HARP Refinancing Takes Off Thanks to New Guidelines

Last updated on August 10th, 2013

As a result of recent enhancements, and perhaps ultra-low mortgage rates, the Home Affordable Refinance Program has actually made a meaningful impact.

Last month, there were a total of 98,885 HARP refinances recorded by the FHFA, which accounted for nearly 24% of all the Fannie Mae and Freddie Mac refis during August.

That’s a big chunk of the business, and represents nearly a quarter of the 400,000 total HARP refis originated in all of 2011.

Since January, 618,217 loans have been refinanced via HARP, bringing the all-time total to 1,640,068 (the program began in 2009).

A total of 1,292,932 HARP refis have been for loan-to-value ratios between 80 and 105 percent, and another 228,666 were for refis between 105-125%.

Helping the 125%

Last month, a total of 26,944 loans refinanced through the program had a loan-to-value north of 125%, which was one of the major program enhancements announced in late 2011 and implemented in 2012.

In fact, fewer borrowers (23,265) with LTV ratios between 105-125% refinanced through the program in August.

Simply put, the program is reaching the hardest-hit borrowers out there, many of whom you would assume are “too far gone” to benefit from such a program, let alone any program.

After all, if you’re underwater on the mortgage by more than 25%, it might be looked at as a losing endeavor, especially if it doesn’t involve any principal forgiveness.

But these numbers show there are believers out there, even in the darkest of times.

For all of 2012, 118,470 borrowers with LTV ratios greater than 125% have taken advantage of HARP 2.0.

And the overall numbers also appear to be picking up. Last month, 99,000 HARP refis were recorded, up slightly from 96,000 in July.

Assuming the numbers held up in September, we’d be looking at quarterly figures around 300,000.

That would be significantly higher than the 243,000 refis in the second quarter, and well above the 180,000 executed in the first quarter of 2012.

Additionally, the last two months’ totals have also surpassed the quarterly numbers seen in the last three quarters of 2011.

Nearly 20% of HARP Borrowers Choose Shorter Terms

Somewhat amazingly, 18 percent of borrowers with LTV ratios above 105% chose to refinance into shorter-term mortgages, such as 15- and 20-year fixed loans.

The rest went with the traditional 30-year fixed. This compares to just 10% in 2011.

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

In other words, borrowers really believe in their homes if they’re willing to make larger monthly mortgage payments while underwater.

And if they stick with it, they’ll build home equity a lot faster than those who stick with the traditional route.

Of course, one could argue that now is not the time to pay off your mortgage quicker, considering how low mortgage rates are at the moment.

But still, homeowners who do will help the housing market recover faster.

HARP refis were most popular in the sand states of Arizona, Florida, and Nevada, but well below average in high-priced California.

In Nevada, 66% of refis last month went through HARP. The numbers were similarly high in Arizona (50%) and Florida (54%).

In California, just 19% of total refinances were HARP loans.

Lastly, check out this nifty chart (included in the report) that looks at mortgage rates and the level of refinancing activity:

rates vs refi

Read more: Are consumers even interested in low mortgage rates anymore?

(photo: rfduck)

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

10 Questions Retirees Often Get Wrong About Taxes in Retirement

You worked hard for your retirement nest egg, so the idea of paying taxes on those savings isn’t exactly appealing. If you know what you’re doing, you can avoid overpaying Uncle Sam as you start collecting Social Security and making withdrawals (including RMDs) from IRAs and 401(k)s. Unfortunately, though, retirees don’t always know all the tax code ins and outs and, as a result, end up paying more in taxes than is necessary. For example, here are 10 questions retirees often get wrong about taxes in retirement. Take a look and see how much you really understand about your own tax situation.

(And check out our State-by-State Guide to Taxes on Retirees to learn more about how you will be taxed by your state during retirement.)

1 of 10

Tax Rates in Retirement

picture of tax rate arrow chart showing upward trendpicture of tax rate arrow chart showing upward trend

Question: When you retire, is your tax rate going to be higher or lower than it was when you were working?

Answer: It depends. Many people make their retirement plans with the assumption that they’ll fall into a lower tax bracket once they retire. But that’s often not the case, for the following three reasons.

1. Retirees typically no longer have all the tax deductions they once did. Their homes are paid off or close to it, so there’s no mortgage interest deduction. There are also no kids to claim as dependents, or annual tax-deferred 401(k) contributions to reduce income. So, almost all your income will be taxable during retirement.

2. Retirees want to have fun—which costs money. If you’re like many newly retired folks, you might want to travel and engage in the hobbies you didn’t have time for before, and that doesn’t come cheap. So, the income you set aside for yourself in retirement may not be much lower than what you were making in your job.

3. Future tax rates may be higher than they are today. Let’s face it…tax rates now are low when viewed in a historical context. The top tax rate of 37% in 2021 is a bargain compared with the 94% of the 1940s and even the 70% range as recently as the 1970s. And considering today’s political climate and growing national debt, future tax rates could end up much higher than they are today.

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Taxation of Social Security Benefits

picture of a Social Security card surrounded by stacks of coinspicture of a Social Security card surrounded by stacks of coins

Question: Are Social Security benefits taxable?

Answer: Yes. Depending on your “provisional income,” up to 85% of your Social Security benefits are subject to federal income taxes. To determine your provisional income, take your modified adjusted gross income, add half of your Social Security benefits and add all of your tax-exempt interest.

If you’re married and file taxes jointly, here’s what you’ll be looking at:

  • If your provisional income is less than $32,000 ($25,000 for singles), there’s no tax on your Social Security benefits.
  • If your income is between $32,000 and $44,000 ($25,000 to $34,000 for singles), then up to 50% of your Social Security benefits can be taxed.
  • If your income is more than $44,000 ($34,000 for singles), then up to 85% of your Social Security benefits are taxable.

The IRS has a handy calculator that can help you determine whether your benefits are taxable. You should also check out Calculating Taxes on Social Security Benefits.

And don’t forget state taxes. In most states (but not all!), Social Security benefits are tax-free.

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Withdrawals from Roth IRAs

picture of a jar labeled "Roth IRA" with money in itpicture of a jar labeled "Roth IRA" with money in it

Question: Are withdrawals from Roth IRAs tax-free once you retire?

Answer: Yes. Roth IRAs come with a big long-term tax advantage: Unlike their 401(k) and traditional IRA cousins—which are funded with pretax dollars—you pay the taxes on your contributions to Roths up front, so your withdrawals are tax-free once you retire. One important caveat is that you must have held your account for at least five years before you can take tax-free withdrawals. And while you can withdraw the amount you contributed at any time tax-free, you must be at least age 59½ to be able to withdraw the gains without facing a 10% early-withdrawal penalty.

4 of 10

Taxation of Annuity Income

picture of an elderly couple discussing finances with an advisorpicture of an elderly couple discussing finances with an advisor

Question: Is the income you receive from an annuity you own taxable?

Answer: Probably (at least for some of it). If you purchased an annuity that provides income in retirement, the portion of the payment that represents your principal is tax-free; the rest is taxable. The insurance company that sold you the annuity is required to tell you what is taxable. Different rules apply if you bought the annuity with pretax funds (such as from a traditional IRA). In that case, 100% of your payment will be taxed as ordinary income. In addition, be aware that you’ll have to pay any taxes that you owe on the annuity at your ordinary income-tax rate, not the preferable capital gains rate.

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Age for Starting RMDs

picture of elderly man blowing out candles on a birthday cakepicture of elderly man blowing out candles on a birthday cake

Question: At what age must holders of traditional IRAs and 401(k)s start taking required minimum distributions (RMDs)?

Answer: Age 72. The SECURE Act raised the age for RMDs to 72, starting on January 1, 2020. It used to be 70½. (Note that, although the CARES Act waived RMDs for 2020, they’re back for 2021 and beyond.)

As for the amount that you are forced to withdraw: You’ll start out at about 3.65%, and that percentage goes up every year. At age 80, it’s 5.35%. At 90, it’s 8.77%. Figuring out the percentages might not be as hard as you think if you try our RMD calculator. (Note that, beginning in 2022, RMD calculations will be adjusted so that distributions are spread out over a longer period of time.)

6 of 10

RMDs From Multiple IRAs and 401(k)s

picture of a spiral notebook with "Required Minimum Distributions" written on the front coverpicture of a spiral notebook with "Required Minimum Distributions" written on the front cover

Question: Are RMDs calculated the same way for distributions from multiple IRAs and multiple 401(k) plans?

Answer: No. There’s one important difference if you have multiple retirement accounts. If you have several traditional IRAs, the RMDs are calculated separately for each IRA but can be withdrawn from any of your accounts. On the other hand, if you have multiple 401(k) accounts, the amount must be calculated for each 401(k) and withdrawn separately from each account. For this reason, some 401(k) administrators calculate your required distribution and send it to you automatically if you haven’t withdrawn the money by a certain date, but IRA administrators may not automatically distribute the money from your IRAs.

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Due Date for Your First RMD

picture of a piggy bank with "RMD" written on the sidepicture of a piggy bank with "RMD" written on the side

Question: Do you have to take your first RMD by December 31 of the year you turn 72?

Answer: No. Normally, you have to take RMDs for each year after you turn age 72 by the end of the year. However, you don’t have to take your first RMD until April 1 of the year after you turn 72. But be careful—if you delay the first withdrawal, you’ll also have to take your second RMD by December 31 of the same year. Because you’ll have to pay taxes on both RMDs (minus any portion from nondeductible contributions), taking two RMDs in one year could bump you into a higher tax bracket.

It could also have other ripple effects, such as making you subject to the Medicare high-income surcharge if your adjusted gross income (plus tax-exempt interest income) rises above $88,000 if you’re single or $176,000 if married filing jointly. (Note: Those are the income thresholds for determining 2021 surcharges.)

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Taxation of Life Insurance Proceeds

picture of a life insurance contract with money laying on itpicture of a life insurance contract with money laying on it

Question: If your spouse dies and you get a big life insurance payout, will you have to pay tax on the money?

Answer: No. You have enough to deal with during such a difficult time, so it’s good to know that life insurance proceeds paid because of the insured person’s death are not taxable.

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Estate Tax Threshold

picture of the words "Estate Tax" next to a judge's gavel and moneypicture of the words "Estate Tax" next to a judge's gavel and money

Question: How valuable must an individual’s estate be at death to be hit by federal estate taxes in 2021?

Answer: $11.7 million ($23.4 million or more for a married couple). If the value of an estate is less than the threshold amount, then no federal estate tax is due. As a result, federal estate taxes aren’t a factor for very many people. However, that will change in the future. The 2017 tax reform law more than doubled the federal estate tax exemption threshold—but only temporarily. It’s schedule to drop back down to $5 million (plus adjustments for inflation) in 2026. Plus, during his 2020 campaign, President Biden called for a reduction of the exemption threshold sooner.

If your estate isn’t subject to federal taxes, it still might owe state taxes. Twelve states and the District of Columbia charge a state estate tax, and their exclusion limits can be much lower than the federal limit. In addition, six states impose inheritance taxes, which are paid by your heirs. (See 18 States With Scary Death Taxes for more details.)

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Standard Deduction Amounts

picture of a 1040 tax form with a pen laying on it next to the standard deduction linepicture of a 1040 tax form with a pen laying on it next to the standard deduction line

Question: If you’re over 65, can you take a higher standard deduction than other folks are allowed?

Answer: Yes. For 2021, to the standard deduction for most people is $12,550 if you’re single and $25,100 for married couples filing a joint tax return ($12,400 and $24,800, respectively, for 2020). However, those 65 and older get an extra $1,700 in 2021 if they’re filing as single or head of household ($1,650 for 2020). Married filing jointly? If one spouse is 65 or older and the other isn’t, the standard deduction increases by $1,350 ($1,300 for 2020). If both spouses are 65 or older, the increase for 2021 is $2,700 ($2,600 for 2020).

Source: kiplinger.com

4 Credit Cards That Can Help You Save for a Car

According to Kelley Blue Book, the average price for a light vehicle in the United States was almost $38,000 in March 2020. Of course, the sticker price will depend on whether you want a small economy car, a luxury midsize sedan, an SUV or something in between. But the total you pay for a vehicle also depends on a number of other factors if you’re taking out a car loan.

Get the 4-1-1 on financing a car so you can make the best decision for your next vehicle purchase.

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Decide Whether to Finance a Car

Whether or not you should finance your next vehicle purchase is a personal decision. Most people finance because they don’t have an extra $20,000 to $50,000 they want to part with. But if you have the cash, paying for the car outright is the most economical way to purchase it.

For most people, deciding whether to finance a car comes down to a few considerations:

  • Do you need the vehicle enough to warrant making a monthly payment on it for several years?
  • Does the monthly payment work within your personal budget?
  • Is the deal, including the interest rate, appropriate?

Factors to Consider When Financing a Car

Obviously, the first thing to consider is whether you can afford the vehicle. But to understand that, you need to consider a few factors.

  • Total purchase price. Total purchase price is the biggest impact on how much you’ll pay for the car. It includes the price of the car plus any add-ons that you’re financing. Depending on the state and your own preferences, that might include extra options on the vehicle, taxes and other fees and warranty coverage.
  • Interest rate, or APR. The interest rate is typically the second biggest factor in how much you’ll pay overall for a car you finance. APR sounds complex, but the most important thing is that the higher it is, the more you pay over time. Consider a $30,000 car loan for five years with an interest rate of 6%—you pay a total of $34,799 for the vehicle. That same loan with a rate of 9% means you pay $37,365 for the car.
  • The terms. A loan term refers to the length of time you have to pay off the loan. The longer you extend terms, the less your monthly payment is. But the faster you pay off the loan, the less interest you pay overall. Edmunds notes that the current average for car loans is 72 months, or six years, but it recommends no more than five years for those who can make the payments work.

It’s important to consider the practical side of your vehicle purchase. If you take out a car loan for eight years, is your car going to still be in good working order by the time you get to the last few years? If you’re not careful, you could be making a large monthly payment while you’re also paying for car repairs on an older car.

Buying a Car with No Credit

You can buy a car anytime if you have the cash for the purchase. If you have no credit or bad credit, your options for financing a car might be limited. But that doesn’t mean it’s impossible to get a car loan without credit.

Many banks and lenders are willing to work with people with limited credit histories. Your interest rate will likely be higher than someone with excellent credit can command, though. And you might be limited on how much you can borrow, so you probably shouldn’t start looking at luxury SUVs. One tip for increasing your chances is to put as much cash down as you can when you buy the car.

If you can’t get a car loan on your own, you might consider a cosigner. There are pros and cons to asking someone else to sign on your loan, but it can get you into the credit game when the door is otherwise barred.

Personal Loans v. Car Loans: Which One Is Better?

Many people wonder if they should use a personal loan to buy a car or if there is really any difference between these types of financing. While technically a car loan is a loan you take out personally, it’s not the same thing as a personal loan.

Personal loans are usually unsecured loans offered over relatively short-term periods. The funds you get from a personal loan can typically be used for a variety of purposes and, in some cases, that might include buying a car. There are some great reasons to use a personal loan to buy a car:

  • If you’re buying a car from a private seller, a personal loan can hasten the process.
  • Traditional auto loans typically require full coverage insurance for the vehicle. A personal loan and liability insurance may be less expensive.
  • Lenders typically aren’t interested in financing cars that aren’t in driving shape, so if you’re buying a project car to work on in your garage during your downtime, a personal loan may be the better option.

But personal loans aren’t necessarily tied to the car like an auto loan is. That means the lender doesn’t necessarily have the ability to repossess the car if you stop paying the loan. Since that increases the risk for the lender, they may charge a higher interest rate on the loan than you’d find with a traditional auto loan. Personal loans typically have shorter terms and lower limits than auto loans as well, potentially making it more difficult for you to afford a car using a personal loan.

Steps You Should Follow When Financing a Car

Before you jump in and apply for that car loan, review these six steps you should take first.

1. Check your credit to understand whether you are likely to be approved for a loan. Your credit also plays a huge role in your interest rate. If your credit is too low and your interest rate would be prohibitively high, it might be better to wait until you can build or repair your credit before you get an auto loan. Sign up for ExtraCredit to see 28 of your FICO scores from all three credit bureaus.

2. Research auto loan options to find the ones that are right for you. Avoid applying too many times, as these hard inquiries can drag your credit score down with hard inquiries. The average auto loan interest rate is 27% on 60-month loans (as of April 13, 2020).

3. Get your trade-in appraised. The dealership might give you money toward your trade-in. That reduces the price of the car you purchase, which reduces how much you need to borrow. A few thousand dollars can mean a more affordable loan or even the difference between being approved or not.

4. Get prequalified for a loan online. While most dealers will help you apply for a loan, you’re in a better buying position if you walk into the dealership with funding ready to go. Plus, if you’re prequalified, you have a good idea what you can get approved for, so there are fewer surprises.

5. Buy from a trusted dealer. Unfortunately, there are dealerships and other sellers that prey on people who need a car badly. They may charge high interest or sell you a car that’s not worth the money you pay. No matter your financial situation, always try to work with a dealership that you can trust.

6. Talk to your car insurance company. Different cars will carry different car insurance premiums. Make a call to your insurance company prior to the sale to discuss potential rate changes so you’re not surprised by a higher premium after the fact.

Next to buying a home, buying a car is one of the biggest financial decisions you’ll make in your life, and you’ll likely do it more than once. Make sure you understand the ins and outs of financing a car before you start the process.

Source: credit.com

7 Places in America That Will Pay You to Move There

From cash grants to free lots of land, these incentives are luring city dwellers to rural America.

If you’re willing to move and if you meet the qualifications, many rural American towns are offering incentives aimed at attracting new residents and reviving their communities.

At the beginning of the 20th century, rural America housed more than half the country’s entire population. While the number of Americans living in rural areas has been roughly stable over the past century — as urban and suburban America have boomed — its share of the total population has declined, falling from 54 percent in 1910 to just 19 percent in 2010.

This is due, in part, to migration to urban cores, especially by younger generations and the middle class.

This decline in population — and the accompanying social and economic challenges — is forcing rural America to come up with incentives to attract new residents back to rural communities.

Tribune, Kansas, offers such a program. “If you move here, we will pay down your student debt,” explains Christy Hopkins, community development director for Kansas’ least populated county, Greeley (in which Tribune sits).

This program, called the Rural Opportunity Zone (ROZ) program, offers perks to grads from big cities for moving to underpopulated towns in one of 77 participating Kansas counties. One of the incentives? They’ll help you pay off your student loans — up to $15,000 over the course of five years.

And it seems to be working — for both the town and its new residents.

“We’re the least populated county — we’re 105th in population for counties in Kansas, and now we’re eighth in college degrees per capita. There’s a correlation to draw,” says Hopkins.

Here are five towns and three states that offer a robust set of loans, programs and/or assistance for those seeking to become homeowners:

Curtis, Nebraska

Population: 891
Median home value: $79,000

Dream of building your own home from the ground up? Curtis, Nebraska, has a sweet deal for you. If you construct a single-family home within a specified time period,  you’ll receive the lot of land it sits on for free.

Marne, Iowa

Population: 115
Median home value: $75,300

Just 45 minutes east of Omaha, Marne will give you a lot of land for free — all you have to do is build the house (conventional construction or modular) and meet program requirements. Houses must be a minimum of 1,200 square feet, and the average lot size is approximately 80 feet by 120 feet.  

Harmony, Minnesota

Population: 999
Median home value: $93,900

Dreaming of a a newly built home in the Land of 10,000 Lakes? Good news: Your dream comes with a cash rebate.

The Harmony Economic Development Authority offers a cash rebate program to incentivize new home construction. Based on the final estimated market value of the new home, rebates range from $5,000 to $12,000, and there are no restrictions on the applicant’s age, income level or current residency.

Baltimore, Maryland

Population: 616,958
Median home value: $116,300

Definitively not a rural town, Baltimore offers homeowners incentives that are too appealing to leave off this list.

Baltimore has two programs offering robust incentives for buying a home in the city. Buying Into Baltimore offers a $5,000 forgivable loan (forgiven by 20 percent each year so that by the end of five years, you no longer have a balance) if you meet certain qualifications.

The city’s second solution is a brilliant one. The Vacants to Value Booster program offers $10,000 toward down payment and closing costs when you buy one of the program’s distressed or formerly distressed properties.

New Haven, Connecticut

Population: 131,014
Median home value: $168,400

Also not a rural area, but offering an incredibly generous package of homeowner incentives, New Haven offers a suite of programs totaling up to $80,000 for new homeowners, including a $10,000 forgivable five-year loan to first-time home buyers, $30,000 renovation assistance and/or up to $40,000 for college tuition.   

Alaska

Population: 739,795
Median home value: $310,200

Alaska offers incentives for veterans and live-in caretakers of physically or mentally disabled residents. They even have a manufactured home program and a rural owner-occupied loan program. See the full list of programs here.

Colorado

Population: 5.6 million
Median home value: $368,100

Colorado offers traditional programs that assist with down payments and low interest rates, but it also has a disability program that helps first-time buyers who have a permanent disability finance their home.

The state also has a down payment assistance grant that provides recipients with up to 4 percent of their first mortgage, which doesn’t require repayment.


Related:

Originally published October 2017. Information updated October 2018.

Source: zillow.com

Blanket Mortgage Loans – Definition, Pros & Cons of Using for Real Estate

For real estate investors, juggling multiple property deals and loans can get complicated.

Blanket loans often help simplify matters. Borrowers take out a single loan to cover multiple properties.

Even so, blanket loans come with their own quirks and have their pros and cons. Before entering into a blanket loan as an investor, make sure you understand exactly what you’re getting yourself into.

What Is a Blanket Loan?

A blanket loan is simply one loan that attaches to several real estate investment properties.

For example, if you buy a portfolio of five properties, a blanket loan allows you to take out one mortgage that covers all five buildings. The lender attaches a lien against each property, so if you default on your loan, the lender can foreclose on all five properties to recover their money.

Lenders do typically include a release clause, allowing the borrower to sell individual properties held as collateral as part of a blanket loan. However, they require the borrower to either repay a portion of the loan at the time of sale or put the money toward another investment. The lender then attaches a lien to the new investment property as a replacement for the sold collateral property.

That keeps their collateral — your remaining properties secured by the blanket loan — sufficient to cover their loan risk.

Who Takes Out Blanket Loans?

Blanket mortgages are exclusively for real estate investors and developers, not homeowners.

Investors can use blanket loans in many ways to invest in real estate. Landlords can take out a blanket mortgage to buy a portfolio of turnkey rental properties, as outlined above. Flippers could do likewise, to buy several fixer-uppers to renovate and flip, all with one loan. As they sell off properties, they typically repay a proportion of their loan.

Real estate developers use blanket loans to buy large swaths of land that they plan to subdivide into many units. As they build and sell off those units, they can either repay portions of the loan or put the money toward adding more properties to the portfolio.

Businesses with multiple locations and commercial properties can also use blanket loans. That could mean refinancing multiple existing loans into one blanket loan, or using a blanket loan to buy several new locations in one sweep.

When You Should Use a Blanket Mortgage

As touched on above, you can either use a blanket loan at the time of purchase or you can refinance to consolidate multiple mortgages into one loan.

It makes sense to use a blanket loan at the time of purchase if you plan to buy multiple properties simultaneously. You may also be able to negotiate staggered funding if you buy multiple properties in rapid succession but not quite simultaneously.

Another possibility with blanket mortgages includes buying only one new property, but securing the loan against other properties you own for additional collateral. Real estate investors sometimes do this in lieu of making a down payment on the new property.

For example, say you own a property worth $100,000, but you only owe $50,000 on it. You want to buy another property for $100,000, and the lender demands a $20,000 down payment.

Rather than cough up the $20,000 in cash, you offer your existing property as additional collateral for the new mortgage loan. The lender agrees to fund the full $100,000 for you to buy your new property, but puts liens on both properties. They now hold the first (and only) lien against your new property, and they have a second lien against your old property.

Advantages of Blanket Loans

Blanket mortgages come with several upsides for real estate investors.

To begin with, they can save on lender fees and settlement costs by holding one combined closing rather than having to pay separately for several. Lenders charge flat fees in addition to points, and those flat fees add up quickly. Title companies also charge many flat fees for each closing. With blanket loans, borrowers can pay those flat fees once, rather than at each settlement.

Aside from saving money, combining financing for several properties into one loan can also keep your finances and cash flow simpler. Rather than keeping track of 20 mortgage payments and loans, you need only track one or two.

When buying new properties, blanket mortgages can potentially reduce or eliminate your down payment if you use equity from an existing property for a cross-collateralized loan. Consider it one more way to pull equity out of your properties — and one that doesn’t require a totally separate settlement with its attendant costs.

Larger loans often mean more negotiating room for you as the borrower as well. Lenders don’t need to charge as many points on a $1 million loan to make it worth their while, compared to five $200,000 loans. Similarly, borrowers can often negotiate lower interest rates as well.

Downsides of Blanket Loans

Blanket mortgages come with their share of risks and disadvantages.

To begin with, it can be hard to find lenders that offer these loans. Up to this point in your real estate investing career, you may have established relationships with two or three lenders — none of whom might offer blanket loans. That forces you to go out and build new relationships with lenders who do.

Expect more intensive scrutiny by the lender for these larger, more complex loans. Rather than using a garden variety underwriter, bank managers might underwrite these larger loans themselves. Lenders might ask more probing questions and require more extensive documentation and paperwork from you. They may require higher credit scores than their typical loan products.

Blanket loans often come with shorter loan terms than traditional mortgage loans. Rather than the 25- or 30-year loan terms you’re used to, lenders often limit blanket loans to 10 to 15 years. That could come in the form of a balloon payment, or the loan could be entirely amortized over those 10 to 15 years. In the case of short-term amortization, that means higher monthly payments.

Finally, blanket loans pool your risk for many properties into a single loan. If you default on that loan, you could lose all the properties secured by it to foreclosure, not just one. In contrast, if you hold separate loans for each property, in a crisis you could isolate your losses to one property as long as you can afford to make your other monthly payments.

Where You Can Borrow Blanket Loans

Conventional mortgage lenders don’t typically allow blanket loans. Commercial lenders, portfolio lenders — who keep loans on their own books rather than selling them — and hard money lenders often do allow them.

Make no mistake, these lenders usually charge more than your personal home mortgage lender. But they also allow far more flexibility, and as a real estate investor, that flexibility is often necessary.

Call up your local community banks to ask whether they offer blanket loans for real estate investors. You can also reach out to portfolio lenders such as Lending Home and Rental Home Financing to inquire about them. For commercial loans, make sure you choose a commercial lender, because even many portfolio lenders only handle residential (single-family and 2-4 unit multifamily) properties.

Word to the wise: start building these connections now, before you actually have a time-sensitive deal on the line. Real estate investors need to be able to move fast and close deals quickly, else they risk losing the deal entirely.

Final Word

The average mom-and-pop property owner with a couple units on the side of their full-time job will probably never need to take out large blanket loans. But for real estate developers and full-time real estate investors, blanket loans can help them scale their investment portfolios faster and cheaper.

Start expanding your network of lenders now, before you have a hot deal at risk of falling through. Think in terms of building a financing toolkit of many different options for buying your next investment property — or portfolio of properties.

Source: moneycrashers.com

How to Save Money on Baby Products & Expenses

Saving Money on Baby ProductsSaving Money on Baby ProductsExpecting a new baby brings a lot of excitement. More often than not, the excitement extends deep into your pocket and you may find yourself spending a fortune on things that your baby might never even use. While it is every parent’s joy to give the best to their baby, it doesn’t always have to cost you an arm and a leg. Your baby can still have a great life at a lower cost and by the way, he can’t even tell the difference between a $20,000 handcrafted mattress and the $50 one from the local second-hand store. If you are looking to manage your budget, here are tips on how to save money on baby products and expenses.

Reduce Diaper Expenses

Babies can use between 6-12 diapers in a day. Diapers can vary depending on the number used and the cost per piece which can range from $0.20-0.40. While you can’t forego the use of diapers, these few tips can help you to bring down the amount of money you spend on them.

  • Sign up for a subscription program which reduces the cost of each piece by several cents and saves you some bucks in the long run.
  • Buy in bulk to save on cost per piece and save on time and gas spent while replenishing the stock every now and then.
  • Use cheaper diapers during the day and the pricier, high absorbency ones at night.
  • Use cloth diapers during the day and disposable ones at night.
  • Ditch the disposables and use reusable nappies.

Bring down the Cost of Feeding your Baby

The cost of feeding a baby can go higher and higher especially if you choose to feed your baby on formula and buy baby food. According to Walmart, breastfeeding can average from $130-$300 while formula can range from $914-$1633. Solid baby food on the other hand can cost between $219 and 951.

If you are planning to save anything on feeding, you may need to consider breastfeeding as much as possible and making your own baby food. Freeze fresh pureed baby food and defrost it in hot water bath when you need it. You can reserve pre-made food for when you need a quick meal or when you are travelling.

Take advantage Second Hand Gear

Babies don’t get to really wear out their stuff. If you let family and friends know that you would be willing to take some gently used hand-me-downs, you will be surprised at the great condition of some of the items and kind of use you can put them to.

You can also visit a second-hand store and buy baby stuff at just a fraction of the original price. Some of the things that you can lay your hands on are prams, toys, baby swings, clothes, dressing tables, shoes, baby-carriers etc. There is no limit to the number of things that you can get. Second-hand toys should be cleaned and air dried to make them sanitary.

Work Around Baby-sitting Expenses

Shuttling a baby to and from day care can be inconveniencing especially for some working parents not to mention the cost that comes with it. Hiring a nanny or a sitter may be a better option but it costs even more, between$10-20/hr.  While there are times that this cannot be avoided, there are other times that you can actually work around it. Some of the strategies include;

  • Swapping baby-sitting with another parent so that one can run errands while the other is watching the baby.
  • Organize with another couple so that each pair can spend some time alone while the other is watching the kids.
  • Split baby-sitter cost when you are going out with another couple

Employ Smart Shopping Strategies

Sellers are always looking for strategies to make more sales, shoppers should also look for opportunities to cash in. For example, products that remain after a season are sold at a cheaper price to clear the stock. Some of the strategies that you can adopt to save a few bucks include;

  • Shopping for off-season products that you know you will need in future
  • Identifying a brand of supplies that you use long-term e.g. diapers and sticking with it to earn loyalty points that you can redeem for supplies
  • Sign up for rewards cards offered by the baby retailers you frequent
  • Shop at dollar or bargain shops

The Take-Away

Saving money on baby products and expenses is possible. However, it calls for you to scrutinize every area of spending and to make the decision to bring it to a minimum. While this could include more than just diapers, baby food, shopping and baby-sitting, any single buck spared should be considered a step in the right direction.

Source: creditabsolute.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

What We Like About The Snowball Method of Paying Down Debt

If the goal is debt reduction, paying off debts in order of the smallest amount due to the largest amount due—gaining momentum as each balance is paid off—can make sense for some people. Once the smallest debt is paid in full, apply the amount that was being paid on that to the next largest debt, and so on. The amount being paid on each of the remaining debts will increase, just like a snowball gets bigger with each layer of snow added.

Building the Snowball

It’s all about changing behavior. Getting rid of the smallest debt first can work wonders because it gives a psychological boost. Try paying down the largest debt first, and it can feel like throwing a pebble into an ocean.

The numbers on that large debt will start to decrease, for sure, but it’s probably not going to give the same feeling of getting rid of the smallest debt first. Paying that small debt first is meeting a goal, which can be empowering.

When it’s time to take on the Big One (the largest debt), there will be more freed-up cash, creating a more stable financial situation to pay it off.

A Word about Paying off High-interest Debt First

But wouldn’t it make more sense to first tackle the debt that comes with higher interest rates and large balances?

While that makes sense from a financial perspective because it means paying less interest over the life of the loans, statistics suggest a different solution. Psychologically, getting rid of the smallest debts first often provides the momentum needed to pay off debt sooner.

A study by Northwestern University’s Kellogg School of Management found that “consumers who tackle small balances first are more likely to eliminate their overall debt” than trying to pay off high-interest-rate balances first.

Even the Harvard Business Review came to the same conclusion . Their research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest account.

Making Minimum Payments Doesn’t Equal Minimum Payoff Time

Even if the minimum payments on a person’s credit cards are somewhat manageable, they can be a trap. It’s more than likely that paying only the minimum on the debt will mean paying on it for years to come—and paying substantially more money than the amount originally borrowed. That’s because most credit card companies make their money by charging high interest rates and compounding interest on balances not paid in full each billing cycle.

The Snowball Plan, Step By Step

Following these steps could result in shrinking a debt load, giving someone who is feeling hopeless about their debt a little room to breathe.

1. List all debts from smallest to largest. List them by the total amount owed, not the interest rates. If two debts have similar totals, place the debt with the higher interest rate first.
2. Continue to pay the minimum payment on every debt.
3. Decide how much extra can be paid toward the smallest debt (the first debt on the list).
4. Pay the minimum payment on that smallest debt, but also add in the extra amount from step three. Repeat until the debt is paid off.
5. Once that smallest debt is paid off, add the amount that was being paid on it as an extra amount to the next smallest debt on the list. Now that second debt is on its way to being paid in full.
6. Repeat the steps until all debts are paid off.

A Word About Principal Reduction

It’s a good idea to find out how lenders apply extra payments to a debt (they don’t all do it the same way) before starting this process. Some debt companies that handle mortgages, school loans, or car payments need instruction about how any extra money should be applied (to principal or interest). Credit card companies, though, typically apply the entire payment to the current billing cycle.

Perks of the Snowball Method

The psychological boost from entirely paying off one debt is the main idea behind the snowball method. Seeing the results—sometimes quickly, if the smallest debt is very small—can be a great motivator to press on and continue paying off debt. With fewer debt obligations every month, it’s likely debt will be less of an emotional burden.

Of course, the flip side is that if the smallest debts are being tackled first, high-interest debts may be accruing interest for quite a while. Ultimately, the snowball method may be the most effective psychologically, but it isn’t the most cost effective.

Alternatives to the Snowball Method

There are other ways to pay off debt. Here are just two:

The Avalanche Method

Also known as the “debt-stacking” method, the avalanche method works in contrast to the snowball method. Saving money on high interest rates is the goal. This method is not as simple as paying off the smallest debt first.

It involves making a list of debts in order of interest rates, with the highest interest rate being first on the list. If some debts have variable interest rates, they might need to be moved around in the list from time to time as their rates change. This method’s focus is on paying down the debt with the highest interest rate with as many extra payments as possible.

The Debt Snowflake Method

The debt snowflake method involves finding extra income through a part-time job or selling items no longer needed or wanted, and sprinkling that extra cash on debt obligations every day. Those extra payments could go a long way to helping someone become debt-free.

The Takeaway

Merging all debt owed into one unsecured personal loan could make it easier to pay down that debt each month. Taking out a personal loan to consolidate multiple high-interest credit card debts means just one payment per month, streamlining the debt repayment process.

If you’re considering this strategy, an unsecured personal loan from SoFi might be right for you. Checking your rate takes just two minutes and you may qualify for rates that will help you get out of debt sooner compared to credit card rates. SoFi personal loans have no fees and low fixed rates.

Learn more about SoFi Personal Loans.



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Source: sofi.com