Wednesday, April 27, 2016

Adjustable Rate Mortgages: What are they?

Q: I've heard a lot about mortgages with adjustable rates. How do they work?

A:  A first mortgage typically has a set interest rate. The monthly payment stays the same regardless of the term. It doesn't matter how much the economy, the Federal Reserve or your income change. Your interest rate is locked in over the life of the loan.

An Adjustable-Rate Mortgage (ARM), on the other hand, has an interest rate that can change periodically. These loans usually have a period of time in which the interest rate is fixed, commonly called the "initial rate," which can last from as little as a month to as much as 5 years. After that period, the rate can change. How frequently it can change is determined by the adjustment period. In the most common type of ARM, a 5/1 ARM, the initial rate is set for 5 years and the adjustment period is 1 year. This means that after the first 5 years of the loan, the rate can change every year.

ARMs look very attractive at first glance because they're usually listed with much lower interest rates. That rate is only the initial rate, although there are a few limitations on how high the interest rate can go after that period. If interest rates go up, that adjustment can have you paying more once the initial term completes. However, if interest rates go down, an ARM can actually become less expensive!

Q: How do the Index and the Margin affect the loan?

A:  The adjustable rate isn't set arbitrarily. They're set by the rate of return on some major investment vehicle. The most common one is the London Inter-Bank Offer Rate (LIBOR). This is the interest rate that the world's largest banks charge each other for short-term loans. Investors feel confident that these loans will be repaid, so the LIBOR is a benchmark for safe investments, like mortgages. This rate serves as the index for the ARM rate at many financial institutions.

Because individual home buyers are less secure than the world's largest banks, investors take on more risk by putting their money into an ARM. To reflect that increased risk, ARMs also include a margin. This is an additional interest rate the lender tacks on to the index rate. The margin is typically locked in for the duration of the loan. The two together are the fully indexed rate, and that's the rate you'll be charged once the adjustments begin.

Q: How do Periods and Caps work?

A:  Fortunately, there's a limit to how often a lender can change the rate of the mortgage. This adjustment period provides some measure of stability. Typically, ARMs don't have adjustment periods that are any longer than one year (after the initial period) or any shorter than one quarter.

There are also limits on how much the interest rate can increase in one period, called a periodic cap. No matter how high the index goes, your interest rate can't be increased in one period by more than a set percentage. If your ARM includes a 2% periodic cap, and the underlying index rate increases by 3%, your rate will still only increase by 2%.

That extra 1% isn't gone, though. Many ARMs include a carryover provision, which means rate increases that were prevented by a cap may be applied during the next period. Even if the underlying index decreases, your rate could still be increased by any amount that was capped out.

Another kind of cap that exists for ARMs is the lifetime cap. These caps provide a limit on how high the rate can go during the term of the loan. If your initial rate is 6% and your ARM has a lifetime cap of 6%, your interest rate can never go above 12% no matter how high the underlying index rates get.

Q: When are ARMs a good idea?

A:  The riskiness of ARMs makes them a tough option for many people, especially on a primary residence. Unless you're in a financial position to survive a mortgage payment doubling over the course of 10 years, an ARM can be hard to swallow. However, there are situations where the initial lower interest rate can make sense.

If you're planning on selling the property before the initial period is over, the ARM can save you significantly on loan costs. If you intend to "flip" the house, or if your career involves frequent relocation, an ARM could be ideal for you. In this case, the gamble you're making is less about the performance of an index and more about the performance of your area's housing market. If demand drops, you could wind up holding on to an expensive mortgage or selling the house at a loss.

Some people choose ARMs because they plan to refinance after the initial period. The lower initial interest rates let them make extra principal payments, and they can then get better terms on a 15- or 30-year fixed rate for the remainder of the loan. This can also be a risky move if the value drops. The refinance may not be enough to cover the initial mortgage amount, leaving borrowers in a difficult position.

In general, choosing an ARM means planning to pay the balance of the loan before the end of the initial period. Otherwise, the unpredictability of the mortgage payment can make financial plans too complicated. Be sure to read and understand the terms of any mortgage, fixed or adjustable, before you sign!

Tuesday, April 5, 2016

Financial Self Defense

DeVry's Lawsuit: How A Victory For Students Became An Opportunity For Scammers

The Federal Trade Commission (FTC) is taking DeVry University to task for allegedly misleading advertisements. DeVry marketed itself with a bold claim that 90% of its graduates ended up working in their field. It turns out that figure is wildly inaccurate, so much so, the FTC decided to make a federal case out of it.

DeVry has come under fire recently for a number of its other practices as well. Among them are misleading veterans into enrollment and pressuring applicants to take out high-priced, private student loans. These practices aren't necessarily DeVry's alone, which brings us to the scam.

The FTC is warning of a group of con artists who offer to get former students of for-profit colleges into debt forgiveness programs. All they need to do is pay some money up front as an application fee or to cover a portion of the class legal fees. Of course, collecting money will be the last "service" they perform for their victims.

These scammers are relying upon confusion created by the news and media buzz surrounding for-profit schools in general, and DeVry in particular. If you took out expensive student loans and were unable to find work in your chosen field, you might feel as though you'd been deceived already. Regardless of the quality of education you received, the lack of career success creates the feeling of injustice. Combine that feeling with financial pressures caused by unemployment or underemployment, mounting student loan debt and a still-recovering economy, and you have an environment ripe for scams.

The suit against DeVry has not been settled, nor has it been decided. DeVry maintains that the FTC's allegations are baseless. It's unclear at this point whether a win by the FTC in this suit would allow former students to have their loans forgiven or if the scope of the decision would be limited to GI Bill benefits and other federal program funds.

If you get a call from someone who wants money to forgive your student loan debt burdens, don't pay. There are no paid loan forgiveness programs. Read on for three ways you can fight back against this scam.

1)  Be aware of the tricks

Con artists in this scam are relying on two "hacks" in our minds. The first is confirmation bias. We tend to look for evidence which supports things we already believe. If you went to a for-profit college and can't find work, you might believe you are entitled to loan forgiveness. When the phone rings and someone offers loan forgiveness, you're more likely to believe it's real since it fits with your belief.

The second is recency bias. Things we've heard about lately tend to stick with us better, and we tend to trust people more if they can speak with knowledge about those things. That DeVry has been all over the news for its involvement in an FTC suit triggers that recency effect. The scammer will speak knowledgeably not only about the suit, but about its resolution process.

Through these two pieces of credibility building, scammers gain our trust. Once they have that trust, it's just a matter of getting you to read out a credit card number. Then they've won. As always, be careful with situations that sound too good to be true. These frequently work by appealing to confirmation bias. Watch out for pitches which begin with "As you no doubt know ..." or similar phrases designed to activate recency bias.

2) Get proactive

There are a variety of ways you can reduce or eliminate your student loan obligations. If you work for a low-income school district or a not-for-profit or governmental organization, or if the school you attended closed, you may qualify for loan forgiveness. For federal loans, contact the Department of Education, or visit its website:

There may also be income-based repayment programs that peg your payment to how much you make. These programs can be very helpful to people who find it difficult to find work after college. Under these plans, you continue to make payments on your loan, although the amount of the payment is always a portion of your income. After 20 years of consistent repayment, the remaining balance is forgiven. The Department of Education maintains these programs, as well.

There are a variety of other techniques you can use to get on top of your student loan debt. Calling your lender directly to discuss the possibility of negotiated repayment is one. A consolidation loan for higher-interest student debt may also be a possibility for students with many sources of debt. For most of these programs, your best bet is to contact your lender directly.

Whatever you do, make sure you're the one initiating contact. That way, when someone calls and offers you a pie-in-the-sky loan forgiveness offer, you can say confidently that you're already handling it. Being proactive and taking your financial matters into your own hands can help alleviate some of that stress and resentment, and make you a more difficult target for scammers.

3) Stay informed

If you attended DeVry University or another private college, it might be worthwhile to stay on top of the news surrounding this lawsuit. You can do so in a number of ways. You can set a Google Alert for DeVry University, or if you prefer to do things manually, you can look for news about the lawsuit on the same day each week.

If a settlement is reached that includes individual students, you'll receive a letter from either the FTC or a private law firm enabling you to be a part of the settlement. Nearly all matters related to a lawsuit are handled on paper so everyone has a record of exactly what was said and when. This letter will explain what, if anything, you can receive and under what circumstances.

If your student loans have got you down, there may be an easier fix than waiting by the telephone. Stop by First City Credit Union today to get valuable advice about budgeting, money management, and saving. Use our online Calulators to determine how much you could save, or learn from our financial education content,. The representatives at First City are just a call, click, or visit away!

Friday, March 11, 2016

Are you Pre-approved? Or Pre-qualified? Which one will get you a Home?

Q: Every ad for mortgage companies I read talks about pre-qualification or pre-approval. Is that something I need to do before I start house shopping?

There are two phases to securing a mortgage.

Imagine the lending market as sort of trying to set up a friend on a date. You tell your friend about the partner you have in mind for them, and based on what you tell them, they decide if that person is worth a date. They’re considering the possibility of the date, assuming everything you say is true. If you tell your friend about the potential date’s persistent body odor problem, they might choose to say no. If you tell your friend about their beau-to-be’s interesting job, sense of humor or winning smile, they’d probably set up a date to see for themselves. That’s part 1.

Of course, your friend doesn’t go immediately from your description to wedding bells. First, they have to actually date and get to know each other. Your friend has to see if the qualities you described are actually true and make sure there’s nothing hiding beneath the surface that would rule them out. That’s part 2.

While it does make for some confusion, lenders may refer to either part 1 or part 2 as pre-approval, and the other as pre-qualification. Rather than focusing on the labels, focus on the steps involved and what the steps mean. We’ll keep calling them “part 1″ and “part 2.”

What do I need for part 1?

In part 1 of the process, you describe your financial situation to a potential lender. Usually, this information includes salary, savings and current debts. The lender may or may not pull your credit score at this point. Based upon that information, the lender will make a determination about the kind of loan you might qualify for, assuming everything you’ve said is true.

You don’t need to prove anything at this point. It can be done over the phone, over the Internet or in person and no documentation is required.

During Part 1, you might want to compare possible mortgage rates. There’s a lot less paperwork involved, so it’s much easier to ask a lender to run through a variety of scenarios. You can look for a loan situation that combines the monthly payment, interest rate, term and down payment where you have the most comfort.

Part 1 can be completed early in the house shopping process. In fact, it makes sense to do this before you view the first house. That way, you won’t fall in love with a house you can’t possibly afford or convince yourself to settle for a house that doesn’t really meet your needs. This also gives you the chance to straighten out any potential kinks in your financial situation before starting part 2. Don’t worry about multiple checks on your credit if necessary. Credit bureaus lump mortgage inquiries within 30 days together as 1 inquiry, so they won’t adversely affect your credit score.

It’s important to note that pre-qualification is not a guarantee of a loan. To continue our example from above, your friend agreeing to a first date does not mean you get to start planning a wedding!

Completing part 1 is a way to get an idea of how much you can afford to spend during your house hunting, as well as a way to show potential sellers that you’re serious. Completing part 1 illustrates to a buyer that you are already part of the way through the lending process, and it’s less likely that your financing will fall through.

What do I need for part 2?

Part 2 is where the paperwork starts to fly. At this point, a lender is deciding whether or not to issue you a loan. Successfully completing part 2 means a lender is ready and willing to provide you with a loan up to a specified amount.

To navigate this step, you’ll need to prove everything you claimed in part 1. This means you need to provide tax forms to substantiate your income and account statements to verify your savings. You’ll also need to sign a variety of forms giving your lender or their agents the power to talk to employers, landlords and the IRS about your financial security.

Generally, lenders will want tax returns for the past 2 years, including supporting documents like W-2 forms. If you’ve switched jobs a few times in that span, you may need to go further back to demonstrate consistent employment. If you’re an independent contractor or own a small business, documentation requirements are significantly steeper. You’ll need to provide enough financial disclosure to show lenders that you can make the payments.

Completion of part 2 is a conditional approval for a loan. If the house you’re buying passes appraisal, you will get financing on the terms you’ve agreed upon with your lender. The paperwork is a bit more cumbersome, so you don’t want to do this multiple times. Only complete this step with a lender you’re going to borrow from.

Part 2 is best to complete before you make an offer, especially in competitive markets. A letter of prequalification or preapproval that shows your financing is in place does a lot to reassure sellers that your offer will survive until closing. If you’re on the fence about what house you’ll put an offer on, this process can still be completed with the property identified as “to be determined”.

Don’t worry if this process seems confusing. You’ll be working with a qualified mortgage professional who deals with it every day and can answer all your questions. One of the benefits of working with an institution you trust for your mortgage is that it clears your mind to focus on the important stuff, like where to put the sofa!

We at First City would certainly like to be the institution you can trust to handle such a momentous occasion in the life of your family.  Give us a call at (800) 944-2200 ext. 6 for 24/7 Real Estate Loan Applications, or visit our Home Mortgage Center on the web here.  We'll do our absolute best to care for your needs.

Friday, March 4, 2016

The Hows, Whys, And Whens Of Rate Locks

Q: Everyone I talk with about my house search tells me I need to shop mortgages and lock in a rate. What do they mean?

A: If you’re on the market for a house now, congratulations. This is an historically good time to buy. Interest rates are low and prices are rising in most markets. Even if it seems like a disorienting and confusing process, home buying is worthwhile in the long run.

A rate lock is an agreement by a lender to ensure a rate on a loan for a set period of time. Regardless of what the mortgage market does before the closing date, the “points,” duration, and interest rate will remain the same. The lock agreement is valid until a few days after your expected closing date to account for any potential complications and can be rejected only if some serious error emerges during the qualification process.

When should I get a rate lock?

Rate lock agreements are usually offered for 30, 60 or 90 days. The longer term locks may seem like a good deal, but they usually come with higher origination fees. A 30-day rate lock might establish a 4.00% interest rate with a quarter point (or 0.25% of the value of the loan). A 60-day lock on that same loan might include a half point instead (0.50% of the loan).

It might be tempting to get your mortgage rate set in stone before you’ve started looking at homes so you have a good idea of your price range. As convenient as it sounds, doing so could cost you in the long run. Interest rates don’t change that fast. Over the past year, interest rates have gone from a low of 3.55% to a high of 4.20%. The worst month ever for mortgage rates saw an increase of about half a percent. That raises your monthly payment $35 on a $250,000 loan. To save that $35 per month, your lender may charge you $6,250 (a quarter point) up front! You won’t make up for that higher upfront cost for nearly 15 years. If, instead, you paid the higher interest rate and put that money in a savings account, you’d make about $2,000 over the life of your mortgage.

That said, ignoring your mortgage rate until the day before closing is also unwise. Your lender needs time to put together the paperwork for your loan. Ideally, you should get a rate lock sometime between a week and a month before you close. A pre-approval process should give you a good idea of your budget and can help your offer stand out in a sellers’ market. An easy closing transaction, instead of trying to time the market, should be your priority here.

How do I lock my rate?

One of the wisest things you can do in the home-buying process is to talk with your credit union to let them know you are starting the process of buying a home. With many years of experience in home lending, they can help you identify some good strategies for determining the right home for you and streamline the process you’ll be following. They will also help you get started on pre-approval if appropriate at that time. Then, once you’ve found the right house and you’re ready to make it yours, let them know you are ready to lock your rate. After signing an agreement with your lender for the rate, points and duration, you’re all set.

Why should I lock my interest rate?

Locking your interest rate has two big benefits. It helps you prepare your new monthly budget and it helps your credit union get all the necessary paperwork in order for closing. Don’t think of your rate lock as a chance to score a deal. You won’t save much money. In fact, you could stand to lose quite a bit by trying. Think of it as a T-crossing and I-dotting exercise. Having a rate lock on a mortgage means one less piece of paperwork that stands between you and your new home.

If you’d like more information about current mortgage rates, saving for a down payment, or anything else about the homebuying process, reach out to your neighbors at First City Credit Union. Our supportive staff is there to help you every step of the way, from setting a budget to protecting your biggest investment. Call, email, or click your way to First City today! 

Wednesday, February 24, 2016

The Financial Lessons Of Kanye West (Who Is $53 Million In debt)

When the biggest rapper on the planet releases his first album in years, it’s an enormous event.  When a rising star in the fashion industry debuts a long-awaited new clothing line, it’s huge.  Kanye West is both of those people, producing critically acclaimed and chart-topping hits with every album he’s released, while his shoes sell for $16,000 on eBay (please note, we do not currently offer 30-year-term sneaker loans).  Anticipation has been enormous, leading to Kanye selling out Madison Square Garden for a simultaneous album-listening party and fashion show.

That’s why it was so surprising to see all of that anticipation overshadowed by the news that Kanye is currently $53 million in debt.  That certainly raises some questions, so it’s time to see what we can learn from “The College Dropout” himself, Kanye West.

1).  There’s good debt and there’s bad debt.

Since you were old enough to understand money, you’ve been taught that having enough money is good, having no money is bad, and being in debt might be considered an embarrassing tragedy.  But that’s not necessarily the case. You can use a loan to pay for an education, buy a home or open a business.  All of those options are good debt, because they can eventually make a profit for you.  Bad debt is what you carry for living past your means, spending money you don’t have on things you don’t need.  Kanye’s debt, according to Vanity Fair, is good debt, because it represents his efforts to enter the fashion industry, which has notoriously outsized entry costs.  With his clothing line finally generating revenue, he’ll soon be out of debt, and he’ll have a very nice asset to show for it.
The mistake Kanye made was using his personal fortune to finance his dreams instead of finding outside investors.  If he had, he could have structured his payments better and had the financial infrastructure to avoid many of his problems.  If you want to achieve your dreams, whether it’s buying a home, starting a business, or going back to school, start by talking to us.  We have amazing (and free!) advice and a ton of options when it comes to loans to make the financial part of your dreams come true.  If you’re stuck with too much bad debt, we can help you there, too.  Follow this link to find out how you can turn all of those high-interest credit card debts into a single low-interest home equity loan.

2).  Find someone who believes in you, then collaborate willingly, honestly and often.

Kanye West began his music career as a producer working with Chicago acts, most notably, producer Just Blaze.  In “Spaceship,” he described the surreal experience of having strangers recognize him from MTV while he was working retail to make ends meet.

Once he met Jay-Z, all that changed.  The two became close associates and collaborators, helping each other develop independent voices that defined popular music for most of the last 15 years.  Kanye helped create the chipmunk soul sound that defined the second half of Jay-Z’s career, while Jay-Z brought Kanye into Rocafella Records as a rapper when other labels insisted he remain as only a producer.

You need someone to believe in you, and it helps if they can offer something you don’t have – a unique perspective, a challenge or the means to help you accomplish your dreams.  We’d like to help with that.  If you’re ready to take the leap on the next stage of your life or career, we’ve got resources to help you get there.  From our educational programs, blog articles, and loans for just about any mission you’re planning to undertake, we’ve got something that can help.  You can find our blog archive to the right of this article, find out about our educational programs here, and see our amazing selection of loan products here.

3).  Money can’t save your soul, but don’t be ashamed to spend it.

When Kanye finally achieved commercial success as a rapper, his lyrics addressed the tension between personal fulfillment and the allure of wealth.  In “Can’t Tell Me Nothing,” for example, he tells his listeners “I had a dream I could buy my way to heaven, when I awoke I spent it on a necklace.  I told God ‘I’ll be back in a second, man, it’s so hard not to act reckless,” summarizing how appealing it can be to spend money on things we want, even when we know it won’t make us happy.  On “Watch the Throne,” he explained wealth can be an incredibly powerful force for personal happiness, as long as we use our money to be ourselves.  Kanye’s lyrics celebrated how much freedom he felt by no longer trying to impress strangers.

What are you doing with your money?  Are you spending money to keep up appearances?  Have you ever made a financial decision based upon what your neighbors have?  In “The Millionaire Next Door,” author Thomas Stanley demonstrated that the most direct route from the middle class to being rich is to find a job that pays well, own your home and avoid the trappings of wealth.  So, figure out what you really want out of life and start making plans for financial security that include the things you want and don’t try to impress people that don’t really matter.

We can help you get there.  Drop us a line at this email address, give us a call at (800) 944-2200, or follow us on Facebook for more great information about how to live your financial life.  We promise that our feed is more coherent than Mr. West’s, which brings us to the final piece of financial advice we can learn from Kanye West. It’s one he needs to learn, too:

4).  Sometimes you need to step away from social media for a little while and recharge.  Please Kanye, give Twitter a rest.  If you take a break it'll be there when you get back, promise.

Friday, February 19, 2016

The Greatest Shows on Homes

Embarking on home improvement and renovation projects can be exciting-and intimidating.  To get inspired, you might spend weeks poring over home magazines, making the rounds to home improvement stores and searching the Internet. Or you might spend a day going to a home show.
With hundreds of home and garden shows across the U.S., there’s sure to be one near you. If you’re planning a home improvement project, home shows are an ideal place to get ideas, browse through products and visit vendors.

How Can You Make the Most of Attending a Home Show?
The first step is picking a home show that fits your interests and needs. There are also lawn and garden shows, kitchen and bath shows, green building shows and home exterior shows you might consider if you are planning a specific project type. Admission is often free, although you’ll usually have to pay a fee for convention center parking.

The big advantage of home shows comes with finding hundreds of products and services all under one roof. But as it turns out, that can also be a big disadvantage. With as many as 1,000 vendors, home shows can quickly turn into a marathon if you don’t have an action plan. Before you go, look through the exhibitor list to make a note of vendors you plan to visit.

If you take your spouse or a friend or family member, team up and divide the tasks. One of you can ask questions while the other takes notes and collects business cards. If possible, leave the kids at home so you can focus on the business at hand, unless you’re thinking of a project that might be exciting for them, such as a new playground setup.

Home shows are often a good place to meet potential contractors or service people, too. Ask them about their specialties, availability and how long they’ve been in business. At the same time, try to gather impressions about their personality and what it might be like to do business with them.
In-person shows are always good places to make connections. If you have a good conversation with a vendor, don’t forget to get their contact information. Returning to the booth if you have follow-up questions isn’t a bad idea either.

Don’t be afraid to ask technical questions. Home shows can often be a source of free information from experts. Tips or advice from people working in the industry can help you steer clear of taking a wrong turn or give you an inkling into new possibilities or insight into the project’s process or timeline.

Most home shows also offer informative seminars and workshops throughout the event so homeowners can get up to speed on new techniques or technologies.

How Can You Make Sure You Come Prepared?
Do your homework!  Do some thinking about your goals for the show. Are you looking for ideas, gathering a sense of the latest trends or looking for a contractor?

Sure, you’ll want to leave room for some spontaneity, but don’t go to a home show cold-that will only leave you frustrated and overwhelmed-and this may result in you being sold on something that doesn’t quite fit your needs.

Be a smart buyer. Research products online beforehand so you know what colors, sizes and styles are available. Read up on pricing, materials and typical installation times, and make a list of questions you plan to ask vendors. If websites provide measurements, check to see if the product in question will fit your space.

Use a map of the showroom floor and chart your route to make sure you’re not zigzagging all over the place. If your time is limited, prioritize your list of must-visit vendors and a list of “maybe” booths if your schedule allows.

What Should You Bring Along?
Bring your paperwork with you. It’s likely you won’t be the only homeowner carrying a clipboard. If you’re remodeling the kitchen and looking for new cabinets, bring along a rough sketch of the space and some cabinet dimensions to provide a starting point. Make a list of what you think you’ll need to complete the project, understanding that the vendors can help you fill in the missing details at a later time.

Be prepared to provide accurate information about your house, in particular the area you’re planning on improving. Is it on a slab or crawlspace? What is the square footage? Are there any covenants or zoning restrictions in effect? Do you have extra space in your electric panel?

One of the most useful tools is your smartphone. Snapping pictures of products you like can save you serious time. Post-it notes can also be helpful to keep track of information, and it’s a good idea to jot notes on the vendors’ pamphlets or business cards.

 This is obvious, but don’t forget to wear comfortable walking shoes. Bring water and snacks. You’ll be doing a lot of walking and talking, so it’s important to stay hydrated and keep your energy levels up.

Since home shows can draw large crowds, it’s helpful to arrive early, or later in the day as the crowd is thinning. Take a break if you get tired.

Finally, one thing many home show attendees neglect is follow-up. After the show has closed its doors and left town, take some time to go through the brochures and business cards you’ve collected. Make follow-up calls or visit company websites to further research as you plan your projects and start down the road toward getting started.

Thursday, February 11, 2016

Give to Your Hearts Content

It’s that time of the year again: a combination of New Year’s resolutions and the start of tax time has many of us looking for a place to donate money.  It can be difficult to figure out which charity is most deserving of your money and how to make your charitable donations work best for your financial situation.

You might have a favorite charity (we have some, we'll tell you more about them below), like a local group or someone with whom you’ve worked for years.  If not, finding the right charity can be a difficult task, both because unethical individuals may want to exploit the best intentions of others and because running a nonprofit organization is a difficult task, making many well-intentioned charities ineffective at fulfilling their mission.

Check out the charity with an objective watchdog group
One of the difficulties with charitable giving is understanding where your money goes.  In recent memory, there might be no better example of the confusion surrounding a charity than Invisible Children, the organization behind Kony 2012.  It soared into the public consciousness a few years ago behind a viral marketing campaign, followed by a very public arrest of one of its central figures after an alleged act of public indecency.

In the wake of his arrest, various reports accused the organization of diverting attention from larger human rights abuses in the region and questioning the financial background of the organization.  It’s unclear, even this far removed, what happened with Invisible Children, and whether the public backlash was warranted, but various watchdog groups certainly paint the charity in a positive light.

That’s why the best way to determine whether a charity is a good organization and worthy of your donation is to check with the three biggest charity watchdog organizations:  Charity Navigator (, Charity Watch (, and the Better Business Bureau’s Wise Giving Alliance (, all of which are also endorsed by Consumer Reports.

Verify each charity’s tax-exempt status
Never assume an organization has tax-exempt status, even if it might seem like it does or should.  For example, some universities offer tax-exempt donations for their general scholarship funds and other donations, but giving to specific departments or organizations, such as the debate team or theatre department, is not tax-exempt.  Even if your donation was tax-exempt last year, even if someone involved in the organization tells you that they’re tax-exempt, even if you’re 99% sure the organization is tax-exempt, check with the IRS website at

Always give money directly
One way that scammers will use the goodwill of charities for their own benefit is to call people and ask for donations over the phone.  Don’t assume that someone who calls you actually works for the organization.  Instead, finish your conversation and then donate directly to the organization.  Even legitimate fundraisers often take 40 percent of the proceeds, keeping your money from the people you really want to help.

Donating directly also gives you more control over the paperwork, ensuring you get all the documents you need for a tax deduction. You can also confirm the quality of the organization and that the organization is tax-exempt.

Make sure to request privacy
Once you’ve given money to a charity, it’s easy to end up on countless lists with people calling constantly from other charities.  If you’ve ever given money to a political campaign, you’ve probably already experienced this.  Some of our members report that they’ve received correspondence from political parties for decades, even after switching political parties.  So be careful! Make sure you care enough about the charity that it won’t bother you to have your dinner interrupted or get junk mail.

The Charities We Love at First City Credit Union
In light of all this, it's always good to do your research on a charity.  That being said, these are charities that First City has been involved in over the years.  Check them out if you don't already have a favorite, they do help with some worthy causes.

  • The Children's Miracle Network has been involved in collecting funds to serve critically ill children regardless of need across the country.  They guide resources to local children's hospitals.  
  • Here in L.A. County, CMN partners with Children's Hospital Los Angeles, for whom we have raised thousands of dollars to help.  You can visit them on Facebook to see what they've been up to here.  
  • First City was first started by a group of L.A. County Sheriff's Deputies back in 1937, and we've been involved in helping their charities over the years.  In particular, 
    • The LA. County Sheriff's Youth Foundation's 999 for Kids program raises money to purchase special items and services for these children, including sport wheelchairs, computers, special education classes, medically oriented toys and games. The funds send children to summer camps for the deaf, blind, and those with other medical issues who would not otherwise have such positive experiences. It was established with the support of another one of First City's employer groups, the L.A. County Department of Children and Family Services.
    • Fight for Life is an event done by the LASD in partnership with the L.A. Police Department to benefit City of Hope.  City of Hope is dedicated to making a difference in the lives of people with cancer, diabetes and other serious illnesses.
    • LASD Fun in the Sun Chili Cook-off benefits the Special Olympics, who seeks to transform the lives of those with intellectual disabilities through the physical activity of sport. 
These are some of the charities we've been involved in on a continuous basis over the course of our history.  Whether you help any of the same ones we do (and if you do, thank you!), we hope you'll find a good one to give your time and/or money to.