What type of relationship should I have with my financial planner?
Finding the right financial advisor for you should be more of a gut feeling than a science. Trusting your financial future to someone you trust is important and you need to know that they truly have your best interest at heart. Does this mean you should golf with them monthly? If it helps you feel more comfortable, sure. But more important is to be comfortable with the plan they lay out for you, their approach in achieving it, and their knowledge of the financial marketplace.
There are many different ways to reach the same end result when working on your financial plan and studies have shown that it is more important to “have a good plan and follow it” than to always be looking for the best investments and constantly changing direction. A good Financial Planner will help you to create, maintain, and adjust the plan as necessary but overall will help you to achieve your financial goals.
Troy is a financial advisor offering securities through First Allied Securities, Inc. A Registered Broker/Dealer member of FINRA/SIPC
For any questions or information on Financial Planning you can contact troy at tcollins@mkfinancial.com or by phone at 650-551-8900.
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How do my investments relate to my children’s college tuition funding/costs?
When it comes to getting your children ready for college, you need to understand your full financial picture. This is what schools look at when calculating the financial aid available for your children.
As it stands with investments, your liquid investments (i.e. non-retirement) are assessed at 5.65%. You are allocated a protection allowance on your assets based on the oldest parent. If you’re 50, it’s in the neighborhood of $50,000. Above and beyond that threshold the 5.65% kicks in. Also, important to note is that money in retirement accounts are not assessed.
What this means is don’t be caught off-guard with money that’s slated for retirement, but rather sitting in money-market account. Those dollars will be assessed as part of your contribution. If it’s for retirement, move it into a retirement vehicle (e.g. IRA). Additionally, there are other investments that are not assessed (e.g. annuities) within the formula. In sum, while you have some protection on your assets, don’t have your money sitting around if it’s for retirement. Be fair to yourself.
It’s important to remember that a student’s asset is assessed at 35% with no protection, whether that’s in cash, savings, CDs or UGMA/UTMA custodial account. Again, a 529 is assessed as a parent asset.
In sum, if you’re looking to invest ahead of time for your child’s education, choose a 529. If you have a UTMA/UGMA, try to convert. Some plans allow you do that. But bottom line, having cash, savings, UGMA/UTMAs under child’s name should be avoided.
For more information about preparing for your kids’ college education you can contact Mitch at mitch@collegefinancial-consultants.com, toll free at 877-859-3243 or directly at 408-395-1200
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What is the difference between an independent advisor and a brokerage house advisor?
An independent Financial Advisor has the opportunity to go out in the marketplace and find the very best products and services for their clients. This is different than advisors who work with a large firm.
Many times a brokerage firm has their own line of investments or insurance products that they offer. One of the large revenue generators of these firms is often the funds or insurance programs themselves and at times they may encourage their advisors to sell those products through incentives.
An independent Financial Advisor can truly find the best programs as they most often have no proprietary products which they are encouraged to sell and because they care about your success, rather than receiving incentives, they will truly find the best products and services for you.
Troy is a financial advisor offering securities through First Allied Securities, Inc. A Registered Broker/Dealer member of FINRA/SIPC For any questions or information on Financial Planning you can contact troy at tcollins@mkfinancial.com or by phone at 650-551-8900.
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Who Pays What — A Guide to Closing Costs
A lot of people find the cost of selling or buying a home confusing. It is in a lot of ways since a lot of what you can pay as a buyer or seller is contract related. Below is a list of things as a seller and a buyer that you may be expected to pay for. Take these to your agents and make sure you understand what your part of the transaction is going to be paying for!
The SELLER can generally be expected to pay for:
- Real Estate Commission
- Document preparation fee for Deed
- Document transfer tax ($1.10 per $1,000.00 of sales price)
- Any City Transfer/Conveyance Tax (according to contract)
- Any loan fees required by buyer’s lender
- Payoff of all loans in seller’s name (or existing loan balance if being assumed by buyer)
- Interest accrued to lender being paid off, Statement Fees, Re-conveyance Fees and any Prepayment Penalties
- Termite Inspection (according to contract)
- Termite Work (according to contract)
- Home Warranty (according to contract)
- Any judgments, tax liens, etc. against the seller
- Recording charges to clear all documents of record against seller
- Tax pro-ration (for any taxes unpaid at time of transfer of title)
- Any unpaid Homeowner’s dues
- Any bonds or assessments (according to contract)
- Any and all delinquent taxes
- Notary Fees
The BUYER can generally be expected to pay for:
- Title insurance premiums
- Escrow Fee
- Document preparation (if applicable)
- Notary Fees
- Recording charges for all documents in buyer’s names
- Termite Inspection (according to contract)
- Tax pro-ration (from date of acquisition)
- Homeowner’s transfer fee
- All new loan charges (except those required by lender for seller to pay)
- Interest on new loan from date of funding to 30 days prior to first payment date
- Assumption/Change of Records fees for takeover of existing loan
- Beneficiary Statement Fee for assumption of existing loan
- Inspection Fees (roofing, property inspection, geological, etc.)
- Home Warranty (according to contract)
- City Transfer/Conveyance Tax (according to contract)
- Fire Insurance Premium for first year
It’s important to know what to look for when you’re on either side of the transaction!
This information is provided by North American Title Company. Check out www.nat.com for more.
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Why is having a close relationship with your client’s lender important?
In this new market, many new regulations and guidelines are in place to protect the client in the lending world.
The biggest point here is full disclosure. The new Good Faith Estimates have to be very accurate, and in some cases, once things have been disclosed, there is no room to make changes. Any re-disclosing, for any reason, has to have enough time to be reviewed and approved and have documents re-drawn. This eliminates surprises at the closing table.
To me, a close relationship is defined by clear communication, from email to phone calls, on the side of both the lender and agent. Most of all, communication from the lender to the client and agent is paramount, as in most cases this transaction is the largest in the client’s life and can be daunting. Having a close relationship with your lender, and an open and communicative lender, puts your client at ease and makes you look good. We are the experts in this game, and we need to help our clients to understand everything that is going on and be sure that their best interest is our common goal.
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How Can I Prepare My Financials for Buying a Home?
The state of your financials is an important part of applying for a loan. Nowadays we are back to the basics of full disclosure of all income and assets. Stated income or overstating your income are not going to work and will not pass underwriting. This is actually a positive move in the right direction as recently there were too many people on all sides of transactions that did not disclose material facts, and because of this many people have lost or are losing their homes.
So, what do we need? Just remember the “two’s.”
Most lenders will need the last two years’ federal tax returns, with all schedules, W-2s and ALL pages. Next, they need your last two paycheck stubs and the last two months’ bank, brokerage and retirement account statements. Again, ALL pages must be included — including blank pages. If you are currently renting, we will contact your property management company to get the documentation we need, but if you pay an individual instead of a company, we will need copies of the front and back of the last 12 months of canceled checks.
With this information your loan process can begin.
Three most common errors when submitting documents:
1.All of the pages of the bank statements are not accounted for. Again, be sure to include blank pages and cover pages.
2.Faxed copies are often illegible. For better clarity, use a scanner to scan the documents. Do not mail! There’s lots of sensitive information in your documents and you do not want that lost in the mail.
3.The documents need to be the most current documents you can get. Two years of tax returns means the last two years, not any two years and the same goes for the other requirements!
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What types of investments are the most solid and how does my Financial Advisor help me find them?
Investing is not a one size fits all endeavor. If anyone can answer the first part of this question without doing a serious and comprehensive financial plan then they are an investment broker, not a financial advisor. Essentially, just as a doctor cannot prescribe the correct treatment without testing and analysis, a Financial Advisor needs the full picture before they start to offer advice and ‘treatment’ for your financial portfolio.
As a Financial Planner– as it comes to investments–I believe you first need to determine the time frame for which you are investing. There are investments such as CDs that can protect principle up to guideline amounts, however, they may not keep pace with inflation and after taxes could yield a negative net return. Thus it is important to determine the length of time you have to invest as well as your NEED to determine what return to strive for and consider the risk of each alternative versus the need for higher returns.
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Why is pre-approval important? Do I have to go back to the same lender that originally approved me?
Pre-approval is the first step in looking for looking for a home. Yes, even before hiring a real estate agent! The pre-approval letter that you get from your lender shows that the lender has verified your income, pulled your credit, verified your assets to close and for reserves and deemed them all okay for a loan of a particular size.
Part of this process should be your lender sitting down with you and talking about your finances and the mortgage payments you would be comfortable with, based on your income and down payment. This conversation will help you determine a purchase price that will fit into your finances and future plans. We want to make sure any offer you put on a home is something that is comfortable for you to make and will not put you in a financially irresponsible place.
You do not have to work with the same lender that pre-approved you; however, it can speed up the process. Since the lender already has your documentation, credit report and other information and it has already been reviewed by an underwriter (which at some big banks could take weeks), you’re much closer to completing the loan application and receiving funding.
That being said, your relationship with your lender should be a personal one, since they are the ones with the knowledge and experience to make sure you are put in the best position. Resubmitting paperwork and an extra week of time is nothing if it gives you peace of mind and you are treated in a way that lets you know your lender has your best interest in mind.
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When should I think about discussing my finances with a financial planner?
You should consider talking to a Financial Advisor when you are making a life change such as getting married, having children, changing jobs or have some financial questions outside of your personal expertise. Don’t assume that you can find financial answers on the internet. You are about as likely to become an expert in financial planning over the internet as you are to become a brain surgeon.
Financial planning takes into account many different aspects of the current marketplace and a strategic financial plan helps those aspects to work together for the greatest reward. This isn’t something that a novice to the financial world can understand fully and create for themselves after doing a little internet research. So, don’t do it yourself! Your financial future is rather important to plan for properly the first time and you don’t always get a second chance. Rather than searching the web for good investments, most should start by searching for a good financial planner.
A few tips to finding a good Financial Planner:
- You should find a financial planner who you feel listens to your concerns and desires. This is your financial plan and needs to focus on what you want to accomplish.
- You should expect a series of appointments, often 2-4 before doing any investing. (Anyone giving investment recommendations at the first meeting is not a true financial planner.)
- You should expect a written financial plan that covers the areas of:
Investments
Retirement Planning
Education Funding
Risk Management/Insurance
Estate Planning/Trusts
Tax Strategies
Note:
As important as finding a financial advisor is deciding on a financial plan and sticking to it. Most people start with a strategy and the minute it starts to not work perfectly they will give up on it and change to another strategy or another advisor. Though a few changes may be needed, “Don’t throw the baby out with the bath water.”
*Troy is a financial advisor offering securities through First Allied Securities, Inc. A Registered Broker/Dealer member of FINRA/SIPC
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A Note on the New FHA Rules
The Federal Housing Administration has announced major changes to its program. The agency will increase the amount of upfront cash paid by new borrowers and require higher down payments from those with the poorest credit.
Upfront insurance premiums paid at the closing table will increase to 2.25% of the loan value, but buyers will be able to finance the premiums. Borrowers with credit scores below 580 will be required to put at least 10% down. Home buyers with higher scores will still be allowed to put down as little as 3.5%. FHA also plans to reduce seller concessions from 6 to 3% of the home’s value.
These policy changes come on the heels of FHA’s announcement in Oct. 2009 that its capital reserve fund had fallen below the congressionally mandated level of 2%. Lawmakers believe these changes will help ensure the agency’s financial soundness and fulfill its mission of serving borrowers not adequately served by the private sector.
Since August 2008 equity lines used as second mortgages and traditional second mortgages have become almost non-existent. Buyers without at least 20% down have turned to FHA financing as their only choice. The upfront costs at closing are high and private mortgage insurance is required. But, a large percentage of buyers are thrilled with this option providing financing to purchase at an optimum time.
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