How Long Do Inquiries Stay on Your Credit Report & Affect Your Score?

Your credit score is an important part of your financial life. Good credit can help you qualify for loans and credit cards and secure lower interest rates on those loans. Poor credit can make it expensive to borrow money and make some lenders refuse to lend you any money at all.

Usually, when you apply for a loan or credit card, the lender looks at a copy of your credit report. This places an inquiry on your report, which drops your score by a few points.

Understanding the impact of credit inquiries and how long the impact lasts can help you manage your credit score while applying for loans.

Calculating Your Credit Score

Your credit score is a three-digit number that lenders can use to quickly gauge your trustworthiness as a borrower. Scores range from a low of 300 to a high of 850, with higher scores being better. Generally, anything above 760 is seen as an excellent score while scores above 700 are good.

There are three major credit bureaus: Experian, Equifax, and Transunion. Each tracks your interactions with debt and credit to build a credit report for you. Using the information on those reports, as well as a formula from FICO, they calculate your credit score, often called your FICO score.

There are five factors that affect your credit score.

1. Payment History

Your payment history is the most important part of your credit score, determining more than a third of it alone. It tracks your history of timely vs late and missed payments. Making timely payments helps your score. Missed and late payments hurt your score.

One missed or late payment has a much larger impact on your credit than a single timely payment, so it’s essential that you work to never miss a due date if you want to have good credit.

2. Credit Utilization

Your credit utilization measures two things, your total amount of debt and the amount of credit card debt you have in relation to your credit card’s combined limits. The less debt you have, the better it is for your credit score.

3. Length of Credit History

The length of your credit history is also composed of two factors. One is the total amount of time you’ve had access to credit. A longer credit history means more experience with debt, which can help your score.

The other is the average age of your credit accounts. Lenders prefer borrowers who stick with credit cards and loans over those who bounce from account to account. The older your average account, the better it will be for your score.

4. Credit Mix

The more different types of loans you’ve had, such as mortgages, auto loans, and student loans, the better it will be for your credit score. Dealing with different types of debt shows that you can handle all the different types of credit.

5. New Credit

New credit looks at both any new accounts that you’ve opened as well as new loans you’ve applied for. This is where credit inquiries appear on your report. Each inquiry can decrease your credit score slightly.


What Is a Credit Inquiry & How Long Does It Affect Your Credit?

When you apply for a new credit card or a loan, the lender wants to know whether you’ll repay your debts.

Typically the lender asks one or more of the credit bureaus to send a copy of your credit report. When a credit bureau receives the request, it makes a note of the inquiry on your credit report. Each credit inquiry decreases your score by a few points.

Credit inquiries reduce your score because applying for new loans on a regular basis can indicate a risky borrower. If someone asks a lender if they can borrow $25,000 to buy a car, that is a relatively reasonable request.

But if someone asks to borrow $25,000 for a car, then needs another $10,000 personal loan the next week, and $50,000 the week after that, and then a new credit card a day later, it can throw up red flags. The person might be sending in so many applications because they’re running into financial trouble or because they don’t plan to repay those debts.

A single inquiry on your credit report can reduce your score between five and 10 points. It’s not a huge impact, but it’s noticeable for someone who is right on the border between good and excellent credit or fair and good credit.

Each additional inquiry drops your score, so applying for multiple loans can cause your credit score to drop quickly.

The impact of each credit inquiry reduces over time. If the rest of your credit report is good, your score will return almost to normal within a few months. Inquiries completely fall off your report after two years.


Hard Inquiries vs. Soft Inquiries

When someone checks your credit report, it can place an inquiry on the report and drop your score. This can sound scary to people who use a credit monitoring service to keep an eye on their credit score.

The good news is that not every inquiry will hurt your credit score. When you apply for credit, lenders typically make something called a hard inquiry when asking the credit bureaus for a copy of your report. The bureaus take note of hard inquiries and put them on your credit report.

By contrast, soft inquiries are used by credit monitoring services or companies offering promotional credit offers or those helping you check if you’re pre-approved for certain products.

The credit bureaus don’t record soft inquiries into your credit, which means that soft inquiries have no effect on your credit score.

In simple terms, applying for a new loan or credit card usually involves a hard inquiry. Checking your credit without actually applying for a loan or credit card usually involves a soft inquiry.


What About Rate Shopping?

One of the best ways to save money on a loan — especially a large loan like a mortgage or an auto loan — is to shop around. If you get quotes from multiple lenders, you can choose the one with the lowest interest rate and fees to minimize your costs.

If each application results in a hard inquiry that hurts your credit score, rate shopping too extensively could damage your credit.

The good news for borrowers is that the FICO scoring formula accounts for the importance of rate shopping. For large loans like mortgages, auto loans, and student loans, all inquiries that occur within a short span — 14 to 45 days depending on the formula used — are treated as a single inquiry when calculating your score.

That means that you can safely compare rates from multiple lenders, as long as you get your quotes within a short period.


Final Word

Applying for credit cards or loans can place credit inquiries on your credit report, which can drop your score. To make sure you keep your score healthy, do your best to only apply for loans that you need.

As long as you use your credit responsibly and don’t apply for too many accounts in a short period, you shouldn’t have to worry about the impact that inquiries have on your credit score.

Source: moneycrashers.com

What Are the Challenges of Buying a Historic Home?

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Home is where the heart is, so the saying goes. For many, that means a personal connection with a home and community. That often entails buying a home in a historic neighborhood. Buyers want to be located in a historic part of the city and have a home with unique features like carved moldings, custom fireplaces, and vaulted ceilings.

In some older cities, homes can date back to the 17th century, but often, historic homes were built in the late 19th or early 20th century. Historic homes are registered with the National Register of Historic Place, and they are deemed historic or “architecturally significant” if they exemplify a certain architectural style, demonstrate the essence of a certain period in history or are associated with a famous person.

Historic DIstrict SignHistoric DIstrict Sign

Located in a Historic District

When you consider the purchase of a historic property, you first need to determine if the home is located in a historic district. The United States has 2,300 local historic districts, and those districts place specific regulations on modifications to the property. Before you buy, you need to determine the rules that govern the district. Often times, a historic review board must approve any renovations to the property. The goal is to preserve the community’s historic feel. You don’t want someone adding modern elements to the façade of a historic home.

There is much debate about whether buying a home in a historic district is a good financial investment. Some find the regulations burdensome, but others believe there is strong demand for historic properties that have been well preserved.

“I think buyers see a property in a historic district as a negative because it restricts what they can do,” says Paul Whaley, of Boston’s Coldwell Banker Residential Brokerage. “Investors don’t like it either as it takes longer for approvals. In general, I think it depresses the value of a property.”

However, some studies have proved otherwise. In 2011, a study was done of historic districts in Connecticut, and it concluded that property values increased 4% to 19% annually. A different study of properties in New York City found that values between 1980 and 2000 increase more significantly for properties in historic districts on a per square foot basis.

An Emotional Investment

For many, buying a historic property is an emotional purchase. Historic homes are unique and often have a great story. People feel an emotional connection to the property and the historic community. That is not necessarily a negative, but it’s important to acknowledge that the emotional connection exists. You want to fully realize any potential problems without making an unwise decision. Step back and give some distance when making a decision that has such an emotional investment; it will minimize the chance for buyer’s remorse after purchasing.

Expensive to Maintain

Historic homes by their very nature are old and generally more expensive to maintain than newer construction. Unless they have been updated, the sewer, wiring, and electrical systems can be a nightmare to maintain. Plus, there is always the chance that significant water damage has happened over a long period of time. To conduct maintenance in these areas,  you often need to hire a specialized contractor, especially if changes must be approved by a historic review board. That means living in a historic home can be an involved commitment and require a significant amount of financial resources.

Possible Lead Paint and Asbestos

Lead paint and asbestos used to be common building materials in the United States, but they are now banned. When they are discovered in a historic home, you are often required to hire specialists to mitigate the problem. Lead paint and asbestos are both highly toxic substances, and you do not want them causing health problems to you or your family. You want to have them disposed of properly.

Historic Cape May HouseHistoric Cape May House

Mature Landscaping

Historic homes have been around for generations, and that often means the landscaping has been highly refined. Trees and shrubs are probably mature and well established. This might be an attribute that you desire, but it is something you need to be aware of when purchasing a historic home. You might have less ability to make major modifications to the landscaping.

Possible Tax Incentives

If you purchase a historic home, you might be eligible for tax credits for making modification and improvements. The federal government encourages people to purchase and rehabilitate historic structures and offers the Federal Historic Preservation Tax Incentives program. The program has helped preserve 44,341 historic properties since 1976, and has seen $96.87 billion worth of private investment. States and local communities also offer historic preservation tax credits. For example, Georgia offers a tax credit for 25 percent of qualified rehabilitation costs.

Financing and Insurance Can be a Challenge

Lending institutions often shy away from financing some historic properties, because they can be viewed as a higher risk. Lenders will often charge higher interest rates and fees when providing a mortgage for a historic property given the increased risk. As well, many historic homes do not qualify for a Federal Housing Administration loan guarantee. It’s a good idea to do your research before you make an offer on a historic home. You don’t want to get into the process and realize it will cost a lot more than you anticipated.

The same can also apply to homeowners insurance. Insurance companies want to limit their exposure, and they don’t want to have to pay to repair a historic home to its original condition. Unique architectural elements can be expensive to replace. Many times, insurance companies will want to have someone personally inspect the property before the policy is written. You will probably need to find an insurance company that specializes in covering historic properties, especially if the home is over 100 years old.


James Shea is an award-winning journalist and author. He owns Media Lab, a content marketing and search engine optimization company is Richmond, Virginia.

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Source: homes.com

The Pros & Cons of Offering Owner Financing (When You Sell Your Home)

Sometimes, home sellers find a buyer eager to purchase but unable to finance the property with traditional mortgage financing. Sellers then have a choice: lose the buyer, or lend the mortgage to the buyer themselves.

If you want to sell a property you own free and clear, with no mortgage, you can theoretically finance a buyer’s full first mortgage. Alternatively, you could offer just a second mortgage, to bridge the gap between what the buyer can borrow from a conventional lender and the cash they can put down.

Should you ever consider offering financing? What’s in it for you? And most importantly, how do you protect yourself against losses?

Before taking the plunge to offer seller financing, make sure you understand all the pros, cons, and options available to you as “the bank” when lending money to a buyer.

Advantages to Offering Seller Financing

Although most sellers never even consider offering financing, a few find themselves forced to contemplate it.

For some sellers, it could be that their home lies in a cool market with little demand. Others own unique properties that appeal only to a specific type of buyer or that conventional mortgage lenders are wary to touch. Or the house may need repairs in order to meet habitability requirements for conventional loans.

Sometimes the buyer may simply be unable to qualify for a conventional loan, but you might know they’re good for the money if you have an existing relationship with them.

There are plenty of perks in it for the seller to offer financing. Consider these pros as you weigh the decision to extend seller financing.

1. Attract & Convert More Buyers

The simplest advantage is the one already outlined: You can settle on your home even when conventional mortgage lenders decline the buyer.

Beyond salvaging a lost deal, sellers can also potentially attract more buyers. “Seller Financing Available” can make an effective marketing bullet in your property listing.

If you want to sell your home in 30 days, offering seller financing can draw in more showings and offers.

Bear in mind that seller financing doesn’t only appeal to buyers with shoddy credit. Many buyers simply prefer the flexibility of negotiating a custom loan with the seller rather than trying to fit into the square peg of a loan program.

2. Earn Ongoing Income

As a lender, you get the benefit of ongoing monthly interest payments, just like a bank.

It’s a source of passive income, rather than a one-time payout. In one fell swoop, you not only sell your home but also invest the proceeds for a return.

Best of all, it’s a return you get to determine yourself.

3. You Set the Interest Rate

It’s your loan, which means you get to call the shots on what you charge. You may decide seller financing is only worth your while at 6% interest, or 8%, or 10%.

Of course, the buyer will likely try to negotiate the interest rate. After all, nearly everything in life is negotiable, and the terms of seller financing are no exception.

4. You Can Charge Upfront Fees

Mortgage lenders earn more than just interest on their loans. They charge a slew of one-time, upfront fees as well.

Those fees start with the origination fee, better known as “points.” One point is equal to 1% of the mortgage loan, so they add up fast. Two points on a $250,000 mortgage comes to $5,000, for example.

But lenders don’t stop at points. They also slap a laundry list of fixed fees on top, often surpassing $1,000 in total. These include fees such as a “processing fee,” “underwriting fee,” “document preparation fee,” “wire transfer fee,” and whatever other fees they can plausibly charge.

When you’re acting as the bank, you can charge these fees too. Be fair and transparent about fees, but keep in mind that you can charge comparable fees to your “competition.”

5. Simple Interest Amortization Front-Loads the Interest

Most loans, from mortgage loans to auto loans and beyond, calculate interest based on something called “simple interest amortization.” There’s nothing simple about it, and it very much favors the lender.

In short, it front-loads the interest on the loan, so the borrower pays most of the interest in the beginning of the loan and most of the principal at the end of the loan.

For example, if you borrow $300,000 at 8% interest, your mortgage payment for a 30-year loan would be $2,201.29. But the breakdown of principal versus interest changes dramatically over those 30 years.

  • Your first monthly payment would divide as $2,000 going toward interest, with only $201.29 going toward paying down your principal balance.
  • At the end of the loan, the final monthly payment divides as $14.58 going toward interest and $2,186.72 going toward principal.

It’s why mortgage lenders are so keen to keep refinancing your loan. They earn most of their money at the beginning of the loan term.

The same benefit applies to you, as you earn a disproportionate amount of interest in the first few years of the loan. You can also structure these lucrative early years to be the only years of the loan.

6. You Can Set a Time Limit

Not many sellers want to hold a mortgage loan for the next 30 years. So they don’t.

Instead, they structure the loan as a balloon mortgage. While the monthly payment is calculated as if the loan is amortized over the full 15 or 30 years, the loan must be paid in full within a certain time limit.

That means the buyer must either sell the property within that time limit or refinance the mortgage to pay off your loan.

Say you sign a $300,000 mortgage, amortized over 30 years but with a three-year balloon. The monthly payment would still be $2,201.29, but the buyer must pay you back the full remaining balance within three years of buying the property from you.

You get to earn interest on your money, and you still get your full payment within three years.

7. No Appraisal

Lenders require a home appraisal to determine the property’s value and condition.

If the property fails to appraise for the contract sales price, the lender either declines the loan or bases the loan on the appraised value rather than the sales price — which usually drives the borrower to either reduce or withdraw their offer.

As the seller offering financing, you don’t need an appraisal. You know the condition of the home, and you want to sell the home for as much as possible, regardless of what an appraiser thinks.

Foregoing the appraisal saves the buyer money and saves everyone time.

8. No Habitability Requirement

When mortgage lenders order an appraisal, the appraiser must declare the house to be either habitable or not.

If the house isn’t habitable, conventional and FHA lenders require the seller to make repairs to put it in habitable condition. Otherwise, they decline the loan, and the buyer must take out a renovation loan (such as an FHA 203k loan) instead.

That makes it difficult to sell fixer-uppers, and it puts downward pressure on the price. But if you want to sell your house as-is, without making any repairs, you can do so by offering to finance it yourself.

For certain buyers, such as handy buyers who plan to gradually make repairs themselves, seller financing can be a perfect solution.

9. Tax Implications

When you sell your primary residence, the IRS offers an exemption for the first $250,000 of capital gains if you’re single, or $500,000 if you’re married.

However, if you earn more than that exemption, or if you sell an investment property, you still have to pay capital gains tax. One way to reduce your capital gains tax is to spread your gains over time through seller financing.

It’s typically considered an installment sale for tax purposes, helping you spread the gains across multiple tax years. Speak with an accountant or other financial advisor about exactly how to structure your loan for the greatest tax benefits.


Drawbacks to Seller Financing

Seller financing comes with plenty of risks. Most of the risks center around the buyer-borrower defaulting, they don’t end there.

Make sure you understand each of these downsides in detail before you agree to and negotiate seller financing. You could potentially be risking hundreds of thousands of dollars in a single transaction.

1. Labor & Headaches to Arrange

Selling a home takes plenty of work on its own. But when you agree to provide the financing as well, you accept a whole new level of labor.

After negotiating the terms of financing on top of the price and other terms of sale, you then need to collect a loan application with all of the buyer’s information and screen their application carefully.

That includes collecting documentation like several years’ tax returns, several months’ pay stubs, bank statements, and more. You need to pull a credit report and pick through the buyer’s credit history with a proverbial fine-toothed comb.

You must also collect the buyer’s new homeowner insurance information, which must include you as the mortgagee.

You need to coordinate with a title company to handle the title search and settlement. They prepare the deed and transfer documents, but they still need direction from you as the lender.

Be sure to familiarize yourself with the home closing process, and remember you need to play two roles as both the seller and the lender.

Then there’s all the legal loan paperwork. Conventional lenders sometimes require hundreds of pages of it, all of which must be prepared and signed. Although you probably won’t go to the same extremes, somebody still needs to prepare it all.

2. Potential Legal Fees

Unless you have experience in the mortgage industry, you probably need to hire an attorney to prepare the legal documents such as the note and promise to pay. This means paying the legal fees.

Granted, you can pass those fees on to the borrower. But that limits what you can charge for your upfront loan fees.

Even hiring the attorney involves some work on your part. Keep this in mind before moving forward.

3. Loan Servicing Labor

Your responsibilities don’t end when the borrower signs on the dotted line.

You need to make sure the borrower pays on time every month, from now until either the balloon deadline or they repay the loan in full. If they fail to pay on time, you need to send late notices, charge them late fees, and track their balance.

You also have to confirm that they pay the property taxes on time and keep the homeowners insurance current. If they fail to do so, you then have to send demand letters and have a system in place to pay these bills on their behalf and charge them for it.

Every year, you also need to send the borrower 1098 tax statements for their mortgage interest paid.

In short, servicing a mortgage is work. It isn’t as simple as cashing a check each month.

4. Foreclosure

If the borrower fails to pay their mortgage, you have only one way to forcibly collect your loan: foreclosure.

The process is longer and more expensive than eviction and requires hiring an attorney. That costs money, and while you can legally add that cost to the borrower’s loan balance, you need to cough up the cash yourself to cover it initially.

And there’s no guarantee you’ll ever be able to collect that money from the defaulting borrower.

Foreclosure is an ugly experience all around, and one that takes months or even years to complete.

5. The Buyer Can Declare Bankruptcy on You

Say the borrower stops paying, you file a foreclosure, and eight months later, you finally get an auction date. Then the morning of the auction, the borrower declares bankruptcy to stop the foreclosure.

The auction is canceled, and the borrower works out a payment plan with the bankruptcy court judge, which they may or may not actually pay.

Should they fail to pay on their bankruptcy payment plan, you have to go through the process all over again, and all the while the borrowers are living in your old home without paying you a cent.

6. Risk of Losses

If the property goes to foreclosure auction, there’s no guarantee anyone will bid enough to cover the borrower’s loan debt.

You may have lent $300,000 and shelled out another $20,000 in legal fees. But the bidding at the foreclosure auction might only reach $220,000, leaving you with a $100,000 shortfall.

Unfortunately, you have nothing but bad options at that point. You can take the $100,000 loss, or you can take ownership of the property yourself.

Choosing the latter means more months of legal proceedings and filing eviction to remove the nonpaying buyer from the property. And if you choose to evict them, you may not like what you find when you remove them.

7. Risk of Property Damage

After the defaulting borrower makes you jump through all the hoops of foreclosing, holding an auction, taking the property back, and filing for eviction, don’t delude yourself that they’ll scrub and clean the property and leave it in sparkling condition for you.

Expect to walk into a disaster. At the very least, they probably haven’t performed any maintenance or upkeep on the property. In my experience, most evicted tenants leave massive amounts of trash behind and leave the property filthy.

In truly terrible scenarios, they intentionally sabotage the property. I’ve seen disgruntled tenants pour concrete down drains, systematically punch holes in every cabinet, and destroy every part of the property they can.

8. Collection Headaches & Risks

In all of the scenarios above where you come out behind, you can pursue the defaulting borrower for a deficiency judgment. But that means filing suit in court, winning it, and then actually collecting the judgment.

Collecting is not easy to do. There’s a reason why collection accounts sell for pennies on the dollar — most never get collected.

You can hire a collection agency to try collecting for you by garnishing the defaulted borrower’s wages or putting a lien against their car. But expect the collection agency to charge you 40% to 50% of all collected funds.

You might get lucky and see some of the judgment or you might never see a penny of it.


Options to Protect Yourself When Offering Seller Financing

Fortunately, you have a handful of options at your disposal to minimize the risks of seller financing.

Consider these steps carefully as you navigate the unfamiliar waters of seller financing, and try to speak with other sellers who have offered it to gain the benefit of their experience.

1. Offer a Second Mortgage Only

Instead of lending the borrower the primary mortgage loan for hundreds of thousands of dollars, another option is simply lending them a portion of the down payment.

Imagine you sell your house for $330,000 to a buyer who has $30,000 to put toward a down payment. You could lend the buyer $300,000 as the primary mortgage, with them putting down 10%.

Or you could let them get a loan for $270,000 from a conventional mortgage lender, and you could lend them another $30,000 to help them bridge the gap between what they have in cash and what the primary lender offers.

This strategy still leaves you with most of the purchase price at settlement and lets you risk less of your own money on a loan. But as a second mortgage holder, you accept second lien position

That means in the event of foreclosure, the first mortgagee gets paid first, and you only receive money after the first mortgage is paid in full.

2. Take Additional Collateral

Another way to protect yourself is to require more collateral from the buyer. That collateral could come in many forms. For example, you could put a lien against their car or another piece of real estate if they own one.

The benefits of this are twofold. First, in the event of default, you can take more than just the house itself to cover your losses. Second, the borrower knows they’ve put more on the line, so it serves as a stronger deterrent for defaults.

3. Screen Borrowers Thoroughly

There’s a reason why mortgage lenders are such sticklers for detail when underwriting loans. In a literal sense, as a lender, you are handing someone hundreds of thousands of dollars and saying, “Pay me back, pretty please.”

Only lend to borrowers with a long history of outstanding credit. If they have shoddy credit — or any red flags in their credit history — let them borrow from someone else. Be just as careful of borrowers with little in the way of credit history.

The only exception you should consider is accepting a cosigner with strong, established credit to reinforce a borrower with bad or no credit. For example, you might find a recent college graduate with minimal credit who wants to buy, and you could accept their parents as cosigners.

You also could require additional collateral from the cosigner, such as a lien against their home.

Also review the borrower’s income carefully, and calculate their debt-to-income ratios. The front-end ratio is the percentage of their monthly income required to cover all housing costs: principal and interest, property taxes, homeowner’s insurance, and any condominium or homeowners association fees.

For reference, conventional mortgage lenders allow a maximum front-end ratio of 28%.

The back-end ratio includes not just housing costs, but also overall debt obligations. That includes student loans, auto loans, credit card payments, and all other mandatory monthly debt payments.

Conventional mortgage loans typically allow 36% at most. Any more than that and the buyer probably can’t afford your home.

4. Charge Fees for Your Trouble

Mortgage lenders charge points and fees. If you’re serving as the lender, you should do the same.

It’s more work for you to put together all the loan paperwork. And you will almost certainly have to pay an attorney to help you, so make sure you pass those costs along to the borrower.

Beyond your own labor and costs, you also need to make sure you’re being compensated for your risk. This loan is an investment for you, so the rewards must justify the risk.

5. Set a Balloon

You don’t want to be holding this mortgage note 30 years from now. Or, for that matter, to force your heirs to sort out this mortgage on your behalf after you shuffle off this mortal coil.

Set a balloon date for the mortgage between three and five years from now. You get to collect mostly interest in the meantime, and then get the rest of your money once the buyer refinances or sells.

Besides, the shorter the loan term, the less opportunity there is for the buyer to face some financial crisis of their own and stop paying you.

6. Be Listed as the Mortgagee on the Insurance

Insurance companies issue a declarations page (or “dec page”) listing the mortgagee. In the event of damage to the property and an insurance claim, the mortgagee gets notified and has some rights and protections against losses.

Review the insurance policy carefully before greenlighting the settlement. Make sure your loan documents include a requirement that the borrower send you updated insurance documents every year and consequences if they fail to do so.

7. Hire a Loan Servicing Company

You may multitalented and an expert in several areas. But servicing mortgage loans probably isn’t one of them.

Consider outsourcing the loan servicing to a company that specializes in it. They send monthly statements, late notices, 1098 forms, and escrow statements (if you escrow for insurance and taxes), and verify that taxes and insurance are current each year. If the borrower defaults, they can hire a foreclosure attorney to handle the legal proceedings.

Examples of loan servicing companies include LoanCare and Note Servicing Center, both of whom accept seller-financing notes.

8. Offer Lease-to-Own Instead

The foreclosure process is significantly longer and more expensive than the eviction process.

In the case of seller financing, you sell the property to the buyer and only hold the mortgage note. But if you sign a lease-to-own agreement, you maintain ownership of the property and the buyer is actually a tenant who simply has a legal right to buy in the future.

They can work on improving their credit over the next year or two, and you can collect rent. When they’re ready, they can buy from you — financed with a conventional mortgage and paying you in full.

If the worst happens and they default, you can evict them and either rent or sell the property to someone else.

9. Explore a Wrap Mortgage

If you have an existing mortgage on the property, you may be able to leave it in place and keep paying it, even after selling the property and offering seller financing.

Wrap mortgages, or wraparound mortgages, are a bit trickier and come with some legal complications. But when executed right, they can be a win-win for both you and the buyer.

Say you have a 30-year mortgage for $250,000 at 3.5% interest. You sell the property for $330,000, and you offer seller financing of $300,000 for 6% interest. The buyer pays you $30,000 as a down payment.

Ordinarily, you would pay off your existing mortgage for $250,000 upon selling it. Most mortgages include a “due-on-sale” clause, requiring the loan to be paid in full upon selling the property.

But in some circumstances and some states, you may be able to avoid triggering the due-on-sale clause and leave the loan in place.

You keep paying your mortgage payment of $1,122.61, even as the borrower pays you $1,798.65 per month. In a couple of years when they refinance, they pay off your previous mortgage in full, plus the additional balance they owe you.

Of course, you still run the risk that the borrower stops paying you. Then you’re saddled with making your monthly mortgage payment on the property, even as you slog through the foreclosure process to try and recover your losses.


Final Word

Offering seller financing comes with risks. But those risks may be worth taking, especially for hard-to-sell properties.

Only you can decide what risk-reward ratio you can live with, and negotiate loan terms to ensure you come out on the right side of the ratio. For unique or other difficult-to-finance properties, seller financing may be the only way to sell for what the property’s worth.

Before you write off the returns as low, remember that your APR will be far higher than the interest rate charged.

Beyond the upfront fees you can charge, you’ll also benefit from simple interest amortization, which front-loads the interest so that nearly all of the monthly payment goes toward interest in the first few years — the only years you need to finance if you structure the loan as a balloon mortgage.

Just be sure to screen all borrowers extremely carefully, and to take as many precautions as you can. If the borrower can’t qualify for a conventional mortgage, consider that a glaring red flag. Seller financing involves risking many thousands of dollars in a single transaction, so take your time and get it right.

Source: moneycrashers.com

How to Adjust Your Federal Income Tax Withholding Allowances

My husband and I were recently shocked by the amount of our income tax refund. At first, we were elated. It was enough to pay off our car, allowing us to live debt-free. At the same time, we were kicking ourselves for not having this money available for use during the past year.

Maybe you’ve had a similar experience — or the opposite (and decidedly less pleasant) one where you’ve had to pay more money in federal income taxes than you expected. Regardless, the issue is the same.

In both these situations, the amount withheld from your paycheck isn’t coinciding with the amount you really owe.

The best way to fix it is to adjust your federal income tax withholdings, which you can do in a few simple steps. But only make such an adjustment if you’re sure you need to.

When to Adjust Your Income Tax Withholding

You can adjust your withholding at any time. However, many life events can impact your taxes, so it’s a good idea to update your withholding whenever something significant changes.

These life events are a red flag you may need to revisit your withholding.

1. You Started a New Job

When you get a new job, your employer requires you to fill out a W-4 so they can determine how much federal income tax to withhold from your paycheck.

It may seem like just another routine part of your onboarding paperwork, but it’s crucial to complete the form accurately to ensure you won’t end up with an unexpected year-end tax bill.

2. You Got a Big Refund

If you received a large tax return from the IRS for last year’s taxes, that means your employer was taking too much money out of your paycheck. It’s exciting to get a big check, but think of it this way:

That’s money that belongs to you that you were essentially loaning the government interest-free. If you didn’t do that, not only could you have used that money throughout the tax year to pay for your expenses, but you could also have invested it and received interest on it.

It’s exciting when you can do something smart with your tax refund, but it is not the best financial situation.

For example, say you got a refund of $1,000. You gave the government $1,000, and the government gave you back $1,000.

Had your tax withholding amount been correct, you could have invested that $1,000 or had it available in an emergency fund instead. Instead, you gave the federal government an interest-free loan.

The IRS will only refund the amount you overpaid, with no interest. So your goal should be to have zero tax refund, or close to it.

3. You Owe Money to the IRS

It’s an awful feeling when you owe a large amount of money to the government, especially if you thought you might be getting a refund. But as with anything you must save up for, you need to put a little extra money aside with each paycheck to cover a considerable expense.

One way to do that is not to have the money in your possession at all. Out of sight, out of mind. Increase your withholding so the government gets the money before you receive it.

For example, if you owe $1,000 and get paid weekly, you can spread that $1,000 out over 52 weeks. So instead of owing the government $1,000 in one lump sum, give them an extra $20 each week to avoid owing when you file your taxes at the end of the year.

4. You’re Expecting Life Changes

When your life changes, so do your taxes.

Did you get married? Have a baby? Buy a home? Start giving charitable contributions? Are you expecting any of these changes in the next year?

All these things affect your taxable income and tax breaks like itemizing versus claiming the standard deduction or claiming the child tax credit. So take the opportunity to review your tax withholding and adjust accordingly.


How to Adjust Your Federal Tax Withholding

To adjust the amount of taxes withheld from your paycheck, the first step is on you, and the rest is on your employer. There are a few different methods to determine the withholding that makes the most sense for your tax situation.

Before you get started, have your previous year’s tax documents handy as well as your last pay stub.

1. Form W-4 Employee’s Withholding Certificate

If it’s been a few years since you filled out a Form W-4 for your job, you might think you need to calculate the number of allowances you need to claim to get the right withholding. But allowances aren’t part of Form W-4 anymore.

The Tax Cuts and Jobs Act of 2018 eliminated personal exemptions — a set amount taxpayers could deduct for themselves, their spouse, and each of their dependents

The old allowance method of calculating withholding was tied to those exemptions, so it didn’t make sense to use them anymore, and Form W-4 was redesigned in 2020 to reflect a new way of estimating your tax liability. Now, it includes just a handful of steps to help you complete the worksheet and adjust your withholding.

If you and your spouse are a two-earner household, pay special attention to Step 2, whether you’re going to be married filing jointly or separately, as it has instructions for joint filers that both hold jobs.

If you need more help, the IRS has a more user-friendly tool: a withholding calculator.

2. IRS Withholding Calculator

The easy-to-use IRS Tax Withholding Estimator is on the IRS website. To use it, you answer a series of questions about your filing status, dependents, income, and tax credits. That’s where having your previous tax documents and last pay stub comes in handy.

3. Fill Out a New Form W-4

Once you’ve used the Tax Withholding Estimator tool, you can use the results of the calculator to fill out a new Form W-4. Give it to your employer’s human resources or payroll department, and they’ll make the necessary adjustments.

Some employers have an automated system for submitting withholding adjustments, so check with your employer to see if they have this option available.

It’s a good idea to take action as soon as you know you need to adjust your withholding since it will impact every paycheck you earn for the rest of the year.


Final Word

The lower your withholding, the less tax your employer will withhold from your paycheck. That may seem like a good thing, but you don’t want to have too much withheld or you could be liable for an underpayment penalty when you file.

Managing taxes can be confusing, and withholding is just the first of many things you need to know to handle your taxes well. For more guidance, check out our complete tax filing guide.

Source: moneycrashers.com

The psychology of being overworked and underpaid

Stressed woman with hands on her head looking at a laptop.

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A competitive salary is something we all strive for in our careers, but for some, the salary we know we deserve doesn’t necessarily match our reality. An employee may put in extra hours, take on more responsibilities and go the extra mile, but they still may not be properly compensated for their work. 

Being overworked and underpaid isn’t as uncommon as we think. According to a poll conducted by Gallup, 43 percent of U.S. workers believe they are underpaid. 

Unfortunately, this can have a negative impact on a person’s productivity, mental health and even credit health. So, what can you do if you feel you’re not being fairly paid at work? 

Read on to find out the psychological impact of being overworked and underpaid and how you can combat this issue—or jump straight to the infographic below. 

Impacts of being overworked and underpaid

Sometimes we’re so eager to accept a job that we settle for whatever salary we’re offered, only to find out that what we’re given doesn’t match the responsibilities we’ve taken on. Or, you may have been at a company for a while and experienced an increase in your workload but seen little to no increase in pay. 

Being overworked and underpaid can ultimately lead to a multitude of feelings that can cause more harm than good. Here are three signs you shouldn’t ignore:

Decrease in productivity

Employees who work long hours and have heavier workloads aren’t necessarily the most productive. Some may think the more hours you work, the more you’ll get done, but for most, this can have the opposite effect.

The more work an employee takes on, the more prone they become to mistakes. This can lead to feelings of burnout, sleep deprivation and work-life imbalance due to stress and the inability to keep up with the heavy workload. On top of that, if you’re being underpaid, it can make it extremely difficult to stay motivated in your role. 

Gallup found that 23 percent of employees felt burnt out almost always at work, according to a study made up of 7,500 full time employees. When it becomes hard to juggle workplace stress, people can find it difficult to function and stay productive. The same study conducted by Gallup also found that 13 percent of workers are less confident in their work performance when experiencing symptoms of burnout.

13% of workers are less confident in their work performance when feeling burnt out. Source: Gallup.

Employees may start to feel disconnected from their work and may even have built up resentment toward their employer because of their lack of compensation, causing a never-ending cycle of stress, burnout and lack of productivity. These feelings can ultimately impact employees’ overall well-being and mental health. 

Negative effects on your mental well-being 

Most people spend the majority of their time in the workplace. Unfortunately for some, the stresses from work can be hard to shut off even when leaving the office for the day. According to a study conducted by Wrike, 94 percent of employees said they felt stress at work and 54 percent said the stresses from work negatively affect their home life.

57.9% of employees said work has impacted their mental health in some way. Source: Paychex.

Long work hours, an increase in work-related tasks and insufficient pay can all start to take a toll on a person’s physical and mental health. A survey conducted by Paychex found that 57.9 percent of employees said work impacted their mental health in some way. 

Damaged credit health  

Aside from mental health and productivity, being underpaid can start to hurt your financial standing. Though your income doesn’t have a direct impact on your credit score, lack of income can make it more difficult to pay your bills on time. A survey by WalletHub found that 30 percent of respondents missed credit card payments because they didn’t have enough money. 

30% of people missed credit card payments because they didn’t have enough money. Source: WalletHub.

A Gallup poll also found that 55 percent of women feel they are underpaid for the amount of work they do, which could play into why they hold nearly two-thirds of the student loan debt in the U.S. With women receiving lower-than-average wages, keeping up with student loans and other debt payments becomes harder, thus affecting their overall credit health. 

6 ways to handle being underpaid 

Being underpaid is a problem that many people find themselves in and struggle to get out of. The only way to get out of this predicament is to take matters into your own hands. Here are six ways you can get out of being underpaid: 

1. Negotiate a competitive raise

Present your employer with an exact dollar amount and provide documentation of your work and performance.

Asking for a raise can seem scary and intimidating, but it’s an important step toward solving your problem. Though it’s not always the easiest thing to do, you’ll never know if you don’t ask. 

When asking for a raise, make sure you do your research on your industry’s salary range and provide an exact number when meeting with your employer. Providing an exact dollar amount as opposed to a salary range will show your employer that you know what you want and will make the negotiation process easier. Try aiming a little higher than what you would like to leave room for negotiation. When researching salary ranges, tools like Salary.com and LinkedIn’s salary tool can be a huge help. 

To support your case, come to the meeting with documentation to show your work and accomplishments thus far. Provide hard data, numbers, positive feedback you’ve received in the past and all of the ways you have helped and plan to help increase the company’s bottom line. The more evidence you provide, the better chance you have at landing that raise. 

2. Review company growth path and policies 

Schedule an official performance review with your employer to discuss your progress and an increase in pay.

Most companies give performance reviews and have a growth path clearly noted, so it may be worth revisiting your company policies first. Growth paths are important in understanding what’s expected from your employer in order to progress within the company and earn a higher wage. 

If you haven’t received an official review, get one on the schedule with your boss. A 2018 report found that 68 percent of executives say they learn about employees’ concerns for the first time during performance reviews. If you’re concerned about your growth within the company, don’t wait for your employer to come to you about it. 

3. Start a conversation about your workload

Consider decreasing your hours to alleviate workplace stress and create a healthier work-life balance.

If you’re continuing to work long hours and find the pay still isn’t worth it, it might be beneficial to have an open and honest conversation about the amount of work you’ve taken on. If your employer is unable to give you a raise, you may want to discuss cutting back on your hours or workload.

The result may not be an increase in pay, but you may be happier in your role and be able to perform better if they ease up on your day-to-day tasks. Your pay sometimes isn’t worth being unhappy at work. In fact, one of our studies on employee happiness found that 60 percent of Americans said they would take a job they loved with half their current income over one they hated. 

Employers may not be aware of the impact the extra work is having on you, so always try your best to be transparent about your load to find a healthy compromise. 

4. Start exploring other options 

Aside from monetary benefits, take other factors into consideration, such as health insurance coverage and time-off policies.

If your request for a raise gets denied and you still find yourself in the same predicament, you might want to start exploring other options. In fact, those experiencing symptoms of burnout at work are 2.6 times as likely to actively be looking for another job. 

Though monetary benefits are usually of the utmost importance, remember to consider other factors like health insurance options, flexible hours, vacation policies and overall company culture. The issues you experience in your current position can help you determine what you’re looking for in your next role. 

5. Consider quitting your job 

Make sure you’re in a good financial standing and have at least 3 to 6 months of pay saved.

At the end of the day, no job is worth putting your mental health at risk. If your current employer isn’t paying you what you deserve and you don’t feel fulfilled in your role, consider moving on. Now that you’ve done extensive research on your industry’s salary range, you’ll know what range to keep in mind when applying for other positions. 

Before jumping the gun and resigning from a position, make sure you’re financially prepared. In these situations, it’s smart to have at least three to six months’ worth of pay saved to give you some cushion during your job search. It may become more difficult to get approved for a credit card without a job, so having saved up income can help ensure you’re able to pay your credit balance. 

6. Know your worth 

Use Glassdoor’s Know Your Worth tool to compare salary levels according to location, experience level and job title.

Understanding your own worth means being clear on the value you can bring to a company. When you know your worth, asking for a raise and vocalizing your concerns will start to come naturally to you. 

Assess your own skills and level of expertise and be realistic with yourself. Once you’ve analyzed your own skills and industry’s expectations, you’ll have a better understanding of an appropriate wage. Glassdoor has a Know Your Worth tool that can help you determine salary ranges by title, experience level and location. 

The most important thing to remember is to not sell yourself short. Research from Glassdoor found that 59 percent of employees did not negotiate salary and accepted the first offer they were given. Know your worth and don’t settle for less than what you deserve. 

Money isn’t everything when it comes to employment, but it can certainly start to impact your career and personal growth if it remains stagnant. If your paycheck isn’t reflecting your worth, take action and make sure you’re getting the compensation that will set you up for further financial success. 

For tips on how to handle being overworked and underpaid, check out our infographic below.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Solo travelers rejoice: Why I’m in favor of new Amex Centurion Lounge guest rules – The Points Guy


Solo travelers rejoice: Why I’m in favor of new Amex Centurion Lounge guest rules


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Editorial Note: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Source: thepointsguy.com

7 amazing awards TPG staff are booking with Ultimate Rewards points this year – The Points Guy


How TPG staff are redeeming Ultimate Rewards in 2021 – The Points Guy


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Many of the credit card offers that appear on the website are from credit card companies from which ThePointsGuy.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This site does not include all credit card companies or all available credit card offers. Please view our advertising policy page for more information.

Editorial Note: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Source: thepointsguy.com

Someone Took Out a Loan in Your Name. Now What?

Wise Bread Picks

Identity theft wears many different faces. From credit cards to student loans, thieves can open different forms of credit in your name and just like that, destroy your credit history and financial standing.

If this happens to you, getting the situation fixed can be difficult and time-consuming. But you can set things right.

If someone took out a loan in your name, it’s important to take action right away to prevent further damage to your credit. Follow these steps to protect yourself and get rid of the fraudulent accounts.

1. File a police report

The first thing you should do is file a police report with your local police department. You might be able to do this online. In many cases, you will be required to submit a police report documenting the theft in order for lenders to remove the fraudulent loans from your account. (See also: 9 Signs Your Identity Was Stolen)

2. Contact the lender

If someone took out a loan or opened a credit card in your name, contact the lender or credit card company directly to notify them of the fraudulent account and to have it removed from your credit report. For credit cards and even personal loans, the problem can usually be resolved quickly.

When it comes to student loans, identity theft can have huge consequences for the victim. Failure to pay a student loan can result in wage garnishment, a suspended license, or the government seizing your tax refund — so it’s critical that you cut any fraudulent activity off at the pass and get the loans discharged quickly.

In general, you’ll need to contact the lender who issued the student loan and provide them with a police report. The lender will also ask you to complete an identity theft report. While your application for discharge is under review, you aren’t held responsible for payments.

If you have private student loans, the process is similar. Each lender has their own process for handling student loan identity theft. However, you typically will be asked to submit a police report as proof, and the lender will do an investigation.

3. Notify the school, if necessary

If someone took out student loans in your name, contact the school the thief used to take out the loans. Call their financial aid or registrar’s office and explain that a student there took out loans under your name. They can flag the account in their system and prevent someone from taking out any more loans with your information. (See also: How to Protect Your Child From Identity Theft)

4. Dispute the errors with the credit bureaus

When you find evidence of fraudulent activity, you need to dispute the errors with each of the three credit reporting agencies: Experian, Equifax, and TransUnion. You should contact each one and submit evidence, such as your police report or a letter from the lender acknowledging the occurrence of identity theft. Once the credit reporting bureau has that information, they can remove the accounts from your credit history.

If your credit score took a hit due to thieves defaulting on your loans, getting them removed can help improve your score. It can take weeks or even months for your score to fully recover, but it will eventually be restored to its previous level. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

5. Place a fraud alert or freeze on your credit report

As soon as you find out you’re the victim of a fraudulent loan, place a fraud alert on your credit report with one of the three credit reporting agencies. You can do so online:

When you place a fraud alert on your account, potential creditors or lenders will receive a notification when they run your credit. The alert prompts them to take additional steps to verify your identity before issuing a loan or form of credit in your name. (See also: How to Get a Free Fraud Alert on Your Credit Report)

In some cases, it might be a good idea to freeze your credit. With a credit freeze, creditors cannot view your credit report or issue you new credit unless you remove the freeze.

6. Check your credit report regularly

Finally, check your credit report regularly to ensure no new accounts are opened in your name. You can request a free report from each of the three credit reporting agencies once a year at AnnualCreditReport.com. You can stagger the reports so you take out one every four months, helping you keep a close eye on account activity throughout the year. (See also: How to Read a Credit Report)

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Someone Took Out a Loan in Your Name. Now What?

Source: wisebread.com