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    Car Buying Decisions: Pitfalls of Zero-Percent Offers

    Last updated 3 days ago

    We've all seen the ads on television for a new car or truck with 0% financing. What a deal! Buy on credit with no interest — it's like using someone else's money!

    Not so fast. Zero-percent financing can cost more than you think. Here's what you should know about this special financing arrangement before you run off to the dealer.

    Zero Percent May Offer Fewer Choices

    Just like grocery store specials, zero-percent financing offers can be a lure to get you in the door only to find that the "special" isn't quite what you wanted. Zero-percent offers usually apply only to certain models or brands. Your choice may also be limited to the dealer's stock on hand, which means you might not get the color, style, or options you want.

    In many cases, dealers are looking to move "loaded" vehicles. Unwanted options can drive the sticker price up 25% or more, lessening your ability to negotiate a better price on the new vehicle or for your trade-in and costing you more than you really want to spend. Those unwanted extras can add up to more than a reasonable interest rate would have cost over the life of a loan on the vehicle you really wanted.

    Do You Even Qualify for "Free Money"?

    According to a Consumer Task Force for Automotive Issues survey, fewer than 10% of all applicants meet the strict credit criteria needed to qualify for the zero-percent rate. Those with less-than-perfect credit get bumped up to a higher-rate loan, and dealer financing can often be more expensive that a loan you get through your bank or credit union. Credit unions usually have the lowest rates and fees because they are not-for-profit cooperatives.

    Also, many dealer loans require a shorter payback term, making your monthly payments less manageable. You may even have to make a larger down payment and be subject to bigger prepayment penalties if you don't have your financing in hand when you walk in the door..

    Make Your Best Deal with a Pre-Approved Loan and Smart Negotiating

    Want to make the best deal? Take rebates instead of special financing, negotiate a good price, then come to your credit union for financing. You'll find competitive rates on new and used auto loans, and you can get pre-approved in minutes. Even better, get pre-approved before you start shopping so you know exactly how much you can spend and you can make the deal the minute you feel you've negotiated a deal you like. Being ready to buy gives you more power in any negotiation.

    This chart illustrates your potential savings when you negotiate for rebates and use a low-cost credit union loan instead of seemingly low-cost dealer financing that precludes rebates:

    You can use our online financial calculators to determine your monthly payments. We encourage you to compare payment plans to ensure you're getting the best deal.

    *APR=Annual Percentage Rate. Rates are for example only. APR is based upon a variety of factors, including the applicant's credit rating.

    Car Buying Decisions: New or Used?

    Last updated 10 days ago

    Whether you go new or used, buying and operating a car is a major expense. It's well worth your time to seriously balance all the costs and benefits against each other.

    According to the Bureau of Labor Statistics, the average U.S. household spends 18.1% of its income on vehicle costs, second only to housing. Given that nearly one out of every five bucks that you earn will go into your car, you're right to think long and hard about whether it's best to go with new or used.

    There are a myriad of issues to consider about your purchase. Here are a few:

    • Depreciation: This is a big issue for many car buyers. It's simple: The moment you drive a new car off the lot, it immediately loses a chunk of its value because it is no longer "new." Cars generally lose 25 percent or even more of their value each year (although some models hold their value better than others). When you buy used, you let someone else take that depreciation hit.
    • Costs: Obviously, when you buy new, you pay more, and not just for the initial purchase, but also in higher insurance premiums, registration and licensing fees. On the other hand, used car owners have to consider the higher costs of keeping an older car running (such as replacing the brakes, muffler and battery), as well as the possibility of having to undertake a major repair (like replacing the transmission).
    • Warranty: The advantage is clearly in the new car camp here. Basic warranties are standard with new cars these days, and you can buy extended warranties for an additional cost. While some dealers may offer a limited warranty on used cars, they are typically much weaker than what you would get from a new car. A VSC (Vehicle Service Contract) from Amplify can ease that worry, and is almost always a better value than the limited or extended warranty offered by the dealer.
    • Reliability: Many new car buyers tout not having to worry about a major breakdown as a reason for going new, but the truth is that some used models may actually be far more reliable than some new models. One thing is for certain, though, and that's that the new car buyer knows exactly how the car has been treated. Protect yourself before you buy a used vehicle by having it professionally inspected.
    • History: There are devotees of Consumer Reports out there who would never dream of buying a car without knowing that model's track record for repairs and defects. When you buy a new model, however, you can only hope that it will prove to be reliable.
    • Condition: The "shiny chrome" factor is a big one for many new car buyers--nothing else can quite replace the feeling of knowing you're the original owner of a new car in mint condition. Used car buyers have to settle for freshly detailed.

    And the answer is : There are pros and cons to both sides of the argument, and ultimately you must choose what makes you happy. Financially, it often makes more sense to purchase a late-model (1-4 year old) pre-owned car instead of a new model. But, there's nothing quite like that "new car smell" to brighten your morning commute. Either way, never purchase outside your budget and always allow for those unexpected expenses owning a car seems to bring.

     

    What Mortgage Lenders Look For

    Last updated 1 month ago

    Applying for a Mortgage

    No matter whether you're applying for a credit card, an auto loan, or a home mortgage, your FICO or credit score, job history, income, and debt will affect how much you can borrow, what rate of interest you pay, and whether or not you get the loan.

    Generally speaking, mortgage lenders consider the following when decisioning loans:

    • Income stability: This can be more than your salary. If you have other verifiable income and financial assets with at least a two-year history, these will work to your advantage. Examples include investment income, social security, disability, commissions, royalties, and alimony payments.
    • Debt-to-Income Ratio: Lenders traditionally prefer that your combined debt and housing expense not exceed 36% of your monthly pre-tax income. Generally that breaks down as 28% for housing expense and 8% for debt. Housing expenses include principal, interest, taxes and insurance (PITI), and can include condominium maintenance fees and home owners' association fees. Items considered in your debt calculation include credit card balances, installment loans (such as auto loans), and student loans. It's a good idea to reduce your debt as much as possible before applying for a mortgage.
    • Loan-to-Value Ratio: A loan-to-value (LTV) ratio is the amount of your loan proportional to the value of your property. A lender's ideal LTV is 80%, which means you're putting 20% down and borrowing 80% of the property's value. Smaller down payments usually trigger penalties such as mandatory PITI and the lender taking, holding, and paying your annual insurance and taxes rather than you managing those funds. If coming up with a down payment is a challenge, investigate loan programs designed to help you buy a home without a lot of cash, or use gifted or borrowed funds.
    • Property Appraisal: All lenders require a professional financial assessment of your property by a licensed appraiser to ensure the market value equates to the loan amount. A lender needs to know that the borrower's collateral, which includes both the property and the down payment, will be enough to recover their investment in case the borrower defaults on loan repayment. An appraisal also helps you know you're not offering too much for the property.
    • Credit History: It's a good idea to check your own credit report to correct any errors. Past credit problems don't have to be an obstacle. If you can reasonably explain (and verify) hiccups in your payment history, most lenders will listen. If your FICO score is below 620 you will be considered a higher risk loan candidate and should expect to pay at least two percent more in interest on a loan than a prime borrower taking out the same loan.

    Have your Documents Ready

    Lenders will want to see salary history and two or more years of tax returns. If you have credit issues, be ready to explain them. Lenders don't make money when they don't make loans, but they need to show they are making prudent loans. Unless potential borrowers have absolutely no financial credibility, they should never assume that subprime credit means he or she has no bargaining power. Have your realtor, your lender, or a mortgage broker help you explore all of your options and get pre-approved before you start shopping.

    For more real estate articles, visit goamplify.com/library.

    Choosing the Right Real Estate Agent

    Last updated 1 month ago

    Whether you're buying or selling your home, choosing a real estate agent is an important first step. You want to find one that possesses the tools and skills you need in order to get the results you want.

    Think of the process like a job interview. Here are some questions to consider asking your potential real estate agent:

    If You're Selling

    • "How do you plan on advertising my home?" This is one of the most important questions to ask. Find out how the agent typically promotes their listings to the public.
    • "Do you have your own website with pictures of your current listings?" Many people search for homes online. Find out which channels your agent uses.
    • "Do you have any support staff?" A real estate agent who has assistants, especially licensed assistants, will likely have more time to work for you.
    • "How do you operate open houses?" Open houses generally require sellers and their pets to be out of the house for long periods of time. Ask how often the agent plans to have open houses, what day(s) of the week, and how long they will last so that you can make plans accordingly.
    • "What is your average time to sell a home, and what percentage of your listings sell?" A reputable agent should willingly provide this information.
    • "What is your commission percentage?" Contrary to popular belief, this number is often negotiable, especially if you have a desirable property.

    If You're Buying OR Selling

    • "Do you have a reference list of past clients?" Talking to a few previous clients can give you peace of mind before you decide to hire an agent.
    • "Do you work full-time as a real estate agent?" If this is a part-time or second job, the agent might not be able to provide the quality of service you need. Having other commitments is not necessarily a roadblock to providing good service, but be clear about the situation before you sign on.

    Home Buying Mistakes to Avoid: Doing it Alone

    Last updated 2 months ago

    By Jeannette Morrison

    REALTOR ®, BE, CNE, Keller Williams

    Residential, Relocation, and Investment

    www.CentralTexasAgent.com

    512-233-9775 cell

    facebook | twitter | LinkedIn

     

    Mistake #7: Doing it Alone

    When buying a home, many pieces need to fall into place in order to have a smooth transaction. Wouldn’t it be nice to have someone at your side to help you along the way-- to help you with the loan process, help you find the right house, negotiate on your behalf, and assist with all the paperwork? Well, such person does exist – a Buyer’s Agent.

    The job of a Buyer’s Agent is to work for you in the real estate transaction, not the seller. Your Agent can help find you a home out of the most reliable local database for home sales there is (the local Multiple Listing Service or MLS), prepare your offer, provide you with a list of comparable and similar homes recently sold, negotiate with the seller on your behalf, and insure that you are protected along the way from any pitfalls of the complex process. And the best part is that the Buyer’s Agent is free for the buyer! They typically get a portion of the Seller Agent’s commission so you don’t incur any additional expense.

    How do you select a good Buyer’s Agent? There are a few conditions he or she must fulfill. Choose someone who

    • knows the area where you want to live
    • knows how to negotiate to get you the best price
    • is knowledgeable and can guide you through the complexities of contracts and paperwork
    • will care about your transaction as his or her own

    To find such an Agent you may decide to interview several Realtors and quiz them a little bit. Is the Agent a part-timer or committed to the real estate profession full time? What kind of a track record does he or she have? Can the Agent provide you with references from happy past clients?

    There are also a couple of questions you have to answer yourself:

    • Do I feel comfortable working with this Agent?
    • Is this someone that will care about my transaction as if it were his or her own?

    Take the time to learn more about the Agent you are considering. Buying a home is a big step, so make sure that the Realtor you choose is the right one for you.

    If you're shopping for a home in the Austin, TX area, Amplify Credit Union offers great mortgage rates. And best of all, we're local, just like you. Visit goamplify.com/mortgage to get pre-approved now!

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