FHA Refinance Applications Plummet in November

Last updated on November 30th, 2011


FHA refinance loan volume fell 29.9 percent from October to November, according to a FHA Single-Family Outlook released recently by HUD.

A total of 69,062 FHA loan applications were received for refinance purposes, down from 98,544 a month prior, and well below the 112,095 seen the same time last year.

It looks to be another sign that the refinance boom is quickly running out of steam, despite mortgage rates remaining relatively close to historic lows.

The popular 30-year fixed mortgage actually hit its lowest point during the week ending November 11, at a staggering 4.17 percent, but many homeowners probably already took advantage of the low rates beforehand.

Meanwhile, purchase money mortgage applications totaled 63,920, down 6.9 percent from October and 26.6 percent from the 87,142 seen a year earlier.

Reverse mortgages were down just 0.4 percent month-to-month to 8,217, but up a whopping 25 percent from the 6,571 applications seen in November 2009.

Perhaps the recent warning from Consumer Reports will, ahem, reverse that trend.

FHA endorsed a total of 131,258 mortgages for $26.1 billion in November, and as of the end of the month, had 6,745,827 cases in-force with an unpaid balance of $921 billion.

During the month, there were 588,947 FHA loans in serious default (90 days + delinquent).

The default rate jumped to 8.7 percent from 8.0 percent a month earlier, though it was attributed to a reporting problem with some smaller mortgage lenders.

And it’s still 0.6 percent lower than the 9.3 percent default rate seen a year ago.

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 15 years.

Source: thetruthaboutmortgage.com

11 Real Estate Exit Strategies for Low- or No-Tax Investment Gains

The single greatest predictor of wealth in the U.S. isn’t education level, ethnicity, gender, or any other demographic descriptor. It’s whether or not you own real estate.

In the most recent Survey of Consumer Finances, the Federal Reserve found the median net worth of homeowners to be 46 times greater than that of renters. While the median renter had a net worth of $5,000, the median homeowner owned $231,400 in net assets.

Homeowners benefit from appreciation, forced savings in the form of principal repayment toward mortgages, and often lower annual housing costs compared to local renters. Those advantages get compounded by a tax code that favors property owners. Beyond simple homeownership, real estate investors can reduce their taxes through myriad strategies and incentives.

Still, when it comes time to sell, many property owners face sticker shock at their prospective tax bill. So how can property owners reduce — or better yet, eliminate — their taxes when they go to sell?

Common Real Estate Exit Strategies

Try these low- and no-tax real estate exit strategies to keep more of your real estate profits in your pocket and out of Uncle Sam’s grasping paws.

1. The Homeowner Exclusion

To begin, homeowners get an inherent tax break when they sell their home — with certain requirements and restrictions, of course. If you’re a homeowner selling your primary residence, chances are you won’t have to pay taxes on your profits from the appreciation of the home’s value since you bought it.

Single homeowners can exclude the first $250,000 in profits from their taxable income, and the number doubles for married couples filing jointly. Sometimes called a Section 121 Exclusion, it prevents most middle-class Americans from having to pay any taxes on home sale profits.

Any profits over $250,000 ($500,000 for married couples) get taxed at the long-term capital gains tax rate. More on that shortly.

To qualify for the exclusion, however, homeowners must have owned and lived in the property for at least two out of the last five years. They don’t have to be consecutive; if you lived in the property for one year, moved out for three years, then moved back in for one more year before selling, you qualify.

If you want to sell a property you don’t currently occupy as your primary residence, and want to avoid taxes through a Section 121 Exclusion, consider moving into it for the next two years before selling.

2. Opt for Long-Term Capital Gains Over Short-Term

If you own a property — or any asset for that matter — for less than a year and sell it for a profit, you typically pay short-term capital gains tax. Short-term capital gains mirror your regular income tax level.

However, if you keep an asset for at least one year before selling, you qualify for the lower long-term capital gains tax rate. In tax year 2020, single filers with an adjusted gross income (AGI) under $40,000 pay no long-term capital gains taxes at all — the same goes for married filers with an AGI under $80,000. Single filers with incomes between $40,001 and $441,450 and married filers between $80,001 and $496,600 pay long-term capital gains at a 15% tax rate, and high earners above those thresholds pay 20%.

Keep your investment properties and vacation rentals for at least one year if you can. It can save you substantial money on taxes.

3. Increase Your Cost Basis by Documenting Improvements

If you slept through Accounting 101 in college, your cost basis is what you spent to buy an asset. For example, if you buy a property for $100,000, that makes up your cost basis, plus most of your closing costs count toward it as well. Let’s call it $105,000.

Say you live in the property for 20 months, making some home improvements while there. For the sake of this example, say you spent $15,000 on new windows and a new roof.

Then you sell the property for $160,000. Because you lived there for less than two years, you don’t qualify for the homeowner exclusion. After paying your real estate agent and other seller closing costs, you walk away from the table with $150,000.

How much do you own in capital gains taxes?

Assuming you earn enough income to have to pay them at all, you would owe the IRS for $30,000 in capital gains: $150,000 minus your $105,000 cost basis minus the additional $15,000 in capital improvements. If you can document those improvements, that is — you need to keep your receipts and invoices in case you get audited.

In this example, your capital gains tax bill would come to $4,500 (15% of $30,000) if you document the capital improvements, rather than $6,750 (15% of $45,000) if you don’t.

4. Do a 1031 Exchange

Section 1031 of the U.S. tax code allows investors to roll their profits from the sale of one property into buying a new property, deferring their capital gains tax until they sell the new property.

Known as a “like-kind exchange” or 1031 exchange, you used to be able to do this with assets other than real estate, but the Tax Cuts and Jobs Act of 2017 excluded most other assets. However, it remains an excellent way to avoid capital gains taxes on real estate — or at least to postpone them.

Real estate investors typically use 1031 exchanges to leapfrog properties, stocking their portfolio with ever-larger properties with better cash flow. All without ever paying capital gains taxes when they sell in order to trade up.

Imagine you buy your first rental property for $100,000. After expenses, you earn around $100 per month in cash flow, which is nice but you certainly won’t be retiring early on it.

You then spend the next year or two saving up more money to invest with, and set your sights on a three-unit rental property that costs $200,000. To raise money for the down payment, you sell your previous rental property, and net $20,000 in profit at settlement. Ordinarily you’d have to pay capital gains taxes on that $20,000, but because you put it toward a new rental property, you defer owing them.

Instead of $100 per month, you net $500 per month on the new property.

After another year or two of saving, you find a six-unit property for $400,000. You then sell your three-unit to raise money for it, and again use a 1031 exchange to roll your profits into the new six-unit property, again deferring your tax bill on the proceeds.

The new property yields you $1,000 per month in cash flow.

In this way, you can keep scaling your real estate portfolio to build ever-more cash flow, all the while deferring your capital gains taxes from the properties you sell. If you ever sell off these properties without a 1031 exchange, you will owe capital gains tax on the profits you’ve deferred along the way. But until then, you need not pay Uncle Sam a cent in capital gains.

5. Harvest Losses

Invest in enough assets, and you’ll end up with some poor performers. You can sit on them, hoping they’ll turn around. Or you can sell them, eat the loss, and reinvest the money elsewhere for higher returns.

It turns out that there’s a particularly good time to accept investment losses: in the same year when you sell a property for hefty capital gains. Known as harvesting losses, you can offset your gains from one asset by taking losses on another.

Say you sell a rental property and earn a tidy profit of $50,000. Slightly nauseated by the notion of paying capital gains tax on it, you turn to your stock portfolio and decide you’ve had enough of a few stocks or mutual funds that have been underperforming for years now. You sell them for a net loss of $10,000, and reinvest the money in (hopefully) better performing assets.

Instead of owing capital gains taxes on $50,000, you now owe it on $40,000, because you offset your gain with the losses realized elsewhere in your portfolio.

6. Invest Through a Self-Directed Roth IRA

Want more control over your IRA investments? You can always set up a self-directed IRA, through which you can invest in real estate if you like.

Like any other IRA, you can open it as a Roth IRA account, meaning you put in post-tax money and don’t owe taxes on returns. Your investments — in this case, a real estate portfolio — appreciate and generate rental income tax-free, which you can keep reinvesting in your self-directed Roth IRA until you reach age 59 1/2. After that, you can start pulling out rent checks and selling properties, all without owing taxes on your profits.

Just beware that setting up a self-directed IRA does involve some labor and expense on your part. I only recommend it for professional real estate investors with the experience to earn stronger returns on real estate investments than elsewhere.

Pro tip: In addition to owning physical properties through a self-directed IRA, you can also use your self-directed IRA to invest in real estate through platforms like Fundrise or Groundfloor.

Hold Properties to Pass to Your Children

“Exit strategy” doesn’t always mean “sell.” The exit could happen in the form of your estate plan.

Or, for that matter, through methods of passing ownership of properties to your children while you still draw breath. There are several ways to go about this, but consider the following options as the simplest.

7. Leave the Property in Your Will

In 2020, the first $11.58 million in assets you leave behind are exempt from estate taxes. That leaves plenty of room for you to leave real estate to your children without them getting hit with a tax bill from Uncle Sam.

And, hey, rental properties can prove an excellent source of passive income for retirement. They generate ongoing income with no sale of assets required, which means you don’t have to worry about safe withdrawal rates or sequence of returns risk with your rental properties. They also adjust for inflation, as you raise rents each year. You can delegate the labor by hiring a property manager, and once your tenants eventually pay off your mortgage, your cash flow really explodes.

Plus, you can let your kids hassle with hiring a real estate agent and selling the property after you depart this mortal plane. In the meantime, you get to enjoy the cash flow.

8. Take Out a Home Equity Loan

Imagine you buy a rental property while working, and in retirement, you finally pay off the mortgage. You can enjoy the higher cash flow of course, but you can also pull money out through a home equity loan.

In this way, you pull out almost as much money as you’d earn by selling. Except you don’t have to give up the property — you can keep earning cash flow on it as a rental. You let your tenants pay down your mortgage for you once, all while earning some cash flow. Why not let them do it a second time?

You pull out all the equity, you get to keep the asset, and you don’t owe any capital gains taxes. Win, win, win.

You can follow the same strategy with your primary residence, but in that case you incur more personal debt and living expenses. Not ideal, but you have another option when it comes to your home.

9. Take Out a Reverse Mortgage

Along similar lines, you could take out a reverse mortgage on your primary residence if you have equity you want to tap into. These vary in structure, but they either pay you a lump sum now, or ongoing monthly payments, or a combination of both, all without requiring monthly payments from you. The mortgage provider gets their money back when you sell or kick the bucket, whichever comes first.

For retirees, a reverse mortgage helps them avoid higher living expenses while pulling out home equity as an extra source of income. And, of course, you don’t pay capital gains taxes on the property, because you don’t sell it.

10. Refinance & Add Your Child to the Deed

My business partner recently went to sell a rental property to her son for him to move into with his new wife. But the plan derailed when the mortgage lender declined the son’s loan application.

So they took a more creative approach. My business partner and her husband refinanced the property to pull out as much cash as they could, and they had the title company add their son and his wife to the deed and the mortgage note. The son and daughter-in-law moved into the property, taking over the mortgage payments. My partner and her husband took the cash, and while they remain on the deed, their ownership interest will pass to the younger generation upon their death.

In this way, they also streamline the inheritance, as the property won’t need to pass through probate.

This strategy comes with two downsides for my partner and her husband, however. First, they remain liable for the mortgage — if their son defaults, they remain legally obligated to make payments. Second, mortgage lenders don’t lend the entire value of the property when they issue a refinance loan, so my partner didn’t receive as much cash as she might have if she’d sold the property retail.

Of course, she also didn’t have to pay a real estate agent to market it. And any small shortfall in cash from refinancing rather than selling outright could be collected as a “down payment” from your child, or you could just shrug and think of it as a gift.

Other Exit Strategies

11. Donate the Property to Charity

Finally, you can always avoid taxes by giving the property to your charity of choice.

No clever maneuvers or tax loopholes. Just an act of generosity to help those who need the money more than you or Uncle Sam do.

By donating real estate you not only avoid paying taxes on its gains, you also get to deduct the value — in this case the equity — from your tax return. But bear in mind that the IRS looks closely at charitable deductions, especially house-sized ones, and you may hear from them demanding more information.

Final Word

Property owners have plenty of exit strategies at their disposal to minimize capital gains taxes. But don’t assume all of these options will last forever — with an ever-widening federal budget deficit, expect tax rates to rise and investment-friendly tax rules to suffer. Your taxes may go up in retirement, not down.

Whether you own a real estate empire or simply your own home, choose the strategy that fits your needs best, and aim to keep more of your proceeds in your own pocket.

What are your exit strategies for your properties? How do you plan to minimize your tax burden?

Source: moneycrashers.com

9 Energy-Efficient Home Improvements Worth Your Money

How would you like to invest $30 and be paid a $45 dividend on your investment every year after that?

That’s essentially what you do when you make certain energy-efficient home improvements to lower your expenses.

If you pay for powering your home, you know that the dollars can really add up. The average monthly electricity bill in the U.S. was $115.49 in 2019, but your bill can vary widely depending on where you live — and whether you also rely on alternative energy sources like gas or solar power.

If you take the steps suggested below — especially if you do the work yourself — you could save a bundle. And if you think of the improvements as an investment, you can enjoy a healthy annual rate of return and won’t pay income taxes like you would with regular investment returns.

9 Energy-Efficient Home Improvement Tips That Will Also Save You Money

When you invest in your home to lower your bills, every penny saved is yours to keep.

Ready to get started? Here are nine ways to save money by improving your house.

1. Insulate Your Water Heater

An insulating jacket for your hot water heater will cost $30 or so, and you can install it yourself in about an hour.

According to the experts at the Department of Energy, insulating a hot water tank saves 7% to 16% annually.

In other words, assuming the average hot water costs $438 to operate annually, you’ll have $30 to $70 more in your pocket each year.

If you’re able to make a bigger up-front investment, you may consider replacing your traditional electric water heater with a heat pump water heater.

Instead of generating heat directly, heat pump water heaters act more like refrigerators in reverse — they pull heat into the device instead of pushing it out.

The bigger your family is, the more you’ll save by using heat pump water heaters, according to the DOE. Two people would save $170 every year while a family of four would save $350 a year. The DOE estimates the cost to switch is approximately $800, so that family of four would start seeing savings after a little over two years.

The Energy Star site has a questionnaire to help you decide if heat pump water heaters are a good fit for your home.

A woman adjusts the thermostat.
Getty Images

2. Install a Programmable Thermostat

You don’t need as much heat when you’re in bed at night, and you don’t need as much heating or air conditioning when you are out of the house. But you don’t want to climb out of bed on a cold winter morning or come home to a hot house in the summer.

A programmable thermostat solves these problems by automatically adjusting the temperature settings for you.

Ten minutes before you get up in winter, the heat turns on. Ten minutes before you get home after a hot summer day at work, the air conditioning adjusts to cool the house. You use the heating and cooling only when you actually need them.

A programmable thermostat can save you $50 on heating and cooling costs each year, according to the government’s Energy Star program. Starting around $60, many models are simple enough to install on your own.

3. Switch Out Your Light Bulbs

Another bright idea for savings? Replacing your light bulbs.

Light emitting diode (LED) light bulbs are 90% more efficient than traditional incandescent bulbs and can last up to 20 years.

LEDs used to be expensive for a single bulb, but today, you can get a two-pack of LED bulbs for under $5.

Pro Tip

Before starting a home improvement project, check out the DOE’s Energy Star site to find out if the product you need is eligible for a tax credit or rebate.

By using the LEDs, you can save $4.10 per bulb per year on energy usage compared to an incandescent. The average American household has 50 light bulb sockets, according to the EPA’s Energy Star program, which means a potential annual savings of $205 if you replaced every bulb in your house.

4. Bundle Up Those Water Lines

Bare water lines leak heat, so you have to set the temperature of the hot water heater higher to still get a hot shower at the other end of the house.

Solve this problem with a little pipe insulation: an inexpensive foam tube with a slit down the side. Just cut it to the required length with scissors and push it onto the pipes.

This project will take you about three hours for a small home and cost $10 to $15 total, according to the Department of Energy. Each year, you’ll save 3% to 4% heating your water.

5. Replace Your Ceiling Fans

Ceiling fans in general can help you save on heating and cooling costs.

In the summer, run the fan blades counterclockwise to generate a cool breeze — thus reducing the need to run the more expensive air conditioning. Running the blades clockwise helps circulate warm air that rises back down into the room, helping cut heating costs in the winter.

You can realize even more savings by replacing your old, inefficient fans with Energy Star certified fans, which are 60% more energy efficient than older models, according to the DOE. (And be sure to use your energy efficient light bulbs in the fixtures.)

A woman opens up the fridge in her home.
Getty Images

6. Buy a New Refrigerator

If your refrigerator is working fine, there’s normally no good reason to replace it, even if the new one is a bit more efficient. But if you have a fridge that’s more than 15 years old, it might be time to replace that one.

A new fridge uses about $80 less in electricity each year compared to one from 2005.

7. Insulate Your Attic

If you run your heater or air conditioner most days, you might save some serious money by adding new insulation to your attic.

Upgrading attic insulation from R-11 to R-49 is something you can do by yourself in a day or two for about $750, according to HouseLogic.com. (The cost is about double if you want professionals to install it.)

You’ll save about $600 per year on heating and cooling costs, depending on where you live and the type of heat you have. It also adds value to your home if you decide to sell in the future.

8. Seal Those Air Leaks

Check for cracks or spaces around door frames, windows and entry points for pipes and cables. You lose heat from these gaps during the winter and cool air in the summer, adding to your heating and cooling costs.

It takes about $20 in caulking and peel-and-paste insulating strips to seal these up all over the house.

Pro Tip

If you’re looking to replace an exterior door, a steel or fiberglass door is a more energy efficient option than wood. Some steel doors even have insulated cores, so no need for weatherstripping.

The experts at Energy Star say doing this will cut your heating and cooling costs by an average of 15%, depending where you live. That’s potentially hundreds of dollars saved for an investment of an afternoon and $20. Not bad, right?

9. Replace That Toilet Flapper

If you hear your toilet running when it isn’t being used, you probably have a leaky flapper.

It’s not just an annoyance — a leaky flapper can waste up to 200 gallons of water every day.

Since a new flapper valve can be bought for under $10 and can save you $50 per month, this little investment might have the highest rate of return of any on our list.

Steve Gillman is a contributor to The Penny Hoarder. Staff writer/editor Tiffany Wendeln Connors also contributed to this post.. 

Source: thepennyhoarder.com

Flexible spending credit card

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

What Is a Flexible Spending Credit Card?

A flexible spending credit card is similar to a regular credit card, except you have a variable credit limit. This limit changes based on your income, credit score and payment history. It allows users to potentially go over their regular credit card limit if the purchase meets specific requirements. The card issuer will approve or deny the overspending purchases.

First, the user’s regular spending habits are analyzed, and then information such as their recent payment history and income are considered to decide if the purchase is acceptable. This is very different from a regular credit card that has a set limit. When users try to go over a standard credit card’s limit, they’re often denied the purchase and charged a fee.

A flexible spending credit card is not related to a flexible spending account (FSA) in any way, so don’t be confused about that. While the terms are similar, FSAs are saving accounts related to healthcare costs and insurance.

A flexible spending credit card has a limit that changes based on your income, credit score and payment history.

Flexible Spending Cards vs. No Preset Limit (NPSL) Cards

A “no preset limit” credit card (NPSL) has no stated limit attached to the credit card. In actuality, there is a limit, but that number is never shared with the cardholder. Only some NPSLs report the card limit to credit bureaus.

A flexible spending card does have a stated limit that the cardholder is aware of and that limit is reported to credit bureaus.

Both credit cards allow the user to go over their credit limit without penalty. Additionally, both kinds of cards carry some uncertainty with them. With a flexible spending card, you might not be certain that charges above your limit will be approved unless you’re confident you’ve been maintaining good credit card behavior. And with an NPSL, you never know your limit, so you’re uncertain when you’ll max it out.

Pros of Flexible Spending Cards

You Can Go Over Your Limit

With a typical credit card, you can’t go over your limit but you do get charged a fee for trying to do so. A flexible spending card lets you go over your limit (if you’ve been making frequent payments and maintaining a steady income). This is great for individuals who find themselves purchasing big-ticket items every couple of months. Rather than trying to get approved for a credit card limit increase, your flexible card lets you make the large payments when they occur.

Card Terms Are More Customized

How your flexible spending card works for you will depend on you. If you are responsible and both pay off your card every month and don’t consistently overspend for your income bracket, your occasional big purchases will be approved.

Conversely, if you start to be irresponsible with your flexible spending card, the issuer will stop approving purchases over your limit. That’s because the issuer studies your shopping habits, payment history and income to determine if you can afford to go over your limit.

Overall, a flexible spending credit card offers more customized card terms. Many people don’t want to go through the hassle of increasing their credit limit every time a big purchase comes up. Additionally, some people recognize that having a high credit limit might be too tempting. The flexible card option allows the credit card to be there as a contingency plan. You can go over when needed, but you don’t have to most of the time.

Cons of Flexible Spending Cards

You Need to Understand the Fine Print

Some of the fine print might take you by surprise. For example, these types of cards will analyze your situation every time you go over your limit. That means that just because you were approved to go over your limit before doesn’t guarantee it’ll happen the next time. Additionally, there may be fees and automatically modified limits you may want to watch out for.

Your Credit Score Might Be Affected

Unfortunately, there’s a strong possibility that a flexible spending card will negatively impact your credit score. This mostly stems from how your card’s limit is reported to the credit bureaus.

First, this type of card can impact your credit utilization ratio. Credit utilization accounts for almost one-third of your credit score. This ratio looks at how much credit you use versus how much is available to you. Ideally, you want to keep your credit utilization ratio at 30% or lower.

As flexible spending cards usually do not report the credit limit to credit bureaus, it can harm your credit score. That’s because it looks like you’re using a lot of credit without the bureau knowing your limit. For example, if you’re spending $2,000 on your flexible card when you have a limit of $10,000, that’s a decent credit utilization ratio at 20 percent. However, the credit bureau doesn’t know your limit, so it’s being recorded that you’re spending $2,000 without the benefit of the $8,000 buffer.

Alternatively, maybe your flexible spending card does report the limit to the credit bureau. In this case, if you spend way over your limit—even though it’s allowed by your card—the bureau will ding you for it. The bureau doesn’t distinguish between going over on a traditional credit card and a flexible credit card; it just sees someone that went over their allowed limit.

It’s essential you check your credit score once a month to stay on top of how your card impacts you. Note that a flexible spending credit card is sometimes reported in the “Other Debt” section of your credit report.

Pros and cons of flexible credit cards

Where to Get a Flexible Spending Credit Card

You can get a flexible spending credit card from most major financial institutions. However, this type of card isn’t just given out to anyone. It’s typically reserved for people with an excellent credit score and a good financial track record.

If you like a card and its terms but don’t want the flexible limit, you can sometimes decline the flexibility and request a hard credit limit. However, note that if you do this, you may not be able to reverse the decision.

If you ever notice that your credit card is suddenly listed as “flexible spending” in your account, you should immediately contact your card provider for more information. This occasionally happens, but it’s not something you just have to accept. You can ask for the card to be reverted to a hard-limit traditional credit card.

Be Smart With Your Card

No matter what kind of card you have, you should always be careful with your credit cards and how you use them. Always try to keep a low credit utilization ratio, and always pay off as much of your balance(s) as you can every month. You especially want to do this because you don’t want to accrue interest. Interest on credit cards can range anywhere between 15 and 24 percent. If you’re irresponsible with your card and miss payments, make late payments or max out your card, it can impact your credit score. And if you have a low credit score, it can affect your ability to get a mortgage, car financing, student loans and more. By being smart with your credit cards, you’re showing financial institutions that you can be trusted with money. To learn more about credit and credit repair, check out Lexington Law’s resources today.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

5 Things Car Dealers Won’t Tell You

Whether you are shopping for a new car or a used one, you know how overwhelming the process can be. No matter how much research you’ve done, or how hard you’ve bargained, you may still second guess yourself, wondering if you struck the best deal.

Here are five things dealers may not tell you that can save you money on your next car purchase.

Invoice Price Isn’t Our Bottom Line

Most of us know that the sticker price is just a starting point for negotiations. And we may even know to research the invoice price. But most of us don’t realize that even when we buy a car “at invoice” the dealer has plenty of other ways to make a small profit. One of those ways is something called the “dealer holdback.”

According to Edmunds.com, an amount called a “holdback” is 2-3% of either the MSRP or the invoice. After the car is sold, the manufacturer pays this amount to the dealer, hence the name “dealer holdback.” On a $20,000 car, a 2% holdback would be $400.

Ummm, There’s Been An Accident…

Shopping for a used car? Your car dealer may be just as reluctant as your teenager to mention that the car’s been in an accident. “When it comes to accidents, it’s don’t ask, don’t tell,” warns Michael J. Sacks,  automotive consumer advocate and director of communications for 1 800 LEMON LAW. A dealer is not going to come out and say a car has been in an accident. You must ask. If you don’t and you find out later, how can you prove the car was misrepresented?”

In addition to asking specifically about accidents, you can check a vehicle’s history through Carfax. “While a Carfax report does not guarantee a problem-free used vehicle, it does help to reduce the risk. Never buy a used car without reviewing its history,” insists LeeAnn Shattuck, Chief Car Chick with Women’s Automotive Solutions.

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Low Monthly Payments Are Our Friend, Not Yours

Yes, most of us know that just focusing on the monthly payment, rather than the overall cost of the car, is a mistake. But that’s not stopping us from taking out loans of five years or longer. Experian reports that the average loan term for a new vehicle jumped to an all-time high of 65 months in the last quarter of 2012, up from 63 months in the last quarter of 2011.

The minute you start talking monthly payments with a dealer you’re in trouble, warns Shattuck.

“If you tell the dealer, ‘I can afford $300 a month,’ all they have to do is play with the loan term and get you the payment you want without getting you a good deal on the car.”

The longer your car loan, the more likely you are to be “upside down” on your loan, owing more than the vehicle is worth. That’s especially risky if you drive a lot of miles since the high mileage will also cause the car to depreciate more quickly. “The more miles you drive per year the shorter your loan term should be,” she insists. In addition, interest rates for 60- to 72-month loans tend to be higher. A higher rate combined with a longer term can add up to thousands of dollars by the time the car is paid off.

Your Credit Score Is Different Than Ours

If you’ve checked your credit reports and scores before you started auto shopping (smart move) you may be surprised to learn that the credit score the dealer sees is different than the one you have obtained. Credit.com’s credit scoring expert Barry Paperno explains:

While the typical FICO score predicts the likelihood of any account on a consumer’s credit report going delinquent, auto dealers often use the “auto score” version of the FICO formula to predict the chances of an auto loan — not just any account — incurring late payments.  To do this, the FICO auto scoring formula gives slightly more weight to auto loan-specific information on the credit report, such as auto loan payment history. The result is often a higher auto score than standard FICO for a consumer with positive auto loan history (all things on the credit report being equal), and a lower auto score if there is negative, or a lack of, auto loan history.

Of course, you still want to check your credit reports and scores before you need to finance a vehicle. Ideally, you should check them at least a month before to allow time to fix mistakes you may find on your credit reports. (You can use Credit.com’s free Credit Report Card for an easy to understand overview of your credit, along with your free scores. You can update your Credit Report Card monthly.) In addition, though, you’ll want to shop for a car loan before you set foot in the dealership. If the dealer knows you have already lined up financing, they can’t charge you a higher rate on a loan because your credit “isn’t good enough.” All they can try to do is match or beat the rate on the loan you’ve already lined up.

It Doesn’t Have to Be That Difficult

Dread haggling? Don’t make it harder than it has to be. “The actual process of negotiating a price for a new vehicle is a lot simpler than most people realize,” writes Mike Rabkin, a professional car shopper who walks car shoppers through the process. “It’s all about who you talk to and how knowledgeable you appear.” One strategy, he says, is to bypass the sales person and go straight to the decision maker. That person could go by different names, depending on the dealer: sales manager, general sales manager, fleet manager, Internet manager, etc.

“Whatever you do,” says Rabkin, “make sure you get competing quotes from at least four dealers. To know a good price, you have to know what a bad price is,” he says. “Competition is what makes them more competitive. Even if you don’t plan to shop at other dealers, you have to let them know you are shopping around.”

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Other experts agree. “You can buy a car with minimal haggling by calling and speaking to the fleet manager directly,”says Blair Natasi, PR director for MyRedToy.com, an online reverse auction service for car shoppers.

Or find a dealer that is transparent with customers.”The world of car buying is constantly changing and some dealers are finding that less pressure and more transparency helps their sales and earns them enthusiastic customers,” says Edmunds.com Sr. Consumer Advice Editor Phil Reed. “These enlightened dealers realize that many shoppers are well informed and they accept this and are willing to expedite the sales process accordingly. (They understand) how important customer satisfaction is for repeat sales.”

How do you find a straight-shooting dealer? Reed suggests: “You should try to learn as much as possible about a dealership before you give them your business. There is always the BBB to consult. We have dealer ratings and reviews on our site. You can always type the name of the dealership and ‘reviews’ into Google and you will get reviews from a variety of sources. Word of mouth from friends and family is also quite valuable, and it’s not uncommon for friends to refer you to a specific sales person. It’s important, however, to do all of your research on the price of a car, because a referral doesn’t mean you have an inside deal.”

And if you’re still not comfortable negotiating for the best price, you can hire a professional like Shattuck or Rabkin. The car I previously owned was purchased with the help of a professional car shopper and I was confident I got a good deal. I was able to pay it off early and drive it for a long time. My past car I purchased on my own, with help from my hubby, and while I think we did OK, I do wonder if we could have done better.

Image: iStockphoto

Source: credit.com

Will Higher Mortgage Rates Cripple the Real Estate Market?

Last updated on February 2nd, 2018

Everyone seems to be thoroughly enjoying the low mortgage rate environment that has been in effect for a couple of years now.

Those with existing mortgages likely already refinanced to a lower rate, while those looking to dip their toes in real estate have probably been more enthused to go ahead with the purchase.

This has all led to a mini renaissance in the mortgage/real estate world, but the big question remains whether it’s sustainable.

After all, the recent upside really means nothing if we just reverse course a year or two from now.

Sure, existing homeowners will have it good to some extent, with their manageable monthly mortgage payments, but how will home prices appreciate?

If they don’t or can’t, buying real estate at these prices isn’t as attractive as it seems, especially seeing that prices are already massively inflated as a result of the low rate environment (and ridiculous demand related to the lack of inventory).

Higher Home Prices, Lower Mortgage Payments

How is it that home prices are higher, yet mortgage payments are lower? Well, it’s just a testament to how low mortgage rates have become.

A new report from Zillow, which echoes a previous study from John Burns Consulting, reveals how Americans are paying more for their homes, but it’s costing them less.

(I also covered this back in my missing the housing bottom, but not the mortgage rate bottom post.)

During what Zillow refers to as the “pre-bubble period” years of 1985 to 1999, Americans spent an average of 19.9% of their median monthly income on mortgage payments.

At the time, mortgage rates ranged from six percent to 13 percent, well above where they’re at today.

Fast forward to the fourth quarter of 2012, where Americans paid an average of 12.6% of their monthly income on mortgage payments, a 36.9% discount compared to historic norms.

While that sounds good, homebuyers actually spent three times their annual income on homes in the fourth quarter of 2012, compared to 2.6 times income in the pre-bubble period.

[Mortgage  vs. income]

In other words, home prices have gotten more expensive relative to wages, which either stayed the same or dropped.

So if mortgage rates fell back in line with their historic averages, we’d be in trouble, a lot of trouble.

Housing Affordability Numbered?

Zillow chief economist Stan Humphries said in the release (rather dramatically) that, “the days of historically high levels of housing affordability are numbered.”

So all those rosy press releases by the National Association of Homebuilders and the National Association of Realtors seem to highlight the good news, without properly explaining why it’s so affordable.

Of the 30 largest metros covered by Zillow, 24 had higher home price-to-income ratios in the fourth quarter, meaning without the low rates, real estate would be more expensive than the historic norm.

The worst offenders in the fourth quarter were all on the West Coast, including San Jose, where homebuyers purchased homes seven times greater than their annual incomes, up 52.1% from the pre-boom years when buyers spent 4.6 times annual income.

Other metros with big jumps in price-to-income ratios included Los Angeles (+48.8%), Portland, Ore., (+45.4%), San Diego (+44.6%) and Denver (+40.8%).

Despite these increases, mortgage payments are down because rates are just so incredibly low.

Additionally, there are still some areas of the country where home prices aren’t inflated, even with the low rates on offer.

Home price-to-income ratios were actually down in the fourth quarter of 2012 compared to pre-bubble years in the following metros:

– Detroit 25.5% lower
– Las Vegas 14.6% lower
– Atlanta 13.9% lower
– Cleveland 6.7%
– Chicago 3.9% lower
– Cincinnati 3.1% lower

So perhaps these metros are still truly affordable in the grand scheme of things, though one has to wonder why they’re so cheap.

With so much positive sentiment about housing at the moment, anything selling for a discount must be too good to be true.

See the entire chart below detailing what homeowners are paying today versus historic norms, relative to income:

price to income table

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 15 years.

Source: thetruthaboutmortgage.com

How to Get Free Car Insurance Quotes

  • Car Insurance

Choosing the right car and getting an auto loan is only half the battle. You still need car insurance coverage and finding the right insurance policy is a taxing, boring, and often expensive process. But if you keep some simple tips and techniques in mind, you can find affordable car insurance quotes and save yourself a fortune on insurance premiums. 

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How Can You Get a Free Car Insurance Quote?

Car insurance quotes should be provided free of charge. That’s not the case for all of them, but there are plenty of companies and services that will provide you with a free quote. You can then compare these quotes to help you find the best policy.

Online car insurance quotes are generally free, so if you’re being charged a fee, take your business elsewhere.

How to Find Cheap Auto Insurance Quotes

There are a few simple steps to getting a free quote and using this to secure the cheapest car insurance rates:

1. Be Prepared

To save yourself some time when dealing with car insurance companies, make sure you have some essential information, including:

  • Personal Information: You’ll need to have your basic information at hand when dealing with insurance companies. This includes your driver’s license and the details of everyone else included in the auto insurance policy.
  • Vehicle Information: Make a note of the mileage and the date that you purchased the vehicle, as well as the make and model.
  • Vehicle Identification Number (VIN): You can get the VIN from the dealer or seller.
  • Driving Record: Note down all accidents and claims, as well as any driving courses you have completed.
  • Insurance Record: Finally, many car insurance policies will insist on at least 6 months of insurance before they supply you with a new policy.

2. Understand What They’re Looking for

Knowing what car insurance companies are looking for can help you prepare and allow you to secure some cheap and comprehensive coverage. Generally speaking, the things that have the biggest impact on your quote include:

  • Age: Young drivers are significantly more likely to be involved in an accident and to make a claim, so they can expect to pay more for motorist coverage. Policies should get cheaper as you age, but this changes once you reach your 50s and you will start receiving more expensive quotes thereafter.
  • Coverage: The extent of your coverage is key to the price of your policy. Do you need roadside assistance, how much liability coverage do you need, and what other coverage options should you consider?
  • Car Insurance Discounts: A safe driver in a new car with no claims can secure some big discounts on an auto insurance policy. There are even student discounts for teen drivers and policyholders who have completed defensive driving courses.
  • Location: Your location has a major impact on the cost of your auto policy, and whether you’re in California or Hawaii, Florida or New York, could impact your policy by tens of dollars.
  • Marital Status: You’re more likely to get cheap car insurance quotes if you’re married, as you’re statistically less likely to make a claim.
  • Renter vs Homeowner: A homeowner pays less, on average, than a renter.  The difference is slight but could save you tens of dollars a year.

3. Improve Your Chances of Getting Cheap Insurance

You can’t magically make yourself a few years younger (if only!) and if you’ve already made a claim on your insurance there’s not much you can do to reverse time and undo that claim. However, there are a few ways you can reduce your premiums and bring those insurance costs down, including:

Check Your Credit Score

Your credit score plays an important role in pretty much every financial decision that you make, whether you’re applying for a credit card, looking into life insurance or getting an auto insurance quote. 

A good credit score shows that you’re a trustworthy individual who knows how to handle your finances. It also suggests that you’re less impulsive. 

Of course, that’s not always the case and having a bad credit score doesn’t mean you’re impulsive and reckless. Far from it. However, insurance is based on statistics and probability, and statistically speaking, an individual with bad credit is more likely to be reckless than an individual with good credit.

Check Your Auto Insurance Coverage

There’s no point paying for full coverage if you’re driving a cheap car that costs less than $500. Be careful how you structure your auto insurance with regards to liability, collision coverage, and auto repair. Make sure you weigh the pros and cons against your car and the likelihood of encountering an issue and use these to set realistic and affordable premiums.

Look for Insurance Discounts

You can secure auto insurance discounts for a variety of reasons. One of the best of these is a multi-policy discount, which is offered to policyholders who have several different policies with the same insurance provider. For instance, you can purchase life insurance, property liability insurance, and more, with the insurer essentially offering you a wholesale discount.

There are also discounts for multi-car and driver policies, whereby you add several cars or drivers onto the same policy. But the reductions don’t stop there, and you should also look into the following:

  • Good driver discounts
  • Discounts for student drivers
  • Discounts for paying in full
  • Paperless discount (provided when you agree to paperless billing)
  • Company and employee-based discounts
  • Military discounts

Shop and Compare

Don’t accept the first policy you’re offered; don’t assume they’re giving you the best price and complete coverage. Work with different insurance agents, check multiple providers, and run some searches on comparison websites.

Bottom Line: Free Auto Insurance Quote

Most auto insurance companies provide you with auto insurance quotes for free, and there’s no reason why you should be paying money for these quotes. Be wary of any companies or sites that charge you for this service, remember to compare several quotes from several different companies, and once your policy begins, keep searching for discounts and doing what you can to reduce quotes in the future.

Source: pocketyourdollars.com

What is a Reverse Mortgage & How it Works

Reverse mortgage is a loan product that lenders provide to elderly homeowners with home equity as collateral. The product is tailored to supplement the borrower’s income by tapping into his/her home equity while still residing in their home.

Unlike traditional mortgages where the borrower repays monthly installments, with a reverse mortgage he/she receives payment from the lender. The service is known as Home Equity Conversion Mortgage or simply HECM.

Here is all you need to know about the loan and how it works:

Reverse MortgagesReverse Mortgages


The borrower must be a senior who is 62 years or older. For a couple, the younger spouse must meet the age requirement. One has to be the outright owner of the home or have a mortgage whose balance is considerably lower than the home’s value. The home has to be a permanent resident of the borrower and be in good condition prior to applying for the loan.

Since it’s the borrower who gets paid for this kind of loan, credit scores and reports do not play a big role in the qualification. However, he/she must prove the ability to maintain the house and settle housing costs. These include property taxes, insurance, and homeowner’s association fees.

The Loan Amount

The principal amount from a reverse mortgage is dependent on the age of the borrower, current interest rates, and appraisal value of the home as well as the limit set by the Federal Housing Administration (FHA).

FHA insures the loan and as such, it sets the limit on the maximum amount that a home can be mortgaged at. A borrower gets the lesser of the home’s appraisal value or the set maximum claim limit which is currently at $679,650.

An 85-year-old borrower will basically qualify for a higher amount compared to a 70-year-old. The loan amount is usually priced at 42% of FHA maximum limit or appraisal value for 62-year-olds with the percentage going up with the borrower’s age.

Similarly, the more valuable a house is the higher the reverse mortgage. It is upon the borrower to also shop for a lender whose offer carries the lowest interest rates for higher loan amounts.

How a Reverse Mortgage Works

Homeowners get to extract their home equity or a fraction of it depending on the approved loan amount. Home equity, in this case, refers to the difference between the value of your home and any balances on conventional mortgages.

After the loan has been closed, the borrower must immediately pay off any debt left on the traditional mortgage. This frees them up from paying ongoing monthly payments and interests.

The funds can be accessed in a number of ways:

Lump sum payment: Borrowers who opt for this payment must withdraw the whole amount at the close of the loan. This option is popular for homeowners who need to settle other large loans, fund large purchases or settle hefty school fees for their children.

A line of credit: The borrower gets to withdraw as much as they need after the loan has been approved. The remaining funds can then be accessed in any way they see fit. No interest is accrued on the amount that has not been withdrawn/not in use, making it the most popular option.

Monthly Payments: The payment is structured into either term or tenure withdrawals. In ‘term’ payments, the fund is divided by a fixed number of years and you receive the corresponding monthly fixed amounts. Tenure payment, on the other hand, allows the borrower to receive monthly payments for as long as they live in the home.

Combination: Lenders are flexible; they allow borrowers to modify payment to include a combination of any of the above.

Loan Repayment

The borrower can choose to periodically pay off the loan. They can also pay it off from savings or by selling the property. However if the loan is not cleared during the lifetime of the borrower or if they are absent from the house for over 12 months, it becomes due.

It’s upon the heir of the estate to pay the amount owed. In case they choose not to, the lender gets to sell the house and recover the dues with the surplus going to the heir. In instances where sale doesn’t cover the debt, the loss is paid off by HFA who are the mortgage insurers.


Reverse mortgages are some of the useful financial tools that are available to seniors. That said, borrowers need to understand the different aspects and workings of the loan before they apply for one.

Source: creditabsolute.com

Finding the Value of a Novelty Stock Certificate

A good friend of mine has collected Disney paraphernalia her entire life. In her home, on display, you can find Disney pins, Disney decorations, Disney movies, and, in one room, a framed Disney stock certificate. It’s a beautiful item, decorated with Disney characters and Walt Disney himself and well worth hanging on the wall, but it’s also a financial asset.

Not too long ago, my friend was trying to assess how much this certificate was actually worth. She didn’t want to sell it, but she was learning about investments and dividends and wanted to understand what the certificate’s value was. She had a sense that it was worth more than the value of a single current share of Disney, but how much? How could she figure this out?

She’s not alone with her Disney stock certificate. Many companies sell novelty stock certificates like this, equal to a single share or 10 shares in a company, but decorated with the intent to be displayed in a fan’s home. What are these certificates actually worth? The easiest answer, of course, is to simply go look up the current share price of a single share of that company, but that’s very likely inaccurate and an understatement of the value of the certificate.

In this article

Factors that may affect your stock certificate’s value

Stock splits

One important factor that may adjust the value of your certificate is stock splits. Companies sometimes “split” the shares of their stock, turning a single “old” share of the stock into more than one “new” share of the stock. Companies do this in order to lower the trading value of individual shares, to entice investors to buy in as the stock’s price is more approachable.

Disney’s stock has split several times over the years. The most recent split was in 2007, where the stock split 1,014 for 1,000. This means that for every 1,000 shares of Disney stock owned before the split, that person now owns 1,014 shares — yes, fractional shares are counted, too. Her certificate predated the 2007 split, so it was worth at least 1.014 shares of Disney.


Another important factor to consider is dividends. Dividends are small payments issued by the company to the holder of each share of stock. Thus, as the owner of a share (or multiple shares), you should be the recipient of dividends.

Typically, with novelty stock certificates, dividends are paid into an account in your name managed by the issuing company. However, if the company was unable to locate the person they have on record as owner of the certificate, they may have turned dividends over to the state as unclaimed funds or lost property.

If you have never received dividends for a novelty stock certificate, you should contact the company that issued the stock and make sure that they have correct contact information for you as the owner of record. Thereafter, you should receive dividends from them, or those dividends should be deposited into an account of your choosing. They should also be able to inform you as to how unclaimed dividends were handled. (Be aware that, with a single share of stock, even many years of unclaimed dividends may only add up to a few dollars.)

How to find the value of your certificate

So, how do you figure out exactly how much that certificate is worth? The process isn’t that different from the process you follow with any old stock certificate.

Identify the key information on the certificate

Your stock certificate should include information such as the number of shares that the certificate represents, the date of purchase, and an identification number. They should be easy to find on the certificate, though if it is framed you may need to open the frame and look at the reverse side. You need this information to begin your search.

Along with that, you’ll also need to know information telling you to whom the certificate was issued. What was this person’s legal name at the time, and where did they reside? This information was likely given to the company when it was issued.

Contact the company

The next step is to contact the company directly. Most large companies that issue novelty stock certificates (or have done so in the past) have information on their website for shareholders. For example, Disney offers a portal for shareholders, which is a great starting point. Simply call the number on their website with the information in hand and see what you can find.

When you contact most companies, they’ll easily be able to look up your novelty certificate and help you ensure that it is registered correctly and that any dividends are being sent to the right place, as well as help you locate any old dividends. They also should be able to estimate the current number of shares you actually own and their current value.

If that doesn’t work…

In some situations, the company for which you have a certificate may be unwilling or unable to help in this regard. In that situation, you will need to turn to a reputable brokerage.

Choose a high quality brokerage (here are some of The Simple Dollar’s preferred brokerages) and sign up for an account. Then, contact that brokerage and see what you can find out about your certificate. They also should be able to identify your certificate.

Be aware that some brokerages may charge a fee for these services. It’s often a nominal fee, but in some cases, it can be sizable. Be aware that if you have only a single share of stock, it’s probably not worth anything more than a nominal fee just to find out more.

What if you want to sell?

If you want to sell a novelty stock certificate, almost all brokerages allow you to mail the paper certificate to them, after which it is added to the account. You may be able to get it returned to you in cancelled form for physical display as well. However, be aware that this service usually comes with a nominal fee as well, which may eat up some of the value of the certificate.

What if you want to buy a novelty certificate?

Most companies no longer issue novelty stock certificates directly. For example, Disney no longer sells these types of certificates, but does sell electronically managed shares to the public. If you buy one or more of those shares, you can purchase a certificate commemorating your ownership, but it does not actually represent the shares that you own — it’s just a nice wall decoration.

Outside of the novelty, be careful when using pop culture trends for investing. They’re usually not a good indicator of a good investment.

What happened to the Disney certificate?

My friend simply contacted Disney shareholder services directly and discovered that her certificate originally represented 10 shares and had gone through two stock splits since the original issuing, meaning she now owns a little more than 30 shares of Disney, worth more than $5,000 as of this writing. She was also able to track down the old dividends thanks to their help and now receives dividends directly from Disney. Although the stock itself is worth quite a bit, she is holding onto her old certificate for now, knowing that she could sell it if she so chose.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com