Pros and Cons of Debt Consolidation

Considering Debt ConsolidationBetween student loans, credit cards, and more, many Americans have managed to rack up thousands of dollars of debt. Regardless of how the debt has accrued, it must be paid, which is why many people who find themselves struggling to repay these debts turn to debt consolidation.

Debt consolidation can help people rid themselves of debt, but consumers who are considering this debt relief option should be sure they understand the pros and cons before taking this route.

Pros of debt consolidation

The pros of debt consolidation include:

  • One monthly payment: Debt consolidation reduces the number of monthly payments to one, making it easier for people to manage their debt.
  • Debts are repaid sooner: Debt consolidation allows consumers to pay off their debt using a loan, so as soon as they receive the loan funds, they can pay back their debts.
  • Low-interest rate: When compared to an interest rate on a credit card, the interest rate of a debt consolidation loan will likely make a debt a bit more affordable and save people money.
  • Improve credit: Since consumers will have one affordable monthly payment to make, they will have a positive payment history reported to the credit bureaus, which will ultimately lead to a score increase.

Cons of debt consolidation

The cons of debt consolidation include:

  • Fees: Many lenders will require borrowers to pay fees, such as application, origination, and late fees.
  • Increase debt: If someone fails to pay off their debt with the debt consolidation loan, or continue to accrue debt on their open accounts, such as credit cards, they are simply adding to their debt rather than reducing it.
  • Risk of losing assets: The debt consolidation loan may be a secured loan, which will require collateral. If the debt consolidation loan is not repaid, the borrower could their collateral.

What should be considered when applying for a debt consolidation loan?

When applying for a debt consolidation loan, there is a lot to consider. The goal is to get out of debt, so it is important for consumers to be realistic about whether or not a loan is a solution to their problem.

  • Amount of debt
  • Loan amount
  • Fees
  • Interest rate
  • Repayment schedule
  • Monthly payment amount
  • Collateral

Once the above has been considered, consumers will want to make sure they can actually afford what they may be asked to pay their potential lenders every month. If affordability is an issue, debt consolidation may not be the best option because instead of relieving the person’s debt, it will only add to it.

Alternatives to debt consolidation

The goal of debt consolidation is to reduce debt. Although consumers may find debt consolidation appealing, it is not the only option consumers have when they want to lower their debt and become debt-free.

  • Snowball method: Make small payments to clear away their smallest debts one at a time. Any additional funds can be used towards the balance due to get it paid down faster.
  • Budget: Prioritize and eliminate expenses to free up extra cash that can be used to pay down balances.
  • Bankruptcy: File bankruptcy to eliminate debt or repay the debt according to a specific plan.

With debt having a negative impact on a person’s life, it is easy to understand why people will try anything to get relief. Luckily, there are a number of ways for people to relieve their debt, and exploring these options will help them make an informed decision that will improve their financial situation. Depending on their circumstances, debt consolidation could be the perfect help them reach their goal of being debt-free.

Source: creditabsolute.com

Mortgage Rates vs. the World Cup

Posted on June 12th, 2014

Happy World Cup opening day everyone. I like soccer (and mortgages) so I tried desperately to come up with a way to combine both subjects.

After a little bit of thought, I decided to track mortgage rates over the years during past World Cups.  Let’s go back in time and take a look at where the 30-year fixed stood during the month of June in a World Cup year.

As it stands today, the average interest rate on a 30-year fixed mortgage is 4.20%, up from 4.14% last week and 3.98% a year ago, according to the latest survey from Freddie Mac.

1974 WC

They’ve been tracking rates on the 30-year fixed since 1971. The earliest World Cup that corresponds with their data took place in West Germany in June 1974.

And West Germany beat the Netherlands in the final to claim the FIFA World Cup Trophy, which was awarded for the first time during that edition of the WC.

Prior to that, the Jules Rimet Trophy was permanently awarded to Brazil for dominating the rest of the world. I guess it made sense just to keep it with them seeing that they won so much.

At that time, the 30-year fixed averaged 9.09%…more than double today’s going rate.

1978 logo

Fast forward to 1978 and once again the host country won the tournament.This time it was Argentina hosting and winning, taking out the Netherlands (again) in the final.

During June 1978, rates on the 30-year fixed were an even higher 9.71%.

1982 logo

In the awesome 80s, Spain hosted the World Cup in 1982, but failed to win or even make the semifinals. Since then they’ve gotten a lot better, but it was Italy who claimed the top prize after beating, you guessed it, West Germany.

In June of ’82, the 30-year averaged a mind-blowing 16.70%. And you thought your mortgage rate was high…

1986 logo

Four years later, Mexico played host, and eventually got knocked out during the quarterfinals by West Germany. Argentina went on to win the whole thing, taking out West Germany in the final 3-2.

Mortgage rates settled down a lot over those four years, falling to an average of 10.69% in June of 1986.

1990 logo

Italy hosted the 1990 FIFA World Cup, but could only muster third place after West Germany outplayed Argentina in the final to win their third title.

Meanwhile, mortgage rates had moved very little, falling to just 10.16% in June of 1990.

1994 logo

In 1994, the good old USA finally got to host the Cup, though they didn’t even make it out of their group.

The final ended in a penalty shootout, with Brazil beating Italy after Roberto Baggio blasted his effort a mile over the goal.

The good news was that mortgage rates settled down a bit, falling to 8.40% in June of 1994.

1998 logo

France hosted and won the World Cup in 1998, dispatching Brazil in the final to claim its first ever title.  Good timing on their part.

Perhaps it had something to do with rates averaging an even 7% that June.

2002 logo

In 2002, we saw our first joint host, with South Korea and Japan welcoming the world. They were also the first Asian nations to host.  South Korea actually claimed a very respectable fourth place, but Japan got knocked out in the round of 16.

Brazil went on to beat Germany (not West Germany) 2-0 in the final to claim their fifth world title.

And mortgage rates averaged a pretty attractive 6.65%.

2006 Logo

Four years later, Germany hosted, but somehow didn’t win the tournament, though they did come in third.

That year, Italy beat France in penalties after Zinedine Zidane exited early for head-butting Marco Materazzi.

Mortgage rates barely budged over four years, averaging 6.68% in June 2006.

2010 logo

In 2010, South Africa became the first African nation to host the prestigious tournament, and Spain won its first world title after an extra-time winner from Andrés Iniesta took out third-time finalists Holland.

The 30-year averaged 4.74% that June, roughly a half point above current levels.

2014 logo

The big question today is who will win the 2014 World Cup, and where will rates be in 2018?

My guess is higher, though you never know. As far as a winner, Brazil is the overwhelming favorite, and I’d be shocked if they didn’t win on their home turf.

(photo: oyosan)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

The Refinance Rule of Thumb

How Much Lower Should Mortgage Rates Be to Refinance?

  • Unfortunately there is no one-size-fits-all answer
  • Because no two loan scenarios are the same
  • You have to factor in existing home loan details
  • And future plans/financial objectives/tenure in home, etc.

If you’re considering refinancing your mortgage, you may have searched for the “refinance rule of thumb” to help you make your decision.

Of course, there isn’t a single refinance rule of thumb. There are numerous ones that exist.

And before we dive into them, it should be noted that rules don’t tend to work universally because there is a laundry list of reasons to refinance a mortgage.

What works for one person might not work for another, and if you’re relying on some sort of shortcut to make a decision, you might wind up shortchanging yourself in the process.

That being said, let’s look at some of these “refinance rules” to see if there are any takeaways we can use to our advantage.

Only Refinance If the New Mortgage Rate is 2% Lower

refinance rule of thumb

  • Some say to only refinance if you can get a rate 2%+ lower
  • This is definitely not a rule to live by and ultimately very conservative
  • It’s possible to save lots of money with a rate that is less than 1% lower
  • There are also other reasons to refinance that aren’t always interest rate-dependent

One popular one is that you should only refinance if your new interest rate will be two percentage points lower than your current mortgage interest rate.

For example, if your current mortgage rate is 6%, this rule would tell you to refinance only if you could obtain a rate of 4% or lower.

But clearly this rule is much too broad, just like any other rule out there. When it comes down to it, a refinance decision will be unique to you and your situation, not anyone else’s.

This old rule assumes most mortgage loan amounts are pretty small, unlike the jumbo loans we see nowadays.

Is It Worth Refinancing for a 1% Lower Rate?

Let’s take a look at some math to illustrate why the 2% refinance rule falls short, and how even a rate just 1% lower (or less) can be quite beneficial:

Loan amount: $500,000
Loan type: 30-year fixed-rate mortgage
Current mortgage rate: 4%
Refinance mortgage rate: 3%
Cost to refinance: $4,000

In this scenario, the existing mortgage payment is $2,387.08. If refinanced to 3%, the monthly mortgage payment falls to $2,108.02.

That’s a difference of nearly $300 a month, which will certainly make it easier to meet your mortgage obligation.

However, it will take just over 14 months to recoup the cost of the refinance ($4000/$279). It’s actually even less once you factor in increased equity accumulation.

That said, the refinance “breakeven period” (time to recoup your upfront closing costs) is very short here. So we don’t need to follow that “2% lower rate” refinance rule.

In fact, even a drop in rate of just 0.50% (from 3.5% to 3%) would result in monthly savings of about $140 and take less than two years to recoup.

[See all the top refinance questions in one place.]

Pay Attention to Fees, Especially with Small Loan Amounts

But what if the loan amount were only $100,000? The game changes in a hurry. Your mortgage payment would drop from $477.42 to $421.60.

That’s roughly $56 in monthly savings, not very significant, especially if it still costs you thousands to refinance.

Assuming the cost of the mortgage was still somewhere around $3,000, it would take about 40 months, or roughly three and a half years, to recoup the costs associated with the refinance.

So if you were thinking about selling your home in the short term, it probably wouldn’t make sense to throw money toward a refinance.

That is likely why this old refinance rule exists. But home prices (and loan amounts) are much higher these days, so it’s not a good rule to follow for everyone.

The same goes for any other mortgage rate rule that says your rate should be 1% lower, or 0.5% lower.

Whether it’s favorable or not really depends on a number of factors, such as the loan amount, closing costs, and expected tenure in the home.

If we don’t know the answer to all those questions, we can’t just throw out some blanket rule for everyone to follow. Again, don’t cut corners or you could find yourself in worse financial shape.

[Check out these mortgage payment tables to quickly eyeball differences in rate, or use my refinance calculator to run your own simulation.]

Tip: Pay close attention to the closing costs associated with the loan. Simply looking at the rate and payment isn’t good enough.

Only Refinance If You’ll Save “X” Dollars Each Month

  • This blanket refinance rule fails to consider the interest savings
  • It might have nothing to do with your monthly payment
  • The faster accrual of home equity and things like a shorter loan term
  • Can make a refinance totally worth your while, regardless of payment

Another common refinance rule of thumb says only to do it if you’ll save “X” dollars each month, or only if you plan to live in your home for “X” amount of years.

Again, as seen in our example above, you can’t just rely on a blanket rule to determine if refinancing is a good idea or not.

Some borrowers may need to stay in their home for five years to save money, while others may only need to stick around for just over a year.

But plans change, and you may find yourself living in your home much longer (or shorter) than anticipated.

And if you look at the refinance savings in dollar amounts, it will really depend on the cost of the refinance and how long you make the new payment.

If it’s a no cost refinance, which is a popular option these days, you won’t even have to worry about the break-even period.

There are also homeowners who simply want payment relief, even if it means paying more interest long-term.

So it’d be foolish to get caught up on this rule unless you have a bulletproof plan in place. Let’s face it, nobody does.

[Does refinancing hurt your credit score?]

Forget the Rules, Consider the Loan Term

  • The mortgage term can be a big part of the decision
  • Consider your remaining loan term and what type of mortgage you’ll be refinancing into
  • Along with how long you plan to keep the new loan
  • And your future plans (moving, staying put, or keeping the property to rent out?)

Finally, consider the mortgage term when refinancing, and the total amount of interest you can avoid paying over the life of the loan.

If you’re currently five years into a 30-year fixed mortgage, and refinance into a 15-year fixed mortgage, you’ll shave 10 years off your aggregate mortgage term.

Assuming mortgage rates are low enough at the time of refinance, you could even wind up with a lower monthly payment despite the shorter term.

You will also build equity faster and greatly reduce total interest paid, which will shorten your break-even period and maximize your savings.

[30-year mortgage vs. 15-year mortgage]

If you simply refinance into another 30-year loan, you must consider the five years in which you already paid interest when calculating the benefits of the refinance.

Those who have had their mortgage for a decade or longer certainly won’t want to restart the clock at 360 months, even if mortgage rates look too good to pass up.

Also factor in your current loan type versus what you plan to refinance into.

If you currently hold an adjustable-rate mortgage that will reset higher soon, the decision to refinance may be even more compelling.

At the end of the day, you shouldn’t use any general rule to determine whether or not you should refinance.

Doing so is lazy, especially when it’s not that difficult to run a few numbers to see what will make sense for your particular situation.

If you feel overwhelmed by all the math, ask a loan officer or mortgage broker to run some scenarios for you to illustrate the potential savings and break-even periods.

Just be sure they’re giving you an accurate and complete picture and aren’t simply motivated by a paycheck.

And take your time – you’re not shopping for a big screen TV, you’re making one of the biggest financial decisions of your life.

Tip: When to refinance a home mortgage.

(photo: angermann)

Source: thetruthaboutmortgage.com

Why Every Mortgage Lender Will Disappoint You

People constantly ask me if a particular lender is good, bad, or should be avoided at all costs.

They also ask who the best mortgage lender is, often citing some customer satisfaction survey or what not. Or whether they should use a mortgage broker or a bank.

And my answer is pretty much always the same – it depends on how your particular loan goes.

You might end up hating the company or loving them, all based on how things go when it’s your turn.

So yes, two individuals can wind up with completely different opinions, even when working with the same company, and perhaps even the same exact employees.

The problem with the mortgage industry is that it’s very regulated, dynamic, and complex, and as such, it’s very difficult to please everyone all of the time, even with the best of intentions.

In other industries, such as the credit card industry for example, customer service reps can “make things right” if something goes wrong, usually just by pushing a button.

You didn’t like our service? Okay, how about a $25 statement credit?

The same goes for your cable company, who you have to call each month to ask for a billing adjustment after they attempt to gouge you.

With home loans, it’s a little different.

Aligning Expectations with Reality in the Mortgage Biz

  • Thanks to the widespread “the customer is always right” policy
  • Consumers are almost guaranteed to be dissatisfied with the home loan experience
  • Because it doesn’t work the same way in the mortgage industry
  • Things rarely go according to plan and loans can’t always be approved regardless of how much you complain

Unfortunately, it is these very companies mentioned above that create lofty expectations for all other businesses, whether they can live up to them or not.

So when a consumer applies for a mortgage, they often go into it thinking they can complain if anything goes wrong and automatically get it fixed.

Or simply argue until fees are lowered or waived, and the interest rate reduced.

Sadly, it’s not so simple when it comes to mortgage lending. There are so many hands involved in a single loan, and so many guidelines that must be met. Many are black and white, and often not up to your lender.

For example, the loan might need to meet the guidelines of Fannie Mae, Freddie Mac, or the FHA, and whining about it won’t change that fact.

There are also many technical aspects, and mortgage pricing is very involved.

Sure, some junk fees might be waived without too much of a fight, but adjusting your mortgage rate lower will be a lot trickier.

If you’re not a great borrower, even the best lender won’t be able to get you the low advertised rate you saw on TV or the Internet.

You know the old adage, “the customer is always right.” In mortgage, this doesn’t necessarily hold true, as you and your lender will be at the mercy of external forces.

Enter frustration here.

Complications May Come Off as Lies

  • While there are certainly unscrupulous players in the mortgage industry like any other line of business
  • Even those who tell the truth might be questioned due to the complexities involved with obtaining a mortgage
  • But if you inform yourself early on you can spot the difference
  • And better understand when you’re being strung along and when you might need to act

Let’s take a common scenario, where you are quoted a certain mortgage rate at the beginning of the home loan process.

It is at this very moment the lender gets you in the door. After all, without the promise of a low mortgage rate, why would you choose them? They must be somewhat competitive to move forward.

You have a great conversation with the loan officer and feel really good about everything.

The fees are explained in detail, and the interest rate you’re set to receive is going to shave hundreds off your monthly mortgage payment!

Then, out of nowhere, you’re told your mortgage rate will be .50% higher than originally quoted.

Turns out something came up on your credit report that wasn’t originally disclosed, pushing your credit score into a lower tier, and thus raising your rate.

This is but one example of how rates can change in a flash, and it has nothing to do with the lender originating your loan. It’s not a bait and switch.

And that’s completely ignoring the fact that mortgage rates can change daily among all lenders.

Another common scenario is an appraised value coming in low. It pushes your loan-to-value ratio higher, and your low mortgage rate isn’t so low anymore.

Once again, this has nothing to do with the lender. It has to do with your property value, which the lender doesn’t dictate.

Love Them or Hate Them…

  • As noted, your home loan experience may vary considerably from another borrower who uses the same exact lender
  • Simply due to luck (or a lack thereof) when it comes to your particular loan scenario
  • And often it may be completely outside your lender’s control
  • The difference might be how your lender communicates when things do come up

Here’s another one. Let’s assume you decide to float your rate, only to see rates rise.

You may blame the lender for not locking your rate early on. But the exact opposite could also happen, making you a very happy borrower.

Again, your lender is not the culprit here, but rather timing is. So luck is involved as well, which as we all know, can go both ways.

You may also find out that your loan is declined after weeks of back and forth with your lender.

Again, things come up, and the more documentation you provide to your lender, the more things can change, for better or worse.

Your mortgage doesn’t operate in a vacuum. If you send in a document that happens to raise a red flag with the underwriter, everything may change in a heartbeat.

They only know as much as you tell them, and if you hold something back or aren’t forthright, it can turn your application on its head.

Again, it’s not your lender in many cases, it’s just reality in the mortgage world.

Lenders are held accountable for mistakes made during the loan process, and so yes, they may ask for a document more than once. Or a blank page that seems entirely insignificant.

And they may ask for a letter of explanation. And they might ask for an explanation to your previous explanation.

But it’s all done for a reason. Lenders aren’t in business to play games with you.

They want to fund loans just as much as you want yours funded, so cooperation often works better than endless arguing.

If they ask for a document twice, sometimes it’s better just to oblige (but document the process while you’re at it).

Also try to put yourself in the shoes of the loan officer, processor, or underwriter? The mortgage business is very stressful and riddled with timelines and red tape.

The only caveat here might be how the lender communicates this with you.

Are they transparent about all that happens? Do they pick up the phone when you call? Are they friendly and happy to explain what’s going on? Are they proactive or reactive?

These characteristics can certainly separate the good lenders from the bad.

There Are Always Exceptions

  • If you educate yourself on mortgages you’ll have a better idea of who’s full of it
  • Or attempting to take you for a ride and give you the old bait and switch
  • Comparison shop before you commit and vet each lender carefully before you proceed
  • Also feel out the loan officer you speak with and check out their reviews so you feel good about working with them beforehand

While I just did my best to defend mortgage lenders, there are shady and unscrupulous banks, lenders, mortgage brokers, and loan officers out there.

Just like any industry, there are bad apples among the good, and you do need to navigate extremely carefully to avoid such individuals.

This is especially important when obtaining a mortgage, as a bad deal can cost you a lot more than a bad deal elsewhere. Would you rather overpay for a car or your mortgage?

You certainly don’t want to be stuck with an inflated mortgage rate for years, or a loan type that doesn’t make sense for you (hello option arm).

Nor do you want to miss out on a home purchase because the lender failed to deliver what they promised.

So ask a lot of questions, and make sure your loan rep takes the time to explain anything that might be causing confusion or concern. Or what may arise and how they’ll deal with it.

It is their job, and they should be more than willing to help you out, especially if you’re a first-time buyer.

Just remember that it is indeed a job, and they need to get paid for assisting you. How much money they make will depend on how well you shop and negotiate.

In other words, YOU affect the outcome of your mortgage as well.

Prepare, do your homework, address any red flags before you apply, be cooperative, and put in the time to ensure you don’t walk away disappointed.

(photo: attercop311)

Source: thetruthaboutmortgage.com

A Quick Guide to How Much Car You Can Really Afford

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

Get matched with a personal loan that’s right for you today.

Learn more

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: istock

Source: credit.com

How to Find Private Money for Real Estate Investments

private money lendersI have completed a lot of house flips and bought many rental properties. Over the years, I have established many private-money relationships. Some of the people who work with me are amazed at how much money people are willing to lend me! I was able to attract private-money lenders by being trustworthy, being transparent, and putting myself out in the public eye. I don’t have a fancy presentation or a secret list of lenders. I am myself and honest about everything I do. It is not easy to attract private money, especially when just starting out, but it can be a game changer if you are a real estate investor.

What is private money?

The first thing I want to talk about is what private money is. There is a lot of confusion about hard money and private money. The biggest problem is that hard-money lenders started calling themselves private-money lenders in order to get more business.

A hard-money lender is a company that lends money to real estate investors. They usually lend from 8 to 15%, and the terms are less than one year. The loans are meant for house flipping but can be used for rental properties that are refinanced quickly as well. Hard-money lenders usually require an appraisal, have loan fees, underwriting, and a loan approval process. Hard-money loans can be a pain. They have a lot of fees, and the lenders can change their minds at any time with no real repercussions.

Private money comes from a person who lends money to another person. When I borrow private money, it is not from a company that specializes in lending money—it is from someone I know. I have at least 6 people I borrow money from. Some are friends, some are family, some are investors I know, and some are strangers who found me online. Private-money lenders often have no fees, require no underwriting, and most likely do not need an appraisal or valuation.

When I get a private-money loan, I send a text or an email to my lender and ask them if they want to do this loan. With some of the lenders, I give the address and a few basic numbers like the purchase price, the repairs needed, and the ARV (after repaired value). With other lenders, I say, “Hey, you want to do a loan?”

I love private money because it is so easy to use and I know there will not be any issues once my lender says I can do the loan. I have had many problems with many different hard-money lenders.

Do not confuse hard money with private money!

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Avoid private-money scams!

You may want to get into the heart of how to find private-money lenders, but first a word of warning: do not fall for private-money scams! I personally can’t believe people fall for them, but it happens all the time.

How does the scam work?

Someone posts something on social media about having private-money loans from $50,000 to $5,000,000 at a 5% interest rate and no points, no credit needed, and no income verification. It sounds too good to be true, right? Well, that is because it is too good to be true!

The scammer will charge a small fee to get the application process started, and once they have that, you will never hear from them again. Private-money lenders are not looking to loan their money at rock bottom rates to strangers they find online. Don’t fall for it!

How did I find my private lenders?

When I was flipping houses in the beginning, I did not use private money. I worked with my father, and almost all the money we used was from the bank. This was also before the housing crash when it was much easier to get money from banks for flipping houses. We had a large credit line that we could use for whatever property we wanted.

After the housing crash happened, those lines of credit dried up, and we had to find new financing. We found banks who would lend to us, but we had to put 25% down and finance all of the repairs. We could handle that because we had been in the business for a long time and had a lot of working capital.

Over time, I took over the business and was flipping houses on my own. I was still using bank money, but a couple of people approached me about lending me private money. One was an investor who used to be one of our main competitors in the house flipping business. He had stopped flipping houses but was interested in lending me money when I flipped houses.

I was not sure what to make of the offer since the interest rate he wanted was much higher than the bank’s interest rate. He was also offering to finance 100% of the purchase price. That was intriguing to me because it meant I could flip many more houses. I wouldn’t have to come up with nearly as much cash for each deal. I did one deal with him and then another, and then he became my main source of financing.

I have also borrowed money from family members who saw what I was doing and knew that I could give them decent returns that were safer than other high-risk investments.

Another investor saw my YouTube videos and my blog and wanted to become an investor! I am at a point now where there is no way I can use all the money I have available to me. At the same time, the lenders are not dependent on me to make them money, so there is no pressure to use the private money all the time.

loans for house flips

How are my private-money deals set up?

I very rarely partner with anyone. I almost always set up my loans as a pure interest rate deal. The private-money lender gives me money, and I pay them interest and points. Points are like an origination fee and are based on a percentage of the loan. If I pay 2 points on a $100k loan, I pay $2,000. My lenders charge from 1 to 2 points on the loans. Hard-money lenders charge from 1 to 5 points on loans.

Some investors will share the equity with the lenders, or as I like to call it partners if it is an equity share. They will do all the work, find the deal, and sell the property, while the lender will put up all of the money. Often, the two partners will split the profit 50/50. I hate giving up equity, and I also hate paying people based on the profit I make. There can be a lot of doubt and suspicion about the actual profits, the actual costs, and how the money is being handled on those deals. When I borrow money based on the interest rate, there is no confusion, and it gives me a sense of urgency to get things done so it doesn’t cost me as much money!

When I borrow money for a house flip, I will create a Deed of Trust and a Note for the lender. I sign both documents that describe the interest rate, payments, late fees, etc. and record the Deed of Trust and return the note to the lender. If I can’t repay the loan for any reason, the lenders have the property as collateral. It is not an easy process, but they could foreclose on the property and take the house back if they wanted to after I stop making payments or violate any of the terms of the loan.

I also have some deals set up with family where I borrow money all year round, not on a per-deal basis. These loans also have Deeds of Trusts on rental properties I own. The lender has collateral and a way to get their money back if things go south. Their investment is secured by a real asset.

Why do my lenders trust me?

One thing that surprises many people that work with me (I have no idea why) is how many people want to lend me money! The other day, I mentioned on Instagram that I was starting an opportunity fund. I was starting this fund with my own money, and I was not looking for any investor money. I had multiple people ask how they could invest in my fund. I had no idea who these people were!

I have people ask to invest with me all the time, and the reason is they trust me. Why do they trust me? I think it is because I am very open about what I do, I show the numbers on my deals, I show videos of my properties, and they can verify everything I say. I have also done well for myself and have a few nice cars like my Lamborghini.

Over the years, I have created a blog (what you are reading now), a YouTube channel, an Instagram page, a Facebook page, etc. I have not been afraid to talk about what I do and share what I do. This transparency has been a huge reason why people trust me and want to invest with me.

Not only do I talk about my successes, but I talk about my failures as well. I do not make money on every single deal I do. I think being honest and admitting my mistakes also plays a big part in why people trust me. I think it also helps that I have a credit score over 800, and I have never missed a payment in my life.

How can you find private money?

I have talked about how I was able to find private money, but that might not relate well to people who are just starting out or do not have a public presence. How can the average real estate investor find those private lenders?

The first thing I tell everyone is you cannot be afraid to ask! Many people say they are afraid to ask their family for one because they do not want to lose it. Does that mean it is okay to lose a stranger’s money? Do you intend to lose this money? If you are not confident in your investing and 100% sure you will be able to pay back the money you are borrowing, you may not be ready to borrow it. Sure things happen, but if you are looking to borrow private money simply because you are not prepared enough to get bank money, you may need to do more prep work.

Your family is the first place to state, and it should be mutually beneficial. You are providing them with a superior return, and you are making money using their money in the real estate business. You should not be begging for a favor but providing them with an opportunity.

You can do the same thing with friends, co-workers, or any other contact you have. Remember, that it is an opportunity for them to make a high return with an asset-backed investment.

If you know no one with money, which is very rare (most people know people with money, they are just afraid to ask them), you can start searching for people with money.

  • Look up public records to see who is buying houses without loans. Those are investors with cash, and they may want to lend money as well as invest.
  • Immerse yourself in the real estate world and find the investors who have money but don’t have the desire to hustle as hard anymore.
  • Put yourself out in the public eye. Write a blog, post on social media, start a YouTube channel. No one will find you if you don’t make it easy for them!
  • Attend real estate investor clubs. These clubs often have a lot of newbies, but there can be some experiences investors there as well.

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Conclusion

Private money can be a wonderful tool to help your real estate investing business. However, you must be prepared and know what you are doing if you think private investors will give you money. You have to show how their investment is safe, and you must show that you are trustworthy. If you try to BS people into giving you money, it will be a long and hard battle that will not end well.

Source: investfourmore.com