How They Work: Amazon

Amazon requires that you make a purchase of a certain size to get a certain term of repayment. Six month financing is available for all orders over $149, 12 month financing for all purchases totaling over $599 and 24 month financing on “select items.”

There are also promotional items for each tier, but the top one is the place to look. It’s here that you’re going to find HDTVs, high-end, enterprise-grade software and professional-quality digital cameras. For the person who either wants or needs this kind of equipment, but doesn’t have the money at the moment, these types of programs can be great: You can get what you need now and avoid a credit card payment.

Once you’ve made your purchase, you have to make monthly minimum payments. You also have to pay off the entire amount by the end of the term to avoid interest charges. The interest rate is the current interest rate on your Amazon.com Store card, which you have to have to participate.

How They Work: PayPal Bill Me Later

Bill Me Later is effectively a credit line tied to your PayPal account. You can use it pretty much anywhere that PayPal is accepted, including the Internet’s flea market, eBay. To sign up you only need to enter your birthday and the last four digits of your Social Security Number. Approval is lightning fast and you can then set it as your default payment method.

You can pay off your balances right from your PayPal account. Your statement will also provide you the date by which you have to pay off the entire balance to avoid interest charges. Once the clock runs out you’re going to have to pay 19.99 percent interest on your purchase. Further, if you miss a monthly payment you will be assessed a $25 fee.

Is It Worth It?

Of course, the $64,000 question is—is it worth it?

There are two factors involved here: First, can you wait for whatever it is you need to buy. Second, can you pay it off in the allotted time?

The first question is incredibly subjective. You might not need that HDTV right now, but you might want it. This is what makes the second question so crucial. If you can afford to pay off that big television in the allotted time, go for it; but be honest with yourself about whether or not you can really afford a monthly payment that’s going to get you with a new TV now without any interest payments.

Finally, one last question to consider when it comes to zero-interest financing: Is being able to buy the things you want today making you spend money less wisely than if you had to save up? It’s easy to decide you want to purchase things you don’t really need when you only have to pay them off in bite-sized clumps over time rather than ponying up all the cash at once.

When it comes to making installment purchases online, the basic principle of “caveat emptor” applies. The allure of buying things today and paying for them tomorrow might be seductive; but if you miss a payment or don’t pay it off by the deadline, you’re going to be out more than you bargained for.

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Rising prices

Home prices in 133 of 150 major metropolitan areas rose sharply in the first quarter of 2013, experiencing their biggest gains in many years. The national median price for an existing single family home is now $176,600 – up 11.3 percent from one year ago. The gains were enough to push two million previously underwater homeowners into positive equity. Akron, San Francisco and Reno all posted gains of at least 32 percent over the first quarter of 2012. Phoenix continues to outperform many markets, posting a 30.1 percent year-over-year gain.

Condos are hot

Miami’s condo market is so strong it has spurred a building boom. Los Angeles condo prices gained even more strength than Miami’s this past year.

Easier money for the best applicants

Mortgages are a little easier to get these days, provided your credit score is high enough. Many banks recently eased lending standards for low-risk mortgages. Most banks said they weren’t willing to ease standards for borrowers with average or low credit scores, though, and subprime mortgage standards remain tight.

Some banks now offer mortgages with a loan-to-value ratio greater than 80 percent (meaning the borrower can pay less than the traditional 20 percent down payment). Bank of America makes loans for up to 95 percent of the appraised value. Wells Fargo and U.S. Bank offer first mortgages for 80 percent of the appraised value and piggyback loans for another 10 percent to qualified borrowers who put 10 percent down. Some banks, like Navy Federal, offer 100 percent financing to certain customers, but charge higher interest rates on those loans. In nearly all cases, the greater the percentage of value financed, the higher the borrower’s credit score must be.

Money is out there. The hard part is getting the home.

Sellers choose the lender

Some sellers have taken to choosing the buyer’s lender. They find a lender willing to finance the sale and include contract language stating that potential buyers must at least get preapproval from the preferred lender (ultimately, the buyer is not obligated to finance through the preferred lender). This is particularly useful in condo sales where the lender has to approve a building that may not be warrantable (eligible for backing by Fannie Mae). Fannie Mae will not back a loan for a unit in a building in which one entity owns more than 10% of the units, or fewer than 70 percent of the units are owner-occupied. Fannie Mae also puts limits on the amount of commercial space in the building, and requires the building to maintain a minimum cash reserve. Since some lenders will not issue a loan in an unwarrantable building, having a mortgage lender in place can save everyone the time and frustration of a deal falling through.

No contingencies

Some sellers are not entertaining any contingencies – including financing. A mortgage contingency allows the buyers to back out if they can’t get financing. In highly competitive markets, sellers are giving extreme preference to all-cash buyers – sending other hopefuls away in search of another home to bid on. Don’t sign a contract without a mortgage contingency unless you’re prepared to pay cash in the event your financing falls through. Otherwise, you could lose your entire down payment.

No matter how you slice it, it’s still a seller’s market.

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The bill proposes to amend the Fair Credit Reporting Act or “FCRA”, which is the Federal law that governs almost everything surrounding credit reports, including what can be included in your credit report, how long negative items can remain on your credit reports, your rights to have items investigated, and how often you can get free copies of your own credit reports. The Medical Debt Responsibility Act would amend the section of that law that lists items that must be excluded from consumer credit reports.

Specifically, the bill would require the removal or deletion of “any information related to a fully paid or settled medical debt that had been characterized as delinquent, charged off, or in collection.” The removal of the credit report entry would have to occur within 45 days of the collection being updated to show a $0 balance. This would allow consumers to pay to have the collections removed, as all they’d need to do is pay or settle the debt with the collection agency or debt buyer.

This isn’t the first time lawmakers have moved to remove paid and settled medical collections from credit reports. The bill was originally introduced in early 2012, and is nearly identical to the more recent version. Prior to that, it was introduced in June 2011 and was very similar, but only applied to paid and settled medical collections that were less than $2,500. The bill didn’t pass in 2011, 2012 and it doesn’t look like it’s going to pass in 2013 either. According to GovTrack’s prognosis, the bill has a two percent chance of getting through the committee and a zero percent chance of being enacted.

While the Medical Debt Responsibility Act might sound like a good thing for consumers, but the bill is based on a couple of assumptions that aren’t necessarily true. The first is that medical collections serve no value when assessing the credit risk of an applicant. All collections are “predictive” and have value when determining the risk of doing business with a consumer. Simply removing them from a credit report after they’ve been paid hides valuable information that can be used by lenders to properly assign terms based on credit risk.

Collections, as reported to the credit reporting agencies, do not have a backstory. So, you don’t know what caused the collection to appear on a credit report. If you saw a medical collection, you couldn’t tell if it was caused by an insurance filing error, a refusal by the consumer to pay a legitimate obligation, the consumer writing a bad check to cover their deductible amount, or some other reason. Nobody suggests that all medical collections are caused by insurance filing errors, which arguably shouldn’t be on credit reports in the first place. However, simply removing all paid medical collections would also cause the removal of medical debts that the consumer simply chose not to pay due to irresponsibility.

Some argue that medical debts are not voluntary as nobody chooses to get sick and incur medical expenses. That’s very true. However, having an emergency and charging a new car engine or a new air conditioning system to a credit card also isn’t voluntary, but shows up on your credit reports just like unexpected medical debts. Incurring those types of large non-medical debts is really not that different except for the service provider. After all, debt is debt when it comes to credit risk assessment.

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But simply stashing your credit cards in a desk or kitchen drawer—instead of your wallet— isn’t wise either. Credit cards are a hot commodity among cat burglars and home invaders. They’re also a common target of identity thieves you unknowingly invite in your home (utility repair workers, friends of teens, etc.). So your credit cards need to be tucked safely away inside your sanctuary. And don’t even think of giving them the deep freeze. Storing credit cards in the freezer won’t fool cat burglars should they break into your home.

If a fire-proof safe (that’s fastened to a floor or wall and not portable, the trick to keeping credit cards safe is getting a little creative. Here’s a look at some of the best spots in the house to stash your plastic in when it’s not in your wallet.

Safe Overnight

Stop by your local post office or a retailer that offer overnight shipping via FedEx and/or UPS and grab an overnight envelope. Stuff your credit cards in the envelope and seal it. Then write “Dad’s baby pictures,” “pet immunization records” or “first grade report cards” to deter would-be thieves.

Rethink Your Drawers

If the silverware drawer or a drawer in your desk is on your radar as a hiding spot, you’re on the right track, but need to look outside the box – er, drawer.

Wrap your cards in a few sheets of paper to conceal the raised numbers and tuck them in an envelope and seal it that you tape underneath a desk, sock or bathroom vanity drawer. Although thieves usually look in a drawer, they rarely under it, so that’s a potential safe spot for credit cards and other valuables.

Further reduce the odds the envelope will be stolen if it is uncovered by writing “pet immunization records,” “hair from (your child’s) first haircut” or “photos of grandma” to defer attention.

Laundered Plastic

The next time you’re at the grocery store, pick up a box of powdered laundry detergent. Bury a sealed envelope containing your credit cards in the and store it on a shelf in your laundry room or basement. There are also faux cans that resemble popular cleaning products or soft drinks designed to store credit cards or valuables.

Frame Them

Slip your cards behind a picture of your kids, grandmother, family pet, or any other image that’s near and dear to your heart. Whether you place the picture on a coffee table, piano or hang it on the wall, thieves usually won’t take the time to tear apart dozens of frames looking for credit cards. College degrees and diplomas also make great hiding spots for credit cards and valuable paperwork.

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Child-related expenses drastically affect cash flow

Starting with diapers on day one, you’ll spend more money week-by-week and month-by-month after your baby arrives than you did before. Along with basic necessities like clothing and shoes, you could find yourself paying for big ticket items like childcare, preschool, camps and classes during those first few years. Not to mention additional health insurance premiums, particularly if you’re self-employed, and tuition if you choose to enroll your child in a private school. And after your child’s second birthday your travel costs rise sharply, when plane tickets for him cost as much as they do for you. Unfortunately, babies don’t usually come with a pay raise. In fact, many families are forced to make do with much less income when one parent takes an extended maternity leave or stops working altogether. This means it’s imperative to reassess your budget and prioritize your spending.

Plan to buy a family-sized car if you don’t already have one

That could mean taking out an auto loan. The good news is that auto loans can be very affordable for those with great credit. Interest rates between zero and 2.5 percent are common. U.S. News lists several car makers with current low-interest financing offers.

Buy life insurance

The younger you are, the lower the premium will be. In fact, if you’re in your 20s or 30s, consider a whole-life policy. They cost more than term insurance, but the policy doesn’t expire after a set amount of time, and you can borrow against the balance in the future if the need arises. Purchase an amount great enough to cover all of your outstanding debt plus death-related expenses.

Start planning now to buy your first home or a bigger home

If you’re not a homeowner yet, buying a home is a great way to start building personal wealth. If you are a homeowner, you might find that your growing family soon feels very crowded, particularly if you own a “starter” home or a small apartment. And in some markets, like New York City, two- and three-bedroom units are currently in very short supply. Grabbing one at a great price is nearly as hard as catching a star. Be sure your credit score looks great and get pre-approved for a mortgage so that you’re ready to pounce on a great listing the moment it hits the market.

Start saving now for education expenses

Some financial experts say that a 529 education savings account is the best baby gift you can give.  And just like in retirement savings, the earlier your start saving, the greater your wealth when you reach the age when you want to withdraw the funds. If you wait before you begin saving, you’ll have to save much more each month in order to achieve the same end goal. Minimizing your family’s reliance on student loans will save years of payments and a mountain of interest charges.

Create a will and a power of attorney for guardianship of your child

The last thing we expect is for something bad to happen to us. But in case of death or a serious injury, ensure that your wishes are carried out and that your children are raised by the guardians of your choice.

The best thing you can do for your child and your family is to keep your own finances in order and your credit in its best possible health.

Please credit “Kimberly Rotter for Credit Sesame” when quoting from or linking to this story.  

Image credit: stockbroker | 123.rf

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In most parts of the U.S., “jumbo” means a mortgage larger than $417,000. In some high-cost areas like New York, the threshold is $625,000. This is not a limit on purchase price, but rather on the loan amount. So to buy a home for $500,000 with 20 percent down, a borrower needs $400,000 – not a jumbo loan.

Most jumbo loans are issued to homeowners upgrading to a more valuable home. Lately, however, more and more jumbo loans are being sought by first-time home buyers, particularly those employed in high-tech industries. In some expensive housing markets, like the San Francisco bay area, buyers struggle to find a home priced under the jumbo loan threshold.

Jumbo loan requirements

Requirements for jumbo loans are generally more stringent than for traditional loans. In fact, the larger the jumbo loan, the harder it can be to qualify. For loans up to $1.5 million, most lenders require a credit score of at least 700, a 20 percent down payment and cash reserves sufficient to cover up to 12 months of living expenses. For loans greater than $1.5 million, the lender may require 30 percent down and 18 months of cash reserves. Loans above $2.5 million could require even more cash up front (45 percent or more) and in reserve (up to 36 months).

First-timers will also need to carry a debt-to-income ratio of no more than 42 percent (lower for some lenders).

Low down payment jumbo loans

Some applicants will find jumbo loan lenders who require less than 20 percent down. In these cases, the borrower must be highly qualified – credit score of 720 or higher, significant assets, very solid income potential, and a debt-to-income ratio of no more than 38 percent. The loan, however, may not come with optimal terms. The lender will require private mortgage insurance, and will charge a higher interest rate.

The FHA guarantees jumbo loans of up to $729,750 in some areas. Borrowers only pay 3.5 percent down, but also pay fees and higher rates. Affluent buyers can sometimes finance 100% of a home purchase by using two or more forms of collateral against 20 percent to 40 percent of the loan value. These loans are generally offered by the bank where the borrower holds some assets.

Qualifying for a jumbo loan can be harder for first time buyers, but not impossible. Lenders want to see that the borrower will be able to handle the hefty payments, particularly if he or she was previously renting for a much lower monthly amount. Transitioning to a high-income lifestyle can be challenging, and not everyone manages well.

Considerations for the first-time home buyer or the borrower seeking her first jumbo loan:

Know your credit score. Make sure your credit report is correct and that your credit score is good to excellent. The best interest rates go to individuals with the highest FICO scores.

Build up your cash reserve. The best jumbo loans are for 65 percent of a home’s value (compared with 80 percent for a traditional loan). That means you’ll need to make a down payment of at least 35 percent, or you may need to seek out a second loan to bring down the loan-to-value ratio on the primary mortgage.

Factor in all costs. An expensive home may require immediate remodeling, decorating and furnishing. Don’t forget to calculate any HOA fees and other monthly expenses, like landscaping services or a bigger utility bill. And set aside a prudent reserve for regular maintenance. The lender will want you to show that you understand – and can afford – all of these homeowner expenses.

Shop around. Some lenders are more cautions than others, and some are hesitant to offer jumbo loans to first-time buyers at all. Again, a great credit score is critical. The better your credit, the more lenders will be willing to work with you.

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This can be a major issue, however. Responsibly using credit is one of the best ways to continue to build personal credit history. Families, especially those with a stay-at-home parent, often combine financial resources, but credit reports are personalized for the individual – not for a family. Often, the stay-at-home parent is the one managing the families’ finances responsibly, but that wasn’t included as a factor in the credit decision under this regulation. All adults, regardless of their current employment status, should continue to build good credit over the years because you never know when you’ll need access to it. Even those who want to stay debt-free may face family emergencies that require access to credit immediately.

Understanding the importance that access to credit can be for families, last month, the Consumer Financial Protection Bureau (CFPB) updated these original regulations. Now, creditors are no longer required to only consider the consumer’s independent ability to pay for those credit applicants that are 21 or older. They can now consider income and financial assets that the consumers have “reasonable expectation” of access to—including a spouse’s income. The rule technically applies to both married and unmarried applicants, although it’s expected that it will strongly impact stay-at-home parents. Once the rule is implemented (credit card companies will have six months to become compliant with the new regulations), stay-at-home parents should use the opportunity to get a card in their name, and use it at least a few times to build up credit.

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So if you’re not amongst those hearing “yes” from lenders, why are you being turned down for a mortgage? Here, the top reasons.

Credit score

To put it bluntly, if you have a score less than 620, you’re going to have a very hard time finding financing. That’s because your credit score is the broadest measure of your creditworthiness. It summarizes how you handle your finances—and a low one indicates that you don’t do so in a responsible manner.

Late payments

In addition to looking at your credit score, a lender is going to examine your credit history to see if there are any other issues that would indicate you’re a risky borrower. “Lenders are typically looking into how you’ve managed your finances for the past two years,” says Tony Wahl, a mortgage and lending expert for Credit Sesame. “One late payment may not hurt you, but if you have a pattern of being late, or have an account that you can’t get caught up on, that’s going to be considered high risk for a mortgage lender,” he explains. So it’s vital that you stay up-to-date on all credit card and loan payments.

Debt-to-income ratio

This ratio is the percentage of your monthly take-home salary that goes to pay off debt. Ideally, lenders like to see only 33 percent of your income going towards housing costs and no more than 38 percent total towards your debt (car loans, credit-card payments). If your debt-to-income ratio reaches 45%, lenders might give you a mortgage—but only if you have good credit and have socked money away in the bank.

Employment status

“Lenders want to see a solvent, stable two years of employment,” says Wahl. So if you don’t hold a job, have been in and out of work, or have long gaps of unemployment, you could be designated a credit risk and that could be reason for denial.

Derogatory financial events

Bankruptcies and foreclosures are a black stain on your credit history. In order to recover, you’ll typically need to rebuild your credit by being a financially responsible individual for at least two years. (Click here to find out how.)

Loan-to-value ratio

This percentage expresses the amount of the loan in relation to the value of the property. And if you’re underwater but looking to refinance, this ratio could prevent that. “Lenders want borrowers to have equity,” Wahl explains.

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These loans have short-term lending periods (think: 30 days) and use the borrower’s car as collateral. In exchange for the cash, the lender takes possession of the car’s title.

The predatory aspect of these loans is their extremely high interest rates, which are around 20 to 30 times the amount that accompanies credit cards, according to the Center for Responsible Learning, a nonprofit, non-partisan research group. The fact that American consumers paid $3.6 billion in interest on $1.6 billion of these loans last year demonstrates just how sky-high these interest rates actually are.

Car title loans are also extremely risky for borrowers because of the difficulty people have paying back both the principal and the interest that’s due at the end of the brief lending period. As a result, many extend their loan, racking up additional fees and interest charges in the process. (The Center for Responsible Learning reports that the average borrower renews their loan eight times.)

If this cycle continues, the borrower will sink deeper and deeper into debt. And in situations that a loan goes into default, the car is repossessed from the debtor.

If you find yourself hard up for cash, try one of these safe options instead:

A personal loan

With this option, banks and credit unions allow you to borrow money and use it for any number of things—all the while charging you a fair interest rate. (The specific rate you land depends upon your credit history.) In many situations, your loan application can be processed the day you apply and you will receive the funds within just a couple of days.

Plus, the loan has both a fixed term and a fixed interest rate—so you’ll know exactly how much you owe and for how long before you sign up.

Borrow from family or friends

Once you share your plight with your loved ones, you might be surprised by their generosity. Be honest with them—not only about how much money you need, but also how you got yourself into this predicament. If you do borrow funds, be sure to set up a realistic repayment schedule that fits with your budget.

Once you’ve grown accustomed to making payments any money you’ve borrowed, try to set aside an additional amount in savings on a regular basis. (This will help prevent you from getting into another financial quandary.) To get in the habit, you don’t need to put away a large amount. In fact, saving $10 a week is a great place to start.

Keep socking cash away until you have an emergency account that will cover at least six months’ worth of living expenses. Then, congratulate yourself for working to get out of debt and on the path toward financial success.

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Sequester-related budget cuts

Budget cuts forced the FAA to require employees to take an unpaid day every two weeks, which effectively reduced the air traffic controller workforce by about 10% each day. Cascading flight delays and cancelations ensued immediately at airports across the country. Although all of the late and cancelled flights over the last couple of weeks can’t be blamed entirely on the furloughs, Congress moved quickly to fund the FAA and get the air traffic controllers back to work, in response to public outcry. Delays and cancellations beyond what is “normal,” are simply unacceptable for many travelers.

Although travelers in all classes were affected by the furloughs, it is a fact that those with elite status or other special privilege generally get better service than low-fare, bargain-hunting travelers and infrequent travelers. Airlines reward customers who are loyal to the airline, who take more trips, and who pay for a higher class of service. United is a great example.

The United MileagePlus Club card, issued by Chase Bank, is a high-level credit card that comes with many benefits. Among them – cardholders skip to the front of security checkpoint lines, get two free checked bags, and enjoy access to private United clubs in airports across the country.

Better customer service for Club cardholders

Even when purchased with a United credit card, not all United fares qualify for no-fee changes (award tickets generally do). But customer service representatives were quick to accommodate United cardholders during the recent travel delays while everyone else waited on longer lines.

Club members with tickets – even in coach class – on canceled flights were among the first to be cheerfully rebooked on another. “The Chase United card was a huge help during the debacle of our returning flight,” exclaimed one satisfied flyer. “My neighbor traveled on the same day. She waited 12 hours for a flight to California. She was going to a wedding. In the end, she got as far as Las Vegas via Denver at 4AM and went to a hotel, at her cost. We relaxed in the airport club for about two and a half hours, got on the next flight, and arrived home only four hours late. The flight, on a partner airline, was arranged by the concierge in the club.”

Standard travel and purchase protections offered to cardholders are far more generous than what bargain travelers can hope for. Weary discount travelers with no affiliation to the airline and no special club card in their pocket were, of course, accommodated to the extent required by law.

Fees

The fee for the MileagePlus Club card and all the benefits it offers is $395 per year (recouped easily by two travelers who check two bags each on two trips in one year). Some people with very high credit scores can get the first year’s fee waived; others might be offered a $100 statement credit after their first purchase.

The MileagePlus Explorer card is one level down from the Club card. The fee is $95 per year, waived the first year. It comes with two one-time access passes each year to the private airport clubs, and full or scaled down versions of most of the other benefits (one checked bag per person instead of two, for example).

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