$1 trillion and counting: Student loans carving a massive debt hole

Graphic courtesy of Bloomberg Businessweek

 

Reports have emerged recently with a daunting figure. Collectively, Americans now reportedly owe more than $1 trillion just in student-loan debt. Although part of the idea of getting degrees is to put yourself ahead by netting higher-paying jobs, debt payments are surpassing income levels for too many these days.

In turn, sky-high student-loan debt is preventing some from fulfilling the "American dream" by getting a mortgage for a house. New regulations mandated in January of this year allow no more than 43 percent of a borrower's monthly income be used to pay debt obligations. With an economy still in recovery mode, crippling debt ratios have caused many to put other plans on hold, such as purchasing a new home.

What's the answer to this student-loan debt conundrum? Analysts will debate the alternatives on end, but for graduates already in the hole, you would probably benefit from consulting a financial adviser for counseling specific to your situation. If you are in the planning stages for your children's education, you can take advantage of a 529 plan to receive tax benefits and other incentives so you and your offspring aren't overburdened by debt.

There are still plenty of statistics out there supporting the case for a college education, but there's no denying it isn't as affordable as it used to be. It is well worth the time to research all of your degree options and comparative costs, as well as factoring in existing debt, before getting yourself into a debt hole that prevents you from fulfilling other goals.

Monthly Fed meeting: More of the same

Chart courtesy of qz.com

 

The Federal Reserve board announced on Wednesday afternoon what many had expected: Interest rates will continue to remain low for an extended amount of time, even if unemployment rates drop below 6.5 percent. The Fed will instead rely on a variety of other economic indicators to determine when to raise interest rates.

Fed officials have stated they are looking for key factors such as wage growth, inflation and more house-building permits as signs of a more robust economy before thinking about raising interest rates.

With that being said, however, the Fed is moving ahead with plans to continue tapering its monthly purchases of bonds and treasuries, down to $55 billion a month in April. These monthly bond purchases, initially set at $85 billion a month, were intended to help jumpstart a sluggish economy. Last month's jobs report was better than anticipated, but still suggest an economy in recovery period.

As far as mortgage rates, they will continue to mirror changes in the stock market. After Fed chief Janet Yellen made her remarks today, stocks fell and, along with them, mortgage rates. It appears the markets will continue waiting for more concrete signs of economic improvement before rates rise again.

Confusing data? If you have any questions about getting a mortgage for a new purchase or refinance, contact a Vertex loan officer to help you navigate the process and lock in the best rate for you.

Before the flood comes, get your home ready

Colorado officials expect hazardous spring runoff

 

 Photo of 2013 flood damage courtesy of Wunderground.com

 

October through April heavy snow showers bring...spring flood season? Here in Colorado, meeting winter snowpack levels teeters between a very fine balance of not enough vs. too much. To illustrate this point, last year the state endured both record-breaking wildfires and flooding within the span of a few months. Mother Nature came in like a furious wrecking ball, taking out thousands of homes in its wake.

This spring, the Rocky Mountain state again is bracing itself for massive flooding potential. In a fairly unprecedented pre-emptive move, the U.S. Department of Housing and Urban Development granted nearly $200 million in recovery funds to flood-damaged Colorado communities, anticipating the possibility of more devastation after a heavy snow year. Many areas in Boulder, Weld and Larimer counties are still recovering from September's flooding deluge.

So, how protected are you from flooding? Many people do not realize that their standard homeowner's insurance policy does not cover flood damage. Separate flood insurance is needed to cover these losses, and just about anyone is eligible to buy it. While purchase of a flood insurance policy is only mandated in designated flood plains, in light of previously unaffected areas (i.e. Colorado's Front Range and most of the East Coast after Hurricane Sandy) getting insured before catastrophe hits could save you thousands.

Areas previously wiped out by fires also are particularly susceptible to flash flooding because there is little foliage left to absorb the precipitation - as was the case in Waldo Canyon last year near Colorado Springs. With Colorado wildfires increasing in intensity, one can only expect increased flood risk to follow.

Fortunately, whether you rent or own a single-family house or condo, you can protect your home and belongings with flood insurance. The National Flood Insurance Program offers a wealth of information on how to obtain insurance and file claims after a flood hits. You may not be able to control Mother Nature's volatility, but you can minimize your losses by being prepared.

February report shows more U.S. jobs, but what does that mean?

Graph courtesy of CNN.com

 

The U.S. government released its monthly jobs report today, and the results seemed mixed. Jobs added to the economy were higher than expected at 175,000, yet the unemployment rate remained at best steady at 6.7 percent, up slightly from January's 6.6 percent. Seems a little conflicting, right?

There are many factors at play to explain the jobs report data - even including rough winter weather keeping people home from work - but the overall question is how the Fed chiefs will act on the data. February's added number of jobs showed a steady, growing economy, and this is more than likely enough evidence to keep the Fed on its stimulus tapering track.

The Fed will meet later this month and is expected to drop another $10 billion a month in its bond-buying program to a total of $55 billion per month. Despite a weak/mixed jobs report in January, Fed leaders forged ahead with the plan to continue tapering its monthly bond buying. It's likely only a drastic economic change will stop this progression until no more bonds are purchased.

How does all this affect the mortgage industry? Interest rates have been dropping slightly on weak jobs data in 2014, hovering around 4.25 to 4.5 percent, currently at the lower end of that range. Of course the future is uncertain, but assuming the economy continues improving and interest rates rise, now could be a prime time to take advantage of historic low rates, saving you thousands of dollars in interest over the long term.

Don't let tax season drain you

It's getting to be that time of year that winter is dragging on and everyone is anxious for springtime to fully settle in. Flirtation with warm weather still turns to snow showers in a matter of hours, and we're reminded that it's not quite time to retire the snow shovels yet.

Before we can completely turn the page into spring, one other task remains that may be nagging your subconscious: tax time. There's about six weeks left before you'll need to ask the IRS for an extension or risk additional penalties.

There are a few changes this year to be aware of if you haven't filed yet, including new requirements for health insurance policies and same-sex couples. As this list of tax tips details, the Affordable Care Act mandates that all adults obtain some form of health insurance by March 31, 2014, or pay a fine by next year. In other 2013 news, the federal government now recognizes all same-sex marriages in states allowing couples to do so, including five states where Vertex is licensed to do business: California, Connecticut, Illinois, Utah and Washington. All married couples in these states can file taxes jointly and benefit from multiple tax savings.

There are several places to file your taxes online for free, including "Free File" on the IRS website if you earned $58,000 last year or less: http://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free. The Boston Globe provided additional steps to consider before approaching tax season.

Still facing tax dilemmas? Especially if you are self-employed, making mistakes on your taxes could cost you dearly. Three Vertex loan officers also hold distinction as Certified Financial Planners and can offer advice to your particular financial situation.

If you are seeking consultation from a CFP, contact:

• Mike Waitt, Vertex president, at 303-407-0206 or mikew@vertexmail.com
• Doug Brasher, Vertex vice president, at 720-746-2210 or dougb@vertexmail.com
• Sean Devin, Vertex vice president, at 720-746-2209 or seand@vertexmail.com

Don't let tax season get the best of you!

The great foreclosure rise and fall

Foreclosure rates finally drop to 2008 levels

Graphic courtesy of The Wall Street Journal

 

Good news: Home foreclosure rates are way down compared to the last couple of years, a sign that stricter lending standards have done their job to only allow mortgage loans to properly qualified candidates.

 

Decreased foreclosure rates also reflect a sharp increase in home values in 2012 and 2013 and dropping unemployment rates. Fewer homeowners are now "underwater" on their mortgage thanks to higher home values, and more people have jobs today than a few years ago.

 

It may be tempting to complain that the refinance process takes longer than it did in 2008 and that lenders' new requirements are too stringent. However, these restrictions appear to at least be effective in minimizing the numbers of people getting loans who can't afford to pay them back. Lenders have less risk of borrowers falling delinquent on loans when lending standards are higher.

 

Bad news: Home sales in January were down, partially due to unusually cold weather, slightly higher interest rates and a smaller supply. This is likely only a seasonal loss, though: Most analysts predict a sales bounce back by springtime as the weather warms up and buyers are eager to see what's on the block.

Poor credit is expensive, while good credit is (almost) priceless

It might seem counterintuitive in our debt-fearing culture, but spending money you don't have (yet) can be a very good thing. Your history of taking on debt, buying things on credit, can be the difference between getting approved or denied for your new home. Beyond that, it can determine how low of an interest rate you can get and, ultimately, how much money you will pay for it.

For better or worse, a person's credit history is used as a barometer of trust and reliability. A person with several credit cards and a mid-level to high credit score and no late payments is viewed as a stronger loan candidate than someone with no debt and a vague credit history. As unfair as that may seem, a lender wants to see borrowers with a proven track record of making regular, full payments and thus less likely to miss any mortgage payments.

To increase your chances of getting loan approval, make sure you already have some form of credit and that you use it. Keeping a low balance on your credit card - and making at least the minimum payment each month - can build your credit score, positioning you as a more attractive candidate for a $200,000 mortgage loan. This article does a great job of explaining why this borrowing principle empowers you in our lending economy.

Raising your credit score can help you get jobs, new phones, new cars, new homes - the list goes on. It is worth digging into if it can save you thousands of dollars in the long run. Generally, you want to aim for a credit score of 700 or above to guarantee loan qualification. If building credit is a goal for you, check out this list of ways to improve your financial security.