Finance

Once you have found the home that meets your needs, it is time to make an offer. The offer is a legally binding document (sometimes called a purchase agreement) that tells the seller how much you are willing to pay for the home. The document is usually a standard form from which your agent can fill in the blanks with the details of your offer. Since this is a legally binding document you will want to know and understand what it says. Details of the purchase agreement can vary state by state but typically include:

Purchase Price – Your first step in making an offer is deciding on a purchase price. You can offer a price below, equal to or even above the seller’s asking price. Work with your agent to determine what is reasonable to offer. You should also keep in mind how much you have been pre-approved to borrow and how high of a mortgage payment you can comfortably afford.  Since your agent is paid a commission based on the selling price of the home, this gives your agent more of an incentive to encourage a higher offer.

Concessions – Your offer can also specify seller concessions which are things that you would like the seller to be financially responsible for such as the appraisal, inspection(s), closing costs, etc.

Contingencies – Even if your offer is accepted, there are likely to be several conditions that will need to be met before you are willing to complete the purchase of the home. Your financial institution will need an appraisal which confirms the value of the home. You will not want to purchase a home for more than it is worth and your lender will not approve a loan that exceeds the home’s value. You will want a free and clear title insuring there are no outstanding liens on the home. Your offer should also be contingent on financing. You may already be pre-approved, but you do not want to be bound to purchase a home if you cannot obtain financing. Another common contingency is based on the inspection outcome. A basic home inspection will let you know the physical condition of the home and alert you if repairs need to be negotiated. Your agent should be able to advise if there are any other special inspections required in your area.

Personal Property that Conveys – In your offer, you can list items that are not permanent fixtures of the home that you wish to stay, such as appliances or furniture. Permanent fixtures such as light fixtures and cabinetry must remain and need not be listed. If you are unsure about any particular items classification and you want it as part of the sale, list it.

Earnest Deposit – Submitted with your offer to the seller, the earnest deposit shows a commitment to purchasing the home. There is no specific amount that you must submit.  Your deposit will be held in escrow by your agent and is refundable to you if the seller does not accept your offer or all conditions of the offer are not met.  Your offer may also specify how long the seller has to respond and the expected closing date.

Before signing your offer, read the purchase agreement and understand your responsibilities as the buyer and the responsibilities of the seller. Be sure you want the home since the offer is legally binding. There may be a counter offer from the seller regarding price, costs, or other contingencies, so be prepared to negotiate. Try to avoid an emotional attachment to the home if possible since acceptance of your offer is not guaranteed. If the offer is accepted the seller will sign the purchase agreement and you are one step closer to owning a home.

We have now had nearly five months to live with most of the changes set forth by the Credit Card Accountability Responsibility and Disclosure Act of 2009. In an effort to increase consumer protection, due dates were stabilized, fees were regulated, disclosure requirements were increased, and the underhanded ways credit card companies keep card holders in debt were addressed. Most rules went in effect on or before February 22, 2010, but there is one more rule that will become active on August 22, 2010.

As of February, a credit card interest rate could not be increased for the first 12 months that the account is open except if (1) your rate is variable and tied to an index that increases, (2) your introductory rate expires, (3) you are more than 60 days late making your payments, or (4) you have a workout agreement and you did not make payments as agreed.

The August change adds an additional stipulation for interest rate increases incurred because of late payments. Not only must the card issuer give the reason for the increase, the issuer must also restore the interest rate to the previous, lower level after six months if the cardholder has made on-time payments during that six-month period.

This final phase of the Credit C.A.R.D. act gives the card holder a glimpse of hope should they fall temporarily on rough times. Being sixty days late will likely cause an increase in the interest rate, but only for a short time (six months) if you are able to get back on track. And for those cardholders that pay their credit card bills each month but not necessarily on the due date, you should still expect a late fee but if you can remember to pay your bill within 59 days of the due date, your interest rate will not increase.

The bottom line remains the same: as a consumer you must protect yourself. The best way to do that is with knowledge. Be aware of the rules so that you can play the game.

Before finding the home that is right for you, you need to find a real estate professional that is right for you. After you have completed the pre-approval process and checked your finances you should start your search for a real estate agent. A good agent will help narrow your search, educate you about the market and help make the transaction as seamless as possible. An agent may also be able to help you find special programs or assistance (such as down payment assistance) that you would otherwise be unaware of and he/she is usually in the forefront of negotiating the deal.

If you do not have an agent in mind that you plan to work with, there are several ways to find one.

1.  The best way to find an agent is through a personal referral. Talk to people who have recently purchased homes in the area where you want to live.

2.  Pay attention to advertisements for homes for sale in the area where you want to live and FOR SALE signs. Both typically advertise the agent representing the seller. If you see a particular agent’s name often it may be for a good reason.

3.  Contact a manager of a real estate office near where you would like to live. The Managing Broker can suggest agents within the office who you can meet with in order to find someone you are comfortable working with.

4.  Attend an open house. There are likely to be a few agents there you can talk to and take home their business cards.

5.  There are also internet sites that will connect you with agents, but you should keep in mind that the agents have paid to be listed on those sites’ directory.

Once you have selected your agent, you need to have a detailed discussion about the role he/she will play in finding your home. In some states, the agent can help you find a home but a real estate attorney is required to negotiate the deal. Make sure you are clear about your agent’s fee or commission. You may also be required to sign an agreement to only work with your chosen agent.

Help your agent help you by having an idea of what you are looking for. Think about your current lifestyle and try to predict future changes (family size, etc). Create a wish list. Prioritize the wish list and communicate your wishes to your agent. Make sure your agent is aware of any special timelines or any other special needs.

Knowing what you want and working with a real estate professional that you are comfortable with can make the process a lot less stressful. Remember to communicate with your agent so that you get the results that you are looking for. Happy Shopping!

Whether or not you have completed the pre-approval process and you know what kind of home you can afford, there are still some other costs to consider before moving forward in the home buying process. Crunching the numbers may seem overwhelming but the more informed that you are of your own financial situation the fewer surprises you will encounter during the process.

The Down Payment

Financing 100% of the purchase price of a home has become an option of the past. The down payment is a sum of cash that the buyer puts toward the purchase of the home with the remainder of the purchase price being financed with a mortgage. The lender requires a down payment as a way to increase the likelihood that if the home is sold in the future, the sale will cover the full amount still owed on the loan.  Down payment requirements depend on your lender and the type of loan or mortgage product that you are seeking, but typically range between 5% and 20%. If you have gotten this far in the process and do not have a down payment, you may need to delay your plans and start saving (10 ways to come up with a down payment).

Closing Costs

In most cases you will be required to bring money to closing (or settlement) to cover your down payment and closing costs. You can estimate your closing costs to be between 2% and 4% of the purchase prices, but costs vary according to where you are purchasing and your lender. What makes up the closing costs can vary, too, but usually include fees for your credit report, a home appraisal,  insurance premiums and/or property tax escrow, title search, title insurance and other lender or attorney fees.   You may be able to negotiate some of the fees with the lender or have the seller cover all or a portion of your closing costs.

Once you have figured out how much of a mortgage you can afford, saved for your down payment and estimated and saved for your closing costs, start to think about other costs of home ownership.  Will you need new furniture, appliances or window coverings? As a homeowner you will be responsible for at least some home maintenance. Some maintenance is routine but do you have a plan for unexpected repairs, etc?

Buying a home can easily become an emotional decision so it is best to makes sure all of your financial ducks are in a row before the excitement of shopping for your new home clouds your judgment.  Getting your finances in check early on can help you to avoid a home buying decision that will later ruin you financially.

Most recently home values are decreasing making the current housing market a buyer’s market. In order to take advantage of the current market conditions and make the process smooth you need to be well informed of what to expect and what to do.

Although buying a home is not as simple as picking a house and getting a loan, it does not have to be an overwhelming process either. Unless you have the cash to buy a home outright you will need a mortgage. A mortgage is a loan given by a lender that is secured by the home. A good first step in getting a mortgage is to get pre-approved for the loan. The pre-approval is given in writing and is a good faith estimate of how much the lender will finance for you. Although the pre-approval is not required there are several advantages to this step in the process:

• Knowing how much you can borrow helps you determine your monthly payment. • You can avoid wasting time looking at homes that you cannot afford. • You may be taken more seriously by an agent or seller. • It takes away the uncertainty of whether or not you can purchase a home while you shop.

Each lender has a different set of qualifications during the pre-approval process, but in general they are looking at 3 things:

1. To verify your income and assets – You will be asked for proof of income such as recent pay stubs or tax returns and statements of your assets such as savings or other property that you own.

2. Your credit report and credit score - The lender wants to know who else you owe and how you have made your payments in the past. The credit score determines the probability that you will repay the loan and is based on your credit history. You want to make sure that your credit score is as high as possible to ensure approval and the best interest rates. (For more information on credit scores visit http://www.ximagonline.com/keeping-up-with-your-credit-score/)

3. Your debt to income ratio or DTI – This very important ratio compares how much you are required to make in monthly debt payments to how much income you have per month. Each lender will have different limits on this ratio but, in general, the lower the better.

Feel free to shop around but do not expect large variations in interest rates. Most lenders have similar products and similar rates. Many consumers are concerned that shopping around and having their credit report reviewed by several lenders will negatively impact the credit score.  According to FICO (the most commonly used credit score model), the score ignores all mortgage inquiries made within a 30-day time period.

Do not purchase a home based solely on the fact that you were approved to buy a home at that price. Only buy what you are comfortable paying for. Take advantage of online calculators to determine what your monthly mortgage payment will be based on the price of the home. Compare that payment to your income so that you are sure of affordability.

Keep in mind that the pre-approval is a ‘Good Faith Estimate,’ and changes in your situation may impact your ability for final approval. If you become unemployed or pay some bills late, you may no longer be in a position to be financed for a mortgage. In any housing market, the best thing that you can do before making any home buying decision is to be prepared and informed. The pre-approval process helps you to do just that.

With graduation season in full swing and many hopeful college students ripe to enter into the work force within the next 3-6 months, many are discussing which ones will flourish and which ones will falter.

For many recent graduates, the overall numbers from the job market don’t really make a strong argument either way, but the major that some chose to study over the past four years, the countless mid terms and final exams and sleepless nights spent up researching and understanding every bit of knowledge inside and out, might be a little more disappointing to some than others.

Blackvoices, has compiled a list…check out where some of you fall.

1. Social work. This is a great career full of many rewards. Money is not one of them. According to the National Association of Social Workers, this is the fastest growing career in the United States. The average starting salary is $33,400. You can expect to make about $41,600 by mid-career.
2. Elementary education. This job is very important, because we need someone to take care of our kids. But we don’t pay them what they are worth, since their average starting salary is $33,000. By mid-career, you can earn about $42,400.
3. Theology. The Lord and all of us need good theologians. But most of them aren’t getting rich off the collection plate (except for the bad ones). The average starting salary is $34,800 and you can earn $51,500 by mid-career.
4. Music. Music makes the world go round, and I assume Beyonce does pretty well. But for the rest of the people who focus on music, the average starting salary is $34,000 and you can earn about $52,000 by mid-career.
5. Spanish. This is set to be a growing career, since Spanish-speaking people are immigrating to the US by leaps and bounds. But the money for a Spanish major has not quite caught up with the population trend. The average starting salary is $35,600 and the average mid-career salary is $52,600.
6. Horticulture. In this field, you learn about the green, but don’t earn much of it. The average starting salary is $37,200 and by mid-career, you’ll make $53,400.
7. Education. According to the Bureau of Labor Statistics, primary, secondary and special ed teachers will see their job opportunities grow by 14% over the next 10 years. This should translate into more demand and more money. But right now, the average starting salary is $36,200 and the average by mid-career is $54,100.
8. Hospitality and tourism. This is not a bad career, since you may get to travel for free. But when you do, you’re going to need the hotel discount because the average starting salary in this field is only $37,000, with you earning about $54,300 by mid-career.
9. Fine arts. This is the major that might have caused my dad to make fun of me. But it can be fulfilling if you love it. The average starting salary is $35,800 and you can earn about $56,300 by mid-career.
10. Drama. Unless you become the next Denzel Washington or Halle Berry, you are going to have a hard time earning a living in this field. The average starting salary for a drama major is $35,600, with the expected salary at mid-career being $56,600.

Ouch!  With a bad recession and no end in sight, this list is troubling to some.  For more information on your major and all other check out, Pay Scale.

Tell us what you majored in.

I’ll share mine…Political Science in Undergrad and in Law school my concentration was Intellectual Property and Contracts.  Neither prepared me for magazine ownership and sports writing however *wink*

What is a credit score?

Your credit score is a three-digit number used to determine the probability that you will pay your debts and measures the risk of giving you credit.  The number is generated by a mathematical formula based on the information in your credit report. Scores generally range from 300 to 850 and the higher your score, the better.  The credit score is not part of your credit history. It represents your credit risk at the particular moment in which the score was accessed. This means that your credit score changes and can increase or decrease over time.

There are three credit bureaus from which you can obtain your credit score: Experian, TransUnion and Equifax. The most commonly used credit scoring model uses software from Fair Isaac Corporation and it is called the FICO score. Each credit bureau uses FICO software in order to generate a score based on the information that bureau has. As a result your score can be different depending on which credit bureau report you are viewing. There are other scoring models such as Vantage (which Experian has used since early 2009), NextGen and Community Empower but are less commonly used. While there is no such thing as a free credit score, you can obtain a free copy of your credit report every twelve months at www.annualcreditreport.com.

Your credit score can mean the difference between higher costs to borrow (or interest rates), employment and insurance premiums. Lenders use your score to determine whether or not you will be approved for credit, your interest rates and credit limits.  Some employers and insurance companies use your score to determine your past level of financial responsibility as an indicator of reliability and risk.

What goes into the credit score? •    Payment history makes up about 35% of the score and is the most important factor. For credit scoring purposes, past payment history predicts how you might pay in the future. •    Debt balances and available credit represents 30% of the score. Current loan balances are compared to their original balances and revolving balances are compared to their credit limits to indicate whether or not you are overextended. •    The length of your history comprises 15% of the score. It tracks the length of time accounts have been open and reported to your credit report. The longer the history (assuming the history is good) the better. •    The types of credit you have generate 10% of the credit score. Typically a mix of revolving, installment, and secured and unsecured debts yields a higher score. •    The last 10% of the credit score tracks how recently and how frequently you apply for new credit. Generally the less often, the better.

Factors such as race, religion, sex, age, employment situation, income, education, housing situation, marital status, recent credit denial and family support obligations do not impact your credit score. However, a lender can use some of these factors (subject to federal and state law) along with your credit score in making lending decisions.

Managing your credit score is simple. •    Pay your bills on time. Payments that at least 30 days late are reported to the credit bureau and hurt your credit score. •    Use credit sparingly. Keep your balances on credit cards and other revolving debt low. Pay off loans as quickly as you can. •    Apply for credit only as needed. Unless you are shopping for auto loans or mortgages, multiple inquiries by lenders to your credit report can reduce your score. •    Avoid closing unused accounts. The available credit helps your score. •    Check your reports at least once per year. Inaccurate information can impact your score and you can only correct inaccurate information if you know it is there.

Improving your credit score is much more difficult than destroying it so start managing your score today. Invest in your future by purchasing your credit report and credit score. Be smart about borrowing and your use of credit wisely. With the impact that your credit score can have on your ability to borrow, career opportunities, insurance premiums, etc., it should be something that you keep close watch over.

Should you lease or buy your next vehicle? That is the question…

Well, the answer isn’t that simple and it all depends on a few key factors. Many experts have strong opinions on what YOU should do, but on this issue there is no “one size fits all” solution. Paying cash is definitely the least expensive way to acquire a vehicle. However, if you must finance, you can either finance the purchase of the vehicle by obtaining a loan or finance the use or expected depreciated value of the vehicle by entering into a lease agreement.

To help you decide consider the following:

• If cash flow is an issue, leasing makes more sense. One of the most well known differences between leasing and buying is the monthly payment. When you purchase a vehicle you enter into a contract to pay for the entire purchase price of that vehicle. When you lease, you only finance the portion of the vehicle you will use, hence the lower payment. You can typically lease with no down payment and little upfront fees. A vehicle loan may or may not require a down payment. (more…)

So many in the world of finance are talking about the Credit CARD Act – the Credit Card Accountability Responsibility and Disclosure Act of 2009 to be exact. And if you use or carry a balance on a credit card – any credit card – you should be too. The purpose of the Act is “to amend the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes” .  Simply put, the Act gives new regulation to credit card companies and more protection to the consumer.

Here are the concerns the Credit CARD Act set out to address and an explanation of the regulation changes that just took effect last month:

You have more time to make your payments As of August 2009, your statement must be mailed or delivered (think e-statements) 21 days prior to the payment due date. This is a 7 day improvement over the previous rule. Additionally, your payments will be due the same day each month by 5pm. If your due date falls on a day that payments are not processed, you will have until the next business day by 5pm to make your payment.

You have balances with two different interest rates but your payment is only applied to the lower interest rate balance Now payments in excess of your minimum payment must be applied to the higher rate balances first. That is unless you have a deferred interest plan (i.e. 0% for a few months) and choose to have your payments in excess of the minimum payment applied to the deferred interest balance first.

More protection for borrowers under 21 Consumers under the age of 21 will need to demonstrate ability to make payments or will need a cosigner in order to open a credit card account. Furthermore, cosigners will need to agree in writing to any requested increase in the credit limit.

Credit card companies can no longer offer sign up gifts on or near college campuses.

Seemingly unexplained rate and fee increases Under the Credit CARD Act, your rate cannot be increased for the first 12 months that your account is open except if (1) your rate is variable and tied to an index that increases (2) your introductory rate expires (3) you are more than 60 days late making your payments or (4) you have a workout agreement and you do not make payments as agreed.  Any introductory or teaser rate must be in effect for at least 6 months.

Increased interest rates can only be imposed on new balances and any increase in rates, fees or other significant terms must be communicated to you 45 days before the change takes effect.  You have the right to opt-out of those changes but opting-out may result in your account being closed or an increase in required minimum payment within certain limitations. If that change is related to a variable rate tied to an index, an introductory rate that expires or because you did not make payments per your workout agreement, a 45 day notice is not required.

There are now also caps on card fees such as annual or application fees of 25% of your initial credit limit.

Over-the-Limit Fees You can now let the credit card company know whether or not you want it to approve transactions that will take you over your limit. If you opt-in and exceed your limit, you will be charged a fee. If you opt-out and exceed your limit the transaction may be declined. If the transaction is not declined and you opted out, you will not be charged a fee.

The minimum payment is not designed to get you out of debt A new section on the credit card statement now tells you (1) how long it will take you to pay off your balance if you only make the minimum payment (2) how much you would need to pay monthly in order to pay off the balance in 3 years and (3) the total cost of both options. A phone number to Consumer Credit Counseling Agency is also now provided on your statement.

There is no more Double Cycle Billing which applies interest charges to two full cycles of your credit card balance resulting in higher finance charges and slower payoff.

Universal Default Lenders have, in the past, been able to change the current terms of an account to default terms when informed that the consumer has defaulted with another lender, even though the consumer has not defaulted with the first lender. This practice is called Universal Default.

You can imagine that limits on increasing interest rates and restrictions on fees can cost the credit card companies a lot of money. We should expect that they will be creative in how they make up for those losses. Get ready to say “Hello” to new types of fees and “Goodbye” to things like rewards programs and single digit interest rates.

The bottom line is this: As a consumer you need to protect yourself. If you know how the game works you can do just that!

Sources: www.govtrack.us, www.federalreserve.gov, Wikipedia, office.microsoft.com

We’ve made it into a new year, all resolving to do better, eat better and carry out better lifestyles.  For many of us getting our financial lives in order is the number one priority as we embark on a new year.  Here at XI, we’re going to give you a few tips to making 2010 a new beginning for your pockets. Here’s some ideas on how you can immediately start getting your finances in check:

• SAVE SAVE SAVE!  I cannot stress enough the importance of saving for a rainy day or a thunderstorm for that matter.  Let’s face it, life can throw even the most prepared person for a loop from time to time and unexpected expenses are sure to arise, such as auto repairs, medical expenses, and with the recent surge in unemployment job losses for many people.  Most experts say that you should have at least 8-12 months of living expenses or 10% of your net income to begin building.  We all have to start somewhere, so saving $10-$20 each pay period will give you approximately $240-$480 of savings a year.

• Another tip for those individuals who receive bonuses and raises at work is to take the increase in pay and immediately put it into savings.  If you’ve been able to survive off of your current income before the increase you should continue doing so and bank any additional income.

• Analyze the type of debt you’ve incurred over the years. You can do this by requesting your credit report online. Everyone is allowed one free report from each credit reporting agency (Equifax, TransUnion, Experian) each year.  You can do so by visiting Annual Credit Report and signing up to obtain your report.  Once you’ve received your credit history, be sure to review it to determine if there are any errors or inaccuracies.  Make sure any/all mistakes on each of the reports are corrected, and be sure to follow through with each company until all issues are resolved.   Each reporting agency may contain information that the other doesn’t, so check and double check for your own personal protection.

• After determining your debt ratio, create a budget and STICK TO IT! Over the next month keep an eye on all of your expenses, and be sure not to omit any details…everything from your morning coffee to Friday night happy hours should be reflected in your monthly expenses.  Once you’ve determined your expenses and compare them to your net income, you’re ready to create your budget.  Budgets should be designed in order of priority, so expenses such as your mortgage/rent, utilities, car payments and basic living expenses should be listed first.   Then you’ll have to decide what to keep or eliminate based on how it cuts into your savings plan.  So that new pair of Gucci shoes or V.I.P. spa treatment may no longer factor into the big picture if at the end of each month you’re left with ZERO dollars in savings when you could have added another $200-$300 had you curbed the splurging.  Budgets are not easy but they are necessary for long term survival and financial responsibility.

• Finally, starting the new year off on a good financial foot should definitely include opening a 401(k) plan. 401(k) plans are retirement savings plan designed to help you in your golden years (ages 50+).  Many of us are still in our twenties and early thirties and retirement is nowhere on our radar right now.  However, now is actually the perfect time to begin saving.  With the time we’ve been given, a strong financial cushion can easily be built to fall back on when we get older.   Most employers offer401(k) plans, so if you are employed take advantage of the opportunity especially if they match any percentage of what you contribute to it. Even though this is money that is invested in mutual funds, it’s money that will continue to grow over the years. The best advice is to start as soon as possible and forget that it’s even there.  And don’t fret if you’re not happy in your current job and plan on leaving, 401(k)s can be moved from employer to employer or if you are self-employed you can also contribute to it.  One of the other advantages of having a 401(k) is that you can also borrow against the money for those unexpected life events we mentioned earlier.   Be advised you should only borrow money from your 401(k) for life events if it’s the last possible option. Some examples of those events would be; down payments for the purchase of a home or car, advanced education tuition or expensive medical bills. It is much better to borrow from yourself then to pay the higher interest rate of the bank but make sure you know the borrowing terms and pay yourself back as soon as possible.

We hope this jump starts your fresh financial outlook for 2010. Throughout the year there will be many more financial tips offered…so stay tuned.

For more information on how to take control your finances, visit Money Under 30.