It is the nature of family to love and protect each other – but how does that transfer to the financial realm? Is your family obligated to help you with your financial debts? Are you obligated to help a family member who is overwhelmed with mortgage payments or saddled with massive credit card debt? Though the answer to both of these questions is probably no, it is a much more complicated than a simple yes or no answer. You and your family are not obligated to help each other with financial problems, but most people would like to help their loved ones with a crisis if it is within their means to do so.

When you face financial problems, it is probably tempting to turn to family first, rather than face the impersonality of a bank or other lending institution. But do family and finances really mix? Financial debts to family members can complicate even the best relationships and in extreme situations it can result in nasty arguments and the severing of familial bonds. Some of the most common arguments families have are over money. On the other hand, borrowing money from family and having that security can ease the stress of any financial crisis. If family members have the money you need in their savings account and are willing to lend it to you, then why not pay the interest to them instead of the bank?

Right from the start, you need to be realistic about your financial situation. As the person looking to borrow money, you should ensure that you have cut back on non-essential expenses and have exhausted all the possibilities before approaching family members for money. As the lender, you must also take a close look at your financial situation and make sure you have the money to offer to your family member. If it is not within your means to help them, then you must say so. There is no point both of you going into debt just because you have the desire rather than the means to honor the request for money. It is hard to say no to family, but sometimes it is necessary.

Where most families go wrong with lending to one another is a failure to establish firm guidelines and rules. You need to be very clear from the start whether this is a gift or a loan. If you give money without specifying which it is (a gift or a loan), then the other person may just assume it is a gift. If you need the money back down the road, he or she may not have the means to repay it, because there was no understanding at the start that the money would have to be repaid at some point. Even though you are dealing with your mother or father or your daughter or your son, you still need to treat the arrangement as you bank or lending agency would. You need to write down the amount being lent and the agreement you have made concerning the amount to be paid back and the amount of time that repayment will take. Writing it down will solidify the arrangement and ensure that no one is taken advantage of.

You and your family should agree on a reasonable interest rate and you should also consider arranging monthly payments (as you would with the bank or other lending institution). It is better to pay the money back gradually over time rather than try to gather one lump sum.

If you are the one borrowing money, you need to make sure that they money is used only for the thing it was lent to you for. If you have borrowed money for the down payment of your house, then all of that money needs to be put into the home, not a new pair of shoes or vacation to the Bahamas. Problems arise when family members think that they money they have lent is being misspent or mismanaged.

As you can see, family and finances can mix if you take a few precautions and clearly outline the expectations on both sides. It is worth putting in the extra effort to prevent uncomfortable holiday dinner scenes.

The 5 Percentage Breakdowns

Those looking to secure a loan learn very early how important a credit score really is. It can determine whether or not a lending institution approves your loan application, and your credit score also influences the interest rate offered to you by a bank or other lending company.

A credit score is a number assigned to you based on an analysis of your credit history. All of your credit history information is entered into a computer. The computer analyzes that information and then assigns a number. The major credit ranking agencies do not use the same software so you might be assigned a slightly different number at each of them. Credit scores are sometimes referred to as FICO scores. This is because Fair Isaac Corporation (FICO) developed the software most commonly used to determine credit scores.

What aspects of your credit history matter most when you’re FICO score is calculated? Different factors are assigned different percentages in the calculation of your overall credit scores. Your payment history, amounts owed and the types of credit you have are all factors in your personal FICO score. Here is an approximate percentage breakdown:

Payment History

Things like records of amounts and schedules of payments (including late payments) accounts for 35%. Lending companies see the length of time you’ve been past due as well as the amount of time since you had a past due payment.

Amounts You Owe

Any loans or a debt that you have outstanding is 30% of your score. Lending companies have a chance to see how many accounts you owe money to and what balance you currently owe. They also take a look at your credit lines and for indications that you might currently (or in the recent past) have been overextended.

Length of History

This area accounts for 15%. Lending companies see how long your accounts have been open and how much time has passed since there was activity in your accounts. The longer and better your credit history, the better your scores will be in this area.

Types of Credit

The number and types of accounts you have makes up 10% of your FICO score. You will receive a better score is there is a variety of account types rather than just credit card accounts.

New Credit

This area is also worth 10% of your credit score. Under this heading, lending companies see the number of new credit inquiries you have made and the number of accounts you have opened recently. Banks and lending institutions want to ensure that you are not trying to open a lot of accounts at the same time and overextending yourself and your financial obligations.

Now you might be wondering, what is considered a good credit score? Credit scores usually fall between 350 and 850. The higher your score is the better. The higher your score is, the less of a risk you are perceived to be. Banks and other lending institutions feel they are more likely to get their money back from people with high FICO scores because these kinds of people have a good history of managing and meeting their financial obligations. The less of a risk you appear to be, the more likely you are to have your loan application approved.

Have can you improve your card score? It takes time, of course, but it’s never too late to start practicing proper financial management strategies. Make sure you pay your bills on time and keep your credit card balances low. Also try to avoid opening a lot of new accounts in a short period of time because this can alter the score in the new credit section of your FICO score. Lending institutions are looking for people that are able to successful manage their financial matters so it takes time to make a favorable impression if your current credit report and score are poor.

You also want to take a close look at the information on your credit report and ensure that it is all up-to-date and accurate. If the credit agencies have incorrect information to plug into the computer, then your FICO score may not be correct.

Credit and debt can be difficult for anyone to handle, but you need to remember that it is not only the amount of debt you have that influences your FICO scores, but also the manner in which you manage it.

There comes a time in everyone’s life where they have to make the ultimate decision and decide whether to buy and own their own home or continue to rent. It’s a huge decision as both have notable benefits and disadvantages and it is not one to be taken lightly. So lets have a look at these advantages and disadvantages to see which option is really the best option for you.

Owning your own home is the traditional dream that practically everyone has, especially when it comes to starting a family. It gives you a feeling that you have accomplished one of your goals and that you are both financially and emotionally secure as well as giving you a great sense of community. But is it the right decision for you? Lets have a quick look at the advantages and disadvantage of buying and owning your own home.

Advantages:

You set your own rules

You have a sense security

You have made a great investment

You have a sense of freedom

You get various sorts of tax rebates and deductions

Your repayment is usually the same or sometimes even lower than it would cost to rent

Your repayments aren’t wasted like rent – they are going into owning your own home

You have the freedom to do what you like in terms of renovating and decorating your home and gardens

You build equity in your home over time

You have a better credit rating if you ever needed a loan again

Disadvantages:

You are liable for any accidents and injuries on your property

You are liable for any damage that is caused to you neighbors property if it stemmed from yours. For example if you have a tree that has a branch hanging over the neighbor’s yard and it breaks off, it can cause damage to their house which you are responsible for.

You are responsible for any maintenance in, on, or around your home

You haven’t the ease to just pack up and move when ever you want

You have a huge loan that needs paying off even if you are having financial hardships

You are responsible for all the insurance on your home and land

Varying equity rates

You will need to pay out a large down payment up front

You have property taxes to pay

Renting is something most of us start out doing and many people are comfortable doing it all their lives. There are many advantages to renting a home but there are also a few disadvantages. Let’s have a look at them.

Advantages:

You can up and leave as soon as your lease is up

If you hit financial hardship you can again move

You have little or no responsibility for maintenance

Sometimes utilities are included in the rent

Sometimes you have free use of amenities such as laundry, pool and other sorts of actualities

Disadvantages:

You have little or no freedom in what you can do with the place

You may face increasing rent

You have limited space for your money

You are not eligible to get any tax deductions

You are at risk of being evicted

The house could be sold and you can be asked to leave

You could have restrictions on certain things like noise and pets

You could have a restriction on how many people can live with you

Your rent isn’t going into a productive investment for you

As you can see clearly there are many advantages and disadvantages to owning your own home and renting. Some have advantages and disadvantages the other doesn’t have, but both can be a comfortable way to live. When it really comes down to it you have to choose the one that suits you’re financial, emotional and lifestyle needs at this time. You have to take your future into account as well, will you want to be tied down and take responsibility for a huge investment or will you prefer the freeness of being able to move whenever you please?  It can be quite a hard decision to make and it is one that needs a lot of time and thought before you proceed to take any further steps.

Juggling the financial burdens of everyday life while paying off a mortgage can be very difficult. There are plenty of budgetary unknowns to try to anticipate over a 10 or 25 year period (or longer), so it helps to have as much information as possible. One of the financial options you should inform yourself about and consider is purchasing discount points to lower the interest rate on your loan.

Discount fees are essentially fees you pay to your financial lender at the time of closing to secure a lower interest rate on your home loan. Each ‘discount point’ costs the home buyer one percent of the loan amount and generally lowers the interest rate on the buyer’s 30 year loan by 0.125 percent. So if a buyer with a home financing loan of $200,000 with an eight percent interest rate pays an extra $2,000 at the time of closing (two discount points worth), he or she can lower his or her interest rate to 7.75 percent. The discount points system lowers the interest rate because the lender is able to collect its money earlier rather than spread out over the course of the loan period.

Buying discount points to lower your loan interest rate may seem like a good idea, and it is for many home buyers, but not all. Depending on the specifics of your loan and your financial situation, buying discount points to lower your interest may save you money or it may not. In some cases, the savings may be so inconsequential that buying the discount points may not be worth the extra financial burden or cash flow stress that it causes.

So how do you know whether or not buying discount points is a worthwhile option for you and your financial situation? The length of time you intend to keep the loan is a key factor to finding the answer to that question. Once you have that information, in an ideal world, there would be no unexpected life expenses and the answer would be revealed with a few simple calculations. Unfortunately, life often dishes out the unexpected and sometimes that costs a lot of money, so it’s impossible to have a fool-proof plan. The good news is the calculations are still fairly straight-forward, and barring any major catastrophes, they can give you a good idea about whether or not it makes sense for you to take advantage of discount points to reduce your loan interest rate.

Begin by using an online mortgage calculator to determine what your monthly payment would be at the interest rate if you do not purchase discount points from your lender. Then do the same calculation to find out how much your month payment would be if you do decide to purchase discount points. Subtract the first amount from the second to figure out the difference you could save each month and then divide the amount it would cost to buy discount points at closing by the monthly amount saved. The resulting figure represents the number of additional months you would have to keep the loan to break even or recover the cost incurred by using points. If you do not intend to stay in the house long enough to recover the cost, you may not want to buy the discount points.

By using a amortization schedule (also available online or from your financial institution) to compare the financial impact of both loan scenarios, you may discover that the reduced-rate loan has a nominally lower principal balance at the end of the discount point cost recoup period, which may also play into your decision.

Finally, you may want to consider the tax advantages presented by purchasing discount points from your lender. The cost of real estate discount points is deductible in the year in which it is paid. Of particular note, buyers are able to deduct the cost of discount points even if the seller actually pays for them.

While there are pros and cons to buying discount points from your home financing lender, your final decision must be based on your specific needs and financial situation. Speak to your financial advisor or lending institution to decide on the best course of action to ensure you can pay off your loan in the best possible way.

There are many factors to think of when buying a home. Many home buyers then to overlook financial factors and can become financially over their heads before they even know what is happening. That is why when you start looking for a home you should take every single fee into accounts, both in terms of loaning and payments after you have bought your home.  Here we will go through some things that shouldn’t be over looked so you can buy a home you can truly afford and without having any fees or other things popping up in your road unexpectedly.

The first things you need to think of are these factors:

How much your down payments will will be? Most loan companies usually want between one and twenty percent.

How much loan will you need to get and how long will you need to get it for, fifteen years or thirty years?

How are you going to pay the closing costs? This is one of the things many people tend to overlook at first. This could come straight out of your pocket, or as part of your down payment, or will it be tapped onto the rest your loan?

How much will your loan cost you at the end of it all, with all the interests and fees included?

Once you have figured out what amount of monies you will need, you will have to think about these factors:

Are you going to be able to afford the repayment costs each month along with other costs like living expenses?

For example:

Your utilities

Your car payment

Your insurance

Food and healthcare

debts and other such things

How are you going to pay off your loan, along with everything else, if you fall into financial hardship?

All these things will come into account when you have a mortgage loan and you might not even think of them at first. Just because the company gives you the loan doesn’t mean that you really can afford it. It is one of the things you will have to be careful about and really think about before taking the loan so you don’t get in over your head.

Another thing people tend to overlook when buying a home is the costs of:

Your lawyer

The evaluator

Pest control

Escrow

The real estate, if you go through one

Will you be able to afford any repairs and anything else that is needed on your new home before you are able to move in?

How about after you have found and bought your home, will you be able to afford things such as:

Renovations you would like to carry out

Decorating and remodeling expenses

New furniture and household goods

Maintenance

General upkeep of the place

Your insurances

How about a security alarm

Another thing you should consider is your plans for the future. Do you plan to get married soon? Start a family? These are things that you should consider when weighing your financial strengths. Greater expenses can add a burden to you mortgage payments.

As you can see the cost in a home is huge when you first delve into the whole process and a lot more complicated than most think at first. You should sit down and take them all into account before taking out a loan Try using one of the calculators on the internet first, just so you can get a fair idea what you are heading for in terms of money. When you do finally take a step into buying your own home you should seek the advice of a financial professional who can go through your budget for you and help you determine exactly what you can afford. They will help you find a home and a loan that will meet your budget so you never fall into a financial trap where you are biting off more than you can chew.

With the right planning and the right loan, you can buy and enjoy the benefits of owning your own home and know that it is truly one that you can afford for years to come.