If you have bad credit, then finding a loan of any kind can be difficult. Although it can be frustrating to secure a loan with bad credit, it is completely possible. One way to improve…
The post Best Secured Collateral Loans for Bad Credit appeared first on Crediful.
A payday loan is a short-term loan with a high annual percentage rate. Also known as cash advance and check advance loans, payday loans are designed to cover you until payday and there are very few issues if you repay the loan in full before the payment date. Fail to do so, however, and you could be hit with severe penalties.
Lenders may ask the borrower to write a postdated check for the date of their next paycheck, only to hit them with rollover fees if that check bounces or they request an extension. Itâs this rollover that causes so many issues for borrowers and itâs the reason there have been some huge changes in this industry over the last decade or so.Â
How Do Payday Loans Work?
Payday lending seems like a simple, easy, and problem free process, but thatâs what the payday lender relies on.Â
The idea is quite simple. Imagine, for instance, that your car suddenly breaks down, payday is 10 days away, and you donât have a single cent to your name. The mechanic quotes you $300 for the fix, and because youâre already drowning in debt and have already sold everything valuable, your only option is payday lending.
The payday lender offers you the $300 for a small fee. They remind you that if you repay this small short-term cash sum on payday, you wonât incur many fees or any real issues. But a lot can happen in 10 days.Â
More bills can land in your mailbox, more expenses can arrive out of nowhere, and before you know it, all of your paycheck has been allocated for other expenses. The payday lender offers to rollover your loan for another month (another âpaydayâ) and because you donât have much choice, you agree.
But in doing so, youâve just been hit with more high fees, more compounding interest, and a sum that just seems to keep on growing. By the time your next payday arrives, youâre only able to afford a small repayment, and from that moment on youâre locked into a debt that doesnât seem to go anywhere.
Payday loans have been criticized for being predatory and itâs easy to see why. Banks and credit unions profit more from high-income individuals as they borrow and invest more money. A single high-income consumer can be worth more than a dozen consumers straddling the poverty line.
Payday lenders, however, target their services at low-income individuals. They offer small-dollar loans and seem to profit the most when payment dates are missed and interest rates compound, something that is infinitely more probable with low-income consumers.
Low-income consumers are also more likely to need a small cash boost every now and then and less likely to have the collateral needed for a low-interest title loan. According to official statistics, during the heyday of payday loans, most lenders were divorced renters struggling to make ends meet.
Nearly a tenth of consumers earning less than $15.000 have used payday loans, compared to fewer than 1% for those earning more than $100,000. Close to 70% of all payday loans are used for recurring expenses, such as utility bills and other debts, while 16% are used for emergency purchases.
Pros and Cons of Taking Out a Payday Loan
Regardless of what the lender or the commercial tells you, all forms of credit carry risk, and payday loans are no exception. In fact, it is one of the riskiest forms of credit available, dragging you into a cycle of debt that you may struggle to escape from. Issues aside, however, there are some benefits to these loans, and we need to look at the cons as well as the pros.
Pros: You Donât Need Good Credit
Payday loans donât require impeccable credit scores and many lenders wonât even check an applicantâs credit report. They can afford to do this because they charge high interest and fees, and this allows them to offset many of the costs associated with the increased liability and risk.
If youâre struggling to cover your bills and have just been hit with an unexpected expense, this can be a godsendâitâs a last resort option that could buy you some time until payday.
Pros: Itâs Quick
Payday loans give you money when you need it, something that many other loans and credit offers simply canât provide. If you need money right now, a payday lender can help; whereas another lender may require a few days to transfer that money or provide you with a suitable line of credit.
Some lenders provide 24/7 access to money, with online applications offering instant decisions and promising a money transfer within 24 hours.
Pro: They Require Very Little
A payday loan lender has a very short list of criteria for its applicants to meet. A traditional lender may request your Social Security Number, proof of ID, and a credit check, but the average payday lender will ask for none of these things.
Generally, you will be asked to prove that you are in employment, have a bank account, and are at least 18 years oldâthatâs it. You may also be required to submit proof that you are a US citizen.
Cons: High Risk of Defaulting
A study by the Center for Responsible Lending found that nearly half of all payday loans go into default within just 2 years. Thatâs a staggering statistic when you consider that the average default rate for personal loans and credit cards is between 1% and 4%.
It proves the point that many payday lender critics have been making for years: Payday loans are predatory and high-risk. The average credit or loan account is only provided after the applicant has undergone a strict underwriting process. The lender takes its time to check that the applicant is suitable, looking at their credit history, credit score, and more, and only giving them the credit/loan when they are confident it will be repaid.
This may seem like an unnecessary and frustrating process, but as the above statistics prove, itâs not just for the benefit of the lender as it also protects the consumer from a disastrous default.
Con: High Fees
High interest rates arenât the only reason payday lenders are considered predatory. Like all lenders, they charge fees for late payments. But unlike other lenders, these fees are astronomical and if youâre late by several weeks or months, those fees can be worth more than the initial balance.
A few years ago, a survey on payday lending discovered that the average borrower had accumulated $458 worth of fees, even though the median loan was nearly half that amount.
Cons: There are Better Options
If you have a respectable credit history or any kind of collateral, there are better options available. A bank or credit union can provide you with small short-term loans you can repay over many months without accumulating astronomical sums of interest.Â
The interest rates are much lower, the fees are more manageable, and unless your credit score is really poor, you should be offered more favorable terms than what you can get from a payday lender.
Even a credit card can offer you better terms. Generally speaking, a credit card has some of the highest interest rates of any unsecured debt, but it canât compare to a payday loan. It also has very little impact on your credit score and many credit card providers offer 0% on purchases for the first-few months.
Whatâs more, if things go wrong with a credit card, you have more options than you have with a payday loan, including a balance transfer credit card or a debt settlement program.
Why Do Payday Loans Charge So Much Interest?
If we were to take a cynical view, we could say that payday loans charge a lot simply because the lender can get away with charging a lot. After all, a payday loan lender targets the lowest-income individuals, the ones who need money the most and find themselves in desperate situations.
However, this doesnât paint a complete picture. In actual fact, it all comes down to risk and reward. A lender increases its interest rate when an applicant is at a greater risk of default.Â
The reason you can get low rates when you have a great credit score and high rates when you donât, is because the former group is more likely to pay on time and in full, whereas the latter group is more likely to default.
Lending is all about balancing the probabilities, and because a short-term loan is at serious risk of defaulting, the costs are very high.
Payday Loans and Your Credit Score
Your credit will only be affected if the lender reports to the credit bureaus. This is something that many consumers overlook, incorrectly assuming that every payment will result in a positive report and every missed payment in a negative one.Â
If the lender doesnât report to the main credit bureaus, there will be no changes to your report and the account will not even show. This is how many payday lenders operate. They rarely run credit checks, so your report wonât be hit with an inquiry, and they tend not to report on-time payments.
However, itâs a different story if you miss those payments. A lender can report missed payments and defaults and may also sell your account to a debt collector, at which point your credit score will take a hit.Â
If youâre concerned about how an application will impact your credit score, speak with the lender or read the terms and conditions before applying. And remember to always meet your payments on time to avoid any negative marks on your credit report and, more importantly, to ensure youâre not hit with additional fees.
Payday Loans vs Personal Loans
A personal loan is generally a much better option than a payday loan. These loans are designed to help you cover emergency expenses, pay for home improvements, launch businesses, and, in the case of debt consolidation loans, to clear your debt.Â
The interest rates are around 6% to 10% for lenders with respectable credit scores, and while they often charge an origination fee and late fees, they are generally much cheaper options. You can repay the loan at a time that suits you and tailor the payments to fit your monthly expenses, ensuring that they donât leave you short at the end of the month.
You can get a personal loan from a bank or a credit union; whenever you need the money, just compare, apply, and then wait for it to hit your account. The money paid by these loans is generally much higher than that offered by payday loans and you can stretch it out over a few years if needed.
What is an Unsecured Loan?
Personal and payday loans are both classed as unsecured loans, as the lender doesnât secure them against money or assets. Secured loans are typically secured against your home (mortgage, home equity loan) or your car (auto loan, title loan). They can also be secured against a cash deposit, as is the case with secured credit cards.
Although this may seem like a negative, considering a lender can repossess your asset if you fail to meet the payment terms, it actually provides many positives. For instance, a secured loan gives the lender more recourse if anything goes wrong, which means the underwriters donât need to account for a lot of risk. As a result, the lender is more likely to offer you a low interest rate.Â
Where cash advance loans and other small loans are concerned, there is generally no option for securing the loan. The lender wonât be interested, and neither should youâwhatâs the point of securing a $30,000 car against a $1,000 loan!?
New Payday Loan Regulations
Payday lenders are subject to very strict rules and regulations and this industry has undergone some serious changes in recent years. In some states, limits are imposed to prevent high interest rates; in others, payday lenders are banned from operating altogether.Â
The golden age of payday lending has passed, thereâs no doubt about that. In fact, many lenders left the US markets and took their business to countries like the UK, only for the UK authorities to impose many of the same restrictions after a few years of pandemonium. In the US, the industry thrived during the end of the 2000s and the beginning of the 2010s, but it has since been losing ground and the practice is illegal or highly restricted in many states.
Are Payday Loans Still Legal?
Payday loans are legal in 27 states, but many states have imposed strict rules and regulations governing everything from loan amounts to fees. The states where payday lenders are not allowed to operate are:
- New Jersey
- New York
- North Carolina
- West Virginia
It is still possible to apply for personal loans and title loans in these states, but high-interest, cash advance loans are out of the question, for the time being at least.
Debt Rollover Rules for Payday Lenders
One of the things that regulations cover is something known as Debt Rollover, whereby a consumer rolls their debt over into the next billing period, accruing fees and continuing to pay interest. The more rollovers there are, the greater the risk and the higher the detriment to the borrower.
Debt rollovers are at fault for many of the issues concerning payday loans. They create a cycle of persistent debt, as the borrower is forced to acquire additional debt to repay the payday loan debt.Â
In the following states, payday loans are legal but restricted to between 0 and 1 rollovers:
- New Hampshire
- New Mexico
- North Dakota
- Rhode Island
- South Carolina
- Washington D.C.
Other states tend to limit debt rollovers to 2, but there are some notable exceptions. In South Dakota and Delaware, as many as 4 are allowed, while the state of Missouri allows for 6. However, the borrower must reduce the principal of the loan by at least 5% during each successive rollover.
Are These Changes for the Best?
If youâre a payday lender, the aforementioned rules and regulations are definitely not a good thing. Payday lenders rely on persistent debt. They make money from the poorest percentage of the population as they are the ones most likely to get trapped in that cycle.
For responsible borrowers, however, they turn something potentially disastrous into something that could serve a purpose. Payday loans still carry a huge risk, especially if there is any chance that you wonât repay the loan in time, but the limits imposed on interest rates and rollovers reduces the astronomical costs.
In that sense, they are definitely for the best, but there are still risks and potential pitfalls, so be sure to keep these in mind before you apply for any short-term loans.
What is a Payday Loan? is a post from Pocket Your Dollars.
Affording to buy a house can be hard enough even as a couple. And for single mothers, unless they earn a high income, getting home loans is even harder.
Fortunately, there are home loans for single mothers out there. FHA loan, for example, is a good option for a single parent on a low income due to its low down payment and low score requirements.
If you are a single parent looking home loans, click here to get pre-approved.
The Down Payment: the hurdle for single mothers to get home loans
What makes it difficult for single mothers on a low income to get qualified for home loans is the down payment. The down payment for a conventional loan is 20% of the home purchase price.
For example, if you want to buy a house for $450,000, you will need to come up with $90,000. That is simply the down payment. Adding another 5% for closing cost brings you to $112,500.
Coming up with that kind of money is hard, if not impossible, considering the fact that you’re probably have other monthly expenses. Granted, you can get a conventional loan with smaller down payments (as low as 10 percent).
But the problem is you will have to pay much higher interest rates, including private mortgage insurance (PMI), which is an insurance that protects the lender in case you default on your loan.
Get started by comparing FHA loan rates, to find the best rates and terms that suit you.
LendingTree: A Better Way to Find A Mortgage
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Fortunately, the government has created programs to help single mothers get home loans. For instance, FHA loans only require 3.5% down payment of the home purchase price.
To illustrate, suppose you’re looking to purchase a modest house for $100,000. For a 3.5% down payment, you will only need to come up with $3,500. This low down payment is indeed flexible for low income single mothers seeking home loans.
Best Home Loans For Single Mothers
1) FHA loans
Despite having a single source of income, there are home loans for single mothers out there. Indeed, FHA home loans are a popular choice for single mothers first time home buyers.
An FHA loan is a government loan insured by the Federal Housing Administration (hence, the acronym “FHA”).
The FHA down payment can be as low as 3.5% and the credit score can be at least 580 or higher. If your credit score falls between 500 to 579, then you will need to put at least 10% down.
To know if your credit score is at least 580, get a free credit score at CreditSesame.
Program assistance for the down payment
Even if the FHA down payment is this low, single mothers seeking home loans and those who are living paycheck to paycheck can still have a hard time to come up with that money. Fortunately there are solutions.
The Department of Housing and Urban Development (HUD), which manages the FHA loan program, has recently allowed the 3.5% down payment to come from a third party.
They can be a friend, a family member, or a employer. This is good news for a single parent, as it means that they don’t have to use their own money to get a home loan.
2) VA Loans
If you’re convinced that FHA loan is a good idea, then you’d love VA loans. VA loans help homebuyers to buy home with $0 down. In addition, there is no private insurance mortgage (PMI) and has a very low interest rate.
Check to see if you’re eligible with a VA Lender.
So if you’re a veteran or service members, you may be eligible. If you were or are in the army, marine corps, navy, Air force, Coast guard, or you are a spouse of a service member, you may be eligible.
Don’t meet these requirements? You may still be eligible; talk with a home loan specialist now.
The $0 down payment is what makes VA home loans attractive among single mothers. With VA home loans, qualified single mothers can finance 100 percent of the home’s purchase price with absolutely no money down.
The other benefit of a VA loan is that there is no PMI. That is because the government backs the loan and assumes the risk.
Looking for a VA loan quote? Speak with a VA Lender today.
The Bottom line…
Being a single mother on a low income can be tough. But that should not prevent you from buying a home you have always dreamed of. The good new is there are programs that help single mothers buy a home. And those programs are the FHA and VA loans.
Additional tips for single mothers seeking home loans:
- The first step in securing a home loan is to shop and compare multiple mortgage rates to choose the best one.
- The second step is to get pre-approved by a lender. This is known as the pre-qualification process. The loan officer will assess your situation and determine what you qualify for. Once you have an idea of how much you can afford, you can submit your application.
- FHA Loan Requirements – Guidelines and Limits
- 3 Things No One Ever Tells You About Buying a Home With a FHA Loan
- How to Buy A Home With A Low Credit Score
Not All Mortgage Lenders Are Created Equally
When it comes to getting a mortgage, rates and fees vary.Â LendingTree allows you to view and compare multiple mortgage ratesÂ from multiple mortgage lenders all in one place and at the same time, so you can choose the best rates for your needs. LendingTree makes getting a loan faster, simpler, and better.Â Get started today >>>
The post Best Home Loans For Single Mothers appeared first on GrowthRapidly.
Are you in the market for a new or new-to-you car? If so, you’ve probably wondered “How much car can I afford?”
While your local car dealership might be happy to tell you the sky’s the limit regarding your car purchase, your personal budget might be telling you a different story. Spending more than you can afford on a car turns that car from a blessing into a burden.
How much should I spend on a car?
Deciding how much to spend on a car starts with knowing your current financial numbers. You'll need to know your current income, expenses, and savings amounts.
Know your numbers
There are several financial factors that can influence how much you should spend on a car. The amount of money you earn, of course, needs to be taken into account.
When determining how much you earn, always use your net take-home pay to start with. From there, factor in the other financial obligations you have.
In other words, look at your budget. If you don’t normally use one, now is a good time to start. Having a clear view of all other monthly financial obligations will help you better determine how much you can afford.
The 50-30-20 budget plan can be helpful. In short, the 50-30-20 budget plan works like this:
- 50 percent of your budget goes toward must-have and must-do obligations, such as housing expenses and child care
- 30 percent of your budget goes toward savings and debt obligations
- 20 percent of your budget covers unnecessary expenses and “fun” money
There are many ways to design a budget, but the 50-30-20 budget gives you a good place to start. It will certainly point out of there are any areas that are totally out of whack.
What do you have in savings?
Having a healthy savings account balance is important when making a car purchase as well. If you don’t have an emergency fund with a balance equal to three to six months’ worth of expenses, building that emergency fund up should be a priority.
If you don’t have an emergency fund with a balance equal to three to six months’ worth of expenses, building that emergency fund up should be a priority.
With an added car payment, having a plush savings balance will help you ensure you can cover the new payment even if you hit a financial bump. Or, for instance, if the car needs repairs.
Determine the total cost of the car
Once you have looked at your budget and determined the amount of money per month you are comfortable spending on a car you'll want to be clear on the total car costs before you make your purchase. Affording a new car isn’t simply about the payment.
There are several other costs associated with car ownership, such as:
- Insurance policy costs
- Fuel and parking costs
- Maintenance and repair costs
You can call your insurance company ahead of time and get a quote for the new vehicle you're considering. If you are still trying to narrow down what type of car you want, check out this list of the most and the least expensive cars to insure.
Call your insurance company ahead of time and get a quote for the new vehicle you're considering.
Fuel costs are fairly easy to determine. A Google search will give you the MPGs of any car you could think of. Compare that to your current car to see if your costs will change.
Maintenance and repair costs can be harder to determine but you can get an idea by using averages across a brand. Here's an article from Autowise that displays the cheapest and most expensive cars to maintain.
Be sure to factor in an accurate estimate of these additional car ownership costs as you determine a purchase price and payment amount you’re comfortable with.
Get the right kind of car loan
Doing your due diligence as you shop for a car loan is important as well. You do not have to get financing through the dealership. You will likely do better getting a loan yourself through your bank. At the very least, have an understanding of what rate you would qualify for before heading into the dealership so you know if they are offering you a fair rate.
Continue reading on Wallet Hacks.
According to the U.S. Census Bureau, the median sales price of new homes in May 2020 was around $317,000. Even if you’re purchasing a home that falls well below that average, chances are it’s one of the most expensive things you’ll ever buy. With such a big expense, you might be wonderingâhow much do you need to save for a house?
The good news? You don’t have to save for the entire purchase price. But the amount you might need on hand to buy a home can be significant. Get some idea of how much money you might need to buy a house below.
How Much Should You Save for a House Down Payment?
It all depends on the price of the home you want to buy and what type of loan program you qualify for. Down payments are usually a percentage of the home cost.
You might have heard that you need 20% down to buy a home. That’s actually not entirely true. Although the Consumer Financial Protection Bureau makes a case for the benefits of 20% down, it also notes that this number doesn’t work for everyone.
So, where does the 20% figure come from? It’s part of the guidelines set by Fannie Mae and Freddie Mac, government sponsored, mortgage guarantee companies. You either have to pay 20% down or pay private mortgage insurance, because analysis indicates that loans without 20% down are riskier for the lenders.
Here’s a look at some common mortgage options and how much you might need to have for a down payment:
- The CFPB notes that conventional loans with PMI can require 5 to 15% down on average. If the home price is $300,000, that’s $15,000 to $45,000.
- Loans through the Federal Housing Administration require down payments of at least 3.5%. That’s $10,500 on a $300,000 home.
- Some loan programs, such as those for rural borrowers through the USDA, or those who qualify for loans through the VA, don’t require a down payment at all.
Other Expenses to Save for
Down payments aren’t the only thing you need to save for when buying a home. Closing costs can be thousands of dollars, and you may need to foot the bill for inspections, home repairs or even fun things, like new furniture. To make the home-buying process less stressful, it’s a good idea to save more than you expect to need for closing costs.
How Long Will It Take to Save for a House?
Saving 20% of your income could catapult you into purchasing a home in the next one to three years, depending on your market. For example, if you’re earning $96,000 per year, that’s $19,200 saved after one year. It’s $38,400 after two years and $57,600 after three. Even if you need 20% down, these amounts are roughly enough to help you buy homes worth between $100,000 and $300,000 within three years.
How Much of Your Savings Should You Spend on a House?
It’s tempting to empty out your savings or cash in your 401(k) to buy your dream home. Even if the house is just your first step into home ownership and isn’t perfect, it’s tempting to do what it takes to get those keys.
But spending 100% of your savings leaves no safety net if something happens. What if something breaks in your new home or there’s a medical emergency? Having some savings on hand to cover these issues helps protect your home, because you’re more likely to be able to continue to pay the mortgage.
Planning to Purchase a Home
If youâre planning on buying a home in the future, it’s important to start saving today. Every little bit you can do to save for a home helps make it happen.
If you want to buy a home for around $300,000 and you can’t qualify for a loan program that requires no down payment, you’ll need at least $10,500 to $15,000. You’ll also need closing costs and other fees, which typically run between 2 and 5% of the purchase price. Assuming $10,000 in closing costs, you need $25,000 minimum to position yourself for home ownership.
A Short-Term Plan
If you’re looking to buy a home within the next year or two, you’d need to save $12,500 to $25,000 a year. Saving 20% of your income can help you save the bulk of that in one or two years if you make more than $50,000 annually. To do that, though, you’ll need to set an aggressive personal budget and be willing to cut out some extras, such as cable or eating out.
A Long-Term Plan
By starting your journey to home ownership as early as possible, you can stretch your plan to five years or more. If you save over the course of five years, that’s only $5,000 a year. That’s $416 a month or just under $100 a week. You really could save for a house this way simply by cutting out a few expensive coffees, pizza nights, dinners, etc.
Start Saving Today
How much should you save before you try to buy a home? It depends on so many factors that there’s not a one-size-fits-all answer. So, do your research early, make a plan and stick with it. And, as you get close to being ready to buy a home, don’t forget to shop around to find the best mortgage rates. Because those mortgage rates, along with your home price, determine how much you’ll pay for your home.
The post How Much Money Do You Need to Buy a House? appeared first on Credit.com.
The death of aÂ loved oneÂ is hard to take and while aÂ life insuranceÂ payoutÂ can ease the burden and allow you to continue leaving comfortably, it won’t take the grief or the heartbreak away. What’s more, if thatÂ life insurance policyÂ refuses toÂ payout, it can make the situation even worse, adding more stress, anxiety, anger, and frustration to an already emotional period.
But why would aÂ life insurance claimÂ be refused; what are theÂ causes of deathÂ that may cause yourÂ lifeÂ insurance coverageÂ to become null and void? If you or aÂ loved oneÂ has aÂ life policy, this article could provide some essential information as we look at the reasons aÂ death claimÂ may be refused.
WhatÂ Causes of DeathÂ are Not Covered?
The extent of yourÂ lifeÂ insurance coverageÂ will depend on your specific policy and this is something you should check when filing yourÂ life insurance application. Speak with yourÂ insurance agent, ask questions, and always do your due diligence so that you know what you’re buying into and what sort of deaths it will provide cover for.
Life insurance policiesÂ have something known as aÂ contestability period, which typically lasts for 1 to 2 years and begins as soon as the policy starts. If theÂ policyholderÂ dies during this time, they will investigate and contest the death.Â
This is generally true whether her you die of aÂ heart attack, cancer or suicide. However, if this period has passed, they may only contest the death if it results from one of the following.
Suicide is a contentious issue where life insurance is concerned. On the one hand, it’s a very serious issue and one that’s often the result of mental health problems, so there are those who believe it is deserving of the same respect as any other illness.Â
On the other hand, theÂ lifeÂ insurance companiesÂ are concerned that allowing such coverage will encourage desperate people to kill themselves so theirÂ loved onesÂ will be financially secure.
It’s a touchy subject, and that’s why many companies refuse to go anywhere near it. Some will outright refuse to pay outÂ for suicide, but the majority have aÂ suicide clause, whereby they onlyÂ payoutÂ if the death occurs after a specificÂ period of time.
If it occurs before this time, they may return the premiums or pay nothing at all. And if they have reason to believe that theÂ policyholderÂ took their own life just for financial gain, they will almost certainly investigate and may refuse to pay.
Dangerous Hobbies and Driving
If you die in aÂ car accidentÂ and it is deemed that you were driving drunk, your policy may notÂ payout.Â Car accidentÂ deaths are common, and this is aÂ cause of deathÂ that policies do generally cover, but only when you weren’t doing something illegal or driving recklessly.
Deaths from extreme activities like bungee jumping orÂ skydivingÂ may be questioned, especially if these hobbies were not reported during the application.Â
Your claim can be denied if you are committing an illegal act at the time of your death. This can include everything from being chased by the police to trespassing. A benefit may also be refused if you die for an intentional drug overdose using non-prescription drugs.Â
Smoking or Pre-existingÂ Health Issue
Honesty is key, and if you lie during the application or “forget” to tell them about your smoking status or pre-existingÂ medical conditions, they may refuse toÂ payout. It doesn’t matter if they performed aÂ medical examÂ or not; the onus is not on them to spot your lie, it’s on you not to tell it in the first place.
This is one of the most common reasons for anÂ insurance contractÂ to be declared void, as applicants go in search of the cheapest premiums they can get and do everything they can to bring those costs down. They may also believe they will get away with their lies, either because they will give up smoking in a few months or years or because they will die from something other than their preexisting condition.
But lying in this manner is risky. You have to ask yourself whether it’s worth paying $100 a month for a valid policy that willÂ payoutÂ without issue or $50 for a policy that will likely be refused and will cause endless stress for your beneficiaries.
Life insurance benefits generally don’t extend to the battlefield. If you’re a solider on the front line, your risk of death increases significantly, and many insurance policies won’t cover you for this. This is true even if you’re not in active duty at the time you take out the policy. More importantly, it also applies to correspondents and journalists.
You don’t invalidate your policy by going to a war-torn country and reporting, but if you die resulting from that trip, your policy will notÂ payout.
Your life insurance policy likely won’t pay forÂ dismembermentÂ orÂ critical illness, but there are additional policies and add-ons that will provide cover. You can get these alongsideÂ permanent life insuranceÂ andÂ term life insuranceÂ to provide you with more cover and peace of mind.Â
They will come at a significant extra cost, but unlike traditional life insurance, they willÂ payoutÂ when you are still alive and may make life easier after experiencing a tragic accident or serious illness.
We recommend focusing on getting life insurance first, securing theÂ amount of coverageÂ you need from a permanent orÂ termÂ life policy, and only then seeing if there is room in your budget for these additional options.
How Often DoÂ Life Insurance PoliciesÂ Payout?
We have recommended life insurance many times at PocketYourDollars and will continue to do so. We often state that it is essential if you have dependents and want to ensure they’re cared for when you die. But as much as we recommend it and as simple as the process of applying often is, there is one simple fact that we often overlook:
LifeÂ insurance companiesÂ rarelyÂ payout.
It’s a stat you may have seen elsewhere and it’s 100% true. However, contrary to what you might have heard or assumed; this is not the result of a refusal to pay theÂ death benefitÂ when theÂ policyholderÂ passes away. Sure, this accounts for some of those non-payments, but for the most part, it’s down to one of the following:
TheÂ PolicyholderÂ Survives the Term
The majority ofÂ life insurance policiesÂ are set to fixed terms, such as 10, 20 or 30 years. If anything happens during thisÂ period of time, yourÂ loved onesÂ collect yourÂ death benefit, but if you survive, the policy ends, no money is paid out, and if you want another policy you will need to pay a larger sum.
TheÂ PolicyholderÂ Accepts theÂ Cash Value
WholeÂ lifeÂ insuranceÂ policiesÂ are like investments crossed with life insurance. YourÂ loved onesÂ get aÂ death benefitÂ if you die, but it also accrues interest and can be cashed out. When this happens, the insurer collects, you get a sum of money, and it feels like a win-win, but in reality, the insurer has just dodged a bullet.
TheÂ PolicyholderÂ Stops Making Payments
As soon as you stop making yourÂ premium payments, you lose cover and you run the risk of your policy being canceled. This is true for pretty much anyÂ type of policyÂ and it happens regardless of theÂ policy term.Â
Unlike aÂ credit cardÂ company, which may chase you for payments, aÂ lifeÂ insurance companyÂ will place the burden of responsibility on you. After all, a creditor loses money when you don’t pay, whereas aÂ lifeÂ insurance companyÂ comes out on top.
This often happens when individuals take out substantialÂ life insurance policiesÂ at a young age, only to suffer drastically changing circumstances. Imagine, for instance, that you’re 20-years-old and you buy a house with your spouse-to-be, with a view to settling down and starting a family. You assume that you’ll need it for a long time, so you take out a 30-year-term.
But 10 years down the line, your spouse leaves you, the family you wanted didn’t happen, and you’re all alone with no dependents, and with growing debts, bills, and obligations. At that point, life insurance becomes a burden, so you may stop making payments, thus allowing theÂ insurance companyÂ to profit from 10 years of insurance premiums.
Summary: It’s Not That Cut-Throat
You don’t have to look far to find consumers who feel they have been wronged byÂ lifeÂ insurance companies, consumers who will expend a great deal of time and effort into calling out these companies for their perceived wrongdoings. But they often exaggerate the situation due to their extreme anger and this creates unrealistic anxieties and expectations.
The truth is, while there are people who have been genuinely wronged, they are in the extreme minority. The vast majority ofÂ family membersÂ who were refused aÂ death benefitÂ were let down by theÂ policyholderÂ and by the lies they told on their policy.
PolicyholdersÂ lie about their weight, smoking status, andÂ medicalÂ conditions, and when caught up in this lie, they often claim they made an honest mistake. But the truth is, most life insurance companies will overlook simple mistakes and only really care when it’s obvious that theÂ policyholderÂ lied.Â
And let’s be honest, it doesn’t matter how forgetful you are, you’re not going to forget that you’re a chain smoker, alcoholic, drug user, extreme sports fan or that you recently had a medical crisis!
If the policy was filed honestly, you shouldnât have an issue when you collect, even if it’s still in theÂ contestability period. As discussed above,Â lifeÂ insurance companiesÂ stack the dice in their favor. They use statistics and probability to carefully set the premiums and benefits, and they rely onÂ policyholdersÂ forgetting to pay and outliving the term. They don’t need to “rob” you in order to make a profit. So, be honest when applying and you won’t have anything to fear.
What Causes of Death are not Covered by Life Insurance? is a post from Pocket Your Dollars.
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So youâre at the point in your life where buying a home is not a question of if, but when. Youâre scrimping. Youâre saving. Youâre dreaming of walking through the front door of your very own home.
But as the decision draws near, you start questioning everything. Is now a good time to buy a house? Or is this the worst time? Is it more financially responsible to buy a house right now or wait? And what if you mistime the market, buying too soon or too late, and miss out on lower home prices?
Ultimately, the experts say the answer is less about economies, markets and pandemics and more about you.
So, how do you think through this decision? Youâll want to take time to thoroughly review your personal financial situation and life goals. At the same time, youâll need to gain some understanding of the market dynamics that impact home costs.
This process will take some time, but itâs well worth the effort. With a firm grasp on your personal situation and some context on the housing market, youâll be able to confidently go forth knowing youâre making a fiscally informed decision about whether to buy a house right now.
Honestly assess these aspects of your finances
Financial security is always important if youâre trying to determine when youâre ready to buy a home. To decide if now is a good time to buy a house, ask yourself the following questions about your finances:
How secure is your income?
Job or income stability is an important factor if you are buying a home in a rocky economy, such as the one triggered by the coronavirus pandemic, says real estate economist Gay Cororaton. Even in a robust economy, your income security should be top of mind when youâre thinking of buying a house right now.
If you have any inkling that your position may be eliminated or that youâll be making a career change, you may want to delay buying a home. Even a recent break in employment that caused you to draw down some of your savings may raise a red flag with lenders, says Kate Ziegler, a real estate agent with Arborview Realty in the Boston area.
If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home.
Do you have enough money saved?
After income stability, savings is the next-most-important financial factor youâll want to consider to determine if now is a good time to buy a house, Ziegler says. The old rule of thumb was to save 20% of the price of the home for your down payment. While that is ideal, itâs not necessaryâfar from it, Ziegler says. In fact, it has become more common for first-time buyers to put down much less than 20%.
How much house can you afford?
The down payment is one side of the affordability coin. Your monthly mortgage payment is the other side. You need to know how much you can spend on both to determine if you can afford to buy a house right now, says Jeff Tucker, a senior economist at Zillow. Aim for a monthly mortgage payment that doesnât stretch you too thinâexperts typically put this at around 28% of your monthly gross income, according to Bankrate.
With those guidelines, you can determine what you can afford. For example, if you make $4,000 a month, you should typically spend no more than $1,120 on your monthly mortgage payment in total.
How much house that buys you depends on multiple factors: mortgage rates, property tax rates, homeowners insurance andâif you donât have the savings to put down 20%âprimary mortgage insurance, or PMI. To get a rough estimate, plug your income details into an online calculator. For a more specific figure, talk to a local lender and get pre-approved for a mortgage, Ziegler says.
Once you know your price range, you can determine how much savings you need in the bank to buy a house right now. Youâll also need to have money saved for closing costs, which vary but typically run 2% to 5% of the loan amount, according to Bankrate.
Again, Ziegler recommends talking to a lender to really understand what your individual down payment and closing costs would be. Finally, be sure to add a line item in your budget for home maintenance that will inevitably pop up after you move in. Whether itâs a dishwasher on the fritz or a leaky roof, you donât want to be caught off guard, so be sure to save money for emergency home repairs.
How is your credit?
Your credit profile is also important to lenders, and it will likely be a factor in what interest rate youâre offered. Given that, you should be checking your credit report and know your credit score before investing in a home. If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home, Tucker says.
What is your debt-to-income ratio?
Another factor lenders check is your debt-to-income ratio, or DTI, Tucker says. This is the percentage of your gross monthly income that goes to paying monthly debt payments, plus your new mortgage. Lenders typically require this ratio to be 45% or less but prefer it even lowerâin the 33% to 36% range.
Have you considered the opportunity cost?
Another financial consideration when deciding if now is a good time to buy a house is the opportunity cost of delaying a home purchase, Ziegler says. If youâre renting in a market where the rent is higher than your would-be monthly mortgage payment, you may be spending a lot more money each month than if you were to purchase a home. And of course, with a mortgage, your monthly payment increases your equity.
After taking a clear-eyed look at your income, savings and these other financial factors, you will have a better sense of when youâre ready to buy a home and whether nowâs the time for you to dip into the market.
Consider key market factors
Next, take a look at factors that are outside of your control, but still influence your purchase: prices, interest rates and national employment trends.
Where are housing prices?
As youâre looking at the market, one of the biggest considerations when you are ready to buy a home will be housing prices and availability. Research your local market by talking to real estate agents who work specifically in the area where you want to buy and asking them about market trends, Ziegler says.
Track current listings and recently sold prices to get a sense of how prices look today. Generally, the tighter the inventoryâmeaning the fewer houses availableâthe higher prices will be, Tucker says.
Whatâs going on with interest rates?
When youâre ready to buy a home could also depend on another major economic factor: interest rates. When interest rates are low, your housing budget is effectively supercharged, Tucker says, and you can afford a more expensive house because youâre spending less on interest. When they are high, the opposite is true.
This is what compels people to buy when interest rates are lowâyou get more for your money. If you get a 30- or 15-year fixed-rate mortgage, you lock in that rate for the entire life of the loan, which could save you money now and into the future, Tucker says.
How does employment look nationally?
Finally, if you want to get a general idea of where the housing market may be headedâif prices will drop or rise soonâcheck out the national employment trends, Cororaton says. Low unemployment means prices will generally trend upward because more people can afford houses, boosting competition and prices, she says.
But if unemployment is inching up, then people are losing jobs and will be more likely to remain in their current homes. As a result, there tends to be less competition for them, lowering prices.
You donât need to be an expert in the market to determine if now is a good time to buy a house, but a baseline understanding of these big-picture forces can give you the confidence you need to embark on your home-buying journey.
Think about your future plans
After reviewing your savings and income and assessing the market conditions, take a step back and think about your life plans over the next few years. Your lifestyle and goals will help determine whether now is a good time to buy a house.
âFor buyers who are not certain whether they will still be living in the same place in three or five years, I would caution against locking themselves into a certain location,â Ziegler says. âIf theyâre just not sure what the future holds, it may be better to have that flexibility.â
Itâs unlikely in many markets that you will see substantial financial gain from homeownership if you move within five years, Ziegler says. Your equity gains will likely be offset by the transaction costs of buying and selling your home.
That goes for remote workers, too. Are you working from a home office these days? While widespread remote work may allow buyers to consider homes farther from their offices, ask yourself: Is my company going to permanently allow employees to work from home? Do I think there will be other remote opportunities in the future?
While youâre thinking about the next three to five years of your career, also consider the next three to five years of your personal life. Will you have a family? Will that family grow?
These can be weighty topics, so be sure to think them through on your own schedule. Buying a house is a big decision, and itâs not one to be rushed. By taking the time to assess your life, from your job security to your financial health to your lifestyle, and considering the impact of market factors, youâll have a clearer sense of when you are ready to buy a home.
If youâve decided that buying a house right now is the best decision for you, itâs time to learn more about how it will impact your budget. Get started by reading up on these eight unexpected expenses when buying a home.
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The post Is Now a Good Time to Buy a House? appeared first on Discover Bank – Banking Topics Blog.