| Your Finances | 6 items found |
Your Finances
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Understanding how to manage finances is the foundation to help individuals achieve such long-term goals as buying a home. Without the basic knowledge of how to create a household budget, how to initiate a savings plan and most important, how to understand and manage debt and credit, it is difficult to achieve this long-term financial goal. | Understanding finances also helps people avoid making poor financial decisions, becoming a victim of fraud, spending too much money or becoming suddenly caught in a serious financial crunch. Understanding how to manage money enables people to know how to get help before that happens -- and mortgage payments cannot be made. Home Loan Leaning Center provides in-depth explanations and an extensive set of resources for anyone who may be having difficulty making their mortgage payment or those who are just a little worried. This information is provided specifically to help people learn what to do before they find their home in foreclosure. Take a look at our explanation of foreclosure, then read about 12 things you should know if you think you can't make your payments. Also view a list of "servicers" (the companies that send mortgage statements and collect mortgage payments) that have provided direct contact information to assist their clients who may be experiencing financial difficulty. Also, find out about the possibility of reducing foreclosure-related taxes. Many other financial literacy topics for potential home buyers are covered in this section. Learn what a credit score is and why it is important to the mortgage application process. Credit counseling is available from many sources, including state and local government agencies, but not all counseling services are the same or even legitimate. Find out a good way to determine which counseling services you are likely to be able to trust. For those who may be on the edge of buying but are still more comfortable paying rent, try comparing the costs of buying and renting in the areas you want to live. Learn how to gather a few bits of information that can help you make this calculation. Finally, turn to the Related Links page and find dozens of additional resources providing a wealth of information on how to manage your money.
Credit Score
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A credit score is a number that indicates how likely a borrower is to repay future debts. Credit scores speed up the mortgage approval process for many people because they identify low-risk borrowers quickly. | The most common credit score used by lenders is the FICO® score, which ranges from 300–850. The higher the score, the better. The FICO score is generated by a mathematical formula (called a scoring model) developed by Fair, Isaac Corp. Your FICO score affects how much money and what loan terms (interest rate, type of loan, etc.) lenders will offer you at any given time. The scores are not based on human judgment. The scoring model applies the same standards to everyone. You have three FICO scores, one from each of the three credit reporting agencies: Experian, TransUnion and Equifax. Each of these private national agencies collects information about each consumer and keeps it electronically in an individual consumer credit record, called a credit report. To generate a FICO credit score, the credit agency runs the data in a credit report through its FICO scoring model. When the information on your credit report changes, your credit score tends to change too. For your FICO scores to be calculated, each of your credit reports must contain at least one account that has been open for a minimum of six months. In addition, each report must contain at least one account that has been updated in the past six months. This ensures that enough information — and enough recent information — is in your report to generate a FICO score. By law, you are entitled to receive one free credit report from each of the three national credit reporting agencies per year. You can order them or view them immediately online at http://www.annualcreditreport.com — after you provide identification information. You also may order your credit score from each agency, but you will have to pay a small fee per score.
Money Basics
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Money is complicated. Sometimes things cost more than you think they do. Sometimes you have to pay for something you didn't expect. Sometimes you just run out of it. Keeping track of your money takes time and a little effort. As your expenses increase, tracking them takes more time and gets more complicated. It can get really hard to figure out where all your money goes, especially if you never learned how. | So learn how to do it now. Start with the basics. Check out all the information on this site, and then do a little research on some of the topics below (see Links and Resources). If you have a job or get an allowance, start thinking about that money — not how you want to spend it but how you want to manage it. It's a different way of thinking and one that will save you a lot of headaches, financial crises and money down the road. Start with this basic overview of accounts, cards and interest. Why does the bank pay you to put money in a savings account and charge you for using a credit card? What's the difference between a debit card and an ATM card? A credit and a debit card? How do debit/ATM cards work? The ups and downs of interest When you borrow money from a bank or credit card company, "interest" is what you pay to use money that isn't yours. When you save money at a bank, interest is the money the bank pays you to put your money in a savings account. The bank pays you because it is "borrowing" or using your money to lend to other borrowers, but the U.S. government makes sure it has enough to pay you back when you want it. The more money that is in your savings account, and the longer you keep it there, the more money the bank will pay you. The bank multiplies the amount by the interest "rate"; the higher the rate, the more money you get. Getting interest on your money is a good reason to save it in a bank account. The interest rate is different for different types of accounts. On a basic savings account, it may be about 2 percent. That may not sound like much, but it is more than you would have if you were to keep it at home — and since you don't have easy access to it, you're less likely to spend it on impulse. It's a good way to start managing your money. Saving: The "magic" of compounded interest Another good reason to save money in a bank is that for certain types of accounts the bank pays "compounded interest." This means that you earn interest on the money you put in the bank in the beginning and on the money the bank has already paid you in interest. This process continues each time the bank "compounds" the interest, which could be daily, weekly or monthly. It means you earn more money faster. Here is an example of daily compound interest: If someone gives you a penny and offers to double the money every day for a month, how much would you have at the end of the month? $5 dollars? $50 dollars? You would have $10.7 million. That's exaggerated because you would have trouble finding a bank to pay you 100 percent interest compounded daily for 30 days, but you can see that earning interest on interest can really boost your savings. Borrowing: The other side of compounded interest Compounded interest can be a problem when you borrow, especially if you're borrowing on a credit card. Every time you use the card, the company is lending you money (which becomes your "balance") and charging you interest and fees (unless you pay the balance in full every month). The younger you are and the less credit you have used, the higher these rates and fees may be. (That's because young people don't yet have a track record for paying their bills.) The interest rate could be 20 percent or more. And when that is compounded, your balance can go up very very quickly. That's why it takes so long to pay off a credit card if you only pay the "minimum" that the credit card company asks you to pay. The less you pay each month, the faster that balance is going to go up. Young people: A "target" market Just like any other business, credit card companies are always looking for new customers, and young people are a large group of possible new customers. The companies compete with each other intensely, and that means they often make very "creative" and enticing offers to young people. These offers may include a free fun item or a similar attraction. The problem is that young people may not understand all the pieces of the offer, and since they have little or no history of using credit, the terms can be very costly. Beware: At age 18, these offers may start coming. Be prepared to choose wisely. Warning: If it sounds too good to be true, it probably is Congratulations! You are already approved for a Platinum Splurge credit card! We are waiting to send you a new card in your name with a credit limit of up to $800! And that's not all, sign and return your application within 10 days and we'll send you an authenitc Designer Brand T-shirt! Just think: Not only will your new card help you build credit in your name, you will enjoy having a respected form of identification, access to instant cash, preparation for emergencies and above all security and peace of mind. And you get a great shirt! Read the fine print: If you don't understand it, get someone to help The offer above may sound like a great deal. You get a credit card in your name and a free shirt! Maybe you look at the application and notice that there is a lot of small print written in a way that is not familiar. You look quickly through it, sign the form and get the card, and the shirt. Here's a (fictional but realistic) example of what might you might have signed: "Upon the issuance of my card, a $200 debit will be deposited into a new savings account established in my name and will serve as the security savings deposit for my $800 credit card. The $200 charge is considered a cash advance. A one-time enrollment fee will be imposed. A portion of this fee must be paid before my account is opened. Any portion of this fee not paid before the account is opened will be charged to the account. I agree that once my application is received, the enrollment fee is not refundable. I agree that once a card is issued to me, all applicable fees shown below will be charged to my account and will not be refundable, even if I close my account before I use my card. If, for any reason, my application is denied, my money will be returned in full. An Annual Membership Fee will be imposed on my account and will be billed in monthly installments. If my account is terminated before the full amount of the Annual Membership Fee has been paid, Platinum Splurge may bill the unpaid portion to my Account."
Credit Counseling
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If you think you need counseling to improve your financial management skills and your credit, you may want to consult the National Foundation for Credit Counseling (NFCC). This organization offers an online service called Debt Advice that provides basic information to help consumers understand how to use credit wisely and how to find a certified counselor if needed. | Housing counseling agencies also are funded by the U.S. Department of Housing and Urban Development (HUD) and are located nationwide. These organizations can provide advice on renting or purchasing a home, credit issues, reverse mortgages, defaults and foreclosures. For assistance, you can contact the nearest agency by calling 1-800-569-4287 or visiting the HUD Web site. The NFCC is an organization of credit counseling agencies that promotes quality credit counseling, debt reduction services and education in managing personal finances. It sets standards for agency accreditation, counselor certification and policies that ensure free or low-cost confidential services. NFCC member offices can be reached toll-free at 1-800-388-2227. If you seek help from a consumer credit counseling agency that is not recommended by HUD or NFCC, beware. Some agencies say they are non-profit but charge high fees and make promises they cannot keep. Any company that makes these or similar statements is unreliable: We can remove your debt Pay us and we’ll pay your bills Pay us a percentage of the bills we get rid of No company sues over unpaid bills We can get bad credit taken off your credit history Use our system and you’ll avoid bankruptcy Don’t talk to your creditors any more If you hear any of those statements, steer clear of the company. You can check out a consumer counselor by contacting your state attorney general. Another helpful site is sponsored by the National Consumers League. CNN Money offers an online budget calculator that enables you to compare your spending to others with similar characteristics. The Myvesta Foundation also provides useful information. Another interesting resource is this article in MSN Money. Meanwhile try to Make sure all your payments are made on time If possible, pay more than the minimum due to reduce your balances faster Try not to charge more on your credit cards unless you have an emergency situation Open a savings account and make a habit of depositing something each month — any amount is beneficial and will add up faster than you think! Remember, you can get all three of your credit reports from all three national reporting agencies once a year at www.annualcreditreport.com.
Owning vs. Renting
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If you think you can't afford to buy a home consider this: The homeownership rate in the U.S. is nearly 69 percent — indicating that homeownership is within reach for more Americans than ever before. In fact, it can be as affordable as renting, and in some regions of the United States, it can be more affordable. To find out, you need to learn about home prices in the area you want to live, calculate what the mortgage would be and compare it to the cost of a similar rental. | While not right for everyone, the advantages to owning a home are evident for many. You can pay the same, or even less, while often building equity (the difference in how much the home is worth over how much you owe on it). In addition, you may be able to save on your federal taxes by deducting the interest paid on your mortgage. Information like this provides a great incentive for many to seriously explore their buying options. Cost Comparison in Your Area You can compare the costs of owning and renting in any city in America by doing some basic calculations. Cost to own Choose a location and find out how much it would cost to buy the type of house you want. Most large real estate agencies maintain Web sites on which you can search for homes in an area. Find out your monthly mortgage payment using our payment calculator to get the total for principal and interest payments. Add taxes and insurance per month to get your total monthly payment to own the house. Check with the local property tax assessor to get an idea what the annual real estate tax would be on a home in your price range in your area. Check with a local insurance agent to get an idea of the annual homeowners hazard insurance cost. Divide each of those two numbers by 12 and add them to the principal and interest to get the estimated total monthly payment. Cost to rent Using an apartment search Web site, such as http://www.apartments.com, locate a comparable house in the same location that is available for rent. When you compare costs, don't forget to subtract utilities if they are included in the rent.
Bankruptcy
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Credit counseling should be the first step taken when a person encounters significant financial difficulties. Provisions adopted as a part the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require consumers facing serious financial problems and possible bankruptcy to obtain credit counseling from a credit counseling agency approved by the U.S. Trustee Program within a 180-day period before they apply for bankruptcy. | The law also requires that the individual applying for bankruptcy attend a personal financial instruction course. The course is taken after an individual applies for bankruptcy and as a condition of receiving a debt discharge. Housing counseling agencies funded by the U.S. Department of Housing and Urban Development are located nationwide. These organizations can provide advice on renting or purchasing a home, credit issues, reverse mortgages, defaults and foreclosures. For assistance, you can contact the nearest agency by calling 1-800-569-4287 or visiting the HUD Web site. If the amount of bills exceeds a person's income, it is always best to pay the most important bills first — no matter what a bill collector says on the phone. For most people, the most important bill is the mortgage. Water, gas and electricity bills should be paid next and then the car payment if a car is needed for getting to work. Call credit-card companies to work out a repayment plan with each one. If financial problems occur, call the mortgage lender or servicer. Lenders want to keep owners in their homes and in many cases will help them set up payment plans (see Foreclosure and Delinquency). Filing for bankruptcy should be done only if no other options are available. Bankruptcy, however, cannot necessarily stop a lender from foreclosing on a home if payments aren't made. | |||||||||||||||||||||||||||
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