Your Questions About Save Loan Schedule

Sharon asks…

Can you refinance your home after 2 or 3 years to shorten from 30 year to 15 year laon?

My husband and I are thinking about buying a house in the near future. We are hoping to get approved for a first time home buyer with 0 down. Can we start the loan at a 30 year loan then refinance to a 15 year loan in a few years when we have a bigger “down payment”? We would like to get into a house while it’s still a buyers market, but it will take us probably 3 years to come up with a down payment. Please help!

John answers:

Excellent question. With both low mortgage rates and home prices increasing, after hitting cyclical lows, many first time home buyers are looking to get into the market. In general, saving for a down payment makes it easier to qualify for a loan and makes the loan more affordable. It also builds good habits for eventually paying off a loan; however, there are instances when buying at a good price makes it worthwhile to enter the housing market, even with a low down payment.

Your main question deals with refinancing a mortgage loan after 2-3 years. The short answer is, yes it is possible and most loans do not have a prepayment penalty, but definitely check before taking out a loan. Whether it is worthwhile to refinance in another few years will depend on
1. Mortgage rates and fees: Remember, refinancing often comes with many closing costs and today’s mortgage rates may be less than what you will find in the future.
2. Time you will stay in the house: Usually it takes a number of years to recuperate your closing costs, so you will want to do a break-even analysis at the time.
3. Loan to Value ratio(LTV)House value: If you want to refinance, your home value needs to be at a level that is acceptable e to the bank. If it is over 80% then you will need mortgage insurance.
If your original loan is at better terms, then you can consider accelerating your payments (monthly, annual, etc) and shortening the length of the loan. This option offers you more flexibility in the payment schedule and might potentially be cheaper.

However, your question about refinancing is really putting the wagon before the horse. First you need to qualify for a mortgage. It is very difficult to get a mortgage with 0% down, although some lenders do offer that product.
In general you can find, depending on your credit score and debt to income ratio (DTI), loans with small down payments as follows:
* conventional loan with private mortgage insurance: as low as 3-5% down payment
* FHA loans with mortgage insurance (high upfront and annual premium) with 3.5% down payment.
Conventional loans require higher credit scores and lower DTI than FHA loans.
There are also special programs for eligible veterans (VA loans) and rural areas (USDA loans).

My recommendation is to concentrate on qualifying for an affordable mortgage. You might need to work on getting a minimal down payment of at least 3-5%. Make sure that you don’t overextend yourself.

Sandra asks…

How can I get a good reliable car with bad credit?

I have a good job. Due to high school and college credit cards, I have bad credit. I am working on restoring it but that takes time. I am in dire need of a good reliable car. I can get financed with a 20% interest loan which is crazy! Any other ideas?

John answers:

With bad credit, you don’t have many options. You could try saving some money from your job, getting a loan from one or more family members, or simply accepting a high-interest loan.

Actually, accepting a high-interest loan will be good for helping to improve your credit score. If you make payments as scheduled, don’t miss any payments and don’t be late, this is the best thing you can do to improve your score. So, look at the high interest rate as a relatively inexpensive credit improvement program

I suggest shopping for the best rates. Subprime lenders are harder to find but rates vary considerably.

Betty asks…

How do I help my husband develop better personal finance skills?

I need to gently teach my husband a lesson in finances. He was raised to live beyond his means, and not plan for his future. His father is the same way. My husband and his siblings were encouraged by their father to attend university/college without being encouraged to form a debt-repayment plan. They (my husband and his siblings) ended up with arts degrees and absolutely no intentions to use those degrees to make a living. They have deferred debt repayment for over 3 years now, and both intend to do so long into the foreseeable future. Neither of them anticipate consequences for their poor financial strategy and outlook. My husband is almost 30 and he doesn’t think he needs to worry about his debt yet. He is not interested in increasing his income so that he can afford repayment. I personally have 0 debt and work full time, but I am considering getting a part time job in order to start repaying his loan, as well as to teach by example. Any other ideas?

The other day I made a casual joke about how he would “learn his lesson when we have kids and more responsibilities,” and he took it as a threat. This is why I need advice on how to GENTLY help him. I don’t want to sound judgmental, threatening, insincere, or hateful; I simply want to help him change before his habits ruin our marriage and lives. How can I make him see he needs to prepare for the future and make more money now? The odd part is that he reads a lot about how to make/save/invest money, and also sees the flaws in his dad’s debtor logic, but he refuses to admit he is the same way and needs to change. He is unambitious, and takes a lot of breaks or down-time in his daily schedule. How can I set up a rewards system for ambitiousness and productivity without being condescending? My father has an incredible work ethic, so I’ve suggested to my husband that he could learn from my dad. I’m guessing that was a bad suggestion (?). It hasn’t inspired him to work hard, anyway…

How can I make him see beyond today and really understand the consequences of his actions in the future? I would appreciate any advice from reformed debtors, especially those with family members or spouses that were helpful in their reform period. Thank you!

John answers:

I doubt there is any way to “gently” encourage him, “gently” teach him.

He gets insulted and threatened when you want to discuss your financial and future life. Seriously?

And you want to get a part time job to pay off his bills? Because he is not interested in working hard enough to pay his own bills or to plan for a financial future.

You want to set up a rewards system for him? Again, seriously? Like one would for a 12 year old for getting good grades? Or a 5 year old for not throwing temper tantrums?

You want to walk on eggs around him because he isn’t mature enough to do what normal people do – in that one takes care of these things without pouting –

Sorry – but my opinion would be – at 30 years old – he will not change. Even with a silly rewards plan. A 30 year old shouldn’t need a rewards plan like a 4 year old. A 30 year old should be all grown up. And on the way to having student loans paid off. On the way to having a stable financial situation.

I see your future as getting a part time job on top of a full time job while he slacks off. And he won’t feel bad about it one bit. I see your future as you having to deal with this kind of attitude from him forever. I see your future as this just going on and on and on and on. I see your future as possibly having a child or two – and still working full time as well as part time to support child too.

I’m sorry – but personally, I wouldn’t be setting up a rewards program. I would be saying “shape up or ship out”. I wouldn’t be risking my future trying to make a 30 year old who acts like a 4 year old grow up.

Chris asks…

How to get student loans without a cosigner? Can’t pay for school… :(?

The short story is I completed 2 semesters at KSU and it was costing my parents $3300 a semester out of pocket.
I left that school to another smaller, cheaper, less substantial university that was like $900 a semester after financial aid. I hated it, and it didn’t support my major like the other school.
While in the cheaper school I got a part time job, and a credit card to start building my credit. After one semester there, I left to just work as much as possible and save money.
Almost a year later, I have $4500 in my savings, and a ~690 credit score.
I reapplied to KSU for Fall 2013 and after financial aid (which was a pitifully low amount received from fafsa) my bill is going to be $4970 for one semester out of pocket.
My parents had the same jobs and salary for both times, so I don’t know why I hardly got any aid this time.
We are not eligible for ParentPlus, Stafford, or Perkins loans as my parents have a terrible credit history.
I cannot seem to get any of my own loans without a cosigner, which I do not have. There is not a single person in my family or close friends that has good credit and is willing to cosign a loan for me. And no, I am not just saying this, there is literally NO way for me to get a cosigner on anything.
I applied for a bunch of scholarships through the school, and a handful of outside ones. Got nothing.
My cumulative GPA is a 3.63, so I have the academic standing in my favor too.
I literally do not know what else to do, and as of right now there is no way we can afford to pay approx $1753 a month between my parents and I.
In mid august I have a lease on an apartment near the school starting (rooming with two close friends/MUCH cheaper than on campus housing), we all have jobs lined up already, I have a full set of classes scheduled (16hours), and I’m not afraid to work hard to get what I want. I don’t know why its such a struggle to just go to school! I’ve done everything I know how to, and it still isn’t enough.
Any advice, tips, anything is much appreciated. :)

John answers:

Wait two years to go back to college…Work full-time and save up all you money in that time and pay for any necessities with your credit card to build up your credit.

At the end of two years you should have at least $15,000 in cash and good enough credit for a loan without a co-signer. I know it’s not what you want to hear but that’s what you’re going to have to do.

William asks…

How are my extra car loan payments being applied?

I purchased a Kia and it is currently being financed through Wells Fargo Dealer Services. The original loan is for $16,645.45 @ 7.99% APR with a 72 month term. Interest accrues on a 365 day basis. The first payment was scheduled for December 18, 2012 for $292.74.

My wife and I dropped the extra protection/warranty as we didn’t deem them necessary and received a refund of $3,145.00. This brought our principle balance to $13,500.45.

We intend to round up our payments on a monthly basis. Since the first payment, we’ve been paying $300.00 a month before each due date. This has been lowering the next month’s payment by $7.26. This would make sense if they were taking the overage payment and applying it as a payment towards the next month, thus reducing the next month owed by the overage amount.

Then, last month, I figured, if I broke the payments into 4 payments a month @ $75, it will slowly help even more than just making 1 monthly payment of $300.00. However, since I did that, now our new monthly payment is the original $292.74 payment once again.

I have a limited knowledge of how car loans work, but I’m hoping a CPA can chime in here and maybe confirm my suspicions. I’m gathering that the accrued interest basis of 365 days means that any extra payments we make throughout the year, be it a round up once a month, or through 4 payments a month will all only be applied ONCE a year and only at that time will the extra payments be applied towards the principle to lower the overall balance.

Being there are no early payment penalties associated with my car loan, should I continue making the $75/quarter month payments, $300/month payments or just make the minimum payment every month and save the extra in an account (in case of needing it for emergencies) and make one large extra payment every 11th month so it is applied towards the next year?

Thank you, I appreciate your assistance.
If you don’t have the qualifications to answer this question with the information given, please do not answer. Thank you.
Apparently EVERY time I try to vote on a best answer, Yahoo brings me to a page that says there’s an error. Wonderful.

John answers:

If you do not state where you want the add’l payment to go, the bank will either apply it to the next months payment or it will go towards the principle. You should have that option on your coupon. Either way it balances itself out in the end

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