Borrowing:Money

1.	Borrowing Money
Since the Great Recession, creditors and lenders have become considerably more conservative. Poor credit means more risk for the lender. Whether you are looking for a credit card, a car loan, or a mortgage, poor credit means you will pay more to borrow. Mistakes like missing a single payment can cost thousands of dollars in additional interest charges over the life of a loan.

The average college student’s debt obligations have grown considerably in recent years. Most college students receive multiple offers for credit cards and graduate with credit card balances of roughly $4000. Additionally, college graduates are averaging $20,400 in student loan debt at graduation.

When you borrow money, be sure to have a plan for repaying the debt. While no one plans to be unemployed for an extended period, how will you manage your payments if you are? You may want to ask family members if they would be able to help you pay back some of these debts or obligations should you have trouble finding the means to pay them back yourself. Be prepared to work with lenders in the event you have trouble finding work or other repayment sources.

'''Building good credit is a serious matter. Mistakes can create credit “blemishes” that may take many years to correct. '''

A good site to learn about building good credit and credit scores is:

http://www.myfico.com

Another site to review for information on: credit, loan programs, rate shopping, and personal finance advice is:

http://www.lendingtree.com

Credit Cards
Whether you are establishing credit, shopping for credit, experienced with credit, or fixing bad credit there are plenty of products and resources to help you. Just be sure you control your use of credit. Making the minimum payment each month on a whopping credit card balance is not controlling credit.

Try the credit card site:

http://www.CardHub.com

This site specifically addresses the needs of college students. You can search for cards that are available to college students with little to no credit history; as well as cards that offer the features and benefits you are looking for (such as rewards, airline miles, cash-back, or balance transfers).

If you decide to apply for a credit card, get a card with perks that fit your spending habits and plans. Many cards offer cash back on purchases. If you plan on paying your balance in full each month, this is definitely the way to go. On the other hand, if you use your card to finance expensive purchases such as textbooks, look for a card with a very low interest rate to avoid financing charges.

Transferring a balance form one card to another makes sense if you can find a lower interest rate and can lower your monthly payment. Some cards offer relatively low interest rates for 2 years, particularly for students.

Other credit card perks include rewards or no fees on foreign transactions. You can shop for cards on sites that categorize cards by the features and benefits the cards offer. Additionally many sites have sections on student credit cards.

To evaluate credit card offers that meet your needs check out:

http://www.creditcards.org Includes sections on student credit cards, secured credit cards and prepaid cards… You can also sort credit card offers by features.

http://www.creditcards.com This site lets you sort by credit quality and includes options for people with limited or no credit history.

http://www.indexcreditcards.com If you have credit card balances that cannot be paid in full, use the credit card calculator to determine how long it will take to pay off the balance.

If you are new to credit, the credit limit you qualify for may be only $300 to $500. But once you establish a perfect credit history with all payments made on time, the card issuer is usually very eager to increase your credit limit.

Avoid getting yourself into a financial mess with credit cards. Know before you buy a good or service if the purchase will be financed (partial payments over several months) or paid in full when the bill is due. Do not finance dinners out, movie tickets, events, and monthly bills. Financing non-essential items with credit cards is a foolish way to live beyond your means. Thoughtless spending ruins credit scores and even lives, and can take years of sacrifice to overcome. Don't let this happen to you!

Making the 5% minimum payment each month on your credit card balances will put a big hole in your wallet.  Over time the accrued interest you will be paying could very well exceed the value of your purchase. Banks make a lot of money off of credit card users that only make the minimum payment each month!  Don’t let credit card use (and misuse) destroy your credit. If you have trouble controlling your spending, try a secured credit card.

http://www.cardhub.com/credit-cards/secured/

A secured credit card requires a security deposit (in the amount of the credit limit) which you get back when you close the account and the account has been paid as agreed. Secured credit cards are great for: 1. people that need to establish credit, 2. people that lack the ability to control their spending and 3. people that need to fix bad credit. With secured credit cards, creditors are more flexible because the security deposit provides a guarantee that the amount borrowed will be repaid.

A prepaid debit card (which limits the amount you can spend) will also keep you from over spending. Check out:

http://www.billmyparents.com/ If you have someone in your life that is generous enough to give you money to spend, this prepaid card lets them monitor how you spend their money. The donor can get updates every time the card is used. The card can be “loaded” with funds at any time, from any location. While the card will prevent the user from spending more money than he has, this card will not help the user build a credit history.

'''Secured credit cards and prepaid debit cards are good ways to control your spending. Secured credit cards will help you build credit, as will other credit cards as long as you used them appropriately.'''

As you build a credit history you should be aware of your credit score. Your credit score is a number from 300 to 850. Keep it at or above 720; the high 700s are even better.

The most commonly used scoring model is issued by the Fair Isaac Corporation and called a FICO score.

Your credit score is influenced by:

•	Payment history (35%) - the older the late payment, the less impact. To get a loan you should have no late payments in the last 24 months.

•	Amount Owed (30%) - high balances or balances above 33% of the available credit limit hurt your score. Never max out your credit cards or your credit score will tank.

•	Length of credit history (15%) - the longer you have your accounts or “tradelines” the better.

•	New credit (10%) - recent inquiries and opening new accounts can lower your score.

•	Types of accounts (10%) – a variety boosts your score.

To improve your credit score:

•	Pay on time.

•	Pay down debt to below 33% of the credit limit.

•	Keep no more than 4 accounts or active tradelines.

•	Keep older accounts open but use them minimally.

•	Avoid credit applications that cause credit inquiries.

•	If you have a collection account, pay it. If you can’t pay it in full, talk to the collection agency and work something out.

Monitor your credit score by pulling a free credit report every year. The Fair and Accurate Credit Transactions Act of 2003 amended the FCRA to require the credit reporting companies to provide consumers with one free copy of their credit report per 12 month period.

https://www.freescore.com/

This site gives you a trimerge report or a report with information collected by each of the three largest credit reporting agencies: Transunion, Experian, and Equifax.

Be sure to check your score from all three agencies. Although the information reported by each agency should be the same, there can be differences.

To understand your rights regarding credit reporting go to the Federal Trade Commission’s site and read the section on Consumer Protection or Credit and Your Consumer Rights.

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre01.shtm

The site provides good advice: “If you question the accuracy or completeness of information in your report, you have the right to file a dispute with the credit reporting company and the information provider (that is, the person, company, or organization that provided information about you to the credit reporting company). Both the credit reporting company and the information provider are obligated to investigate your claim, and responsible for correcting inaccurate or incomplete information in your report. For details, see How to Dispute Credit Report Errors at http://ftc.gov/credit. ”

Experian http://www.experian.com Its databases contain credit information on 215 million people in the United States. Experian also provides credit reports on businesses.

Equifax http://www.equifax.com Founded in 1899, Equifax is the oldest of the three agencies and gathers and maintains information on over 400 million credit holders worldwide.

TransUnion http://www.transunion.com TransUnion was created in 1968.

The major credit reporting agencies are chiefly regulated in the United States by the Fair Credit Reporting Act (FCRA). As you build your credit it’s a good idea to monitor the credit reporting agencies. The agencies do not have the best record when it comes to removing inaccurate information from your credit report. If you find that your report needs correcting, write letters and keep copies of all correspondence.

A great site to use if you need to improve your credit score is:

http://www.TrueCredit.com (owned by TransUnion) $15 a month but worth every penny if your credit score falls below 720

http://www.Myfico.com This site provides education and monitoring

Be skeptical of sites and services that offer to fix your credit. Many credit repair services:

1) charge a lot for doing very little,

2) ask for your personal information,

3) request that a power of attorney be arranged for them to work on your behalf.

You can fix your own credit but it takes time. The best course of action is to build and maintain good credit, and don’t make critical errors like paying after the due date or not paying a bill. If you have a credit dispute resolve the dispute without destroying your credit by talking to the creditor.

Here is a good self-help credit repair forum and blog. http://www.Creditboards.com

http://creditboards.com/forums/index.php?showtopic=428895 This link provides a flow chart that can help you fix your own credit, the 1-2 punch flow chart:

 If you need help fixing seriously bad credit there is a reputable law firm to contact that can address any number of credit repair goals:

www.lexingtonlaw.com Lexington Law will provide a free credit report and credit repair consultation. The firm has 20 years of credit repair experience. This service can be pricey; if you need help and don’t have time to fix your own credit, this firm will help.

You can also investigate whether a free consumer credit counseling service exists in your area. Here’s one in San Francisco, California.

'''Consumer Credit counseling Service of San Francisco 595 Market Street 15th Floor San Francisco, CA 94105 800-777-7526'''

Credit Card Calculators

http://www.cardratings.com/calculatorframe.html

These calculators help consumers compare credit offers based on interest rates and annual fees. The calculators can also help consumers decide if they should consolidate their debts, choose a reward credit card over a low interest credit card , or determine how long it will take you to payoff a credit card balance.

Student Loans and Financial Aid

With the cost of financing a college education increasing at an alarming rate, it’s no wonder Americans now owe over $900 billion in student loans (with an additional $140 billion in private student loan debt) — more than the nation’s total credit-card debt. Since 2008 student loan debt has increased 25%. But getting that college degree still makes sense as studies show that college graduates earn more money than their less educated peers over a lifetime.

As if it isn’t hard enough to get into a handful of good schools, figuring out what you can afford and how to finance your degree may be an even more challenging process.

The 2010 Dodd-Frank financial reform law created a new federal oversight agency, the Consumer Financial Protection Bureau (CFPB). The CFPB sees the growing indebtedness of college graduates as a serious national issue. According to an article in the New York Times, “As the Cost of College Soars, A Generation Pays A Growing Price” (5/13/12) the average student loan debt for all borrowers in 2010 was $23,300 with 10 percent owing more than $54,000 and 3 percent owing more than $100,000.

Tuition for four-year colleges is exceeding income growth and the rate of inflation. The financial crisis accelerated the widening gap between price tag and affordability. Add declining tax revenue from a sluggish economy and government cuts in education funding to the mix and the result is a shift of the ever growing college financial burden to students and families.

Check out the Consumer Financial Protection Bureau website. The Consumer Financial Protection Bureau designed a tool to help students and their parents or guardians get a handle on what it really costs to go to college. This tool (which is a “work in process”) also provides an opportunity to compare college costs. (The “Know Before You Owe” section also addresses credit cards and mortgages.)

http://www.consumerfinance.gov/payingforcollege/ From the website:

“Working with the Department of Education, the Consumer Financial Protection Bureau launched our first Know Before You Owe project on student loans and released a draft “financial aid shopping sheet” to make financial aid offer letters easier to understand. Tens of thousands of Americans took a look, and many provided detailed feedback on how to make it better. We are reviewing the user feedback we received. We’ll be sure to let you know on our blog about what we’ve learned and when we intend release a new version. Our goal is for students and families to have an even more useful interactive tool to help them make one of the most important decisions of their financial lives.”

To learn more about Federal student assistance and loan programs, please visit the following online resources. There are more than a few listed due to the amount and seriousness of the information:

http://federalstudentaid.ed.gov This site will educate you on student aid.

http://studentaid.ed.gov/PORTALSWebApp/students/ Review the page called “Get Money for College”.

http://www.fafsa.ed.gov/ The source for the FAFSA form. Colleges and universities use this form to determine eligibility for financial aid.

http://www.collegeanswer.com Sallie Mae’s website with sections on planning and paying for college.

www.mappingyourfuture.org/paying/scholarshipsearch.htm Information on scholarships, grants, resources, and search tips Bold text www.FinAid.com

The site has information on student financial aid and links to a variety of scholarship databases.

http://www.educationgrant.com/

http://www.scholarships.com/

http://www.shmoop.com/college/ See the section on financial aid and scholarships.

Additionally: •	Contact your high school college counselor or private college admissions counselors to get information on financial aid. These counselors may receive notices of scholarships. •	Call the financial aid offices at the colleges you are applying to. •	Most student loans are insured by the federal government. The US Department of Education is a good resource. The Department has regional offices and a website http://www.ed.gov with information on student aid, scholarships, grants, and work programs.

Before taking on student loans, find out if you are eligible for financial aid that does not need to be repaid: scholarships, grants, and work study programs. (Scholarships and grants are considered "gift aid" because, in most cases, you do not have to repay them.)

Generous financial aid programs are often touted by colleges and universities in their marketing efforts; however, the reality is that colleges and universities differ widely in their ability to offer grants and scholarships (thus minimizing the need for student loans).

Scholarships are often awarded for achievement in the following:

•	Academics •	Athletics •	A field of study •	Ethnic background •	Religious affiliation •	Special interests

Grants are gift aid and do not have to be repaid. Generally, grants are for undergraduate students, and the grant amount is based on the student's financial need, cost of attendance, and enrollment status. Pell Grants are one of the largest federal grant programs.

Work study lets students earn money while enrolled in school to help pay for education expenses. Jobs are often on campus but not exclusively so.

After gift aid and work-study, your next source of funding is student loans. Student loans are borrowed money that must be repaid with interest. Some student loans are based on the student's financial need and others are not. Student loans may come from the college or university, the federal government, state governments, and private lenders.

Keep in mind, the amount of student loan debt you qualify for does not necessarily equal the amount you and your family can afford. Student loan defaults are rising. So don’t bite off more than you can chew. Student loans are serious debt obligations that will impact your credit history and are very difficult to discharge in bankruptcy.

If your financial aid package includes student loans, talk your school's financial aid office to see if you might be eligible for more grants (money you don't have to pay back) or work-study. Plan on working part-time in school so you can borrow less.

Students looking for financial aid should always check with Uncle Sam first. Federal student loans are far superior to private loans due to lower interest rates and a variety of repayment perks. If you have repayment issues, Uncle Sam offers repayment options such as an income-based repayment option. Uncle Sam may even cancel your debt after 10 years if you work in certain public service jobs.

Eligibility for financial aid is determined through the “Free Application for Federal Student Aid (FAFSA)”. The FAFSA is the form used by virtually all two and four-year colleges, universities, and career schools for the awarding of federal student aid, and most state and college aid. A formula is used to determine the amount that parents and students are able and/or expected to pay. This amount is referred to as the “Expected Family Contribution. The formula is based on both the parents’ and student’s assets and income.

Factors that determine aid and eligibility: Family income Family's savings and investments (but not retirement accounts) Student's savings and investments Number of other students in the family also paying tuition Family expenses, both ordinary and unusual

Factors that determine how much aid is awarded: Financial resources of the college or university Needs of other students Special interest in the applicant’s strengths and talents

In addition to completing the form you must gather the documents needed to apply. For example, you'll need income tax returns (yours and most likely your parents), W-2 forms, other income documentation depending on your sources of income (K1s, business returns), and identification documents (social security cards, drivers licenses).

The FAFSA form is due after January 1 of the year for which you need the loan. File the form as early as possible! The applicant gets a copy of the report, and so does each of the colleges you apply to.

Use the “Financial Aid Estimator Tool:

'''The FAFSA4caster provides students with an early estimate of their eligibility for federal student aid. To access FAFSA4caster, visit:'''

http://www.fafsa4caster.ed.gov.

Some schools do not participate in all Federal Student Aid programs. You may have to file a separate application for state-sponsored aid, and some colleges require individual financial aid applications in addition to the FAFSA.

You’ll receive a Student Aid Report (SAR) after your FAFSA has been reviewed. The SAR will summarize the financial information submitted on the FAFSA and report the expected family contribution.

Student Loans

Once you find out your expected family contribution, you’ll know if you need student loans. As mentioned, look into federal student loans first.

See: http://www.shmoop.com/college/federal-student-loans.html

You’ll want to understand the different loan programs including: Stafford loans, Perkins loans, and the Plus loan (for parents, graduate students, or professional degree students). Stafford loans are available to students regardless of need, and have a reasonably low interest rate. The Perkins loan is only available to students with financial need. The amount you can borrow under the Stafford and Perkins loan programs are capped. If these programs are not enough, look into the Plus loan for parents. Parents will need to have their credit pulled to qualify, and be on the hook for the payments.

The Federal Student Aid office has a variety of programs to help you pay for your education after high school. Compare these programs on the http://studentaid.ed.gov site

http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp

Private loans are made by lenders with no government involvement. The interest rate is generally higher. Private student loans should be a last resort. While federal student loan holders have many options available to them under the law, private lenders are not required to offer these options.

Be careful with student loan debt. You don’t want to be buried with debt when you graduate, particularly in a difficult job market. Student loans can be forgiven in bankruptcy but only if debtors take lenders to court and prove an “undue hardship”, a legal step taken by merely 0.1 percent of eligible debtors. The best way to avoid being trapped by debt is to keep it manageable from the start. Students need to shop around for schools to limit how much they need to borrow.

If you find yourself unemployed, underemployed, medically unfit to work, or in any kind of financial disaster, there are some options available to you.

1.	Federal Direct Consolidation Loans: If you send payments to more than one lender every month, and need help keeping up with the payments, a consolidation loan may help. With a Direct Consolidation Loan, you will have a single lender - the U.S. Department of Education - and a single monthly payment. You cannot consolidate private and federal student loans into a federal consolidation loan, and you should not consolidate federal student loans into a private consolidation loan as you will lose federal protections such as alternative payment plans. Go to:www.loanconsolidation.ed.gov

'''2.	Evaluate the repayment plans that are available to you. These include:''' the standard ten year repayment plan with a higher fixed payment but shorter term, the graduated repayment plan with a payment that increases every few years hopefully as your income increases, and the extended repayment plan which allows you to stretch the length of your repayment period up to 25 years.

3.	Income-Based Repayment: One option for repayment introduced in 2009 is income-based repayment. It allows borrowers to repay federal loans as a percentage of adjusted gross income, capped at 10 to 15 percent. Under the so-called IBR, all federal loans are forgiven after 25 years — 10 years for those in nonprofit or public service jobs.

4.	Deferment/Forbearance: For federal student loans, you may be able to get relief with a deferment or forbearance if you are having trouble making the payments. (Private lenders may also offer them, but they are not required to do so.) A deferment is a temporary suspension of payments. Deferments are only permitted under certain circumstances: including: enrollment as a half-time to full-time student, temporary total disability, enrollment in a graduate fellowship program, unemployment or other economic hardship, active duty in the armed forces, or participation in a rehabilitation program for the disabled. Forbearance is similar to deferment, in that interest continues to accrue although a temporary acceptance of smaller payments may be allowed. Forbearances are granted for such reasons as a high monthly payment relative to your income, medical hardship, or other unforeseen personal problems.

A loan is considered in default if you don’t arrange a deferment or forbearance and are more than 270 days past due. The consequences of default are severe and can include aggressive collection tactics, tax refund interception, lawsuits, and non-judicial garnishment of up to 15% of your net wages. You will also be ineligible for deferment, alternative repayment plans, grants, and new student loans. Collection fees, which can be significant, will be added to your balance. Additionally, a default notation will appear on your credit report, and since there is no statute of limitations on student loans, the negative impact may follow you indefinitely if you continue to not pay.

For federal student loans, you have a one-time right to get out of default with a “reasonable and affordable repayment plan”. You and the current loan holder should work together to determine what amount is reasonable and affordable. Consolidation is another way to get out of default. (This will not remove the default notation from your credit report; it will show that the loans were paid off but were in default at one time.)

There is no prepayment penalty for federal student loans. (Check with your lender for private loans.) If you can spare the cash and don’t have other debt with a higher interest rate, paying extra on your student loans is a great way to pay less interest over the life of the loan. Be sure to let the lender know that you are making a principal reduction payment and not an early payment for the next month.

Student Loan Tips

Graduation is a huge accomplishment. Finding that first post-graduation job is also a big relief. If you financed your education with student loans, managing that debt is like a crash course in personal finance. Here are some tips to help you with the administration of your loans:

•	If your financial situation or your parent’s financial situation has changed drastically due to job loss, home foreclosure, bankruptcy, etc. than contact your financial aid office. •	Keep track of your loans. Keep copies of the paperwork you signed in a safe place. You can also access information about federal student loans from the National Student Loan Data System. •	Stay on top of your loans' “Grace Periods”. •	Make sure to give your lenders up to date contact information. •	Never miss a payment. If you can’t make a payment, contact the lender and explain your situation whether it’s unemployment, health related issues, or going back to school. You must keep your student loan accounts out of delinquency and default. •	Know who to pay. Student loans, like mortgages, are often sold by the loan originator in the secondary market. Lenders may also hire a servicer – a third party who collects the payments. You will be notified when the servicing of your loan is transferred. It’s up to you to stay on top of this, and notify the servicer when you move. •	Pay off your high interest loans first. It's always good to pay down your debt, but be smart about it. If you have a high balance on a credit card with an 18% interest rate and a Stafford loan balance with a 6.8% interest rate it makes better financial sense to try and pay off the high interest credit card first while making minimum Stafford loan payments. •	Check your credit report annually to be sure your student loan has been reported properly to the credit reporting agencies.

Resources

National Student Loan Data System Allows borrowers to look up information about their student loans 800-433-3243

http://www.nslds.ed.gov

Direct Loan Servicing Center Allows borrowers with Direct loans to make payments online and manage their account 800-848-0979

http://www.dl.ed.gov

Department of Education’s Default Resolution Group Provides information on student loans in default. 800-621-3115

http://www.ed.gov/offices/OSFAP/DCS/index

Federal Direct Consolidation Loans Information Center Provides information on the Direct Consolidation Loan Program 800-557-7392

http://www.loanconsolidation.ed.gov

Car Loans & Car Purchases
The convenience of owning your own vehicle to get around is fantastic. But purchasing, insuring, operating, and maintaining a vehicle can be complicated and costly.

Can You Afford to Buy a Car? Be sure to budget for insurance, gas, maintenance, vehicle fees, and parking expenses. Determine: •	How much can you afford as a down payment? •	How much can you afford in monthly payments? •	How much should you spend on the total price?

When you decide to buy, look for a reliable car that doesn’t cost a fortune to maintain. Plan to take good care of the car and own it for a long time. Don’t buy more car than you can afford, and don’t lease a car. Leasing means you will lose the financial benefit of owning a car a long time. Some cars retain their value better than others so shop around and research makes and models.

If you decide to finance the purchase with a car loan, shop around for a good loan. There are many options for car loans: banks, credit unions, dealerships, and online sources. Know your credit score and keep it at or above 720. (link to section on credit)

Read bankrate.com’s article on finding a good car loan to help you prepare. The article suggests applying for more than one loan. When you apply for a loan or credit card your credit report will be pulled. This credit “inquiry” should not impact your score as the agencies recognize borrowers want to shop around. However, if you have a low score you might want to inquire about loan terms, select the best lender, and only let that lender pull your credit, just to be on the safe side.

http://www.bankrate.com/finance/how-do-i/how-do-i-find-the-best-car-loan-rate.aspx

Don’t forget to budget for the all the “extras” like maintenance and insurance in addition to your car loan payment. To make the loan payment more affordable you might lengthen the term of the loan, even though you’ll spend more in cumulative interest with a longer term.

Here are some tips for your car purchase:

•	Check out the Department of Motor Vehicles (DMV) website for car buying tips. http://www.dmv.org/how-to-guides/buying-first-car.php •	Evaluate new vs. used. Look at car dealers, surf the Internet, contact car buying services, and check the newspaper. Study vehicle reports on new and used models. If you are planning to buy a used car learn about car inspections, vehicle history reports, used car sales tax, and fees. •	If you aren’t good at negotiating prices, get someone who enjoys negotiating to help you. There is almost always some negotiating involved. •	Understand the paperwork. If you go to a dealer, the dealer will go over the paperwork with you. However, be sure you understand everything including the warranty, holding title, car registration, fees, and insurance. •	If you bought your car from a private seller, you'll need to take your paperwork to the DMV to handle the title and registration. •	You'll be given a temporary license plate to use until your permanent one arrives. •	Keep your insurance current; and always have your license, registration, and insurance with you in the vehicle. •	If you need a car loan to finance your purchase, shop around and analyze options.

Many car buyers have become particularly savvy when it comes to getting a good deal on a new or used car. Getting a good deal on a car loan is a different story. About 80% of car loans are from dealership financing. Don’t assume the dealer has the best loan, even if is the most convenient. It really pays to shop around. Auto loans are a significant source of household debt right up there with rent, mortgages, and student loans so you’ll want to do your homework to get a good deal. Here are some resources for evaluating car financing:

www.bankrate.com See the auto section which covers both car purchase and refinance loans.

www.lendingtree.com LendingTree can help you get car loan quotes from multiple lenders so you can compare interest rates and loan terms. You can also compare different types of automobile loans, such as: new car loans, used car loans, refinancing a car loan, or buying out a vehicle lease.

The Federal Trade Commission reports that dealer financing can be a "complicated and opaque process”. Moreover, dealer financing will not be regulated by the new Consumer Financial Protection Bureau, the agency charged with overseeing the terms and disclosures associated with other financial products like credit cards and mortgages. If the dealer offers cheaper financing than the offers you find at banks, credit unions, or online make sure that you have a genuine offer to lend, not just a quote with a floating rate (or rate that changes with the market).  Use those offers to negotiate financing with the dealer.

Without researching a variety of sources, you won’t know whether you are getting good financing!

Be sure you are familiar with:

•	The Note Rate – This is the rate on your debt obligation and the interest rate you will be paying. •	Annual percentage rate or APR - APR is the cost of your financing, including the interest rate and fees, expressed as a percentage. http://en.wikipedia.org/wiki/Annual_percentage_rate The term annual percentage rate (APR) is a rate that incorporates the annual note interest rate and loan fees, as applied on a loan, mortgage, car loan, credit card, etc. It is a finance charge (meaning both interest rate and loan fees) expressed as an annual percentage rate. The APR must be disclosed to credit applicants and is intended to give applicants a way to compare financing from different sources. However, it is best to understand what is included in the APR before using it to compare loan offers. •	Add-on fees and services – These costs can include, for example, an extended warranty beyond the standard warranty. Another common extra is credit insurance, which covers monthly payments if you become disabled. Be sure to go over all the fees. Some fees such as title and registration fees aren't negotiable. Ask if other fees can be waived, particularly if the fee wasn’t properly disclosed upfront.

A car loan is a legal obligation. As with any loan or debt, don’t bite off more than you can chew. Thoroughly understand the terms and cost of the loan you are applying for so you can compare offers, and get the best and most affordable financing.

Renting or Buying a Home
As a teacher, the Great Recession handed out a lot of Ds and Fs in Personal Finance 101. We found out that we need to do a better job of saving to be prepared for unexpected financial challenges. We also learned that markets and real estate values don’t always appreciate; volatility can be brutal, and losses can be fast and furious. We learned “the hard way” that we need to take responsibility for understanding the terms and conditions of contracts we are entering into. In sum, we need to be prepared for the worst while we hope for the best.

Prior to the crash many people assumed real estate values would continue to rise. This gave property owners the illusion of prosperity. People used the equity in their property like an ATM; with home equity as collateral borrowers took on more and more debt. People also bought homes with risky mortgages and little to no money down. After the economic collapse, property values declined and many homes became “underwater” meaning the amount of debt secured by the property exceeded the property’s value.

Interest rate increases also made many mortgage payments unaffordable. People opted for the lower interest rates offered by adjustable rate mortgages which exposed them to interest rate risk. Borrowers assumed they would be able to refinance their loans if interest rates rose but the significant loss of equity in their homes made refinancing impossible.

Before buying a home evaluate whether renting or buying makes more sense. On the Ginnie Mae website there is a comparison of buying verses renting in the Buy vs. Rent Comparison Chart.   There is also a  Buy vs. Rent Calculator  to do a financial comparison.

http://www.ginniemae.gov

Ginnie Mae is an agency that guarantees loan payments on government agency sponsored loans sold as securities to investors in the secondary market. The secondary market consists of institutions engaged in buying and selling mortgage loans that are packaged into securities. Lenders can use the proceeds from the sale of their loans to make new mortgage loans.

Fannie Mae and Freddie Mac are government sponsored agencies that promote home ownership by creating liquidity in the mortgage markets. The agencies purchase mortgage loans from banks and lenders and issue guaranteed mortgage-backed securities for sale in the secondary market.

'''The websites of Ginnie Mae, Fannie Mae, and Freddie Mac have good information on renting or buying a home. Check out the Department of Housing and Urban Development website for information on renting a home.'''

http://www.fanniemae.com/portal/helping-homeowners-communities/home-buying-process

http://www.freddiemac.com/homeownership/consider_a_home/

http://www.HUD.GOV

Buying a Home?

If you plan to buy a home be aware that the cost of owning a home involves more than the purchase costs. Purchase costs are the costs you incur at “close” (or the signing of paperwork to transfer ownership from the seller to the buyer). These costs consist of both the down payment and typical closing costs.

Yearly costs are recurring monthly or yearly expenses. These include mortgage payments, condo fees (or other community living fees), renovation costs, maintenance costs, property taxes, and homeowner’s insurance. Property taxes, the interest part of the mortgage payment, and in some cases, a portion of the common charges, are tax deductible.

To evaluate “How Much Home You Can Afford?” try the tool on the Ginnie Mae website.

http://www.ginniemae.gov/2_prequal/intro_questions.asp?section=YPTH

Mortgages
Follow these steps if you are buying a home:

1.	Save money for the down payment, closing costs, and reserves.

2.	Build good credit.

3.	Understand mortgages.

4.	Find a realtor & get prequalified.

5.	Shop for the right loan and watch interest rates.

1.	Save money for the down payment, closing costs, and reserves.

You’ll need money for more than the down payment. You’ll need to save for closing costs, repairs, furniture and other extras, and reserves or savings to help you qualify for a loan. Loan guidelines change but lenders generally are looking for a down payment of 20% of the home’s value, if you are buying the home to be your primary residence.

2.	Build good credit.

Check your FICO score (issued by Fair Isaac Corporation). (link to section on credit) Although scores range from 300 to 850, most people have scores in the 600 to 800 range. Scores below 720 need fixing. Low scores will increase the cost of borrowing, and may prevent a lender from lending to you at all.

3.	Understand mortgages.

This is a complicated subject. You will be best served by talking to an experienced loan officer that is willing to go the distance with you (or go beyond the qualification and approval process to understand your financial goals and objectives and find the right mortgage for you. Mortgages and homes are often the biggest items on your personal balance sheet and should be treated as part of your financial planning rather than a transaction.

You’ll need to understand fixed rate loans, adjustable rate loans, hybrid ARMS, amortization, prepayment penalties, points, fees, etc…. Try:

http://en.wikipedia.org/wiki/Mortgage_loan

http://www.dummies.com/.../mortgages/understanding-mortgages.html Understanding Mortgages - For Dummies

'''4.	Find a realtor & get pre-qualified.

Interview at least 3 realtors.''' Buying a home can be an intense process. Be sure you trust the person you work with. A realtor may want you to use a lender that the realtor has a relationship with. This could be a good option for you but you are not obligated to use the realtor’s lender.

To get pre-qualified, gather your paperwork. Be prepared to provide a mortgage lender with current documentation related to: income, employment history, credit history, bank accounts, assets, and savings.  There are many types of lenders and it won’t hurt to interview several banks, credit unions, mortgage brokers, and mortgage banks. While a pre-approval is not a mortgage commitment or guarantee, it will provide guidance on what you can afford to spend on your home. Having a pre-approval letter to show to a seller and realtor demonstrates that you are a serious buyer. When you are ready to buy, it will shorten the time it takes your lender to complete the mortgage application process.

Just because you qualify for a loan doesn’t mean you can afford the home you would like to buy. Many lenders will allow you to pay as much as 50% of your gross income for your PITA (principal, interest, property taxes and insurance) and other debt reported on your credit report.

If the purchase of a home and the mortgage you use to buy it diverts funds from your other financial goals such as saving for retirement or a family you may want to consider buying a less expensive home.

5.	Shop for the right loan and watch interest rates.

A good mortgage loan agent will do this for you. Some institutions also have programs that will email or text rates to you so you can follow the market. You can also follow rates online. In general, when the stock market is bearish (weak or perceived to be weakening), mortgage interest rates will also move down.

Lenders are required to disclose the terms of the loan. Use the “Good Faith Estimate” and the “Truth in Lending Disclosure” to compare loan programs.

The “Good Faith Estimate” goes over loan terms and closing costs.

The Truth in Lending Disclosure Statement discloses: finance charges (the total amount borrowing will cost you), the monthly payment and total amount of payments, a pre-payment penalty if there is one, and the APR (annual percentage rate) which includes the interest rate & loan fees expressed as a percentage.

Check out:

http://www.bankrate.com

http://www.lendingtree.com

http://www.shoptherates.com

Remember you need more than a good interest rate and low fees. You need a loan that you can afford and that helps you realize your financial goals. Be sure to work with people you trust. Realtors and loan agents are commission based sales people. It’s up to you to be sure they have your interests in mind.

Understanding the legal obligation you are entering into before you sign your loan documents is critical.