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GCFLASH
Hot Off the Press!
Tuesday, May 27, 2008 - Edition #456
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Weekly Spotlight
A Home Equity Line of Credit from GCF provides you with the power of ready cash for your unintended purchases or the unexpected emergencies that life brings. Apply online or stop in one of our branches today!
1st Flash:
CAN I GET A MORTGAGE?
There is a lot of news out about how bad the mortgage business is these days, but what does it all really mean? Well, it all depends on your individual financial condition. It may be good for you, but bad for your neighbor. Despite what you hear, it is still possible to obtain a mortgage. If you have had steady employment for the past two years, a clear established credit report over that same time, a low debt-to-income ratio, at least 5% of your own funds down, a maximum 90% loan-to-value (LTV) and several months payment reserve, you may be eligible for a mortgage. The type, term, and amount of mortgage you qualify for can vary greatly, however. And, of course, no one can guarantee that you will qualify without first reviewing your financial situation. First, let’s define some of the items I listed above. “Steady employment” means that you have been at the same job, with the same employer, for a minimum of two years. A “clear established credit report” means that, during the last two years, you have not had any late payments or collection accounts, have not filed bankruptcy, and have not run all your credit cards up to their limits or gone over your limits. In addition, you have accounts that are more than two years old that are in good standing (i.e.; you have not opened all your accounts recently). Debt-to-income ratio determines whether your new payment fits into your budget. Add up all the monthly payments on your credit report, your monthly payment for taxes and your new proposed mortgage payment. Divide the total by your monthly income. The result should be in the 36-50% range. Simply stated, the formula is: (monthly debt) divided by (monthly income) = your debt-to-income ratio. “At least 5% of your own funds down” means that you have enough of your own money to use as a down payment that is equal to a minimum of 5% of the transaction. These funds cannot be borrowed or gifted to you by anyone else. To calculate your loan-to-value (LTV), take the loan amount that you have applied for and divide it by the appraised value of the property. The result should be less than or equal to 90%. The formula is: (loan amount) divided by (appraised value) = your LTV. “Payment reserve” is enough funds to cover two or more months of mortgage payments (including taxes and insurance) in a checking/savings account that will not be used as part of the mortgage transaction. The guidelines I have listed are just examples of what a lending institution typically requires. Every lending institution will set their own established limits for these items. For example, GCF requires two months of payment reserve. Another bank may require more or less. You should shop around for the institution whose limits are most favorable to your specific financial condition. What if you don’t meet the guidelines listed above? Does that mean that you can’t get a mortgage? The answer is no, not necessarily. There are all types of lending institutions that offer special programs for non-standard borrowers. However, I would like to urge you to proceed cautiously. The “mortgage crisis” you have been hearing so much about lately started with non-standard borrowers obtaining mortgages that they really could not afford. This situation has been compounded by falling home values. The result is that people who bought homes that they really could not afford can’t sell them now because the houses are not worth what they paid for them just a year ago. I would like to point out that this is a very simplified explanation of mortgage guidelines and the mortgage industry in general. If you are considering buying a home, talk with a mortgage professional at your local bank. They will have a better understanding of the mortgage market in your immediate area. Here at GCF, we have been virtually unaffected by the mortgage crisis, yet we have been helping our customers buy homes for over 100 years. For more information on picking the right mortgage, check out the Federal Deposit Insurance Corporation (FDIC) Web site. In addition, you can find useful information on the Home Loan Learning Center Web site. 2nd Flash:
SOCIAL SECURITY: WHEN AND HOW MUCH CAN I COLLECT?
Good news! If you're reading this column, the inevitable demise of Social Security will only slightly affect you. Your children or grandchildren may not be as lucky, but their generation will be better prepared for retirement than those already nearing their golden years. Several bailout plans for the troubled Social Security program have been instituted over the years, and further changes are necessary if future generations want to benefit as well. All of these modifications make for a pretty confusing picture for people planning their retirement. One of the more challenging issues is when, exactly, you should start taking Social Security Benefits. You can start collecting as early as age 62 or as late as age 70. Several factors will determine when the best time is for you. Those that start taking their benefits at age 62 will get a reduced benefit of $750 per month, with the expectation of collecting for a longer period of time. Once you reach full retirement age, your benefit will be calculated by averaging the earnings from your 35 highest income-generating years with a maximum of $2,185 per month. And full retirement age is based on the year you were born. Those born before 1937 reached full retirement age in the year they turned 65. Add two months for every year between 1938 and 1942, making eligibility age for a retiree born in 1940 at 65 years and 6 months. Folks born between 1943-1954 can collect at age 66. Beginning for 1955 births, add two months per year until 1960 when the age remains 67. If you were born on January 1st, your age is considered to be that of the previous year. At least, for now. This is likely to change in the future as a measure to protect benefits for future generations. And hopefully make the equation a bit less confusing. There are some good reasons to start early. You may need the money now to make ends meet. Or you're financially comfortable and plan to invest your benefit. If your health is poor, it may be wise to take your benefits early. If you wait until age 70 to collect Social Security, you'll get a bonus of 8 percent a year for the four years between 66 and 70. This could gain you a bonus of 32 percent! People who take benefits at age 62 and continue to work face an earnings penalty. They must give back $1 for every $2 they earn above the Social Security earnings limit. For 2008, that limit is $13,560. But in the year you reach full retirement age, the formula changes. At that point, $1 is deducted for every $3 above your new limit of $36,120. The penalty disappears completely the month you reach full retirement age. As if this isn't confusing enough, let's muddy the waters up a bit more. Say you worked but your spouse didn't work long enough to qualify for benefits. What happens when you die? If they're at full retirement age or older, they'll continue to receive 100 percent of your benefit. Between age 60 and full retirement age they'll receive 71 to 99 percent. Surviving spouses of any age with children under the age of 16 or with disabled children will receive 75 percent, and the children also receive 75 percent. Spouses who only earned a small amount over their working years, entitling them to a benefit that is less than half of yours, will see their rate increased to equal half of your amount. If you've both earned full entitlement, and the deceased's benefits were greater, the survivor will receive the higher amount. Fortunately, you don't need to commit all of this to memory. The Social Security Administration offers a calculator on their Web site that will keep up with future program changes. Financial News
Recession? Well, there seems to be a quiet rumbling that the economy has stopped its decline and has leveled out, at least for the time being. “There does not appear to be any perceived need for deeper cuts from the district banks now,” said Christopher Low, chief economist at FTN Financial in New York. Minutes of the FOMC meeting in April showed that the decision to reduce rates was “a close call,’ and the committee viewed the risks of higher inflation and slower growth as “more closely balanced.” This caution stems from the belief that there is a significant lag before the full effects of the prior monetary policy changes will be felt. Another top economist, Ed Hyman, now believes that the United States will have at least 1% annualized economic growth through the first half of 2009, with no three-month period of loss. Indeed, the Federal Reserve rate drop of 2.25% this year, the ease on the money supply, and the increase in international interest in U.S. product as the dollar falls in value have all had a positive impact on the economy. We’re not out of the woods yet, but the mood on Wall Street continues to be positive! Today's National Market Rates
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In This Issue... 1st Flash: CAN I GET A MORTGAGE? 2nd Flash: SOCIAL SECURITY: WHEN AND HOW MUCH CAN I COLLECT? Today's Market Rates On the World Wide Web Tip of the Week Financial News Past issues of GCFlash: May 20, 2008 Edition #455 May 13, 2008 Edition #454 May 6, 2008 Edition #453 April 29, 2008 Edition #452 Looking for articles from a past issue of GCFlash not listed above? Find them in our Knowledge Base!
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