Guide to Homeowners Insurance

Homeowners insurance is a staple in the lives of everyone owning a home with a mortgage. Picking the right policy can feel more distant when you include the premiums in your mortgage payment because the money does not come directly out of your pocket. Regardless of how you pay for the policy, there are several factors, which are important in terms of what the policy will cover and how much you will pay. Read more

10 Tips to Lower the Cost of Homeowners Insurance

For most homeowners, insurance is a mandatory component of owning a home because lenders require you to maintain an active policy. The cost of insurance will vary in price based on the home’s value, its location, the number of claims, credit score, deductible and more. You want to purchase enough insurance coverage to pay for unforeseen losses or damage to your property while keeping costs in check. Read more

What You Need to Know About Home Financing

Buying a home can be a long, complicated experience because you are unfamiliar with the process and procedures. There are realtor terms to understand when shopping for a home and lending practices to navigate when working with an underwriter. You must choose the right loan, at the best possible rate. Each decision can have a financial impact for decades to come.

When you understand the loan approval process, you can make better financial decisions.

The Four Elements of The Loan Approval Process

Lenders analyze every loan application focused on four key areas of your financial life, which include: income, assets, credit, and debt.

Income can include salary, hourly wages, bonuses, side jobs, or any other form of regular payment you receive. It is not necessary to include every source of income, but the lender will only consider what you disclose. In some cases, the lender will not include an income source if they deem the amount to be irregular. Commissions and bonuses are an example.

The amount of income needed to purchase a home varies based on where you want to buy. In general, cities are more expensive than the country, and certain neighborhoods can double the asking price of a home. For instance, buying in San Francisco will cost a median of 1.5 million, where $137,000 is the median price for a home in Cleveland.

Regardless of location, borrowers who spend less than 28% of monthly income towards the mortgage payment have stronger finances.

Assets: Lenders want to review checking, savings, and investment accounts to establish your financial strength. Available assets also play a part in the down payment. You do not need a 20% down payment, although paying a lower amount will typically raise the cost of the loan and could require mortgage insurance, which can add $100 or more to the monthly payment.

Credit: Lenders seek to understand how you manage credit. Loan approval typically requires a credit score above 620. Although, lenders reserve the best rate and terms to borrowers with credit scores above 700. A larger down payment or more assets could allow borrowers with weaker credit scores to receive an approval.

Debt: Along with a review of how you manage current debt obligations, lenders use current debt levels to calculate the debt to income ratio. This calculation compares your monthly income with the minimum debt payments found on your credit report. This ratio plays a major role in setting the upper limit on a home loan.

Mortgage Terms and Interest Rates

The type and term of the loan you choose will directly impact the rate you receive. The most common loan terms are 15 and 30-year loans. The 15-year mortgage will have a lower interest rate and a higher payment than a 30-year loan and is best if you want the lowest overall loan costs.

The ARM (Adjustable Rate Mortgage) offers the lowest rate and lowest monthly payment, but potentially the highest overall loan costs. An ARM provides an initial fixed rate, which then adjusts every year after the fixed rate term ends. The loans last for 30-years and typically come with a five or seven-year initial fixed term, before converting to an annually adjusted loan.

A fixed rate locks in the same interest for the duration of the loan. Therefore, a 15-year fixed rate offers the same payment for 15 years.

Table 1: Mortgage Analysis
The following Table illustrates the cost of a $200,000 loan.
Cost of A $200,000 Loan Interest Rate Monthly Payment
15 Year Fixed 4.125% $1,492
30 Year Fixed 4.5% $1,013
5/1 ARM 5 Year Fixed, 30 Year Term 4.250% $   984
7/1 ARM 7 Year Fixed, 30 Year Term 4.375% $   999

 

A 30-year mortgage has a lower monthly payment than the 15-year. However, you pay significantly more over time by choosing the longer term. The 30-year loan reduced the payment by $479. However, the total interest on the 15-year loan is $68,548.33, compared to $164,813.42 on the 30-year loan. You pay nearly 2.5 times the interest for the longer term. The interest rate and payment are not the only factors to consider when choosing a loan.

The Adjustable Rate Mortgage ARM may be the best choice if you plan to live in the home for a short time. Typically, there are interest rate caps on ARM loans that have a maximum limit on increases. The rate caps affect the annual increase as well as a maximum over the life of the loan. For instance, the rate may only increase a maximum of 2% per year.

Refinance Versus Buying

Refinancing a loan will require paying closing costs again, which typically range from 1 to 5% of the loan amount. Many people refinance their home to secure a lower interest rate or eliminate the mortgage insurance. You can also use a refinance to reduce the term or get cash out for other needs. The rate offered will depend on the type of refinance, you plan to complete.

As you lower the mortgage, you gain equity in the home. Appreciation and home improvements can increase home equity faster. The difference between the value of your home and how much you owe on your home is known as equity. For example, if your home has a value of $250,000 and you owe $100,000, you have $150,000 of equity. Lenders do not typically allow you to get a loan at 100% equity. Taking out a loan for more than 80% of the value could result in paying mortgage insurance, just as with the original loan.

A cash-out refinance, can reclaim some of the equity in the form of a cash payment. However, you will reduce existing equity, increase the time it takes to pay off the loan and raise the amount you pay in interest. In many cases, it will result in a mortgage payment in retirement, which could impact your ability to retire comfortably.

If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis.  Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs.  You don’t have to struggle with high-interest credit card debt any longer.  Call (855) 250-8329 or get in touch with us by sending a message through our website.

 

 

 

Top Ways to Boost Your Income

There are two ways to build wealth: you can earn more or spend less. However, there is a limit to how much you can save after paying for essentials, which can leave you with only the option of raising income to improve your finances.

An employer controls your wages, in relation to your education and experience. As a result, boosting pay can mean finding additional income streams through a second job, a side gig, or other means.  The increasing popularity of a “gig” economy creates ample opportunities to earn extra money. Today, you can work from home and have more control over your schedule, without changing your primary source of income.

The following strategies can help increase your wages, allowing you to pay off debt faster, increase retirement savings, and meet other financial priorities.

Focus on Your Skills

Online resources enable millions of people to earn part-time wages independent of traditional employment. Whether you have skills in technology fields such as programming or web design, or hard skills such as sewing or woodworking, there is an opportunity to parlay your skillset into income. Websites such as Fiverr connect skilled workers with individuals and businesses in need of services such as translation, web design or video production. Sites such as Etsy provide a marketplace to sell hand designed goods including jewelry, clothing, or woodworking.

Independent work allows you to build a schedule around your full-time job, earn money in your free time, unlike a retail position, which requires you show up to work at certain times.

If you can’t identify marketable skills, or do not want to invest the time and money into promoting your services, you can join companies such as ridesharing, meal delivery, or house sharing options to increase income. The sharing economy can include driving others in your personal vehicle or renting out your home, car, tools, or yard equipment.

Put a Plan in Place

The simplest strategy always begins with a plan. Failure to plan leads you to the path of least resistance, which rarely takes you where you want to go.

Give yourself a specific set of instructions to follow. Include both big picture success and daily actions you must take to reach your larger goal. Breaking items down into small actionable steps can increase your rate of success. It is not necessary to create a path from scratch; you can follow others who have reached the goals you want to achieve.

One effective method is to develop a task sheet and update it weekly. Each task completed will lead you closer to your goal of higher income. Sharing your plan with others is another strategy, which can significantly increase the rate of success.

Set Your Priorities

In 1906 Vilfredo Pareto created a mathematical formula to illustrate the unequal distribution of wealth in Italy. Through his observations, he found 20% of the population held 80% of the country’s wealth. Now known as the 80/20 rule or the Pareto Principle. Use this principle to prioritize and manage your daily workload.

In most cases, 20% of your efforts are responsible for 80% of your outcomes. Dissect your to-do list to focus on the most productive 20%, and cross off tasks that do not add value or contribute to your primary goals.

When you overbook your time, by taking on too many menial projects, you will not have the energy to capitalize on high-value opportunities.

Learn to Say No

Your time and skills have value. Harvey MacKay, a businessman, author, and Universal Uclick columnist said, “Time is free, but it’s priceless… Once you’ve lost it, you can never get it back.”

No one else will value your time the way you should. When promoting your skills charge a fair price. If activities hold little value and do not lead you toward your long-term goals, be willing to walk away.

It can be challenging to say no, and easy to invest a lot of time in a project that does not increase your skills or provide enough pay to justify the commitment. The more you respect your time, the more others will too.

Use Failure to Your Advantage

Babies do not immediately run after they stand. They take a step, fall, get back up, and try again. Increasing income will also include one or more false starts. Instead of allowing mistakes to discourage you, use failure as a teacher. Evaluate each step of the process and discover what worked and what didn’t. Then make adjustments and try again. A scientific approach to testing and moving forward is the secret. Failure is not a failure unless you quit.

Become a Leader

Earning income outside of a regular job requires leadership and capitalizing on opportunities that come your way. It is not necessary to have an abundance of capital to get started with independent employment. In many cases, you just need one or two items and some basic skills. For example, to be a graphic designer, you need knowledge and a laptop. To drive for Uber, you need a reliable car and a driver’s license. To rent a room through Airbnb, you only need a spare bedroom. Look for chances to initiate and grow your income.

Act Successful

To be successful, you must act successfully. Associate with successful people and read books from successful authors. Opportunities can come through these associations.

Increasing income is not a one size fits all prospect. Each person has different time constraints, skills, and capabilities. In some cases, you can increase your education to find a better position, other times you might negotiate higher pay within your existing company. For others, the answer is creating a side income that is flexible enough to maneuver around current work and family demands.

If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis.  Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs.  You don’t have to struggle with high-interest credit card debt any longer.  Call (855) 250-8329 or get in touch with us by sending a message through our website.