closing the loan could kill the purchase and cost them their deposits. When refinancing, a delay could mean losing the interest rate the borrower originally locked in. Ask for an expected closing date, and follow up with the lender periodically until the loan closes. Keep in mind, some lenders close more quickly than others.
Mortgage approved? Your credit must stay put until closing
After the lender pulls your credit and says you've been approved, don't assume you've won the battle. Most lenders will pull your credit again before the loan closes.
It's wise to avoid any moves that may affect your credit. Don't apply for new credit cards or credit lines. Pay your bills on time. Don't close any accounts. Don't finance a new car. Stay put until closing.
Consider a refi with no closing costs
You don't always have to spend money to save money when refinancing. Many lenders offer mortgages with no closing costs. No, it's not a free ride. Lenders usually make up for those costs by charging the borrower a slightly higher interest rate. Sometimes the slight increase translates into a few extra dollars in the monthly payment, and the borrower can save thousands in closing cost.
Consider a shorter-term loan
Because interest rates are at or near rock bottom, short-term loans have become more affordable for many borrowers.
Those who currently have a 30-year mortgage with an interest rate of 6 percent or higher may be able to refinance into a 20-year or 15-year loan while keeping their monthly mortgage payments close to what they pay now. Consider this option even when the short-term loan means slightly higher monthly payments. This is your chance to pay off your mortgage more quickly.
Receive a gift? Be ready to explain it
Did your parents or in-laws give you a few thousand dollars as a gift to help out with the down payment? If so, congratulations -- but make sure you can document and explain where you got the money.
FHA loans allow borrowers to receive their down payment as a gift from a relative. For conventional loans, borrowers may receive gifts, but at least a 5 percent down payment must come from their own funds.
Borrowers receiving a gift are required to present a gift letter signed by the donor, and they will need a paper trail of the money transfer. Be ready to present statements to show where the money came from when it was deposited into your account.
Unless the money is being used for the down payment, avoid receiving large cash deposits in your bank account until your mortgage closes. Any large deposits other than your paycheck will have to be explained to comply with federal regulations.
Be persistent
If one lender rejects your mortgage application, that doesn't mean all lenders will. Most lenders follow Fannie Mae and Freddie Mac guidelines. In addition, they have their own internal underwriting guidelines, and some are stricter than others.
Ask exactly why your mortgage was denied. Depending on the reason, you may be able to take some quick steps to improve your credit, or you might just need to try a different lender.
Appraisal isn't enough? Try again
If the home appraisal your lender received isn't enough to back the mortgage loan and you think the appraiser is mistaken, try another lender.
You can't order a second appraisal or pick which appraiser the lender hires, but you can dispute the first appraisal or apply with a different lender.
In a perfect world, the appraised value of a home shouldn't vary drastically from one appraiser to another. But you may find that they do. If you believe the first appraiser is wrong, try a different lender and hope that lender's appraiser does a better job.
Seek help
If you are behind on your mortgage or are struggling to keep up with your mortgage payments, seek counseling.
The U.S. Department of Housing and Urban Development has counseling agencies throughout the country. Homeowners can receive free foreclosure-prevention counseling from HUD-approved counselors. To find a housing counseling agency near you call (800) 569-4287 or visit the HUD website.
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