Steering clear of homebuyer’s remorse requires more than just picking the right home in the right neighborhood. According to a 2016 survey by J.D. Power, 27% of new homeowners ultimately came to regret their choice of lender. One major reason for the dissatisfaction was overall poor customer experience, including lack of communication and unmet expectations. Another factor? Pressure from the lender to choose a particular product or loan. You can remove some of the tension and turmoil of house-hunting by carefully vetting potential lenders. Here are some questions to ask potential lenders before you commit.
If you have been contemplating getting one of these, then this article is a must read!
Tempted by that offer for a new credit card with an interest-free grace period? Don’t succumb to the first attractive zero percent interest credit card offer that comes your way—unless it’s the right card for you.
First, come to understand your own motivations. A credit card with a no-interest introductory offer may be a good choice if you’re looking to consolidate debt through a balance transfer or if you’re contemplating a vacation or big purchase but don’t have the cash to immediately pay for it. Then, compare the terms of the cards you’re considering. Doing so can help you avoid potential pitfalls and choose the best offer for your circumstances.
Before you take the zero percent plunge, consider these five tips to make sure your decision is the right one.
Look Beyond the Offer
Zero percent interest cards offer a free promotional period on purchases, balance transfers, or both for a set time, typically anywhere from 12 to 21 months. After that teaser period, the card’s standard annual percentage rate will kick in.
Examine that go-to rate closely.
If the standard APR is higher than the rate you’re charged on your current cards—and you even occasionally carry a balance—it probably doesn’t make sense to use the new card after the intro period expires.
Some zero percent interest cards double as a rewards credit card and charge an annual fee. Make sure you’ll be able to take advantage of the rewards you’ll get in return for paying that fee. Otherwise, move on to another card.
Although it’s possible to close the card after the promotional period is over, it’s not recommended. Like all credit card applications, before you’re approved, the issuer will do a “hard” credit check, which can adversely impact your score. And every time you close an account, you reduce your available credit, which can also ding your credit rating.
Have a Plan
The best way to take advantage of a zero percent credit card is to pay down a huge debt transferred from an existing credit card during the introductory period.
Use that interest-free time to pay off your debt entirely (or reduce it substantially) before the intro rate expires and you begin paying interest, possibly at a higher rate than your original card. Paying the maximum monthly amount you can afford, without accruing interest, can give you a leg up on wiping it out completely.
A balance transfer calculator can help you determine how much you’ll have to pay each month to retire the debt before the end of the introductory period.
“A balance transfer is just the first step in a two-step process,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “The second—and more important—step is to use that lower rate to accelerate debt repayment and get the balance paid off for good. Otherwise, you’re just moving money around.”
Even if you can’t pay the debt in full by the end of the intro period, always make sure to pay on time. A late payment could void the promotional period, possibly trigger a penalty APR and cost you a princely sum in late fees.
Mind the Fees
Don’t be fooled: When it comes to balance transfers, a zero percent offer doesn’t mean you’ll be able to pay off your debt for free.
Balance transfer offers typically come with a one-time fee that ranges from 3 to 5 percent of the amount being transferred, although there are cards that charge no fee. Most of the time the math will work in your favor, even if you’re moving a substantial sum to a new card, but it’s smart to ensure that what you’ll save on interest payments is greater than the upfront fee.
Let’s say you want to transfer $5,000 to a card that charges no interest for 12 months. If the card charges a 3 percent transfer fee, you’d pay $150 to move the balance to a new card. Use a calculator to determine what you’d pay in interest on your current card over the course of the intro period.
Even if you have a cheap zero percent APR on your current card, your interest payments during that year would be much higher than the transfer fee—even assuming you paid off your entire balance.
Alternately, you may find that the best balance transfer credit card for you is one with a shorter promotional period but doesn’t charge a balance transfer fee. In some cases, it may be a better option than a card with longer terms that has a hefty upfront charge.
Beware the Purchase APR Pitfall
It might be tempting to splurge a little with a new card—especially if you won’t get charged interest on new purchases for a year or longer. Spending beyond your means is how debt accrues in the first place, and even an interest-free purchase still has to be paid for.
So, if you get a zero percent credit card to help manage your debt, be cautious about spending.
“Don’t get too enamored with the zero percent on new purchases,” says John Ulzheimer, a nationally recognized credit expert formerly with FICO and Experian. “Make purchases you normally would have made anyway like dry cleaning, gas, groceries—and pay it off so you don’t get into more debt.”
If you carry no credit card debt and want the card to finance a big purchase that’s beyond your monthly budget, like an appliance or furniture, proceed with caution, as well. Do this only if you can pay off the purchase during the intro period.
Make Sure You Qualify
Like most of the best credit card offers available, the better your credit score, the more likely you are to qualify for a great offer on a balance transfer card.
“Because of the structure of the cards, they’re really reserved for people with great credit. Even though you may want one, you may not qualify,” says Ulzheimer.
Overall, issuers rejected 17.7 percent of credit card applications between October 2016 and February 2017, according to a survey by the Federal Reserve Bank of New York.
Even if you are armed with a high enough credit score to qualify for the best offers, in some cases, there may be a cap on the balance transfer amount. Check the fine print to see if the balance transfer card will meet your needs before applying.
“Your balance may be (so) large that the new issuer won’t accept it,” says Linda Sherry, director of National Priorities at watchdog group Consumer Action.
The heat is on! You want to improve your credit and you want to get it done NOW!
If raising your credit seems impossible, take a step back from the big hairy goal and tackle the beast one step at a time.
There’s no “instant” button, but there are things you can do now that will help increase your score.
The unfortunate truth about raising your credit score: There is no quick fix.
Hitting the reset button sounds tempting — especially when faced with a less than stellar credit score; but starting over with a blank slate will only set you back further.
Now that a forewarning is out of the way, on to the good stuff: Actionable tips to raise your credit score swiftly and without financial risk. You can expect most of these tips to affect your credit score in about 30 to 60 days, the typical time that’s considered speedy.
How to increase your credit score
- Request a copy of your credit report and look for errors
In 2013, the Federal Trade Commission found that one in five consumers carried an error on their credit report. If you find an error, dispute it. Removing negative marks made in error will help you return to your correct score.
- Write a negotiation letter to your credit bureau
If a negotiation letter doesn’t work, contact the company reporting a late payment to ask if it will campaign for the removal. If a payment was incorrectly reported (see No. 1), or if you simply forgot a bill when you’re usually 100% on the ball, you may be able to get the late payment removed.
- Stop using your credit cards You can lower your credit utilization rate in two conventional ways: Lower your spending and increase your credit. Your credit score is largely determined by the amount of debt (credit card and loan balances) compared with your credit limits. Spending around one-third of your credit limit is the recommended credit line, but crossing that debt-to-credit threshold won’t help your score. Alternatively, you can request an increase in your credit or open a new card as a way of increasing your credit-to-spending ratio, but this is a risky move if your spending doesn’t slow down. Be wary of raising limits if it wouldn’t be financially feasible to pay back any and all spending.
- Don’t apply for multiple forms of credit in a short time Each time you request a new form of credit, including car and home loans, etc, you’ll likely face a credit inquiry. Too many inquiries within a short time and the credit bureaus may ding your credit. Keep this in mind as you request credit increases or open up new accounts. Both actions may result in one too many credit pulls and consequently, a decrease in your credit score.
- Settle late payments — then automate your payment schedule Timely bill pay is gut-wrenching when you’re financially strapped, but proactively settling bills will make future payments easier. Credit bureaus count a late payment starting from the first day of your last late payment, so the sooner you can square the bill, the better. This is particularly true if you can pay off past-due debts before they reach the 30-day, 60-day, or 90-day thresholds. It’s scary to confront the financial challenge, but it’s doable. Once you’ve settled any late payments, make future payments even simpler by automating. Automation avoids accidental missed payments and takes the mental clutter of scheduling multiple payments off your mind.
- Building credit builds long-lasting habits Approaching the daunting task of increasing your credit score with the long-term-training mindset helps you build long-lasting habits that strengthen your financial foundation.
Source: Trulia Blog
If you are in the market for a new home, then you’d better read up! No matter how much you know regarding mortgages, its never too late to learn.
A lot of Americans are caught up in a mortgage nightmare simply because they didn’t dive into the process with some preparation. With a little studying and education, getting a home mortgage can become a far less stressful endeavor.
Here are a few questions that can help you go into the home mortgage process with more knowledge and confidence. Although this quiz doesn’t cover everything you should know, it’s certainly a good start:
Question 1: What is the difference between pre-qualification and pre-approval?
Answer: Pre-qualification is the first step in the mortgage process that involves supplying a bank or lender your financial information in order to find out how much you can borrow on a loan. Pre-approval is when you and your mortgage banker review your credit report to determine if you’re worthy of qualifying for a particular loan amount.
Question 2: What are the two big cash expenditures that require having money on hand to buy a home?
Down payment and closing costs.
Question 3: Generally, a monthly mortgage payment is made up of four different components commonly referred to as “PITI.” What are they?
Answer: Principal, Interest, Taxes, and Insurance.
Question 4: Why is it recommended to make one extra payment a year for people on 30-year fixed mortgages?
Answer: Since extra payments cut down the principle of your loan (and not interest), giving one additional payment a year can shorten your loan term by a decade.
Question 5: What is the downside to a subprime mortgage?
Answer: Although subprime mortgages come with lower introductory interest rates, they increase significantly after a number of years.
Question 6: What does LTV stand for and how do you determine it?
LTV stands for loan to value ratio. To find out an LTV, divide the loan amount by the appraised value of the house. So if your home is worth $200,000 and the loan amount is $100,000, then the LTV is 50%.
Question 7: There are three term lengths you can get for a fixed-rate mortgage. What are they?
Answer: 15 year, 20 year, and 30-year terms are your options for a fixed-rate mortgage.
Question 8: Of the mortgage rates mentioned in the last question, which one do most people find the easiest to qualify for?
30-year mortgages since a longer term means lower, more affordable payments. The fact that longer terms also mean bigger tax deductions also plays a role.
Question 9: Is it a good idea to get an ARM (adjustable-rate mortgage) if you plan on owning a home for a long time?
Answer: No. Since the interest rate on ARMs change along with market rates, they are unpredictable. An ARM is only recommended if you’re staying in a home for a short period of time.
Question 10: Lenders will look at your job history when considering offering you a loan. A red flag for them is if you haven’t been at your current job for at least how many years?
Lenders like to see that you’ve kept the same employment for at least two years. This also applies to people who are self-employed and part-time employees.
Question 11: What is it called when you owe more than your house is worth?
Answer: Owing more than your house is worth is called being “upside-down” on your mortgage.
Question 12: Is it OK to open a new credit account during the mortgage process in order to help pay for moving expenses, new furniture, etc?
Answer: No. Since everything must be documented with payment amounts and account statements, doing so can affect your debt-to-income ratio.