The Ultimate Bargain Shopping

"There must be a reason why some people can afford to live well. They must have worked for it. I only feel angry when I see waste. When I see people throwing away things we could use." ~Mother Teresa

There seems to be a new trend with many Americans that 2nd hand goods are the way to go.  It seems like more people are comfortable with maintaining what they currently have or buying gently used items that others are selling.  With that in mind, I have been looking at the tools available for this purpose.  

Below are these tools:

1. Freecycle
2. Craigslist
3. Goodwill
4. Garage Sales

What other tools do you use for bargain shopping?  Please leave those tools in the comments section below.

Stay Disciplined!

Lessons learned from Investing during a Recession

“Do not brood over your past mistakes and failures as this will only fill your mind with grief, regret and depression. Do not repeat them in the future.” ~Swami Sivananda

With the stock market at unprecedented lows, it gets more appealing every day to invest into the stock market.  There is always the underlying fear of whether or not I will immediately lose more money (that I have already lost) from investing.  After reviewing so many outlooks from different "experts" and "analysts", the general consensus is that it is a great time to buy stock.

Well, is it really a good time to invest?  Well, the stock market is roughly 50% of the level it was at during its peak.  Also, it seems that a lot of bad news has been dispersed over the course of the year, which means good news has to be around the corner right?  Unfortunately, I could not find out what was going to happen tomorrow after looking into my magic crystal ball.  After all, if I was able to do so, my NCAA bracket would be in a lot better shape than it is right now.  

So what is the secret to excelling in the stock market?  Any person who has read an investment book or have watched a financial channels knows that the secret to investing in the stock market is to "buy low and sell high".  Although that is easy to say, what does that really mean?  What do you consider a low price for a stock?  How much money do you consider to be "high"?

I think that a lot of people realized from the previous years that it is really easy to lose money in the stock market.  Especially with new investors, who invested in the peak of the stock market, we are really discouraged about how quickly money disappeared.  However, most seasoned stock investors realize that there are many opportunities to invest wisely and make some money in the process.

Although I have not officially studied investing or received any formal training on the subject, I have learned some lessons from the previous market.  Below are some of the lessons learned:

1. Buy Low
• Although this may seem like an obvious point, it is surprising how hard it is to actually buy a stock at a low point.
• From my personal experience, one usually buys a stock on the way down, however, it is after the initial dip from a previous high which may not be the lowest point of the stock.
• Reviewing the stock's 52-week low and even daily low is helpful when determining a "low" price to purchase a stock.
2. Sell High
• Once again, another obvious point that many cannot seem to get right
• One would like to sell a stock for a profit over the price that was originally paid, however most hold on to a stock trying to break even from the original stock price plus the commission for the buy.
• Very rarely does a stock give you a massive return in a short time, however over time, the potential for that stock to give you those types of returns are possible.
3. Stock prices are based on emotions, not always on facts
• Unfortunately, the average stock investor is typically "along for the ride".
• There are many big time investors (investment bankers, hedge funds, mutual funds, etc) that sway the price of a stock.  The average consumer does not really affect the price of the stock by buying and selling.
• Just because a stock has good news, does not necessarily mean that it will go up.  The same goes for the converse of that, bad news does not necessarily mean that the stock price will go down.
4. It is impossible to time the lowest price of a stock
• Timing a stock is almost near impossible.  It is a better idea to purchase a stock at a price that you are comfortable with.  Honestly, when a stock is being purchased, it is literally buying a piece of paper that you are assigning a value to.
5. Do not watch your stock everyday
• Watching a stock everyday will cause you to be stressed out.
• It is best to set a limit or a stop limit order to purchase a or sell a stock.

I know these points are not necessarily the most profound and can even seem like common sense, however it took me a year of investing and losing a lot of money to fully understand these principles.  Hopefully, this will help you to understand the market a little better and will prevent you from making some of the same mistakes I have made.

If you have any other life lessons you would like to share about investing, please leave them in the comments below.  Stay Disciplined!

Understanding the Good Faith Estimate

During the home buying process, one of the most important steps is to determine how to actually pay for the home.  In my opinion, the average person does not have enough money to buy a home outright (even with the deeply discounted prices in the current housing market).  In most cases, a loan is required in order to purchase a home.  

As most seasoned bargain hunters know, it is important to shop around to get the best possible price/terms for whatever product one is trying to purchase.  This same principle should be applied to obtain the best possible loan.  To make it easier for this process, banks that offer you the loan are required by the Federal Real Estate Settlement Procedures Act to provide a Good Faith Estimate within three days of receiving the loan application.

Good Faith Estimate:  An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.  (Reference)

Below is a list of the different items along with an explanation of each item included in this estimate:

800 ITEMS PAYABLE IN CONNECTION WITH LOAN:

• 801 - Loan Origination Fee

This fee is a charge for originating or creating the loan

• 802 - Loan Discount

This is an upfront charge paid to the lender to get a lower mortgage rate – the same as “buying the rate down”

• 803 - Appraisal Fee

This is the cost of the independent appraisal. It is usually paid by the buyer.

• 804 - Credit Report

This is the cost of the credit report

• 805 - Lender's Inspection Fee

This is the lender’s cost of inspecting a property – some may double check the appraisal provided by an independent appraiser

• 808 - Mortgage Broker Fee

This is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed here

• 809 - Tax Related Service Fee

Lender fee, usually small, for handling tax related matters

• 810 - Processing Fee

This is the charge for processing the loan – collecting your application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.

• 811 - Underwriting Fee

This is the cost of the loan underwriter (approver)

• 812 - Wire Transfer Fee

This is the cost of wiring the money around, which is usually done by escrow.

900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

• 901 - Interest for days X $ per day

This is your prepaid interest for your mortgage loan.

• 902 - Mortgage Insurance Premium

This is the prepaid mortgage insurance premium, if you have one. This is the insurance premium some lenders charge for loans with little equity.

• 903 - Hazard Insurance Premium

This is your home’s hazard insurance being prepaid.

• 905 - VA Funding Fee

This is the Veterans Administration funding fee, which is something you will not incur unless you go through a VA program.

1000 RESERVES DEPOSITED WITH LENDER

• 1001 - Hazard Insurance Premiums # months @ $ per month

This is any prepayment of your future hazard insurance expense

• 1002 - Mortgage Ins. Premium Reserves months @ $ per month

This is any prepayment of your future mortgage insurance expense

• 1003 - School Tax months @ $ per month

This is any prepayment of your future school tax expense

• 1004 - Taxes and Assessment Reserves months @ $ per month

This is any prepayment of your future tax expenses, such as property taxes

• 1005 - Flood Insurance Reserves months @ $ per month months

This is any prepayment of your future flood insurance expense

1100 TITLE CHARGES

• 1101 - Closing or Escrow Fee

This is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insurance

• 1105 - Document Preparation Fee

This is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing

• 1106 - Notary Fees

This is the cost of the notary. This is to have all of the legal documents surrounding this transaction notarized

• 1107 - Attorney Fees

Any legal charges

• 1108 - Title Insurance

This is the cost of insuring the title of the property. If there is a question about title (who really owned the property), after the transaction is done then this insurance protects the lender from future problems

1200 GOVERNMENT RECORDING & TRANSFER CHARGES

• 1201 - Recording Fees

This is the cost of updating relevant government records

• 1202 - City/County Tax/Stamps

Unavoidable government charge

• 1203 - State Tax/Stamps

Unavoidable government charge

1300 ADDITIONAL SETTLEMENT CHARGES

• 1302 - Pest Inspection

This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.

Information above taken directly from the following wikipedia article.

All information above was republished under the terms of the GNU Free Documentation License.

The list above contains general items that most Good Faith Estimates contain, however, some items are particular to the lender who is providing the loan.  Below are a things to watch that can vary from loan to loan:

1. Loan Discount
• Some mortgage brokers may try to offer you a very interest low rate for the purchase of your home, however, they will offer you this rate by placing the cost to reduce the interest rate directly into your closing costs.
• This is beneficial to you if you have your closing posts being paid by the seller, else this cost will come directly out of your pockets as you will be paying for this up front rather than over the life of the loan.
2. Seller contribution for closing costs
• A mortgage broker may recommend for the buyer to roll up the closing costs into the price of the loan and have the seller pay for the closing costs.  The caveats to this is to know that the seller is only allowed to pay up to 3% closing costs for a conventional primary residence FHA home loan.  The maximum a seller can contribute for an FHA investor loan is 2%.
3. Loan Application Fee
• The loan application fee is typically required up front by the mortgage broker in order to process the loan.  This item is usually listed on the Good Faith Estimate however the buyer should receive a credit for this charge during closing since it is paid up front.

To get an idea of what a Good Faith Estimate typically looks like, go to the following example.

I have always expressed the importance of educating yourself and planning for obtaining your goals.  Now I am hoping that this article has equipped you a little better to understand the beginning steps for the loan acquisition process to purchase a home.  If you have any comments, send an email to jtorian@pamplonafinance.com or leave them in the comments below.

Stay Disciplined!

Steps to Prepare for Home Ownership

This is a very sensitive topic to talk about given the current situation that our economy is in.  I am in no way ignorant to the fact that many good people are losing their home due to the downturn in our economy.  The only hopes of this article is to educate my audience on the steps (as determined from my experience) to purchase a home if it is a good investment option for the particular person.

Over a year or two ago, the terms foreclosures, auctions, short sales, etc would have seemed like a foreign language to most Americans.  I mean after all, I have never heard my parents talk about any of the terms previously listed the whole time that they have owned their home.  Now, it is common place to see advertisements for foreclosure auctions, or even receive emails to your inbox announcing a fire sale of condos at "below builder price".

With the abundance of vacant properties in America, in my opinion, it is a great time for the first time home buyer, second time home buyer or even the investment buyer to look at purchasing a home.  It is definitely a buyer's market and with patience and the preparation, home ownership is just around the corner for many Americans.  I did some research on the topic and found the following link that was interesting to try to explain the previous downturns of the housing market in America:

Housing Data Shows Downturn Could Be Prolonged

Although this particular article claims that this housing downturn could persist eight years, I am optimistic that we are at a point where houses are beginning to be a good value again.  I am currently in the process of pursuing an investment property and wanted to share some of the preparation that was needed in order to begin this process:

1. Ask yourself the following questions and be honest
• What is your price point for your house that you can afford?
  
• As a personal rule of thumb, I have always believed that the primary mortgage should not be anymore than 33% of your take home (after taxes) pay.
• What location do you want your house to be in?
• What type of house do you want?  (Townhome, Single Family, Condo)?
  
• How big do you want your house to be?
  
• What special features you want in your home?
2. Write down a description of your home
• This step is important so you do not compromise on getting the house that you want.  Throughout this process of searching for a home, I got discouraged when others beat me to the punch when placing a contract on homes that had 60 - 70% of what I wanted.  However, I eventually found the house that had 90%+ of what I wanted and I currently have it under contract.
3. Research your Credit Score
• There are a multitude of ways to research your credit score on the Internet.  Below are the free alternatives that I use:
1. https://www.annualcreditreport.com/cra/index.jsp
   
2. http://www.creditkarma.com/
   
• Realistically, many of the loan officers I spoke with stated that they are looking for 700+ credit scores.  However, do not get discouraged if your credit score is not that high, I recommend to at least try, the worst thing they can say is "no".
4. Find a Real Estate agent
• A real estate agent can determine how your home buying process will be.  They generally handle all of the paper work and discussions with the seller (or the seller's real estate agent).
• In addition to that, they will be the ones to make the necessary arrangements to view the property.  
• Usually they also have easy access to people you may need during the home buying process (inspectors, general contractors, loan mortgage officers, etc).
5. Research homes
• There are many things to take in consideration when purchasing a home.  Below is a short list with somethings worth considering:
1. Utilities
2. Taxes
3. Repair on the home
4. Maintenance
5. Location
• For more things to consider, look at the article at the following link.
6. Find a Mortgage Broker
• Talk to the mortgage broker to find out what packages they have and make an educated decision on which offered package is best for you.
• Get financial records in order for loan qualification process, what you will need:
1. Last two paycheck stubs
2. 60 days worth of bank and investment account statements.
3. W-2s from the last two years
• A few important notes:
• The loan company should be able to provide you with a loan pre-qualification letter and Good Faith Estimate without any type of commitment to obtain the loan with the company.  You should use these documents to compare offers and get the best deal possible.
• One concern that many people have when it comes to obtaining loans is the credit-check process.  From this article, credit scorers look at all credit inquiries made within a 14-day interval as being the same as one inquiry.  This will allow you to shop around for mortgages for a two week period without substantial negative impact on your credit score.

As I am in the stage of just getting my home under contract, I am currently waiting to proceed with purchasing this home.  However, I find that educating yourself about the home buying process is the best thing that you can do in order to successfully proceed with purchasing a house.  There is a lot that goes into the process of purchasing a home but the information in this article can at least help the novice to get started in the process.  It may seem overwhelming at times, but if you get the right people on your team (real estate agent and mortgage broker), you will find that it will progress and you will be owning your new home before you know it.

Please let us know if you have any comments or questions below.  Stay Disciplined!

Previous articles that relate to this topic:

http://getmoneyandmore.blogspot.com/2008/10/are-foreclosures-good-investment.html

http://getmoneyandmore.blogspot.com/2008/11/more-information-for-foreclosure.html

Disclaimer:  The ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment adviser.

Conquering the fear of failure

"Don't let fear guide you." ~Anthony Johnson

Fear:  a distressing emotion aroused by impending danger, evil, pain, etc., whether the threat is real or imagined (Link to Definition)

There are a lot of things to be fearful about today.  The stock market is at its lowest levels since 1997.  The economy is in the toilet due to Americans cutting back.  The unemployment rate is the highest it has been in years and if you are fortunate to keep your job, there's a high chance that you have received a pay cut.  The list goes on...

During President Obama's inaugural address, he explained that these are hard times:

So it has been. So it must be with this generation of Americans.

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet.

Overall, there is a lot of pressure placed on people to try to succeed in these trying times.  You have two ways to handle the pressure...it can either cause you to burst or it can bring out the best of you and make you into a diamond.  When faced with the possibility of failure, how do you react?  Now is the time to collect yourself and focus on creating a better YOU.

For those who have lost your job, now is the time to re-evaluate your financial situation.  Know that being "in between jobs" is not failure and although it is not the most pleasant of situations to be in, it's doable.  More than ever, a budget is needed to ensure better tracking of your money to make sure it is going to where it needs to be.  Maybe it is time to start looking at your current career and think about getting a new direction by training for a new career.  You can even leverage your current skill set to make income for yourself.

It has never been a better time to take a chance on yourself.  Whether it be putting off pursuing your dreams to maintain your comfortable lifestyle or being hesitant to make an investment for your future in a home, not exposing yourself to risk will greatly reduce the reward you can receive in the long run.  Do not let the fear of failure prevent you from accomplishing great things.  

Being scared to fail is a completely natural response, however, it can be a hindrance from reaching your greatest potential.  Below is a great quote from Michael Jordan about failure:

"I've missed more than 9,000 shots in my career, I've lost almost 300 games. Twenty six times I've been trusted to take the game winning shot and missed. I've failed over and over and over in my life. And that's why I succeed!" - Michael Jordan

I have learned in my experience that sometimes you have to create a plan and then jump right into it not knowing whether you are going to succeed or not.  If you find that things do not go according to plan, make the necessary adjustments and then try again.  The key is never to give up or accept failure.  It is even better to remove that word from your vocabulary and know that whatever you put your mind to, you will accomplish.

With the current outlook looking grim, there is a lot of fear and anxiety about the future of this country.  It seems like there is no light at the end of the tunnel and there is nothing that can be done to change this situation.  However, I am confident that things will turn around as long as focus is maintained.  If you are at a point where it seems like you cannot make a shot, keep shooting, you're bound to make a basket eventually.  Stay Disciplined!