When you are hunting for a mortgage, you will find that there are many different types of mortgages available. I will list some of the more common ones and their uses.
15 vs 30 Years
Your mortgage term can be just about anything you choose. 15 and 30 year terms are popular these days, although 10 and 20 years also are available.
The shorter the term, the lower the interest rate. But the main attraction of shorter term mortgages is the money you save.
For example on a $200,000 mortgage with a fixed 4.5% rate, you would pay $1013.38 a month for 30 years and $1529.99 a month for 15 years. Over 30 years you would pay $364,816.80 versus $275,398.20 over 15 years, a savings of $89,418.60 or 24.5% in interest.
If you cut a very conservative quarter of a percent off for reducing the lender's exposure by 15 years, your savings will be nearly 26%.
Adjustable Rate Mortgages (ARM )
ARM's are mortgages whose rates adjust according to the terms of the contract you made with the lender.
Usually interest rates are fixed for the first 1, 3, 5, 7 or 10 years. After that period is up, rates will be allowed to fluctuate within the limits of your contract with the lender.
Terms are usually 15 or 30 years (although you can negotiate just about any duration you want). There can be a balloon involved.
Because the lender is not taking as big a risk on losing money if interest rates rise, these loans will have a lower initial rate than a fixed mortgage. The lowest rates will be for 1 year ARM's and will go up accordingly.
Many people will take out an ARM even in period of low rates, such as now, because they get even lower rates and are able to afford more house. However, the borrower is taking the risk that he can still afford the house after the rates are free to rise.
It used to be common for the contract to limit fluctuations to 2% a year. However, 5% swings are becoming more the norm. Depending on what happens to interest rates, you might find yourself priced out of your house. Of course, you could renegotiate if rates start to go back up.
The average homeowner owns his or her house for approximately 7 years. If you plan to move before the initial fixed term of the ARM is up, it's a good choice. If you plan to stay longer than ten years, a fixed rate might be a better option.
Balloon Mortgage
A balloon mortgage is one that is not completely paid off at the end of its term.
For example, you might obtain a 15 year fixed rate mortgage that allows you to pay less than the normal amortization schedule would call for. At the end of the 15 years, you will still owe a portion of the principal. How much depends on the terms of the contract.
An interest only mortgage is an example of this type of loan. In the case of an interest only loan, the balloon will be the full amount you originally borrowed.
This type of mortgage allows borrowers either to afford more house then they otherwise could buy or its reduces their monthly costs, allowing them to spend or invest their savings elsewhere.
Again, if you are planning to move before the balloon is due and your proceeds from the sale are enough to cover the balloon, this might be a good idea. However, you face the very real possibility of having to come up with cash when you sell to cover the balloon, especially if you have to sell at a time of declining housing prices.
BiWeekly Mortgages
A biweekly mortgage is one where pay half of the normal mortgage payments every two weeks. Since you are making 26 payments a year, rather than 24, you wind up paying off the interest sooner and saving considerable interest.
Take the example of a $200,000, 4.5% fixed rate mortgage with a 30 year term. The normal payment would be $1013.37 a month.
The biweekly amount is $506.91. But the payoff is huge. Your loan will be paid 5 1/2 years earlier and you will save 28% or $32,639.75 interest.
You can set up your own biweekly mortgage plan with your existing mortgage, assuming there is no prepayment penalty (which usually only applies the first few years anyhow). Simply send in or have your bank debit your checking account for one half your mortgage payments every two weeks. There should be no extra costs or fees to do this.
Or you can reach a similiar result by dividing your monthly payment by twelve and adding that to your payment. In this example that would come out to be an extra $84.44 a month.
The secret is that any prepayment, no matter how small will result in saving in interest and a shorter payment period.
Bridge Loans
Bridge loans are used in real estate transactions to cover the down payment on a new home, when the borrower has equity in his old home, but not enough cash.
It is generally a short term, interest only loan that is repaid when the homeowner sells his old house.
Conventional Mortgage
Most mortgages are conventional, the terms just vary. A conventional mortgage to most people is a 15 or 30 year fixed rate mortgage with at least 20% down.
Construction Mortgages
These are really loans that carry a higher interest rate than a normal mortgage. They allow you to borrow the money to build a house and are converted into a mortgage once the house is finished.
FHA (Federal Housing Administration)
The FHA is a branch of the Housing and Urban Development (HUD) Department. It is a depression era creation, meant to make it possible for people to buy homes at a time when banks where not granting mortgages.
The FHA insures loans up to certain set amounts, which vary with the region of the country and the type of loan. Right now the guarantees run from about $160,000 for a one family house to somewhat over $300,000 for a four family home.
This type of mortgage is designed to help low and moderate income people become home owners. It requires low down payments and has flexible lending requirements.
If the borrower defaults, the government steps in and pays the guarantee. This makes it easier for lenders to write mortgages they would otherwise refuse.
Fixed Rate
Fixed rate mortgages have interest rates set for the term of the mortgage, which can be anywhere between 5 to 30 years.
Although they can be interest only or have a balloon, they usually are conventionally amortized mortgages.
At times like now, when rates are low, most homeowners want to lock in the low fixed rates. They are popular when rates are falling, not so popular when they're high or going up.
This type mortgage is a very good idea if you're planning to live in your house for a while.
Home Equity Line of Credit
A revolving credit line secured by your home. Because it is a mortgage, it carries a lower rate than other forms of credit and is tax deductible.
It differs from a second mortgage in that it is not for a fixed term or amount and can be kept in effect as long as you own your home.
This is used most frequently for debt consolidation and can be useful if you rip up your credit cards and use the money you save on interest to invest.
Interest Only Mortgages
This is just what it says. You only pay interest, the principal is never reduced.
This is the grand daddy of all balloon mortgages and you taking a big risk that your house depreciates in value rather than the other way around.
You could very well have to come up with extra cash at closing.
The payments are much lower than on a normally amortized mortgage and if you have the discipline, it can be a useful financial planning tool.
Jumbo Mortgages
Mortgage loans over $322,700 (the limit is periodically raised). Otherwise, the mortgage can be fixed or variable, balloon, etc.
Rates are usually a little higher than for smaller loans.
No Doc or Low Doc Mortgages
This refers to the mortgage application, not to the mortgage itself. Business owners, people living off investments, salesmen and others whose income is variable might use low or limited documentation mortgages.
Very wealthy borrowers or those who want substantial financial privacy will sometimes use the no doc option.
In either case, in spite of their names some documentation is required. The lender will accept nothing less than excellent credit and even then you will pay more for the privilege.
No Money Down Mortgages
These come in two flavors: FHA type loans that allow low or moderate income borrowers to buy a house with little or nothing down and the 80-20 plans, where wealthier borrowers with little money saved up finance 100% of the purchase price.
Under the 80-20 plan a first and second mortgage are issued simultaneously. The borrower avoids having to buy mortgage insurance. The two loans are designed to cost less than an 80% loan plus the insurance, otherwise they make no sense.
If the borrower puts some money down, you will see the mortgage referred to as 80-10-10 (the last digits will be the percent of down payment) or some similar number.
It is mostly used by borrowers who haven't saved enough for a down payment or by those who have the money, but would rather use it for other purposes.
Refinancing
This technically means getting a new mortgage at different, hopefully better terms. A lot of people use it interchangeably with obtaining a second mortgage or line of credit; in other words tapping into the equity of their house.
Second Mortgages
Secondary financing obtained by a borrower. They can be fixed in amount or take the form of a Home Equity Line of Credit, which is simply a revolving credit line secured by a house.
Homeowners use these forms of financing to consolidate bills, do home renovations, put their kids through college, etc. They are tapping into the equity they have in their house to use for other things.
This is not necessarily a great idea. You must take firm control of your finances when you start doing this or you risk either losing your house or having to raise cash to pay the mortgages off when you sell.
If done properly, you can pay off your debt at a lower, tax deductible rate and invest your savings.
VA (Veteran's Administration) Mortgages
The VA provides mortgage guarantees to active duty and ex-servicemen who meet certain eligibility requirements. (To read the requirements click here.)
Like with FHA loans, the government guarantee makes it easier for low and moderate income veterans and active duty service personnel to obtain mortgages.
The current VA guarantee is $89,912. It is raised periodically.
125% Mortgages
If you want to bet house prices will rise, some lenders will lend you up to 125% of the value of your house. If you're right, you're okay. Otherwise be prepared to have your checkbook available when you sell your house.
I'm sure that there are other financing options available that I haven't covered and don't even know about. But most of the main financing types are covered here.
About the Author
Chris Cooper is a retired attorney who is very familiar with debt, being in it too many times in his life. These articles pass on some of the knowledge he has gained striving to become debt free. He is editor-in-chief of http://www.credit-yourself.com a website devoted to debt management
Saturday, September 15, 2007
Home Equity Loan vs. 401(K) Loan -Which should you choose? by Charles Essmeier
You've finally decided to add that patio you've always wanted to your home. Now you can enjoy barbecue outdoors and get a little fresh air every now and again. But how are you going to pay for it? If you're like most people, you don't have cash for home repairs just lying around the house. You'll have to borrow. So where should you go to borrow? Mortgage rates are low these days, so a home equity loan would be pretty affordable, as would a home equity line of credit (HELOC) if you have a number of remodeling projects in mind.
Then it occurs to you -- "What about my 401(K) money? I can get good terms on a 401(K) loan and borrow the money from myself!" That seems like a good idea. You can borrow the money from yourself and pay yourself back with interest! What could be better than that?.
On the surface, borrowing from your retirement savings may seem like a better idea than taking out a home equity loan. The terms are good either way, and the interest rates are probably comparable. So, why not borrow from your 401(K) account?.
There are several reasons why it may not be desirable to borrow from your retirement account:.
Most Americans fail to save enough for retirement, so borrowing from your retirement fund may leave you short later should you default. No one wants to be broke when they retire.
If you have a diversified 401(K) account, you will probably be earning interest on your retirement money. In fact, the interest rate you are earning on your retirement fund may exceed the interest rate you would pay for a home equity loan. In that case, you take out a home equity loan, leave the retirement money where it is, and you should earn a net gain between the two.
If your retirement fund is earning good interest, and in the late 1990's many were earning upwards of 20% per year, then borrowing on your principal could hurt you tremendously in the long run. Due to the nature of compounding, the amount you lose by borrowing from your retirement account could be far more than simply the sum of the loan amount plus interest.
The interest on a home equity loan is tax deductible, up to $100,000. The interest on a 401(K) loan is not.
There are certainly some circumstances where you might benefit from borrowing from retirement funds instead of taking out a second mortgage, but those situations are fairly rare. A substantially higher interest rate on the home equity loan than the 401(K) loan would be one such example. If in doubt, you should consult with a financial planner.
About the Author
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing. Established in 1978, Retro Marketing is a firm devoted to informational Websites, including http://www.HomeEquityHelp.net/ and http://www.End-Your-Debt.com/
Then it occurs to you -- "What about my 401(K) money? I can get good terms on a 401(K) loan and borrow the money from myself!" That seems like a good idea. You can borrow the money from yourself and pay yourself back with interest! What could be better than that?.
On the surface, borrowing from your retirement savings may seem like a better idea than taking out a home equity loan. The terms are good either way, and the interest rates are probably comparable. So, why not borrow from your 401(K) account?.
There are several reasons why it may not be desirable to borrow from your retirement account:.
Most Americans fail to save enough for retirement, so borrowing from your retirement fund may leave you short later should you default. No one wants to be broke when they retire.
If you have a diversified 401(K) account, you will probably be earning interest on your retirement money. In fact, the interest rate you are earning on your retirement fund may exceed the interest rate you would pay for a home equity loan. In that case, you take out a home equity loan, leave the retirement money where it is, and you should earn a net gain between the two.
If your retirement fund is earning good interest, and in the late 1990's many were earning upwards of 20% per year, then borrowing on your principal could hurt you tremendously in the long run. Due to the nature of compounding, the amount you lose by borrowing from your retirement account could be far more than simply the sum of the loan amount plus interest.
The interest on a home equity loan is tax deductible, up to $100,000. The interest on a 401(K) loan is not.
There are certainly some circumstances where you might benefit from borrowing from retirement funds instead of taking out a second mortgage, but those situations are fairly rare. A substantially higher interest rate on the home equity loan than the 401(K) loan would be one such example. If in doubt, you should consult with a financial planner.
About the Author
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing. Established in 1978, Retro Marketing is a firm devoted to informational Websites, including http://www.HomeEquityHelp.net/ and http://www.End-Your-Debt.com/
Home Equity Loan Line of Credit Vs. Other Conventional Loans by John Ross
When it comes to getting money, you have two basic options. If you are a homeowner you can choose to take out a home equity line or credit (HELOC), or you can take out a conventional loan. Both of these products will provide you with the funds needed, but the similarities end there. With varying interest rates and repayment options, you have a wide array of choices. We will discuss the differences between these two options, and then decide on which one is best for the typical homeowner. Remember, that everyone's situation is different, so use your best judgment when choosing a loan product.
You may already be familiar with a traditional loan product. These are usually based on your credit rating and your ability to repay the loan. The lender will review your past tax returns, credit score, as well as your salary. They may also factor in your income potential in the near future, if you are currently enrolled in a higher education program or up for a promotion soon. The main benefit of such a loan is that you have little at stake if you fail to repay the loan. They may have the ability to garnish your wages or hurt your credit rating, but you will be able to keep your home. The main disadvantage to this type of loan is that you can expect to pay a much higher interest rate than that of a home equity loan. You may also find yourself unable to take out as much as you would with a HELOC.
A Home Equity Line of Credit is a completely different time of loan. The bank will determine the amount of equity that you currently have in your home (value of the home- amount of liens= equity). They will then allow you a credit line that is a percentage of your equity. You will likely receive checks or a bank card that will allow you to make withdrawals on your own schedule. You can borrow as little, or as much as you want as long as it is within your credit limit. You will then make monthly payments based on the balance of the loan. Most lines of credit will require a minimum payment to cover interest, but the actual payment amount is up to you. The process is very similar to that of a regular credit card, except that you have your home backing up your purchases. The main advantage to this type of loan is that you can usually enjoy a much lower interest rate, and pay as much or as little during the life of the loan. The main disadvantage is that if you fail to pay the balance off, you could lose your home. So it is important to only take out what you can repay.
Which one is better? It all depends on your personal situation. If you have had trouble in the past with credit cards and revolving credit, a HELOC could be a very dangerous thing. Maxing out your HELOC has a lot more at stake than maxing out a typical credit card. So it is important that you have your finances and budget in place, prior to taking out such a loan. If your credit is poor, a HELOC may give you options where a traditional loan would not. Bottom line; understand your situation and you should have no trouble deciding the right loan product for your needs.
About the Author
John Ross is a freelance author, providing tips and ideas relating to home equity loans. You can find more of his articles at: home equity loan company, online home equity loans, and fixed rate home equity loan.
You may already be familiar with a traditional loan product. These are usually based on your credit rating and your ability to repay the loan. The lender will review your past tax returns, credit score, as well as your salary. They may also factor in your income potential in the near future, if you are currently enrolled in a higher education program or up for a promotion soon. The main benefit of such a loan is that you have little at stake if you fail to repay the loan. They may have the ability to garnish your wages or hurt your credit rating, but you will be able to keep your home. The main disadvantage to this type of loan is that you can expect to pay a much higher interest rate than that of a home equity loan. You may also find yourself unable to take out as much as you would with a HELOC.
A Home Equity Line of Credit is a completely different time of loan. The bank will determine the amount of equity that you currently have in your home (value of the home- amount of liens= equity). They will then allow you a credit line that is a percentage of your equity. You will likely receive checks or a bank card that will allow you to make withdrawals on your own schedule. You can borrow as little, or as much as you want as long as it is within your credit limit. You will then make monthly payments based on the balance of the loan. Most lines of credit will require a minimum payment to cover interest, but the actual payment amount is up to you. The process is very similar to that of a regular credit card, except that you have your home backing up your purchases. The main advantage to this type of loan is that you can usually enjoy a much lower interest rate, and pay as much or as little during the life of the loan. The main disadvantage is that if you fail to pay the balance off, you could lose your home. So it is important to only take out what you can repay.
Which one is better? It all depends on your personal situation. If you have had trouble in the past with credit cards and revolving credit, a HELOC could be a very dangerous thing. Maxing out your HELOC has a lot more at stake than maxing out a typical credit card. So it is important that you have your finances and budget in place, prior to taking out such a loan. If your credit is poor, a HELOC may give you options where a traditional loan would not. Bottom line; understand your situation and you should have no trouble deciding the right loan product for your needs.
About the Author
John Ross is a freelance author, providing tips and ideas relating to home equity loans. You can find more of his articles at: home equity loan company, online home equity loans, and fixed rate home equity loan.
Refinancing vs Line of Credit by Gary Gresham
Refinancing vs line of credit are two popular options you have when deciding the best way to take equity out of your home. Sometimes it makes sense to establish a line of credit. But in other situations it's better to get a cash back refinance mortgage loan.
You can find out which loan is best for your situation by doing some simple math. The amount of money you need to borrow and the length of time you need to pay it back really determines if refinancing vs line of credit loan makes the most sense.
Home equity lines of credit are based on adjustable type mortgage rates and move up or down when the Fed raises or lowers the prime rate. If you don't need to borrow much money and plan to pay off the loan in a short amount of time, an equity line of credit may work best for you because you pay the least amount of interest.
An advantage of a home equity credit line is banks offer their lowest interest rates on adjustable mortgage rate type loans. Also, equity lines of credit usually come without the typical closing costs you pay with a cash back refinance mortgage loan.
Average closing costs on a refinance loan usually amount to several thousands of dollars. So when you are trying to decide between refinancing vs line of credit that should factor into your decision.
Another advantage of a home equity credit line is they are more flexible than a cash back refinance mortgage loan. With a home equity credit line you only pay interest on the amount you borrow. The remainder of the credit line is available at any time without paying any interest.
Home equity credit lines work well for smaller loan amounts, but if you need a large amount of money, say $75,000 to $100,000, you may want to consider a cash back refinance mortgage loan.
A cash back refinance mortgage loan is a first mortgage and most are amortized over a 30 year payment schedule. That keeps your payments more affordable on a larger loan amount. Most home equity lines amortize over 10 years or 15 years because they are a second mortgage loan.
Another consideration when trying to decide between refinancing vs line of credit is the interest rate you currently have on your first mortgage. If you have a low interest rate on your first mortgage you may want to take advantage of a home equity credit line so you can keep your low rate on the first mortgage.
If you have a high interest rate on your first mortgage, a cash back refinance mortgage loan with a lower interest rate might make more sense. Just remember to do the math because the average closing costs on a refinance loan will amount to several thousands of dollars.
Until you repay the loan closing costs you won't be saving any money even if your monthly payment is lower. Figure the number of months it takes in payment savings to cover the typical closing costs of a cash back refinance mortgage loan to see if this makes sense for you.
These simple tips should help when deciding if you should establish a line of credit or get a cash back refinance mortgage loan. Do the math to find out if refinancing vs line of credit makes the most sense for your situation.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
About the Author
This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative facts that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: http://www.credit-repair-facts.com/articles_1.html
You can find out which loan is best for your situation by doing some simple math. The amount of money you need to borrow and the length of time you need to pay it back really determines if refinancing vs line of credit loan makes the most sense.
Home equity lines of credit are based on adjustable type mortgage rates and move up or down when the Fed raises or lowers the prime rate. If you don't need to borrow much money and plan to pay off the loan in a short amount of time, an equity line of credit may work best for you because you pay the least amount of interest.
An advantage of a home equity credit line is banks offer their lowest interest rates on adjustable mortgage rate type loans. Also, equity lines of credit usually come without the typical closing costs you pay with a cash back refinance mortgage loan.
Average closing costs on a refinance loan usually amount to several thousands of dollars. So when you are trying to decide between refinancing vs line of credit that should factor into your decision.
Another advantage of a home equity credit line is they are more flexible than a cash back refinance mortgage loan. With a home equity credit line you only pay interest on the amount you borrow. The remainder of the credit line is available at any time without paying any interest.
Home equity credit lines work well for smaller loan amounts, but if you need a large amount of money, say $75,000 to $100,000, you may want to consider a cash back refinance mortgage loan.
A cash back refinance mortgage loan is a first mortgage and most are amortized over a 30 year payment schedule. That keeps your payments more affordable on a larger loan amount. Most home equity lines amortize over 10 years or 15 years because they are a second mortgage loan.
Another consideration when trying to decide between refinancing vs line of credit is the interest rate you currently have on your first mortgage. If you have a low interest rate on your first mortgage you may want to take advantage of a home equity credit line so you can keep your low rate on the first mortgage.
If you have a high interest rate on your first mortgage, a cash back refinance mortgage loan with a lower interest rate might make more sense. Just remember to do the math because the average closing costs on a refinance loan will amount to several thousands of dollars.
Until you repay the loan closing costs you won't be saving any money even if your monthly payment is lower. Figure the number of months it takes in payment savings to cover the typical closing costs of a cash back refinance mortgage loan to see if this makes sense for you.
These simple tips should help when deciding if you should establish a line of credit or get a cash back refinance mortgage loan. Do the math to find out if refinancing vs line of credit makes the most sense for your situation.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
About the Author
This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative facts that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: http://www.credit-repair-facts.com/articles_1.html
Mortgage Payments vs Rent Payments by Max Hunter
There is an age-old debate on whether or not it makes more sense for people to rent or buy. Though it is hard to really understand why there is a debate at all. You will definitely hear arguments from both camps that appear logical but if you do a little digging you may find that some of the arguments are thin at best.
The simple fact of the matter is you are always better off making a mortgage payment over a rent payment if you can afford to do so. It is not uncommon for mortgage payments to actually be lower than many rent payments are. So the key is to understand an important, fundamental difference between making a rent payment and making a mortgage payment.
Rent payments are made on a monthly basis for the most part. That money gives you the right to live in the house or apartment for the specified period of time, typically one month. You receive no other tangible benefits from that rent payment. It does not improve your credit score, it does not produce equity, it simply gives you the ability to live in the residence.
A mortgage payment, first and foremost, also gives you the ability to remain in the residence, however, it does much more than just that. First, the mortgage payment helps you build equity in your home. Equity is the difference between what you owe on the property and what the property is worth. That equity can be used for many things including debt consolidation, home improvements, extra funds, etc. Equity becomes a powerful tool in your overall financial plan.
Mortgage payments also include interest payments which can be tax deductible, helping your overall bottom line at the end of the year. Rent is not tax deductible in most cases. Your mortgage payments will also help improve your credit score if you continue to make payments on time. Mortgage payments are tracked if your lender reports the loan, which most lenders typically do. Your overall financial outlook can improve dramatically with an increased credit score resulting from on-time mortgage payments.
Some will argue that you are tied down to a home if you buy it, while renting gives you more flexibility. Though it is important to remember that if you rent a residence you are typically obligated for a specific period of time, typically a year. If you own a home, however, you are able to sell and relocate any time you wish, or you can rent the residence and relocate any time you wish. This is an important and fundamental difference between the two. It is true, however, that how quickly you are able to sell your home will depend on the location, its value, its condition and the market at the time of the sale. You do have the flexibility, however, to sell anytime you find a willing and able buyer.
One time where renting may seem like a more logical choice than buying is if you are going to live in a particular area for only a short period of time. In order to determine if it makes sense to rent or buy in this type of situation you really need to analyze your overall financial plans. You need to get a full understanding of any and all costs associated with you buying the home, the likelihood you would be able to sell it or rent it when you were relocating from the area, etc. For some, even in a short term situation the better financial decision may be buying, especially if they are able to rent it and build equity on their tenant. This may, however, impede them buying a second home, though if they have adequate credit and income they may not have any problem buying the second residence as well.
It is difficult to come up with a scenario that makes renting the clear cut right decision. It seems in most situations buying, if an option for you is the better decision financially. Though consulting with a mortgage professional is the only real way to help determine these things as they can give you a clear understanding of what is and what is not possible for you. Your financial advisor can also assist you in making this decision.
Owning your own home has many non-financial benefits as well, however, only you can evaluate those. You know what is and what is not important for you. You know what obligations you are comfortable having and which you are not. The key is to evaluate your personal situation rather than listen to those who are convinced that one or the other is right for you.
About the Author
Max Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.homeloanave.com
The simple fact of the matter is you are always better off making a mortgage payment over a rent payment if you can afford to do so. It is not uncommon for mortgage payments to actually be lower than many rent payments are. So the key is to understand an important, fundamental difference between making a rent payment and making a mortgage payment.
Rent payments are made on a monthly basis for the most part. That money gives you the right to live in the house or apartment for the specified period of time, typically one month. You receive no other tangible benefits from that rent payment. It does not improve your credit score, it does not produce equity, it simply gives you the ability to live in the residence.
A mortgage payment, first and foremost, also gives you the ability to remain in the residence, however, it does much more than just that. First, the mortgage payment helps you build equity in your home. Equity is the difference between what you owe on the property and what the property is worth. That equity can be used for many things including debt consolidation, home improvements, extra funds, etc. Equity becomes a powerful tool in your overall financial plan.
Mortgage payments also include interest payments which can be tax deductible, helping your overall bottom line at the end of the year. Rent is not tax deductible in most cases. Your mortgage payments will also help improve your credit score if you continue to make payments on time. Mortgage payments are tracked if your lender reports the loan, which most lenders typically do. Your overall financial outlook can improve dramatically with an increased credit score resulting from on-time mortgage payments.
Some will argue that you are tied down to a home if you buy it, while renting gives you more flexibility. Though it is important to remember that if you rent a residence you are typically obligated for a specific period of time, typically a year. If you own a home, however, you are able to sell and relocate any time you wish, or you can rent the residence and relocate any time you wish. This is an important and fundamental difference between the two. It is true, however, that how quickly you are able to sell your home will depend on the location, its value, its condition and the market at the time of the sale. You do have the flexibility, however, to sell anytime you find a willing and able buyer.
One time where renting may seem like a more logical choice than buying is if you are going to live in a particular area for only a short period of time. In order to determine if it makes sense to rent or buy in this type of situation you really need to analyze your overall financial plans. You need to get a full understanding of any and all costs associated with you buying the home, the likelihood you would be able to sell it or rent it when you were relocating from the area, etc. For some, even in a short term situation the better financial decision may be buying, especially if they are able to rent it and build equity on their tenant. This may, however, impede them buying a second home, though if they have adequate credit and income they may not have any problem buying the second residence as well.
It is difficult to come up with a scenario that makes renting the clear cut right decision. It seems in most situations buying, if an option for you is the better decision financially. Though consulting with a mortgage professional is the only real way to help determine these things as they can give you a clear understanding of what is and what is not possible for you. Your financial advisor can also assist you in making this decision.
Owning your own home has many non-financial benefits as well, however, only you can evaluate those. You know what is and what is not important for you. You know what obligations you are comfortable having and which you are not. The key is to evaluate your personal situation rather than listen to those who are convinced that one or the other is right for you.
About the Author
Max Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.homeloanave.com
A Second Mortgage Vs. A Home Equity Loan by Jay Moncliff
If you own your home and need a loan for whatever reason you have probably considered a second mortgage or a home equity loan to help you pay your bills, buy a new car, or pay for some other investment. However, you probably don't know whether a second mortgage is better or worse than a home equity loan for your particular situation. However, don't despair because there are some tips that will help you decide whether a second mortgage or home equity loan is for you.
Second Mortgage Tip #1 One Time Expenses A second mortgage is the preferred option if you have a one time big expense you need to cover. Examples of this include remodeling your kitchen, paying for a wedding, or buying a new car. In these instances a second mortgage will probably work best for you; however this will depend on the equity in your home and your credit score.
Second Mortgage Tip #2 Recurring Expenses If you are going to have recurring expenses then you might not want a second mortgage because a home equity loan will work out better for you. The second mortgage is best for large amounts of money at once while recurring expenses like tuition are better paid for with a home equity line of credit.
Second Mortgage Tip #3 Repayment You will also need to consider your ability to repay and which option will suit you best. A second mortgage can be financed similarly to your first mortgage, while the home equity loan can be paid back more like a credit card. Consider your financial position and ability to make monthly payments before applying for either a second mortgage or a home equity loan.
If you still don't know whether a second mortgage or home equity line of credit is for you, then talk with your lender and see what is recommended for your equity, credit, and ability to repay the loan.
About the Author
Jay Moncliff is the founder of http://www.new-mortgage-center.info a website specialized on Mortgage, resources and articles. This site provides updated information on Mortgage. For more info visit his site: Mortgage
Second Mortgage Tip #1 One Time Expenses A second mortgage is the preferred option if you have a one time big expense you need to cover. Examples of this include remodeling your kitchen, paying for a wedding, or buying a new car. In these instances a second mortgage will probably work best for you; however this will depend on the equity in your home and your credit score.
Second Mortgage Tip #2 Recurring Expenses If you are going to have recurring expenses then you might not want a second mortgage because a home equity loan will work out better for you. The second mortgage is best for large amounts of money at once while recurring expenses like tuition are better paid for with a home equity line of credit.
Second Mortgage Tip #3 Repayment You will also need to consider your ability to repay and which option will suit you best. A second mortgage can be financed similarly to your first mortgage, while the home equity loan can be paid back more like a credit card. Consider your financial position and ability to make monthly payments before applying for either a second mortgage or a home equity loan.
If you still don't know whether a second mortgage or home equity line of credit is for you, then talk with your lender and see what is recommended for your equity, credit, and ability to repay the loan.
About the Author
Jay Moncliff is the founder of http://www.new-mortgage-center.info a website specialized on Mortgage, resources and articles. This site provides updated information on Mortgage. For more info visit his site: Mortgage
Home Equity Line of Credit Pro and Cons by Gary Gresham
Home equity line of credit pro and cons are important if you decide to tap your equity in your home. Whether you are choosing a home equity loan vs equity line of credit, each loan is considered a second loan and is secured by your home.
Here are some home equity line of credit pro and cons to make your choice a little easier.
Pros:
Most home equity lines of credit have little or no closing costs.
You only need to make interest only mortgage loan payments which means lower monthly mortgage payments than with a fixed interest rate loan.
Variable mortgage interest rates are usually much lower starting rates than with fixed interest rate loans.
You can use the loan to draw on only as you need the money. You only pay interest on the money used not on the entire loan amount.
You can use the remaining unused balance of the equity line as an emergency fund.
Cons:
Variable mortgage interest rates are not stable and could go higher than a fixed interest rate loan.
Monthly mortgage payments are not level and can fluctuate a great deal.
Most home equity lines of credit have yearly fees paid to the lender.
With equity rates rising quickly it's easy to spend your all of your home equity.
It makes sense to use the equity in your home to pay down debt, or pay credit cards off. But use the money wisely and only use as little equity as you have to.
Hopefully these home equity line of credit pro and cons will make your choice of equity loans easier for you.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
About the Author
This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: http://www.credit-repair-facts.com/articles_1.html
Here are some home equity line of credit pro and cons to make your choice a little easier.
Pros:
Most home equity lines of credit have little or no closing costs.
You only need to make interest only mortgage loan payments which means lower monthly mortgage payments than with a fixed interest rate loan.
Variable mortgage interest rates are usually much lower starting rates than with fixed interest rate loans.
You can use the loan to draw on only as you need the money. You only pay interest on the money used not on the entire loan amount.
You can use the remaining unused balance of the equity line as an emergency fund.
Cons:
Variable mortgage interest rates are not stable and could go higher than a fixed interest rate loan.
Monthly mortgage payments are not level and can fluctuate a great deal.
Most home equity lines of credit have yearly fees paid to the lender.
With equity rates rising quickly it's easy to spend your all of your home equity.
It makes sense to use the equity in your home to pay down debt, or pay credit cards off. But use the money wisely and only use as little equity as you have to.
Hopefully these home equity line of credit pro and cons will make your choice of equity loans easier for you.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
About the Author
This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: http://www.credit-repair-facts.com/articles_1.html
FHA Loans, What do you need to qualify? by Amit Laufer
Most of us need to borough some money at least at one point of time in our life. When we want to buy a car, to study at the College or University, when we want to buy a house or home, when we need money to start our own Business even when we use our credit cards.
There are many types of loans and mortgages, such as FHA loans, Student loans, College loans, Business loans, Personal loans, Commercial loans, Payday loans, Auto loans, Car loans, Vehicle loans, Mobile home loans, Motorcycle loans, Military loans, Construction loans, Home loans, house loans, home equity loans, Bridge loans, Disaster loans, farm operating loans, Agriculture loans, Debt consolidation loans, Direct Loans, Government loans, Unsecured loans, refinance/remortgage loans, Bad credit loans etc' Just to name a few. Within each loan term there are additional sub terms such as Fixed rate vs. Variable rate, Adjustable rate, ARM, PITI, HELOC, Balloon Mortgage, reverse mortgage and other bewildering financial terms we will try to clarify here.
What is FHA
Home mortgages are important part of the loans universe but we will concentrate here On a specific one called FHA. The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal was to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market.
FHA is not a loan, It's an Insurance! If a home buyer defaults, the lender is paid from the insurance fund. An FHA loan allows you to buy a house with as little as 3% down payment, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home. It is not a program reserved only for first time home buyers. You can buy your third or fourth home with an FHA loan. The only stipulation is that you may only have one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.
The two very basic terms you need to understand is A.PITI and B. Long Term Debt. PITI stands for Principle, Interest, Taxes, and Insurance. It is with relations to your Mortgage and property housing total monthly cost. Your maximum PITI should not exceed 29% of your gross monthly income.
Long term debt includes such things as car loans and credit cards balances. In order to qualify for FHA loan your PITI + Long Term Debt should not exceed 41% of gross monthly income. This is much lenient terms compared to conventional loan terms of maximum PITI of 26% - 28% and Total PITI + Long Term Debt of 33% -36%.
Qualifying for an FHA loan you need the followings:
- Good credit history that shows you meet your financial obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly income.
- Sufficient cash down payment at time of closing. 3% of the total cost.
- Closing expenses cost of 2%-3% of the price of the house. (Homeowner's Insurance, Attorney's fees, title fees, and title insurance,Private Mortgage Insurance if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD - US Department of Housing and Urban Development, mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership. At the time it is issued, the ARM usually has an interest rate several percentage points below a fixed rate mortgage. The interest rate can change as market conditions change. If interest rates go up, so does your mortgage payment. If they come down, your mortgage payment comes down, too.
The reverse mortgage is often of interest to senior homeowners. This loan provides cash for living, health or other expenses. Payments are made to the borrower in a lump sum or monthly. Most reverse mortgages are issued to those 62 and older who own a debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your home to pay for home improvements, debt consolidation or other financial goals. With an acceptable debt, credit and employment history, you may be able to borrow up to 85% of the appraised equity in your home.
Balloon Mortgage - the buyer pays interest for three to five years on a balloon mortgage. After that the entire principal comes due all at once.
For additional Info:
http://www.loans-money-infoweb.com/
About the Author
MBA - International Trade & Finance - Heriot-Watt University. Bsc. Computers and Information Systems - Long Island University - C.W Post Campus. Hobby: Photography. Married with two Children.
Owner and Editor of:
http://www.loans-money-infoweb.com/
There are many types of loans and mortgages, such as FHA loans, Student loans, College loans, Business loans, Personal loans, Commercial loans, Payday loans, Auto loans, Car loans, Vehicle loans, Mobile home loans, Motorcycle loans, Military loans, Construction loans, Home loans, house loans, home equity loans, Bridge loans, Disaster loans, farm operating loans, Agriculture loans, Debt consolidation loans, Direct Loans, Government loans, Unsecured loans, refinance/remortgage loans, Bad credit loans etc' Just to name a few. Within each loan term there are additional sub terms such as Fixed rate vs. Variable rate, Adjustable rate, ARM, PITI, HELOC, Balloon Mortgage, reverse mortgage and other bewildering financial terms we will try to clarify here.
What is FHA
Home mortgages are important part of the loans universe but we will concentrate here On a specific one called FHA. The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal was to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market.
FHA is not a loan, It's an Insurance! If a home buyer defaults, the lender is paid from the insurance fund. An FHA loan allows you to buy a house with as little as 3% down payment, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home. It is not a program reserved only for first time home buyers. You can buy your third or fourth home with an FHA loan. The only stipulation is that you may only have one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.
The two very basic terms you need to understand is A.PITI and B. Long Term Debt. PITI stands for Principle, Interest, Taxes, and Insurance. It is with relations to your Mortgage and property housing total monthly cost. Your maximum PITI should not exceed 29% of your gross monthly income.
Long term debt includes such things as car loans and credit cards balances. In order to qualify for FHA loan your PITI + Long Term Debt should not exceed 41% of gross monthly income. This is much lenient terms compared to conventional loan terms of maximum PITI of 26% - 28% and Total PITI + Long Term Debt of 33% -36%.
Qualifying for an FHA loan you need the followings:
- Good credit history that shows you meet your financial obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly income.
- Sufficient cash down payment at time of closing. 3% of the total cost.
- Closing expenses cost of 2%-3% of the price of the house. (Homeowner's Insurance, Attorney's fees, title fees, and title insurance,Private Mortgage Insurance if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD - US Department of Housing and Urban Development, mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership. At the time it is issued, the ARM usually has an interest rate several percentage points below a fixed rate mortgage. The interest rate can change as market conditions change. If interest rates go up, so does your mortgage payment. If they come down, your mortgage payment comes down, too.
The reverse mortgage is often of interest to senior homeowners. This loan provides cash for living, health or other expenses. Payments are made to the borrower in a lump sum or monthly. Most reverse mortgages are issued to those 62 and older who own a debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your home to pay for home improvements, debt consolidation or other financial goals. With an acceptable debt, credit and employment history, you may be able to borrow up to 85% of the appraised equity in your home.
Balloon Mortgage - the buyer pays interest for three to five years on a balloon mortgage. After that the entire principal comes due all at once.
For additional Info:
http://www.loans-money-infoweb.com/
About the Author
MBA - International Trade & Finance - Heriot-Watt University. Bsc. Computers and Information Systems - Long Island University - C.W Post Campus. Hobby: Photography. Married with two Children.
Owner and Editor of:
http://www.loans-money-infoweb.com/
Seven Steps To Make Buying A New Home An Enjoyable And Intelligent Move by John Davin
Buying a new home is one of the most exciting and most important decisions you will make in your lifetime. For both financial and lifestyle reasons. However, it may not be apparent if you have made a good move until months or years down the road, so it is very important for you to take the time to analyze each step and each decision BEFORE you make the final move and sign on the dotted line to purchase the new home.
You can find many web sites that will provide answers to the questions below, but you may also want to work with professional to make the best, educated decisions. Here are seven steps to make buying a new home an enjoyable and intelligent move for you.
1. Deciding if now is a good time to buy a new home. (Rent vs buy or even stay where you are)
The reasons for moving are varied. You may have outgrown your current home. Or you've decided to accept a new job in a new location. Or you are preparing for retirement and are downsizing and accessing the profits from your investment in your home so you can retire. If you are renting now, and contemplating buying a new home, you may even want to do a rent VS. buy analysis. In addition, if you are considering taking a new job in a new community, be sure to analyze the cost of living in the new community. Will you actually have a better lifestyle after the move just because you will be taking a new job that pays more? Perhaps not. Again, web sites with resources are provided below to guide you in these decisions.
2. Finding out what type of home you can afford today. (Visiting your local banker or mortgage broker)
To make an educated decision, you will need to talk to a professional advisor and loan specialist. A few of of your deciding factors will be:
1. How much is your current home worth if you own one. And of course how much equity you have in your existing home. 2. The long term planning you have done in the past with your retirement pension and investments. 3. The price of new homes that you want to move into. 4. The amount of debt load you carry now. 5. Your credit report and your credit rating.
You may want to start at your local bank if you have or want a relationship with them. You can also go to the online mortgage specialists to compare national offers.
You may also want to work with a local REALTOR because a REALTOR ® usually knows the local money market and can tell you about financing options. A REALTOR ® can also tell you what personal and financial data to bring with you when you apply for a loan.
3. Finding the right real estate agent or going it alone. (Finding the right agent or looking for a for sale by owner)
The Internet has made it much easier pre-qualify yourself for a home loan and to then find the right home for you and your family. However, you may still want to work with a professional Realtor for many reasons. One of the most important reasons may be that the REALTOR ® is that they have knowledge in many areas and may make just one recommendation or warning that may save you time, money and headaches. In addition, a REALTOR ® can supply information on real estate values, taxes, utility costs, municipal services and facilities, and may be aware of proposed zoning changes that could affect your decision to buy. A REALTOR ® also has access to listings of available homes, can evaluate them in terms of your needs and affordability, and doesn't waste your time on unsuitable homes.
4. Finding the right community and neighborhood for your family (You will have different needs at different times in your life)
Are you moving to a new city or just moving within your city? In any case, you might make many of the same decisions, whether you are moving within your city to a new city. Do you need to be near things like access to the night life? Or are these things more important? Schools. Sports facilities. Workout facilities. Jobs for you and your spouse. Many of these decisions are simply dependent on the stage of your life, if are you retiring or if your family growing.
A simple process that will help you is to take a piece of paper out and make a line down the middle. Then make headings for "Must have" and one for "Would be nice". Then write down all the things you feel would be "Must haves" on the left column and the things you feel "Would be nice" on the right. Then make a decision based on the community that has the most or best items that you must have or need. Again, a REALTOR ® can help you by working out a realistic idea of the home best suited to your needs- size, style, features, location, accessibility to schools, transportation, shopping, etc.
5. Deciding on the right type of home and the right home for your family. (Do you need a home with room for a family to grow or a 1 level home that will be easier in your upcoming retirement?)
What type of home do you want to buy (e.g. a ranch home, a split foyer, a 2 story, etc.) Or do you need a lesson in the benefits of each one? Should you buy a new home or an older home? Are you hoping to buy a home that needs repairs to so you can fix it up and build sweat equity, or do you want to simply move in to a new home? Or are you going to build a new home and need to work with a contractor to buy the lot, dig the basement and build the home? Again, you may need help. A REALTOR ® has no emotional ties to the homes, or contractors, and can be objective about them, and can point out advantages and disadvantages while answering your questions.
6. Preparing for the closing and finalizing your decision.
Although preparing for the closing on your new home is an exciting time, it is also can be a time consuming and very important event. If you have made an offer on a home that you really want, one small snag could keep you from getting it. In addition, you could lose money if you do not have a clear understanding of your contract. A REALTOR ® can help familiarize you with the closing process by explaining it all in advance.
7. Making the move and all the things you need to do.
You're almost in your new home now! Now all you have to do is move, right? Not quite, but you should be so excited by now that it will not slow you down. You'll need to write down all the tasks you need to complete to make it a smooth move. Many web sites have checklists for moving for you to print and follow for your move. A few examples are lining up the professional movers or moving yourself. Hopefully your employer will be paying for the move, but if not, you'll need a moving truck, a dolly, packing blankets, and perhaps hired hands to do the moving. You'll also need to plan dates and processes for things like changing your mailing address, ordering new services such as your new phone, cable TV, garbage removal and more.
Again, many web sites have checklists for moving for you to print and follow for your move and that is the best place to start.
About the Author
For many more resources to assist you in your move, visit: http://www.talking-realestate.com
You can find many web sites that will provide answers to the questions below, but you may also want to work with professional to make the best, educated decisions. Here are seven steps to make buying a new home an enjoyable and intelligent move for you.
1. Deciding if now is a good time to buy a new home. (Rent vs buy or even stay where you are)
The reasons for moving are varied. You may have outgrown your current home. Or you've decided to accept a new job in a new location. Or you are preparing for retirement and are downsizing and accessing the profits from your investment in your home so you can retire. If you are renting now, and contemplating buying a new home, you may even want to do a rent VS. buy analysis. In addition, if you are considering taking a new job in a new community, be sure to analyze the cost of living in the new community. Will you actually have a better lifestyle after the move just because you will be taking a new job that pays more? Perhaps not. Again, web sites with resources are provided below to guide you in these decisions.
2. Finding out what type of home you can afford today. (Visiting your local banker or mortgage broker)
To make an educated decision, you will need to talk to a professional advisor and loan specialist. A few of of your deciding factors will be:
1. How much is your current home worth if you own one. And of course how much equity you have in your existing home. 2. The long term planning you have done in the past with your retirement pension and investments. 3. The price of new homes that you want to move into. 4. The amount of debt load you carry now. 5. Your credit report and your credit rating.
You may want to start at your local bank if you have or want a relationship with them. You can also go to the online mortgage specialists to compare national offers.
You may also want to work with a local REALTOR because a REALTOR ® usually knows the local money market and can tell you about financing options. A REALTOR ® can also tell you what personal and financial data to bring with you when you apply for a loan.
3. Finding the right real estate agent or going it alone. (Finding the right agent or looking for a for sale by owner)
The Internet has made it much easier pre-qualify yourself for a home loan and to then find the right home for you and your family. However, you may still want to work with a professional Realtor for many reasons. One of the most important reasons may be that the REALTOR ® is that they have knowledge in many areas and may make just one recommendation or warning that may save you time, money and headaches. In addition, a REALTOR ® can supply information on real estate values, taxes, utility costs, municipal services and facilities, and may be aware of proposed zoning changes that could affect your decision to buy. A REALTOR ® also has access to listings of available homes, can evaluate them in terms of your needs and affordability, and doesn't waste your time on unsuitable homes.
4. Finding the right community and neighborhood for your family (You will have different needs at different times in your life)
Are you moving to a new city or just moving within your city? In any case, you might make many of the same decisions, whether you are moving within your city to a new city. Do you need to be near things like access to the night life? Or are these things more important? Schools. Sports facilities. Workout facilities. Jobs for you and your spouse. Many of these decisions are simply dependent on the stage of your life, if are you retiring or if your family growing.
A simple process that will help you is to take a piece of paper out and make a line down the middle. Then make headings for "Must have" and one for "Would be nice". Then write down all the things you feel would be "Must haves" on the left column and the things you feel "Would be nice" on the right. Then make a decision based on the community that has the most or best items that you must have or need. Again, a REALTOR ® can help you by working out a realistic idea of the home best suited to your needs- size, style, features, location, accessibility to schools, transportation, shopping, etc.
5. Deciding on the right type of home and the right home for your family. (Do you need a home with room for a family to grow or a 1 level home that will be easier in your upcoming retirement?)
What type of home do you want to buy (e.g. a ranch home, a split foyer, a 2 story, etc.) Or do you need a lesson in the benefits of each one? Should you buy a new home or an older home? Are you hoping to buy a home that needs repairs to so you can fix it up and build sweat equity, or do you want to simply move in to a new home? Or are you going to build a new home and need to work with a contractor to buy the lot, dig the basement and build the home? Again, you may need help. A REALTOR ® has no emotional ties to the homes, or contractors, and can be objective about them, and can point out advantages and disadvantages while answering your questions.
6. Preparing for the closing and finalizing your decision.
Although preparing for the closing on your new home is an exciting time, it is also can be a time consuming and very important event. If you have made an offer on a home that you really want, one small snag could keep you from getting it. In addition, you could lose money if you do not have a clear understanding of your contract. A REALTOR ® can help familiarize you with the closing process by explaining it all in advance.
7. Making the move and all the things you need to do.
You're almost in your new home now! Now all you have to do is move, right? Not quite, but you should be so excited by now that it will not slow you down. You'll need to write down all the tasks you need to complete to make it a smooth move. Many web sites have checklists for moving for you to print and follow for your move. A few examples are lining up the professional movers or moving yourself. Hopefully your employer will be paying for the move, but if not, you'll need a moving truck, a dolly, packing blankets, and perhaps hired hands to do the moving. You'll also need to plan dates and processes for things like changing your mailing address, ordering new services such as your new phone, cable TV, garbage removal and more.
Again, many web sites have checklists for moving for you to print and follow for your move and that is the best place to start.
About the Author
For many more resources to assist you in your move, visit: http://www.talking-realestate.com
Second Mortgage/Home Equity vs. Refinance by Benjamin Ehinger
Why should you take out a second mortgage or a home equity line of credit instead of refinancing?
Well,.........You Shouldn't!!
Why Not?
1. Second Mortgages usually have an interest rant that is twice or even three times as high as your first mortgage rate. You can refinance instead and keep a very low rate. In the long run a second mortgage will just cost you money in interest charges. 2. Home equity lines of credit are designed for mortgage account executives (salespeople) to sell you on using it like a credit card attached to your home. They will try to convince you to use it over and over again. 3. A refinance loan is better for the equity in your home. Very few companies will refinance your home at 100% of it's value without forcing you to take out a second mortgage. You don't want to use 100% of your equity because that means you no longer have that equity to fall back on in emergency situations. 4. Second Mortgages and Home Equity lines of credit are designed to provide account executives (salespeople) with another tool to sway you into putting another commission in their pocket. 5. Your equity is a precious thing and should not be used for unnecessary add ons or impulse buys. If you don't need it and there is even a slight chance you can't afford it, then don't get a second mortgage to buy it.
The only reason that I would ever recommend a second mortgage or a home equity line of credit is in an emergency situation. Only when there is no other option and you must take out a loan would I recommend either one of these options.
About the Author
About the Author
Benjamin Ehinger has an extensive mortgage background and has studied the industry for many years. To learn more about Refinancing and Second Mortgages visit: http://bandcdriver.tripod.com/second-mortgage.htm
Well,.........You Shouldn't!!
Why Not?
1. Second Mortgages usually have an interest rant that is twice or even three times as high as your first mortgage rate. You can refinance instead and keep a very low rate. In the long run a second mortgage will just cost you money in interest charges. 2. Home equity lines of credit are designed for mortgage account executives (salespeople) to sell you on using it like a credit card attached to your home. They will try to convince you to use it over and over again. 3. A refinance loan is better for the equity in your home. Very few companies will refinance your home at 100% of it's value without forcing you to take out a second mortgage. You don't want to use 100% of your equity because that means you no longer have that equity to fall back on in emergency situations. 4. Second Mortgages and Home Equity lines of credit are designed to provide account executives (salespeople) with another tool to sway you into putting another commission in their pocket. 5. Your equity is a precious thing and should not be used for unnecessary add ons or impulse buys. If you don't need it and there is even a slight chance you can't afford it, then don't get a second mortgage to buy it.
The only reason that I would ever recommend a second mortgage or a home equity line of credit is in an emergency situation. Only when there is no other option and you must take out a loan would I recommend either one of these options.
About the Author
About the Author
Benjamin Ehinger has an extensive mortgage background and has studied the industry for many years. To learn more about Refinancing and Second Mortgages visit: http://bandcdriver.tripod.com/second-mortgage.htm
Debt Negotiation Vs. Debt Management by Carrie Reeder
Debt negotiation and debt management/consolidation both help consumers pay off their debts through two different approaches. Each affects your credit score, payoff period, and taxes differently. Before choosing either options, be sure you understand the long term consequences of each debt management option.
Influence On Credit Score
Debt consolidation is better of the two when it comes to influencing your credit score. By consolidating your different loans into one, you are using the same amount of credit and will be dinged only slightly for opening another account.
If you choose a debt consolidation company, your creditors may report delayed payment. However, after regular payments have been established for several months, you will be able to apply for more credit if needed.
Debt negotiation leaves a lasting impact on your credit history, much like a bankruptcy. When creditors agree to reduce your debt, a record of the debt reduction will stay on your credit score for seven years. However, you will be able to qualify for credit as your score improves, usually within two years.
Payoff Period
Using a home equity or personal loan to consolidate your debt can extend your payoff period up to 30 years. You can also choose shorter periods for your loans. A debt consolidation company can help you pay off unsecured loans in less than five years.
Debt negotiations reduce debt, but don't eliminate it. Credit cards and short term debt can be paid off in less than five years. Other forms of credit can take longer.
Tax Impact
Interest from your home equity loan can be deducted from your taxes for a financial savings. But any debt reductions have to be reported as income to both federal and state governments. Expect to pay income tax with debt negotiations.
Cost Of Fees
With both types of debt management, you can expect to pay fees. Depending on the type of home equity loan you pick, fees can range from hundreds to thousands of dollars. A second mortgage or line of credit have lower fees than cashing out your equity with a refinanced mortgage.
Debt management and debt negotiation companies also charge fees for their services. Fees should not be paid until these companies actually provide you with a service. Also, compare several companies to be sure you find the best deal.
About the Author
Carrie Reeder is the owner of www.abcloanguide.com, an informational website about various types of loans. View her recommended Online Debt Consolidation companies.
Influence On Credit Score
Debt consolidation is better of the two when it comes to influencing your credit score. By consolidating your different loans into one, you are using the same amount of credit and will be dinged only slightly for opening another account.
If you choose a debt consolidation company, your creditors may report delayed payment. However, after regular payments have been established for several months, you will be able to apply for more credit if needed.
Debt negotiation leaves a lasting impact on your credit history, much like a bankruptcy. When creditors agree to reduce your debt, a record of the debt reduction will stay on your credit score for seven years. However, you will be able to qualify for credit as your score improves, usually within two years.
Payoff Period
Using a home equity or personal loan to consolidate your debt can extend your payoff period up to 30 years. You can also choose shorter periods for your loans. A debt consolidation company can help you pay off unsecured loans in less than five years.
Debt negotiations reduce debt, but don't eliminate it. Credit cards and short term debt can be paid off in less than five years. Other forms of credit can take longer.
Tax Impact
Interest from your home equity loan can be deducted from your taxes for a financial savings. But any debt reductions have to be reported as income to both federal and state governments. Expect to pay income tax with debt negotiations.
Cost Of Fees
With both types of debt management, you can expect to pay fees. Depending on the type of home equity loan you pick, fees can range from hundreds to thousands of dollars. A second mortgage or line of credit have lower fees than cashing out your equity with a refinanced mortgage.
Debt management and debt negotiation companies also charge fees for their services. Fees should not be paid until these companies actually provide you with a service. Also, compare several companies to be sure you find the best deal.
About the Author
Carrie Reeder is the owner of www.abcloanguide.com, an informational website about various types of loans. View her recommended Online Debt Consolidation companies.
What Is A FHA Loan? by Amit Laufer
Most of us need to borrow some money at least at one point of time in our life. When we want to buy a car, to study at the College or University, when we want to buy a house or home, when we need money to start our own business - even when we use our credit cards.
There are many types of loans and mortgages, such as FHA loans, Student loans, College loans, Business loans, Personal loans, Commercial loans, Payday loans, Auto loans, Car loans, Vehicle loans, Mobile home loans, Motorcycle loans, Military loans, Construction loans, Home loans, house loans, home equity loans, Bridge loans, Disaster loans, farm operating loans, Agriculture loans, Debt consolidation loans, Direct Loans, Government loans, Unsecured loans, refinance/remortgage loans, Bad credit loans, etc., just to name a few.
Within each loan term there are additional sub terms such as Fixed rate vs. Variable rate, Adjustable rate, ARM, PITI, HELOC, Balloon Mortgage, reverse mortgage, and other bewildering financial terms we will try to clarify here.
What is FHA
Home mortgages are important part of the loans universe but we will concentrate here On a specific one called FHA. The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal was to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market.
FHA is not a loan, It's an Insurance! If a home buyer defaults, the lender is paid from the insurance fund. An FHA loan allows you to buy a house with as little as 3% down payment, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home. It is not a program reserved only for first time home buyers. You can buy your third or fourth home with an FHA loan. The only stipulation is that you may only have one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.
The two very basic terms you need to understand is A.PITI and B. Long Term Debt. PITI stands for Principle, Interest, Taxes, and Insurance. It is with relations to your Mortgage and property housing total monthly cost. Your maximum PITI should not exceed 29% of your gross monthly income.
Long term debt includes such things as car loans and credit cards balances. In order to qualify for FHA loan your PITI + Long Term Debt should not exceed 41% of gross monthly income.
This is much lenient terms compared to conventional loan terms of maximum PITI of 26% - 28% and Total PITI + Long Term Debt of 33% -36%.
Qualifying for an FHA loan you need the following:
- Good credit history that shows you meet your financial obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly income.
- Sufficient cash down payment at time of closing. 3% of the total cost.
- Closing expenses cost of 2%-3% of the price of the house. (Homeowner's Insurance, Attorney's fees, title fees, and title insurance, Private Mortgage Insurance if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD -US Department of Housing and Urban Development, mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership. At the time it is issued, the ARM usually has an interest rate several percentage points below a fixed rate mortgage.
The interest rate can change as market conditions change. If interest rates go up, so does your mortgage payment. If they come down, your mortgage payment comes down, too.
The reverse mortgage is often of interest to senior homeowners. This loan provides cash for living, health or other expenses. Payments are made to the borrower in a lump sum or monthly. Most reverse mortgages are issued to those 62 and older who own a debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your home to pay for home improvements, debt consolidation or other financial goals. With an acceptable debt, credit and employment history, you may be able to borrow up to 85% of the appraised equity in your home.
Balloon Mortgage - the buyer pays interest for three to five years on a balloon mortgage. After that the entire principal comes due all at once.
About the Author
Amit Laufer is a writer & internet marketer. MBA & Bsc. Computers and Information Systems. Owner & Editor of: http://www.loans-money-infoweb.com
There are many types of loans and mortgages, such as FHA loans, Student loans, College loans, Business loans, Personal loans, Commercial loans, Payday loans, Auto loans, Car loans, Vehicle loans, Mobile home loans, Motorcycle loans, Military loans, Construction loans, Home loans, house loans, home equity loans, Bridge loans, Disaster loans, farm operating loans, Agriculture loans, Debt consolidation loans, Direct Loans, Government loans, Unsecured loans, refinance/remortgage loans, Bad credit loans, etc., just to name a few.
Within each loan term there are additional sub terms such as Fixed rate vs. Variable rate, Adjustable rate, ARM, PITI, HELOC, Balloon Mortgage, reverse mortgage, and other bewildering financial terms we will try to clarify here.
What is FHA
Home mortgages are important part of the loans universe but we will concentrate here On a specific one called FHA. The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal was to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market.
FHA is not a loan, It's an Insurance! If a home buyer defaults, the lender is paid from the insurance fund. An FHA loan allows you to buy a house with as little as 3% down payment, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home. It is not a program reserved only for first time home buyers. You can buy your third or fourth home with an FHA loan. The only stipulation is that you may only have one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.
The two very basic terms you need to understand is A.PITI and B. Long Term Debt. PITI stands for Principle, Interest, Taxes, and Insurance. It is with relations to your Mortgage and property housing total monthly cost. Your maximum PITI should not exceed 29% of your gross monthly income.
Long term debt includes such things as car loans and credit cards balances. In order to qualify for FHA loan your PITI + Long Term Debt should not exceed 41% of gross monthly income.
This is much lenient terms compared to conventional loan terms of maximum PITI of 26% - 28% and Total PITI + Long Term Debt of 33% -36%.
Qualifying for an FHA loan you need the following:
- Good credit history that shows you meet your financial obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly income.
- Sufficient cash down payment at time of closing. 3% of the total cost.
- Closing expenses cost of 2%-3% of the price of the house. (Homeowner's Insurance, Attorney's fees, title fees, and title insurance, Private Mortgage Insurance if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD -US Department of Housing and Urban Development, mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership. At the time it is issued, the ARM usually has an interest rate several percentage points below a fixed rate mortgage.
The interest rate can change as market conditions change. If interest rates go up, so does your mortgage payment. If they come down, your mortgage payment comes down, too.
The reverse mortgage is often of interest to senior homeowners. This loan provides cash for living, health or other expenses. Payments are made to the borrower in a lump sum or monthly. Most reverse mortgages are issued to those 62 and older who own a debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your home to pay for home improvements, debt consolidation or other financial goals. With an acceptable debt, credit and employment history, you may be able to borrow up to 85% of the appraised equity in your home.
Balloon Mortgage - the buyer pays interest for three to five years on a balloon mortgage. After that the entire principal comes due all at once.
About the Author
Amit Laufer is a writer & internet marketer. MBA & Bsc. Computers and Information Systems. Owner & Editor of: http://www.loans-money-infoweb.com
Secure vs. Unsecured Loans by Alan Luong
Essentially, there are two types of loans: secured loans and unsecured loans. Secured loans are loans in which you pledge some sort of collateral. The bank may repossess the collateral if you do not repay the loan according to the terms you agreed to when you took out the loan.
Unsecured loans are not backed by any collateral. You borrow money on the strength of your good credit and ability to repay alone.
Revolving vs. Installment Loans
Revolving and installment describe the amount of time you have to pay back a loan. With a revolving loan, you have access to a continuous source of credit, up to your credit limit. You repay only the amount of the credit you use, plus interest on the unpaid amount. You may re-borrow the principal you've repaid. So the loan could remain "open" for years.
With an installment loan, you pay an agreed amount, which includes principal and interest, every month. Each payment reduces the balance of the loan until it is paid off. There is a fixed ending date, known as the term of the loan.
Fixed vs. Adjustable Interest Rate Loans
Fixed interest is just that. You and the bank agree to a certain interest rate and it remains constant throughout the term of the loan. Fixed interest rates give you the stability of always knowing what your payment will be, so you can budget accordingly.
Adjustable or variable rate interest fluctuates. Usually it is pegged to the Prime Rate - the interest the U.S. Treasury charges to its best borrowers. When the Prime Rate is high, such as during a period of inflation, you pay more. When the Prime Rate is low, such as when the government is trying to stimulate the economy during a recession, you save on interest. If you need to borrow during a period of high interest, your payments will drop once the Prime Rate drops.
Types Of Loans
Auto Loans: A secured loan in which the collateral is the vehicle you purchase.
Credit Cards: An unsecured loan which allows you a line of credit against which you may borrow by presenting a plastic card to the merchant from whom you are purchasing the item. You may make more than one purchase, up to your credit limit.
Personal Loans: Secured or unsecured loans made for a fixed purpose.
Mortgages: A secured loan in which the collateral is the real estate you buy.
Home Equity Loan: A secured loan for a fixed amount in which the collateral is your home. In some cases, the interest on this loan may be tax deductible. See your accountant.
Home Equity Credit Line: A secured, revolving line of credit in which the collateral is your home. In some cases, the interest on this loan or a portion of it may be tax deductible. Consult a tax professional or your accountant.
Home Improvement Loan: A secured loan for a lump sum fixed amount in which the collateral is your home. The money may only be spent on home improvements. The interest on this loan may be tax deductible. Consult a tax professional or your accountant. (In some areas of the country, a home improvement loan "secured by the equity in your home" may not be available. In these areas, an unsecured home improvement loan would be available.)
Student Loan (Stafford Loan) A loan for college expenses underwritten by the U.S. Government. The loan is granted to the student. Payment is deferred while the student is still in school.
Personal Line of Credit: Unsecured loans allowing you access to funds up to a fixed credit limit.
About the Author
Alan is the site owner of http://www.dezeinfo.com, which is a loan site that provides you information on payday loan such as how to get started, where to apply, and how to avoid online loan scam.
Unsecured loans are not backed by any collateral. You borrow money on the strength of your good credit and ability to repay alone.
Revolving vs. Installment Loans
Revolving and installment describe the amount of time you have to pay back a loan. With a revolving loan, you have access to a continuous source of credit, up to your credit limit. You repay only the amount of the credit you use, plus interest on the unpaid amount. You may re-borrow the principal you've repaid. So the loan could remain "open" for years.
With an installment loan, you pay an agreed amount, which includes principal and interest, every month. Each payment reduces the balance of the loan until it is paid off. There is a fixed ending date, known as the term of the loan.
Fixed vs. Adjustable Interest Rate Loans
Fixed interest is just that. You and the bank agree to a certain interest rate and it remains constant throughout the term of the loan. Fixed interest rates give you the stability of always knowing what your payment will be, so you can budget accordingly.
Adjustable or variable rate interest fluctuates. Usually it is pegged to the Prime Rate - the interest the U.S. Treasury charges to its best borrowers. When the Prime Rate is high, such as during a period of inflation, you pay more. When the Prime Rate is low, such as when the government is trying to stimulate the economy during a recession, you save on interest. If you need to borrow during a period of high interest, your payments will drop once the Prime Rate drops.
Types Of Loans
Auto Loans: A secured loan in which the collateral is the vehicle you purchase.
Credit Cards: An unsecured loan which allows you a line of credit against which you may borrow by presenting a plastic card to the merchant from whom you are purchasing the item. You may make more than one purchase, up to your credit limit.
Personal Loans: Secured or unsecured loans made for a fixed purpose.
Mortgages: A secured loan in which the collateral is the real estate you buy.
Home Equity Loan: A secured loan for a fixed amount in which the collateral is your home. In some cases, the interest on this loan may be tax deductible. See your accountant.
Home Equity Credit Line: A secured, revolving line of credit in which the collateral is your home. In some cases, the interest on this loan or a portion of it may be tax deductible. Consult a tax professional or your accountant.
Home Improvement Loan: A secured loan for a lump sum fixed amount in which the collateral is your home. The money may only be spent on home improvements. The interest on this loan may be tax deductible. Consult a tax professional or your accountant. (In some areas of the country, a home improvement loan "secured by the equity in your home" may not be available. In these areas, an unsecured home improvement loan would be available.)
Student Loan (Stafford Loan) A loan for college expenses underwritten by the U.S. Government. The loan is granted to the student. Payment is deferred while the student is still in school.
Personal Line of Credit: Unsecured loans allowing you access to funds up to a fixed credit limit.
About the Author
Alan is the site owner of http://www.dezeinfo.com, which is a loan site that provides you information on payday loan such as how to get started, where to apply, and how to avoid online loan scam.
Home Equity Loans For People With Poor Credit - Get A Hassle-Free Home Equity Loan by Carrie Reeder
Even with poor credit, your options for getting a home equity loan are numerous. Home equity loans are different from other types of personal loans. For starters, these loans are secured. Lenders prefer this factor because it's easy for them to recoup their money if the loan defaults.
Understanding Home Equity Loan Options
When applying for a loan using your home's equity as collateral, there are several options. Homeowners with poor credit may take advantage of a home equity line of credit. Similar to credit card cash advances, homeowners are approved for a line of credit up to a dollar amount not to exceed their home's equity. Homeowners are free to withdraw funds as needed. The money can be used to payoff debts, repair an automobile, or make home improvements.
On the other hand, a home equity loan is disbursed as a lump sum of cash. Similarly, the funds may be used for large expenses or major home repairs. Both home equity options must be repaid. Home equity loans have fixed terms, whereas home equity lines of credit are available for a specific length of time.
Pros and Cons of Home Equity Loan Options
A home equity loan and line of credit are beneficial because they provide extra cash when you need it. Furthermore, if you have bad credit, maintaining regular payments will boost your credit score. If the funds are used to consolidate debt, homeowners can get on the road toward becoming debt free and boosting their credit score. In fact, many people obtain a home equity loan as a means of improving their credit rating.
The pitfall most common of home equity loans is the inability to repay the money. Sadly, some people cannot handle credit or money responsibly. Thus, once debts are consolidated or paid off, some people accumulate additional debts. The smart maneuver would be to close paid accounts, which would alleviate the temptation to use a credit card.
After incurring additional debts, some people are powerless to continue regular payments. If you acquire a home equity loan, there are multiple liens against your house. Consequently, either lender may foreclose. By defaulting on either loan, you risk losing your home.
Current Mortgage Lender vs. Sub Prime Lenders
When choosing a mortgage lender, do not rely on your current lender to offer the best rates. Getting a quote from your lender is ideal; however, you should also request quotes from new lenders. Banks or credit unions will not offer the lowest rates to persons with poor credit. Nevertheless, you can attain comparable loan rates by using a lender that specializes in bad credit loans. Sub prime lenders have convenient online applications and instant approvals. If using a mortgage broker, you will receive several sub prime loan offers within seconds.
About the Author
View our recommended Bad Credit Home Equity Loan lenders.
Understanding Home Equity Loan Options
When applying for a loan using your home's equity as collateral, there are several options. Homeowners with poor credit may take advantage of a home equity line of credit. Similar to credit card cash advances, homeowners are approved for a line of credit up to a dollar amount not to exceed their home's equity. Homeowners are free to withdraw funds as needed. The money can be used to payoff debts, repair an automobile, or make home improvements.
On the other hand, a home equity loan is disbursed as a lump sum of cash. Similarly, the funds may be used for large expenses or major home repairs. Both home equity options must be repaid. Home equity loans have fixed terms, whereas home equity lines of credit are available for a specific length of time.
Pros and Cons of Home Equity Loan Options
A home equity loan and line of credit are beneficial because they provide extra cash when you need it. Furthermore, if you have bad credit, maintaining regular payments will boost your credit score. If the funds are used to consolidate debt, homeowners can get on the road toward becoming debt free and boosting their credit score. In fact, many people obtain a home equity loan as a means of improving their credit rating.
The pitfall most common of home equity loans is the inability to repay the money. Sadly, some people cannot handle credit or money responsibly. Thus, once debts are consolidated or paid off, some people accumulate additional debts. The smart maneuver would be to close paid accounts, which would alleviate the temptation to use a credit card.
After incurring additional debts, some people are powerless to continue regular payments. If you acquire a home equity loan, there are multiple liens against your house. Consequently, either lender may foreclose. By defaulting on either loan, you risk losing your home.
Current Mortgage Lender vs. Sub Prime Lenders
When choosing a mortgage lender, do not rely on your current lender to offer the best rates. Getting a quote from your lender is ideal; however, you should also request quotes from new lenders. Banks or credit unions will not offer the lowest rates to persons with poor credit. Nevertheless, you can attain comparable loan rates by using a lender that specializes in bad credit loans. Sub prime lenders have convenient online applications and instant approvals. If using a mortgage broker, you will receive several sub prime loan offers within seconds.
About the Author
View our recommended Bad Credit Home Equity Loan lenders.
Bad Credit Debt Consolidation Loans - Unsecured Vs. Secured Debt Consolidation Loans by Carrie Reeder
Getting out of debt is easier said than done. Fortunately, there are many options available to people hoping to eliminate or reduce high consumer debts. Before filing for bankruptcy, which is more damaging than having excessive debt, consider other alternatives. For example, acquiring a secured or unsecured debt consolidation loan is one method to becoming debt free.
Ways to Eliminate Unnecessary Debts
There are many ways to reduce debts. Some people prefer to eliminate debt without obtaining a loan. In this case, getting second employment or seeking a higher paying job may provide you with the extra cash to pay down balances. There is no easy way to reduce debts. Furthermore, eliminating debts take time. Because of high finance fees, paying double the monthly minimum may not result in a significant reduction. However, debt consolidation loans have lower rates, which mean lower finance fees.
What are Unsecured Debt Consolidation Loans?
Unsecured debt consolidation loans are granted by banks and other financial institutions. These loans are not secured by property. Hence, they are also termed no-collateral loans. Getting approved for these types of debt consolidation loans are not easy. If you have too much debt, the majority of lenders are hesitant to extend you additional credit. On the other hand, if you have a very high credit score and earn a sizeable salary, obtaining an unsecured debt consolidation loan is feasible. Overall, individuals with a superb credit rating know how to use credit responsibly. Besides, these individuals will not risk injuring their credit rating.
The disadvantage of unsecured debt consolidation loans is the higher rates. Because, lenders are taking a gamble, be prepared to pay a high interest rate. Still, lender rates are low in comparison to typical credit card rates
What is a Secured Debt Consolidation Loan?
A secured debt consolidation involves collateral. To get approved for these types of loans, the lender will request a valuable piece of property. A vehicle title or boat title may serve as sufficient collateral. If you own a home, consider obtaining a home equity loan or line of credit for the purpose of consolidating debts. These loans do not require a high credit rating. However, applicants with good credit will receive prime rates. Avoid defaulting on secured loans. Failure to pay will result in the lender taking full possession of your property.
About the Author
View our recommended companies for Bad Credit Debt Consolidation or view all of our Recommended Debt Consolidation Companies Online
Ways to Eliminate Unnecessary Debts
There are many ways to reduce debts. Some people prefer to eliminate debt without obtaining a loan. In this case, getting second employment or seeking a higher paying job may provide you with the extra cash to pay down balances. There is no easy way to reduce debts. Furthermore, eliminating debts take time. Because of high finance fees, paying double the monthly minimum may not result in a significant reduction. However, debt consolidation loans have lower rates, which mean lower finance fees.
What are Unsecured Debt Consolidation Loans?
Unsecured debt consolidation loans are granted by banks and other financial institutions. These loans are not secured by property. Hence, they are also termed no-collateral loans. Getting approved for these types of debt consolidation loans are not easy. If you have too much debt, the majority of lenders are hesitant to extend you additional credit. On the other hand, if you have a very high credit score and earn a sizeable salary, obtaining an unsecured debt consolidation loan is feasible. Overall, individuals with a superb credit rating know how to use credit responsibly. Besides, these individuals will not risk injuring their credit rating.
The disadvantage of unsecured debt consolidation loans is the higher rates. Because, lenders are taking a gamble, be prepared to pay a high interest rate. Still, lender rates are low in comparison to typical credit card rates
What is a Secured Debt Consolidation Loan?
A secured debt consolidation involves collateral. To get approved for these types of loans, the lender will request a valuable piece of property. A vehicle title or boat title may serve as sufficient collateral. If you own a home, consider obtaining a home equity loan or line of credit for the purpose of consolidating debts. These loans do not require a high credit rating. However, applicants with good credit will receive prime rates. Avoid defaulting on secured loans. Failure to pay will result in the lender taking full possession of your property.
About the Author
View our recommended companies for Bad Credit Debt Consolidation or view all of our Recommended Debt Consolidation Companies Online
Home Equity Loans vs Home Equity Line Of Credit - Which Option Should You Choose? by Carrie Reeder
Tapping into your home equity loans qualifies you for low rates with the potential benefit of tax write offs. Lenders have developed a number of financing solutions for you, each with their own pros and cons. Home equity loans provide low rates with some closing costs. On the other hand, a home equity line of credit waives closing costs and application fees for flexible lending amounts at slightly higher rates.
Benefits Of A Home Equity Loan
For those wanting to borrow a large amount for several years, a home equity loan provides the cheapest financing. By paying closing costs, you can lock in a low fixed or adjustable rate. You also can select terms that help you get you a reasonable monthly payment.
Home equity loans usually don't have any limit balances, early payment, or annual fees. Structured like a regular mortgages, interest is primarily paid at the beginning of the loan period.
Benefits Of A Home Equity Line Of Credit
With a home equity line of credit you can borrow amounts when you need to with an issued credit card. With a predetermined credit limit, you have flexibility of when you can draw on funds. So you can pay off the balance one month, and then borrow a thousand the next.
Interest is only paid on the amount you borrow. Usually, the minimum payment is only the interest charged for that month. Most lenders also offer the option of converting your line of credit into a second mortgage when you are ready to make regular payments.
A line of credit doesn't usually have any application fees. But there may be fees for carry a minimum balance or closing the account early.
Choosing The Right Equity Financing
Home equity loans are designed for large lump sum payments, used to pay off credit card debt or pay for a remodel project. Terms extend for several years to make the loan payments manageable.
Home equity line of credit is best for short term financing. Interest payments can be kept to a minimum by paying off balances early. Opening a line of credit also gives you the option of available credit without having to pay large applications fees.
No matter which type of financing you settle on, make sure you compare several lenders to get the best deal on rates and fees.
About the Author
Visit http://www.abcloanguide.com/homeequityloan.shtml for a list of home equity loan companies online. View our recommended home equity loan companies online.
Benefits Of A Home Equity Loan
For those wanting to borrow a large amount for several years, a home equity loan provides the cheapest financing. By paying closing costs, you can lock in a low fixed or adjustable rate. You also can select terms that help you get you a reasonable monthly payment.
Home equity loans usually don't have any limit balances, early payment, or annual fees. Structured like a regular mortgages, interest is primarily paid at the beginning of the loan period.
Benefits Of A Home Equity Line Of Credit
With a home equity line of credit you can borrow amounts when you need to with an issued credit card. With a predetermined credit limit, you have flexibility of when you can draw on funds. So you can pay off the balance one month, and then borrow a thousand the next.
Interest is only paid on the amount you borrow. Usually, the minimum payment is only the interest charged for that month. Most lenders also offer the option of converting your line of credit into a second mortgage when you are ready to make regular payments.
A line of credit doesn't usually have any application fees. But there may be fees for carry a minimum balance or closing the account early.
Choosing The Right Equity Financing
Home equity loans are designed for large lump sum payments, used to pay off credit card debt or pay for a remodel project. Terms extend for several years to make the loan payments manageable.
Home equity line of credit is best for short term financing. Interest payments can be kept to a minimum by paying off balances early. Opening a line of credit also gives you the option of available credit without having to pay large applications fees.
No matter which type of financing you settle on, make sure you compare several lenders to get the best deal on rates and fees.
About the Author
Visit http://www.abcloanguide.com/homeequityloan.shtml for a list of home equity loan companies online. View our recommended home equity loan companies online.
Understanding Reverse Mortgages by Rob Pirozzi
Understanding Reverse Mortgages
A reverse mortgage is one of many vehicles that individuals 62 years of age or older can use to turn the equity in their home into cash. It is very important, though, for an individual to fully understand reverse mortgages, their ramifications, and the alternatives. This article will provide an overview of reverse mortgages, as well as discuss alternatives.
What is a Reverse Mortgage?
With a "normal" home loan you pay a monthly amount (principal and interest). With each month, the amount that you owe goes down and the equity in your home goes up. As one might expect from its name, a reverse mortgage works in an opposite fashion. With a reverse mortgage you can turn the equity in your home into cash. You do not have to make monthly payments. The cash may be paid to you in one or more of the following ways:
As a single lump sum payment
As a regular monthly amount (a cash advance)
As a credit line account that you draw upon as needed
With a reverse mortgage, the homeowner continues to own their home and receives cash in whatever way is preferable to them. As they receive cash, their loan amount goes up, and the equity in their home declines. A reverse mortgage cannot grow to more than the amount of the equity of the house. In addition, a lender cannot seek payment of the loan from anything other than the value of the house. Your other assets and the assets of your heirs are protected by what is called a "non-recourse limit."
A reverse mortgage, plus accrued interest, does eventually have to get paid back. Repayment of a reverse mortgage happens when the last owner of the property named on the loan either dies, sells the home, or permanently moves out of the home. Before then, nothing needs to be paid on the loan.
There are other circumstances in which reverse mortgage lenders can also require repayment of a loan prior to the above conditions. These include:
The borrower fails to pay their property taxes
The borrower fails to maintain and repair their home
The borrower fails to keep their home insured
There are also other default conditions that can cause repayment of the loan. Most of these are similar to default conditions for traditional mortgages (for example, declaration of bankruptcy, donation or abandonment of the home, perpetration of fraud or misrepresentation, and more).
A reverse mortgage should not be confused with a home equity loan or home equity line, both of which are other means of obtaining money for the equity in your home. With either of these loan vehicles, an individual must pay at least monthly interest on the loan amount received, or amount that they have drawn on their equity line.
Reverse Mortgage Eligibility
All owners of a home must apply for the reverse mortgage and sign the appropriate loan papers. To qualify for a reverse mortgage the borrower(s) must:
Own their own home
Be at least 62 years of age or older
A reverse mortgage is most typically a "first" mortgage, meaning that there cannot be any other mortgages or loans against the property, such as an equity line. An individual typically owns their home "free and clear" prior to seeking a reverse mortgage.
Reverse Mortgage Loan Amounts
The amount of money that an individual may receive from a reverse mortgage is a function of many different factors, including:
The specific reverse mortgage program that the individual selects
The type of cash advances received (e.g., lump sum vs. monthly payment)
The individual's age (the older an individual is, the more cash they get)
The value of the individual's home (the more valuable the home, the more cash they get)
Types of Reverse Mortgages
There are several different types of reverse mortgages. Some are more expensive than others. Types of reverse mortgages include:
Reverse mortgages offered by state and local governments (often called "single purpose reverse mortgages"). These are typically the least expensive reverse mortgages. These may be the most restrictive on how the money received can be used.
Federally insured Home Equity Conversion Mortgages (HECM). These are almost always less expensive than other private sector reverse mortgages, but more expensive than reverse mortgages obtained from state and local governments.
Other private sector (proprietary) reverse mortgages.
Alternatives to Reverse Mortgages
While usually an option that causes a negative emotional reaction, selling a home is an alternative to a reverse mortgage. The proceeds of the sale can be used to either rent, or purchase a smaller, more "age-friendly" home, while money leftover can be invested to provide additional income. This option should at least be considered and compared to a reverse mortgage so that an individual is making an informed decision.
Reverse Mortgage Counseling
Counseling is required in order to obtain certain types of reverse mortgages. Counseling is required before an individual can obtain a Federally-insured Home Equity Conversion Mortgages (HECMs). Even if counseling is not required for a particular reverse mortgage, individuals considering a reverse mortgage should seek either counseling or the advice of a qualified financial adviser.
Good Sources of Information About Reverse Mortgages
The American Association of Retired Persons (AARP) is an excellent resource for finding more information on reverse mortgages. Their web site (www.aarp.org) has extensive information on the subject. Information may also be found on the National Reverse Mortgage Lenders Association web site (www.reversemortgage.org), the HECM Resources site (www.hecmresources.org/index.cfm), the National Center for Home Equity Conversion web site (www.reverse.org), and the Federal Trade Commission (www.ftc.gov/bcp/conline/pubs/homes/rms.htm).
About the Author
Rob Pirozzi is a contract writer for CityTownInfo.com. CityTownInfo is a quick reference web site that provides statistics and indexes on thousands of cities and towns across the US, as well as articles, comments from local residents, and more.
A reverse mortgage is one of many vehicles that individuals 62 years of age or older can use to turn the equity in their home into cash. It is very important, though, for an individual to fully understand reverse mortgages, their ramifications, and the alternatives. This article will provide an overview of reverse mortgages, as well as discuss alternatives.
What is a Reverse Mortgage?
With a "normal" home loan you pay a monthly amount (principal and interest). With each month, the amount that you owe goes down and the equity in your home goes up. As one might expect from its name, a reverse mortgage works in an opposite fashion. With a reverse mortgage you can turn the equity in your home into cash. You do not have to make monthly payments. The cash may be paid to you in one or more of the following ways:
As a single lump sum payment
As a regular monthly amount (a cash advance)
As a credit line account that you draw upon as needed
With a reverse mortgage, the homeowner continues to own their home and receives cash in whatever way is preferable to them. As they receive cash, their loan amount goes up, and the equity in their home declines. A reverse mortgage cannot grow to more than the amount of the equity of the house. In addition, a lender cannot seek payment of the loan from anything other than the value of the house. Your other assets and the assets of your heirs are protected by what is called a "non-recourse limit."
A reverse mortgage, plus accrued interest, does eventually have to get paid back. Repayment of a reverse mortgage happens when the last owner of the property named on the loan either dies, sells the home, or permanently moves out of the home. Before then, nothing needs to be paid on the loan.
There are other circumstances in which reverse mortgage lenders can also require repayment of a loan prior to the above conditions. These include:
The borrower fails to pay their property taxes
The borrower fails to maintain and repair their home
The borrower fails to keep their home insured
There are also other default conditions that can cause repayment of the loan. Most of these are similar to default conditions for traditional mortgages (for example, declaration of bankruptcy, donation or abandonment of the home, perpetration of fraud or misrepresentation, and more).
A reverse mortgage should not be confused with a home equity loan or home equity line, both of which are other means of obtaining money for the equity in your home. With either of these loan vehicles, an individual must pay at least monthly interest on the loan amount received, or amount that they have drawn on their equity line.
Reverse Mortgage Eligibility
All owners of a home must apply for the reverse mortgage and sign the appropriate loan papers. To qualify for a reverse mortgage the borrower(s) must:
Own their own home
Be at least 62 years of age or older
A reverse mortgage is most typically a "first" mortgage, meaning that there cannot be any other mortgages or loans against the property, such as an equity line. An individual typically owns their home "free and clear" prior to seeking a reverse mortgage.
Reverse Mortgage Loan Amounts
The amount of money that an individual may receive from a reverse mortgage is a function of many different factors, including:
The specific reverse mortgage program that the individual selects
The type of cash advances received (e.g., lump sum vs. monthly payment)
The individual's age (the older an individual is, the more cash they get)
The value of the individual's home (the more valuable the home, the more cash they get)
Types of Reverse Mortgages
There are several different types of reverse mortgages. Some are more expensive than others. Types of reverse mortgages include:
Reverse mortgages offered by state and local governments (often called "single purpose reverse mortgages"). These are typically the least expensive reverse mortgages. These may be the most restrictive on how the money received can be used.
Federally insured Home Equity Conversion Mortgages (HECM). These are almost always less expensive than other private sector reverse mortgages, but more expensive than reverse mortgages obtained from state and local governments.
Other private sector (proprietary) reverse mortgages.
Alternatives to Reverse Mortgages
While usually an option that causes a negative emotional reaction, selling a home is an alternative to a reverse mortgage. The proceeds of the sale can be used to either rent, or purchase a smaller, more "age-friendly" home, while money leftover can be invested to provide additional income. This option should at least be considered and compared to a reverse mortgage so that an individual is making an informed decision.
Reverse Mortgage Counseling
Counseling is required in order to obtain certain types of reverse mortgages. Counseling is required before an individual can obtain a Federally-insured Home Equity Conversion Mortgages (HECMs). Even if counseling is not required for a particular reverse mortgage, individuals considering a reverse mortgage should seek either counseling or the advice of a qualified financial adviser.
Good Sources of Information About Reverse Mortgages
The American Association of Retired Persons (AARP) is an excellent resource for finding more information on reverse mortgages. Their web site (www.aarp.org) has extensive information on the subject. Information may also be found on the National Reverse Mortgage Lenders Association web site (www.reversemortgage.org), the HECM Resources site (www.hecmresources.org/index.cfm), the National Center for Home Equity Conversion web site (www.reverse.org), and the Federal Trade Commission (www.ftc.gov/bcp/conline/pubs/homes/rms.htm).
About the Author
Rob Pirozzi is a contract writer for CityTownInfo.com. CityTownInfo is a quick reference web site that provides statistics and indexes on thousands of cities and towns across the US, as well as articles, comments from local residents, and more.
An Analysis of Wells Fargo & Company (WFC) by Geoff Gannon
Copyright 2006 Geoff Gannon
Wells Fargo & Company (WFC) is a huge Western and Midwestern bank that provides a diverse array of financial services to its more than 23 million customers. The company employs more than 150,000 people at its over 6,000 locations nationwide. Wells Fargo has about $500 billion in assets.
While the company continues to derive more than half its revenues from interest income (about $26 billion), its activities are not limited to collecting deposits and lending money. Wells Fargo engages in other businesses such as brokerage services, asset management, and investment banking. The company also makes venture capital investments.
Over the last ten years, Wells Fargo has averaged a 1.57% return on assets and an 18.19% return on equity.
Location
Wells Fargo is closely associated with California in the minds of most investors. The company now operates in 23 different states. However, the concentration in California remains.
Mortgage lending in California accounts for approximately 14% of Wells Fargo's total loan portfolio. Commercial real estate loans in California account for another 5% of the company's total loans. No other single state accounts for a similarly sized portion of total loans. In fact, neither mortgage lending nor commercial real estate lending in any other state accounts for more than 2% of Wells Fargo's total loans.
Cross-Selling
Wells Fargo's focus on cross-selling is well known. The company has a stated goal of doubling the number of products the average consumer and business customer has with Wells Fargo to eight products per customer (from the current four products per customer).
Cross-selling increases customer stickiness. It also helps increase profitability by decreasing expenses relative to revenues. The need for a large physical footprint is reduced - as is the need for a large number of bankers. Instead, the existing infrastructure is able to provide additional revenue from the same customers.
Wells Fargo's Chairman & CEO, Richard Kovacevich, explains the importance of the company's cross-selling in the "Vision & Values" section of the corporate website:
"Cross-selling -- or what we call "needs-based" selling -- is our most important strategy. Why? Because it is an "increasing returns" business model. It's like the "network effect" of e-commerce. It multiplies opportunities geometrically. The more you sell customers the more you know about them. The more you know about them the easier it is to sell them more products. The more products customers have with you the better value they receive and the more loyal they are. The longer they stay with you the more opportunities you have to meet even more of their financial needs. The more you sell them the higher the profit because the added cost of selling another product to an existing customer is often only about ten percent of the cost of selling that same product to a new customer. This gives us--as an aggregator -- a significant cost advantage over one product or one channel companies. Cross-selling re-invents how financial services are aggregated and sold to customers -- just like other aggregators such as Wal-Mart (general merchandise), Home Depot (home improvement products) and Staples (office supplies)."
Mr. Kovacevich's enthusiasm for the cross-selling model is well justified. It is difficult to quantify the importance of meeting all the varied needs of your customers, because you can not measure the opportunities you missed. However, it is obvious that reducing each customer's interest in considering a competitor's services will greatly increase long-term profitability for any company engaged in any line of business - not just for a bank.
Later, in the same website section, Mr. Kovacevich addresses the importance of customer stickiness:
"(Cross-selling) is our most important customer-related sales metric. We want to earn 100 percent of our customers' business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers."
This focus on retention is an important part of a long-term plan to maintain Wells Fargo's above-average returns on assets and equity. Extraordinary profitability comes from differentiating your product or service from those of your competitors. Increasing customer stickiness and reducing "comparison shopping" is a key part of maintaining extraordinary profitability.
Some businesses are blessed with enviable economics because of their product's natural prominence in the minds of their customers. Most businesses are obsessed with market share. But, how many really think about "mind share"? Obviously, a product like Coke (KO), Hershey (HSY), or Snickers is going to have a positive association in the minds of consumers.
For many people, these products will also have a prominent place in each customer's mind (relative to other products and services on which money can be spent). A few other businesses have a healthy mind share without the positive association; GEICO is the most obvious example. The company's brand conjures up nothing but the words "auto insurance". Of course, that's all the GEICO brand has to do.
So, what does all this have to do with Wells Fargo? Mind share isn't just the result of exposure to advertising. In fact, in most cases, exposure to advertising can not duplicate the kind of results that a direct, differentiated experience creates. Entertainment properties are by far the leaders in mind share. People who saw and loved Star Wars remember the film. In fact, they don't just remember the film, they actually file it away (or, more precisely, cross reference it) in countless ways within their mind.
The evidence for this particular example is abundant. There are countless references to Star Wars in other media. The name, the music, the opening text and countless other elements are immediately recognizable. Even the films Star Wars fans hated made more money than almost any other movies in the history of cinema - and this was decades after the original came out. So, obviously Star Wars has the kind of lasting mind share any business should aspire to if it hopes to continuously earn extraordinary profits.
Unfortunately, most businesses, however well run, can not attain this kind of mind share. The products and services they provide can never be as differentiated and memorable as a motion picture. Just as importantly, the positive associations will not be present, simply because the product or service is not inherently exciting, entertaining, or pleasant. This is clearly the case in financial services.
So, what can a financial services company do to improve its mind share? The most obvious tactic is simply to "wow" its customers. In fact, Wells Fargo's CEO discusses this particular option in the "Vision and Values" section of the company's website:
" We have to 'wow!' them. We know what that feels like because we're all customers. We go to the cleaners, the grocery store, a restaurant or whatever, and we find a situation where we're 'wowed!' We walk out and we say, those people really listened to me and helped me get what I need. All of us hear stories about customers, say, who pick a certain line at the supermarket because they know the person who bags the groceries connects with customers -- smiles, greets regular customers by name, asks how their families are doing. When a personal banker helps a customer in one of our stores, or when a customer gets help from one of our phone bankers or does transactions on wellsfargo.com we want them to say, 'That was great. I can't wait to tell someone.'"
Another option worth pursuing is widening the associations present in the customer's mind. Financial services is a business where associations tend to be more conscious, categorized, and hierarchical than the associations formed in more heavily branded businesses. Put simply, the (potential) customer usually thinks of a "set" before thinking of an "element" within that set. Like many mental associations, the information can be returned in either direction. For example, the customer may normally think "banks" and then think "Wells Fargo", but will also be able to return the word "bank" if prompted by the name "Wells Fargo". This categorization is important, because it provides (limited) permission for Wells Fargo to expand its mind share horizontally (across service categories).
In other words, providing a diverse range of financial services doesn't just make sense from the provider's perspective, it also makes sense from the user's perspective, because the user of financial services has already grouped deposits, borrowing, credit cards, insurance, brokerage services, asset management, etc. together in a very loose way within his mind. As a result of this mental network, one positive experience with Wells Fargo will greatly affect a customer's desire to pay for an additional service, even if the two services are not really all that similar.
The three key elements here are: a broader definition of what Wells Fargo is (a place that does "money things", not just a bank), a positive experience, and some sense of trust that the quality of service will be consistent. The last requirement is the easiest to meet, because it's natural for a customer to assume that the positive experience was not a fluke, much the way a diner assumes the good meal he had at a particular restaurant was not caused by his picking the best offering from the menu. The diner usually assumes the overall quality of the restaurant's various entrees is superior. Likewise, a good experience with one of Wells Fargo's products or services will likely rub off on its other offerings.
Valuation
Shares of Wells Fargo currently yield just over 3%. The stock trades at a price-to-book ratio of just under 2.75 and a price-to-earnings ratio of less than 15.
Conclusion
Over the last 5, 10, 15, and 20 years shareholders of Wells Fargo & Company have fared better than the S&P 500. As of the end of last year, WFC's total return over the last ten years was 17% vs. 9% for the S&P. Over the last 20 years, WFC outpaced the S&P 500 by an even wider margin: 21% vs. 12%.
Wells Fargo has a stellar reputation with investors. The company is the only U.S. bank to earn Moody's highest credit rating. Wells Fargo also boasts a well-known major shareholder. The largest owner of the company's common stock is Berkshire Hathaway. Warren Buffett's holding company has a roughly 5.5% stake in Wells Fargo. Berkshire's last reported purchase occurred during the first quarter of this year.
Wells Fargo has a stated goal of achieving double-digit growth in earnings and revenue while managing a return on assets over 1.75% and a return on equity over 20%. Those are both very ambitious goals. The company has achieved some of the highest returns on assets and equity of any major U.S. bank. However, Wells Fargo will probably need to increase the percentage of revenue it derives from fee businesses if it is to achieve these goals.
In the years ahead, the company may well become more of a diversified financial services business. In fact, that's what I expect will happen. The company's commitment to cross-selling is not some fad. Eventually, this commitment will change the way investors think about Wells Fargo. Soon, it may be considered much more than a bank.
Wells Fargo's CEO makes the case that his company's P/E is simply too low. Wells Fargo has a solid history of strong growth and profitability. So, why should it be valued similarly to most other banks? Shouldn't it be awarded a multiple more in line with a growth company?
There's actually some merit to this argument. Wells Fargo is unusually well positioned for a bank. Often, those banks that seem certain to earn very high returns on assets and equity for many years to come are poorly positioned for future growth. These banks are often smaller than their competitors and focused on a specific geographic niche. Any acquisitions would dilute the exceptional profitability of the bank's niche.
Of course, there are also many consolidators in the banking industry. Unfortunately, many of these banks do not have a history of earning the kind of returns on assets and equity that Wells Fargo has achieved. Even more importantly, there is little differentiation between these titans of the banking industry and their national competitors. Therefore, their moats are highly suspect.
Wells Fargo is a different kind of bank. It has a history of extraordinary growth and profitability. There are two obvious opportunities for future growth: geographic expansion and cross-selling. Of these two opportunities, it's clear I'm more enamored with the latter. An eastward push is not necessary, and certainly not via an ill-advised acquisition.
There is a lot of value in the Wells Fargo franchise and there is plenty of room within that franchise for future growth. That's one of the great advantages of the financial services industry. With the right model, limits to growth are almost non-existent. In other highly-profitable industries, there is often nowhere to reinvest new capital at a similar rate of return.
If Wells Fargo is a growth stock, it is a peculiar sort of growth stock. Maybe that is what attracted Buffett to the company in the first place. Here is a business with a strong franchise that can grow for many years to come. Perhaps most importantly, it is a growth business that frequently trades in the market at value like multiples, simply because it's a bank.
At the current market price, Wells Fargo is the sort of investment you make once and forget. The valuation is not so cheap as to promise a good return if the business falters. But, the business is not so suspect as to require the margin of safety be provided by a low P/E ratio. Sometimes, near certain growth is the margin of safety.
About the Author
Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at: http://www.gannononinvesting.com
Wells Fargo & Company (WFC) is a huge Western and Midwestern bank that provides a diverse array of financial services to its more than 23 million customers. The company employs more than 150,000 people at its over 6,000 locations nationwide. Wells Fargo has about $500 billion in assets.
While the company continues to derive more than half its revenues from interest income (about $26 billion), its activities are not limited to collecting deposits and lending money. Wells Fargo engages in other businesses such as brokerage services, asset management, and investment banking. The company also makes venture capital investments.
Over the last ten years, Wells Fargo has averaged a 1.57% return on assets and an 18.19% return on equity.
Location
Wells Fargo is closely associated with California in the minds of most investors. The company now operates in 23 different states. However, the concentration in California remains.
Mortgage lending in California accounts for approximately 14% of Wells Fargo's total loan portfolio. Commercial real estate loans in California account for another 5% of the company's total loans. No other single state accounts for a similarly sized portion of total loans. In fact, neither mortgage lending nor commercial real estate lending in any other state accounts for more than 2% of Wells Fargo's total loans.
Cross-Selling
Wells Fargo's focus on cross-selling is well known. The company has a stated goal of doubling the number of products the average consumer and business customer has with Wells Fargo to eight products per customer (from the current four products per customer).
Cross-selling increases customer stickiness. It also helps increase profitability by decreasing expenses relative to revenues. The need for a large physical footprint is reduced - as is the need for a large number of bankers. Instead, the existing infrastructure is able to provide additional revenue from the same customers.
Wells Fargo's Chairman & CEO, Richard Kovacevich, explains the importance of the company's cross-selling in the "Vision & Values" section of the corporate website:
"Cross-selling -- or what we call "needs-based" selling -- is our most important strategy. Why? Because it is an "increasing returns" business model. It's like the "network effect" of e-commerce. It multiplies opportunities geometrically. The more you sell customers the more you know about them. The more you know about them the easier it is to sell them more products. The more products customers have with you the better value they receive and the more loyal they are. The longer they stay with you the more opportunities you have to meet even more of their financial needs. The more you sell them the higher the profit because the added cost of selling another product to an existing customer is often only about ten percent of the cost of selling that same product to a new customer. This gives us--as an aggregator -- a significant cost advantage over one product or one channel companies. Cross-selling re-invents how financial services are aggregated and sold to customers -- just like other aggregators such as Wal-Mart (general merchandise), Home Depot (home improvement products) and Staples (office supplies)."
Mr. Kovacevich's enthusiasm for the cross-selling model is well justified. It is difficult to quantify the importance of meeting all the varied needs of your customers, because you can not measure the opportunities you missed. However, it is obvious that reducing each customer's interest in considering a competitor's services will greatly increase long-term profitability for any company engaged in any line of business - not just for a bank.
Later, in the same website section, Mr. Kovacevich addresses the importance of customer stickiness:
"(Cross-selling) is our most important customer-related sales metric. We want to earn 100 percent of our customers' business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers."
This focus on retention is an important part of a long-term plan to maintain Wells Fargo's above-average returns on assets and equity. Extraordinary profitability comes from differentiating your product or service from those of your competitors. Increasing customer stickiness and reducing "comparison shopping" is a key part of maintaining extraordinary profitability.
Some businesses are blessed with enviable economics because of their product's natural prominence in the minds of their customers. Most businesses are obsessed with market share. But, how many really think about "mind share"? Obviously, a product like Coke (KO), Hershey (HSY), or Snickers is going to have a positive association in the minds of consumers.
For many people, these products will also have a prominent place in each customer's mind (relative to other products and services on which money can be spent). A few other businesses have a healthy mind share without the positive association; GEICO is the most obvious example. The company's brand conjures up nothing but the words "auto insurance". Of course, that's all the GEICO brand has to do.
So, what does all this have to do with Wells Fargo? Mind share isn't just the result of exposure to advertising. In fact, in most cases, exposure to advertising can not duplicate the kind of results that a direct, differentiated experience creates. Entertainment properties are by far the leaders in mind share. People who saw and loved Star Wars remember the film. In fact, they don't just remember the film, they actually file it away (or, more precisely, cross reference it) in countless ways within their mind.
The evidence for this particular example is abundant. There are countless references to Star Wars in other media. The name, the music, the opening text and countless other elements are immediately recognizable. Even the films Star Wars fans hated made more money than almost any other movies in the history of cinema - and this was decades after the original came out. So, obviously Star Wars has the kind of lasting mind share any business should aspire to if it hopes to continuously earn extraordinary profits.
Unfortunately, most businesses, however well run, can not attain this kind of mind share. The products and services they provide can never be as differentiated and memorable as a motion picture. Just as importantly, the positive associations will not be present, simply because the product or service is not inherently exciting, entertaining, or pleasant. This is clearly the case in financial services.
So, what can a financial services company do to improve its mind share? The most obvious tactic is simply to "wow" its customers. In fact, Wells Fargo's CEO discusses this particular option in the "Vision and Values" section of the company's website:
" We have to 'wow!' them. We know what that feels like because we're all customers. We go to the cleaners, the grocery store, a restaurant or whatever, and we find a situation where we're 'wowed!' We walk out and we say, those people really listened to me and helped me get what I need. All of us hear stories about customers, say, who pick a certain line at the supermarket because they know the person who bags the groceries connects with customers -- smiles, greets regular customers by name, asks how their families are doing. When a personal banker helps a customer in one of our stores, or when a customer gets help from one of our phone bankers or does transactions on wellsfargo.com we want them to say, 'That was great. I can't wait to tell someone.'"
Another option worth pursuing is widening the associations present in the customer's mind. Financial services is a business where associations tend to be more conscious, categorized, and hierarchical than the associations formed in more heavily branded businesses. Put simply, the (potential) customer usually thinks of a "set" before thinking of an "element" within that set. Like many mental associations, the information can be returned in either direction. For example, the customer may normally think "banks" and then think "Wells Fargo", but will also be able to return the word "bank" if prompted by the name "Wells Fargo". This categorization is important, because it provides (limited) permission for Wells Fargo to expand its mind share horizontally (across service categories).
In other words, providing a diverse range of financial services doesn't just make sense from the provider's perspective, it also makes sense from the user's perspective, because the user of financial services has already grouped deposits, borrowing, credit cards, insurance, brokerage services, asset management, etc. together in a very loose way within his mind. As a result of this mental network, one positive experience with Wells Fargo will greatly affect a customer's desire to pay for an additional service, even if the two services are not really all that similar.
The three key elements here are: a broader definition of what Wells Fargo is (a place that does "money things", not just a bank), a positive experience, and some sense of trust that the quality of service will be consistent. The last requirement is the easiest to meet, because it's natural for a customer to assume that the positive experience was not a fluke, much the way a diner assumes the good meal he had at a particular restaurant was not caused by his picking the best offering from the menu. The diner usually assumes the overall quality of the restaurant's various entrees is superior. Likewise, a good experience with one of Wells Fargo's products or services will likely rub off on its other offerings.
Valuation
Shares of Wells Fargo currently yield just over 3%. The stock trades at a price-to-book ratio of just under 2.75 and a price-to-earnings ratio of less than 15.
Conclusion
Over the last 5, 10, 15, and 20 years shareholders of Wells Fargo & Company have fared better than the S&P 500. As of the end of last year, WFC's total return over the last ten years was 17% vs. 9% for the S&P. Over the last 20 years, WFC outpaced the S&P 500 by an even wider margin: 21% vs. 12%.
Wells Fargo has a stellar reputation with investors. The company is the only U.S. bank to earn Moody's highest credit rating. Wells Fargo also boasts a well-known major shareholder. The largest owner of the company's common stock is Berkshire Hathaway. Warren Buffett's holding company has a roughly 5.5% stake in Wells Fargo. Berkshire's last reported purchase occurred during the first quarter of this year.
Wells Fargo has a stated goal of achieving double-digit growth in earnings and revenue while managing a return on assets over 1.75% and a return on equity over 20%. Those are both very ambitious goals. The company has achieved some of the highest returns on assets and equity of any major U.S. bank. However, Wells Fargo will probably need to increase the percentage of revenue it derives from fee businesses if it is to achieve these goals.
In the years ahead, the company may well become more of a diversified financial services business. In fact, that's what I expect will happen. The company's commitment to cross-selling is not some fad. Eventually, this commitment will change the way investors think about Wells Fargo. Soon, it may be considered much more than a bank.
Wells Fargo's CEO makes the case that his company's P/E is simply too low. Wells Fargo has a solid history of strong growth and profitability. So, why should it be valued similarly to most other banks? Shouldn't it be awarded a multiple more in line with a growth company?
There's actually some merit to this argument. Wells Fargo is unusually well positioned for a bank. Often, those banks that seem certain to earn very high returns on assets and equity for many years to come are poorly positioned for future growth. These banks are often smaller than their competitors and focused on a specific geographic niche. Any acquisitions would dilute the exceptional profitability of the bank's niche.
Of course, there are also many consolidators in the banking industry. Unfortunately, many of these banks do not have a history of earning the kind of returns on assets and equity that Wells Fargo has achieved. Even more importantly, there is little differentiation between these titans of the banking industry and their national competitors. Therefore, their moats are highly suspect.
Wells Fargo is a different kind of bank. It has a history of extraordinary growth and profitability. There are two obvious opportunities for future growth: geographic expansion and cross-selling. Of these two opportunities, it's clear I'm more enamored with the latter. An eastward push is not necessary, and certainly not via an ill-advised acquisition.
There is a lot of value in the Wells Fargo franchise and there is plenty of room within that franchise for future growth. That's one of the great advantages of the financial services industry. With the right model, limits to growth are almost non-existent. In other highly-profitable industries, there is often nowhere to reinvest new capital at a similar rate of return.
If Wells Fargo is a growth stock, it is a peculiar sort of growth stock. Maybe that is what attracted Buffett to the company in the first place. Here is a business with a strong franchise that can grow for many years to come. Perhaps most importantly, it is a growth business that frequently trades in the market at value like multiples, simply because it's a bank.
At the current market price, Wells Fargo is the sort of investment you make once and forget. The valuation is not so cheap as to promise a good return if the business falters. But, the business is not so suspect as to require the margin of safety be provided by a low P/E ratio. Sometimes, near certain growth is the margin of safety.
About the Author
Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at: http://www.gannononinvesting.com
Getting The Best Home Equity Loan Is Easy by Kip Goldhammer
So, you have a beautiful home and you are looking to make it even better through improvements. But where is the cash for it? Well, the cash is in the home itself. Yes, it really is. And the concept of generating cash through your home is called home equity loan.
Home equity is the extent of ownership a home owner has in the home. This is a concept that is very popular in the mortgage industry. Home equity can be used to generate cash when you need it. This is done through home equity loans. So, home equity loans are the mortgage loans wherein you utilize the home equity to get loan for home improvement, debt consolidation etc. However, like any type of mortgage loan, you need to get your basics right and look for the best deal on home equity loans.
Even if you wouldn't dream of running your credit-card balance through the roof, chances are you have no qualms about borrowing heavily against the roof over your head.
And why not, when you can so effortlessly take out a home-equity line of credit, or HELOC, and draw on it as needed up to a preset limit? They're fast, simple and, given booming home prices, seemingly inexhaustible.
To be sure, we've often said on this Web site and in our magazine that they're good for certain things. But there are ways that these seemingly innocuous loans can come back to bite you.
Risk No. 1: Those low payments balloon
HELOCs are structured as interest-only loans, so the minimum payments can be enticingly small. Currently, someone with a balance of $36,427 (the national average) would owe only about $200 a month. Put the same amount on a credit card charging 13 percent and the minimum would be around $1,000.
While a HELOC's interest-only payments feel relatively painless, they have a serious downside: You're not retiring any principal. If you borrowed $20,000 the day you opened the line of credit, you'd still owe $20,000 when the interest-only payoff period ends, generally after 10 years.
At that point, you would have to start paying down the principal, which means your monthly payments would spike. Of course, you could roll the balance over into a fresh HELOC. Many people do.
"The risk is that you make small payments on a big debt forever and never make a dent," cautions Fritz Elmendorf, vice president of the Consumer Bankers Association.
The solution: Start paying off the principal in advance by exceeding your minimum payment each month.
Risk No. 2: That low rate rises You may figure that even if interest rates edge up, the hike will barely register on your monthly HELOC statement. But interest-rate moves tend to happen in clusters as the Federal Reserve seeks to get the economy on track.
Since June 2004 the prime rate, which HELOCs are pegged to, has climbed from 4 percent to 6.25 percent. The results are quite visible: On that $36,427 average HELOC balance you'd pay about $70 extra a month. If rate hikes continue, as many experts expect, it will be like water torture for HELOC holders.
"A quarter point here, a quarter point there, and soon you start to feel the pain of significantly increased monthly payments," says Keith Gumbinger of HSH Associates, a financial research firm in Pompton Plains, N.J.
The solution: If you expect to take more than three years paying off your debt, skip the HELOC and use a fixed-rate home-equity loan instead.
Risk No. 3: You're hit with hidden fees
Increasingly, banks are burying extra costs in the fine print. One of the most onerous is the early-termination fee, aimed at consumers who jump from loan to loan in search of better terms.
In response, lenders have begun to charge a fee if a line is closed within a specified period, typically three years. Today more than 60 percent of lenders have early-termination fees vs. around 45 percent in 2000, according to HSH Associates.
Usually an early-termination fee is a few hundred dollars. But some lenders charge a percentage of the outstanding balance or even force people to fork over transaction costs that were supposedly "waived" when the credit line was first opened. Either of these scenarios can end up costing you thousands.
The obvious loophole is to keep the line of credit open with a balance of zero or a few dollars rather than closing it down altogether, but lenders have thought of that. Accounts that remain open but unused for a set period (usually one year) get stuck with inactivity fees, typically around $50. You can also expect to pay an annual fee, again about $50.
The solution: Shop around for a lender that doesn't impose heavy fees -- or at least be aware of the fees written into your loan and avoid them.
Risk No. 4: You lose your equity
Most HELOC tappers assume that some day they'll just sell their home and the loan will effectively disappear. But there are no guarantees -- and there doesn't have to be a bubble for this assumption to put your equity in danger.
Let's say you bought your house for $200,000 but it was recently appraised for $300,000. Sell for anything close to the appraised value and you'll reap a tidy profit. Now throw a $75,000 HELOC balance into the equation. Suddenly the local market need only sag a bit and you can be in trouble, unable to net enough on the sale of your home to pay off both the mortgage and HELOC balances.
The solution: Leave yourself an equity cushion of at least 20 percent.
Risk No. 5: You borrow and overspend No question, HELOCs offer better rates than bank loans, credit cards and most everything else out there. But whether they're truly a good deal depends on how you use the money.
In a 2004 survey by Synergistics Research, based in Atlanta, 57 percent of respondents reported using HELOCs for home improvement. This can be a sensible use of HELOCs, as can some debt consolidation (cited by 35 percent of respondents) and paying for education (13 percent).
"If you're going to pull money out of your home, make it count," says Nan Sabel, a financial planner in Bedford, Mass.
But what if you are simply siphoning off your home's equity in order to live beyond your means? According to the Synergistics survey, for example, 13 percent of HELOC holders have tapped the lines for travel or other leisure pursuits.
Bottom line: Your Hawaiian idyll will truly be more than just a memory if you end up paying it off over many years with interest.
The solution: Resolve to use your HELOC only for expenses with long-lasting benefits: education, home improvement or debt reduction.
As we already know, internet is the source of knowledge and information on everything. And something like mortgage loans is a favorite topic on the internet. There is a lot of information available on all types of mortgages, including home equity loans.
About the Author
Check out www.ehome-equity-loan.be and benefit from it.
Home equity is the extent of ownership a home owner has in the home. This is a concept that is very popular in the mortgage industry. Home equity can be used to generate cash when you need it. This is done through home equity loans. So, home equity loans are the mortgage loans wherein you utilize the home equity to get loan for home improvement, debt consolidation etc. However, like any type of mortgage loan, you need to get your basics right and look for the best deal on home equity loans.
Even if you wouldn't dream of running your credit-card balance through the roof, chances are you have no qualms about borrowing heavily against the roof over your head.
And why not, when you can so effortlessly take out a home-equity line of credit, or HELOC, and draw on it as needed up to a preset limit? They're fast, simple and, given booming home prices, seemingly inexhaustible.
To be sure, we've often said on this Web site and in our magazine that they're good for certain things. But there are ways that these seemingly innocuous loans can come back to bite you.
Risk No. 1: Those low payments balloon
HELOCs are structured as interest-only loans, so the minimum payments can be enticingly small. Currently, someone with a balance of $36,427 (the national average) would owe only about $200 a month. Put the same amount on a credit card charging 13 percent and the minimum would be around $1,000.
While a HELOC's interest-only payments feel relatively painless, they have a serious downside: You're not retiring any principal. If you borrowed $20,000 the day you opened the line of credit, you'd still owe $20,000 when the interest-only payoff period ends, generally after 10 years.
At that point, you would have to start paying down the principal, which means your monthly payments would spike. Of course, you could roll the balance over into a fresh HELOC. Many people do.
"The risk is that you make small payments on a big debt forever and never make a dent," cautions Fritz Elmendorf, vice president of the Consumer Bankers Association.
The solution: Start paying off the principal in advance by exceeding your minimum payment each month.
Risk No. 2: That low rate rises You may figure that even if interest rates edge up, the hike will barely register on your monthly HELOC statement. But interest-rate moves tend to happen in clusters as the Federal Reserve seeks to get the economy on track.
Since June 2004 the prime rate, which HELOCs are pegged to, has climbed from 4 percent to 6.25 percent. The results are quite visible: On that $36,427 average HELOC balance you'd pay about $70 extra a month. If rate hikes continue, as many experts expect, it will be like water torture for HELOC holders.
"A quarter point here, a quarter point there, and soon you start to feel the pain of significantly increased monthly payments," says Keith Gumbinger of HSH Associates, a financial research firm in Pompton Plains, N.J.
The solution: If you expect to take more than three years paying off your debt, skip the HELOC and use a fixed-rate home-equity loan instead.
Risk No. 3: You're hit with hidden fees
Increasingly, banks are burying extra costs in the fine print. One of the most onerous is the early-termination fee, aimed at consumers who jump from loan to loan in search of better terms.
In response, lenders have begun to charge a fee if a line is closed within a specified period, typically three years. Today more than 60 percent of lenders have early-termination fees vs. around 45 percent in 2000, according to HSH Associates.
Usually an early-termination fee is a few hundred dollars. But some lenders charge a percentage of the outstanding balance or even force people to fork over transaction costs that were supposedly "waived" when the credit line was first opened. Either of these scenarios can end up costing you thousands.
The obvious loophole is to keep the line of credit open with a balance of zero or a few dollars rather than closing it down altogether, but lenders have thought of that. Accounts that remain open but unused for a set period (usually one year) get stuck with inactivity fees, typically around $50. You can also expect to pay an annual fee, again about $50.
The solution: Shop around for a lender that doesn't impose heavy fees -- or at least be aware of the fees written into your loan and avoid them.
Risk No. 4: You lose your equity
Most HELOC tappers assume that some day they'll just sell their home and the loan will effectively disappear. But there are no guarantees -- and there doesn't have to be a bubble for this assumption to put your equity in danger.
Let's say you bought your house for $200,000 but it was recently appraised for $300,000. Sell for anything close to the appraised value and you'll reap a tidy profit. Now throw a $75,000 HELOC balance into the equation. Suddenly the local market need only sag a bit and you can be in trouble, unable to net enough on the sale of your home to pay off both the mortgage and HELOC balances.
The solution: Leave yourself an equity cushion of at least 20 percent.
Risk No. 5: You borrow and overspend No question, HELOCs offer better rates than bank loans, credit cards and most everything else out there. But whether they're truly a good deal depends on how you use the money.
In a 2004 survey by Synergistics Research, based in Atlanta, 57 percent of respondents reported using HELOCs for home improvement. This can be a sensible use of HELOCs, as can some debt consolidation (cited by 35 percent of respondents) and paying for education (13 percent).
"If you're going to pull money out of your home, make it count," says Nan Sabel, a financial planner in Bedford, Mass.
But what if you are simply siphoning off your home's equity in order to live beyond your means? According to the Synergistics survey, for example, 13 percent of HELOC holders have tapped the lines for travel or other leisure pursuits.
Bottom line: Your Hawaiian idyll will truly be more than just a memory if you end up paying it off over many years with interest.
The solution: Resolve to use your HELOC only for expenses with long-lasting benefits: education, home improvement or debt reduction.
As we already know, internet is the source of knowledge and information on everything. And something like mortgage loans is a favorite topic on the internet. There is a lot of information available on all types of mortgages, including home equity loans.
About the Author
Check out www.ehome-equity-loan.be and benefit from it.
Subject To Financing: Traditional vs. Land Trust by Gary Mialocq, PhD
Subject To Financing by Gary Mialocq, PhD
The Traditional Way vs. Using a Land Trust
"Subject to" financing is very popular among small investors. When you purchase a property "Subject To", the existing loan stays in your seller's name. In other words, the seller leaves his current loan on his property in place and makes it available for you and then your buyer's use. You become the owner of the property when the seller transfers the deed to the property. There are two ways to accomplish "Subject to" financing: One is through the traditional (old-school) method described above, the second is with the use of a land trust, a method of investing used predominantly by the wealthy since 1891.
DUE ON SALE CLAUSE
One big failing of the "subject to" method of financing is that it is a violation of the Lender's Due on Sale Clause -- ALWAYS. In 1982, after a long battle with consumer groups, the Banking industry was able to get the Garn-St. Germain Act passed by Congress giving banks the right to call loans due if title is transferred as described above.
A lender may require any successor or transferee of the borrower to meet customary credit standards applied to loans secured by similar property, and the lender may declare the loan due and payable pursuant to the terms of the contract upon transfer to any successor or transferee of the borrower who fails to meet such customary credit standards. There is no lender permission in a traditional "Subject to" transaction, so there is no argument that ALL traditional "Subject to" financing transactions are DOS clause violations.
Even "Subject to" so-called guru, John $Cash$ Locke (I am suspicious of an ex-salesman who uses a $ in his name), warns: "Today almost all loans include a Due on Sale (DOS) clause whereby the lender can call the note due and payable upon transfer of the property to someone else. I felt this area of 'Subject To' should be covered, as it is a risk inherent with 'Subject To' investing, but certainly one that has not concerned me. However, you should be prepared to address this situation should the need arise by re-financing or building your Trust Account up... There are risks in all forms of real estate investing if not done properly. "Subject To" is no different."
The fact is that John purchased his supposed 500 homes during a time when interest rates were the lowest in decades so there was little chance of the DOS clause being invoked. Now with skyrocketing gas prices and rising interest rates, his "What, me worry?" stance looks very precarious. Here is what Land Trust expert Bill Gatten, creator of the Equity Holding Trust System™ used exclusively by his over 3500+ member North American Realty Services, Inc, says about the DOS clause:
"As far as the Due-on-Sale issue is concerned, the DOSC is definitely a threat and I couldn't care less about what anyone says to the contrary...they are wrong. It is indeed thing to be reckoned with and avoided when possible. Sure, most lenders will look away when the market is hot and interest rates are low; and if one can sell or refi if the note is called, then the DOSC is not of much concern. However, like many of my students, in my first several years in this business I had no credit or money and would have been in very deep piggy-poo had I received any more foreclosures than I did (lost two properties to due-on-sale calls in the early years). Furthermore, I have recent foreclosure demands on file from Countrywide and Washington Mutual that were thwarted by our explanatory letter indicating that the subject properties had not be sold, but were merely vested in inter vivos trusts and being leased to one of the beneficiaries."
LAND TRUST DOS CLAUSE EXEMPTION
Using a land trust for the purpose of a "Subject to", is exempt from the DOS Clause. According to Title 12, Chapter 13 § 1701j-3 Preemption of due-on-sale prohibitions:
(d) Exemption of specified transfers or dispositions
"With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon-- (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; The NARS Trust always has the seller remaining as a beneficiary and the trust itself makes no reference to occupancy, hence, it is compliant with the DOS Clause.
So, we have differing opinions as to the danger of violating the DOS clause. Let's see what other differences there are that distinguish using a land trust from a traditional "subject to".
TITLE IN YOUR NAME - PRIVACY AND PROTECTION
With a traditional "Subject to", you take title in your own name. With a land trust, your Trustee holds title and your name appears nowhere on public records.
There are more than 80 million lawsuits filed in America every year. Property owners, landlords and real estate investors are susceptible to liability. Are you a target? Are your assets easy to locate? Is your real estate in your name? Why would you expose your most valuable assets to public scrutiny? Anyone can enter the county recorder's office and find the owner of any property. Real estate records are computerized, so your real estate holdings can be located at a moment's notice, If there are mortgages on your property, they will also be recorded and state the amount of the original principal balance and the date the mortgage payments began. Anyone can figure out your mortgage balance and subtract that amount from the market value of your house. They know how much equity you have and whether you are a suitable candidate for a lawsuit.
A contingency-fee lawyer charges a percentage of whatever he collects. Most contingency-fee lawyers refuse to accept a case unless the defendant has means. If you have no real estate in your name, chances are they won't take the case. Having the appearance of owning nothing is the best lawsuit-repellent you can have, and that is provided by the privacy features of a land trust.
PROTECTION AGAINST LIENS & ENCUMBRANCES
What happens if a judgment is filed against you in any county where you own real estate? I'll tell you. All of the real estate in that county will wind up having a lien attached to it. This means that you will be unable to sell or refinance any property since no title insurance company will guarantee a clean title.
There are those who use a corporation to hold title to real estate. They will not protect your property. If you own all of your properties in one corporation, a judgment against the corporation will create a lien on all property owned by the corporation. To make it worse, the directors and officers of a corporation are public-record, so your ownership will not be hidden. Should a judgment be brought against you and filed in any county in which you own real estate, all of the real estate in that county will wind up having a lien attached to it. This means that you will be unable to sell or refinance any property in that county, since no title insurance company will guarantee a clean title. The bottom line would be that you're stuck until you pay off the lien.
Corporate stock is considered an "investment". Investments are available to satisfy judgment creditors if you are personally sued. So you rear-end someone, get sued, and lose, they get your investments and suddenly they own the corporation and all of its assets.
Member interest in an LLC is considered personal property by statute. As such it is not available to satisfy a judgment creditor. You lose the case, but the best they get is a charging order against LLC income, which you can frustrate. Meanwhile, you remain owner and in control of the LLC's assets. Both the S-corp and the LLC protect you from liabilities arising from within the company. Only the LLC protects the company from your personal liabilities.
The ONLY deficiency of the LLC is that it protects your personal assets but leaves the real property partitionable and subject to liens and encumbrances. Place your property in a land trust with title in your LLC and you are rock solid.
A land trust is the solution for holding title to real estate. It is a revocable, living trust which is used to title ownership of real estate. The title to the property is held in the name of a trustee. This trustee is forbidden to reveal the beneficial owner. The beneficial owner (also known as a "beneficiary") can be an individual, a corporation or any other entity for further protection.
THE IRS
A land trust is considered a revocable "grantor" trust, so it does not require a separate tax identification number or income tax return. Therefore, you continue reporting the property for income tax purposes as though you still own it.
DEFAULT WITHOUT RECOURSE
A land trust allows you to assume a loan without recourse, a traditional "Subject to" does not. Few investors realize that such an assumption is with recourse. Should the investor sell the property and the buyer assumes and then defaults on the loan, the investor (and anyone else who previously assumed the loan) may be held liable. If a land trust is established to take title to the property and assume the loan, there is no recourse against the beneficiary. Additionally, the loan will not appear as a liability on the beneficiary's credit report.
"SUBJECT TO" UNDER LEGISLATIVE ATTACK
Many states are considering anti-small investor legislation and are especially focused on this type of financing. In North Carolina, HB725 which is very near passage will make "Subject to" financing illegal unless done by a licensed Realtor. Land trusts are exempted. There are several other states considering similar legislation, and Texas recently passed a law against lease options, making them illegal unless you own your property free and clear.
SUMMARY
* A traditional "Subject to" acquisition, is a violation of the DOS Clause. * A traditional "Subject to" provides no privacy or asset protection. Because title is in your name, you are a target for lawsuits. * A traditional "Subject to" provides NO protection against liens and encumbrances. * A traditional "Subject to" comes with liability in case of default by the buyer. * A traditional "Subject to" comes with ever-increasing legislative scrutiny and is subject to varying laws from state to state.
* A land trust is exempt from the DOS Clause. * Because title is in your Trustee's name (not yours) you are not a target of lawsuits. * A Land Trust provides solid protection against liens and encumbrances. * A Land Trust provides no liability in case of default by the buyer. * A Land Trust provides comes with the protection of Federal Law and is legal in all 50 states, though less effective in TN and LA due to their treatment of the trust as real property.
The concept of a land trust and what distinguishes it from any other type of investment or asset management strategy, is the Doctrine of Equitable Conversion. This is what enables us to convert real property to personal property. Once you have placed your property in the trust and deeded title to your Trustee, your transaction is no longer governed by mortgage law and all that goes with it including public recording of your documents. You are now governed by the Uniform Commercial Code (UCC), Article 9. This provides all the privacy and asset protection needed and sets the land trust apart from other investment tools.
You can avoid all the pitfalls of traditional "Subject to" financing and accomplish the same objectives with a land trust. Creating a trust is easy, inexpensive, and the best thing you can do to protect your home. If you rent or lease your property, the importance of asset protection and proper asset management is that much greater.
Copyright @ 2006 Gary Mialocq, Ph.D. All Rights Reserved.
About the Author
Gary Mialocq, Ph.D. is a former self-employed vocational rehabilitation counselor with significant experience in helping others improve the quality of their lives, having worked with disabled children and adults, juvenile felony offenders, and industrially-injured workers. He has also dabbled in real estate since 1980 using creative financing strategies and techniques to acquire and manage properties and is now a Full-Time Investor, Consultant and educator.
The Traditional Way vs. Using a Land Trust
"Subject to" financing is very popular among small investors. When you purchase a property "Subject To", the existing loan stays in your seller's name. In other words, the seller leaves his current loan on his property in place and makes it available for you and then your buyer's use. You become the owner of the property when the seller transfers the deed to the property. There are two ways to accomplish "Subject to" financing: One is through the traditional (old-school) method described above, the second is with the use of a land trust, a method of investing used predominantly by the wealthy since 1891.
DUE ON SALE CLAUSE
One big failing of the "subject to" method of financing is that it is a violation of the Lender's Due on Sale Clause -- ALWAYS. In 1982, after a long battle with consumer groups, the Banking industry was able to get the Garn-St. Germain Act passed by Congress giving banks the right to call loans due if title is transferred as described above.
A lender may require any successor or transferee of the borrower to meet customary credit standards applied to loans secured by similar property, and the lender may declare the loan due and payable pursuant to the terms of the contract upon transfer to any successor or transferee of the borrower who fails to meet such customary credit standards. There is no lender permission in a traditional "Subject to" transaction, so there is no argument that ALL traditional "Subject to" financing transactions are DOS clause violations.
Even "Subject to" so-called guru, John $Cash$ Locke (I am suspicious of an ex-salesman who uses a $ in his name), warns: "Today almost all loans include a Due on Sale (DOS) clause whereby the lender can call the note due and payable upon transfer of the property to someone else. I felt this area of 'Subject To' should be covered, as it is a risk inherent with 'Subject To' investing, but certainly one that has not concerned me. However, you should be prepared to address this situation should the need arise by re-financing or building your Trust Account up... There are risks in all forms of real estate investing if not done properly. "Subject To" is no different."
The fact is that John purchased his supposed 500 homes during a time when interest rates were the lowest in decades so there was little chance of the DOS clause being invoked. Now with skyrocketing gas prices and rising interest rates, his "What, me worry?" stance looks very precarious. Here is what Land Trust expert Bill Gatten, creator of the Equity Holding Trust System™ used exclusively by his over 3500+ member North American Realty Services, Inc, says about the DOS clause:
"As far as the Due-on-Sale issue is concerned, the DOSC is definitely a threat and I couldn't care less about what anyone says to the contrary...they are wrong. It is indeed thing to be reckoned with and avoided when possible. Sure, most lenders will look away when the market is hot and interest rates are low; and if one can sell or refi if the note is called, then the DOSC is not of much concern. However, like many of my students, in my first several years in this business I had no credit or money and would have been in very deep piggy-poo had I received any more foreclosures than I did (lost two properties to due-on-sale calls in the early years). Furthermore, I have recent foreclosure demands on file from Countrywide and Washington Mutual that were thwarted by our explanatory letter indicating that the subject properties had not be sold, but were merely vested in inter vivos trusts and being leased to one of the beneficiaries."
LAND TRUST DOS CLAUSE EXEMPTION
Using a land trust for the purpose of a "Subject to", is exempt from the DOS Clause. According to Title 12, Chapter 13 § 1701j-3 Preemption of due-on-sale prohibitions:
(d) Exemption of specified transfers or dispositions
"With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon-- (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; The NARS Trust always has the seller remaining as a beneficiary and the trust itself makes no reference to occupancy, hence, it is compliant with the DOS Clause.
So, we have differing opinions as to the danger of violating the DOS clause. Let's see what other differences there are that distinguish using a land trust from a traditional "subject to".
TITLE IN YOUR NAME - PRIVACY AND PROTECTION
With a traditional "Subject to", you take title in your own name. With a land trust, your Trustee holds title and your name appears nowhere on public records.
There are more than 80 million lawsuits filed in America every year. Property owners, landlords and real estate investors are susceptible to liability. Are you a target? Are your assets easy to locate? Is your real estate in your name? Why would you expose your most valuable assets to public scrutiny? Anyone can enter the county recorder's office and find the owner of any property. Real estate records are computerized, so your real estate holdings can be located at a moment's notice, If there are mortgages on your property, they will also be recorded and state the amount of the original principal balance and the date the mortgage payments began. Anyone can figure out your mortgage balance and subtract that amount from the market value of your house. They know how much equity you have and whether you are a suitable candidate for a lawsuit.
A contingency-fee lawyer charges a percentage of whatever he collects. Most contingency-fee lawyers refuse to accept a case unless the defendant has means. If you have no real estate in your name, chances are they won't take the case. Having the appearance of owning nothing is the best lawsuit-repellent you can have, and that is provided by the privacy features of a land trust.
PROTECTION AGAINST LIENS & ENCUMBRANCES
What happens if a judgment is filed against you in any county where you own real estate? I'll tell you. All of the real estate in that county will wind up having a lien attached to it. This means that you will be unable to sell or refinance any property since no title insurance company will guarantee a clean title.
There are those who use a corporation to hold title to real estate. They will not protect your property. If you own all of your properties in one corporation, a judgment against the corporation will create a lien on all property owned by the corporation. To make it worse, the directors and officers of a corporation are public-record, so your ownership will not be hidden. Should a judgment be brought against you and filed in any county in which you own real estate, all of the real estate in that county will wind up having a lien attached to it. This means that you will be unable to sell or refinance any property in that county, since no title insurance company will guarantee a clean title. The bottom line would be that you're stuck until you pay off the lien.
Corporate stock is considered an "investment". Investments are available to satisfy judgment creditors if you are personally sued. So you rear-end someone, get sued, and lose, they get your investments and suddenly they own the corporation and all of its assets.
Member interest in an LLC is considered personal property by statute. As such it is not available to satisfy a judgment creditor. You lose the case, but the best they get is a charging order against LLC income, which you can frustrate. Meanwhile, you remain owner and in control of the LLC's assets. Both the S-corp and the LLC protect you from liabilities arising from within the company. Only the LLC protects the company from your personal liabilities.
The ONLY deficiency of the LLC is that it protects your personal assets but leaves the real property partitionable and subject to liens and encumbrances. Place your property in a land trust with title in your LLC and you are rock solid.
A land trust is the solution for holding title to real estate. It is a revocable, living trust which is used to title ownership of real estate. The title to the property is held in the name of a trustee. This trustee is forbidden to reveal the beneficial owner. The beneficial owner (also known as a "beneficiary") can be an individual, a corporation or any other entity for further protection.
THE IRS
A land trust is considered a revocable "grantor" trust, so it does not require a separate tax identification number or income tax return. Therefore, you continue reporting the property for income tax purposes as though you still own it.
DEFAULT WITHOUT RECOURSE
A land trust allows you to assume a loan without recourse, a traditional "Subject to" does not. Few investors realize that such an assumption is with recourse. Should the investor sell the property and the buyer assumes and then defaults on the loan, the investor (and anyone else who previously assumed the loan) may be held liable. If a land trust is established to take title to the property and assume the loan, there is no recourse against the beneficiary. Additionally, the loan will not appear as a liability on the beneficiary's credit report.
"SUBJECT TO" UNDER LEGISLATIVE ATTACK
Many states are considering anti-small investor legislation and are especially focused on this type of financing. In North Carolina, HB725 which is very near passage will make "Subject to" financing illegal unless done by a licensed Realtor. Land trusts are exempted. There are several other states considering similar legislation, and Texas recently passed a law against lease options, making them illegal unless you own your property free and clear.
SUMMARY
* A traditional "Subject to" acquisition, is a violation of the DOS Clause. * A traditional "Subject to" provides no privacy or asset protection. Because title is in your name, you are a target for lawsuits. * A traditional "Subject to" provides NO protection against liens and encumbrances. * A traditional "Subject to" comes with liability in case of default by the buyer. * A traditional "Subject to" comes with ever-increasing legislative scrutiny and is subject to varying laws from state to state.
* A land trust is exempt from the DOS Clause. * Because title is in your Trustee's name (not yours) you are not a target of lawsuits. * A Land Trust provides solid protection against liens and encumbrances. * A Land Trust provides no liability in case of default by the buyer. * A Land Trust provides comes with the protection of Federal Law and is legal in all 50 states, though less effective in TN and LA due to their treatment of the trust as real property.
The concept of a land trust and what distinguishes it from any other type of investment or asset management strategy, is the Doctrine of Equitable Conversion. This is what enables us to convert real property to personal property. Once you have placed your property in the trust and deeded title to your Trustee, your transaction is no longer governed by mortgage law and all that goes with it including public recording of your documents. You are now governed by the Uniform Commercial Code (UCC), Article 9. This provides all the privacy and asset protection needed and sets the land trust apart from other investment tools.
You can avoid all the pitfalls of traditional "Subject to" financing and accomplish the same objectives with a land trust. Creating a trust is easy, inexpensive, and the best thing you can do to protect your home. If you rent or lease your property, the importance of asset protection and proper asset management is that much greater.
Copyright @ 2006 Gary Mialocq, Ph.D. All Rights Reserved.
About the Author
Gary Mialocq, Ph.D. is a former self-employed vocational rehabilitation counselor with significant experience in helping others improve the quality of their lives, having worked with disabled children and adults, juvenile felony offenders, and industrially-injured workers. He has also dabbled in real estate since 1980 using creative financing strategies and techniques to acquire and manage properties and is now a Full-Time Investor, Consultant and educator.
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