Down Payment Money

Down Payment Money

If you lack a sufficient down payment, try asking family or friends to invest or lend you the cash. You can also set your sights on a less expensive business or seek out business sellers willing to accept a small down payment.

Be careful, though; owners willing to accept small down payments may be having a difficult time selling because of problems inherent in the business or simply because they’ve overpriced the business. Your intent as a buyer should be to keep the down payment to a minimum (subject, of course, to obtaining favorable loan terms), thereby retaining as much cash as possible to use in operating the business. Check with banks that specialize in small business loans. He who has the cash has the power – and you don’t if you’ve paid 100 percent cash for the business purchase.

To analyze a business, we begin by collecting and reorganizing its accounting and financial statements. To make this analysis worthwhile, financial statements for at least the last three years must be available, preferably on a monthly basis.

Note that most brokers and owners will require that you sign a confidentiality agreement and put down a “good faith” (different from a down payment) deposit before you are given access to such confidential information. Some brokers use a fixed amount (e.g. $1,000) and others use a percentage of your offer price.

One way to solve (or partially solve) working capital and closing cost concerns is to negotiate a lower down payment with the seller. The buyer may ask the seller to partially finance the down payment and receive a portion at the closing and the other portion within a specified period of time. Any time the buyer adds to the amount of leverage (or debt) that s/he uses in the purchase, there will be a need to somehow cut business expenses in order to make provisions to cover the additional debt payments. Sometimes it may be wiser to simply not purchase a business, than to put a down payment and lose it because you cannot meet your note payment.

In certain circumstances, the seller may agree to “lend” his/her security deposits to the buyer while s/he recovers from the acquisition. It all depends upon how convincing your proposal to the owner is, how well you negotiate your acquisition, and how motivated the seller is.

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Making Your Extra Mortgage Payments Count

Making Your Extra Mortgage Payments Count

Home owners with a mortgage usually want to reduce their interest cost by paying down the loan balance as fast as possible. This article is about what borrowers can and cannot do on their own, and answers some frequently asked questions about making extra payments.

Is There Any Benefit In Making Scheduled Payments Before the Due Date? No. On a standard mortgage, interest accrues monthly, and is calculated by multiplying one-twelfth of the annual interest rate times the loan balance at the end of the preceding month. For example, if the loan balance is $100,000 and the interest rate is 6%, the interest due is.06/12 x 100,000, or $500. The borrower owes $500 regardless of when the payment is made or how many days there are in the month,. If the payment is late by more than the 10 or 15 day “grace period,” there is an additional late fee. But there is no rebate for paying early.

Simple interest mortgages, on which interest accrues daily, are an exception. On these mortgages, every day of delay in making the payment increases the interest cost, and paying early does reduce the borrower’s interest bill. Simple interest mortgages used to be fairly common, but I am not aware of any being offered today.

Do Extra Payments Save More Interest When Made In Some Months? No, the only valid rule is that the sooner you make the payment, the more interest you will save.

One common misconception is that the best month to make extra principal payments is January. It is certainly true that a January payment saves more interest than one made in the succeeding February, but it saves less than one made the preceding December.

Is There a Best Time Within the Month to Make an Extra Payment to Principal? Yes, the best time within the month to make an extra payment is the last day on which the lender will credit you for the current month, rather than deferring credit until the following month. If it is the 15th, for example, an extra payment made within the first 15 days of January will reduce your balance that month and the interest due in February. Payments made the 16th or later will not be credited until February, and the interest deduction will be deferred until March.

There is no universal lender practice in crediting extra payments. Some lenders will credit payments received anytime during the month while others are much more restrictive. In most cases, extra payments sent in with the scheduled payment will be credited the same month, but it is a good idea to ask your lender what their rule is.

Is There a Best Way In Which to Make an Extra Payment? No, you can use the same payment method that you use to make your scheduled payment. Just bear in mind that the relevant date is when the payment is credited by the lender, not the date when you sent it.

A practice you should avoid is to make the extra payment an exact multiple of your scheduled payment. If that payment is $610.43, for example, don’t make a payment of $1220.86 because then the lender will probably interpret the additional amount as an advance of your scheduled payment and hold it, rather than pay down your balance.

Is There a Best Way to Allocate Extra Payments When a Borrower Has Two Mortgages on the Same Property? Yes, the general rule is to pay down the second mortgage first. Not only will the second have a higher rate, but second mortgages also can make life more complicated for borrowers looking to refinance or having payment difficulties.

The possible exception is a HELOC second, which might well carry a lower rate than the first mortgage, though it has high potential for future rate increases. The borrower who directs extra payments to a HELOC that has not yet reached the stage of mandatory repayment increases his credit line by the amount of the extra payment. This could be a desirable outcome for the borrower.

Is There a Best Way to Allocate Extra Payments When a Borrower-Investor Has Mortgages on Several Properties? Yes, the general rule is that you save the most by paying down the mortgage with the highest interest rate first. One possible exception is where the mortgage that does not have the higher current rate is exposed to the most interest rate risk. For example, a borrower with a 4.5% fixed-rate mortgage and a 4% adjustable-rate mortgage, both in the early stages of their lives, might well elect to pay down the adjustable-rate mortgage because of the possibility that at some future time its rate could go as high as 9%.

Another possible exception would be where the lower-rate mortgage has a greater potential for a profitable refinance. For example, a 6% mortgage has a loan balance that is 89% of property value while a 5.75% mortgage is at 81%. If the extra payment directed to the lower-rate mortgage reduces the balance to 80%, no mortgage insurance would be required to refinance it.

A third possible exception is where the borrower-investor has so many mortgages that lenders refuse to finance any more acquisitions. Many lenders have a limit of 10. In that situation, the borrower looking toward further expansion wants a complete payoff ASAP and will concentrate all extra payments to the mortgage with the smallest balance.

What Is Payment Processing

What Is Payment Processing?

Have you ever bought anything electronically? Made a purchase off a website? If you have at any point participated in an electronic transaction, chances are you’ve interacted with a payment processing system. Payment processors enable the movement of funds from the buyer to the seller in ecommerce transactions. How do they work? What are the different methods for payment processing? Here’s a short primer on the process of making online payments.

First, how do payment processors work? A payment processor is a third party payment management system that allows businesses to take and organize payments for goods and services offered in electronic transactions. For instance, if you make a purchase on a large website like Amazon, your money will be managed and deposited to Amazon via a payment processing company. If you pay with a credit card at a grocery store, your money goes through payment processing. This way stores can focus on their customers and retail and can leave the money management to a 3rd party.

What are the different methods for payment processing? If you ever use a debit or credit card, you are interacting with one of the largest forms of payment processing. Online services like PayPal and Square are other methods. These systems allow you to pay using a direct link to your bank accounts. Credit card payment applications that allow you to use your smartphone to receive payments are growing in popularity. Now venues that used to only accept cash can open their sales to customers who want to pay with cards. Payment processing systems have opened up a whole new method for making transactions that wasn’t possible 20 years ago.

Payment processing systems keep businesses running. They enable large companies to outsource their payments so they can focus on customers and services. Credit card companies and online payment processors in turn make a profit for their services by taking a small percentage of the total transaction for their role in managing it. Our society used to be cash- and-carry only. Now we have a myriad of choices when it comes to payment options for our transactions. If you’re headed to a local farmer’s market, you may be surprised how many vendors now take cards and other types of electronic payment processors. In fact, so many businesses take payment processors now, be they hot dog vendors or large retail stores, that it seems odd if a business doesn’t take cards or online payments.

Payment Procedures When Purchasing A Home

Payment Procedures When Purchasing A Home

One of the largest dilemmas people face in their lives is whether to continue paying rent, or purchase their own house and pay for mortgage instead. In general, it is often superior to purchase a house due to the potential investment gains. An exception to this would be a family that is constantly on the move, where purchasing and reselling is often not a financially stable approach to home ownership.

Payment Procedure

The large majority of individuals do not pay 100% cash when purchasing a house, as it is quite a lot of money that the average individual does not have access to. The process involves a down payment in cash which is a chosen percentage of the sale price, whilst the bank provides a mortgage loan to pay for the remaining amount. This mortgage is then returned to the bank per month as a calculated amount (depending on how much down payment was made), and is paid off over a certain number of years. When 100% of the price, plus the interest is paid off, the house then belongs to the individual, and payments are not required thereafter indefinitely.

It used to be that zero dollar down payments were widely available with 100% mortgage, however after the recession in the last decade, this unsafe practice is now restricted for safety. The general rule of thumb is that, the more down payment that is made (implying financial stability), the easier it is to get the bank to sanction a mortgage loan. In addition, the lower the interest rate for the mortgage, the less money is paid back to the bank per month.

Monthly payments

Depending on the bank, the average monthly payment is 0.7% to 1.2% of the purchase price, which therefore determines the monthly payment. On average, this results in $1,500/month on a $200,000 home. However, this amount can be inaccurate as there are the following factors that determine the true monthly payment amount:

Interest rate: This usually depends on the bank, as well as the financial deals offered at the current season. In general, the lower the interest rate, the lower the monthly payment becomes.
Down payment: As the amount paid during the down payment is made, the monthly payments over a certain period of time (e.g. 15 years) becomes less, as a lion’s share of the payment is already made during the initial purchase. On the other hand, low down payments imply higher monthly payment, which in addition, compounds with the interest rate.
Payment time: The longer the loan is extended over, the less the payments are. However, this implies paying more interest to the bank over the periods, which on a longer span, results on inefficiency

How to Calculate Your House Payment

How to Calculate Your House Payment

The basic calculation for a house payment is to multiply the annual interest rate times the loan times the number of months of the mortgage. For example, 5 percent — interest rate — times $250,000 — mortgage amount– times 360 — 30 year mortgage — equals $450,000. Divide that by 360 for the monthly payment of principle and interest of $1,250. This gives you a pretty close approximation. The bank will calculate the interest based on each month. In other words the 5 percent annual interest rate is.41 percent on a monthly basis. Divide the taxes for the year and the private mortgage insurance — PMI by 12 and add to the monthly payment.

Amount of the Loan
The larger the loan the larger the payment will be. With all other variables held constant a $350,000 mortgage results in a monthly payment of $2,000. It increases to $2,500 for a $450,000 loan amount and decreases to $1,500 for $250,000 loan.

Length of the Loan
Thirty, 20 and 15 year mortgages are available. If you want to substantially decrease what you’ll pay for the interest of the loan, a 15 year mortgage does that very nicely. For example a $250,000 mortgage for a 30 year loan results in total payments of $550,000 and monthly payments of $1,500. A 15 year loan results in total payments of $380,000 or savings of $170,000. The monthly payment for just principle and interest on the 15 year loan is $2,000.

Interest Rate
The interest rate has the greatest impact on the payment total after the amount of the mortgage. A difference of as little as one percent can result in hundreds of dollars per month. Variable, or adjustable rate, mortgages are based on the prime lending rate and as the name suggests, varies from time period to time period. In the early years of making mortgage payments, most of the payment goes to pay the interest. As the equity slowly builds and the total of the amount owed on the home decreases, the amount that is applied toward the principle of the loan accelerates. The $250,000 mortgage for 30 years at 6 percent interest results in a monthly payment of $1,800 at 4 percent the payment is $1,550.

Where You Live
Taxes are property taxes and are dependent on where you live as well as the assessed value of the house. Market value differs than the assessed tax value. Call the county assessor to get the tax rates for the neighborhood you’re considering.

Insurance
Insurance included in the mortgage payment includes private mortgage insurance if you’ve made less than a 20 percent down payment. It varies depending upon the size of the loan. Once the loan drops to less than 80 percent of the original mortgage amount the PMI drops off. If you don’t have your own homeowner’s insurance on the property the mortgage company will obtain a policy and include that premium in the mortgage payment. The premium cost depends on the value of the building. The land isn’t included. Even if the house is destroyed the land still has value.

Payment Periods
Most mortgages are made once a month. However, if you pay half the mortgage payment every two weeks, it results in an extra payment being made in a year’s time. There are 12 months in a year and 52 weeks. 52 divided by 2 equals 26 payments or 13 full payments.