NeighborWorks America Post: Helping Consumers Avoid Pitfalls of Payday Loans

Nonprofits Can Help Consumers Avoid Pitfalls of Payday Loans 

Originally posted on NeighborWorks' site. 
Written by Marietta Rodriguez, Vice President of National Homeownership Programs | 5/16/2016 

 
Payday loans are bad deals for consumers. That's why NeighborWorks is excited to see that Google announced it would no longer accept ads from payday lenders. These ads attracted financially troubled consumers and trapped them in unexpectedly long-term bad deals for short-term money.

Traditional lenders don't often offer short-term, low-balance loans people may need to cover a financial emergency in a pinch. There are lots of people who have little or no emergency savings to pay for a car that suddenly breaks down, or to replace an appliance that quits the proverbial "one day after the warranty expires." But payday loans are actually anchors that can drag consumers into a sea of debt - not stabilize their financial boat.

A 2016 survey from NeighborWorks America found that more than 28 percent of adults have no emergency savings to cover these sudden costs. The Consumer Federation of America and Pew Charitable Trusts released similar results. That's one reason that payday and title loans are used so frequently. These loans often seem affordable, but when looked at closely, their costs are outrageous.

According to the Federal Trade Commission, a $15 fee for a $100 payday loan carries an annual interest rate of nearly 400 percent. And most payday loans are not for $100 but rather for $300 or more. When they are due in two weeks or less, in full, recipients must continue to borrow to pay other loans. What's more, borrowers incur overdraft and bounced-check fees when lenders run their post-dated checks through the system.

In April, Consumer Financial Protection Bureau chief Richard Cordray said the agency continues to prepare regulations for the payday lending market. These regulations are likely to incorporate an ability-to-repay principle.

The convenience of these products masks their costs, and consumers who are cash-strapped could easily see these loans as the best solution to the question: How do I get money right now? However, there is a better solution than these high-cost products, and it starts with better information and better planning. That's where financial capability coaching and counseling come in.

Financial capability counseling — often provided free or at very low cost — is an approach that combines financial education, counseling and coaching. Tax season is a great time to start this kind of program and implement strategies that maximize monthly cash flow, set a savings plan and minimize the risk of needing one of these high-cost loans.

The trouble is, not enough people are aware of the availability of financial capability services, especially from nonprofit organizations like those affiliated with NeighborWorks.

In a 2015 NeighborWorks America survey, three-quarters of adults said they were unaware of free or low-cost services like financial coaching in their communities. We have to make more people aware of these services because financial capability coaching and counseling works. A project spearheaded by NeighborWorks America found that more than half of clients who didn't have savings before working with a coach or counselor had set aside a median amount of $668 after coaching. That amount goes a long way toward establishing an emergency fund. Importantly, the interaction also had a positive effect on people who already were savers. The median increase in savings for these clients was more than $900. In short, working with a financial coach or counselor helps people prepare for unexpected financial emergencies, enabling them to better avoid high-cost lending products such as payday and title loans, or the need to get their tax refund now instead of waiting a few days.

The centerpiece of financial capability counseling is looking ahead. A great first step in setting personal financial goals — whether they be allocating money for emergencies, developing a strategy to start a business or saving for college education — is to retain a financial capability counselor. It's easier to avoid payday and other high-cost lending traps if you're looking ahead.

Discussing New Haven Homeownership With Bridgette Russell

On April 6th, Bridgette Russell, Managing Director of our HomeOwnership Center, spoke on the WNHH radio show, Mornings with Mubarakah. You can listen to the show in its entirety here.

On the show, Mubarakah asked Bridgette to share some tips that future homeowners should be taking before they purchase a home. We thought it'd be great to share those steps with you on our blog.




Tip #1: Finding a Great Coach
One of the greatest changes to NHS' HomeOwnership Center has been the implementation of our online portal, COMPASS. Gone are the days of paper applications and hundreds of phone calls! When you visit the NHS website, you will see a box on the left-hand side titled "Compass". Upon clicking that link, you will be able to create a profile, start an application, upload documents, and register for classes.

Question: Are NHS' services offered for free?
Answer: You may register for any NHS class at no cost whatsoever. You don't need to be a New Haven resident either. However, should you choose to go through our Homebuyer Development program, you'll be asked to pay a small one-time fee. You can pay the fee online and at that time, schedule a one-on-one appointment with your very own housing specialist.

When you meet your housing specialist, they will do a soft-pull of your credit report. The housing coaches will always start there to get the best sense of your 3 credit bureau scores. Your coach will then give you a road map and put you on an action plan that will work specifically for your situation.


Tip #2: Do Not Fall in Love With a Home Before You Know What You Can Afford
Oftentimes, many homebuyers immediately go out and start "shopping" for their new home without fully thinking through how much they can afford. Then they're disappointed when they realize that the home may be a bit out of reach.

Start first with knowing and understanding your credit score. Take a look at your debt to income ratio. Prequalify with a lender so that you can fully understand how much you can afford. If you follow these steps, you'll be able to find the right home in the right price range for your budget.


Tip #3: Pay Down Those Credit Cards
Even if you're paying your credit cards on time every month, they could still be affecting your credit score. The magic number Bridgette likes to tell NHS clients is 30%. You want to have a balance on your credit card that is only 30% of your total limit. This will prove to your creditors that you are handling your credit wisely.


Tip #4: Take Advantage of Down Payment Assistance Programs
The NHS housing specialists know about all the programs available to future homebuyers. By looking at your particular situation, they can tell you which programs you're eligible for and which programs you can layer on top of one another, making your home purchase more affordable.

For this and many more tips: 

Visit www.nhsofnewhaven.org and create your COMPASS profile. Begin your homeownership journey with NHS of New Haven today. 

Shopping for Mortgages

Shopping for Mortgages

by Michael Haynes,

Supervisor, HomeOwnership Center

 

Before you head to your local mortgage professional to get pre-approved for a mortgage, be sure to learn all about the mortgage programs for which you are eligible.

Start by making sure you have at least two months of mortgage payments already saved in one of your bank accounts. The next step is to confirm the amount of money you currently have designated to cover the down payment and closing costs.  

The prospective homebuyer that has funds to cover closing costs in full but does not want to pay mortgage insurance premiums should consider getting a Connecticut Housing Finance Authority first mortgage with a Housing Development Fund SmartMove second mortgage. The SmartMove mortgage program provides the homebuyer with a second mortgage in the amount of 20% of the purchase price, and therefore diminishes the requirement to pay mortgage insurance. 

The prospective homebuyer that has limited funds to put toward a down payment and closing costs should consider researching mortgage programs offered by regional and national lending institutions that have a more feasible loan-to-value requirement. In many instances, these programs may require the homebuyer to come up with 3% to 5% of the purchase price. You may still need a second source of financing to cover down payment and closing costs, but the amount of the second loan will be less than 20% of the purchase price.    

Finding the right mortgage product requires work but is very possible with the right resources at your disposal. The Homeownership Center at NHS of New Haven specializes in helping home buyers research and understand all of the mortgage programs that exist for home buyers seeking to purchase in New Haven County. Check us out on the web at www.nhsofnewhaven.org and then give us a call at (203)777-6925 so that we can start working to find the mortgage program for you…

Buyer Beware

Buyer Beware

by Michael Haynes,

Supervisor, HomeOwnership Center

Imagine this scenario… You are pre-approved by your lender for a mortgage in the amount of $200,000. You enlist the services of a realtor and together you both hit the ground running in search of your dream home. After several weeks of house shopping, you find the house of your dreams, which happens to be priced under the $200,000 amount for which you were pre-approved. This home has all the bells and whistles that you are looking for, and you are in love with the property’s location. You make an offer to purchase the home and have the details of your offer outlined in the purchase and sale agreement. The seller accepts your offer…

Before you go any further, treat this transaction as a business investment that may come with risks. Your task is to minimize your risks as much as you can. Start by understanding the local market and related activity. You can get information on current and future economic development activity from the town hall where the property is located. Study recent sales of homes in close proximity to the home you are trying to buy. This practice will help you to have a better understanding as to whether the home you want is priced in line with other homes in the same market. Your realtor will be able to help you with this.  

Make sure you attend your home inspection and use it as an opportunity to “look under the hood.” The home inspection will give you an excellent opportunity to see property damage and related issues that should be addressed both internally and externally. You may not have caught these issues when you were initially walking through the home to see if it had enough bedrooms and bathrooms for your needs and yard space big enough to have summer cookouts.  

During your home inspection, look closely at all aspects of the home including the mechanical systems. Ask questions about the wiring, plumbing, roof, and windows. You will want to know whether there are electrical, plumbing, or structural issues. You may not be able to see every finite detail, but do the best you can to take note of the items you can see. Think carefully about how you want to proceed should you come across costly issues that must be repaired. You can use this as leverage to get the seller to give you a better deal, but the seller does not have to comply. Think about the future costs to repair and renovate items in the home and whether the costs are feasible.  

Do not allow yourself to end up with a home that will cost you more to live in than you bargained for… Take the time to understand the local real estate markets and the home maintenance costs expected prior to closing on the home. This can save you money and headaches.

The HomeOwnership Center at NHS of New Haven knows the local real estate markets well and has access to information pertaining to home maintenance expenses. Check us out online at www.nhsofnewhaven.org and give us a call at (203) 777-6925 so that we can help you minimize your home buying risks.

Keeping the Keys: Safeguarding Your Finances

Keeping the Keys: Safeguarding Your Finances

By Michael Haynes,

Supervisor, HomeOwnership Center

You have just closed on your property and now have the keys… what next? 

The homeownership process does not end with the closing!  

The buyer’s focus prior to closing on a house is on the management of transactions and documents to ensure that ownership legally passes from seller to buyer.  After the closing and the ceremonial passage of the keys from the seller to the new homeowner, the focus shifts to property management and financial sustainability. 

A strategy for addressing home maintenance issues and personal emergencies while protecting all assets becomes extremely vital to your ongoing financial well-being. Consistently saving the appropriate amount of funds will put you on the right track. However, merely saving a random amount of funds each pay period or per month may not ensure that you are financially capable of covering home maintenance issues or an emergency.  In addition, not paying attention to appropriate protective measures necessary to safeguard your real estate assets can create major financial hardships.  

The concept of home maintenance is extremely important to the homeowner at every stage of the home buying process. When deciding to buy a home, the buyer is trying to assess the current home maintenance needs. In addition, the buyer is also trying to use the home maintenance issues that may already exist as a leveraging tool to see if the seller will cure the issues prior to closing. As a homeowner, you are responsible for the upkeep of the property. You will want to understand the preventive measures necessary to ensuring the optimal functionality of the property. Become familiar with these preventive measures and be aware of potential issues before they happen. Educate yourself on the cost, life expectancy, and age of the property’s roof, windows, and mechanical structures. You will want to use this information to develop a savings plan for addressing repairs and replacements.

Personal emergencies should always be thought of as a separate category despite the urge to lump them in with home maintenance. Home maintenance funds should be used strictly to address property issues. An emergency fund is used to address issues such as a flat tire on your way to work or an unexpected medical expense not covered by your health insurance. Increasing your emergency funds will help to minimize the likelihood that you will be wiped out financially by unexpected life events.

Protecting your real estate asset does not just include obtaining the proper insurance and taking the proper home maintenance precautions.  Make sure that you always keep a copy of all loan documents signed at closing and your homeowners’ insurance policy. You may want to keep these items in a fireproof safe to ensure that they will be properly maintained even in the event of a fire.

Home maintenance, emergency funds, and asset protection are crucial components to the sustainability of your property and your finances. Make sure that you treat them as priorities.

NHS can help you create your homeownership strategy. Give us a call today at (203) 562-0598 ext. 26, or check us out online at www.nhsofnewhaven.org.

Landlording 101

 Landlording 101

By Michael Haynes,

Supervisor, HomeOwnership Center

You don’t need to limit yourself in your house hunt by only looking at single-family homes. Don’t feel intimidated at the prospect of being a homeowner and landlord. With landlord training classes, you’ll learn the ins and outs of owning a multi-family home.

Purchasing a multi-family home where you occupy one of the units as your primary residence while renting out the other unit(s) is an excellent way to offset your home purchase costs while building your assets. There are a few concepts to understand before embarking upon this journey. Generating profit from the rental income is paramount, and having a home maintenance strategy is necessary. Most importantly, understanding your role as a landlord will help minimize unwarranted liability. 

A major incentive to becoming a landlord is the likelihood that you will generate additional revenue for your household. Start by getting a good mortgage product consisting of monthly mortgage payments that are at or below your financial means. You should put yourself in a financial position where you can sustain mortgage payments whether you receive rental income or not. This will serve as a financial cushion, allowing room to save funds at a more aggressive pace and prepare financially for emergencies.  Covering monthly mortgage payments from your own funds and not with the assistance of rental income will put you in a position to build wealth.

A home maintenance strategy is mandatory and should be created before you purchase the property. Remember, you’re responsible for more than just your unit. Get familiar with the average cost to repair and replace the house’s roof, windows, and internal mechanical structures. You will want to be aware of when the items in each unit need to be serviced, repaired, or replaced. 

Understanding your responsibilities as a landlord will help you manage tenant-landlord relations more effectively and enhance your reputation as a stellar landlord. A landlord’s reputation goes a long way – and a good one can help increase the likelihood of getting a larger pool of qualified tenants.  

The life of a landlord can be fun and rewarding. We offer landlord training classes and landlord consultation services. Give us call so that we can help you become the next savvy landlord in town…

Team Players

Team Players

by Michael Haynes,

Supervisor, HomeOwnership Center

Buying a home for the first time? If so, you’re going to need the right team… Pick your team wisely and win the game!!! 

You have made the decision to become a homeowner and want to make sure that the process moves at a controllable pace. Picking the right players to be a part of your home buying team will help you maintain control of the home buying process and ensure that you are informed at each step. There are (5) key players that you should have on your home buying team.

The first key player is your lender. The lender provides the funds to purchase the home and has a significant role in the closing process. Pick a lender that offers the best mortgage product applicable to your credit rating, financial reserves and desired town of residence.

The second key player is your realtor. The realtor helps you with finding homes based on the home you want and need. Find a realtor who is very familiar with the housing market in the areas in which you want to buy, understands first time home buyer programs, and is accessible.

The third key player is your home inspector. The home inspector will give you a good idea as to the livability and functionality of the home. Pay attention to your home inspection report and be sure to ask questions.

The fourth player is your attorney. Choose an attorney that specializes in residential closings and has experience with the closing process for first-time home buyers. Your attorney will play a major role in coordinating the closing process. The attorney helps to make sure that you, the seller, and the lender are on the same page and have all necessary items needed to close.

The fifth key player is your homeowners’ insurance agent.  Make sure you understand the type and amount of insurance you need to cover your home. Homeowners’ insurance can help to protect you from liability against property damage and injury that takes place on your property.   

The right home buyer team can help to make your home buying process smooth and steady. Think of yourself as the team manager…  Every team manager needs an experienced coach to help motivate the players. Let us be your coach and help to make sure your home buying process moves according to plan. Give us a call so that we can create your home buying team together.

After the Mortgage

After the Mortgage

By Michael Haynes,

Supervisor, HomeOwnership Center

I’m ready to get a mortgage… now what?

Financing the purchase of your home can be a daunting task if you let it. You will need funds to acquire the property, cover a down-payment and pay closing costs. Start out with asking yourself, “What do I need from the lender?” Do you need a mortgage to acquire the property but already have money saved for the required down-payment and estimated closing costs?  Do you need funds to cover all three areas?  Answering these questions will help you determine the product that may be best suited for you.

The “mortgage” is the legal document that allows you to acquire and own your home while using the home as collateral. Simply stated… you own the home as long as you make monthly mortgage payments as agreed in the note. Defaulting on mortgage payments gives the lender the right to take possession of your property through a process called foreclosure.

The mortgage payment that you will make each month covers several areas. The payment covers the principal, interest, real estate property taxes, and mortgage insurance. Covering the principal is crucial because that is how you pay off the mortgage loan. A wise borrower will try to make higher payments towards the principal as much as possible so that the loan can be paid off at a faster pace. Lenders love interest payments!!! The lender’s incentive to loan you money is based on the amount of interest that they can charge as a return on their investment of offering you a loan. The interest is the lender’s profit. Most lenders and mortgage programs will request that you make one payment per month that consists of principal, interest, taxes, and insurance. Upon receipt of your mortgage payment each month, the lender will apply a portion of the payment to your loan principal, a portion toward mortgage interest, and then place the rest in an escrow account. As your insurance and real estate taxes become due, the lender will automatically pay them from the escrow account. 

Mortgage insurance protects the lender in case you default in your mortgage. There are several mortgage products that do not require mortgage insurance premiums. The benefit of this is that the borrower will have a lower mortgage payment.

The lender is able to offer you a principal and interest payment that remains the same until the loan is paid off based on amortization. The term amortization refers to the gradual repayment of a mortgage by installments that will pay off the loan at the end of a fixed period of time. Whenever you hear about a 30-year mortgage, remember the term AMORTIZATION!

The goal of a prospective borrower should always be to end up with the most affordable mortgage. Give us a call and let us demystify the mortgage process for you.

Are You Mortgage Ready?

 Are You Mortgage Ready?

Get “Mortgage Ready” first… and then proceed with your homeownership plans…

The decision to become a homeowner is never easy when considering the pros and cons of homeownership. After deciding thathomeownership is what you truly want, the next step is to assess whether you are ready to obtain a mortgage or not. Lenders are attracted to prospective borrowers that have certain characteristics. You will want to make sure you possess these characteristics when you go to a lender and request a residential mortgage loan. Unless you are in a financial position that will allow you to purchase a home using your own cash and without borrowing funds from a financial institution, the gateway to homeownership at this junction is attracting a lender. 

Let us explore the characteristics that lenders look for in a prospective borrower.

To attract a lender, you will want to prove that you manage your debt obligations well, have the ability to save funds, and are able to financially sustain additional payments to your current monthly expenses. The ability to manage your monthly debt well is extremely important to a lender. Remember, the lender is trying to decide the level of risk in lending money to you so that you can purchase a home. Indicating on a credit report that you have paid your bills on time, have credit card balances that are at or below 30% of their respective credit limits, have no past due accounts or active collection accounts, and have no derogatory credit items being reported publically such as tax liens, previous foreclosures or open judgments, will mark you as a prospective borrower.

Your job as a prospective mortgage borrower is to make lenders feel that you are trustworthy, responsible, and capable of making timely loan payments. The best way to start doing this is to make sure that you pay your bills on time, manage current debt well, and do not take on more debt than you can afford. Excellent credit history and a sustainable spending plan will drastically enhance your attractiveness to a lender because at that point you will be classified as…Mortgage Ready!!!  

Give us a call to see how far away you are from being mortgage ready…  You might be closer than you think.

Is Homeownership for You?

Is Homeownership for You?

Homeownership works for some but not for others. Asking the question as to whether homeownership is right for you is a very noble and mature place to start when considering home purchase. To clearly assess whether or not you should take on the challenge requires personal reflection on the following areas:

• Current financial status
• Career plans
• Appetite for property management and home maintenance

Your current financial situation can determine whether you are financially capable of sustaining a home or not. In addition, your current financial status can give you an idea as to whether you should buy now, wait for a specified period of time, or continue renting. 

Our trained housing specialists can help you determine your current situation and develop a plan to reach your goals.

There are numerous instances where mortgage payments are less than the local rents. However, as a homeowner, you also have to consider the expense of taxes, insurances, home maintenance, and other miscellaneous expenses that arise from owning a home. As a renter, you are responsible for monthly rent and renters’ insurance and do not typically have to worry about home maintenance issues. As a homeowner, you serve as the lead property manager of your home and have responsibility of making sure all mechanisms, both inside and out, are functioning properly. This requires times, effort, and in some instances, money. 

You can always minimize your frustration in these areas as a homeowner by preparing financially. However, those in a position financial position that does not allow room to prepare for future and current home maintenance issues should always think twice before plunging into homeownership. You will want to make sure that you have the financial capacity to sustain a mortgage payment, home maintenance costs, and other monthly living expenses before deciding on homeownership.    

The direction in which your career can take you is full of surprises. Should your career plans consist of future relocation within the next 1 to 3 years, you may want to hold off on homeownership – unless you plan on being a real estate investor who will rent out the property. Be realistic with where you want to be in terms of location, career, and family. 

As a renter, you can always fall back on the landlord in most instances to cover maintenance, landscaping, and all other items pertaining to the upkeep of the property.  For individuals who enjoy like yard work and fixing “things,” though, homeownership is invigorating!  

A happy new homeowner!

Homeownership has always been a great way to provide stability for a family and possibly serve as a wealth-building mechanism depending on how you utilize the tax incentives and market value increases. Before diving into homeownership, allow us to help you assess your current situation and provide feedback as to what your options are.

To learn what your options are, contact our HomeOwnership Center at (203) 562-0598 ext. 26, or visit our office at 333 Sherman Avenue in New Haven!