What are FHA Loans?

An FHA loan is one that is backed or supported by the federal government. However, this is not the only distinction. FHA stands for Federal House Administration, and an FHA loan is put in place when a lender approved by the Federal House Administration provides the insurance required to cover a mortgage-based loan. As such, the FHA insures the loan at a rate of about 1% which is the Minimum Insurance Premium, and the FHA-approved lender covers the cost of the insurance, before providing the loan to the borrower.

FHA Loans

The scheme was developed to assist borrowers who were not able to cover insurance premiums to access mortgage loans and was developed during the Great Depression of the 1930s. It has however evolved to cover different aspects of the housing and real estate markets and its also a competitive type of mortgage insurance financing, while still retaining it’s original objective of protecting both the underprivileged as well as the FHA-approved lenders who are providing the loan.

If you are interested in getting an FHA loan, the first and obvious step would be to find out which financial or credit institutions are approved by the Federal House Administration; this information is available from the FHA and federal finance databases. There are a diverse number of lending institutions that are FHA-approved, and so it would be wise to look through their various terms and conditions and see which best suit your needs.

The financial institution or firm that is approached for the loan then does an assessment of its prospective customer, including past debt history as well as current income in relation to the loan facility they are seeking. After this, the assessment puts together a repayment proposal that the prospective borrower examines.

The FHA loan traditionally offers mortgage loans and refinancing at interest rates than you will find elsewhere and is also able to cover credit worthy individuals who do not meet the usually stringent expectations of other non-FHA approved lenders. For instance, a blood relative will be allowed to co-sign for the loan even though they may not be living within the residence of the premises being mortgaged as a form of guarantor.

Accessibility is also insured with low initial deposits, with some FHA-approved loans enabling the home-buyer to deposit as low as 3.5% in the initial acquisition process.

Apart from being more easily accessible to people that cannot afford the usual mortgage financing, FHA loans also are adjustable in terms of their rates, particularly during periods of low market interest rates, thus passing on the benefits of lower interest to the borrower.

It also allows for a combined interest rate system on the loan, where for a certain period the borrower is paying back the loan against a fixed interest rate for about three to five years, and after which, the interest can follow market fluctuations. This is referred to as the Hybrid Adjustable Rate.

FHA loans are thus an important aspect of the mortgage financing industry, helping provide the less financially privileged with access to mortgage financing while also acting as a buffer to strictly commercial enterprises in the market place.

What is a Target Date Fund?

There are a ton of investment vehicles on the market, most mutual fund companies now offer what is called a “Target Dated Fund”. Investors looking for a fund where they can invest for retirement and don’t have to worry about asset allocation will find target dated funds a perfect fit.
Target Date Funds
Target dated funds are mutual funds that are actively managed with a long term goal in mind. For example: The investor has a retirement date in mind, lets say 20 years from now. All they have to do is find a mutual fund with a target date that fits their criteria, make the investment into the fund and that’s it.

When Should You Use These Types Of Funds?

Investing in these types of mutual funds are for people who want to invest and forget. Lets use the example above: An investor has a retirement date which is 20 years from now. The risk profile for a person this far from retirement is still in the high risk category. This means the mutual fund manger will allocate the assets of this fund in investments that focus on higher capital returns, not capital preservation.

So, the fund will be invested more in stocks and less in bonds. The goal, since there is a long time frame for the investment, is to be aggressive, accumulate more capital. Then, as the fund matures the fund manager will make shifts in the asset allocation moving toward a more conservative mix of stocks and bonds.

Ultimately, as the fund closes in on the target date the asset allocation will be mostly in investments focused on capital preservation. So, for the investor who has a long term time frame for retirement and wants a passive investment, this can be the perfect investment vehicle.

Pros

Mutual funds are always diversified, this investment is no different. Target dated funds are generally comprised of a mixture of other funds. So, this means you have diversification within diversification, this lowers the investors downside risk.

The other advantage, which was already touched on, is an investment where the investor is pretty much hands off. The mutual fund manager is navigating the asset allocation in these funds. The investor is only choosing the target date, that’s all.

Cons

The downside of these target dated funds are fees. Since these funds are actively managed the fees can be much higher compared to other mutual funds. The other term that designates fees in a mutual fund is call “expense ratio”.

The last thing that can be a negative factor with these types of funds is the investments themselves. As mentioned, the fund manger chooses the blend of investments in the fund. Some target dated funds only invest within their own fund family. For example: A fidelity targeted fund will only invest in other fidelity mutual funds (this is only an example, fidelity may not do this,) in this case the investor can lose some of the safety factors that come with diversifying among a variety of mutual fund companies.

Overall, target dated funds can be the perfect investment vehicle for someone with a long term investment timeline who doesn’t want to worry about market fluctuations.

My First Car Payment

One of the most important decisions a person will ever make is the purchase of a car. There are so many things to consider when purchasing a vehicle. Of course its lots of fun when deciding color, make, model, interior and features but there are some difficult decisions to make when buying a car. First, consider the required down payment and the monthly payments. Always have the car payment you desire in mind as well as the maximum amount that you can afford to pay. Because the sales process can get pretty intense you should have these figures firmly planted prior to going shopping. You don’t want to end up with a vehicle you neither want nor can afford.

Buying a car
Is buying a car right for you?

When considering the car payment also consider due dates as they relate to your pay dates. Some finance companies will require payments correspond to paydays while others may require the 1st payment due 30 days after the contract is initiated. The next important detail to consider is the method of payment when making the car payments. Most finance companies offer several different payment options. Among the options are usually walk in payments, online payments, pay by phone and direct debit options. Remember that the method of payment you commit to should be one that is available to you consistently to avoid late payments.

Most car dealers have a network of finance companies that they work with closely. Once the loan is approved remember to take your time and read the contract completely prior to signing. The contract is a legally binding document effective the moment after you sign. Take the time to research any points and facts that you are not familiar with. There are representatives available at the finance company that can further explain the contract. Look up the value of the car with the options you choose to make sure that the total cost of the vehicle with the interest is not more than the car is worth. Sometimes companies have an option to lease a vehicle instead of buying it. In some cases this may be a wiser decision. People usually base their decision to lease based on the amount of wear and tear they traditionally put on a vehicle. Also, it may be wise to take into consideration the amount of travel and what the primary use will be for the vehicle.