By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
It seems that almost every other TV commercial during the holidays has a gesticulating car salesman telling why you need a new car. Of course, these dealers are trying to move stock by year end. “Hurry before the best deals of the year end,” is an often stated selling point. If you find yourself driving a new car, you may need to think about an auto gap policy for your new car. Gap policies are a useful policy addition that may save you money.
What is a Gap Policy?
A gap policy is a feature that can be added to the policy of a new car. The gap coverage will cover the difference between the auto’s value and the balance of the loan. While I am not an advocate for consumer debt (car loans), those who have new car loans need to be protected. New cars depreciate so rapidly the value of the car may be lower than the payoff of the loan.
Why does this matter?
If a new car owner is involved in an at-fault accident where the automobile is totaled, the insurance company will make payment to the owner. The problem occurs when the automobile is valued at a lower amount than the payoff of the loan. The owner will then be on the hook for the difference without the gap coverage.
Here’s an example: Let’s say Sam buys a $30,000 car and 3 months later is involved in an at-fault accident where his car is totaled. Sam has full coverage and expects to receive payment to cover the pay-off of his note, but, unfortunately, this may not be the case. New cars can depreciate as much a 20% immediately after purchase, so the value of Sam’s car may be as little as $24,000. Even if Sam put down 10% ($3000), his loan pay-off may be roughly $25,500. Sam may have to pay out of pocket to pay off the note, even after being paid by the insurance company.
Gap policies are inexpensive and should be discussed with you insurance carrier if you are a new car owner and have a highly leveraged auto loan. Remember the old insurance axiom: don’t risk a lot for a little. Without the gap policy you could have a potential liability of thousands of dollars.
January 30, 2011
January 26, 2011
What is a Diminished Value Claim?
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Recently, my wife was involved in a little fender bender in a parking lot. She was hit by a young driver who just wasn’t paying attention. The damage was not dramatic and no one was hurt. After gathering all the vital information and contacting our insurance company on the spot, both parties went on with their day.
With almost everything financially related, I strive to seek a nugget of education, and this insurance claim process was no different. The at-fault driver had coverage, and the insurance company was quick into action to set us up with a repair plan and a rental car. Within a little more than a week, we where made whole…..or as they say in the insurance industry: indemnified. But wait, were we really back to where we started? What about the true value or our automobile?
In today’s world of information sharing, insurance companies realize the picture is a bit broader. Even though our automobile was repaired to pre-accident standards, the true value of this asset had diminished. This can now be seen in a Carfax report that will show our car was involved in an accident. If a buyer is deciding between two similar vehicles with the exact same sales price, but one has a clean Carfax report and one shows involvement in an accident, the decision is clear. The buyer will always buy the vehicle with the clean Carfax report. Insurance companies now realize this and offer diminished value claims.
A diminished value claim is an effort to fully indemnify the claimant. In essence, cash is paid to the claimant to fill the gap between what the car was worth pre accident and post accident. Let’s go back to the example of the buyer looking at two similar cars. If the buyer decided the accident was minor and the damage was repaired properly, the buyer may make an offer commiserate to the diminished value…..say $500 less than the car with clean Carfax report. If the owner of the car received $500 from the insurance company as a diminished value claim, the owner was made whole.
The key to a diminished value claim is it must be requested. While the at-fault driver’s insurance was really great to work with, they didn’t offer this without my asking. On another note, the diminished value claim is a negotiable amount. I did not accept their initial offer and asked for what I felt was fair. They agreed.
If you find yourself in an auto accident, remember the true value of your auto may decline more than you realize due to access to information via Carfax reports. Speak to the insurance company about the claim, be patient and courteous, and don’t forget to request a diminished value claim.
Nashville, TN
http://www.vhfinancialmanagement.com/
Recently, my wife was involved in a little fender bender in a parking lot. She was hit by a young driver who just wasn’t paying attention. The damage was not dramatic and no one was hurt. After gathering all the vital information and contacting our insurance company on the spot, both parties went on with their day.
With almost everything financially related, I strive to seek a nugget of education, and this insurance claim process was no different. The at-fault driver had coverage, and the insurance company was quick into action to set us up with a repair plan and a rental car. Within a little more than a week, we where made whole…..or as they say in the insurance industry: indemnified. But wait, were we really back to where we started? What about the true value or our automobile?
In today’s world of information sharing, insurance companies realize the picture is a bit broader. Even though our automobile was repaired to pre-accident standards, the true value of this asset had diminished. This can now be seen in a Carfax report that will show our car was involved in an accident. If a buyer is deciding between two similar vehicles with the exact same sales price, but one has a clean Carfax report and one shows involvement in an accident, the decision is clear. The buyer will always buy the vehicle with the clean Carfax report. Insurance companies now realize this and offer diminished value claims.
A diminished value claim is an effort to fully indemnify the claimant. In essence, cash is paid to the claimant to fill the gap between what the car was worth pre accident and post accident. Let’s go back to the example of the buyer looking at two similar cars. If the buyer decided the accident was minor and the damage was repaired properly, the buyer may make an offer commiserate to the diminished value…..say $500 less than the car with clean Carfax report. If the owner of the car received $500 from the insurance company as a diminished value claim, the owner was made whole.
The key to a diminished value claim is it must be requested. While the at-fault driver’s insurance was really great to work with, they didn’t offer this without my asking. On another note, the diminished value claim is a negotiable amount. I did not accept their initial offer and asked for what I felt was fair. They agreed.
If you find yourself in an auto accident, remember the true value of your auto may decline more than you realize due to access to information via Carfax reports. Speak to the insurance company about the claim, be patient and courteous, and don’t forget to request a diminished value claim.
January 22, 2011
Long Term Care Insurance - expect premium increases
By John Scherer, CFP®
Middleton, WI
http://www.trinfin.com/
I've long been skeptical of long term care insurance (LTCI) being priced properly. A recent article in the New York Times noting MetLife's decision to stop issuing LTCI policies business gives a good example of my cause for concern.
The article states that, in addition to MetLife's LTCI problems
"The two leading players in the industry are trying to raise prices, too. Genworth Financial is seeking an 18 percent increase on older policies held by about 25 percent of its customers. And John Hancock has filed for permission to raise premiums for about 80 percent of its customers by an average of 40 percent. It has also temporarily stopped offering new long-term care insurance plans through employers while it tries to figure out what to charge."
The article goes on to say that 11 companies that were in the top 10 in market share at some point over the past decade have bailed out of the LTCI marketplace.
It hardly instills confidence that the two leading LTCI companies can't figure out what to charge for their insurance, and is no doubt unsettling for people who bought insurance from a company because of its high standing in the LTCI world to think that their premiums which are already not cheap might increase 20-40%.
Middleton, WI
http://www.trinfin.com/
I've long been skeptical of long term care insurance (LTCI) being priced properly. A recent article in the New York Times noting MetLife's decision to stop issuing LTCI policies business gives a good example of my cause for concern.
The article states that, in addition to MetLife's LTCI problems
"The two leading players in the industry are trying to raise prices, too. Genworth Financial is seeking an 18 percent increase on older policies held by about 25 percent of its customers. And John Hancock has filed for permission to raise premiums for about 80 percent of its customers by an average of 40 percent. It has also temporarily stopped offering new long-term care insurance plans through employers while it tries to figure out what to charge."
The article goes on to say that 11 companies that were in the top 10 in market share at some point over the past decade have bailed out of the LTCI marketplace.
It hardly instills confidence that the two leading LTCI companies can't figure out what to charge for their insurance, and is no doubt unsettling for people who bought insurance from a company because of its high standing in the LTCI world to think that their premiums which are already not cheap might increase 20-40%.
January 18, 2011
The Theory and Reality of Emergency Funds
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Many times planners talk in terms of financial theory or possibilities, and while clients often heed the advice of their planner they implement the guidance based on theory. A good example of this is in regards to emergency funds. I feel most people understand the theory and importance of having a solid emergency fund, but until a true need for emergency funding is faced the peace of mind liquidity provides may not be fully appreciated.
I recently met with a client who told me a great story. My client had an ah-ha moment. My client had built a solid emergency fund. She understood, in theory, the importance of liquidity (cash), but she had not experienced firsthand the power of a sturdy safety net.
My client was struck with a spell of tough luck….she fell and injured her leg, her mother was in the hospital, and on top of that, her car’s transmission died. Between hobbling around on an injured leg and visits to the hospital, she found time to get her car repaired. The price tag for the transmission repair was lofty.
In the past, financial setbacks for my client would have been dealt with simply by pulling out the credit card and racking up debt, but this time was different. After a couple years of hard work, she had reached solid financial footing and was able to absorb the unexpected cost.
The best part of the story was not so much that my client was able to cover an unexpected expense. The golden moment came when she learned, first hand, the benefit of a fully funded emergency fund. Theory became reality for her.
The moral of the story is financial theories are only theories, but the wisdom behind the theory and advice is sage. When it comes to emergency funds and building a safety net, it’s not whether or not the need will arise to utilize the funds. It’s just a matter of time before Murphy’s law will come knocking on your door. A solid emergency fund is the foundational footing to a solid financial plan and one of the best ways to increase peace of mind. If a good night’s sleep is what you are seeking, propping up the emergency fund may be just what the doctor ordered.
Nashville, TN
http://www.vhfinancialmanagement.com/
Many times planners talk in terms of financial theory or possibilities, and while clients often heed the advice of their planner they implement the guidance based on theory. A good example of this is in regards to emergency funds. I feel most people understand the theory and importance of having a solid emergency fund, but until a true need for emergency funding is faced the peace of mind liquidity provides may not be fully appreciated.
I recently met with a client who told me a great story. My client had an ah-ha moment. My client had built a solid emergency fund. She understood, in theory, the importance of liquidity (cash), but she had not experienced firsthand the power of a sturdy safety net.
My client was struck with a spell of tough luck….she fell and injured her leg, her mother was in the hospital, and on top of that, her car’s transmission died. Between hobbling around on an injured leg and visits to the hospital, she found time to get her car repaired. The price tag for the transmission repair was lofty.
In the past, financial setbacks for my client would have been dealt with simply by pulling out the credit card and racking up debt, but this time was different. After a couple years of hard work, she had reached solid financial footing and was able to absorb the unexpected cost.
The best part of the story was not so much that my client was able to cover an unexpected expense. The golden moment came when she learned, first hand, the benefit of a fully funded emergency fund. Theory became reality for her.
The moral of the story is financial theories are only theories, but the wisdom behind the theory and advice is sage. When it comes to emergency funds and building a safety net, it’s not whether or not the need will arise to utilize the funds. It’s just a matter of time before Murphy’s law will come knocking on your door. A solid emergency fund is the foundational footing to a solid financial plan and one of the best ways to increase peace of mind. If a good night’s sleep is what you are seeking, propping up the emergency fund may be just what the doctor ordered.
January 14, 2011
Payroll Tax Relief and What it Means to YOU
By Judy Stewart, CFP®, MBA, EA
Carlsbad, CA
http://www.stewart-financial.com/
If you haven’t heard, President Obama signed a new tax bill last week. One of the items that will affect all employees is the 2% point reduction in an employee’s share of Social Security portion of the FICA Tax, from 6.2% to 4.2%. What exactly does that mean for you?
The table below illustrates the change and savings. FICA limits are currently adjusted for inflation and are currently set at $106,800. The tax savings is currently only available for 2011.
Pay 2010 Tax (6.2%) 2011 Tax (4.2%) Savings
$30,000 $1,860 $1,260 $600
$50,000 $3,100 $2,100 $1,000
$80,000 $4,960 $3,360 $1,600
$100,000 $6,200 $4,200 $2,000
$106,800 $6,621 $4,485 $2,136
This is a huge opportunity for every employed person to increase their 401k contributions or contribute to an IRA or a Roth IRA in 2011. This is FREE money, folks. Using it for retirement is a very wise move.
Carlsbad, CA
http://www.stewart-financial.com/
If you haven’t heard, President Obama signed a new tax bill last week. One of the items that will affect all employees is the 2% point reduction in an employee’s share of Social Security portion of the FICA Tax, from 6.2% to 4.2%. What exactly does that mean for you?
The table below illustrates the change and savings. FICA limits are currently adjusted for inflation and are currently set at $106,800. The tax savings is currently only available for 2011.
Pay 2010 Tax (6.2%) 2011 Tax (4.2%) Savings
$30,000 $1,860 $1,260 $600
$50,000 $3,100 $2,100 $1,000
$80,000 $4,960 $3,360 $1,600
$100,000 $6,200 $4,200 $2,000
$106,800 $6,621 $4,485 $2,136
This is a huge opportunity for every employed person to increase their 401k contributions or contribute to an IRA or a Roth IRA in 2011. This is FREE money, folks. Using it for retirement is a very wise move.
January 10, 2011
Proactive Tax Planning Strategies
By Kevin Jacobs, CFP®
Broken Arrow, OK
http://www.stepbystepfinancialplanning.com/
Many people fail to plan when it comes to taxes. You can save significant amounts of money regarding your tax liability if you are willing to be plan. Below you will find some proactive tax planning strategies:
1. Learn the range for the marginal tax brackets. You can find these at http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm. With some planning, you may be able to reduce your taxable income so as to be taxed at a lower marginal rate.
2. Evaluate your investments and make sure you not only have them allocated appropriately, but also determine if they are in the most tax-efficient vehicle. See previous blog entry regarding asset location at http://stepbystepfinancialplanning.com/blog/2009/06/14/asset-location-an-often-overlooked-aspect-of-investing/
3. Fund your available retirement plans as much as possible. Don’t just contribute what the company gives you as a match!
4. Document the non-cash charitable contributions you make to organizations, such as Goodwill and Salvation Army. You give more than you realize.
5. Keep track of miles for business, unreimbursed employee expenses, charity and medical.
6. Use your investment losses in your non-retirement accounts to offset gains.
7. Be mindful of potential state tax deductions for contributions to 529 college savings plans.
8. Consider Donor Advised Funds for charitable purposes.
There are many other potential tax planning strategies so I encourage you to speak to your tax professional for ideas and suggestions. Tax preparation is nothing other than “documenting history.” Tax planning is where the real money is saved. I encourage you to take some time before the end of the year to see how you can proactively plan to reduce your 2010 tax liability.
Broken Arrow, OK
http://www.stepbystepfinancialplanning.com/
Many people fail to plan when it comes to taxes. You can save significant amounts of money regarding your tax liability if you are willing to be plan. Below you will find some proactive tax planning strategies:
1. Learn the range for the marginal tax brackets. You can find these at http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm. With some planning, you may be able to reduce your taxable income so as to be taxed at a lower marginal rate.
2. Evaluate your investments and make sure you not only have them allocated appropriately, but also determine if they are in the most tax-efficient vehicle. See previous blog entry regarding asset location at http://stepbystepfinancialplanning.com/blog/2009/06/14/asset-location-an-often-overlooked-aspect-of-investing/
3. Fund your available retirement plans as much as possible. Don’t just contribute what the company gives you as a match!
4. Document the non-cash charitable contributions you make to organizations, such as Goodwill and Salvation Army. You give more than you realize.
5. Keep track of miles for business, unreimbursed employee expenses, charity and medical.
6. Use your investment losses in your non-retirement accounts to offset gains.
7. Be mindful of potential state tax deductions for contributions to 529 college savings plans.
8. Consider Donor Advised Funds for charitable purposes.
There are many other potential tax planning strategies so I encourage you to speak to your tax professional for ideas and suggestions. Tax preparation is nothing other than “documenting history.” Tax planning is where the real money is saved. I encourage you to take some time before the end of the year to see how you can proactively plan to reduce your 2010 tax liability.
January 6, 2011
Five Awful Investments to Avoid in 2011*
By Bert Whitehead, M.B.A., J.D.
Franklin, MI
http://www.bertwhitehead.com/
1. Timeshares. This preposterous “investment” is based on the doubtful proposition that a $117,000 condo is really worth $585,000 because 50 chumps can be convinced to rent it one week a year for the rest of their natural lives, and pay most of the rent (totaling $11,700) in advance and the rest annually disguised as maintenance fees. These are always sold by very friendly people, usually named Joe, who cannot begin a sentence without grasping your forearms and saying, “Let me be honest with you.” In addition to a very fuzzy explanation of the investment potential, you will find out how you could get AIDS from hotel sheets (presumably not a danger at Vacation Ownership Resorts because they don’t have maid service).
a. A hint: If after reading this, you still can’t help yourself and simply must buy a timeshare, buy it on a the secondary market (i.e., look in the classified ads and buy one from some dummy who spent his kid’s college money for it last year and now is trying to dump it at half price). This is still twice what it is worth.
b. A better hint: Put your $11,700 in a well-balanced investment portfolio. Each year use the accrued earnings to rent a timeshare anywhere in the world. Then go job hunting while you’re there and write it off!
2. Lottery Tickets. Lotteries were designed by scheming Republicans as a patriotic way to entice poor people into voluntarily returning their welfare checks to the state coffers. They sort of work like variations of the old 50/50 church raffle except the church doesn’t tax your 50 percent and then pay you over 20 years. Assuming a tax bracket of 33 percent, and an annual present value of money at 8 percent instead of a return of 50 cents for every dollar bet, you actually “win” slightly less than 17 cents. This is not attractive, even compared to roulette tables in Las Vegas where they pay 95 cents for each dollar bet. Plus you get free drinks.
a. Hint: If you could borrow $7.7 million at 8 percent over 20 years and buy every single number on the Michigan lottery, you would be a sure winner if the jackpot was $22 million or more. (If you don’t have to split the pot with some bloke on the dole.)
3. Life Insurance Investments. These quaint arrangements were popular and considered by some to be relatively competitive in the Fabulous ‘50s. Then your only alternatives were U.S. Savings Bonds (which your elders still called “war bonds”), paying 4 percent, and savings accounts which aggressively paid 4.5 percent. Pseudo-tycoons had Christmas Club accounts, a scam whereby you gave money to the bank every week and then they gave it back to you at the end of the year. No interest, but no service charge either. Now, bank savings accounts pay virtually no interest which is dwarfed by service charges if you don’t have very much money and just let it sit there. The service charge compensates the tellers who take your money out for a walk every month until it all evaporates. But we digress: back to life investments. They are variously called whole life, variable life, universal life, permanent life, etc. They sport many supposed advantages none of which are exclusive to this investment vehicle. Despite reams of projections and lengthy enthusiastic explanations, these investments are bereft of S.E.C. scrutiny, and the investor thus usually is at the mercy of inscrutable policy language as explained by a hyperkinetic salesperson with a snappy patter but no prospectus to evaluate risk or disclose the sales commission. Moreover, these are inevitably touted as “Long-term Investments”. Long Term Investments in financial lingo refers to generally inferior investments that are impossible to fully understand on which salespeople earn very large commissions.
a. Hint: Continue to ask your insurance person A) exactly how much commission is paid for selling this to you and B) exactly how much of your money you get back if you bail out after two years. If you can get a straight answer, you will be amazed that the amount of money you will lose under B is uncannily close to the amount disclosed under A. If still in doubt, we will demonstrate how much better you will be buying term insurance and investing the difference in the S&P 500 Index mutual fund. NOTE: This does not mean you should cancel or cash-in existing policies.
4. Any Investment Sold Over the Phone. Legitimate investments are never sold over the phone. Period. If their investment was as good as they say it is, and then they wouldn’t be spending their time talking to strangers like you on the telephone. Actually we encourage clients to never buy anything over the phone because of the increased exposure to fraud. And also because it only encourages even more unsolicited telephone intrusions.
5. Any Investment Someone Comes to your House to Sell You. If you think it through: anytime someone comes out to see you , at your convenience, in the comfort of your own home, and you are under no obligation, you are going to get a very high pressure sales pitch for something you probably never before considered buying, at an outrageous price. The sales commission on these arrangements is usually 25-50 percent of your investment. This makes shopping at home very expensive.
* This article was originally written 20 years ago. Interest rates have changed, but the scams remain the same…
Franklin, MI
http://www.bertwhitehead.com/
1. Timeshares. This preposterous “investment” is based on the doubtful proposition that a $117,000 condo is really worth $585,000 because 50 chumps can be convinced to rent it one week a year for the rest of their natural lives, and pay most of the rent (totaling $11,700) in advance and the rest annually disguised as maintenance fees. These are always sold by very friendly people, usually named Joe, who cannot begin a sentence without grasping your forearms and saying, “Let me be honest with you.” In addition to a very fuzzy explanation of the investment potential, you will find out how you could get AIDS from hotel sheets (presumably not a danger at Vacation Ownership Resorts because they don’t have maid service).
a. A hint: If after reading this, you still can’t help yourself and simply must buy a timeshare, buy it on a the secondary market (i.e., look in the classified ads and buy one from some dummy who spent his kid’s college money for it last year and now is trying to dump it at half price). This is still twice what it is worth.
b. A better hint: Put your $11,700 in a well-balanced investment portfolio. Each year use the accrued earnings to rent a timeshare anywhere in the world. Then go job hunting while you’re there and write it off!
2. Lottery Tickets. Lotteries were designed by scheming Republicans as a patriotic way to entice poor people into voluntarily returning their welfare checks to the state coffers. They sort of work like variations of the old 50/50 church raffle except the church doesn’t tax your 50 percent and then pay you over 20 years. Assuming a tax bracket of 33 percent, and an annual present value of money at 8 percent instead of a return of 50 cents for every dollar bet, you actually “win” slightly less than 17 cents. This is not attractive, even compared to roulette tables in Las Vegas where they pay 95 cents for each dollar bet. Plus you get free drinks.
a. Hint: If you could borrow $7.7 million at 8 percent over 20 years and buy every single number on the Michigan lottery, you would be a sure winner if the jackpot was $22 million or more. (If you don’t have to split the pot with some bloke on the dole.)
3. Life Insurance Investments. These quaint arrangements were popular and considered by some to be relatively competitive in the Fabulous ‘50s. Then your only alternatives were U.S. Savings Bonds (which your elders still called “war bonds”), paying 4 percent, and savings accounts which aggressively paid 4.5 percent. Pseudo-tycoons had Christmas Club accounts, a scam whereby you gave money to the bank every week and then they gave it back to you at the end of the year. No interest, but no service charge either. Now, bank savings accounts pay virtually no interest which is dwarfed by service charges if you don’t have very much money and just let it sit there. The service charge compensates the tellers who take your money out for a walk every month until it all evaporates. But we digress: back to life investments. They are variously called whole life, variable life, universal life, permanent life, etc. They sport many supposed advantages none of which are exclusive to this investment vehicle. Despite reams of projections and lengthy enthusiastic explanations, these investments are bereft of S.E.C. scrutiny, and the investor thus usually is at the mercy of inscrutable policy language as explained by a hyperkinetic salesperson with a snappy patter but no prospectus to evaluate risk or disclose the sales commission. Moreover, these are inevitably touted as “Long-term Investments”. Long Term Investments in financial lingo refers to generally inferior investments that are impossible to fully understand on which salespeople earn very large commissions.
a. Hint: Continue to ask your insurance person A) exactly how much commission is paid for selling this to you and B) exactly how much of your money you get back if you bail out after two years. If you can get a straight answer, you will be amazed that the amount of money you will lose under B is uncannily close to the amount disclosed under A. If still in doubt, we will demonstrate how much better you will be buying term insurance and investing the difference in the S&P 500 Index mutual fund. NOTE: This does not mean you should cancel or cash-in existing policies.
4. Any Investment Sold Over the Phone. Legitimate investments are never sold over the phone. Period. If their investment was as good as they say it is, and then they wouldn’t be spending their time talking to strangers like you on the telephone. Actually we encourage clients to never buy anything over the phone because of the increased exposure to fraud. And also because it only encourages even more unsolicited telephone intrusions.
5. Any Investment Someone Comes to your House to Sell You. If you think it through: anytime someone comes out to see you , at your convenience, in the comfort of your own home, and you are under no obligation, you are going to get a very high pressure sales pitch for something you probably never before considered buying, at an outrageous price. The sales commission on these arrangements is usually 25-50 percent of your investment. This makes shopping at home very expensive.
* This article was originally written 20 years ago. Interest rates have changed, but the scams remain the same…
January 2, 2011
When Buying or Refinancing a Home You Should…
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
Make sure you understand the fine print!
It’s a great time to buy or refinance a home. Interest rates are extremely low (recent 30 year fixed rates are as low as 4%!). While this great interest rate opportunity creates a terrific chance to lower your monthly payment, it also can create confusion. The confusion lies in understanding the good faith estimate (GFE) and the HUD closing statement.
The GFE is the proposal the lender sends to you outlining your projected closing costs and the new mortgage payment amount. So often people will only look to the bottom line of their GFE to determine their new monthly payment and disregard the closing cost and fees. This can be a big mistake!
You must read the fine print, or have someone who understands these documents read it for you. Once you are comfortable with the information on your good faith estimate, you should request to review the actual closing statement a day or two before the closing. If you find mistakes, ask to have corrections made.
Closing costs and fees make buying or refinancing a home a very expensive process. The costs and fees associated with the transaction are thousands of dollars. You are paying these costs, so make sure you understand what you are paying for. If you don’t understand, ask for clarification.
Nashville, TN
http://www.vhfinancialmanagement.com/
Make sure you understand the fine print!
It’s a great time to buy or refinance a home. Interest rates are extremely low (recent 30 year fixed rates are as low as 4%!). While this great interest rate opportunity creates a terrific chance to lower your monthly payment, it also can create confusion. The confusion lies in understanding the good faith estimate (GFE) and the HUD closing statement.
The GFE is the proposal the lender sends to you outlining your projected closing costs and the new mortgage payment amount. So often people will only look to the bottom line of their GFE to determine their new monthly payment and disregard the closing cost and fees. This can be a big mistake!
You must read the fine print, or have someone who understands these documents read it for you. Once you are comfortable with the information on your good faith estimate, you should request to review the actual closing statement a day or two before the closing. If you find mistakes, ask to have corrections made.
Closing costs and fees make buying or refinancing a home a very expensive process. The costs and fees associated with the transaction are thousands of dollars. You are paying these costs, so make sure you understand what you are paying for. If you don’t understand, ask for clarification.
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