If you are thinking about buying a home, but your credit rating is not where it should be, the experts recommend you put off the purchase and try to repair your credit first. Though credit repair can take some time, there are many things you can do to raise your score in just a few months. This can be enough to allow you to qualify for a loan with a lower interest rate and fewer fees.
If you just can’t wait to buy that new house and can’t be convinced otherwise, there are a few options available to secure a home loan. One possibility is a subprime mortgage. These loans are made to borrowers who otherwise would not qualify for a traditional loan. Prior to the housing and financial meltdown of 2007 through 2009, these subprime loans were the most popular type of home loans. Millions of people purchased homes using this type of mortgage, which in turn led to many of the financial troubles we see today. Loans of this type are extremely risky to lenders and have become much rarer in today’s climate. However, if you are persistent, there are still a few lenders offering these loans.
Since these loans are mostly made to low income families and to people who have a history of not paying bills on time, it makes sense that delinquencies on these loans are much high than the norm. A large number of the loans issued from 2004 to 2007 have defaulted and the lenders are left with empty properties. To make up for these risks, lenders are forced to charge much higher interest rates, require higher down payments and charge higher closing fees. Lenders will usually also require mortgage insurance, which can add an additional burden. Though you may get the home that you otherwise would have had to wait for, it will cost you dearly.
Since many borrowers secure subprime loans as a short term solution to their financial problems, lenders usually charge steep penalties for prepayment of the loans. This can crush your plans to refinance later to a loan with a lower interest rate and such penalties are designed to do just that. Why should the lender take a risk with you only to lose your business when you become less of a risk?
If you have made your payments on the subprime loan for a good period of time, you should be able to qualify for a traditional loan with a much lower interest rate. You have proven your ability to control your finances and make payments and are now considered less risky. Even if you have to pay a prepayment penalty on your original loan, you will usually still come out better in the long run by refinancing. Shopping around can help you get the lowest rate possible and can save you thousands of dollars over the life of your mortgage.
Though subprime loans are not the preferred option, they do offer a solution to those who otherwise would not be able to buy a home. The most important thing is to understand exactly what the loan entails and the consequences of securing one. Buying a home can be an emotional time, but such emotional decisions have o place in finance and should be avoided.
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Insurance is a necessity in any business. Businesses cover themselves against losses such as fire, theft and unexpected natural disasters. It is with the bookkeeping or accounting that owners get it wrong.
On successful insurance claims, a payment is normally made to the insured. My experience has led me to believe that small businesses have no clue, as to how, to account for insurance settlements. Most businesses reflect the payment as income.
Not only would this be deceptive but also violates International Accounting Standards. Since the transaction has everything to do with assets and nothing to do with income, it should be adjusted against assets. Erroneous accounting for assets might prejudice the business further in future, if similar insurance claims are made.
Insurance companies settle claims on assets, on its book value and not its costs. (And yet the asset was insured on its cost at date of purchase). Whereas this principle might vary from country to country, book value is widely accepted as the norm. Since most small businesses fail to maintain proper fixed assets registers, insurance companies perform “desk top valuations”, or make an “estimate”, on the book value, mostly much lower than its “real” book value. Without proper records, the claimant cannot debunk the assessor’s final conclusions.
Before I loose you in a sea of confusion, let me elaborate. If an asset is on your books at least, without the asset register, but you have no purchase date, and this asset is lost due to theft, no accurate wear and tear can be furnished. Furthermore, if a claim is settled, and reflects as “income”, what happens to the asset that was stolen, but still reflects on your books?
Many reading this article could not care a hoot about the number crunching involved, but please stay with me for a minute. You might not care, but an investor, a bank and yes, the insurance company might pick this up on your financial statements when they demand your reports.
The method used to account for insurance claims is the “disposal method”. Any asset subject to an insurance claim should be transferred to a “Disposal Account”. Depreciation on the asset for the relevant period is calculated, and credited to the disposal account with the insurance settlement. The cost, less depreciation equals book value. Any settlement amounts over or under book value, will result in a loss or profit on disposal.
An insurance claim, wrongly entered as “income”, can be adjusted by transferring the amount to the disposal account. After effecting these entries, the disposal account should balance to zero. Your new records would reveal, the loss or profit on claim (income statement), settlement in bank account, fixed assets less the stolen/lost asset, and a lower depreciation estimate for the year.
I acknowledge that this is your accountant’s job, you however have a duty to provide accurate records. But how many businesses continue to pay, the same insurance premiums on the assets, since purchase date, when they, entitled to a lower premium, due to a lower asset value.(prior to any asset losses).
Also, a precarious asset situation in your books, might lead to problems in your tax affairs.
No business can afford a visit from the IRS. Did you know that tax authorities always commence auditing, your assets, before they move on to your income?