Loan Calculator

Federal Loans

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The William D. Ford Federal Direct Loan Program (also called FDLP, FDSLP, and Direct Loan Program) provides "low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education ... rather than a bank or other financial institution."<br />
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Following the passage of the Health Care and Education Reconciliation Act of 2010, the Federal Direct Loan Program is the sole government-backed loan program in the United States. Guaranteed loans—loans originated and funded by private lenders but guaranteed by the government—were eliminated because of a perception that they benefited private student loan companies at the expense of taxpayers, but did not help reduce costs for students.<br />
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In 2011, the U.S. Department of Education transferred a large number of loans to the private conglomerate: Nelnet. Nelnet appears to be one of the sources of the many problems experienced in October 2011 with hosted website for a new platform for online servicing of federal student loans formerly handled by the government.<br />
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<b><span style="font-size: large;">Political history</span></b><br />
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Congress passed a pilot version of the Direct Loan program as part of the Reauthorization of the Higher Education Act under President George H. W. Bush, Bush Signed it into law on July 23, 1992. Under President Bill Clinton the Omnibus Reconciliation Act of 1993 set up a phase in of direct lending. Many schools volunteered for the program, but the 104th Congress passed legislation to prevent the switch to 100% direct lending in 1994.[5] Funding for the Federal Direct Student Loan Program decreased from just over $7 billion in 2006 to $509 million budgeted for 2008.<br />
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Under the Obama Administration's new budget, all new loan originations will be under the Direct Loan program by July 2010, netting $6B in annual savings. The bill approving the measure passed the House of Representatives on September 17, 2009.[7] The switch to 100% Direct Lending effective July 1, 2010 was enacted by the Health Care and Education Reconciliation Act of 2010.<br />
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In comparison, other countries have also experimented with government-sponsored loan programs. New Zealand, for instance, now offers 0% interest loans to students who live in New Zealand for 183 or more consecutive days[8] (retroactive for all former students who had government loans), who can repay their loans based on their income after they graduate.[9] This program was a Labour Party promise in the 2005 general election.[citation needed]<br />
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<b><span style="font-size: large;">Current Program Size</span></b><br />
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The Federal Student Aid (FSA) loan portfolio balances were $896 billion at the end of 2012.[10] The FSA managed $473 billion under the Federal Direct Student Loan Program at the end of 2012.[11] New loans originated under the program during 2012 totaled $106.7 billion.[12] Loan portfolio balances managed by the FSA for the Federal Family Education Loan Program are steady and slowly shrinking as new loans offered to students by the U.S. Department of Education originate under the FDSL program..[13] Most of the growth in FDSL loan portfolio balances can be attributed to new loan originations, while being the sole government program for student loans. Another contributor to the rapid escalation in loan balances is due to the cost of higher education increasing rapidly, faster than inflation. Students are spending and borrowing more to finance their higher-priced, higher education.<br />
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<b><span style="font-size: large;">Possible Problems in the Future</span></b><br />
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Some believe that the growth of student loan debt is reaching problematic levels. Economists point to a drag on the economy as a whole because of high levels of student debt.[15] One way that has been suggested to help students with loan repayment is to lower interest on balances. U.S. Senator Richard Blumenthal urged,"We must reduce the student loan interest rate back to 3.4 percent immediately, and then even lower, and develop ways for past students to reduce and erase the $1 trillion in existing debt. The failure of Congress to act now threatens our all too slow and fragile economic recovery and job creation."[16] Another way to deal with debt to income levels is to require higher learning accountability. "Only recently have government regulators demanded accountability for the educational benefits universities produce and the efficiency with which they produce them: What does college cost? How many students are admitted? How many graduate? How long does it take them to graduate? How many get good jobs? At the same time, accrediting bodies have changed their measurement emphasis from inputs and activities to outcomes...Students want not just high-paying jobs, but an acceptable ratio of starting salary to student debt. Governments likewise care not just about the number of graduates but the total cost of producing each graduate.” [17] These questions warrant consideration in the future conversations about the Federal Student Loan Program.<br />
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Federal Student Aid (FSA), an office of the U.S. Department of Education, is the largest provider of student financial aid in the United States. Federal Student Aid provides student financial assistance in the form of grants, loans, and work-study funds. Federal Student Aid is also responsible for the development, distribution and processing of the Free Application for Federal Student Aid (FAFSA), the fundamental qualifying form used for all federal student aid distribution programs, as well as for many state, regional, and private student aid programs. Each year Federal Student Aid's staff processes approximately 22 million FAFSAs. Additionally, Federal Student Aid is responsible for enforcing the financial aid rules and regulations required by the Higher Education Act and the U.S. Department of Education and managing the outstanding federal student loan portfolio.<br />
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<b><span style="font-size: large;">Mission</span></b><br />
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Federal Student Aid's core mission is to ensure that all eligible Americans benefit from federal financial assistance—grants, loans and work-study programs—for education beyond high school. The programs Federal Student Aid administers comprise the nation's largest source of student financial aid: during the 2010-11 school year alone, Federal Student Aid provided approximately $144 billion in new aid to nearly 15 million postsecondary students and their families. A staff of 1,200 is based in 10 cities in addition to the Washington, D.C. headquarters.<br />
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While overseeing $864 billion in outstanding student loans, Federal Student Aid ensures that all partners in the student aid community—schools, servicers and guaranty agencies—operate fairly, honestly and efficiently. Another key role the organization performs is ensuring students and their families are aware that financial aid is available and is an important first step to education beyond high school. Federal Student Aid distributes numerous publications both in print and online and runs several customer call centers. Most of these services are provided in Spanish as well.<br />
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The Federal Student Aid team is committed to making education beyond high school more attainable for all Americans, regardless of socioeconomic status.<br />
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<b><span style="font-size: large;">Student Aid</span></b><br />
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Federal Student Aid provides financial assistance to students enrolled in eligible programs at participating postsecondary schools (accredited four-year or two-year public or private educational institutions, career schools or trade schools) to cover the cost of education expenses, including tuition and fees, room and board, books and supplies, and transportation. Most federal aid is need-based. The three most common types of aid are grants, loans, and work-study funds.<br />
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Grants are a type of financial aid that does not have to be repaid. Generally, grants are for undergraduate students and the grant amount is based on need, cost of attendance, and enrollment status.<br />
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Federal Pell Grants are designed for low- and middle-income undergraduate students. Pell Grants for the 2011-2012 school year range from $555 to $5,550.<br />
The Iraq & Afghanistan Service Grant is awarded to students who are ineligible for a Pell Grant only because of the program’s need requirements and whose parent or guardian died as a result of military service in Iraq or Afghanistan after September 11, 2001. The maximum award is $5,500 for the 2011-2012 school year.<br />
The Teacher Education Assistance for College and Higher Education (TEACH) Grant is awarded to undergraduate, postbaccalaureate, or graduate students who are taking coursework necessary to become elementary or secondary teachers. Recipients of this grant must agree to serve as a full-time teacher in a high-need field in a public or private elementary or secondary school that serves low-income students for at least four academic years. The maximum award is $4000 for the 2011-2012 academic year.<br />
Loans are borrowed money that must be repaid with interest. Both undergraduate and graduate students may borrow money. Parents may also borrow to pay education expenses for dependent undergraduate students.<br />
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Federal Stafford Loans are made to students and PLUS Loans are made to parents through the William D. Ford Federal Direct Loan (Direct Loan) Program: Eligible students and parents borrow directly from the federal government at participating schools. Direct Loans include Direct Stafford Loans, Direct PLUS Loans, and Direct Consolidation Loans.<br />
The Federal Family Education Loan (FFEL) Program: Until July 1, 2010, a large percentage of federal loans were made through private lenders with federally guaranteed funds. FFEL loans included FFEL Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans. The FFEL Program ended on July 1, 2010 under provisions of the Health Care and Education Reconciliation Act of 2010. All new Stafford, PLUS, and consolidation loans are now administered through the Direct Loan Program.<br />
Campus-Based Aid includes types of aid that schools are responsible for administering on behalf of the federal government.<br />
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Federal Perkins Loans are low-interest loans made through a school’s financial aid office using federal funds. Undergraduate and graduate students with exceptional financial need are eligible to receive a Federal Perkins Loan.<br />
The Federal Supplemental Educational Opportunity Grant (FSEOG) is a program through which Federal Student Aid provides funds to schools, who in turn offer the grant to students. FSEOG grants range from $100 to $4,000 during the 2011-2012 school year.<br />
The Federal Work-Study program provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.</div>

Federal Loans

The William D. Ford Federal Direct Loan Program (also called FDLP, FDSLP, and Direct Loan Program) provides "low-interest loans for students and parents to help pay for the cost of a student's educat…

11 Sep 2015

Housing Loan

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A <b>HOUSING LOAN</b> is a type of loan in which the borrower uses the equity of his or her home as collateral. Home equity loans are often used to finance major expenses such as home repairs, medical bills, or college education. A home equity loan creates a lien against the borrower's house and reduces actual home equity.<br />
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Most home equity loans require good to excellent credit history, reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types: closed end (traditionally just called a home-equity loan) and open end (aka a home-equity line of credit). Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. Home equity loan can be used as a person's main mortgage in place of a traditional mortgage. However, one can not purchase a home using a home equity loan, one can only use a home equity loan to refinance. In the United States, in most cases it is possible to deduct home equity loan interest on one's personal income taxes.<br />
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There is a specific difference between a home equity loan and a home equity line of credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate. With a HELOC the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to an amount equal to the value of the home, minus any liens. These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due. Typically, the interest rate is based on the prime rate plus a margin.<br />
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Home equity is the market value of a homeowner's unencumbered interest in their real property—that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increases as the debtor makes payments against the mortgage balance, and/or as the property value appreciates. In economics, home equity is sometimes called real property value.<br />
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Home equity is not liquid. Home equity management refers to the process of using equity extraction via loans—at favorable, and often tax-favored, interest rates—to invest otherwise illiquid equity in a target that offers higher returns.<br />
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Homeowners acquire equity in their home from two sources. They purchase equity with their down payment, and the principal portion of any payments they make against their mortgage. They also benefit from a gain in equity when the value of the property increases. Investors typically look to purchase properties that will grow in value, causing the equity in the property to increase, thus providing a return on their investment when the property is sold.<br />
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Home equity may serve as collateral for a home equity loan or home equity line of credit (HELOC). Many home equity plans set a fixed period during which the person can borrow money, such as 10 years. At the end of this “draw period,” the person may be allowed to renew the credit line. If the plan does not allow renewals, the person will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period, for example, 10 years.<br />
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A home equity line of credit (often called HELOC and pronounced Hee-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house (akin to a second mortgage). Because a home often is a consumer's most valuable asset, many homeowners use home equity credit lines only for major items, such as education, home improvements, or medical bills, and choose not to use them for day-to-day expenses. HELOC abuse is often cited as one cause of the subprime mortgage crisis.<br />
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<b><span style="font-size: large;">Differences from conventional loans</span></b><br />
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A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card. HELOC funds can be borrowed during the "draw period" (typically 5 to 25 years). Repayment is of the amount drawn plus interest. A HELOC may have a minimum monthly payment requirement (often "interest only"); however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment (but less than the total outstanding). The full principal amount is due at the end of the draw period, either as a lump-sum balloon payment or according to a loan amortization schedule.[4]<br />
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Another important difference from a conventional home equity loan is that the interest rate on a HELOC is variable. The interest rate is generally based on an index, such as the prime rate. This means that the interest rate can change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay.<br />
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HELOC loans became very popular in the United States in the early 2000s, in part because interest paid is typically deductible under federal and many state income tax laws.[citation needed] This effectively reduced the cost of borrowing funds and offered an attractive tax incentive over traditional methods of borrowing such as credit cards. Another reason for the popularity of HELOCs is their flexibility, both in terms of borrowing and repaying on a schedule determined by the borrower. Furthermore, HELOC loans' popularity may also stem from their having a better image than a "second mortgage," a term which can more directly imply an undesirable level of debt.[5] However, within the lending industry itself, a HELOC is categorized as a second mortgage.<br />
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Because the underlying collateral of a home equity line of credit is the home, failure to repay the loan or meet loan requirements may result in foreclosure. As a result, lenders generally require that the borrower maintain a certain level of equity in the home as a condition of providing a home equity line.<br />
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Traditional mortgages in the United States are usually non-recourse loans, while mortgages in countries such as Canada are generally recourse loans. "Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable." A HELOC may be a recourse loan for which the borrower is personally liable. This distinction becomes important in foreclosure since the borrower may remain personally liable for a recourse debt on a foreclosed property.<br />
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<b><span style="font-size: large;">HELOC freeze</span></b><br />
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In 2008 major home equity lenders including Bank of America, Countrywide Financial, Citigroup, JP Morgan Chase, National City Mortgage, Washington Mutual and Wells Fargo began informing borrowers that their home equity lines of credit had been frozen, reduced, suspended, rescinded or restricted in some other manner.[6][7][8] Falling housing prices have led to borrowers possessing reduced equity, which is perceived as an increased risk of foreclosure in the eyes of lenders. On January 27, 2010, a federal judge refused to dismiss a class action lawsuit against Chase for freezing HELOC loans.[9] Courts have held that a bank may freeze a HELOC in instances where a home's value decreases substantially, which is deemed by courts as a 50% reduction in value.<br />
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A Reverse Mortgage or Home Equity Conversion Mortgage (HECM) is a special type of home loan for older homeowners that requires no monthly mortgage payments. Borrowers are still responsible for property taxes and homeowner’s insurance. Reverse mortgages allow elders to access the home equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.[Specific rules for reverse mortgage transactions vary depending on the laws of the jurisdiction.<br />
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In a conventional mortgage, the homeowner makes a monthly payment to the lender. After each payment, the homeowner's equity increases by the amount of the principal included in the payment. In a reverse mortgage, a homeowner is not required to make monthly payments. If payments are not made, interest is added to the loan's balance. Although the "rising loan balance can eventually grow to exceed the value of the home," "the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home." In Canada, the loan balance cannot exceed the fair market value of the home by law.<br />
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Regulators and academics have given mixed commentary on the reverse mortgage market. Some economists argue that reverse mortgages allow the elderly to smooth out their income and consumption patterns over time, and thus may provide welfare benefits. However, regulatory authorities, such as the Consumer Financial Protection Bureau, argue that reverse mortgages are "complex products and difficult for consumers to understand," especially in light of "misleading advertising," low-quality counseling, and "risk of fraud and other scams." Moreover, the Bureau claims that many consumers do not use reverse mortgages for the positive, consumption-smoothing purposes advanced by economists. In Canada, the borrower must seek independent legal advice before being approved for a reverse mortgage.<br />
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Reverse mortgages are available in Australia. However, there is little regulation: the Financial Services Reform Act does not regulate the loans,[4] and although potential borrowers should seek financial advice before applying for a reverse mortgage, there is no legislation that requires the advisor to be licensed.[4]<br />
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Eligibility requirements vary by lender. To qualify for a reverse mortgage in Australia,<br />
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the borrower must be over a certain age, usually 60 or 65 years of age; if the mortgage has more than one borrower, the youngest borrower must meet the age requirement<br />
the borrower must own the property, or the existing mortgage balance must be low enough that it will be paid off with the reverse mortgage proceeds<br />
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Reverse mortgages in Australia can be as high as 50% of the property's value. The exact amount of money available (loan size) is determined by several factors:<br />
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the borrower's age, with a higher amount available at a higher age<br />
current interest rates<br />
property value<br />
the property's location<br />
program minimum and maximum; for example, the loan might be constrained to a minimum of $10,000 and a maximum of 425,000<br />
The cost of getting a reverse mortgage depends on the particular reverse mortgage program the borrower acquires. These costs are frequently rolled into the loan itself and therefore compound with the principal. Typical costs for the reverse mortgage include:<br />
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an application fee (establishment fee) = $950<br />
stamp duty, mortgage registration fees, and other government charges = vary with location<br />
The interest rate on the reverse mortgage varies. Some programs offer fixed rate loans, while others offer variable rate loans.<br />
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In addition, there are costs during the life of the reverse mortgage. A monthly service charge may be applied to the balance of the loan (for example, $12 per month), which then compounds with the principal</div>

Housing Loan

A HOUSING LOAN is a type of loan in which the borrower uses the equity of his or her home as collateral. Home equity loans are often used to finance major expenses such as home repairs, medical bills…

11 Sep 2015

Installment Loans

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An installment loan is a loan that is repaid over time with a set number of scheduled payments;[1] normally at least two payments are made towards the loan. The term of loan may be as little as a few months and as long as 30 years. A mortgage, for example, is a type of installment loan.<br />
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The term is most strongly associated with traditional consumer loans, originated and serviced locally, and repaid over time by regular payments of principal and interest. These “installment loans” are generally considered to be safe and affordable alternatives to payday and title loans, and to open ended credit such as credit cards.<br />
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In 2007 the US Department of Defense exempted installment loans from legislation designed to prohibit predatory lending to service personnel and their families, acknowledging in its report[3] the need to protect access to beneficial installment credit while closing down less safe forms of credit.<br />
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Mortgage calculators are automated tools that enable users to determine the financial implications of changes in one or more variables in a mortgage financing arrangement. Mortgage calculators are used by consumers to determine monthly repayments, and by mortgage providers to determine the financial suitability of a home loan applicant.[1]<br />
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The major variables in a mortgage calculation include loan principal, balance, periodic compound interest rate, number of payments per year, total number of payments and the regular payment amount. More complex calculators can take into account other costs associated with a mortgage, such as local and state taxes, and insurance.[2]<br />
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Mortgage calculation capabilities can be found on financial handheld calculators such as the HP-12C or Texas Instruments TI BA II Plus. There are also multiple free online free mortgage calculators, and software programs offering financial and mortgage calculations.<br />
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<b><span style="font-size: large;">Uses</span></b><br />
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When purchasing a new home, most buyers choose to finance a portion of the purchase price via the use of a mortgage. Prior to the wide availability of mortgage calculators, those wishing to understand the financial implications of changes to the five main variables in a mortgage transaction were forced to use compound interest rate tables. These tables generally required a working understanding of compound interest mathematics for proper use. In contrast, mortgage calculators make answers to questions regarding the impact of changes in mortgage variables available to everyone.<br />
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Mortgage calculators can be used to answer such questions as:<br />
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If one borrows $250,000 at a 7% annual interest rate and pays the loan back over thirty years, with $3,000 annual property tax payment, $1,500 annual property insurance cost and 0.5% annual private mortgage insurance payment, what will the monthly payment be? The answer is $2,142.42.<br />
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A potential borrower can use an online mortgage calculator to see how much property he or she can afford. A lender will compare the person's total monthly income and total monthly debt load. A mortgage calculator can help to add up all income sources and compare this to all monthly debt payments. It can also factor in a potential mortgage payment and other associated housing costs (property taxes, homeownership dues, etc.). One can test different loan sizes and interest rates. Generally speaking, lenders do not like to see all of a borrower's debt payments (including property expenses) exceed around 40% of total monthly pretax income. Some mortgage lenders are known to allow as high as 55%.<br />
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<b><span style="font-size: large;">Monthly payment formula</span></b><br />
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See also: Compound interest § Monthly amortized loan or mortgage payments<br />
The fixed monthly payment for a fixed rate mortgage is the amount paid by the borrower every month that ensures that the loan is paid off in full with interest at the end of its term. The monthly payment formula is based on the annuity formula. The monthly payment c depends upon:<br />
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r - the monthly interest rate, expressed as a decimal, not a percentage. Since the quoted yearly percentage rate is not a compounded rate, the monthly percentage rate is simply the yearly percentage rate divided by 12; dividing the monthly percentage rate by 100 gives r, the monthly rate expressed as a decimal.<br />
N - the number of monthly payments, called the loan's term, and<br />
P - the amount borrowed, known as the loan's principal.<br />
In the standardized calculations used in the United States, c is given by the formula:[3]<br />
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c = \frac{r P}{1-(1+r)^{-N}} = \frac {rP(1+r)^N}{(1+r)^N-1}.<br />
For example, for a home loan of $200,000 with a fixed yearly interest rate of 6.5% for 30 years, the principal is P=200000, the monthly interest rate is r=(6.5/12)/100, the number of monthly payments is N=30\cdot 12=360, the fixed monthly payment equals $1,264.14. This formula is provided using the financial function PMT in a spreadsheet such as Excel. In the example, the monthly payment is obtained by entering either of the these formulas:<br />
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= PMT(6.5 / 100 / 12, 30 * 12, 200000)<br />
= ((6.5 / 100 / 12) * 200000) / (1 - ((1 + (6.5 / 100 / 12)) ^ (-30 * 12)))<br />
= 1264.14<br />
The following derivation of this formula illustrates how fixed-rate mortgage loans work. The amount owed on the loan at the end of every month equals the amount owed from the previous month, plus the interest on this amount, minus the fixed amount paid every month. This fact results in the debt schedule:<br />
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .<br />
Amount owed after N months: (1+r)^NP - (1+(1+r)+(1+r)^2+ \cdots +(1+r)^{N-1})c<br />
The polynomial p_N(x)=1+x+x^2+ \cdots +x^{N-1} appearing before the fixed monthly payment c (with x=1+r) is called a cyclotomic polynomial; it has a simple closed-form expression obtained from observing that xp_N(x)-p_N(x)=x^N-1 because all but the first and last terms in this difference cancel each other out. Therefore, solving for p_N(x) yields the much simpler closed-form expression<br />
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p_N(x)=1+x+x^2+ \cdots +x^{N-1} = \frac{x^N-1}{x-1}.<br />
Applying this fact about cyclotomic polynomials to the amount owed at the end of the Nth month gives (using p_N to succinctly denote the function value p_N(x) at argument value x = (1+r )):<br />
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Amount owed at end of month N<br />
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The amount of the monthly payment at the end of month N that is applied to principal paydown equals the amount c of payment minus the amount of interest currently paid on the pre-existing unpaid principal. The latter amount, the interest component of the current payment, is the interest rate r times the amount unpaid at the end of month N–1. Since in the early years of the mortgage the unpaid principal is still large, so are the interest payments on it; so the portion of the monthly payment going toward paying down the principal is very small and equity in the property accumulates very slowly (in the absence of changes in the market value of the property). But in the later years of the mortgage, when the principal has already been substantially paid down and not much monthly interest needs to be paid, most of the monthly payment goes toward repayment of the principal, and the remaining principal declines rapidly.<br />
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The borrower's equity in the property equals the current market value of the property minus the amount owed according to the above formula.<br />
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With a fixed rate mortgage, the borrower agrees to pay off the loan completely at the end of the loan's term, so the amount owed at month N must be zero. For this to happen, the monthly payment c can be obtained from the previous equation to obtain:<br />
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which is the formula originally provided. This derivation illustrates three key components of fixed-rate loans: (1) the fixed monthly payment depends upon the amount borrowed, the interest rate, and the length of time over which the loan is repaid; (2) the amount owed every month equals the amount owed from the previous month plus interest on that amount, minus the fixed monthly payment; (3) the fixed monthly payment is chosen so that the loan is paid off in full with interest at the end of its term and no more money is owed.<br />
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<b><span style="font-size: large;">Adjustable Interest Rates</span></b><br />
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While adjustable rate mortgages have been around for decades,[4] from 2002 through 2005 adjustable-rate mortgages became more complicated as did the calculations involved.[5] Lending became much more creative which complicated the calculations. Subprime lending and creative loans such as the “pick a payment”,[6] “pay option”,[7] and “hybrid” loans brought on new era of mortgage calculations. The more creative adjustable mortgages meant some changes in the calculations to specifically handle these complicated loans. To calculate the annual percentage rates (APR) many more variables needed to be added, including: the starting interest rate; the length of time at that rate; the recast; the payment change; the index; the margins; the periodic interest change cap; the payment cap; lifetime cap; the negative amortization cap; and others.[8] Many lenders created their own software programs, and World Savings even had contracted special calculators to be made by Calculated Industries specifically for their “pick a payment” program.[9] However, by the late 2000s the Great Recession brought an end to many of the creative “pick-a-payment” type of loans which left many borrowers with higher loan balances over time, and owing more than their houses were worth. This also helped reduce the more complicated calculations that went along with these mortgages.<br />
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<b><span style="font-size: large;">Mortgage Analyzer</span></b><br />
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As a recent trend since 2007, in the wake of a financial crisis that was founded on many individuals' bad mortgage decision in residential borrowing, a new generation of mortgage calculation tools has emerged.[citation needed] They are better equipped to estimate the long-term cost and financial risk of various types of mortgages.[citation needed] Rather than "mortgage calculator", the new tools have become popularly known as "mortgage analyzers". Their main advantage is in the analysis of adjustable rate mortgages where the potential cost and amount owing on the mortgage are estimated under thousands, sometimes millions, of possible future mortgage rate scenarios, and then aggregate figures for average cost and risk based on all scenarios are estimated.[citation needed] Conventional mortgage calculators are capable of handling just a handful of scenarios.[citation needed]</div>

Installment Loans

An installment loan is a loan that is repaid over time with a set number of scheduled payments;[1] normally at least two payments are made towards the loan. The term of loan may be as little as a few…

11 Sep 2015

Va Loan

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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA loan allows veterans 103.3 percent financing without private mortgage insurance or a 20 percent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA; this fee may also be financed. In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 100% of reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for an VA Interest Rate Reduction Refinance.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The maximum VA loan guarantee varies by county. As of 1 January 2012, the maximum VA loan amount with no down payment is usually $417,000, although this amount may rise to as much as $1,094,625 in certain specified "high-cost counties".</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">History[edit]</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The original Servicemen's Readjustment Act, passed by the United States Congress in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans.[2] Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 20 million VA home loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans.[2]</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">In association with the VA's program, the Servicemembers' Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">On October 26, 2012, the Department of Veterans Affairs announced it has guaranteed 20 million home loans since its home loan program was established in 1944 as part of the original GI Bill of Rights for returning World War II Veterans. The 20 millionth loan was guaranteed for a home in Woodbridge, Va., purchased by the surviving spouse of an Iraq War Veteran who died in 2010. (www.va.gov)[better source needed]</span></span></div>
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<span style="color: #252525; font-family: sans-serif; font-size: large;"><span style="line-height: 22.4px;"><b>Funding fees</b></span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">aid to VA unless the veteran is exempt from such a fee because he or she receives a minimum of 10% VA disability compensation. If a veteran is awarded disability compensation after paying a funding fee, he/she can apply for a refund of this funding fee, so long as the beginning date of the disability is prior to the closing date of the home mortgage.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">In August of 2012, Congress passed a bill that allows a Veteran to receive the benefits of having Veteran Disability while it is still pending. The amount paid for the funding fee can be refunded back to the Veteran when a determination is made and the paperwork is received.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA Funding fee may be paid in cash or included in the loan amount. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges, or hazard insurance may not be included in the loan. However, the seller may pay these on behalf of the VA borrower.</span></span></div>
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<span style="color: #252525; font-family: sans-serif; font-size: large;"><span style="line-height: 22.4px;"><b>Purchase and construction loans</b></span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 was 2.2 percent. This figure dropped to 2.15 percent on 10/1/04. If you have a service connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service connected disabilities, the funding fee is waived.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. If the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI payment.**</span></span></div>
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<span style="color: #252525; font-family: sans-serif; font-size: 14px; line-height: 22.4px;">Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran's Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.</span></div>
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<span style="color: #252525; font-family: sans-serif; font-size: large;"><span style="line-height: 22.4px;"><b>Private mortgage insurance</b></span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Main article: Private mortgage insurance</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Private mortgage insurance (PMI) guarantees conventional home mortgage loans - those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration (FHA) and VA loan programs.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="line-height: 22.4px;"><b><span style="font-size: large;">VA Loan application</span></b></span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA loan application is a standardized loan application form 1003 issued by Fannie Mae also known as Freddie Mac Form 65. It is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements on a VA loan application under the provisions of Title 18, United States Code, Section 1001, et seq.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Copies of your W2 statements for the past two years, so your gross household income can be confirmed,</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Copies of your previous two pay stubs,</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Documentation of other assets (checking accounts, savings accounts, financial investments, trust funds, etc.),</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">If self-employed, two years of consecutive tax returns will be required.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The Veteran also needs to supply their DD 214 or Certificate of Guarantee</span></span></div>
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<span style="color: #252525; font-family: sans-serif; font-size: large;"><span style="line-height: 22.4px;"><b>Qualifying for Veteran Home Loans</b></span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The Veteran Loan program is designed for veterans who meet the minimum number of days of completed service. The program does allow for benefits to Surviving Spouses.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">The VA does not have a minimum credit score used for pre-qualifying for a mortgage loan, however, most Lenders require a minimum credit score of at least 620.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">A Veteran who has used their entitlement to previously purchase a home, may have entitlement left to purchase another one. If you previously purchased a home using your VA Benefits then you might still have some of that “Entitlement” available to you for the purchase a new home. To Calculate Maximum Entitlement available, consider the following:</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">If your previous home was purchased using a VA Loan, and that loan was paid off by the new owners, the full entitlement may have been restored.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">If you sold your home to someone, and allowed them to assume your VA Loan, then you might have the full entitlement restored, if one or more of the purchasers were also Veterans.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">If you still own the home, and you are renting it out – you might be able to purchase a new home using your partial entitlement, but there are several restrictions.</span></span></div>
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<span style="color: #252525; font-family: sans-serif;"><span style="font-size: 14px; line-height: 22.4px;">Allowable Income Sources used to qualify for a VA Loan include: Retirement Income, Social Security Income, Child Support, Alimony and Separate Maintenance, BAH, BAS and Disability Income. Dependency and Indemnity Compensation (DIC) for a Surviving Spouse can also be included. In addition, stable, documented income from employers remains the best income source for VA loans.</span></span></div>
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Va Loan

A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders. The VA loan was designed to offer long-term …

11 Sep 2015

Business Loans

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A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. There are a number of different types of business loan, suited to the requirements of different types of business such as bank loans, mezzanine financing, asset-based financing and invoice financing.<br />
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<span style="font-size: large;"><b>Bank loan</b></span><br />
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See also: loan<br />
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A bank loan is obtained from a bank and may be either secured or unsecured. For secured loans, banks will require collateral, which may be lost if repayments are not made. The bank will probably wish to see the business’s accounts, balance sheet and business plan, as well as studying the principals' credit histories. Many smaller businesses are now however turning towards Alternative Finance Providers who are offering a number of advantages and reasons to seek business finance elsewhere.<br />
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<span style="font-size: large;"><b>Mezzanine finance</b></span><br />
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Main article: mezzanine capital<br />
Mezzanine finance effectively secures a company’s debt on its equity, allowing the lender to claim part-ownership of the business if the loan is not paid back on time and in full.[1] This allows the business to borrow without putting up other collateral, but risks diluting the principals’ equity share in case of default.<br />
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<span style="font-size: large;"><b>Asset-based finance</b></span><br />
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Main article: Asset-based lending<br />
Once considered the finance option of last resort, asset-based lending has become a popular choice for small businesses lacking the credit rating or track record to quality for other forms of finance.[2] In simple terms, it involves borrowing against one of the company’s assets, with the lender focusing on the quality of the collateral rather than the credit rating and prospects of the company. A business may borrow against several different types of asset, including premises, plant, stock or receivables.<br />
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<b><span style="font-size: large;">Invoice financ</span></b><br />
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Main articles: invoice discounting and factoring (finance)<br />
In recent years, it has become increasingly difficult for SMEs to obtain traditional finance from banks. An alternative option is invoice discounting or factoring, whereby the company borrows against its outstanding invoices, with the ability to obtain funds as soon as new invoices are created, but it is often questioned which option is best for your business – factoring or discounting?.[citation needed] The finance company charges interest on the loan until the invoice is paid, as well as fees if the factoring option is chosen, in which case the factoring company takes ownership of the debtor ledger and uses its own credit control team to secure payment. With invoice discounting, the business maintains control of its own ledger and chases debts itself.<br />
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<b><span style="font-size: large;">Secured and unsecured business loans</span></b><br />
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Main articles: secured loan and unsecured debt<br />
Business loans may be either secured or unsecured. With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt. If the debt is not repaid, the lender may claim the secured asset. Unsecured loans do not have collateral, though the lender will have a general claim on the borrower’s assets if repayment is not made. Should the borrower become bankrupt, unsecured creditors will usually realise a smaller proportion of their claims than secured creditors. As a consequence, secured loans will generally attract a lower rate of interest.<br />
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Credit (from Latin credere, "to believe") is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date.[1] The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[2] Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.<br />
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Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services However, in modern societies, credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account.<br />
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Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk – the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole).<br />
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<b><span style="font-size: large;">Consumer credit</span></b><br />
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Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans) and mortgages. This is a broad definition of consumer credit and corresponds with the Bank of England's definition of "Lending to individuals". Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer credit - such as the one adopted by the Federal Reserve in the US.<br />
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The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance, may be optional. The borrower chooses whether or not they are included as part of the agreement.<br />
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Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR). The goal of the APR calculation is to promote ‘truth in lending’, to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. The APR is derived from the pattern of advances and repayments made during the agreement. Optional charges are not included in the APR calculation. So if there is a tick box on an application form asking if the consumer would like to take out payment insurance, then insurance costs will not be included in the APR calculation.<br />
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Commercial credit reporting is the maintenance and reporting of credit histories and risks for commercial companies.<br />
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While most people are familiar with consumer credit reports many are unaware that a similar reporting system exists to assess risk in extending loans to businesses, insuring businesses, underwriting insurance risk, purchasing businesses, investing in businesses and most of all in shipping goods to business on credit terms. Government departments are also large users of commercial credit for regulating businesses and in collecting taxes.<br />
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Every country in the world has commercial (or mercantile) credit reporting agencies, if for no other reason than to allow foreign exporters to assess the risk in shipping goods to a wholesaler in that country. They can be large public corporations like U.S.A. headquartered, Dun & Bradstreet Inc. (traded on the New York Stock Exchange, established in 1842) with thousands of employees and offices and correspondents around the world.[1] They can also be smaller private operations that market unbiased scores, such as Global Credit Services and Rapid Ratings International, or one man operations serving a limited number of local and foreign clients in a small country. In China (main land only) commercial credit reports can be obtained with Creditreform China (www.creditreform.cn).<br />
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Before telephones and the internet, the only way to gather risk information on a business was to visit the business owner at their place of business. Credit reporters would ask the owner for the names of the companies that supplied them on credit terms, what banks they dealt with and detailed questions about number of employees, what was sold, etc. They would then contact these suppliers and banks for reference information. It took days, even weeks, to fulfill a request for a commercial credit report.<br />
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Electronic communication and computers changed the gathering of commercial risk information. Credit reports can now be compiled in seconds without human intervention and without a business owners knowledge. Suppliers are now requested to supply frequent aged trial balance down loads on all their accounts receivable to commercial credit reporting agencies. These trade payment experiences are linked together to give a profile of how a business is paying numerous suppliers. Collection agencies supply the credit reporting agencies with information on commercial collection claims they receive which are matched to the trade payment experiences.<br />
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Public record information such as, bankruptcy filings, legal suits, lease registrations and judgments are also gathered and added to the files on a particular business. As this flood of information accumulates over many years trends are identified and it becomes like a pulse tracking cash flow within a business. Companies unable to come up with sufficient cash to pay suppliers are quickly identified. Computerized monitoring systems tell suppliers when to restrict credit to unhealthy businesses. These very comprehensive, detailed reports, can with mathematical equations be reduced down to two digit scores that now allow for automated credit approvals and rejections.<br />
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Commercial credit is more volatile than consumer credit. Few businesses survive five years in the same form that they were first founded. All businesses are in constant competition with other businesses for clients and markets. The granting of credit by businesses is very much a market driven. Retailers hope that they will have sold the goods they bought at a profit before they are required to pay for these goods that they bought on credit.[2] Retailers who can not get credit from suppliers are at a serious competitive disadvantage if they are required to pay for their inventories in cash on delivery.<br />
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Strict laws governing consumer credit reporting agencies rarely include commercial credit reporting agencies. Any complaints about the accuracy or incompleteness of information in a commercial credit report can potentially do harm to the agencies reputation, so they do take complaints seriously. However, unlike consumers most businesses are oblivious to the risk reports being compiled on them. They may never be aware of why they were unable to obtain credit from a supplier. Suppliers are not required to provide credit to customers. Since only about 20% of businesses subscribe to commercial credit reports it most likely a business that was turned down by one supplier will be able to find an alternative source of supply.<br />
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A credit bureau — also known as consumer reporting agency in the United States, credit reference agency in the United Kingdom, and credit reporting body in Australia — is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill-paying habits.[1] Credit information such as a person’s previous loan performance is a powerful tool to predict his future behavior. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoiding giving loans to high risk individuals.[2] This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value.[3] At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks[4] and provides incentives for borrowers to repay their loans on time.<br />
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In the U.S., credit bureaus collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the bureaus have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies and the courts (i.e. public records) that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit bureaus. The data provided by the furnishers as well as collected by the bureaus are then aggregated into the credit bureau's data repository or files. The resulting information is made available on request to customers of the credit bureau for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different credit bureaus can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.<br />
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In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.<br />
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<b><span style="font-size: large;">India</span></b><br />
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The establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets (NPAs) while improving credit grantors' portfolio quality.<br />
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CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.<br />
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With two other major credit bureau coming to India in 2010 (Equifax and Experian) the Credit Environment is changing really fast and the importance of credit rating is being felt across length and breadth of the country<br />
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Around the same time, RBI also granted operating license to High Mark Credit Information Services - the only start-up in this oligopoly. High Mark launched India's first micro finance bureau in early 2011 & today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry.<br />
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<b><span style="font-size: large;">Pakistan</span></b><br />
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eCIB ECIB is a software for monitoring credit reports all across Pakistan. State Bank of Pakistan monitors the Software and all the Financial Institutions in Pakistan are required to have this software installed. A monthly process updates the reports at the State Bank end.<br />
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The membership with CIB, as per instructions of SBP, is mandatory for all Banks, Developmental Financial Institutions (DFIs) and Micro Finance Banks (MFBs) respectively. No financial institution can access the CIB database without obtaining membership of CIB of State Bank of Pakistan.<br />
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All member financial institutions are required to submit entire borrowers' records online to CIB on monthly basis. This information is submitted within a period of fortnight from the date of close of month.<br />
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<b><span style="font-size: large;">History</span></b><br />
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The Electronic Credit Information Bureau (CIB) was established by State Bank of Pakistan (SBP) in December, 1992. The scope and activities of CIB are governed under the provisions of Banking Companies Ordinance (BCO), 1962. The Section 25(A) vests powers with SBP to call for credit information in such manner as it may deem necessary and make such information available to any banking company.<br />
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<span style="font-size: large;"><b>Credit Reference Agencies</b></span><br />
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In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which works closely with its US partner, TransUnion.<br />
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Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.<br />
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Credit reference agencies are bound by the Data Protection Act 1998, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them. The Act specifically gives consumers the right to request to a copy of their credit file by post for a fee of £2[5][6][7] The UK credit reference agencies will also allow consumers to access their credit report on-line free for a trial period, after which a monthly or quarterly fee may be charged for continued access</div>

Business Loans

A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. There are a number of different…

11 Sep 2015

Small Business Loans

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<b>Small businesses</b> are normally privately owned corporations, partnerships, or sole proprietorships. What businesses are defined as "small" in terms of government support and tax policy varies depending on the country and industry. Small businesses range from 15 employees under the Australian <i>Fair Work Act 2009</i>, 50 employees according to the definition used by the European Union, and fewer than 500 employees to qualify for many U.S. Small Business Administration programs. Small businesses can also be classified according to other methods such as sales, assets, or net profits.</div>
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Small businesses are common in many countries, depending on the economic system in operation. Typical examples include:convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants,guest houses, photographers, small-scale manufacturing, and online businesses, such as web design and programming, etc.</div>
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<span class="mw-headline" id="Characteristics">Characteristics</span></h2>
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Researchers and analysts of small or owner-managed businesses generally behave as if nominal organizational forms (e.g., partnership, sole-trader or corporation) and the consequent legal and accounting boundaries of owner-managed firms are consistently meaningful. However, owner-managers often do not delineate their behavior to accord with the implied separation between their personal and business interests. Lenders also often contract around organizational (corporate) boundaries by seeking personal guarantees or accepting privately held assets as collateral. Because of this behavior, researchers and analysts should reject the relevance of the organizational types and implied boundaries in many contexts relating to owner-managed firms. These include analyses that use traditional accounting disclosures, and studies that view the firm as defined by some formal organizational structure.</div>
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<span class="mw-headline" id="Size_definitions">Size definitions</span></h3>
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The legal definition of "small business" varies by country and by industry. In the United States the Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7.5 million in annual receipts for most non manufacturing businesses. The definition can vary by circumstance – for example, a small business having fewer than 25 full-time equivalent employees with average annual wages below $50,000 qualifies for a tax credit under the health care reform bill Patient Protection and Affordable Care Act.</div>
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The European Union generally defines a small business as one that has fewer than 50 employees. However, in Australia, a small business is defined by the <i>Fair Work Act 2009</i>as one with fewer than 15 employees. By comparison, a <b>medium-sized business</b> or <b>mid-sized business</b> has less than 500 employees in the US, and fewer than 200 in Australia.</div>
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In addition to number of employees, other methods used to classify small companies include annual sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition. These criteria are followed by the European Union, for instance (headcount, turnover and balance sheet totals). Small businesses are usually not dominant in their field of operation.</div>
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<span class="mw-headline" id="Demographics">Demographics</span></h3>
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According to the 2012 Survey of Business Owners (SBO) there are:</div>
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27.6 million businesses in the United States</div>
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9.9 million of these businesses in the United States were owned or led by a woman, representing 35.9% of overall business ownership.</div>
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<span class="mw-headline" id="Franchise_businesses">Franchise businesses</span></h3>
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Franchising is a way for small business owners to benefit from the economies of scale of the big corporation (franchiser). McDonald's and Subway are examples of a franchise. The small business owner can leverage a strong brand name and purchasing power of the larger company while keeping their own investment affordable. However, some franchisees conclude that they suffer the "worst of both worlds" feeling they are too restricted by corporate mandates and lack true independence.It is an assumption that small business are just franchisees, but the truth is many franchisors are also small business, Although considered to be a successful way of doing business, literature has proved that there is a high failure rate in franchising as well, especially in UK, where a research identifies out of 1658 franchising companies operating in1984 only 601 remained existent 1998, a mere 36%.</div>
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<span class="mw-headline" id="Retailers.27_cooperative">Retailers' cooperative</span></h3>
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A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its retailer members. Retailers' cooperatives use their purchasing power to acquire discounts from manufacturers and often share marketing expenses. It is common for locally owned grocery stores, hardware stores and pharmacies to participate in retailers' cooperatives. Ace Hardware, True Value, and NAPA are examples of a retailers' cooperative.</div>
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<span class="mw-headline" id="Advantages">Advantages</span></h2>
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<a class="image" href="https://en.wikipedia.org/wiki/File:BursaMercatiVerde.jpg" style="background: none; color: #0b0080; text-decoration: none;"><img alt="" class="thumbimage" data-file-height="1200" data-file-width="1600" height="225" src="https://upload.wikimedia.org/wikipedia/commons/thumb/f/f6/BursaMercatiVerde.jpg/300px-BursaMercatiVerde.jpg" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/f/f6/BursaMercatiVerde.jpg/450px-BursaMercatiVerde.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/f/f6/BursaMercatiVerde.jpg/600px-BursaMercatiVerde.jpg 2x" style="background-color: white; border: 1px solid rgb(204, 204, 204); vertical-align: middle;" width="300" /></a><span style="font-size: 12.3704px; line-height: 1.4em; text-align: left;">One of the claimed advantages of small business owners is the ability to serve market niches not covered by mass production. Consider how many big corporations would be willing to deal with antiques such as the store in the picture.</span></div>
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A small business can be started at a low cost and on a part-time basis. A small business is also well suited to internetmarketing because it can easily serve specialized niches, something that would have been more difficult prior to the internet revolution which began in the late 1990s. Adapting to change is crucial in business and particularly small business; not being tied to any bureaucratic inertia, it is typically easier to respond to the marketplace quickly. Small business proprietors tend to be intimate with their customers and clients which results in greater accountability and maturity.</div>
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Independence is another advantage of owning a small business. One survey of small business owners showed that 38% of those who left their jobs at other companies said their main reason for leaving was that they wanted to be their own bosses. Freedom to operate independently is a reward for small business owners. In addition, many people desire to make their own decisions, take their own risks, and reap the rewards of their efforts. Small business owners have the satisfaction of making their own decisions within the constraints imposed by economic and other environmental factors.However, entrepreneurs have to work for very long hours and understand that ultimately their customers are their bosses.</div>
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Often, leaving your regular job to start a business put pressure on the new business venture and causing the business to fail due to the revenue not meeting expectation. Especially true if one has quit their job to start it up. It is important to recognize this before any job resignation.</div>
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Several organizations, in the United States, also provide help for the small business sector, such as the Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.</div>
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Small businesses (often carried out by family members) adjust quicker to the changing conditions, however they are closed to the absorption of new knowledge and employing new labour from outside.</div>
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<span class="mw-headline" id="Problems_faced_by_small_businesses">Problems faced by small businesses</span></h2>
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Small businesses often face a variety of problems related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a result of poor planning rather than economic conditions - it is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have not less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.</div>
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In addition to ensuring that the business has enough capital, the small business owner must also be mindful of contribution margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. Cost controls or price increases often resolve this problem.</div>
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In the United States, some of the largest concerns of small business owners are insurance costs (such as liability and health), rising energy costs, taxes and tax compliance. In the United Kingdom and Australia, small business owners tend to be more concerned with excessive governmental red tape.</div>
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Contracting fraud has been an ongoing problem for small businesses in the United States. Small businesses are legally obligated to receive a fair portion (23 percent) of the total value of all the government's prime contracts as mandated by the Small Business Act of 1953. Since 2002, a series of federal investigations have found fraud, abuse, loopholes and a lack of oversight in federal small business contracting, which has led to the diversion of billions of dollars in small business contracts to large corporations.</div>
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Another problem for many small businesses is termed the 'Entrepreneurial Myth' or E-Myth. The mythic assumption is that an expert in a given technical field will also be expert at running that kind of business. Additional business management skills are needed to keep a business running smoothly. Some of this misunderstanding arises from the failure to distinguish between small business managers as entrepreneurs or capitalists. While nearly all owner-managers of small firms are obliged to assume the role of capitalist, only a minority will act as entrepreneur. The line between an owner-manager and an entrepreneur can be defined by whether or not their business is growth oriented. In general, small business owners are primarily focused on surviving rather than growing, therefore not experiencing the five stages of the corporate life cycle (birth, growth, maturity, revival, and decline) like an entrepreneur would.</div>
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Still another problem for many small businesses is the capacity of much larger businesses to influence or sometimes determine their chances for success. Networking and social media has been used as a major tool by small business in UK, but most of them just use a scatter-gun approach in a desperate attempt to exploit the market which has proven to be on no success. Over half of small firms lack a business plan. A Business plan is considered one of the most important factors for its success, business planning is associated with positivity in growth and if you are looking at funding most of them require a business plan, and this also serves as a strategic planning document which soon acts as a bible for decision making  An international trade survey reveals that British share of chamber business who are exporting rose from 32% in 2012 to 39% in 2013, although this may seem positive in reality the growth is slow as small business owners shy away from exporting due to perceived barriers. Learning the basics of a foreign language could be the solution to open new markets doors, it is a reality that not all foreign nations speak English. China is stated to grow by 7.6% in 2013 and still sadly 95% of business owners who want to export to china have no desire and no knowledge to learn their local language.</div>
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<span class="mw-headline" id="Bankruptcy">Bankruptcy</span></h3>
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When small business fails, the owner may file bankruptcy. In most cases this can be handled through a personal bankruptcy filing. Corporations can file bankruptcy, but if it is out of business and valuable corporate assets are likely to be repossessed by secured creditors there is little advantage to going to the expense of a corporate bankruptcy. Many states offer exemptions for small business assets so they can continue to operate during and after personal bankruptcy. However, corporate assets are normally not exempt, hence it may be more difficult to continue operating an incorporated business if the owner files bankruptcy. Researchers have examined small business failures in some depth, with attempts to model the predictability of failure.</div>
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<span class="mw-headline" id="Social_responsibility">Social responsibility</span></h3>
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Small businesses can encounter several problems related to corporate social responsibility, due to characteristics inherent in their construction. Owners of small businesses often participate heavily in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate socially responsible efforts. Additionally, a small business owner's expertise often falls outside the realm of socially responsible practices contributing to a lack of participation. Small businesses also face a form of peer pressure from larger forces in their respective industries making it difficult to oppose and work against industry expectations. Furthermore, small businesses undergo stress from shareholder expectations. Because small businesses have more personal relationships with their patrons and local shareholders they must also be prepared to withstand closer scrutiny if they want to share in the benefits of committing to socially responsible practices or not. </div>
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<span class="mw-headline" id="Job_quality">Job quality</span></h3>
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<span style="font-size: 14px; line-height: 22.4px;">While small businesses employ over half the workforce  and have been established as a main driving force behind job creation  the quality of the jobs these businesses create has been called into question. Small businesses generally employ individuals from the Secondary labor market. As a result, in the U.S. wages are 49% higher for employees of large firms. Additionally, many small businesses struggle or are unable to provide employees with benefits they would be given at larger firms. Research from the U.S. Small Business Administration indicates that employees of large firms are 17% more likely to receive benefits including salary, paid leave, paid holidays, bonuses, insurance, and retirement plans. Both lower wages and fewer benefits combine to create a job turnover rate among U.S. small businesses that is 3 times higher than large firms.</span><span style="font-size: 11.2px; line-height: 11.2px;"> </span><span style="font-size: 14px; line-height: 22.4px;">Employees of small businesses also must adapt to the higher failure rate of small firms. In the U.S. 69% last at least 2 years, but this percentage drops to 51% for firms reaching 5 years in operation. The U.S. Small Business Administration counts companies with as much as $35.5 million in sales and 1,500 employees, depending on the industry. Outside government, companies with less than $7 million in sales and fewer than 500 employees are widely considered small businesses.</span></div>
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<span class="mw-headline" id="Benefits_of_supporting_local_business">Benefits of supporting local business</span></h2>
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By opening up new national level chain stores, the profits of locally owned businesses greatly decrease and many businesses end up failing and having to close. This creates an exponential effect. When one store closes, people lose their jobs, other businesses lose business from the failed business and so on. In many cases large firms displace just as many jobs as they create.</div>
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<span class="mw-headline" id="Contribution_to_the_economy">Contribution to the economy</span></h2>
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In the US, small business (fewer than 500 employees) accounts for more than half the nonfarm, private GDP and around half the private sector employment. Regarding small business, the top job provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20 employees comes in as the second, and those with 20 or more but fewer than 100 employees comes in as the third (interpolation of data from the following references). The most recent data shows firms with fewer than 20 employees account for slightly more than 18% of the employment.<sup class="reference" id="cite_ref-27" style="font-size: 11.2px; line-height: 1; unicode-bidi: -webkit-isolate;"><a href="https://en.wikipedia.org/wiki/Small_business#cite_note-27" style="background: none; color: #0b0080; text-decoration: none; white-space: nowrap;">[27]</a></sup> According to "The Family Business Review," "There are approximately 17 million sole-proprietorships in the US. It can be argued that a sole-proprietorship (an unincorporated business owned by a single person) is a type of family business" and "there are 22 million small businesses (fewer than 500 employees) in the US and approximately 14,000 big businesses." Also, it has been found that small businesses created the most new jobs in communities, "In 1979, David Birch published the first empirical evidence that small firms (fewer than 100 employees) created the most new jobs" and Edmiston claimed that "perhaps the greatest generator of interest in entrepreneurship and small business is the widely held belief that small businesses in the United States create most new jobs. The evidence suggests that small businesses indeed create a substantial majority of net new jobs in an average year." Local businesses provide competition to each other and also challenge corporate giants.</div>
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Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7 percent had fewer than 500 employees.</div>
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Small Business Loans

Small businesses are normally privately owned corporations, partnerships, or sole proprietorships. What businesses are defined as "small" in terms of government support and tax policy varies dependin…

11 Sep 2015

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