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Opening a business is a huge undertaking, but once you have built a successful, thriving company, you may be itching to take things to the next level. If you have already opened your own small business, you’re probably familiar with the application and repayment process for a business loan. Congratulations if you may have completely paid back your original loan already! However, some business owners don’t realize that loans aren’t only for people launching their first business. Indeed, commercial financing can also help successful business owners grow their business by expanding to new markets, hiring more employees, or upgrading their current equipment or retail space commercial financing and business loans can help you reach higher goals. It’s important to keep your customers happy, and a loan could provide the immediate capital you need for purchasing additional inventory or enhanced marketing. If you are successful and you’re outgrowing your current space, a loan could allow you to move to a better location or construct an expansion to your current property. A loan could also help launch a second location, possibly leading to franchising opportunities in the future.
If your business is starting to slow down or plateau, a small business loan could be just the financial boost you need to breathe fresh life into your company. With a little extra money, you could give your store a makeover or invest in cutting-edge technology to keep your company in the public eye. Many small businesses fail because they get stuck in a rut and refuse to change with the times. Stagnation is never healthy, so it’s important to continually update and enhance your business.
Even successful small businesses rarely have enough extra funds to cover large purchases or investments. If you’re a savvy business owner faced with a great financial opportunity, taking out a loan could be the right move for the growth of your company. You may only need to take out a small amount for a specific purchase, or you may need to take out a larger amount for significant financial investments. If you’re confident that the new purchase or investment will increase your revenue, a loan may be the best option for your financial future.
If you’ve just finished paying off your original business loan, it may be difficult to consider taking out money again. Fortunately, many of these loans offer short-term repayment options, so you don’t need to commit to a long-term loan if it’s not necessary.
A loan may give you the freedom and opportunity to grow your small business responsibly, so small business owners should be aware of their options and open to the idea of investing a new sum of money into their company.
If your business is starting to slow down or plateau, a small business loan could be just the financial boost you need to breathe fresh life into your company. With a little extra money, you could give your store a makeover or invest in cutting-edge technology to keep your company in the public eye. Many small businesses fail because they get stuck in a rut and refuse to change with the times. Stagnation is never healthy, so it’s important to continually update and enhance your business.
Even successful small businesses rarely have enough extra funds to cover large purchases or investments. If you’re a savvy business owner faced with a great financial opportunity, taking out a loan could be the right move for the growth of your company. You may only need to take out a small amount for a specific purchase, or you may need to take out a larger amount for significant financial investments. If you’re confident that the new purchase or investment will increase your revenue, a loan may be the best option for your financial future.
If you’ve just finished paying off your original business loan, it may be difficult to consider taking out money again. Fortunately, many of these loans offer short-term repayment options, so you don’t need to commit to a long-term loan if it’s not necessary.
A loan may give you the freedom and opportunity to grow your small business responsibly, so small business owners should be aware of their options and open to the idea of investing a new sum of money into their company.
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When you are trying to get funding for your business through loans or investors, there are quite a few variables to think about. Today we'll cover a few of the big ones here and now.
Funding Tip #1: Funding needs should be clear, well planned, and thoroughly detailed.
The meaning here is quite simple. If you are vague and unclear about what it is you need funding for, your chances of getting the funding are close to nil. For the sake of your business, and for the sake of getting funding, it's important to know exactly how you plan to use the money and how using the money will benefit your business. Also, it is important to know clearly how the bank or investor will get a return on their investment.
Funding Tip #2: Collateral is Required.
Banks can't lend money to startups that don't have anything to pledge as collateral. Collateral could be inventory, equipment, or other business assets.
Funding Tip #3: Lenders like personal guarantees.
A personal guarantee is like a secondary collateral for a loan in the bank's eyes. Providing a personal guarantee is required for many loans, and will improve your chances of getting many others.
Funding Tip #4: Outside investors aren't always the best answer.
A lot of people think about angel investors and venture capitalists with high hopes, but getting funding from outside investors has drawbacks too. For one thing, by using "equity funding" you are selling part of your business. In other words, you don't own the whole thing anymore. A lot of people fail to realize this, and it has important implications that you shouldn't ignore. For this and other reasons, funding through debt can sometimes be favorable for small businesses. Obviously caution must be taken when using debt as funding, too, but the big advantage is that you maintain control and ownership of your own company.
Funding Tip #5: The most common funding sources for startups are "inside" jobs.
When starting out, most new businesses rely on personal savings and personal credit. Some startups start with personal credit cards, others with home equity loans or home equity lines of credit. In any of these cases, the person starting the business is taking on substantial risk. This isn't necessarily bad in and of itself, but do remember this:
STARTING with personal credit is one thing, CONTINUING with it when you no longer need to is something else entirely.
It's one thing if you have to lean on your personal credit when you are just starting out, but once your business begins to stand on its own two feet it should start depending on its own credit too.
Funding Tip #1: Funding needs should be clear, well planned, and thoroughly detailed.
The meaning here is quite simple. If you are vague and unclear about what it is you need funding for, your chances of getting the funding are close to nil. For the sake of your business, and for the sake of getting funding, it's important to know exactly how you plan to use the money and how using the money will benefit your business. Also, it is important to know clearly how the bank or investor will get a return on their investment.
Funding Tip #2: Collateral is Required.
Banks can't lend money to startups that don't have anything to pledge as collateral. Collateral could be inventory, equipment, or other business assets.
Funding Tip #3: Lenders like personal guarantees.
A personal guarantee is like a secondary collateral for a loan in the bank's eyes. Providing a personal guarantee is required for many loans, and will improve your chances of getting many others.
Funding Tip #4: Outside investors aren't always the best answer.
A lot of people think about angel investors and venture capitalists with high hopes, but getting funding from outside investors has drawbacks too. For one thing, by using "equity funding" you are selling part of your business. In other words, you don't own the whole thing anymore. A lot of people fail to realize this, and it has important implications that you shouldn't ignore. For this and other reasons, funding through debt can sometimes be favorable for small businesses. Obviously caution must be taken when using debt as funding, too, but the big advantage is that you maintain control and ownership of your own company.
Funding Tip #5: The most common funding sources for startups are "inside" jobs.
When starting out, most new businesses rely on personal savings and personal credit. Some startups start with personal credit cards, others with home equity loans or home equity lines of credit. In any of these cases, the person starting the business is taking on substantial risk. This isn't necessarily bad in and of itself, but do remember this:
STARTING with personal credit is one thing, CONTINUING with it when you no longer need to is something else entirely.
It's one thing if you have to lean on your personal credit when you are just starting out, but once your business begins to stand on its own two feet it should start depending on its own credit too.
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Applications for home mortgages, including both new purchases and refi’s are at the lowest levels in more than a decade. While many observers blame rising interest rates for the paucity of new loan applications, factors such as a poor job market, flat to down consumer income and excessive regulation are probably more important. Commercial banks are fleeing the mortgage lending and loan servicing businesses, in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending.
"Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks," Victoria Finkle writes in American Banker. "The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far." Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall.
"Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks," Victoria Finkle writes in American Banker. "The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far." Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall.
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The Treasury Department has directed mortgage servicers to notify borrowers 120 days in advance of upcoming increases in monthly payments on loans previously reworked through the Home Affordable Modification Program.
Some borrowers' monthly bills could rise by as much as $1,700, although the increases will be gradual and the national median increase will total around $200, the department says. Treasury officials want to ensure borrowers have plenty of advance notice of a reset and counseling will be available if necessary.
"Treasury will maintain its oversight of participating servicers," Mark McArdle, the chief of Treasury’s Homeownership Preservation Office, said in a March 12 note to servicers. "We will monitor the interest rate resets to ensure that if signs of homeowner distress arise, servicers are ready and able to help by providing loss mitigation options and alternatives to foreclosures."
Many distressed homeowners saw their interest rates reduced to 2% and the median monthly payment cut to $773 under the HAMP program, which was launched in 2009.
There are currently 782,748 HAMP active mods that are slated to complete a multiyear reset process by 2021.
An estimated 30,126 HAMP mods will start to reset this year and the interest rate will go up one percentage point per year until it adjusts to the rate agreed upon at modification. The reset rates will range from 4% to 5.4%, according to aTARP Inspector General report. That is lower than 6.4% median interest rate that the borrowers had before the modification.
The multiyear median monthly payment increase will be $196 when the HAMP reset process is complete. However, the maximum payment increase could be $1,724 in places like California, compared to $789 in Arkansas.
Ten states and the District of Columbia will "face mortgage payment increases that are more than the $196 national median," the inspector general's report says
Some borrowers' monthly bills could rise by as much as $1,700, although the increases will be gradual and the national median increase will total around $200, the department says. Treasury officials want to ensure borrowers have plenty of advance notice of a reset and counseling will be available if necessary.
"Treasury will maintain its oversight of participating servicers," Mark McArdle, the chief of Treasury’s Homeownership Preservation Office, said in a March 12 note to servicers. "We will monitor the interest rate resets to ensure that if signs of homeowner distress arise, servicers are ready and able to help by providing loss mitigation options and alternatives to foreclosures."
Many distressed homeowners saw their interest rates reduced to 2% and the median monthly payment cut to $773 under the HAMP program, which was launched in 2009.
There are currently 782,748 HAMP active mods that are slated to complete a multiyear reset process by 2021.
An estimated 30,126 HAMP mods will start to reset this year and the interest rate will go up one percentage point per year until it adjusts to the rate agreed upon at modification. The reset rates will range from 4% to 5.4%, according to aTARP Inspector General report. That is lower than 6.4% median interest rate that the borrowers had before the modification.
The multiyear median monthly payment increase will be $196 when the HAMP reset process is complete. However, the maximum payment increase could be $1,724 in places like California, compared to $789 in Arkansas.
Ten states and the District of Columbia will "face mortgage payment increases that are more than the $196 national median," the inspector general's report says
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But Banks Will Start to Raise Rates Soon.
Economists expect the Bank Rate to rise in early to mid 2015 – but economists’ predictions have consistently missed the mark.
Mark Carney, governor of the Bank of England, has indicated repeatedly that interest rates will not rise until people and businesses begin to share in the economic recovery. This has not helped bring clarity, either.
But there are signs that banks are already starting to price a rate rise into their deals, particularly fixed-rate mortgages. There are two main reasons for this. Firstly, cheap loans through the Government's Funding for Lending scheme (FLS) can no longer be used for mortgages. Secondly, the pricing of fixed rate mortgages is influenced by markets that reflect future interest rates, and today they price in a greater chance of rate rises than they did a few months ago.
Five-year fixed rate mortgages have edged up from their record lows of 2.44pc in July 2013, to just under 3pc now.
Savings rates are also slowly edging higher, although so far by disappointingly little. Savers have a long way to go before rates return to pre-crisis levels.
Capital Economics believe rates will remain fixed at 0.5pc for at least a year. It is a forecaster worth listening to: most economists took years to grasp that the era of low rates was with us, repeatedly since 2009 predicting "rates to rise next year", but Capital Economics was far more dovish than the rest.
Samuel Tombs, Capital's UK economist, said: "The MPC’s decision to leave interest rates on hold, marking five years since they reached their record low, is likely to be repeated many more times. With recent news suggesting the MPC’s estimate of spare capacity is too conservative, we think the sixth anniversary of 0.5pc rates will be marked next year.
"While we do not like to blow our own trumpet too often, forgive us for recalling that we argued in 2009 interest rates could stay at 0.5pc for as long as five years in response to prolonged fiscal tightening, weak bank lending and a sluggish recovery. Indeed, we are one of the very few forecasters that never predicted a rate rise in this period. For instance, at the start of 2010 we were one of only two forecasters predicting that rates would still be at 0.5pc at the end of 2011."
He says divisions are emerging on the Monetary Policy Committee with Martin Weale, a member, wondering whether pay growth may return meaning the need for a rate rise in the next year. But Mr Tombs says the recent rise in unemployment and the fall in inflation to 1.9pc are meaningful ammo for rate doves.
He concluded: "The case for thinking that the recovery can continue for some time without prompting inflationary pressures to build has been strengthened by recent news. As a result, we continue to think that the MPC will be able to leave interest rates on hold until late next year."
Mark Carney, governor of the Bank of England, has indicated repeatedly that interest rates will not rise until people and businesses begin to share in the economic recovery. This has not helped bring clarity, either.
But there are signs that banks are already starting to price a rate rise into their deals, particularly fixed-rate mortgages. There are two main reasons for this. Firstly, cheap loans through the Government's Funding for Lending scheme (FLS) can no longer be used for mortgages. Secondly, the pricing of fixed rate mortgages is influenced by markets that reflect future interest rates, and today they price in a greater chance of rate rises than they did a few months ago.
Five-year fixed rate mortgages have edged up from their record lows of 2.44pc in July 2013, to just under 3pc now.
Savings rates are also slowly edging higher, although so far by disappointingly little. Savers have a long way to go before rates return to pre-crisis levels.
Capital Economics believe rates will remain fixed at 0.5pc for at least a year. It is a forecaster worth listening to: most economists took years to grasp that the era of low rates was with us, repeatedly since 2009 predicting "rates to rise next year", but Capital Economics was far more dovish than the rest.
Samuel Tombs, Capital's UK economist, said: "The MPC’s decision to leave interest rates on hold, marking five years since they reached their record low, is likely to be repeated many more times. With recent news suggesting the MPC’s estimate of spare capacity is too conservative, we think the sixth anniversary of 0.5pc rates will be marked next year.
"While we do not like to blow our own trumpet too often, forgive us for recalling that we argued in 2009 interest rates could stay at 0.5pc for as long as five years in response to prolonged fiscal tightening, weak bank lending and a sluggish recovery. Indeed, we are one of the very few forecasters that never predicted a rate rise in this period. For instance, at the start of 2010 we were one of only two forecasters predicting that rates would still be at 0.5pc at the end of 2011."
He says divisions are emerging on the Monetary Policy Committee with Martin Weale, a member, wondering whether pay growth may return meaning the need for a rate rise in the next year. But Mr Tombs says the recent rise in unemployment and the fall in inflation to 1.9pc are meaningful ammo for rate doves.
He concluded: "The case for thinking that the recovery can continue for some time without prompting inflationary pressures to build has been strengthened by recent news. As a result, we continue to think that the MPC will be able to leave interest rates on hold until late next year."
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This is a reprint from MONEY TALK NEWSOctober 25, 2013
By Marilyn Lewis
Rents rose 7.6 percent nationally in the last five years, The Wall Street Journal says. In some cities they’re up 10 percent.
Apartment rents (that’s the average rent, excluding perks and freebies) are expected to rise about 16 percent — from $1,049 in 2012 to roughly $1,215 by the end of 2017, Reis Inc. analyst Michael Steinberg tells Money Talks News.
Voracious demand
Blame it on the recovery, which is in itself is a good thing, of course. It means, however, that more people are in the market for rentals. At the same time, builders are struggling to bring new apartments online fast enough to meet the increased demand.
“The country has been on a decades-long drought of large-apartment-building construction” because, until recent years, homeownership was growing, writes Slate economic writer Matthew Yglesias.
Investors have been buying up foreclosed homes and renting them out, but even that’s not enough to satisfy the demand for rentals.
“Finding an apartment to rent got even harder in the third quarter, as the U.S. apartment vacancy rate fell to its lowest level in more than a decade,” says Reuters, citing statistics from Reis Inc., a provider of commercial real estate data and services.
More renters in the market
Here’s why the population of renters is growing:
· Foreclosures. The share of Americans who rent a home is at a record high, in large part because of the millions of foreclosures that followed the real estate crash. Since 2006, the first year the U.S. saw more than a million foreclosures, an estimated 21.57 million homes have been foreclosed on, according to this chart at StatisticBrain.
· Recovery. By 2012, 45 percent of 18- to 30-year-olds were living with older family members, says the Atlanta Federal Reserve. Compare that with 39 percent in 1990 and 35 percent in 1980. As the economy recovers, economists expect more workers to find jobs and start entering the competition for rentals.
· Tighter lending standards. Homeownership has dropped to an all-time low after the crash as lenders grew very fussy about whom they’d offer a mortgage. Homeownership rates in the U.S. fell to 65 percent in June, after climbing to a record high of 69 percent in 2005, according to the Census Bureau (see Table 14).
· Rising home prices. Lenders are loosening up their standards a little (but not a lot). But just as it started getting easier to finance a home, prices began rising – skyrocketing in some areas. That’s also pushing more people to rent, The Wall Street Journal says.
· Busted boomers. A growing population of downsizing retirees and empty nesters who’ve lost retirement savings and need to rent is contributing to the demand.
Rents are rising
All of this translates into rising rents. Given the increased competition and tight supply of homes for rent, it’s no surprise that landlords are pushing rents higher.
Reis, which analyzes rents, says the average apartment rent now is $1,073. It rose 1 percent last quarter and 3 percent over a year ago. Not one of the 79 markets tracked by Reis saw rents fall.
In fact, the weak growth in salaries and new jobs has kept rents from rising even higher, Reuters says.
“Landlords would like to raise rents faster, but most tenants simply can’t afford to pay more right now,” Reis senior economist Ryan Severino told CNBC.
In the third quarter, according to Reis:
· Vacancies. The supply of apartments was tightest in New Haven, Conn., and most plentiful in Memphis, Tenn.
· Increases. The nation’s biggest rent hikes – 2.2 percent – pushed the average price paid to $2,043 per month in San Francisco, and $1,686 in San Jose, Calif.
· Highest rents. New Yorkers pay the highest rents in the nation: $3,049 per month on average, an increase of 0.9 percent.
· Lowest rents. The cheapest rentals in the country are in Wichita, Kan., at $529 per month, a 0.8 percent increase.
The future for renters
It’s hard to tell how high rents will go. On one hand, demand is likely to keep growing. According to real estate brokerage Marcus & Millichap:
The oldest echo boomers just turned 28 years old and will create a significant number of households over the next two years. Additional households will form with the arrival of 1.2 million [to] 1.6 million immigrants annually through 2017.
On the other hand, new construction will eventually absorb demand. Rental investors have been slow to respond with new apartments because construction takes a long time from start to finish. Builders must find and buy land and submit to the local permitting process before they can even break ground.
Rents won’t keep rising forever. “‘You just can’t have double-digit rent growth every year or rents would be a million bucks,’ said Bob Faith, founder of Greystar Real Estate Partners, a Charleston, S.C.-based company that owns and operates about 216,000 rental units nationwide,” the Journal says.
By Marilyn Lewis
Rents rose 7.6 percent nationally in the last five years, The Wall Street Journal says. In some cities they’re up 10 percent.
Apartment rents (that’s the average rent, excluding perks and freebies) are expected to rise about 16 percent — from $1,049 in 2012 to roughly $1,215 by the end of 2017, Reis Inc. analyst Michael Steinberg tells Money Talks News.
Voracious demand
Blame it on the recovery, which is in itself is a good thing, of course. It means, however, that more people are in the market for rentals. At the same time, builders are struggling to bring new apartments online fast enough to meet the increased demand.
“The country has been on a decades-long drought of large-apartment-building construction” because, until recent years, homeownership was growing, writes Slate economic writer Matthew Yglesias.
Investors have been buying up foreclosed homes and renting them out, but even that’s not enough to satisfy the demand for rentals.
“Finding an apartment to rent got even harder in the third quarter, as the U.S. apartment vacancy rate fell to its lowest level in more than a decade,” says Reuters, citing statistics from Reis Inc., a provider of commercial real estate data and services.
More renters in the market
Here’s why the population of renters is growing:
· Foreclosures. The share of Americans who rent a home is at a record high, in large part because of the millions of foreclosures that followed the real estate crash. Since 2006, the first year the U.S. saw more than a million foreclosures, an estimated 21.57 million homes have been foreclosed on, according to this chart at StatisticBrain.
· Recovery. By 2012, 45 percent of 18- to 30-year-olds were living with older family members, says the Atlanta Federal Reserve. Compare that with 39 percent in 1990 and 35 percent in 1980. As the economy recovers, economists expect more workers to find jobs and start entering the competition for rentals.
· Tighter lending standards. Homeownership has dropped to an all-time low after the crash as lenders grew very fussy about whom they’d offer a mortgage. Homeownership rates in the U.S. fell to 65 percent in June, after climbing to a record high of 69 percent in 2005, according to the Census Bureau (see Table 14).
· Rising home prices. Lenders are loosening up their standards a little (but not a lot). But just as it started getting easier to finance a home, prices began rising – skyrocketing in some areas. That’s also pushing more people to rent, The Wall Street Journal says.
· Busted boomers. A growing population of downsizing retirees and empty nesters who’ve lost retirement savings and need to rent is contributing to the demand.
Rents are rising
All of this translates into rising rents. Given the increased competition and tight supply of homes for rent, it’s no surprise that landlords are pushing rents higher.
Reis, which analyzes rents, says the average apartment rent now is $1,073. It rose 1 percent last quarter and 3 percent over a year ago. Not one of the 79 markets tracked by Reis saw rents fall.
In fact, the weak growth in salaries and new jobs has kept rents from rising even higher, Reuters says.
“Landlords would like to raise rents faster, but most tenants simply can’t afford to pay more right now,” Reis senior economist Ryan Severino told CNBC.
In the third quarter, according to Reis:
· Vacancies. The supply of apartments was tightest in New Haven, Conn., and most plentiful in Memphis, Tenn.
· Increases. The nation’s biggest rent hikes – 2.2 percent – pushed the average price paid to $2,043 per month in San Francisco, and $1,686 in San Jose, Calif.
· Highest rents. New Yorkers pay the highest rents in the nation: $3,049 per month on average, an increase of 0.9 percent.
· Lowest rents. The cheapest rentals in the country are in Wichita, Kan., at $529 per month, a 0.8 percent increase.
The future for renters
It’s hard to tell how high rents will go. On one hand, demand is likely to keep growing. According to real estate brokerage Marcus & Millichap:
The oldest echo boomers just turned 28 years old and will create a significant number of households over the next two years. Additional households will form with the arrival of 1.2 million [to] 1.6 million immigrants annually through 2017.
On the other hand, new construction will eventually absorb demand. Rental investors have been slow to respond with new apartments because construction takes a long time from start to finish. Builders must find and buy land and submit to the local permitting process before they can even break ground.
Rents won’t keep rising forever. “‘You just can’t have double-digit rent growth every year or rents would be a million bucks,’ said Bob Faith, founder of Greystar Real Estate Partners, a Charleston, S.C.-based company that owns and operates about 216,000 rental units nationwide,” the Journal says.
- Published on
Life is complicated for homebuyers these days. There can be lots of competition with other homebuyers — too much, in some cities. And the selection of homes for sale in many cities is skimpy. Add in rising home prices and jumpy interest rates and you’ve got a lot of stress.
If you’re shopping for a home, you don’t need one more headache. And yet, here it is: Banks no longer want to preapprove customers for a home loan.
Preapprovals becoming extinct
MarketWatch looked at data from the Federal Financial Institutions Examinations Council. The report may not include all mortgages but it does include many.
The news:
· In 2012, the 25 biggest lenders saw only 29,912 preapprovals become mortgages. That’s just 4 percent of their loans for home purchases.
· In 2007, 101,626 preapprovals became mortgages — 9 percent of purchase loans.
Last year 14 of the 25 top lenders did not have even one preapproval that resulted in a loan. (MarketWatch doesn’t say whether that’s because the banks had stopped making preapprovals or because customers didn’t follow up their preapprovals by purchasing a mortgage.)
MarketWatch offers two reasons why preapprovals are disappearing.
1. Preapprovals weren’t paying off
Home prices fell so fast in the recession that it was hard for appraisers and banks to get a fix on a home’s value.
Lenders hire appraisers to figure out the market value of the home a customer is buying. That’s how banks make sure they aren’t lending more than the home is worth.
But that system developed problems after the crash. Lenders would watch borrowers and sellers agree on a sale price only to have the appraiser decide the home wasn’t worth the price.
Those buyers were left with two choices: Add cash of their own to make the purchase, or forget the deal. Many walked away from the deals and their banks got tired of spending time and money vetting borrowers only to see the deals fizzle out and die with no mortgage sold.
2. Banks don’t need to
Before the recession, lenders used preapprovals to attract would-be borrowers. Banks found that customers who engaged them for a preapproval were likely to stick with them to buy the mortgage.
When the dust cleared after the recession, fewer banks were left standing. Competition for your mortgage loan isn’t what it used to be. Preapprovals take staff time and, with fewer competitors offering preapprovals, banks have lost the incentive.
What it means to you
Why should you care? Because shopping for a home with a bank’s letter of preapproval gives you an edge with sellers. The letter gives you leverage when you’re up against multiple offers, cash buyers, and buyers with big down payments – all common today.
Your preapproval letter tells a seller that you can get financing, and that you are already partly through the process. That’s because, to get preapproved, you had to bring the bank documentation — proof of earnings, tax filings, bank statements, pay stubs, retirement assets and down payment funds – to prove you’re creditworthy. The lender checked your credit score and determined whether you could borrow and, if so, how much.
Your best option now
Now, you’re likely to be offered a “pre-qualification” instead. It’s a much easier process for you. The loan officer calculates how much you can borrow based on your word about your down payment, credit score, income and assets.
The difference between a pre-qualification and preapproval is significant, The New York Times says. Also, according to MarketWatch:
Pre-qualifications are typically based on average mortgage rates rather than the rate that’s close to what the borrower would actually get. Also, most lenders can rescind a pre-qualification, whereas a preapproval is a commitment that usually lasts two to three months.
Here are your remaining choices:
If you can still find a bank willing to preapprove you, it’s a good idea to grab it.
Otherwise, get pre-qualified before you start home shopping. It’s an important tool in learning roughly how much you can spend on a home. Also, it is better than nothing when you’re negotiating with sellers.
Prepare for mortgage shopping as much as a year in advance by improving your credit score, repairing any problems on your credit report, saving for a down payment and gathering the documents you’ll need to apply.
If you’re shopping for a home, you don’t need one more headache. And yet, here it is: Banks no longer want to preapprove customers for a home loan.
Preapprovals becoming extinct
MarketWatch looked at data from the Federal Financial Institutions Examinations Council. The report may not include all mortgages but it does include many.
The news:
· In 2012, the 25 biggest lenders saw only 29,912 preapprovals become mortgages. That’s just 4 percent of their loans for home purchases.
· In 2007, 101,626 preapprovals became mortgages — 9 percent of purchase loans.
Last year 14 of the 25 top lenders did not have even one preapproval that resulted in a loan. (MarketWatch doesn’t say whether that’s because the banks had stopped making preapprovals or because customers didn’t follow up their preapprovals by purchasing a mortgage.)
MarketWatch offers two reasons why preapprovals are disappearing.
1. Preapprovals weren’t paying off
Home prices fell so fast in the recession that it was hard for appraisers and banks to get a fix on a home’s value.
Lenders hire appraisers to figure out the market value of the home a customer is buying. That’s how banks make sure they aren’t lending more than the home is worth.
But that system developed problems after the crash. Lenders would watch borrowers and sellers agree on a sale price only to have the appraiser decide the home wasn’t worth the price.
Those buyers were left with two choices: Add cash of their own to make the purchase, or forget the deal. Many walked away from the deals and their banks got tired of spending time and money vetting borrowers only to see the deals fizzle out and die with no mortgage sold.
2. Banks don’t need to
Before the recession, lenders used preapprovals to attract would-be borrowers. Banks found that customers who engaged them for a preapproval were likely to stick with them to buy the mortgage.
When the dust cleared after the recession, fewer banks were left standing. Competition for your mortgage loan isn’t what it used to be. Preapprovals take staff time and, with fewer competitors offering preapprovals, banks have lost the incentive.
What it means to you
Why should you care? Because shopping for a home with a bank’s letter of preapproval gives you an edge with sellers. The letter gives you leverage when you’re up against multiple offers, cash buyers, and buyers with big down payments – all common today.
Your preapproval letter tells a seller that you can get financing, and that you are already partly through the process. That’s because, to get preapproved, you had to bring the bank documentation — proof of earnings, tax filings, bank statements, pay stubs, retirement assets and down payment funds – to prove you’re creditworthy. The lender checked your credit score and determined whether you could borrow and, if so, how much.
Your best option now
Now, you’re likely to be offered a “pre-qualification” instead. It’s a much easier process for you. The loan officer calculates how much you can borrow based on your word about your down payment, credit score, income and assets.
The difference between a pre-qualification and preapproval is significant, The New York Times says. Also, according to MarketWatch:
Pre-qualifications are typically based on average mortgage rates rather than the rate that’s close to what the borrower would actually get. Also, most lenders can rescind a pre-qualification, whereas a preapproval is a commitment that usually lasts two to three months.
Here are your remaining choices:
If you can still find a bank willing to preapprove you, it’s a good idea to grab it.
Otherwise, get pre-qualified before you start home shopping. It’s an important tool in learning roughly how much you can spend on a home. Also, it is better than nothing when you’re negotiating with sellers.
Prepare for mortgage shopping as much as a year in advance by improving your credit score, repairing any problems on your credit report, saving for a down payment and gathering the documents you’ll need to apply.
- Published on
The fact that national parks are closed during the federal government shutdown might inconvenience some travelers, but it doesn’t threaten their livelihoods. But what if your small business relies on tourism near a park?
Several small businesses near Yosemite National Park fear they may have to shut down, NBC Bay Area says. Wildfires, and now the shutdown, have cut deeply into the number of available customers. Dori Jones, owner of a cafe, told the station she lost 75 percent of her business in peak tourism months because of the Rim Fire, and now she has to deal with the shutdown’s impact.
“During the 1995 government shutdown when there was an 80 percent drop in lodging in and around Yosemite, the park lost roughly $300,000 a day, while surrounding communities lost hundreds of thousands more,” the website says.
Even in areas without rampant wildfires, the shutdown could have dire consequences. Bicycle shop owner Fred Pagles, in Springdale, Utah, near Zion National Park, told NBC News his store could last only about a month if the shutdown continues, and he expects to lose several thousand dollars in the process. Another business owner in the area said he expects to lay off several employees in order to survive that long.
It’s not just businesses dependent on national park tourism, either. Some companies that were in the process of seeking government loans are in trouble, The Wall Street Journal says. Even when the government starts back up, there will be a backlog of applications to process — and desperate businesses may have to turn to higher-interest loans in the meantime. Meanwhile, companies that contracted to provide services to the federal government are left with workers sitting on their hands.
A survey of 100 small-business owners shows nearly half of them have already been hurt by the shutdown because of cancellations or reduced business, CNNMoney says. “And if the shutdown drags on, they said it could hurt 20 percent of their business.”
The time for a small business to seek financing is not when they need it and are most desperate, but when their financials are looking the best and they appear not to need funding.
Several small businesses near Yosemite National Park fear they may have to shut down, NBC Bay Area says. Wildfires, and now the shutdown, have cut deeply into the number of available customers. Dori Jones, owner of a cafe, told the station she lost 75 percent of her business in peak tourism months because of the Rim Fire, and now she has to deal with the shutdown’s impact.
“During the 1995 government shutdown when there was an 80 percent drop in lodging in and around Yosemite, the park lost roughly $300,000 a day, while surrounding communities lost hundreds of thousands more,” the website says.
Even in areas without rampant wildfires, the shutdown could have dire consequences. Bicycle shop owner Fred Pagles, in Springdale, Utah, near Zion National Park, told NBC News his store could last only about a month if the shutdown continues, and he expects to lose several thousand dollars in the process. Another business owner in the area said he expects to lay off several employees in order to survive that long.
It’s not just businesses dependent on national park tourism, either. Some companies that were in the process of seeking government loans are in trouble, The Wall Street Journal says. Even when the government starts back up, there will be a backlog of applications to process — and desperate businesses may have to turn to higher-interest loans in the meantime. Meanwhile, companies that contracted to provide services to the federal government are left with workers sitting on their hands.
A survey of 100 small-business owners shows nearly half of them have already been hurt by the shutdown because of cancellations or reduced business, CNNMoney says. “And if the shutdown drags on, they said it could hurt 20 percent of their business.”
The time for a small business to seek financing is not when they need it and are most desperate, but when their financials are looking the best and they appear not to need funding.
- Published on
September 27, 2013
This is a copy from the MoneyTalkNews Blog I found that is just too important to not pass on.
By Trisha Sherven0
·
The sales pitch on Fair Isaac’s myFICO website is simple enough:
The FICO® Score is a number that summarizes your credit risk. Lenders use it to make credit decisions, such as the interest rate you get when you apply for a loan.
Being able to see what potential lenders see: That’s why so many Americans are willing to pony up $19.95 to see their credit score. And if you want to see it from each of the big three credit reporting agencies, you’ll pay three times, shelling out nearly $60.
When it comes to credit, the stakes are high. According to FICO, a low score — say, 620 — means paying 5.7 percent on a 30-year mortgage loan. A great score — say, 760 or higher — could qualify you for a much lower rate of 4.1 percent. Borrow $200,000, and over the life of the loan, the lower interest rate will save $52,000 in interest — enough to put your kids through college.
So paying to see your credit score seems like money well spent. Until, that is, you discover you’re paying for a false sense of security, because the score you’re buying may not resemble the one potential lenders see.
How FICO scores work
FICO uses a proprietary formula to calculate your three-digit credit score, which ranges from 300 to a perfect 850. It will tell you the basics of how your credit score is determined (you can read about it here) but in the end it’s kind of like the original KFC recipe: You can figure out the basic ingredients, but you couldn’t duplicate it yourself.
FICO isn’t just selling credit scores to consumers. It’s also marketing them to lenders. But when your potential lender buys a FICO score, the lender has a lot of industry-specific scores to choose from. For example, there are scores customized for mortgage lenders, car dealers, credit card issuers and many others.
According to Consumer Reports, FICO serves up 49 different scores to lenders, but only two to consumers. So when you apply for a loan, it’s likely your lender will be looking at a score that’s different from the one you buy.
In short, you might be paying for original recipe and your lender might be ordering extra crispy.
Why you should be mad
The Consumer Financial Protection Bureau studied 200,000 credit files from each of the three major credit reporting agencies. One finding: In 19 percent to 24 percent of cases, consumer scores differed from lender scores sufficiently to land the consumer in an entirely different credit category.
Result? You could think you’re in the highest category, only to find you’re not. And as we pointed out above, a lower score could cost you thousands in extra interest, especially on large loans.
We contacted FICO to ask how a consumer could rely on a FICO score, given the government findings. Here’s part of their response:
It’s true that there are multiple versions of the FICO Score, including versions for different types of credit products such as mortgages, credit cards and auto loans. But these versions are all based on the same underlying mathematical blueprint as the score sold to consumers on myFICO.com.
So while a person’s FICO Score can vary depending on which version the lender is using to make a decision, it’s by far the most reliable and accurate depiction of a person’s credit health they can find anywhere, and is the best way to help gauge how lenders will view a consumer’s creditworthiness.
That’s not the entire response, but nothing they provided acknowledged the problem: People are being sold FICO credit scores under the assumption they’re identical to those being used by lenders, and they’re not. Furthermore, FICO knows this and isn’t disclosing it.
This is why many consumer advocates, including Money Talks News and Consumer Reports, are calling for changes. Here’s what Consumer Reports said in a recent article called ”Don’t Buy Useless Credit Scores“:
We see no point in buying any consumer credit scores, given that they’re not the same ones used by lenders. But if you do, and a lender or insurer later tells you your real score is lower or higher, do what you’d do with any product that doesn’t deliver: Demand a refund.
Consumer advocates aren’t the only ones complaining. So are lawmakers. The Fair Access to Credit Scores Act of 2013 is a bill now in Congress that would amend the Fair Credit Reporting Act to allow consumers a free, accurate credit score once a year, along with their free annual credit report from AnnualCreditReport.com.
Right now, federal law requires that you can see the actual credit score a lender sees and not be charged:
· If you were turned down for credit.
· If you got a higher interest rate on a loan because of your score.
· If you received unfavorable terms on a credit card.
Here’s what the proposed law would do, according to a press release from the bill’s sponsors:
This bill would expand upon that provision to provide all consumers with an annual credit score to complement their free annual credit report.
Also, this measure would ensure that the free annual credit score received by consumers is a reliable score actually used by lenders, rather than an “informational score” of unknown reliability. It would give consumers access to all scores generated in the previous year and stored in their credit files – information that lenders have accessed about the consumer’s individual creditworthiness – instead of consumers seeing only those scores that resulted in “adverse actions,” as provided by current law.
What you can do
In addition to contacting your elected representatives, there are ways you can fight back:
· Avoid buying scores, and don’t rely too heavily on those you pay for.
· As Consumer Reports suggests, demand a refund if the score you bought varies widely from the one your lender uses.
· Before you agree to a loan or insurance rate, ask to see the score the lender used.
· Check your credit in other ways, like the free annual credit reports you can get at AnnualCreditReport.com. Get a picture of your credit throughout the year by choosing a different credit bureau report every four months.
· Support the Fair Access to Credit Scores Act of 2013 by clicking here to sign a petition.
Do you think we should get free, accurate credit scores? How do you feel about paying for a score that may not be reliable? Sound off on our Facebook page.
Read more at http://www.moneytalksnews.com/2013/09/27/that-20-fico-credit-score-isnt-just-expensive-it-may-be-useless/#sgcgwLxEYBhisZDX.99
This is a copy from the MoneyTalkNews Blog I found that is just too important to not pass on.
By Trisha Sherven0
·
The sales pitch on Fair Isaac’s myFICO website is simple enough:
The FICO® Score is a number that summarizes your credit risk. Lenders use it to make credit decisions, such as the interest rate you get when you apply for a loan.
Being able to see what potential lenders see: That’s why so many Americans are willing to pony up $19.95 to see their credit score. And if you want to see it from each of the big three credit reporting agencies, you’ll pay three times, shelling out nearly $60.
When it comes to credit, the stakes are high. According to FICO, a low score — say, 620 — means paying 5.7 percent on a 30-year mortgage loan. A great score — say, 760 or higher — could qualify you for a much lower rate of 4.1 percent. Borrow $200,000, and over the life of the loan, the lower interest rate will save $52,000 in interest — enough to put your kids through college.
So paying to see your credit score seems like money well spent. Until, that is, you discover you’re paying for a false sense of security, because the score you’re buying may not resemble the one potential lenders see.
How FICO scores work
FICO uses a proprietary formula to calculate your three-digit credit score, which ranges from 300 to a perfect 850. It will tell you the basics of how your credit score is determined (you can read about it here) but in the end it’s kind of like the original KFC recipe: You can figure out the basic ingredients, but you couldn’t duplicate it yourself.
FICO isn’t just selling credit scores to consumers. It’s also marketing them to lenders. But when your potential lender buys a FICO score, the lender has a lot of industry-specific scores to choose from. For example, there are scores customized for mortgage lenders, car dealers, credit card issuers and many others.
According to Consumer Reports, FICO serves up 49 different scores to lenders, but only two to consumers. So when you apply for a loan, it’s likely your lender will be looking at a score that’s different from the one you buy.
In short, you might be paying for original recipe and your lender might be ordering extra crispy.
Why you should be mad
The Consumer Financial Protection Bureau studied 200,000 credit files from each of the three major credit reporting agencies. One finding: In 19 percent to 24 percent of cases, consumer scores differed from lender scores sufficiently to land the consumer in an entirely different credit category.
Result? You could think you’re in the highest category, only to find you’re not. And as we pointed out above, a lower score could cost you thousands in extra interest, especially on large loans.
We contacted FICO to ask how a consumer could rely on a FICO score, given the government findings. Here’s part of their response:
It’s true that there are multiple versions of the FICO Score, including versions for different types of credit products such as mortgages, credit cards and auto loans. But these versions are all based on the same underlying mathematical blueprint as the score sold to consumers on myFICO.com.
So while a person’s FICO Score can vary depending on which version the lender is using to make a decision, it’s by far the most reliable and accurate depiction of a person’s credit health they can find anywhere, and is the best way to help gauge how lenders will view a consumer’s creditworthiness.
That’s not the entire response, but nothing they provided acknowledged the problem: People are being sold FICO credit scores under the assumption they’re identical to those being used by lenders, and they’re not. Furthermore, FICO knows this and isn’t disclosing it.
This is why many consumer advocates, including Money Talks News and Consumer Reports, are calling for changes. Here’s what Consumer Reports said in a recent article called ”Don’t Buy Useless Credit Scores“:
We see no point in buying any consumer credit scores, given that they’re not the same ones used by lenders. But if you do, and a lender or insurer later tells you your real score is lower or higher, do what you’d do with any product that doesn’t deliver: Demand a refund.
Consumer advocates aren’t the only ones complaining. So are lawmakers. The Fair Access to Credit Scores Act of 2013 is a bill now in Congress that would amend the Fair Credit Reporting Act to allow consumers a free, accurate credit score once a year, along with their free annual credit report from AnnualCreditReport.com.
Right now, federal law requires that you can see the actual credit score a lender sees and not be charged:
· If you were turned down for credit.
· If you got a higher interest rate on a loan because of your score.
· If you received unfavorable terms on a credit card.
Here’s what the proposed law would do, according to a press release from the bill’s sponsors:
This bill would expand upon that provision to provide all consumers with an annual credit score to complement their free annual credit report.
Also, this measure would ensure that the free annual credit score received by consumers is a reliable score actually used by lenders, rather than an “informational score” of unknown reliability. It would give consumers access to all scores generated in the previous year and stored in their credit files – information that lenders have accessed about the consumer’s individual creditworthiness – instead of consumers seeing only those scores that resulted in “adverse actions,” as provided by current law.
What you can do
In addition to contacting your elected representatives, there are ways you can fight back:
· Avoid buying scores, and don’t rely too heavily on those you pay for.
· As Consumer Reports suggests, demand a refund if the score you bought varies widely from the one your lender uses.
· Before you agree to a loan or insurance rate, ask to see the score the lender used.
· Check your credit in other ways, like the free annual credit reports you can get at AnnualCreditReport.com. Get a picture of your credit throughout the year by choosing a different credit bureau report every four months.
· Support the Fair Access to Credit Scores Act of 2013 by clicking here to sign a petition.
Do you think we should get free, accurate credit scores? How do you feel about paying for a score that may not be reliable? Sound off on our Facebook page.
Read more at http://www.moneytalksnews.com/2013/09/27/that-20-fico-credit-score-isnt-just-expensive-it-may-be-useless/#sgcgwLxEYBhisZDX.99
- Published on
This post comes from Christine DiGangi at partner site Credit.com.
The U.S. Department of Housing and Urban Development earlier this month announced changes to the reverse mortgage program, which allows homeowners 62 and older to pull equity from their homes without making payments. Once the changes go into effect Oct. 1, it may be more difficult to get a reverse mortgage, and homeowners will have access to less of a home’s value.
HUD issued new principal limit factors, which reduce the maximum amount a homeowner can withdraw. Industry experts estimate principal limits will be about 12 percent to 15 percent lower starting Oct. 1. In addition, a new financial assessment requirement means an applicant’s credit history may impact his or her ability to get a reverse mortgage.
Less money for more security
HUD says the agency made these changes in order to strengthen the program. As a result of the Great Recession and declining home values, the Federal Housing Administration Mutual Mortgage Insurance Fund took a hit, and because the viability of the program depends on that fund’s resources, the agency says it established the new guidelines.
“It’s actually just to kind of shore up the program,” said Carolyn Fields, a certified reverse mortgage professional in Florida. She further explained the changes. “Bottom line is we’re all living longer, the baby boomers are retiring earlier — this is just to kind of help them plan retirement and just to kind of make sure that the program stays healthy.”
The deadline to apply for a reverse mortgage under the current rules is Sept. 27. With the passing of that deadline goes homeowners’ ability to take their loan in a lump sum. With few exceptions, people can tap only 60 percent of their principal limit in the first year of a reverse mortgage, and the amount a homeowner pulls will affect their upfront FHA mortgage insurance premium.
Who will qualify?
Fields said HUD is still working out the details of financial assessments, which will roll out in January. But potential borrowers can expect lenders to review all of their income sources, as well as their credit history, as part of the process of determining their capacity to pay insurance premiums and property taxes.
As is the case with all loans, consumers need to check their credit reports before applying. Studying one’s credit score using a free tool like the Credit Report Card will show areas that need attention, and allow you to plan ahead and improve your score to make a smoother loan-qualification process.
With the changes in cost and procedure, reverse mortgages will become less of an emergency fund and more of an asset for retirement. But that’s not such a bad thing, since long-term planning is the core of the program.
The U.S. Department of Housing and Urban Development earlier this month announced changes to the reverse mortgage program, which allows homeowners 62 and older to pull equity from their homes without making payments. Once the changes go into effect Oct. 1, it may be more difficult to get a reverse mortgage, and homeowners will have access to less of a home’s value.
HUD issued new principal limit factors, which reduce the maximum amount a homeowner can withdraw. Industry experts estimate principal limits will be about 12 percent to 15 percent lower starting Oct. 1. In addition, a new financial assessment requirement means an applicant’s credit history may impact his or her ability to get a reverse mortgage.
Less money for more security
HUD says the agency made these changes in order to strengthen the program. As a result of the Great Recession and declining home values, the Federal Housing Administration Mutual Mortgage Insurance Fund took a hit, and because the viability of the program depends on that fund’s resources, the agency says it established the new guidelines.
“It’s actually just to kind of shore up the program,” said Carolyn Fields, a certified reverse mortgage professional in Florida. She further explained the changes. “Bottom line is we’re all living longer, the baby boomers are retiring earlier — this is just to kind of help them plan retirement and just to kind of make sure that the program stays healthy.”
The deadline to apply for a reverse mortgage under the current rules is Sept. 27. With the passing of that deadline goes homeowners’ ability to take their loan in a lump sum. With few exceptions, people can tap only 60 percent of their principal limit in the first year of a reverse mortgage, and the amount a homeowner pulls will affect their upfront FHA mortgage insurance premium.
Who will qualify?
Fields said HUD is still working out the details of financial assessments, which will roll out in January. But potential borrowers can expect lenders to review all of their income sources, as well as their credit history, as part of the process of determining their capacity to pay insurance premiums and property taxes.
As is the case with all loans, consumers need to check their credit reports before applying. Studying one’s credit score using a free tool like the Credit Report Card will show areas that need attention, and allow you to plan ahead and improve your score to make a smoother loan-qualification process.
With the changes in cost and procedure, reverse mortgages will become less of an emergency fund and more of an asset for retirement. But that’s not such a bad thing, since long-term planning is the core of the program.