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Sorting Through the Mortgage Maze

If you have decided that it’s time for you to buy a house, there is one big hurdle you will need to overcome and that is getting a mortgage. While there is no shortage of mortgages, it may sure seem that way when potential lenders start to grill you.

The best time to apply for a mortgage is actually before you go house hunting. This will give you an idea of how much house you can afford in the eyes of the lender as well as a better idea of just what you can expect to pay monthly. However, before you call or visit a prospective lender prepare yourself and do your homework. Note: You will have additional hurdles if you have a low down payment, a low credit score, a high debt-to-income ratio, or a small cash cushion so check for these first.

Start by getting a copy of your credit report. Report any errors to the credit bureaus so they can be corrected before you go to a lender. Then create a budget to determine how much you can really afford to pay each month. You can use one of the calculators on sites like Bankrate.com to determine what this translates to in terms of a house price. Then stay in your safe zone. This is not the time to stretch your budget into a bigger house than you can afford. Next, check out prospective lenders. Rates are a good indicator but they are not the only indicator to look for in a prospective lender. Some other things to look for include:

The lender’s reputation in dealing with customers. Thanks to the internet you can find comments and other information before you call them.
Look on their website to see the types of mortgage options they have available. There are so many possibilities. Take some time to get familiar with some of the terms so that you can ask follow up questions and make informed decisions. Once you become familiar with the options make some initial decisions like whether you want a fixed mortgage or an adjustable one. There are pros and cons to each, make sure you know the difference before making a final decision.
How receptive they are to you and working with you. If they start out by pointing out all of your flaws in terms of credit or income then this might not be a good fit. Or this might not be a good time for you to get a mortgage. It is much tougher to get a mortgage today so be prepared to jump through some pretty tall hoops but rudeness and poor customer service don’t have to be a part of the process.

Finally, be aware that most lenders will want to run a credit check before you get too far in the process so do your homework to minimize the number inquiries and try to do them all within a 30 day period. Inquiries like these will lower your credit score and possibly cause you to pay a higher rate, however when you can keep them within a 30 day period they don’t take off as much. ps!

Dealing With the College Cash Crunch

As the economy struggles to recover, more families are now faced with some critical decisions when it comes to paying for college. Despite the economy, college costs are still on the rise with some elite private schools maxing out at as much as $50,000 per year. Market volatility and along with rising college costs has left many who were once on track with projected shortfalls.

So what can you do if you are the parent of student who is getting close to college age if you haven’t saved enough for college? Here are four strategies to consider:

Consider a lower cost college. I know this is in the ‘duh’ category but you would be surprised at how many people get hung up on one specific college and never look beyond it. To achieve the desired outcome, research colleges to see if there is a public university or a private one that can provide the same training in your students’ area of interest at a lower cost.
Apply for scholarships and grants. There are still a lot of scholarship opportunities out there. There are specific sites like FastWeb.com that can help but there are also companies, organizations, and foundations that sponsor scholarships. So do your homework before you give up on this option. Start early (some you can apply for as early as elementary school). And you can often increase your chances by applying to off-the-beaten-path schools instead of the brand names that everyone chooses. One of my friends sent both of her kids to college on scholarships alone – and they graduated debt free from really good schools and had multiple job offers.
Consider going to a 2-year college. Many students are opting for this and then transferring afterwards to complete their four-year degree. This can dramatically cut your costs.
Know your loans. Start by visiting FAFSA (www.fafsa.ed.gov) to learn about student aid and apply early. Many students and parents are utilizing Stafford loans and Federal Plus loans, and some parents are even using home equity loans (which I don’t recommend) to fund college. Another resource is FinAid.org. However, before signing on the dotted line for any loan be sure you have read and understand all of the fine print and be on the lookout for scams — if it sounds too good to be true, it probably is. If you feel you need more help in this area, check with a financial planner. Look for planners who specialize in this area because there are lots of options and things to consider. ps!

Lessons from Financially Independent Women

Financial independence can sometimes be an abstract concept until you achieve it. So I think it’s always helpful to take a peek into the mindset of those who have achieved it. Here are some comments made by wealthy women during a survey conducted about two years ago by Wilmington Trust and Camden Research:

“I live below my means. … I live very modestly”; “It’s the same house that I raised my children in since elementary school”; “I live simply and really focus on saving.”

If these comments sound rather ordinary, you might be surprised to know that the women who responded to this survey have a minimum net worth of $25 million, so they can well afford to live richly even during a recession.

But according to the study, there is a wealth paradigm shift going on and affluent women who once took on the traditional woman’s role are now taking control of their futures. The study concludes that they are “focused not on viewing their wealth as a measure of success but as a source of empowerment to achieve their goals and independence.” And this view was shared among women who worked for their money as well as those who inherited it.

Here are some other key findings of the study:

– Women are seeking a holistic approach to wealth management, which includes establishing internal family structures and openly talking about money, particularly with their children.

– Even though the women surveyed said they were raised in households with traditional views of a woman’s role, they are emerging with a commitment to develop their professional skills and to be viewed in their families and communities as having equal opportunities and status as men.

– Women are stepping up to new levels of involvement in the management of their families’ wealth, with 88% of those in the study playing a high-to-moderate role in the management of family assets. They are meeting regularly with advisors, reading investment performance reports, and trying to compile a complete wealth picture.

So what are some lessons we can take away from this peek into the other side of financial independence?

Whatever your means, live below them.

Take a holistic approach to your money and view wealth as a source of empowerment versus a measure of success. Viewing wealth as a measure of your success often means that you have to find ways to let others know successful you are and that can lead to overspending.

Step up to the plate. Be involved in the money management process of your family. Taking control means a lot more than just writing checks to pay bills.

Involve your children in the process early so they can grow up with an understanding of money management and they do not have to repeat many of the mistakes you made.

Get professional help if you need it. The right professional help can not only save you money, but they can save you precious time as you travel on the road to financial independence.

Building Wealth With IRAs

One of the easiest ways to increase your wealth is through the use of tax-deferred accounts. You do not pay taxes on tax-deferred investments while they are growing and, as a result, they grow faster. Employer sponsored retirement plans like 401(k)s are one example of tax-deferred accounts, and IRAs are another. While you may or may not have access to an employer sponsored retirement plan, everyone with earned income is eligible to set up an IRA.
IRAs are a type of account that you fund with your choice of investments. There are two basic types of IRAs: Traditional and Roth. Deciding which type of account to open can be a difficult decision and one answer does not fit all. Each type of IRA account can have very different financial consequences both now and in the future so get as much information as possible before you decide. Here are some IRA basics to help you decide which one is best for you:

Traditional IRAs
• There are no income limits for eligibility. Anyone with earned income can set up a traditional IRA.
• Depending on your income and your eligibility to participate in an employer sponsored retirement plan, your contributions may be tax deductible. In general, singles with incomes of less than $65,000 and couples filing jointly with incomes of less than $109,000 are eligible to deduct their contributions. Note: Income limits for couples increase to $176,000 if they are not eligible to participate in an employer sponsored plan.
• Contributions must stop at age 70 1/2.
• Withdrawals are required at age 70 1/2, and withdrawals before age 59 1/2 may incur a 10% penalty. Taxes are due in the year withdrawals are made.

Roth IRAs
• Eligibility to set up a Roth IRA is limited based on your income. They are available to single-filers earning less than $120,000 a year or couples earning less than $176,000 annually.
• You can make contributions beyond age 70 1/2 however your contributions are never tax deductible.
• There is no mandatory distribution age. Your contributions can remain in your account indefinitely.
• Principal contributions (money you put in) can be withdrawn at any time without penalty.
• Withdrawals (including principal and earnings) are 100% tax free if you follow the rules and regulations – a benefit that could mean thousands of dollars in future tax savings.
Choosing to invest in an IRA is not just a good idea, it can help your money grow faster, and save money on your taxes as well

Note: Contribution limits for both IRAs in 2011 is $5,000 and $6,000 for those over age 50. In the future, contribution limits will increase based on the rate of inflation. While you can split your contributions between the two types of IRAs, your total contribution in both types cannot exceed the current contribution limits.

It’s Time to Project Your Taxes!

It’s that time again. Time to project your taxes. Projecting your taxes can not only save you money but it allows you to take control, perhaps lessen your tax liability, and eliminate the stress of surprises on April 15th. One of the best times to start your projecting or planning your taxes is right after you complete your annual tax return. This is when the details of missed opportunities are freshest in your mind and you are the most motivated to do something about lowering your tax bill. Another good time for tax planning is around September or October while you still have time to make changes that can impact your tax bill.

Before you start the process, look over a copy of your last tax return. Be sure you understand the major areas of your return like, where the numbers came from, and what you can do to influence them to lower your tax bill. Make a note of missed opportunities for deductions or credits that you might qualify for this year. For example, if did not have enough medical expenses last year to take a deduction, see if you can group your procedures or expenses to qualify for a deduction next year.

Next, compare your current situation to the previous year. Have you made changes that could affect your taxes, positively or negatively? Some examples include changes to your income, your marital status, and purchasing or refinancing a home. Then create a tax projection for this year that includes any major changes. A projection is nothing more than a mock-up of your tax return. You can ask your tax professional to calculate a projection for you, you can use one of the software packages like Intuit’s TurboTax or H&R Block’s TaxCut, or you can create a template like the one shown here. Once you have a projection of your tax liability, go through each part and look for additional deductions and tax credits you may be eligible for. If you are unsure of what you might qualify for, ask a tax professional.

Beyond deductions and credits you can also influence your tax liability in other ways, here are three common ways:

Contribute to employer sponsored retirement plans like 401(k)s. Contributing to retirement plans at work reduces your taxable income which means a lower tax bill. If you are not contributing the maximum to these accounts, consider increasing your contributions. For example, if you are in the 25% tax bracket, for every $1,000 you contribute to your 401(k), you will lower your tax bill by $250.
Contribute pre-tax dollars to your flexible spending account. If your company offers some type of a flexible spending account (FSA), calculate the amount of your annual expenses for things like child care and out-of-pocket medical expenses, and use this account to cover those expenses. Again, if you are in the 25% tax bracket and set aside $1,500 annually in your FSA, you could save $375 in taxes, and have money available for planned expenses.
Stash extra savings in an IRA. If you qualify for it, a Roth IRA is a great option. Although you won’t save money on your current taxes with a Roth IRA, the future tax savings could be tremendous because you will not owe any taxes on the money while it is growing and, if you follow the rules, your withdrawals will be tax-free.
Finally, if you are projecting a large refund or a large tax bill, consider adjusting your withholding so you move toward a breakeven point where you don’t get a refund or owe anything. I know a lot of people look forward to a refund each year, but remember a refund is nothing more than a return of your money without interest!

The four strategies listed here are just a few of the most common ways you can reduce your tax bill. But don’t stop there, ask your tax advisor or financial professional for more ways you may be able to save money on your taxes for your specific situation. ps!

Don’t Relax Just Yet–Identity Theft is Still An Issue, Part 2

In this two part series we’ll discuss what to do to avoid becoming a victim and immediate steps to take if you do become a victim.

What to do if your personal information is lost or stolen:

Immediately close accounts, like credit cards and bank accounts, and when you open new accounts, place passwords on them (see Part 1, #3).
Call the three major credit bureaus and place an initial fraud alert (see below) or a credit freeze on your accounts to help prevent anyone from opening new credit accounts in your name.
Report a lost or stolen driver’s license or any other government-issued identification to the agency that issued the document and follow their procedures to cancel it and get a replacement. Ask the agency to flag your file so that no one else can get a license or any other identification document in your name.
Finally, if your information is stolen or misused, always file a report with the police. This will help you dispute fraudulent accounts, debts, and claims against you. If the police are hesitant to file an identity theft report, ask that they file a miscellaneous incident report or check with another jurisdiction such as the state police or the sheriff’s department.

Once you have taken these precautions, watch for signs that your information is being misused. Investigate further if you:

fail to receive bills or other mail. If this happens, follow up with creditors. A missing bill could mean an identity thief has taken over your account and changed your billing address to cover his/her tracks.
receive credit cards you did not apply for.
are denied credit, or you are offered less than favorable credit terms for no apparent reason.
are getting calls or letters from debt collectors or businesses about merchandise or services you did not buy.

Arm yourself with as much information as possible to prevent identity theft. Check out the Free Stuff on the Squeeze website to download a Special Report: Fighting Back Against Identity Theft. Remember, no one will care quite as much about your good name as you do, so it’s up to you to be proactive and protect it daily.

Have you been a victim of identity theft or do you know someone who has? Can you add some information or steps to the ones above? If so, send them to me so that I can add them to the list. ps!

What’s an Initial Fraud Alert?

You can ask for an initial fraud alert (IFA) to be placed on your credit report if you suspect you have been, or are about to be, a victim of identity theft. An IFA stays on your credit report for a minimum of 90 days and is appropriate if your wallet has been stolen or if you’ve been taken in by a scam, such as a “phishing” scam that targets your personal information via email. When you place an IFA on your credit report, you are entitled to a free credit report from each of the three major credit bureaus.

Equifax: 1-800-525-6285; www.equifax.com;P.O. Box 740241,Atlanta,GA30374-0241

Experian: 1-888-397-3742; www.experian.com;P.O. Box 9532,Allen,TX75013

TransUnion: 1-800-680-7289; www.transunion.com; Fraud Victim Assistance Division,P.O. Box 6790,Fullerton,CA92834-6790

Don’t Relax Just Yet–Identity Theft is Still An Issue, Part 1

In this two part series we’ll discuss what to do to avoid becoming a victim and immediate steps to take if you become a victim.

Steps to avoid becoming a victim:

I haven’t seen a lot of the commercials about it lately, but identity theft is still one of the fastest growing crimes, so don’t relax your guard or you could become a prime target. And your best defense is to be proactive.

Identity thieves use a variety of sources to get your personal information and once they have it, they can use it to rack up huge amounts of debt, purchase large items like cars, or even file bankruptcy or commit crimes using your name. Some common information gathering sources used by identity thieves include:

stealing information from businesses and institutions
stealing your mail
rummaging through your trash – “dumpster diving”
gaining access to your credit report
burglarizing your home or stealing your wallet or purse
obtaining information from you by phone or the internet

While you can’t control all access to your information, there are some things you can do to make it more difficult for identity thieves to obtain and use your information. Here are my top seven strategies to help lesson your chances of becoming a victim:

1. Review your credit reports on a regular basis. Look for errors such as misspelled names, wrong Social Security numbers (SSN), wrong addresses or employers, or new accounts or credit applications you did not authorize. Note: It may be to your benefit to stagger your free credit reports throughout the year so you can receive one every four months.

2. Treat your mail and trash with care. Regularly go through your mail, separate out documents that include sensitive information and shred them. Sample documents to shred include: pay stubs, charge receipts, copies of credit applications, insurance forms, physician statements, checks and bank statements, expired charge cards, and credit offers you receive in the mail.

3. Place passwords on your credit card, bank, and phone accounts. Avoid using easily available information such as your mother’s maiden name, your birth date, the last four digits of your SSN or your phone number, or a series of consecutive numbers.

4. Read your credit card and bank statements as soon as they arrive and follow up on errors or suspicious transactions immediately.

5. Don’t give out personal information on the phone, through the mail, or on the internet unless you’ve initiated the contact or you are sure you know who you are dealing with. Never respond to emails that look like they have been sent by the IRS, the Social Security Administration, other government agencies or banks that are requesting personal information, they will never ask for sensitive information by email.

6. Be cautious when responding to promotions and sweepstakes. When registering at sites or for products, never give out your true birth date. You can give the year, but substitute another month and date. These are often data gathering sites where your information will be sold and they may even be set up by identity thieves.

7. Practice computer safety. Before giving out sensitive information over the internet always look for signs that it is a secure site such as https, shttp, or a locked lock. Use a firewall program, especially if you use a high-speed internet connection like cable or DSL that leaves your computer connected to the internet 24/7 or disconnect your computer when you are not using the internet. ps!