November 12, 2013
Mortgages: the Closing Cost Minefield
When my new partner and I bought a condominium last month to accommodate our combined stuff, I remembered that borrowing so much money can be an emotional, even terrifying, ordeal.
It’s difficult to think clearly.
But attention should be paid to closing costs, which add to the cost of buying a house. So I decided to apply my skills as a veteran newspaper reporter and grilled my lender, attorney and real estate agent about these costs.
Despite my diligence, I was only modestly successful at reining them in. But I stepped on a few land mines that might help other homebuyers:
The HUD-1 matters:
Federal law requires prospective mortgage lenders to provide loan applicants with a “good faith estimate” of the closing costs within three days after they submit the application. This “GFE” is your lender’s best guess of the final fees they’ll charge for originating your loan.
My lender promptly sent the GFE. But the bank’s salesman promised to reduce the closing costs shown on the GFE, and I had to repeatedly nudge him to provide the more important document: the HUD-1 statement of my actual closing costs. …Learn More
November 7, 2013
Healthcare Credits Reach Middle Class
Individuals earning nearly $46,000 a year and families of four earning $94,000 may be eligible for federal tax credits under the new health care law.
Tax credits are the mechanism by which the federal government caps how much people pay for health insurance premiums, which are set by the private market. The premium caps are based on how much someone earns, relative to the federal government’s definition of poverty.
Here’s an example of how premiums are calculated for, say, young, single workers who earn between $17,236 and $22,980 per year, which is between one-and-one-half and two times the poverty level. The premiums, which range from 4 percent to 6.3 percent of their income, start at about $57 a month for those at the low end of this income range and up to $121 at the high end.
In the following charts, Squared Away converted into dollars the income and premiums that the Henry J. Kaiser Foundation, in its brief on the healthcare law, has expressed as percentages of the U.S. poverty thresholds: …Learn More
November 4, 2013
Affordable Care Act: Who Gets What
The Henry J. Kaiser Family Foundation just released an excellent interactive slide show explaining how the Affordable Care Act addresses the various health insurance and financial challenges facing 47 million uninsured Americans.
Kaiser divided the uninsured into 10 groups – 28 million part-time workers, 8 million adults in their early 20s, and 3.5 million self-employed people, among others – with details about the specific provisions pertaining to each.
There’s a lot of detail here, so focus on the profiles that interest you most. Advance through the slides by clicking the arrow at the bottom of the screen. To return to the home page, click the “house.” …Learn More
October 29, 2013
Homes More Affordable – For How Long?
There was a silver lining in the recent housing market collapse: prices dropped to more affordable levels for American families who didn’t already own.
Buying still isn’t easy. It’s become more difficult to qualify for a mortgage from banks and other lenders that have tightened up their credit qualifications. But the following chart, which also appears on page 11 of a chartbook released by the Urban Institute’s new Housing Finance Policy Center, shows the dramatic improvement in home affordability in the wake of the market’s recent downturn.
The blue line shows actual house prices over time – that’s the median, or middle, price for every single home sold nationwide in a given year. The red line shows the maximum a typical family can afford, assuming they put down 20 percent and get a 30-year mortgage at the prevailing interest rate, which is currently about 4.1 percent.
During the credit bubble, the blue price line surged above the maximum, putting a new house out of reach for many more families. Post-crash, that relationship reversed, making homes more affordable again.
But affordability still varies greatly, depending on where you live. … Learn More
October 17, 2013
Video: Mutual Funds or Designer Shoes?
Prithi Gowda’s animated video was one of two winners in a competition among New York University film school students and alums to produce a video that would turn young adults on to mutual funds. The winners were awarded a trip to Monaco to premier their work.
The filmmaker practices what she preaches in this short animation, “Frenemies.” Gowda’s freelance work as a website designer and videographer for Wall Street firms has allowed her to build up “a nice, comfortable savings.” Investing, she said, has given her the freedom to start her own company, 21st Street Projects in Manhattan.
“I just feel strongly the world could be a much better place if people really understood how to deal with their finances,” Gowda said.Learn More
October 15, 2013
U.S. Families: Not Poor But Feeling Poor
New research shows the share of Americans who lack enough ready cash on hand for emergencies shot up in the aftermath of the Great Recession.
These families do not have access to the liquid assets – cash or funds in their checking or savings account – to cover emergencies like layoffs, health crises, or even car repairs, according to an analysis of federal data by Caroline Ratcliffe of the Urban Institute, who presented the finding to the Congressional Savings and Ownership Caucus in late September.
Ratcliffe’s measure of financial fragility was families who did not have enough liquid assets to subsist at federal poverty levels for three months. That amounts to $2,873 for a single person, $4,883 for a family of three, and $5,888 for a family of four.
By this measure, 37 percent of families in the middle income group – earning $35,600 to $57,900 a year – in 2010 were financially fragile – up sharply from 28 percent in 2007, a year before the Great Recession began. No income group was spared by the downturn: in most cases, the share of families at risk increased between 9 percentage points and 13 percentage points.
Ratcliffe said that financial problems can cascade if cash-poor families resort to high-cost loans or credit cards to pay their bills, and building wealth becomes extremely difficult.
“A shortage of liquid assets can lead to cycles of debt when financial emergencies arise,” creating “further financial instability,” she said.Learn More
October 8, 2013
Got a 401k? A Guide for New Retirees
Upon retiring, you suddenly have access to a chunk of money that’s been accumulating in your 401(k). It’s easy to make a move that incurs unfamiliar tax consequences or otherwise jeopardizes your hard-earned savings.
Based on interviews with financial planners, as well as experts at the Center for Retirement Research, which funds this blog, Squared Away assembled the following check list for imminent and new retirees:
- At least one year before retiring, collect information from:
- Social Security – how does your monthly check vary, depending on the filing age you select, and how can you and your spouse determine the best strategy for getting the benefits you’ll need?
- Your employer – is an annuity an option in your 401(k) plan, or how much can you expect to receive per month from a defined benefit pension?
- A fee-only planner or other financial resources – what are your priorities and options; how much retirement income do you need; do your Social Security, 401(k) savings, and employer pensions generate enough income, and with how much risk; should you delay Social Security to increase your total monthly income; and should you purchase an annuity to cover your fixed expenses?
“Make sure before you stop working that you’re financially prepared to do so,” said John Spoto, owner of Sentry Financial Planning in Andover, Mass., near Boston. …