The mortgage application process is easier if you know what questions to ask.
If you want a second opinion on any mortgage you're considering, look for a fee-only financial advisor that charges by the hour. (Click here to find one.)
Whether you complete the process yourself - or hire an advisor to guide you - here are a few questions you should ask:
Question 1: What is the interest rate?
This is the first question to ask since the interest rate ultimately determines how much your home costs you. When comparing two or more loans, use the annual percentage rate, or APR, since this number includes lender fees.
A fixed-rate mortgage is the safest alternative, but an adjustable rate mortgage might offer a lower rate. If you select an adjustable rate mortgage, realize you're taking on more risk and be sure you know (1) how often it will adjust, (2) the maximum annual adjustment, (3) the highest possible interest rate, as well as (3) the index and margin.
Question 2: Are there any discount or origination points?
A lender might charge you discount points that benefit you by lowering the interest rate, as well as other types of points that might not benefit you at all.
Paying discount points might be a good idea if you plan to stay in your home for a long time, but ask to see a loan without points to compare the fees and interest rates between the two. You should calculate the "break-even point" to see how long you'd need to stay in your home for the lower interest rate to justify the higher up-front costs.
Question 3: Will the lender guarantee the Good Faith Estimate?
Mortgage lenders are required to provide a Good Faith Estimate that contains all of the costs of a loan you’re considering. Although lenders aren’t required to guarantee these numbers, it never hurts to ask your lender if he or she will stand behind the estimate.
Question 4: What is the total cost of the loan?
There are a lot of fees associated with obtaining a mortgage. Some fees – like points, origination fees, and underwriting fees – go to the lender and underwriter. Other costs are related to the third parties involved in the mortgage process and should be the same no matter who you select as your lender. Some examples of third party costs include fees for an appraisal, a title policy, escrow fees, recording fees, homeowners' insurance costs, and pre-paid taxes.
Question 5: Can I lock in the interest rate?
The interest rate will fluctuate during the application process until you choose to “lock” it. Ask your lender when you can lock in the interest rate and if there are any associated fees.
Question 6: What are the qualifying guidelines for the loan?
The lender will have certain qualification guidelines that relate to your income, assets, job, credit score, and other factors. If you need a mortgage with lenient terms, look for a first time homebuyer or VA loan if you’re eligible for these types of loans.
Question 7: What documentation will I have to provide?
Most loans require that you prove your income and assets, but some companies require more documentation than others. Make sure you know what you’ll need ahead of time to avoid surprises. And don’t make assumptions! A “stated income” mortgage I had several years ago actually required a bank statement to substantiate my stated income!
Question 8: Is there a prepayment penalty?
Some mortgages have penalties if you prepay the loan by refinancing or selling. Always make sure to check for a prepayment penalty. And, although a loan with a prepayment penalty might have a lower interest rate, it’s generally a good idea to avoid them.
Question 9: What is the down payment required for the loan?
Find out what cash you’ll have to bring to the table to qualify for the mortgage. You might qualify for a lower interest rate if you put down a lot on your home, and most lenders will require private mortgage insurance if your down payment represents less than 20% of the purchase price.
Question 10: How much time will it take to close the loan?
The time it takes to close a mortgage depends on a variety of factors and will vary from lender to lender. Closing times ranging from 30 to 90 days are common. Ask your lender what to expect so you’ll know what closing date to include in your offer and how long to lock in your interest rate.
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com
Wednesday, November 25, 2009
Year-End Tax Tips
Tip 1: Be careful when buying a new mutual fund.
Most mutual funds pay out capital gains and dividends toward the end of the year, so check for potential distributions before you purchase a new fund. And think twice before purchasing a fund that will be distributing a large amount of gains and dividends.
The IRS doesn't care how long you’ve held a mutual fund when it comes to taxes on distributions. Investors that purchase a fund just before the payout will be taxed the same as the investors that have held the fund throughout the year.
Tip 2: Prepay your property taxes.
Property tax payments aren’t due until the end of January, but if you pay them before the end of the year you can claim the deduction in 2009. But if you expect to be in a higher tax bracket next year, you can wait until January to pay then prepay next December so you can deduct two years of property taxes in 2010.
Tip 3: Pay your January mortgage payment before December 31st.
By paying your January mortgage payment before the end of the year, you’ll be able to increase your mortgage interest deduction this year by the extra amount of interest you pay in the January payment.
Tip 4: Review your portfolio.
Investment gains can be reduced by investment losses, and excess losses can be written off against income up to $3,000 and rolled over to future years. But before you start selling investments, remember that the long-term capital gains tax rate for individuals in the 10 and 15% tax brackets is 0%, and this is scheduled to continue through 2010.
Tip 5: Defer income.
If you’re self-employed and use the cash method of accounting, you might be able to benefit from waiting until the end of the year to invoice customers so you don’t receive the income until January. This is especially beneficial if you expect to be in a lower tax bracket next year.
Tip 6: Contribute to your 401(k) or 403(b)
Contributions to 401(k)s and 403(b)s will reduce your taxable income for the year. In addition to saving money on taxes, you'll also receive "free money" from your company if they match your contribution.
This and all other posts on this blog are for informational purposes only. This is not to be considered tax advice and is not intended to be used, and cannot be used, for the purpose of (1) avoiding tax penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Most mutual funds pay out capital gains and dividends toward the end of the year, so check for potential distributions before you purchase a new fund. And think twice before purchasing a fund that will be distributing a large amount of gains and dividends.
The IRS doesn't care how long you’ve held a mutual fund when it comes to taxes on distributions. Investors that purchase a fund just before the payout will be taxed the same as the investors that have held the fund throughout the year.
Tip 2: Prepay your property taxes.
Property tax payments aren’t due until the end of January, but if you pay them before the end of the year you can claim the deduction in 2009. But if you expect to be in a higher tax bracket next year, you can wait until January to pay then prepay next December so you can deduct two years of property taxes in 2010.
Tip 3: Pay your January mortgage payment before December 31st.
By paying your January mortgage payment before the end of the year, you’ll be able to increase your mortgage interest deduction this year by the extra amount of interest you pay in the January payment.
Tip 4: Review your portfolio.
Investment gains can be reduced by investment losses, and excess losses can be written off against income up to $3,000 and rolled over to future years. But before you start selling investments, remember that the long-term capital gains tax rate for individuals in the 10 and 15% tax brackets is 0%, and this is scheduled to continue through 2010.
Tip 5: Defer income.
If you’re self-employed and use the cash method of accounting, you might be able to benefit from waiting until the end of the year to invoice customers so you don’t receive the income until January. This is especially beneficial if you expect to be in a lower tax bracket next year.
Tip 6: Contribute to your 401(k) or 403(b)
Contributions to 401(k)s and 403(b)s will reduce your taxable income for the year. In addition to saving money on taxes, you'll also receive "free money" from your company if they match your contribution.
Keep in mind that some 401(k) plans now offer employees the option of making "Roth type" contributions that don't reduce your current taxes but will be tax-free when withdrawn if you meet the requirements.
Tip 7: Contribute to a Traditional IRA
Contributions to a Traditional IRA will reduce your taxable income for the year just like contributions to 401(k) and 403(b) plans. Just make sure you are eligible to deduct the amount you contribute. (Click here to check the deduction limits for 2009.)
Tip 8: Don't contribute to your 401(k), 403(b), or Traditional IRA
Yes, this tip contradicts tips 7 and 8. The point of this tip is that you need to balance current tax savings with future tax savings. It might be better for you to avoid taking a tax deduction now in favor of contributing to a Roth IRA, or making "Roth type" contributions to your 401(k), in order to have a source of tax-free income in retirement.
Deciding whether to take the tax deduction now or later involves some calculations, knowledge of current tax law, forecasts about future tax law, and a little bit of "gut feeling"; so consult your tax advisor or a "fee-only" financial advisor if you want professional guidance.
Tip 7: Contribute to a Traditional IRA
Contributions to a Traditional IRA will reduce your taxable income for the year just like contributions to 401(k) and 403(b) plans. Just make sure you are eligible to deduct the amount you contribute. (Click here to check the deduction limits for 2009.)
Tip 8: Don't contribute to your 401(k), 403(b), or Traditional IRA
Yes, this tip contradicts tips 7 and 8. The point of this tip is that you need to balance current tax savings with future tax savings. It might be better for you to avoid taking a tax deduction now in favor of contributing to a Roth IRA, or making "Roth type" contributions to your 401(k), in order to have a source of tax-free income in retirement.
Deciding whether to take the tax deduction now or later involves some calculations, knowledge of current tax law, forecasts about future tax law, and a little bit of "gut feeling"; so consult your tax advisor or a "fee-only" financial advisor if you want professional guidance.
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.
This and all other posts on this blog are for informational purposes only. This is not to be considered tax advice and is not intended to be used, and cannot be used, for the purpose of (1) avoiding tax penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Tuesday, November 24, 2009
Questions to Ask Before Marriage
Since disagreements about money often lead to marital problems, be sure to discuss finances with your fiancée before saying "I do".
If you want a neutral third-party to help you cover the important financial questions, look for a "fee-only" financial advisor that bills by the hour. (Click here to find one.) This will make sure you get the advice you want without sales pressure.
Here are some of the questions you should consider:
Question 1: What are our assets and liabilities?
One of the first steps you should take is to create personal balance sheets that detail what each of you owns and owes. These purpose of these balance sheets is to see where each of you stands financially and see how your combined financial situation would look.
Question 2: How will we handle existing debt?
You need to determine how you’ll handle any existing debt, especially unsecured debt like credit cards. Will you pay it off before marriage? Or after? If you bring it into the marriage, be sure to keep the other person’s name off of these obligations to avoid possible problems in the future.
Question 3: What do our credit reports look like?
Since our credit reports and scores affect everything we do, each of you should check your credit reports and scores to see where you stand. You can go to www.AnnualCreditReport.com to get your reports for free, but you will have to pay to see your FICO score.
(Note: If you see the word "free" in a website's URL, your credit report won't be free!)
Question 4: How will we handle daily spending decisions?
You don’t necessarily have to set a budget, but you do need to decide how you’ll handle daily spending decisions, especially if one or both of you tends to be a “spender” rather than a “saver”. Will you have a joint account? Separate accounts? And if you keep your accounts separate, who will be responsible for paying the bills?
Question 5: What are our financial goals?
Just as important as day-to-day financial decisions, you need to discuss your future financial goals like college expenses for children and retirement to make sure you are in agreement. It is best to put your financial goals in writing. If you don't like the idea of going through the financial planning process, at least consider jotting them down on paper.
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.
If you want a neutral third-party to help you cover the important financial questions, look for a "fee-only" financial advisor that bills by the hour. (Click here to find one.) This will make sure you get the advice you want without sales pressure.
Here are some of the questions you should consider:
Question 1: What are our assets and liabilities?
One of the first steps you should take is to create personal balance sheets that detail what each of you owns and owes. These purpose of these balance sheets is to see where each of you stands financially and see how your combined financial situation would look.
Question 2: How will we handle existing debt?
You need to determine how you’ll handle any existing debt, especially unsecured debt like credit cards. Will you pay it off before marriage? Or after? If you bring it into the marriage, be sure to keep the other person’s name off of these obligations to avoid possible problems in the future.
Question 3: What do our credit reports look like?
Since our credit reports and scores affect everything we do, each of you should check your credit reports and scores to see where you stand. You can go to www.AnnualCreditReport.com to get your reports for free, but you will have to pay to see your FICO score.
(Note: If you see the word "free" in a website's URL, your credit report won't be free!)
Question 4: How will we handle daily spending decisions?
You don’t necessarily have to set a budget, but you do need to decide how you’ll handle daily spending decisions, especially if one or both of you tends to be a “spender” rather than a “saver”. Will you have a joint account? Separate accounts? And if you keep your accounts separate, who will be responsible for paying the bills?
Question 5: What are our financial goals?
Just as important as day-to-day financial decisions, you need to discuss your future financial goals like college expenses for children and retirement to make sure you are in agreement. It is best to put your financial goals in writing. If you don't like the idea of going through the financial planning process, at least consider jotting them down on paper.
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.
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