Credit Card Secured by Roth IRA?

Credit Repair, Credit Cards, Credit Lines Other 2 Comments »

Have you every asked, Can you get a credit card secured by Roth IRA? How about this one: Can I withdraw funds from my IRA to pay off credit card debt? Well in this post, I am going to quickly cover these requests, and the open it up for any comments or questions you may have.

  • Credit Card Secured Roth IRA
    • The short answer to this question is no, the government does not allow you, or any family, etc. to borrow against your IRA, or to benefit in any way from your IRA or Roth IRA account, other than the intended use of the account (ie when your retire, using it for retirement). This includes any type of borrowing, whether it be through a credit card, bank, or anything else. Now you can, of course, withdraw money from your IRA accounts at a (typically) 10% tax penalty to pay any debt you wish. In this scenario I would say you should take careful consideration, and use my credit card debt payoff calculator for assistance in calculating a time line for debt freedom, then weigh that option with the tax penalty that you face.
    • However, the government does allow you to roll over retirement accounts, and gives you 60 days to complete the transaction. So, if you need money right away, and you can repay it within 60 days, you could use the money from retirement to meet the immediate need, and make sure to repay it all when you complete the roll over to the account. This is tricky, so I highly recommend seeking professional assistance on this one.
  • Withdrawing Funds from an IRA to Pay Off Credit Card Debt
    • As noted above, this is a viable option. But you must consider what you will be giving up in the long term. In my article, Invest in a Traditional IRA or a Roth IRA?, I compare the difference of the two just based on tax implications, and there is a significant difference in the amount of money accumulated at retirement age. So if you further compound that by withdrawing funds from your IRA to pay off debt, you may be setting yourself up for long term problems. There are other options; one option is to try to pay off debt using debt stacking, another is to seek online credit counseling. Debt stacking can help you accelerate your debt freedom date without contributing any additional monies to your credit cards. I do not recommend withdrawing from your IRA for any reason other than retirement, but if you have exhausted all other options, then consider it with reluctance.

In short, there really isn’t a viable option to borrow, or to secure a credit card with any kind of IRA. Even withdrawing the funds temporarily while rolling over to other fund doesn’t help most people very much. And taking the funds out to pay off debt isn’t a very good option either, because of the long term negative effects. If it all possible, utilize other methods, as mentioned above to get debt free. And lastly, make sure to sign up for my RSS feed, to get the latest and greatest on personal finance and how to reach your financial goals. It’s free, and well worth your time. If you have additional questions or comments, please post them below.

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To apply for a credit card, one needs to now about the way the credit card finances work. Preferably a low interest card should be applied for. This is because whether it is a bank of america card , or any other banks, every bank charges a certain amount for credit cashed. Before venturing into bank loan market on your card, it is advisable to consult a home mortgage consultant, who are used to such requests and their outcomes.


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Free Amortization Calculator

Mortgages 2 Comments »

That’s right, you may download our free amortization calculator at the bottom of this page. The calculator is based on a typical 30 year fully amortized mortgage, and will show you right down to the penny how much money will be allocated to principle and interest each and every time you make a payment. Here is a preview of the xls spreadsheet:

Free Amortization Calculator
Input Area
Original Loan Amount $80,000.00
Interest Rate 6.500%
Automatic Calculation Area
Month (You may replace with Date) Total Payment (PI Only) Total to Principle Total to Interest New Balance
1 $505.65 $72.71 $432.94 $79,927.68
2 $505.65 $73.11 $432.55 $79,854.97
3 $505.65 $73.50 $432.15 $79,781.86
4 $505.65 $73.90 $431.75 $79,708.36
5 $505.65 $74.30 $431.35 $79,634.46
6 $505.65 $74.70 $430.95 $79,560.15
7 $505.65 $75.11 $430.55 $79,485.45
8 $505.65 $75.52 $430.14 $79,410.34
9 $505.65 $75.92 $429.73 $79,334.83
10 $505.65 $76.34 $429.32 $79,258.90

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What is an RSS Feed?

Blogging 6 Comments »

Personal Finance Resources RSS FeedYou’ll notice that after every article on my page, as well as on the sidebar of this site, there is a link and icons inviting you to sign up for an RSS feed to this site. If you’re a newbie to the whole thing, and aren’t quite sure what an RSS feed is, or how great a tool it can be for you, then you are really missing out. RSS (Really Simple Syndication) is just that, a really simple way to start receiving feeds from your favorite websites for all of your favorite content. Simply put, it’s like signing up for our mailing list, but even better. When one of your favorite websites’ post a new article to their site, you will receive an automatic, real time update of the article, saving you the time of going to each one of your favorite sites to see if anything is new. There are several different ways you can receive these feeds, and you get to choose whatever works best for you.  These are defined in more detail below.

First of all, all RSS feeds are collected by means of a feed reader. A feed reader is software which tracks the different feeds you have signed up for, and allows you to collect multiple feeds in one place or webpage. If you go to http://www.bloglines.com, you can sign up for a free account and have all of your RSS feeds come to that site for you to read at your discretion and in your own time.

Another way to read your favorite RSS feeds: If you’ll notice in the side bar, next to the big orange button, there are many other buttons such as “Add to Google”, “My Yahoo!”, “My AOL”, and “Newsgator”. By clicking on one of these buttons, you can have my RSS feed go directly into your favorite page, or whichever one you use the most. For example, my main email is Yahoo!, and therefore I would add the feed to My Yahoo!, so that whenever a new post was added to my favorite site, I can quickly look at my page and see if there is anything new.

Another great option, and one that I use personally is to receive feeds directly into your email account. To do this, simply click on the orange RSS feed button, and select “Get Personal Finance Resources delivered to my Inbox”, enter your email address and verification, and the feed will be delivered straight into your email. Most people check their email every day, and having it right there is a huge time saver. You can short cut this method by filling in your email address under the section in the sidebar of my website called “Subcribe by Email”.

RSS feeds are great, and quickly gaining in popularity. They mainly started with the blogging community, and its thought that they will really take off in the next few years. Now, instead of spending time surfing the internet,  people will discover the ease and efficency of having their favorite website’s deliver articles directly to them. 


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Business Plan for Property Management

Real Estate Investing 5 Comments »

Part of my plan for generating Passive Income in Real Estate includes property management. But what kind of a property management business plan works? Well, I am going to give you the approach that could be utilized, as well as inform you of how I am going to proceed. I would love to get some feedback on this one guys, as I am still some what new to property management marketing. I am only managing 3 houses currently. The houses that I am managing currently are owned by friends of mine, which I guess is as good a reason as any to get going in a business. Here are the steps that I am taking / considering:

  • Continuing to Work Established Contacts
    A couple of friends from Church moved away, and recognized my abilities in real estate through the investments that I have currently made in the area. And with the added bonus of having a realtor license, they felt comfortable enough to use me as their property manager. Already, one has referred me to a friend of his to manage his house. Referrals are fantastic. Also, my real estate broker knows that I am going in to managing property, and she referred to someone who was considering selling his property management company. Unfortunately, he retracted the offer before I was able to act on it. Hopefully he will reconsider in the near future.
  • Putting Up a Property Management Website
    This is something I am considering, I may be able rank in the search engines for real estate queries in my specific local. Most of the realtors in my area do not know much (if anything) about the Internet. Many have websites, but I doubt they have much knowledge of Internet marketing. The Internet is very powerful, but here in a small town, I am just not sure how much people utilize the Internet in their search for rental / for sale properties.
  • Placing Some Signs Around Town
    This is a cheap and easy way to promote myself. I figure a few small signs around some of the major intersections may attract some attention. Who knows? Again, it is a small town, but maybe that is a good thing.
  • Utilizing Craig’s List
    Craig’s List is an unbelievable high traffic, free online classifieds anyone can use to push their business. Very easy, and you can upload 4 images per article. Craig’s List is localized, and thus, you can target your specific market, very good for a property management realtor.

These are just a few steps I know of that are available to me. But again, I haven’t been in this business long. If you have any suggestions, I would sure like to know what they are. Feel free to leave your comments at the bottom of the page, and stay tuned via my RSS feed for more great information on personal finance and real estate investing.


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Realtor License

Real Estate Investing, Buying a Home 7 Comments »

Should I have a realtor license? Is it expensive? In this edition, I would like to answer these questions, and further illustrate why I have and maintain a realtor license. I remember reading an article stating that 1 in 52 people in the state of California have a realtor’s license. That’s about 2% of the population. Rather unbelievable to some, but to me, seems quite appropriate. Especially in very high housing costs areas, such as California, New York, Florida, Chicago and other areas, the expense of paying a realtor to sell your house is insanely high. A quick bit of math, if you owned a $500,000 house, and hired a realtor for the typical 6% fee, that would be $30,000!

Now let’s take that figure home (bear with me, I live in Texas), where I obtained a realtor license for less than $800. But Jeffry, realtors are professionals, and I don’t know anything about selling a house! Who said the typical realtor knows anything about selling a house?! Many don’t, and furthermore, the ones that do know how to sell a house are the realtors that know the most people.

The realtor game is simple, put a sign in the yard, add the house to the local MLS (multiple listing service), maybe run an ad in the local paper, and wait for a buyer. The good realtors will fax an information sheet to all the other local realtor shops, to fish for another realtor that is under contract to work with a potential buyer. Another thing a good realtor will do, is advertise and run an open house, to get some activity going with the other realtors in the area. Sounds difficult doesn’t it? Not to me.

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80/15/5 Mortgage

Mortgages, Buying a Home 2 Comments »

Mortgage brokers sometimes speak of an 80/15/5 mortgage, but what is it exactly? In just a moment, I am going to show you exactly what it is, and how you can use it as a tool to leverage your money buying a home, or investing in real estate. There are many folks out there that do not have the appropriate cash to put down 20% on a home to get a conventional mortgage. This created a situation for potential home buyers, and thus the mortgage industry was created.

In recent years, mortgage companies had relaxed their criteria for lending money, and were granting no money down loans to people with bad credit, who had no business owning a home. These were sub-prime loans and carried too much interest expense for the buyer. So recently, there have been many foreclosures and mortgage companies along with banks have been tightening their policies on lending. In short, they want to see some money down before lending. However, with an 80/15/5 mortgage, you can setup a loan at prime rates with only 5% down.

Many mortgage companies even today will lend a straight 95% loan to buyer. So why hassle with the 80/15/5 mortgage? Because by getting two mortgages from the lender, you are able to avoid paying Private Mortgage Insurance (PMI), and you have to opportunity to select a shorter payoff on the second loan. The 15% second mortgage has a much smaller balance than the first mortgage of 80%, and the repayment period can be set to anywhere between 5 and 20 years, typically. So this means that you could select a 5 year payoff on the second mortgage, and your total mortgage payment will decline sharply after the first 5 years of payments. So to sum up, you would save the PMI payment, and in 5 years have a much lower total monthly payment. Let’s look at a quick example:

80/15/5 Mortgage Example
   
Sales Price $85,000.00
First Mortgage 80% of Sales Price $68,000.00
Second Mortgage 15% of Sales Price $12,750.00
Cash Down Payment 5% of Sales Price $4,250.00
   
* PMT on First Mortgage @ 7% APR for 30 Years $452.41
* PMT on Second Mortgage @ 7% APR for 5 Years $252.47
* Total Monthly Payment $704.87
   
* Single Mortgage of 95% of Sales Price, 7% APR for 30 Years $537.23
   
* Payment Difference $167.64
   
* Principle and Interest  
   
   

Now these payment figures do not include taxes and home owner’s insurance, but as you can see, the difference in the payment between an 80/15/5 mortgage and a 95% mortgage is $167.64. Now bear in mind, the 95% mortgage requires PMI, which was not included in this calculation. So if the PMI was say, $35 per month, then the payment difference would go down to $132.64. So after 5 years, the second mortgage would be paid off, and the payment would go down to $452.41 per month. This is the benefit of the 80/15/5 mortgage. On the short term, you are able to bypass PMI, and down the road, you will be able to cut your mortgage payment. Sound good?

Now if the lender does not want to approve the 80/15/5 mortgage, there is another option you can explore. When making your offer to the seller, have him give you a second mortgage to cover the 15%, and you can achieve the same result. You may have to pay a little more in interest on the second mortgage, depending on your negotiating skills, but in the long run, you stand to save a lot of money, without much of a difference in payment at the start.

Creative finance in real estate investing is very necessary if you are looking to get into properties with little or no money down. The 80/15/5 mortgage is just one way to obtain a new property without putting much money down. Questions? Comments? Leave them below in the comment area, and I will answer them ASAP. You may download the xls spreadsheet here:

80/15/5 Mortgage Example.xls

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There are a number of cheap loans available in all banks. Getting such banking loans can be the ideal way to raise capital for a home business. Perhaps starting from a loan is not an ideal beginning, but such fast equity loans had evolved for this purpose basically.


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Residential Lease Purchase

Real Estate Investing 6 Comments »

Ever heard of a lease-to-purchase-house? Most of us would say we have. But many folks would say that a residential lease purchase agreement is simply a rent-to-own contract. While this is true, it only describes a brief overview of what a lease purchase contract is all about. Although the real estate market remains strong here in Texas, lease purchase agreements are still a highly viable way to buy into properties, as well as sell them. But lease purchases are not limited to Texas only, they can of course be done in other states. Let’s take a look at a typical scenario revolving around the lease purchase contract:

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Residential Lease Option

Real Estate Investing 7 Comments »

Ever wanted to sell your home via a lease option? Houses that are sold in this manner are a low risk, high gain scenario. I am going to give you an example of how great this residential sales strategy is, but before I do that, I want to cover just exactly what a residential lease option is. The basic premise of lease options are a “rent-to-own” strategy. A typical buyer would contract with the seller to rent for a certain period of time, in exchange for a set price to buy at the end of the lease period. That doesn’t sound very good for the seller, but in exchange for guaranteeing a certain selling price in the future, the seller collects an option fee. It is kind of like earnest money, except it is earnest money for a future purchase.

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Seller Financing Agreement

Real Estate Investing 3 Comments »

Using a seller financing agreement to sell your house can attract an unbelievably larger number of buyers in today’s market, over conventional mortgage buyers. There are so many people out there, especially with a burst in the sub-prime market, that have marginal credit, and little or NO cash. But a word of caution before we begin - make sure you are comfortable with their credit, don’t just take the first person that sends you a contract, scrutinize them as much as possible, and check their income sources, as well as their rental and employment history. With that said, let’s look at some possible scenarios to negotiating a seller financing agreement:

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Renting Out Your House

Real Estate Investing 2 Comments »

Renting out your house, or houses, can be challenging. But I want to give you some pointers on how to effectively market your house, and some documents you can use to manage the property. I want you to understand that you can manage your own rental property, and that realtors do not provide that much value (most of them, anyway). I believe that most people think that the paperwork portion of renting out your house is something they do not understand enough to do on their on own. So I will help you with that, but first, let’s look at what I have found to be effective methods to marketing a house for rent:

Other Articles in this series:

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