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Dayton, Ohio Bankruptcy Attorneys - Cope Law Offices

Dayton Bankruptcy Attorney Personalized Debt Relief Solutions If you are overwhelmed by debt, you may feel as though no one can help you. However, there is help available, and the sooner you take advantage of it, the sooner you will find debt relief solutions. Speaking with a knowledgeable bankruptcy attorney is an easy first step …

Russ

May 18, 2016 by Russ Leave a Comment

Death Of A Spouse: What Happens To Your Debt When You Die?

 

What happens to your debts when you die? Dealing with the death of a spouse is difficult enough even without the financial issues involved – like the debt you spouse left behind. Managing debt while grieving can seem insurmountable. Many surviving spouses must learn how to navigate the payment of their deceased spouses’ debts, including learning which debts affect the surviving spouse and which debts the surviving spouse is not responsible for paying. So, what happens to your debt when you die? And what does that mean for your spouse?

Personal Debts

When a person passes away, he or she typically leaves some bills behind. Credit card bills, phone bills, and other debts for money spent on personal items and care are generally not the responsibility of a deceased person’s spouse. Money owed to creditors for these individual debts is collected from the deceased spouse’s estate, not directly from the surviving spouse. For example, if a wife uses a credit card in her name to purchase clothes and the bill is unpaid upon her death, the credit card company must collect from her estate, not directly from her widower.

Joint Accounts, Joint Responsibility

There are some cases in which a surviving spouse, not the estate, may be responsible for unpaid bills. Jointly-held accounts, such as credit cards or other debts in both spouse’s names, remain the responsibility of the surviving person whose name is on the account or statement. If the surviving spouse’s name is also on the bill while both spouses are alive, he or she is jointly responsible for paying it before the unfortunate death of the spouse and remains responsible for the debt after the spouse passes away.

Similarly, if a surviving spouse signed an agreement to be responsible for his or her deceased spouse’s bills, the surviving spouse may be liable for those unpaid bills upon the spouse’s death. These agreements are often called financial obligation forms and are signed before services, such as medical procedures, are rendered. A surviving spouse will often be aware that he or she signed such a form. If not, the form that the surviving spouse signed should be shown to the surviving spouse as proof that he or she took on responsibility for the deceased spouse’s debts using a contract.

Ohio Doctrine of Necessaries Exception

While the debts of a deceased spouse generally do not pass to the surviving spouse, there are certain exceptions. Ohio law contains an important exception related to debt of a deceased spouse: the Doctrine of Necessaries (sometimes called the Doctrine of Necessities).

Historically, the Doctrine of Necessaries was the legal embodiment of the idea that spouses should provide necessary items for each other (or, in some states, that husbands should provide necessary items for their wives). This doctrine maintained that, because spouses should support each other and the health of their family, one spouse can “borrow” for necessaries against the other’s “credit,” even if this credit was not set out in a formal contract or other instrument.

The Doctrine of Necessaries in Ohio says that a spouse may be responsible for debts incurred by a deceased spouse for things that are “necessities”, or essential to providing for the family as a whole, since a spouse’s health is a critical part of the entire family’s wellbeing. Ohio Rev. Code § 3103.03(c). Necessities have been defined by various courts to include food, clothing, shelter and medical expenses of the deceased spouse. In some situations, creditors can collect from the deceased spouse’s estate, as in typical collections scenarios, before holding the surviving spouse responsible for any remaining debts for necessaries. In other situations, the surviving spouse is responsible as if the spouses were on a joint account. Due to the complicated nature of the Doctrine of Necessaries, it is wise to consult with a bankruptcy attorney when figuring out which bills one may or may be liable for in the state of Ohio.

Doctrine of Necessaries and Medical Bills

Medical bills are in a gray area under the Doctrine of Necessaries. If a spouse was sick or hospitalized for a long time prior to passing away, medical bills may have piled up. And trying to pay them is often the farthest thing from a spouse’s mind during the grieving process.

Medical debts often come into question because, while they seem individual in nature, a spouse’s medical debts incurred during marriage may also be considered essential to providing for the family. Because of this, a surviving spouse may potentially be held liable for a deceased spouse’s medical bills in Ohio under the Doctrine of Necessaries. Again, this is a complex issue and should be handled by an experienced bankruptcy attorney.

Other Necessaries

Other common debts may also run into trouble under the Doctrine of Necessaries. These include a couple’s mortgage and a couple’s utilities. Remember that “necessaries” were historically determined to be elements that a family needed to survive and support its members. Sometimes, a telephone company seeking to collect from a surviving spouse may have difficulty proving that telephone service is a “necessity”, since telephone service is not essential to a family’s survival even though virtually every family does have a telephone. Similarly, the Doctrine of Necessities is not crystal clear with respect to mortgages or other home-related debts in Ohio. An experienced bankruptcy attorney can help you navigate these debts and avoid paying more than you have to under the law.

What happens to your debts when you die?

Deciphering what happens to debts after the death of a spouse can be complicated and confusing. In Ohio, the Doctrine of Necessities makes matters even more complicated, adding the need to determine whether an outstanding debt was for a “necessary” and therefore the responsibility of the surviving spouse. To make matters easier on a surviving spouse, you may consider consulting with an estate planner to make decisions about what happens to your debt when you die before it happens – you can rearrange assets and set up contracts to protect your spouse as much as possible from your debts.

 

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Filed Under: Ohio Laws

April 28, 2016 by Russ Leave a Comment

Will Personal Bankruptcy Affect My Business?

Personal Bankruptcy And Your BusinessUnfortunately, owning a business doesn’t mean you can’t run into personal financial trouble. If you have too much debt to handle, a bankruptcy can help you wipe the slate clean and start over. But will a personal bankruptcy affect your business?

Personal Bankruptcy And Your Business

The effect of a bankruptcy on your business will depend on the type of bankruptcy you choose to file and the way your business is organized. Small businesses are typically organized in one of four ways:

  • Sole Proprietorship: A sole proprietorship is unincorporated and has one owner. The business and owner are treated as the same entity, meaning you pay personal taxes on the income the business generates and the business doesn’t pay any taxes separately. The owner is liable for any debts the business incurs.
  • Partnership: Two or more owners run the business together, with all partners contributing money, labor, property, or other assets. Each partner pays personal taxes on their portion of the income from the business. Partners are liable for the entire amount of the debts of the business – not just their proportional share.
  • Limited Liability Company (LLC): An LLC is its own entity, separate from the owner(s). It must pay taxes and owners are not liable for the business’s debts.
  • Corporation: A corporation is a separate legal entity owned by shareholders. Corporations pay their own taxes and shareholders are not liable for the business’s debts.

Chapter 7 Bankruptcy And Your Business

Chapter 7 is “liquidation” bankruptcy – your non-exempt assets are sold and used to pay creditors. You keep your exempt assets and the rest of your debts are discharged. Where does your business fit in?

  • If you have a sole proprietorship, you and your business are considered one and the same entity. The business’s assets are also your assets. If they’re not exempt, the trustee can sell them to repay your creditors.
  • If you have a partnership, you and your business are considered the same entity just like a sole proprietorship. However, you share the business assets with your partner(s). The trustee can in theory sell those assets with approval from the court, but that approval isn’t very likely to be forthcoming because it isn’t fair to the other partner(s). However, the trustee may be able to sell your entire share of the partnership if he or she can find a buyer for it.

If you own an LLC or a corporation, things are a little more complicated. The business’s assets are safe from the bankruptcy trustee. Your ownership interest, on the other hand, is part of your bankruptcy estate. If you can’t protect it with an exemption, the trustee can do one of four things, depending on what produces the most value for creditors:

  • Liquidate: Sell the business assets, pay off its debts, and use the remainder to pay creditors
  • Sell: If there’s a buyer, the trustee can simply sell your ownership interest
  • Operate As A Going Concern: With the court’s permission, the trustee can allow the business to continue to operate so it can be sold as a going concern
  • Abandon: If there’s no buyer or if the business’s debts are greater than its assets, the trustee can simply ignore the business and you’ll still own it

Chapter 13 Bankruptcy And Your Business

In Chapter 13, you’ll work with the bankruptcy court to create a 3-5 year payment plan based on your income. You’ll make monthly payments and the court will distribute it to your creditors. In general, this won’t affect your ownership in your business. However, remember that if your business is organized as a sole proprietorship or a partnership, you and your business are inseparable in the eyes of the law. That means any income the business makes will be considered your income and will be part of the payment plan.

Chapter 13 May Not Be An Option

While Chapter 13 is safe for your business, it may not be available to you. To qualify for Chapter 13, your payment plan must result in your creditors getting at least as much money as they would if you filed for Chapter 7. So, the court will look at what assets would have been sold off in Chapter 7 to pay your creditors.

Say you have a sole proprietorship with assets valued at $100,000 and liabilities of $20,000. The assets are worth $80,000. Or say you own a corporation worth $80,000. Assuming no exemption applies and there’s likely to be a buyer for the assets, that means your creditors would get at least $80,000 under Chapter 7. If your payment plan doesn’t result in at least $80,000 worth of repayment, you’ll have to file under Chapter 7.

A lot of the issue depends on how “liquid” the assets (either your business assets or your ownership) are – how easy it is to turn them into cash. Illiquid assets may be valuable, but they’re not easy to sell and the court won’t be able to say how much your creditors would have gotten in a Chapter 7. Basically, things can get complicated quickly. You’ll need to work with an experienced attorney to determine whether you’re likely to qualify for Chapter 13.

Other Complications

The effect of a personal bankruptcy on your small business is complicated enough if you’re the only owner – the value and liquidity of your assets or ownership may be very difficult to evaluate. Things get even more complicated if you have a partner or if you’re not the only owner of the LLC or corporation. If that’s the case, the court will have to decide how to handle your bankruptcy without being too unfair to the other owners – it can get very complex, very fast. You’ll need an experienced bankruptcy attorney to help you navigate the case and minimize the impact on your business.

The Bottom Line

Starting a business is no small feat, and you certainly want to protect what you’ve worked so hard to build. If you’re considering a personal bankruptcy, contact us today for a free consultation to learn about your options for handling your personal debt while protecting your business.

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Filed Under: Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

April 13, 2016 by Russ Leave a Comment

Obama Offers Student Loan Forgiveness For Disabled People

Student Loan Forgiveness For Disabled PeopleThe Obama administration has embarked on a new initiative to offer student loan forgiveness to disabled people. They’re planning to discharge nearly $8 billion of student loan debt, affecting 400,000 people.

A New Push For Student Loan Forgiveness

Student loans are notoriously difficult to get out of. If you default, the federal government can garnish your wages or levy your bank accounts as payment – and they don’t even have to sue you first like other creditors do. If you’re struggling with other kinds of debts, you can file a bankruptcy and have them discharged. Not so with student loans – they’re generally not dischargeable in bankruptcy.

You can, however, have your student loans discharged by the government if you’re severely disabled and can show that it’s unlikely you’ll ever be able to work and pay them off. The process used to be complicated, but as of four years ago the government altered the process to make it simpler. You can now use your Social Security Disability designation to apply for a discharge, since you’ve already proven your disability to qualify for benefits through that program. Unfortunately, not many people have taken advantage of the new process – not many people even know they’re eligible for a discharge.

Now, the Department of Education is going a step further. It’s working with the Social Security Administration to find people who get disability benefits, have student loans, and fall under the category of “Medical Improvement Not Expected.” So far, they’ve identified almost 400,000 eligible candidates. Half of those candidates are in default on their student loans, which means this initiative is happening just in time – otherwise the government could withhold their tax returns or their disability benefits as payment.

The people identified by the Department of Education and the Social Security Administration will receive letters explaining the steps they need to take to get a discharge.

Applying For A Discharge On Your Own

If you have student loans and are permanently disabled but don’t get one of those letters, you still have other options. You can apply to the government for a Total and Permanent Disability (TPD) Discharge on your own. “Total and permanent disability” means that you’re injured or ill to such a degree that you can’t engage in any “substantial gainful activity.” In other words, you’re too sick or injured to be able to work enough to pay off any meaningful amount of your loans.

To qualify for a TPD discharge, you can submit one of three different types of documentation. If you’re a veteran and your disability is related to your service, you can show documentation that the VA has determined that you’re unemployable. If you’re getting disability benefits, you can show your Notice of Award. However, qualifying for disability is different from qualifying for a TPD discharge – your SSD paperwork will need to show that you can’t engage in substantial gainful activity. If you’re not a veteran or receiving disability benefits, you’ll need a doctor to certify that you’re unable to do any substantial work due to a disability that is expected to end in death, that has lasted for a continuous period of at least 60 months, or is expected to last at least 60 months.

But Wait – There’s A Catch

With a TPD discharge, you’re student loans are forgiven. No more debt, right? Actually, that’s not quite the end of the story. The government treats forgiven debts the same as income for tax purposes. In other words, having $10,000 of loans forgiven is the same as earning $10,000 in the eyes of the IRS. If you have a large loan forgiven, you may be facing tens of thousands of dollars’ worth of tax bills. One family had $150,000 in student loans forgiven through a TPD discharge, only to receive a tax bill for $59,000!

If you get a tax bill that you can’t cover, you should contact the IRS right away to ask about your options. If you can show that your entire income is taken up by your living expenses, they’ll mark your tax debt as uncollectible and stop trying to collect until your financial situation changes. You may also be able to set up a payment plan to spread the debt out over several years instead of paying all at once.

Alternatives To Student Loan Forgiveness For Disabled People

Getting rid of your student loan debt only to land in a pile of tax debt is not ideal. The tax debt will be significantly smaller than your student loan debt, but it may still be beyond your reach. As an alternative, you may want to consider skipping the TPD discharge and instead signing up for income-based repayment. If you’re struggling to make ends meet, you’re likely to qualify for a payment of $0 per month. After 30 years of $0 payments, your loans will be discharged – that’s true whether you’re disabled or not. You’ll face the same tax problem when that happens, but you’ve pushed it back for 30 years.

The Bottom Line

Student loans are never easy, even with the new push to make student loan forgiveness for disabled people easier. If you’re struggling to manage your loans, remember that you have options. The government offers a variety of repayment plans that can significantly lower your monthly bill and also offers loan forgiveness for working as a teacher or in public service (just don’t forget that pesky tax bill).

And if you are disabled, you can start the process of applying for a TPD discharge online. The organization that manages the process is called Nelnet, and you can reach them by phone at 888-303-7818 or by email at disabilityinformation@nelnet.net.

 

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April 5, 2016 by Russ Leave a Comment

Bad Credit Car Loans: What You Need To Know

BWe heard a lot about “subprime” lending during the 2008 crisis, as foreclosures skyrocketed around the country. Today, a different kind of subprime lending is rearing its head and putting borrowers at risk. Bad credit car loans can put you behind the wheel, but they can also put you in serious financial trouble.

What Is A Subprime Car Loan?

“Subprime” refers to the creditworthiness of the borrower. “Prime” borrowers typically have high credit scores, steady income, and a history of on-time and in-full payments on their credit reports. Subprime borrowers, on the other hand, typically have low credit scores, low or unstable income, and a poor credit history.

In the past, many lenders simply refused to extend credit or offer loans to subprime borrowers because it was considered too risky. Borrowers with a rough credit history are more likely to default, and lenders didn’t want to have loans on their books that were likely to go unpaid. In recent years, however, an industry has grown up around car loans for people with bad credit.

If a lender offers a large number of subprime auto loans, it runs the risk that so many borrowers will default that the lender will become insolvent. However, lenders don’t have to hold on to those loans on their books. Instead, they sell them off to a variety of investors. Why are investors willing to buy these risky loans? Because they come with very high interest rates.

The interest rate on a loan is determined, in part, by the level of risk associated with the loan. Prime borrowers get low interest rates, because they’re not very risky. Subprime borrowers, on the other hand, have to pay much higher rates. The average interest rate for prime auto loans is just 2.7%, while the rate for subprime loans is a whopping 10.4%. So, investors will purchase a certain amount of subprime loans because they get the benefit of those higher rates from the borrowers that do pay.

What’s The Risk Of Bad Credit Car Loans For A Borrower?

Bad credit car loans can turn into a debt trap for borrowers. With high interest rates, longer terms, and lower car values, it’s easy to end up owing more than your car is worth.

High Interest Rates

First off, subprime borrowers get stuck with sky-high interest rates. That means you’re paying a lot more for the car over the life of the loan.

For example, say you borrow $5,000 to buy a car and you have 5 years to pay it back. With a 2.7% interest rate, your monthly payments will be about $90. You’ll pay a total of $5,400 over the course of the loan – $400 in interest.

Now, imagine you take out the same loan at 10.4% interest. Your monthly payments would be about $107. That’s a total of $6,420 over the life of the loan – nearly $1500 in interest.

Longer Loan Terms

Prime car loans typically have terms of 3-5 years. Subprime loans, on the other hand, have average terms of 6 years and some last as long as 7 or 8. That’s because a longer term makes the monthly payments lower and more manageable. With those high interest rates, however, a long term costs borrowers a lot of money.

If you borrow $5,000 at 2.7% with a 4-year term, your monthly payments will be about $110. You’ll pay a total of $5,280 over the life of the loan.

If you borrow $5,000 at 10.4% with a 7-year term, your monthly payments will be about $84. You’ll pay a total of $7,056 over the life of the loan.

Lower Car Values

You probably already know that cars only go down in value once you buy them. If you buy a new car or a high-quality used car and pay off your loan within a few years, however, your car will still be valuable enough to trade in. If you buy an older car, it’s not worth much in the first place. With a high interest, long term auto loan, you’re likely to end up “underwater” – you’ll owe more than the car is worth.

That’s a serious problem. It means you can’t trade it in for a new car. It also means that if you stop making payments and the car gets repossessed, it will sell for less than you owe and you’ll be responsible for paying the difference.

Subprime Car Borrowers Are In Trouble

At first, bad credit car loans seemed like a great way to help people who wouldn’t otherwise be able to buy cars. And that much is still true – subprime loans are often the only option for people with low credit scores. However, the loans are expensive and frequently end up underwater. Many people find that they can no longer make the payments or that it doesn’t make sense to keep paying for a car that isn’t worth anything and end up in default. That leads to repossession, which leads to borrowers still owing the lender the difference between what the car sold for and what they borrowed.

Recently, the number of subprime auto loan defaults has been steadily climbing. Earlier this year, defaults rose to the highest levels since 1996.

Getting A Car Loan

We depend on our cars to get us to work, doctor’s appointments, the grocery store, and school. When you have low credit, you may not have many options as far as car financing goes. So what can you do?

The best possible option is to work to improve your credit before seeking an auto loan. However, that process takes time. If you don’t have the time to work on your credit, make sure you do your homework before agreeing to a loan. Shop around a variety of lenders to make sure you’re getting the best possible interest rate and the shortest possible term – remember that you can negotiate all of those elements. Consider the value of the car and how much it’s likely to be worth at the end of the loan, as well.

If you’re struggling with your car loan, you have several options for dealing with the debt. First, you may be able to work with your lender and refinance it to get a lower interest rate. If that’s not an option, you may consider filing a bankruptcy. Bankruptcy will wipe our your personal liability for the auto loan, so you can surrender it without having to worry about paying back the difference between what the car sells for and what you owe.

 

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March 16, 2016 by Russ Leave a Comment

Will Big Bank Mortgage Settlements Put Money Back In Your Pocket?

Can Bank Settlement Help You?The 2008 housing crisis wiped out hundreds of thousands of homeowners. The economy tanked, leaving many unable to pay their bills. The housing market imploded, leaving many homeowners with underwater mortgages. Default and foreclosure rates skyrocketed. At least some of this turmoil was caused by the mortgage lenders themselves and other large financial institutions and their free use of mortgage-backed securities. Now, those large financial institutions must provide billions of dollars of aid to affected homeowners as part of their settlements with the Justice Department over allegedly misleading investors about the nature of those mortgage-backed securities and mistreating borrowers. Will that money end up in your pocket?

Bank Settlement By The Numbers

The settlements reached in the wake of the 2008 crisis were the biggest in history, topping $100 billion in total. Of that amount, about half went to the federal government – mostly through Fannie Mae and Freddie Mac. States got about $5 billion and nearly $45 billion was earmarked for consumer aid. So, a large chunk of the settlement is in the hands of Uncle Sam, to spend as Congress sees fit. Another large portion is in the hands of the states and can be used for anything – New York is using some of its settlement funds to repair the Tappan Zee bridge, build a new horse barn on the state fair grounds, and extend high-speed internet access, among other things.

What A Bank Settlement Means For Consumers

So states can use their portion of each big bank settlement for infrastructure investment and the federal government can use it however they want. What about the consumer portion?

It turns out that’s a little more complicated. Banks have promised a certain amount of consumer aid as part of each settlement – Bank of America, for example, promised $7 billion of aid to consumers, Citigroup promised $2.5 billion, and JP Morgan promised $4 billion. That doesn’t mean each bank is going to pay out that amount, so the consumers who lost their homes to foreclosure or lost a large chunk of the value of their homes aren’t simply going to get a check to cover their losses.

Instead, banks get credit toward their promised amount of consumer aid for a variety of activities according to the rules of the settlements. For example, they get credit for forgiving the payments of people who are behind on their mortgages or for lowering their interest rates. They also get credit for donating to local housing agencies and legal aid groups dedicated to helping homeowners navigate the mortgage process. They can get credit for providing mortgage to borrowers who make less than the median income in low-income areas and for participating in programs to rehabilitate neighborhoods that were hit particularly hard during the recession. They can get credit for providing loans to borrowers who lost their homes to foreclosure or short sales as a result of the crisis.

These rules are a good thing in some ways – prior settlements have let the banks determine how to spend the money, which means it was unlikely to ever reach consumers in a meaningful way at all. These rules direct the spending to efforts that are genuinely designed to help borrowers. In other ways, however, the rules limit the amount of aid consumers can realistically access. The banks are the ones who decide which areas to invest in and which struggling borrowers to help with forgiveness and interest rate adjustment. In addition, federally-backed loans aren’t eligible for forgiveness of the principal loan amount at all, although banks may be able to lower the interest rates on those loans.

What Does This Mean For Me?

Unfortunately, there isn’t a clear path to guarantee that you get the benefit of a bank settlement, even if you were directly affected by the 2008 crisis. Your best option is to reach out to your lender if you’re struggling to get or keep up with a mortgage or if you lost your home and ask about your options. They may be willing to work with you to either help you reorganize an existing mortgage or get a new one (even if you previously lost a home to foreclosure or short sale). You may also want to contact your local chapter of NeighborWorks America or Interest on Lawyers Trust Accounts (IOLTA); these 2 nonprofits receive part of the consumer aid portion of the big bank settlements and may be able to help you get your mortgage back on track or get a new mortgage.

If you need help with your mortgage, you should act quickly. According to the independent monitor tracking JP Morgan’s settlement progress, that bank has already provided more than $3.5 billion of its promised $4 billion in consumer aid, through more than 150,000 transactions. Citigroup has provided about $175,000,000 of its promised $2.5 billion in aid in around 3,500 transactions. Bank of America has topped $4 billion in aid in more than 40,000 transactions. In other words, the banks are making progress toward the end of their settlement-related obligations and the window to take advantage of them is closing.

If you’re struggling to keep up with your payments or facing foreclosure, you have options for keeping your home. Visit us today for a free consultation to learn about your legal rights and options.

 

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March 9, 2016 by Russ Leave a Comment

What Factors Influence Your Mortgage Interest Rate?

Mortgage Interest RateIf you are like the majority of people interested in purchasing a home, you probably have questions about how to obtain the lowest possible interest rate. Your interest rate can have a significant impact on the amount you pay for your home, so it’s worth doing some research ahead of time to learn how to keep it as low as possible.

Unfortunately, the process by which your interest rate is determined can be complicated and isn’t always transparent. However, there are some major factors that will definitely affect your rate. This isn’t an exhaustive list, but it’s a good starting point:

1. Home Location

Some lenders price their loans differently by state and even by neighborhood. State laws determine the foreclosure process and may affect their ability to collect if you default. In addition, homes in some areas are worth more and homes in up-and-coming areas may be considered less risky by your lender. by the same token, homes in rural areas or low-income areas may be riskier. In fact, some lenders won’t offer loans in those areas at all.

Talk to your real estate agent and loan officer to see if there are any details you should know before you start house-hunting in a particular location. You’ll need to balance the area you want and can afford to live in against the likely impact on your interest rate.

2. Credit Score

Your credit score is one of the most important factors used to determine your interest rate. It helps to predict how reliable you will be in paying off a loan. Your credit score is ultimately calculated after an analysis of your credit report which shows all credit cards, payment history, and loans attached to your name.

With a higher credit score, you will be able to get a lower interest rate. Before you begin your mortgage shopping process, get your credit report so that you can see what your score is and identify and fix any errors. Look for areas that may be impacting your score, such as past-due accounts, and work to get those areas back on track.

Bear in mind that changing your credit score quickly is challenging. It’s better to take a long-term approach to it and implement strategies to improve your credit rating months in advance or even longer. Waiting a few months while your score improves can save you thousands or even tens of thousands of dollars on your home down the road.

3. Loan Amount and Home Price

The total cost of the home minus the down payment is the amount that you will need to borrow for the mortgage loan. You’ll pay a higher interest rate if you’re taking out a very large or very small loan.

When you start shopping for a home, you may be approved for a mortgage higher than what you need. You certainly do not have to take the maximum, particularly if you find your dream home in a more-affordable bracket. Talk to your loan officer about your budget and the amount you plan to borrow and shop around for a lender that will give you the best deal.

4. Down Payment

If you put down a higher down payment, your interest rate will typically be lower. That’s because lenders see you as a lower risk when you have a higher stake in the property. Putting down 20% or more will give you the best results as far as your rate goes. Just like improving your credit score, it may well be worthwhile to wait a little longer before purchasing a home if it means you can make a 20% down payment.

Note that not all lenders will require a down payment of 20%; some programs allow you to put down just a few percent. However, your rate will be much higher.

5. Interest Rate Type

Interest rates may be adjustable or fixed. A fixed interest rate won’t change over time – you agree to it up front and it stays the same over the course of your loan. An adjustable rate will typically be fixed for an initial period and then increase or decrease based on the market. With an adjustable rate loan, you’ll usually be able to get a lower initial interest rate. However, that rate could increase significantly down the road if the market moves up. If you have an adjustable rate loan and the market drops, you  may want to consider refinancing and switching to a fixed-rate loan to lock in that lower rate.

6. Term of the Loan

Shorter-term loans typically will have lower interest rates and lower costs over all but lead to higher monthly payments. Many home loans have 30-year terms, but you may be able to get a term as low as 15 years. You’ll need to balance the loan term against your budget and what your lender is willing to offer.

7. Type Of Loan

There are several different categories of mortgage loans, including VA loans, FHA loans, and conventional loans. The rates of each type of loan can vary significantly. Some are subsidized by the federal government to ensure access to loans and support home ownership among certain populations. If you qualify for these loans, be sure to compare them to traditional loans to make sure you’re getting the best deal possible.

The Bottom Line

There are a lot of mortgage loan options out there and many factors that can affect your interest rate. Before you start seriously shopping for a home, take a comprehensive look at your finances and the neighborhoods you’re considering to get a sense of what kind of interest rate you can expect to pay. The rate you’re offered may vary a lot by lender, too, so make sure to shop around and see what different lenders can offer.

Happy house hunting!

 

 

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Dayton Office

6826 Loop Rd
Dayton, OH 45459
United States
Phone: 937-401-5000
Fax: 877-845-1231

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Dayton Office

6826 Loop Rd
Dayton, OH 45459
Map & Directions

Phone: 937-401-5000
Fax: 877-845-1231

Downtown Dayton

11 W Monument Ave, Ste 300
Dayton, OH 45402
Map & Directions

Phone: 937-648-0100
Fax: 877-845-1231

Springfield Office

49 E. College Ave, Suite 300A
Springfield, OH 45504
Map & Directions

Phone: 937-284-8139
Fax: 877-845-1231

Vandalia Office

812 East National Road, Suite A
Vandalia, OH 45377
Map & Directions

Phone: 937-387-1598
Fax: 877-845-1231

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