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Career & Finance

Millennial Home Lending: How To Get Pre-approved For A Mortgage

Only 1 in 3 millennials under the age of 35 owned a home as of the end of the year 2018 in America, according to the census report. Why is this number so low?

 

Millennials, unlike the previous generations, have unique circumstances that compromise their ability to access mortgage loans. Some of these circumstances include:

 

  • High credit standards: The median credit score in America is 695, while the median credit score for the millennials is around 668. Note, in the year 2019, the average credit score of the people who took out mortgage loans was 759, and only 10% of the lenders had a score below 647.

 

  • Crippling student loans: 61% of millennials said that they’d delayed homeownership as they concentrate on student loan repayment.

 

  • Unemployment amongst the Millenials is also pushing the debt to income ratio high amongst the millennials.

 

Despite these data, you can still own a home as a millennial. If people with a credit score of 647 obtained a mortgage loan in 2019, a significant number of Millenials, having an average rating of 668, can still get a mortgage loan.

 

The first step should be to get pre-approved for a mortgage loan. Here are the reasons why you should get pre-approved.

 

  • When you get pre-approved for a mortgage, you know your budget. This will guide you when you are house hunting.
  • The home sellers will know that you’re a serious buyer since you’ve already visited a lender.
  • You’ll understand whether you are ready to acquire a home mortgage and if you need to straighten up your credit issues before seeking a mortgage loan.

 

For you to get pre-approved for a mortgage, you need the following things:

 

  1. Proof of income

You will be required to produce your w2- wage statements and any other documents that will help the lender to understand your income flow. If you’re self-employed, you’ll be required to produce form 1065. Also, you’ll be required to provide your 30 days pay stubs to show your current income.

 

These documents help the lender understand how much cash flow you can afford to direct towards payments after catering for your bills and debt payments. 

 

  1. Proof of asset

The lender will also require proof that you can afford the downpayment necessary. Therefore, you will be required to produce bank statements and investment account statements. However, this depends on which loan you will be seeking. Jumbo loans are custom made for low to moderate and first time home buyers. They, therefore, require a very low downpayment. The VA loan requires no downpayment from the veterans.

 

If you’re receiving money from a friend or a relative for the downpayment, the lender will require a gift letter explicitly explaining that you’ll be receiving the payment for the downpayment.

 

  1. Good credit score

The higher the credit score, the better interest rate you will be given, and the lower the downpayment you will be required to put down. If you have a credit score of about 580 and above, you generally qualify for a low-interest rate. However, if you are on the lower end of the credit score, you will be required to put down more downpayment. If you have a credit score of above 700, you easily qualify for a 3.5% interest rate.

 

The lenders will, therefore, pull your credit score from all the three credit bureaus. They will also check your payment history to determine whether you make your payments on time or not.

 

  1. A healthy income to debt ratio

The lender will also calculate your debt to income ratio. They will take into consideration your student debt, credit card debt, auto loans, and any other debt that you have against your income and assets. 

 

Therefore, it’s vital to ensure that you pre-check your credit score and make any corrections on the report before approaching the lender for pre-approval.

 

The debt to income ratio is calculated by dividing your total monthly repayments with your income. The highest possible percentage you should have to still qualify for a mortgage is 43%. However, most lenders prefer a ratio of 36%, with no more than 28% going towards repaying the mortgage.

 

In conclusion, to get the best deal, shop with several lenders. Note, visit all your preferred lenders within 45 days so that all the credit inquiries are recorded as one hard inquiry. Otherwise, they might negatively affect your credit score. Also, remember, getting pre-approved doesn’t guarantee that you’ll get a loan. It depends on whether the information you provide is truthful and remains so before the loan closes. 

 

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Career & Finance

Debt Consolidation? Make It Make Sense

Debt consolidation. Bill consolidation. Credit consolidation. All these terms refer to a financial strategy whereby a person decides to take out a loan from one lender and payout all the other debts, bills, or credits from different lenders. It leaves you repaying only that single loan at a lower interest.

Many Americans have embraced debt consolidation; according to Globenewswire, it has resulted in an improvement in the credit scores for the users. So, should you also consider debt consolidation? 

To make this decision, you must dive into the deets of debt consolidation.

  • What are the pros and cons?
  • Is it right for you?
  • Should you get a debt consolidation plan or come up with a debt repayment plan by yourself?

Let’s dive into the pros and cons to help you make an informed decision.

Pros

  1. One monthly repayment instead of many

With debt consolidation, you only have one loan to repay every month. It’s easier to budget for just a single loan instead of juggling between several loans.

When one has multiple loans, the primary question is, do I repay the smallest loan as I work my way to the biggest loan (Snowballing method), or do I repay the loan with the highest interest (Avalanche method)?

But, with a single loan, this isn’t a question. It’s easy to plan your monthly budget since you know exactly how much you’re supposed to pay off each month.

  1. Lower interest rate

Debt consolidation comes with a lower interest rate. This means that you can make smaller monthly repayments, thereby increasing your monthly cash flow. The increased monthly cash flow can help you live a decent life without depending on debt or relying on credit cards.

  1. It lifts your anxiety

Debt can really make you feel like you’re drowning, especially if the debts keep rising. A debt consolidation plan gives you peace of mind, knowing that you now have a plan. A plan to pay one monthly payment to one source every single month to offset your bills.

  1. Might increase your credit score

Taking out a debt consolidation plan and paying off your monthly repayments will eventually lead to an increased score. It demonstrates your ability to take out a loan and repay the loan diligently. This has a positive impact on your credit report.

Cons

  1. You incur a fee to move your debt from different lenders to one

When you’re moving your debt during debt consolidation, you might end up incurring a fee to move the loans — the money you could have used to settle your bills or repay your interest for the month.

  1. The compounded interest over time is higher

With a lower interest rate, you often get an extended repayment period. The longer repayment period means that over time, the amount of money you’ll pay is more.

  1. Increased risk 

What are the chances that after a couple of years, there will be an emergency or emergencies that will affect your ability to prepay the loan consistently?

Today, your financial situation might enable you to make a particular repayment every month. But, if after a few years you get a divorce, an accident or something tragic happens that grossly affects your financial situation, will you still manage to make the repayments?

  1. Double debt

If you get your debt consolidated, but for some reason, you start using your credit cards again, you might end up with double debt: the consolidated debt and the credit card debt. This negates the reason why you went for a debt consolidation plan in the first place.

  1. Debt consolidation isn’t paying off your loans

Unlike what many people think, debt consolidation isn’t paying off a single penny of your loans: it’s moving your loan. It doesn’t reduce your principal amount. If you continue with your negative spending habits, failing to control your need for immediate gratification, debt consolidation will not solve your debt issues. It will only make you feel good for a few months.

Tips:

  • If the terms being offered by the consolidation program seem too good to be true, be extra cautious. Get an expert to examine the offer before you jump in. 
  • If the interest rate you’re getting to consolidate your loans isn’t lower than the interest rate on all your credit cards and loans, then it does you no good to consolidate the loans.
  • Once you consolidate the credit card debt, you have to be ready to stop using the credit cards. 

In conclusion, debt consolidation can and is helping millions of people deal with debt and improve their credit score. But is it right for you?

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Career & Finance

Budgeting Tips That Should Get You Started Today

How good are you with money? A lot of people struggle with their finances, and it may take a while before they finally nail the trick to keeping them right. Summer is quickly coming to an end, and kids are resuming school. Are you prepared? Do they have everything they need?

Budgeting is an essential aspect of your finances and should be taken seriously. It is what helps you get closer to being financially free. Budgeting is not for the poor, as some people think. Take, for example, Ed Sheeran, one of the most famous musicians globally, still uses his Barclays student account as he never spends much money. Same case to Carrie Underwood. Despite winning over five Grammys, she still packs lunch, and if not, eats the Subway sandwich. 

So, why would you not budget and save? The list below shows how and why you need to budget. 

  1. Track your spending

Before you even start budgeting, you need to know how much you spend. There are loads of expense tracking apps that can help you understand your spending habits. Some of them are Penny, Clarity Money, Wally, BillGuard, Fudget, etc. Some of these apps are free, while others have premium options. 

By tracking your spending, you get to have a figure of how much money goes out on specific items. This ensures that you get to see whether you are overspending or not. The idea should be not spending more than we earn. These apps will help you know if you spend more or not.

  1. Know your monthly expenses in details

What exactly do you spend on? What are some of the basic needs? Differentiate between needs and wants. For example, now that summer is over, have you budgeted what your kids will need in school? Do you have groceries included in the list? Mortgage/rent? 

A list of expenses you’d ideally have: 

  • Back-to-school supplies such as pens, markers, backpacks, etc
  • Rent/mortgage
  • Utility bills such as electricity and water
  • Debt payoffs such as auto and student loans
  • Credit card payments
  • Groceries

The above are just some of the basic expenses. Monitor how much you use and see what you can cut back on. You probably eat out a lot; minimize to around once a week. If you pay comprehensive insurance cover for an old vehicle, it may not be necessary, especially if the car’s worth is on the lower side. 

  1. Pay attention to seasonal expenses

There are times you get unexpected expenses, and you are forced to get a loan from your friends maybe or even go for payday loans. The last thing you want is to get into debt. Factor in some ‘caution’ money in your budget for such expenses. It could be your membership is expiring soon, and you need to renew it. 

The rule of the thumb should be, saving for a rainy day.

  1. Consider a ‘sinking fund’ for school costs

A sinking fund is some money you set aside to offset an expected expense. For example, before school reopens, you should calculate the expected amount of money you’ll spend. Once you have a figure, before the date draws closer, for every paycheck you receive, you set a particular portion of it towards the sinking fund. By the time your child is resuming, you’ll have enough money to shop for school supplies and anything else they may need. 

  1. Patience

If you’ve never budgeted before, be patient with yourself. Nothing gets accomplished overnight. Have the will to know why you are budgeting. See the end term goal as this should be a motivator to budgeting. 

Once you master how to budget, you’ll realize how easy it is to save money. The extra money you get should be put into good use. Consider investment options. Also, don’t forget to have an emergency fund as this is equally important. 

 

 

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Career & Finance

5 Ways To Finance Your Business

Are you thinking of starting your own business? Have you finally drafted a business plan to actualize your idea? According to the Bureau Labor of Statistics, 20% of companies fail in the first year. You don’t want to start a business, and then it fails within the first year, after all the sacrifices that come with the process.

A business needs proper financial management for it to run. Some of the reasons why most entrepreneurs fail are due to lack of enough finances, not enough marketing, not knowing your market, among other things.

Finances are an integral part of the business. When starting out, you need to figure out where to get your capital. Sometimes, you may have put some money aside for your business, but it may not be enough for you to start operating. You can opt for business loans. Before even taking out loans, you should consider the following:

  • Know if there is any upfront cash required
  • If the lender requires any personal guarantee
  • If there is any equity you may have to give out and if so, how much?
  • How much you will end up paying in the long run

1. Peer to peer lending

One of the options of getting funds is through peer to peer lending (P2P). These are online platforms that match lenders to borrowers at an agreed rate. Some offer personal loans as well as business loans.

Before going for this option, consider the interest rate; is it fixed or variable? Your credit score is another thing to consider. Is it poor, good, or average?

Before going for any loan, you need to ensure your credit rating is okay as it gives you bargaining power when it comes to interest rates.

Platforms such as LendingClub, Prosper, Peerform, SoFi, etc. are examples of P2P lending companies.

2. Angel investors

An angel investor is somebody who comes in and gives you the capital you need in exchange for equity. Unlike venture capitalists who are mostly companies, angel investors are usually willing to invest in startups without even proven profit records; they invest in the idea.

In the case they are an expert in your industry, they will guide and assist you along the way. So, you just don’t get the money, but also their expertise comes into play. Getting an angel investor for your business is also an option for getting funding.

3. Invoice factoring

Invoice factoring is where you sell your invoices to a third party (factor.) What you do is sell your unpaid invoices to the factoring company, and they fund you 90% of the total invoice amount on the same day.

Your customers will then make the payments directly to the factoring company. Once the company receives the amount, they will then return the balance minus an agreed fee which depends on the agreement.

This is a great option if you’ve already started your business.

4. Nonprofit microloans

If you are a business owner with low capital requirements, then this option could be great for you. Nonprofit microloans are short term loans with very low-interest rates.

Microloans range from $500 to $50,000 depending on the organization. Your credit score comes into play here. Make sure you clean it up so that you are eligible. There are various ways of improving your credit score, such as ensuring timely payments for your credit cards or any other debts you have.

5. Partner financing

This type of funding is where you get another player in your industry and become partners in exchange for some of your products, distribution sales, or any other thing you agree on.

The other company that comes in maybe a big company that has its already existing clients. Such kind of funding could work in your favor because you can tap into that market, especially if what you are offering is in line with the other company.

For you to increase the chances of qualifying for a startup loan, you need to have your credit score right, have a detailed business plan, and have some funds saved. Get various funding options and choose what’s favorable to you and the business.

 

 

 

 

 

 

 

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Career & Finance

5 Tips On Getting Out Of Credit Card Debt

Early this month, CNBC highlighted the story of Kristy Epperson, a 23-year nurse who cleared her student loan and car loan both worth $20,000 in just a year. What’s more is that she was able to buy a home with only 5% down. How did she manage this- ditching credit cards and only using cold hard cash.

The Business Insider also had another story of a person who got his first credit card in the freshman year in 2003. Since then, he raked up to $23,000 in debt from ten cards. But, since he made just a small change in his lifestyle, and paid off approximately  $8,200 in just a few months. How? By making just a little bit more than the minimum required.

When we read such stories on the news, we’re inspired.  But at the same time, we’re ashamed that we’re also struggling to pay off our credit cards with little success. The stories sometimes give us renewed energy to go back to the drawing board with a can-do attitude. But, deep down, we’re also feeling a little bit guilty that we’ve done this before with little success.

Well, it’s time to do it again. However, this time round start from a different perspective.

Step 1: Introspection

You’ve done this before, right? You’ve resolved to clear your debt, made a plan, stuck with it for a few weeks but never saw it to the conclusive end.

Today, don’t start with making a repayment plan. Start with taking some time and reflecting on why previous attempts have been futile. A few questions you can ask yourself:

  • What do you think has gotten you to this point?

  • What is your attitude towards money?

  • Are you obsessed over creating an impression that you’re living a particular lifestyle at the expense of your financial security?

This first step will help you unearth your money mindset and habits that you should start working on before working on repaying your credit card debts.

2. Make a repayment plan

Which card do you pay off first?

It’s advisable to pay one card at a time. However, as you do this, also pay the minimum requirements for the other cards to avoid penalties.

The critical question to ask is: do you pay off the card with the lowest balance, or do you go with the one with the highest interest?

It depends on your priority: if you’d want to clear one of the cards as fast as possible, then go with the one with the lowest balance. However, if you want to avoid the accumulation of debt, go with the one with the highest interest.

All in all, note it’s financially smart to go with paying off the card with the highest interest first as opposed to the one with the lowest balance.

3. Consolidate your debt

Paying off many credit cards and loans can be exhausting not only financially but also mentally as you try to keep up with the progress on each card. Debt consolidation is an excellent option since you’ll be dealing with one lender who is charging you a constant interest.

To consolidate your credit cards, you can either open a balance transfer card or take out a personal loan. Transfer cards usually have a promotional period whereby the interest is 0%. If you can clear the debt within this period, you can save a whooping lot of cash.

4. Credit Counseling

It’s essential to ensure that you make a repayment plan and stick to it. However, sometimes, it’s hard to ditch our self-sabotaging money habits. It’s therefore recommended that you seek out a professional who can help you with credit counseling.

Note, there are lots of scammers in the credit counseling industry; therefore, only go individuals and companies you’ve been referred to.

5. Get an accountability partner

Alternatively, get a peer who is also working towards repaying their debt and become accountability partners. When someone else is holding you accountable for your actions, it’s easier to be consistent with your habits.

Bottom line

You owe it to yourself, your future, and your dependents to live a financially-free life. To do that, you need to cultivate habits that will help you repay your credit cards and build a financially-secure future. The key to doing this is adopting certain habits and reminding yourself every day of the bigger goal. Therefore, make the big goal as attractive as possible. Pin on the bedroom wall, on the fridge door and make it your screen saver. Then start working on habits that will see you get out of debt. Start today.

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Career & Finance

6 Tips You Should Consider To Pay Off Your Student Loans Faster

Hands up if you’re one of the people who’re waiting for Bernie Sanders, Elizabeth Warren, to help you clear your student loans.

I guess not many people. It would be folly to sit and wait for a particular person to win the white house race for your student debt to be canceled. Here are some of the ways you can use to pay off your students loans faster:

1. Pay more than the minimum requirement

This might seem like an obvious one, but every year, more than 1 million borrowers go into default. This refers to the failure to make the minimum payment requirement for over a year.

So, the first step is to make sure that you make the minimum payment. But, if you want to clear the debt faster, you need to make a payment more than the minimum requirement.

Note: If decide to pay an extra $100 over the minimum required to pay off a $29,000 debt, you can clear it in just seven years as opposed to the usual ten years.

2. Make a repayment plan for every two weeks instead of monthly

Most people pay off their student loans, once per month. However, there are quite a number of people who receive their salaries every two weeks. Paying for your student debt every two weeks will help you pay an extra month in a year as opposed to paying off monthly.

In a year, there are 12 months, so if you make a payment of $400 every month, the year’s total will be $4800. However, if you make $200 every two weeks, within the 52 weeks in a year, you will pay 26 payments totaling to $5200. Just like that, you will make an extra payment of $400 in the year. It might not seem much, but in a couple of years, it will be worth it. 

3. Sign up for autopay

Signing up for the student loans to be deducted automatically from your account can be very efficient. It will help you make repayment at the end of the month without fail. Some lenders offer discounts when you sign up for an auto repayment plan.

4. Make lump sum repayments

Next time you receive that tax refund, annual bonus or you close a deal with good returns, instead of purchasing that expensive watch or handbag you’ve been eyeing, make a lumpsum payment on your student debt.

You, however, need the discipline to delay that vacation to Hawaii or anywhere else or spoiling yourself with the finer things in life. It will save you a lot of money and help you repay your student loan earlier. 

5. Apply for student loan forgiveness

If you have a federal loan, you might need to check whether you qualify for loan forgiveness. Loan forgiveness means you’re not required by the federal government to pay part or all your student loan.

Here are some instances whereby you might qualify for student forgiveness:

  • Public service loan forgiveness

  • Teacher Loan Forgiveness

  • Permanent disability forgiveness

  • Perkins loan cancellation

Here is the full list to help you know whether you are eligible for loan forgiveness. 

6. Refinancing your student loans

Refinancing is a great option, especially when the interest rates are going up. It will help you consolidate your loans and get a lower interest rate. However, it’s good to know when refinancing isn’t a good option for you, including:

  • If you want to qualify for loan forgiveness.

  • If you don’t have a stable income and you’d want to be legible for income-based repayment plans.

  • If you have bad or no credit.

So, if you have a stable income and have other loans with high-interest rates, go right ahead and apply for refinancing.

It’s important to reiterate that if you refinance a federal loan, you forfeit federal protection since the loan automatically becomes a private loan. 

Travis Hornsby of Student Loan Planner advises that one should have a loan refinancing ladder. A refinancing ladder involves refinancing your loans starting with a more extended repayment period or possibly 10+ years. After a couple of years, when you can pay more, apply for refinancing with lower interest and a shorter repayment period. Such a plan will end up saving you a lot of money and help you pay the loan faster.

At the end of the day, it’s your option whether to use that money to go for a vacation and maintain a particular lifestyle or pay off your students loans. However, be warned that if your default for a period, you might receive your paycheck only to realize that the government already took half of your salary. Its time to make wise decisions.