Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition

All types of debt can be seen in a mortgage business. Debt payments for car loans, student loans and IRS payments, alimony, child support are made when you engage in a mortgage. Too much debt and having no debt can be both a big problem.

It sounds strange that having no debt can be a problem. It can be big problem because the lenders are looking at the borrower’s credit history before granting him mortgage. The lenders want to see the manner of your payment whether it is delayed or on time. If you have no debt then you can show no credit record to the lenders and more likely you will not be able to get a mortgage.

If you have never had a credit card or any payment for a loan then lenders have no way of checking your credit history and you just might end up keeping on renting instead of owning a property.

So what you should do is to apply for a credit card as soon as possible. You start with one credit card. It does not have to be an American Express Gold Card. It can be any card for a start that will allow you to purchase any item and to be charged to your account. Then pay on time when the bill comes. Do it consistently for several months and then apply for Visa or MasterCard later. When you have your Visa or MasterCard, do the same thing. Purchase small items and when your bill comes, pay your dues on time.

Do not apply for a bunch of credit cards at one time. Get a card one at a time in a couple of months and limit it to only three. Make sure that your payment is on time because one late payment can do damage to your credit score and it might be the reason for the disapproval of your application for mortgage in the future.

Having a debt has also its merits. It is not a problem at all times. Let me cite an example. Having a mortgage can provide you earnings. If you purchase a home at $350,000 and the home appreciates at a conservative rate of 2 percent per year then in one year the home is already worth $357,000 or in five years its value is $386,000. In addition to this you can reduce your federal tax liability. How does this work? If the home you purchased is worth $350,000 and you borrowed $315,000 at 4 percent interest, you can deduct $12,000 from your income which will result to a reduced federal tax liability. Debt can be a good investment. It can help you improve your financial situation.

Credit Rating Down Due to Low Tax Revenues

There is bad news about state finances. In April, the income tax revenues was short by more or less $2 billion and in the same month a ruling was handed by a judge that the state controller cannot withhold the pay of the lawmakers for not doing their jobs. Standard & Poor is very much concerned about these two recent events that took place this month of April.

This bad news comes at the time when Gov. Jerry Brown prepares his revised May budget. The forecast made for April was $9 billion but the total tax revenue for that month was only $7.1 billion. Controller John Chiang posted in his website the shortage in tax revenue and warns that that the deficit would be higher by $1 billion or $2billion than what is predicted. According to the Legislative Analyst Office, the last week tax revenue was $3.5 billion lower than the forecast of Gov. Brown for the fiscal year.

The proposed budget of Gov. Brown for the new fiscal year is $92.6 billion. He has also proposed through a Nov. ballot to provide budget for education and public safety programs by increasing the annual income taxes on people who are earning more than $250,000 and also increasing the sales tax by one quarter of a cent. The passage of this proposal is certain.

This initiative taken by Gov. Brown addresses the concern of Standard & Poor’s concern about the decrease in tax revenue but the rating agency is still worried about the ruling made by the judge in Sacramento. Judge David I. Brown said that Chiang abused his authority in withholding the pay of the lawmakers after they failed to pass a budget on the date expected. They did pass a budget but according to Chiang it was out of balance budget. Chiang said he withheld the lawmakers pay under authority of Proposition 25 which stipulates that the Legislature is allowed to pass a budget through a simple majority vote. It also said that if the lawmakers fail to pass a budget on time, they would forfeit their pay.

The lawmakers filed a suit against Chiang and the Judge Brown ruled in favor of the lawmakers.

According to Gabriel Petek, S&P analyst, the decision of the Judge may be expedient politically but may not be an effective solution to cure the budget deficit in the long term. The decision also demonstrates the reluctance of legislators to make cuts in their expenditures which will result to more budget deficit in 2013.

California has the lowest credit rating which is an A-minus.

The Effect of Your Spouse’s Bad Credit in Buying a Home  

After getting married with a spouse having a bad credit, does it stop you from buying a house with your good credit record? The answer is “no” because your plan to buy a home you want is still very possible or within your reach. Before you castigate your spouse for ruining his credit, take note that after the severe financial crisis in 2008 only few Americans were greatly affected by the credit crunch. In fact, many American families are uncertain about their financial situations. In other words you are not alone in such kind of situation.

Tips to buy a house with Bad Credit

It is not only you and your spouse who are struggling to buy a house because of bad credit. Here are some options you can choose from when your spouse’s credit is not desirable.

1. Buy the house together: If you buy it together, you can set aside the bad credit of your spouse. This is an option which will charge you high interest rate and no financial expert would advise anyone to choose this option but this is just one way for you to buy a house.

2. Buy it alone: If your spouse’s credit is bad but yours is good then buy it using your own credit. This will be easier for you to get a loan because of your good credit record. The amount of loan will be based on your income and available cash.

3. Loan granted with no verification of income: This is an option where the single income of the one who has a good credit record or the bad credit record of the participating spouse are not the basis for granting the loan. This type of loan, however, requires a large down payment ranging from 25 to 30 percent of the principal. The bad news is this option eliminated because of the financial collapse.

4. Replacement of “Bad” Credit with “Good” Credit: A third party can help a couple to buy a house. Usually one of the parents with excellent credit rating can replace the spouse with a bad credit. The third party is required to co-sign the couple’s house loan.

Loan Approvals Decline, Indicate Economy Slowing Down

According to Biz2Credit Small Business Lending Index, after evaluating 1,000 applications for loans, it was discovered that loan approvals at banks declined from 10.9 percent during the month of March to 10.6 percent during April, and also a decline from an approval rate of 11.6 percent during March 2011. Moreover, small bank lending declined from 47.6 percent during March to 45.9 percent during April.

On the other hand, loan approvals by credit unions also declined to 46.6 percent when they were proposing to raise the lending limit to 27.5 percent of their assets.

One other indication that the economy is slowing down is that, in general, the demand for small business loans for the month of April declined by 5.4 percent, which is a first for 2012.

The guarantee fee of 90 percent for loan approvals established between the months of September 2010 and March 2011 were applicable for one whole year. The month of April of this year was the first month of 75 percent guarantees along with evaluation of the 1 to 3 percent fee. This is one of the major causes for the decline in the loan demand and less enthusiasm of banks to approve funding applications.

The April jobs report showed that only 115,000 jobs were produced, even though the anticipated number is more than that. This can also mean a slowing economy. Moreover, increasing oil prices, together with the worsening of the crisis in Europe, have contributed to borrowers and lenders being much more careful.

Credit unions and alternative lenders, among all small business lenders, have approved above 50 percent of loan applications. Since the month of September last year, small bank lending declined to its lowest point. In contrast, big banks do not approve nearly 9 in 10 small business loan applications.

According to the evaluation by Biz2Credit, loan application amounts vary from $25,000 to $3 million and that the average credit score was more than 680.

Financial Setbacks for Engaged Couples, Ameritrade Reports

The majority of couples who are currently engaged are planning to pay all of their wedding expenses without asking for any financial assistance from their parents. Moreover, almost one half of engaged couples are planning to spend lower than $10,000 on their wedding day. This is according to a recent report from TD Ameritrade Holding Corp.

Moreover, the report also found out that the majority of lovers do not regard as deal-breakers setbacks such as bad credit, foreclosures, student loan debt, and unemployment.

In the end, the major problem is bankruptcy. In fact, over 3 out of 10 engaged people said that it would be one of the reasons to cancel the wedding. In addition, 27 percent said that they would reschedule the wedding.

According to Carrie Braxdale, managing director of investor services of Ameritrade, more couples are getting married in the latter part of their lives. Consequently, they are creating more financial problems into their marriage such as credit card debt and student loan debt.

The areas where couples are likely to have very high expenses for their wedding day are the Northeast, and then next to that is the West. The majority of people begin to set aside money in the same year prior to the wedding. On the other hand, 9 percent begin saving money for the wedding more or less two years beforehand.

Ameritrade also discovered that 41 percent of couples below 31 years old asked financial assistance for their wedding expenses from their parents, while 21 percent of older couples ask help from parents.

Based on data from wedding website The Knot, wedding funds are getting bigger for the first time since the year 2008 at the same time as the improving economy. Another report from XO Group Inc. last March discovered that 11 percent of couples have expenses exceeding $40,000.

With the exception of honeymoon expenses, the average cost for a wedding was $27,021. The most costly place to have a wedding is in Manhattan, with average costs of $65,824.