Is An FHA Loan Your Best Choice?

FHA loan header

The FHA loan is one of the most common types of loans on the market and this is because of a variety of reasons. This government secured loan can get many people into a home who would otherwise not have been able to experience home ownership.

Benefits Of FHA Loans

Take a look at some of the benefits of the FHA loan and then decide if it is for you.

Low Down Payment

This is one of the primary reasons that people choose the FHA loan. You can get into a home with as little as 3.5 percent down. That is a huge benefit for those who can not come up with the typical 20 percent down required for conventional financing.

A conventional loan on a 200,000 dollar home would require a 40,000 dollar down payment. With an FHA loan, that required down payment is reduced to just 7,000 dollars. That is 33,000 dollars less that a home buyer would have to come up with.

Choosing an FHA loan can mean the difference between buying a home or being forced to save for an additional two years, four years or even more.

Poor Credit Accepted

If your credit is below 640, conventional financing is not going to be an option for you. Most borrowers obtaining conventional financing have scores that are in excess of 700. If this is not you, an FHA loan may help you get into a home.

With an FHA, you can have scores as low as 580 and still get an approval. With enough of a down payment, generally 10 percent, you can even have scores lower than 580.

Short Waiting Period After Bankruptcy

If you have filed bankruptcy, an FHA loan can get you into home ownership much quicker than conventional financing.

For those who filed chapter 13 bankruptcy, the waiting period is just one year. Home buyers who filed chapter 7 will have to wait 2 years which is still far less than conventional financing.

Conventional loans require a 4 year waiting period after bankruptcy, regardless of the type.

Negatives Of FHA Loans

It is not all roses with the FHA loan, there are some big negatives to this loan type.

Mortgage Insurance

Mortgage insurance is a requirement with an FHA loan and unless you put 10 percent down, you will pay it for the life of the loan.

This insurance requirement can add hundreds of dollars to your monthly payment. That means that over the course of a 30 year loan, you could end up paying over 60,000 dollars in insurance.

The only way to get out of mortgage insurance with an FHA is to refinance the loan once you have achieved 20 percent equity. It no longer drops off automatically like it did in the good old days. That is, of course, unless you put over 10 percent down.

If you do put 10 percent or more down, mortgage insurance will drop off, but only after 11 years. You are very likely to have 20 percent equity long before that point.

Low Loan Cap

If you plan on buying a much nicer than average home, an FHA loan may bot be for you. Loan maximums are capped and the amount varies depending on where you intend to live.

The maximum loan value could be as little as 350,000 dollars if you live in a county with lower average home values. It could also be as high as 750,000 dollars but hat is for expensive areas such as San Francisco.

With an FHA loan, you can get a nice home but it will not be anything too extravagant. If that is what you are looking for, choose a different loan program.

Summing It All Up

An FHA loan can help you get into a home if you have limitations on money and credit, but it is not for everyone. The mortgage insurance that is required for most, if not all of the loan can put a huge hurt on a budget, so it is something that must be considered.

In addition, potential buyers should consider whether credit repair is the answer to get a more affordable home loan. With good credit and just 10 percent down, a buyer could avoid mortgage insurance with an 80-10-10 loan. Something that should be considered.

6 Ways To Improve Your Credit Score

A person using their credit.

Your credit score will always be the most important number in your life. It determines if you can qualify for credit and what rate you get and it could even get you or cost you a job. Because of its importance, you need to take care of this little number.

Luckily, it is not as hard as you think to improve your credit score. It is just math, there is no magic to it. Your credit score is simply a formula that takes various things into consideration.

If your score has seen better days, we can help. Take a look at 6 ways that you can start improving that credit score.

1) Check Your Report For Errors

First, lets do something easy and simply check your report for errors. It is very common for mistakes to happen. A creditor could have reported something incorrect about you or someone else’s bad credit information could have ended up on your report. It happens all of the time which is why you should check your credit often.

You can pull one credit report for free from each credit reporting agency. Be sure to get a report from each one, do not assume that they will all be the same. You need to get your report from Equifax, Transunion and Experian.

Once you have your reports, you can dispute anything that is false. Send a dispute letter to the bureau with the account in question identified. They then have 30 days to investigate the information. If the creditor can prove that it is real, it stays on your report. If they can not prove the information is accurate, it must be removed.

2) Decrease The Credit You Are Using

Credit utilization is the term used for the amount of your credit that you are using. If you have 1000 dollars in credit and are using 400 dollars of it, you have a credit utilization of 40 percent.

The less of your credit that you are using, the better your score will be. If you are currently using over 30 percent of your available credit, getting that number down will greatly improve your score.

To be considered to have good credit utilization, you should be using less than 30 percent of your credit. To be considered to have excellent credit utilization, you need to get that number below 10 percent.

If you have a lot of credit card debt, getting your balances can seem like an impossible task but you can do it. Take all of your credit card accounts and pay the minimum on all but the one with the highest interest rate. With that card, you will pay as much as you can and continue doing it until it is paid off.

When it is paid off, switch to the next highest interest and do the same. Eventually you will get there and you will see credit score increases along the way. It is not an all or nothing thing. You will see increases in your score as you head towards that magical 30 percent number.

Keep in mind that you should not close a card after you pay it off. If there is no annual fee, keep the card open. Closing it would decrease your available credit and harm your score.

3) Pay Those Bills

Nearly a third of your credit score is your bill payment history. If you want a strong credit score, it is crucial that you pay your bills on time.

If you have missed a few payments in the past, don’t give up. It will take some time but your score will gradually increase as time goes by and you make payments on time.

Assuming that you have the money to pay your bills, use every tool at your disposal to make sure that those payments get made. Use automatic bill payments, bill reminder emails and even bill reminder texts to make sure that your obligations get met .

If you are missing payments because you do not have the money, you need to redo your budget. Sit down, write out all of your bills and then see where cuts can be made.

4) Get A New Credit Card

In some instances, getting more credit can actually increase your credit score. This, of course, assumes that you get the card but do not use it.

Simply getting a new cad will increase your available credit. That will in turn, decrease your credit utilization and could result in an increase in your score.

When applying for new credit, do your research on cards. Choose one that you are likely to get accepted for and that does not have an annual fee. The last thing that you would want to do is to have to submit a bunch of applications and get dinged with multiple inquiries.

5) Avoid Inquiries

Although a minor part of your credit score, inquiries are still a factor. Multiple inquiries can cause your score to drop a few points. Usually it is not a significant amount, but with credit, every point matters.

Another thing to consider with inquiries is that some creditors will consider them when deciding to issue credit. Even if your score is decent, you could be denied credit due to the fact that you have been applying for credit with multiple companies. It makes you look like you are in financial trouble and could be a warning sign.

6) HaveĀ  A Little Patience

Keep in mind that with credit, you are running a marathon, not a sprint. If your score is a little rough, it will take some time to get things back in order. Creditors need to see that you are handling your finances well over time.

It could take a year or even years to get your credit in order. Stay on the path though and you will be rewarded with small increases along the way.

Save Big On Your Mortgage

Save money on mortgage header image.

If you are in the process of getting a home, you are in the middle of a very exciting, and often frustrating, time in your life. A new home, especially if it is your first, is a very big thing. Enjoy the moment but also realize that the decisions that you make right now can have a big impact on your future.

That mortgage loan payment will be the biggest expense that you will have in your budget and you could be paying it for the next 30 years.

There are many ways to keep that payment in check though. Take a look at some of the ways that you can save hundreds of dollars each month on your mortgage.

Get Multiple Insurance Quotes

I personally recommend that you get at least 5 different quotes for home insurance. That number might seem excessive but it is necessary because of the huge diversity in premiums between companies.

Annual premiums can vary by thousands of dollars for the same exact coverage from different companies. It all depends on an insurer’s actual losses in an area. One company might have had big loses in your new home location and might be charging top dollar to new clients. Another might have had very little losses in the same area and is offering rock bottom prices.

Because of the big difference between companies, you need to shop rates with at least 5 companies. Do even more if you have time.

Apply For A Longer Loan

If you are considering a 15 year loan, you can drastically cut your payment by switching to a 30 year loan. It can shave hundreds of dollars off of what you pay every month.

The obvious downside to this is that you will be paying on your loan for a longer period and this paying much more money in interest. Your interest rate will probably go up an extra quarter percent or so.

Still, if you want to make your loan more affordable, stretching the term out is one way to go. 40 year loans are even an option here, but be very careful, you will wind up paying a huge amount in interest.

Buy Some Points

Buying points is the process of buying down your interest rate. You pay one percent of the loan value and your mortgage company cuts the rate by .25 percent. So, if your loan is for 300,000, a point would cost you 3000 dollars.

Obviously, lowering your interest rate is a big deal but that .25 percent might only add up to 20 or 30 dollars a month, depending on the size of your loan. You need to calculate how long it would take to make back the money that you paid down.

It will take almost 6 years to pay back the money that you spent on buying the point. That means that if you live in your home only a few years, buying points is a waste of money. If, however, you will be in your home for longer than 6 years, you will come out ahead by buying points.

Shop For A Cheaper Home

If all else fails, just buy a cheaper house.

When people get approved for a loan, they usually look at the number they are approved for and make that their limit. This could be a huge mistake because it also means that you will be making the maximum mortgage payment that the bank thinks you can afford. It leaves little room for error should you have a decrease in income.

Buying a cheaper home can shave hundreds of dollars off of your monthly bills, not only in the loan payment but also in the escrow payment. A cheaper home means cheaper insurance in many cases.

Improve Your Credit Before Buying

Last but not least, perhaps you could improve your credit to save on that monthly payment. If your credit is not in tip top shop, waiting on your home purchase might be the ticket to get you a lower interest rate.

Pull your credit report from each bureau and take a look. Make sure that there are no mistakes. If there are, dispute them with the bureau. It can take 30 days for them to investigate the matter, so do this at least two months before you plan to apply for a loan.

Next, take a look at those credit card balances. If you are using more than 30 percent of your credit, your score is taking a big hit. Get those balances down before you apply for your loan. You will see a big increase in your score once you get them under 30 percent and another improvement if you can get them under 10 percent.

To Sum Things Up

The decisions that you make right now will have a big impact on your life for years to come. Make sure that you take the time to thoroughly prepare yourself for home ownership. Get your credit in order, shop around for the best rates and insurance and be honest about what you can afford.

Why You Need An Emergency Savings

A piggy bank used for emergency savings

An emergency savings is a crucial tool that you can use to give yourself security. It is money that canĀ  be used for emergencies and trouble that you do not see coming. Everyone will face a hard time at some point in their life and a savings account is what you need to get through it.

Unfortunately, most people in this country do not have an emergency savings. That or they have a very underfunded one.

If you find yourself in the group that does not have a savings, it is time to make a change. Here is what you need to do.

Set A Savings Goal

First, lets sit down and set a savings goal. Begin by calculating what your monthly expenses are.

When calculating your monthly expenses, don’t just include things like rent, insurance and housing. Also be sure to include budgets for food, entertainment, etc.

An emergency savings should ideally have 6 times your monthly expenses in it. That will allow you to ride out just about any financial storm.

So, if your monthly expenses are 3000 dollars, you need to have 18000 dollars in your savings. I know, that sounds like a lot of money and you will not get there overnight. The key is to start saving now and gradually get there over time.

Start with small goals and reward yourself when you get there. If you need 18000 dollars, make your first goal 1000 dollars. Once you reach this goal, reward yourself and then set a new higher one. Eventually, you will get to your big goal and that will be one of your proudest days ever.

Open A Savings Account

Now that you have a goal, you need to open a new savings account.

The easiest thing to do is to open an account with the bank that you currently have checking with. That is a mistake because it makes your savings account too accessible. It would be too easy to borrow out of savings because you could transfer the money instantly.

A better option is to open an online savings account with another bank entirely. You can still transfer money from it to your regular checking but it would take time. It will typically take 24 to 48 hours to get a transfer from an online account. That would make your money accessible in an emergency but not too accessible.

That 24 hour plus time that it takes to make the transfer will give you a cooling off period and prevent impulse purchases.

Another benefit of an online savings is that they pay much more in interest. At around 1.5 percent, it is not a tremendous amount of money, but it is probably 10 times what your local bank is paying. Why leave money on the table?

Contribute To Your Savings

Now comes the hard part, contributing to that savings account.

Your deposits should be automatic and should take place on the day that you get paid. In that way, you never really see the money and you can not miss something that you do not see. Over time, you will forget that you are even contributing to that savings account.

Now, just how much should you contribute? The perfect number is somewhere between 10 to 20 percent of your net income. That probably sounds like a lot to you, but you can work up to it.

If you bring home 2000 dollars a paycheck, you should be saving 200 to 400 dollars. This is hard to do, so start with just 50 dollars a check . Assuming that you get paid every two weeks, that is still 1300 dollars a year plus interest.

Once you get int he habit of savings, keep gradually increasing the money saved by cutting other expenses. Work on your budget and learn how to cut unnecessary spending. If necessary, make big decisions like getting a cheaper car or moving to a cheaper residence.

Saving money is crucial and you must make the hard decisions that will give you financial security.

Reaching Your Goal

One day, at some point, you will reach your financial goal of having an emergency savings account with 6 months of expenses in it. When you do, pat yourself on the back because you have done something that few Americans have done.

When you are done celebrating, you need to keep going. The only difference is that now you will be eyeing retirement. Open a retirement savings or investment account and start diverting money there.

As you can see, saving money is crucial and a lifelong process. The sooner that you accept that and get to it, the more stable and happy you will be.

Get Extra Money Without A Loan

Scrap metal to be sold for profit.

A loan can be a great way to get money in a hurry, but it is not the answer for everyone. If you just need a little extra money and you have tome to hustle for it, you may have other solutions. Take a look at a few ways that you can get the extra money that you need without resorting to a costly loan.

1. Sell Something You Don’t Need

Perhaps the easiest way to get money without a loan is to simply sell something that you do not need. Most of us have items in our home that they seldom if ever use. Cash in on them and handle your money solutions.

Can’t think of anything? Think harder. Take a clothes basket and walk around your home. Look in closets and drawers and pull out anything of value that you have not used in 6 months or more. You might be surprised at what you come up with.

Once you have your items, you can go about selling them. Where you sell it will dictate which selling tool that you use.

Larger items are best sold at places like Facebook Marketplace and Craigslist. You would not want to mess with shipping something like furniture or an appliance, so you want to sell it local. Use caution with these websites because there will be scammers. Accept only cash and meet in a well lit busy area.

Electronics like iPads and video games will fetch the best prices on auction websites like eBay. You will have to ship them but you will get much more money than you would selling these things locally.

Old cellular phones can be sold locally if you have an ecoATm around. Do a search for them, they are essentially ATM machines that let you turn in your phone and get cash right away. If you do not have one near you, Gazelle can get you money for your phone, you simply have to mail it to them. Once they inspect it, they send you money.

2. Donate Life Saving Plasma

If you are okay with getting poked, donating plasma can be a great option and it can get you 200 dollars or more each month.

Plasma is used in a number of medical treatments for health problems ranging from liver issues to clotting problems. Companies need your plasma in order to save lives and they are willing to pay you for it.

The good thing about plasma is that they return your red blood cells to you during the donation process. This means that you do not leave as light headed as you would when donating whole blood. It also means that you can donate up to twice a week.

Depending on your size, you can earn up to 50 dollars a donation. That means that you can earn an extr 200 to 400 dollars a month and help people in the process. Look for a donation center near you simply by doing a search for “plasma donation your city”. Several options should pop up.

3. Get Paid To Speak Up

Surveys are another way to make a few extra bucks each month albeit not a lot. Still, it is something worth pursuing because you can do surveys whenever you have a little free time. This could be when you are watching television, riding the bus or just any time where you tend to be staring at your phone.

Expect to make between 50 to 100 dollars a month taking surveys at places like Swagbucks. They will pay you a set amount of points for every survey that you take and then you can trade in the points for gift cards.

No, gift cards are not cash but you can get them at a variety of places. Choose ones at stores that you frequently shop and use them instead of your cash. That puts more money in your pocket at the end of the day, so it works out to be the same thing.

4. Stock Some Shelves

Some retailers are insanely busy, even with the current economic environment. Grocery stores and places like Walmart are operating 24 hours a day in order to meet the demand for their products. They need you to help them and they are paying more money now than ever.

Because of the 24 hour a day nature of these places, they have shifts that can fit any schedule. Anyone can fit in a shift or two a week and add an extra 500 dollars or more to their monthly income. That could be enough to help you get through your money emergency without resorting a loan.

If you do not want to stock shelves, there are many other positions that you can look into. Fill orders, work a register or perhaps make food deliveries in your vehicle. There are still quite a few job options out there if you are willing to look.

5. Do Some Metal Recycling

You can earn as much as 30 cents a pound by recycling metal. That is 30 dollars for 100 pounds of scrap metal. Not a bad payday.

Obviously, 100 pounds in aluminum cans is a lot to come up with so you need to think beyond the can. There are large pieces of scrap metal being thrown away daily. People put it on the curb for the trash man and it is yours for the taking.

Obviously, you need to ask if the metal is truly being thrown away, but most people do not mind of you take the scrap and recycle it. Just be sure to leave the stack of trash as orderly as you found it.

Besides the curb, there are many other place that you can find scrap metal. You will often find it dumped on the side of the road or in a field. You can also find it in the ‘free” section of Craigslist. People know it has value but they do not want to mess with recycling it, they just want it gone. You can profit from that.

Why Did My Credit Score Drop 25 Points?

Question about a credit decrease

Your credit score i a very important number in your life. It dictates how much interest you get on loans, what you pay for car insurance and even if you get a new job. Fair or not, this number is going to affect you all of your life, so you need to take care of it.

Knowing how important your credit score is, it can be very troubling to find your credit score drop 20, 25 or even 30 points for seemingly no reason.

No, the credit companies do not have it out for you. Your score is based on a mathematical formula that takes into account several factors. There is a reason that your credit score dropped, so take a look at some of the possibilities.

Reasons For A 20 to 25 Point Drop

There are so many factors that could make your credit score drop. It could even be a combination of factors. Here are some examples.

Your Credit Utilization Increased

This is the ration of available credit to used credit. If you have 10,000 dollars in credit and have balances totaling 3,000 dollars, you have a credit utilization ratio fo 30 percent.

For your credit utilization to be considered good, it needs to be under 30 percent. To be considered great, it needs to be under 10 percent.

The more credit that you are using, the riskier you are to a lender. So, if your credit utilization was sitting at 20 percent and it increased to 40 percent, your score would certainly be reduced. A 20 to 25 point reduction is certainly possible.

The fix, to this drop would be to lower your revolving credit account balances. Try to get them under 30 percent for a good boost and under 10 percent for an even better one.

Your Credit Diversity Decreased

Creditors like to see that you can handle a variety of different kinds of credit. You need a mix of different accounts including revolving and installment accounts. If this diversity decreases, your score can go down, even if you are handling your other credit accounts responsibly.

A change in credit diversity is a very common cause of a decrease in credit scores. College graduates often are faced with this problem after paying off student loan debt. The proud and victorious feeling of paying off a huge debt is often countered by a big let down when they see their credit score dive 20 points in a few months. This is because their credit diversity decreased.

Fixing this problem would involve taking on another type of loan. This is not to say that you should take on debt in order to increase your credit score though. If you have a way to add a different type of credit account without affecting your debt however, you should do so.

One possible solution, if you already have credit card debt, is to take out an installment loan to pay it off. Your cards would get paid off which would bump your score and you would open another type of account which would boost your score. To top it off, you might lower the interest that you are paying on that revolving debt.

Your Credit Got Younger

Another little factor in your credit score that you might not be aware of is credit age and average age of credit. Creditors like to see a lengthy credit history so that you can demonstrate your responsibility over time.

If you have recently opened a new account, it could lower your average age of credit. In addition, if you closed one of your oldest accounts, it could have lowered both your credit age and average age.

The solution to this is two fold. First, you should never close your oldest accounts if it is not necessary. If it is a credit card with no annual fee, keep it open and use it once or twice a year to prevent the creditor from closing it. Should this card have an annual fee, call the issuer and ask to have it eliminated or waived.

If the problem is that you opened a new account, your best option is to just wait it out. Your credit will get better with time.

You Made A Late Payment

Usually a late payment would cause a more significant drop to a credit score but if your score was already a bit low, a 25 point drop is possible.

Making timely payments is one of the biggest factors affecting your credit score. It represents roughly one third of your number.

If you are unaware of a late payment, you should check your credit report and see if an error has been made, mistakes are made all of the time. If you find an error, dispute it with the credit bureaus, all three. They then have 30 days to investigate the matter.

What should you do if you did make a late payment though? For starters, you need to get caught up with the creditor. You can then ask them to remove the strike from your report. They usually will not but it is worth trying. Barring that, you just need to make payments on time going forward. Over time, the late payment will affect your score less.

A Number Of Factors Affected You

Since your credit score is the combination of factors, your decrease of 20 to 25 points could be from a variety of factors.

Perhaps your credit utilization went up a bit, you got a few inquiries on your report and you closed an old credit card. A few points here and a few points there can really add up in a hurry.

The only way to counter this type of decrease is to get a copy of your report or a credit summary from a place like Credit Sesame. Take a look at the overall picture and see how things have changed. You can then take the steps you need to change the credit score decrease trend.

Ending Your Dependence On Emergency Loans

Establishing a budget.

Payday loans can be a great tool to get you out of a short term financial issue, but they come with a cost. With interest rates often exceeding 500 percent, they are very costly. Because of this, they should only be used in an extreme emergency.

If you find that you are needing payday loans often, you need to make some changes and you need to make them now. We can help you make these changes but it might involve a little bit of sacrifice on your part. What you need to do is establish a balanced budget that leaves room for saving.

Establish A Budget

It is amazing how many people do not have a budget. They just pay bills when they can and spend however they like.

This is a recipe for disaster and, if you do not have a budget, this is probably the chief reason that you have grown to depend on payday loans. You need to know what you are spending your money on so that you can know how much you actually have to spend each month.

Take a few minutes and write down all of your bills. Include set amounts for things like entertainment, food and savings. When you are done, compare your total to your net income and see how things look. Chances are things are tight or you are even spending more than you make.

Now comes the hard part, making changes to your budget. Lucky for you, there are a lot of ways to make these cuts to your budget and small things can make big differences.

Your Food Budget

This is the easiest budget to trim, especially if you are accustomed to eating out at restaurants.

Take your lunch for example. Even if you just eat fast food every day, you are at least spending 8 dollars a day for a meal, possibly much more. By comparison, you can bring your own lunch to work and eat very well for just 2 dollars a day.

This represents a potential savings of 6 dollars a day, 30 dollars a week or 120 dollars in a month. A big savings not only in money, but time. Think about how much time that you spend simply going to get your lunch. What could you do with an extra half an hour a day?

Meals out are another area that can really wreck your budget. If you need to get out of a payday loan cycle, this is something that you need to reduce or eliminate. A single person can easily spend 25 dollars dining out at a restaurant and a family of four can spend nearly 100 dollars.

Finally, take a look at your regular grocery bill. You can save a fortune by doing two things. One, start meal planning. Plan out all of your meals for a week, including snacks, and make your grocery list from that. This will allow you to buy only what you need without any waste.

The second thing that you can do is switch to some cheaper bases for your meals. Things like potatoes and rice can be had for pennies a serving and can make dozens of different dishes.

Your Entertainment Budget

The next easiest area to cut is your entertainment budget. If you go out frequently, you should limit this or change the way that you entertain yourself.

Sure, you still have to go out and have some fun, but you may need to limit yourself. Instead of going to the movies, go to the dollar theater. If you go to the bar with friends, nurse a drink or to and choose bars with great happy hour prices.

Also, take into account your at home entertainment. If you still have cable or satellite, cancel it and save 100 dollar a month or more. Switch to a streaming service for just dollars a month and still get your entertainment, just in another way. There are even free choices such as Crackle that can entertain you for nothing.

Your Other Bills

Every bill needs to be gone over when trying to balance a budget.

Look at your insurance bill, for example. When was the last time that you got a quote from another company? You might be surprised at how much you can save because rates vary wildly among companies. Some even offer new client discounts that can save you big over your first year.

Your vehicle itself is another potential savings area. You need to get that budget balanced and lowering your car payment may be what you need to do. This might mean trading it in on a cheaper vehicle or it could be simply refinancing it if you think you can get a lower payment.

One final bill to look at, although there are more, is your rent or mortgage. People get into trouble with housing because they often want to live at a higher level than they can afford. Living slightly below your means could mean saving hundreds of dollars a month in rent or mortgage payments. Consider if you could downsize and save. It is a tough choice bur one that you may need to make.

A Disciplined Life

Establishing and sticking to a balanced budget takes discipline. One has to realize that they can only live as good as their income will provide. Trying to live beyond your means will quickly lead to financial ruin. Yes it will take discipline and some sacrifices, but being able to cut your dependence on loans and having the security of a savings account is worth it.