- Reverse Mortgages
A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash.
The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds can be used.
The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance and homeowners association dues (if applicable).
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.
Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5 percent is required. Borrowers who cannot afford a traditional down payment of 20 percent or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario.
Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.
- Conforming Mortgage Loans
In order for a mortgage loan to be conforming, it must meet certain criteria that would allow Fannie Mae and Freddie Mac to purchase the loan. The most significant of these criteria is the loan limit, which refers to the maximum amount of the loan. The loan limit can change from year to year. In most states in 2013, the conforming loan limit for a single-family, one-unit property is $417,000. Certain areas of the country, such as Alaska, Hawaii, the Virgin Islands and Guam, have a higher loan limit. Other criteria for conforming loans include standards for debt-to-income ratios and financial documentation that must be submitted by the borrower to support the loan.
Conforming loans offer borrowers some advantages. Most importantly, conforming loans typically have lower interest rates, which means lower monthly mortgage payments and less money spent over the life of the loan. Conforming loans often do not come with pre-payment penalties for paying off the mortgage sooner than expected, which can make refinancing down the road more attractive. And conforming loans are often processed by an automated underwriting system (AUS), making for a faster turnaround time.
- Non-Conforming Mortgage Loans
Non-conforming loans are offered to borrowers who do not qualify for conforming loans. Though they are the only borrowing option for some home buyers, they typically have higher interest rates, and may carry additional upfront fees and insurance requirements.
Loans can be non-conforming for several different reasons. The best-known type of non-conforming loan is the jumbo loan.
Jumbo loans are too large to meet the guidelines of a conforming loan. For example, if you are buying a home in a county in which the conforming loan limit is $417,000, and you are taking out a single mortgage for $500,000, you’ll need a jumbo loan.
As jumbo loans do not meet the standards of a conforming loan, they are more difficult to sell on the secondary market. Lenders are less confident in their ability to resell this type of mortgage, so they will offset their financial risk by charging the borrower a higher interest rate.
Other Non-Conforming Loans
Certain borrowers do not meet the lending guidelines of conforming loans, even if the size of the loan is not an issue. Usually, this is for one or more of the following reasons:
- Loan-to-Value Ratio (LTV): This number represents the percentage of the home’s purchase price that you pay for with a mortgage. If the home costs $100,000, and you take out a mortgage of $80,000, the LTV ratio is 80%. Typically, you can borrow up to 90% of the home’s purchase price and still qualify for a conforming loan. Anything higher than a 90% LTV ratio may disqualify you.
- Credit Score and History: As of December, 2009, borrowers need to have a solid credit history, reflected by a credit score of at least 620. A lower credit score may disqualify you from getting a conforming loan.
- Documentation Problems: Conforming loans require complete documentation of employment history, income, and assets. If you can’t provide all of this documentation, you may not qualify for a conforming loan.
- Total Debt: If your total debt load is very high, you may have trouble getting a conforming loan.
- Recent Bankruptcy: Borrowers who are recovering from a recent bankruptcy (within the past two years) may not be able to secure a conforming loan.
- Debt-to-Income Ratio (DTI): If your monthly mortgage , insurance, taxes, and other consumer debt payments add up to more than 45% of your monthly pre-tax income, you may not qualify for a conforming loan.
Real Estate Investment Fund (REIT)
The future of REITs are now through the process of crowdfunding. Crowdfunding is the practice of funding a real estate project by raising many small amounts of money from a large number of people via the Internet.
A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on
REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock. In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property.
Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs. The two main types of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. Mortgage REITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.
Today, REITs are tied to almost all aspects of the economy, including apartments, hospitals, hotels, industrial facilities, infrastructure, nursing homes, offices, shopping malls, storage centers, student housing, and timberlands. REIT-owned properties are located in every state and according to a 2014 E&Y study, REITs support more than one million U.S. jobs annually. U.S. REITs have become a model for REITs around the world, and now more than 30 countries around the world have adopted REIT legislation.
Greystone Finance Group offers investors a number of benefits, including:
- Diversification: Over the long term, Equity REIT returns have shown little correlation to the returns of the broader stock market.
- Dividends: Stock exchange-listed REITs have provided a stable income stream to investors.
- Liquidity: Stock exchange-listed REIT shares can be easily bought and sold.
- Performance: Over most long-term horizons, stock exchange-listed REIT returns outperformed the S&P 500, Dow Jones Industrials and NASDAQ Composite.
- Transparency: Stock exchange-listed REITs operate under the same rules as other public companies for securities regulatory and financial reporting purposes.
Merchant Cash Advance for Business Owners
Merchant cash advance is a quick, easy way to get a business cash advance with no need for collateral, even if you have bad credit.
With this type of financing, you get a cash advance – usually approved and funded in just a day or two – with very little paperwork involved. In turn, you agree to pay back the advance, plus a fee, by letting the funding provider take a portion of your credit card sales each day until the entire amount has been repaid.
While a merchant cash advance can certainly be a quick way to get cash, it can also be quite expensive. Fees can range from 15% to 80% APR of the amount financed. However, merchant cash advance providers measure their fees as a factor rate, which can range from 1.14 to 1.48. The advance amount you receive is multiplied by that factor rate to determine the total amount you’ll pay back. You’ll pay this back by giving the funding provider a fixed percentage of your credit card revenues each day until the loan has been settled, meaning you actually repay a lower amount of money during slower months. Average repayment time frames are 8 – 9 months, but can be as short as 4 months and as long as 18 months. The higher the fixed percentage of your credit card sales you’ll share, the shorter the repayment time frame will be.
Let’s take a look at how you can calculate the true cost of a merchant cash advance. You are advanced $20,000. The funding provider quotes you a factor rate of 1.14. So, this means you will be expected to pay back $22,800. At first glance, it might seem like you are paying 14% interest rate. But, the real number you want to look at here is APR. If the funding provider is taking 10% of all your future credit card sales, and you project to have $25,000 a month in credit card sales, your APR would actually be 36.1% and you would repay the advance in 274 days with daily payments of $83.33.
If you don’t qualify for financing at a traditional bank or financial institution, MCAs could be an option. Merchant cash advances are a good solution if you have little or no collateral, limited business history, or a poor credit rating.
If you receive a large portion of your revenues through credit card payments (for example, restaurants and retail stores), you can use a merchant cash advance as a short-term financing tool to help with cash flow, purchase inventory, pay other debts, meet unexpected expenses, and more.
Traditional Business Funding
A traditional term loan is probably the most common form of business loan, so it’s pretty easy to understand. You borrow a fixed amount of money – often for a specific purchase you’re making for your business – and pay the loan back over a fixed term, most often at a fixed interest rate.
How Term Loans Work
A term loan is what most people think of when they think of business lending. They are loans with a set repayment time, set number of payments, and have a fixed or variable interest rate. There is a great number of term loans available for small businesses depending on the business needs, credit rating, cash flows, and many other factors. The terms of the loans vary greatly from 1 year with daily payments to 5 years with monthly payments, and everything in between. Term loans are provided by both traditional banks and non-bank alternative lenders.
You can use a small business term loan to meet virtually any business need, including specific purchases such as equipment or inventory, working capital, paying back other debts, meeting tax obligations, or meeting pretty much any other small business need.
Getting a traditional term loan isn’t always easy – especially if your credit is poor or if you don’t have collateral. In fact, collateral may be a requirement for a term loan and you risk losing your collateral if you don’t pay back the loan.
If you apply for a small business term loan, be sure to ask if there are any prepayment penalties or other fees you should be aware of. Go over the exact terms with the lender so you can arrive at a monthly payment that you know you can afford.
Let’s say you borrow $25,000 with a 12% interest rate that needs to be paid back in 5 years. That means you’d pay back the loan with monthly payments of about $556, which will stay the same over the life of the loan. This structure means you will have predictable monthly payments and know exactly when the loan will be paid back.
Most businesses can qualify for a traditional term loan, but the interest rate, length of the term, and maximum loan size depends on your business revenues and credit rating. Since traditional term loans have longer repayment periods than, say, a short-term loan, your credit score will be a more important factor.
- Predictable monthly payments.
- Fixed rates.
- Helps improve credit score.
- Suitable for a wide range of business purposes.
Alternative Personal Loans
The main characteristic of a personal loan is that it is not secured by collateral. “Collateral” means something of value, like a home, boat or car that the lender can repossess if you don’t repay the account as agreed. Personal loans are backed only by your promise to repay, and for this reason they are also known as “signature loans” or “unsecured loans.” This kind of financing usually (but not always) comes with a fixed interest rate and a term ranging from one to five years. Unsecured loan amounts vary, but most run between a minimum of $1,000 and a maximum of $100,000.
Qualifying for a Personal Loan
Because the lender must rely solely on the borrower’s willingness to repay the loan as agreed, credit scoring is extremely important — it’s widely believed that the way you’ve managed your obligations in the past is highly predictive of your performance when borrowing in the future.
The lender takes your application and verifies your income and debts. Your income and debt picture influences the amount the lender is willing to advance you and how long it is willing to lend the money. The lender also pulls a credit report, examines your scores and assigns you a credit grade.
Depending on your credit grade, loan amount and the length of time you wish to borrow, your personal loan rate will likely fall between six and 36 percent. Rates and terms vary considerably, so it’s wise to shop a bit and obtain quotes from several competing lenders.
Personal Loan Uses
What can you use a personal loan for? Signature loans can be used for just about any purpose, from consolidating debt to funding investments or financing big-ticket purchases. Borrowers should compare personal loans to other types of financing — for example, if buying a car, secured auto financing is probably cheaper, and if funding an education, government-backed student loans might make more sense. However, unsecured loan interest rates are likely to be lower than those of credit cards, and personal loans can make budgeting easier with their fixed rates and unchanging payment schedule.
7 Uses for Personal Loans
- Debt Consolidation
- Education Expenses
- School Books
- College Tuition
- Pay off credit cards
Note: LendingTree does not recommend taking out long-term financing for short-term needs. However, consumers determined to finance a short-term need might be better served by a personal loan than another option like a credit card.
Personal Loan Advantages
Personal loans are unsecured, which means the lender cannot repossess your property should you become unable to repay your balance. There is no collateral to appraise, so getting an underwriting decision and receiving your funds can happen very quickly. They are safer than credit cards because their interest rates are usually fixed, and because they have a definite payment schedule, personal loan balances can’t be “run up” again. Personal loans can improve your credit rating, because credit scoring systems treat installment debt more favorably than revolving debt like credit cards. Finally, personal loans usually come with lower rates than comparable credit cards.
Wall street has invested big money into this sector and has greatly expanded its guidelines. Greystone is now able to lend to consumers who have credit challenges.
There are generally four types of policies to look for and different considerations with each one.
- Term Life Insurance: This kind of policy will maintain a certain premium for a distinct time period, after which you can opt to continue coverage with a premium that increases annually. You might decide that you want life insurance for 15 years with guarantees that your premiums will remain fixed. If you have a fixed budget, this might be especially useful. This is the cheapest kind of life insurance because it’s based on a fixed time period, but know that it doesn’t generate any cash value. Another variation of term life is return of premium insurance
- Universal Life Insurance: More expensive because these products offer a cash value and are tax free. Also, you have the option of borrowing against the policy. Universal Life Insurance is more flexible in that you can adjust the premiums paid per month, useful if your income varies over time. You just have to ensure that you pay enough to keep the policy valid and in effect. There may be a death benefit option that can either increase or reduce the death benefit as needed.
- Whole Life Insurance: Lifetime protection that offers a guarantee on the death benefit and guaranteed cash value for a guaranteed premium (also tax free). This is often one of the most expensive kind of life insurance, but may pay dividends (refunds of unneeded premium) that can be used in a variety of ways. In some cases, where a person’s pre-existing conditions require the individual to buy high risk life insurance, some graded whole life policies are the only option.
- Equity Index Life Insurance: Equity Index Universal Life Insurance is a form of whole life insurance which includes an investment portion where your earnings are tied to a market index. Cost is higher than whole life, but there is “potential” to have more over long-term since it does have some tie to the stock market.
Understanding the “Cash Value”
When an insurance policy contains a guaranteed cash value for a guaranteed premium, it means that the premium is larger at the beginning of the policy than it would be in a term policy so that the additional premium can be invested in a “separate account” controlled by either the insurer or the policy holder in order to grow the cash value. Whatever gains are earned can be used in a few different ways: to increase the death benefit, to borrow against for some later use or to keep the policy in effect so that you can stop paying monthly premiums. If you have a cash value policy, it’s best to hold it until death or retirement so you can allow for probable gains.
A Closer Look at the Tax Benefits of Life Insurance
These tax benefits within a universal life insurance policy are similar to 401ks and IRAs. Annual earnings on the investment part of the policy don’t get taxed, and any taxable gains when cashing out on a policy can be reduced by the amount of insurance protection the plan provides. Furthermore, in the case of death, the policy holder’s gains usually aren’t taxed. Such policies can offer a range of investment options, including stocks, bonds, balanced mutual funds, international mutual funds and money market accounts. When deciding to invest, work with an advisor just as you would a financial advisor, and always invest just as much as you foresee needing, neither more nor less.