CELIA MENDIVIL PRIMAVERA FOUNDATION FEB. 28, 2011

Renting versus Buying Finding the Right Place To Live Budgeting and Your Finances

Renting vs. Buying

If you are looking for a new home, your first decision is whether you plan to rent or if you are ready to buy

Advantages of Renting  Deposit requested by landlord is much

smaller than the 10% or 20% down payment usually required for a lender.

 You commit yourself to lease for a year and move when the lease ends.

 Landlord is responsible for repairs and maintenance at no added cost to you.

 Renting you could have more access to commodities such us pools, gym, recreations centers, etc.

Advantages of Buying  With your monthly payment you increase

ownership share of your home. This is called building equity. Equity= property value subtracted by the amount you owe. If property values go up you may sell at a profit.

  If you need a loan maybe you be able to borrow against the equity you’ve built at a lower rate.

Advantages of Buying Income tax credit: you may usually deduct

mortgage interest and property taxes when you file your income tax return which can be a mayor savings.

Drawbacks

 RENTING: no space, less privacy, contract with more restrictions, no equity.

 BUYING: pay taxes, hazard insurance, responsible of maintenance, less mobility.

Finding the Right Place to Live

  Attend homebuyer education class   Determine how much you can afford to spend   Apply for a loan   Get the loan pre-approved   Decide what kind of house you need   Shop for a home   Make an offer   Inspect the home   Get insurance and additional inspections   Close the loan

Finding the Right Place to Live

Think about your priorities:  Community Services: schools,

childcare, church.  Convenience: close to job, public

transportation, near grocery.  Neighbors: near relatives, friends, active

community groups.

Finding the right place to live Homebuyer wish list need/or want   Location: school district, quiet, parks, near relatives,

friends, work   Style: age of the house, contemporary or traditional

style, two story, detached, condo.   Interior: house size, # bedrooms, baths, kitchen

appliances, closet space, fireplace, carpeting, laundry room

  Exterior: brick, stucco, wood siding, vinyl siding, landscaping, porch, deck, large yard, fence, garage, driveway, swimming pool

  Mechanical systems: central air condition, heating system, plumbing, ceiling fans, window air conditioners.

Your Finances THE FOUR C’S OF CREDIT  CAPITAL : Savings  CAPACITY: ability to pay debt.  CREDIT: The act of borrowing money with

the promise to pay it back in the future. Your credit history is used by lenders, insurance companies and employers.

 COLLATERAL: Guarantees that the total loan amount is going to be pay off.

CAPITAL: Money you have available

 Down payment: 3.5%, 5%, 10% or 20%

 Upfront fees: earnest money, appraisal, inspection costs.

 Reserves: some lenders require you to have one or two months of your mortgage in savings.

Capacity  Will you be eligible for a mortgage?  Two main topics you need to look at:

Income and your debt.  The money management/budgeting

process is about choosing how to spend and save your money.

 Establish a realistic plan   Setting goals and create a spending plan

to meet your goals: Short, Mid, and Long Term

 Trim expenses and find ways to save.

Establishing Your Budget 1.  Gather all of your pay stubs, bills and

receipts. 2.  Itemize all the things that you spend your

money on monthly. 3.  Calculate your monthly net income

based on how frequently you are paid: Every two weeks Net income x 26 = ____ / 12 = ______

Monthly Net Income  If you get paid twice: Net income x 24 = _____ / 12 =

_____ MNI

 If you get paid weekly: Net income x 52= _____ / 12 =

_____ MNI

DEBT PAYMENTS

Rent 650

Electricity/gas 150

water 50

Food 300

Telephone / cell phone 105

TOTAL 1255

OTHER MONTHLY OBLIGATIONS

Credit card 1 110

Credit Card 2 35

Credit card 3 25

Child support 285

Car loan 380

Car loan 425

Student loan 60

TOTAL 1320

GRAND TOTAL 2575

TOTAL MONTHLY NET INCOME 3600 (after tax deductions)

MINUS LIVING EXPENSES AND OTHER MONTHLY O.

2575

EXTRA MONEY OR LESS MONEY? TOTAL 1025

Capacity   Spend no more than 31% of your MGI for

mortgage payment. Housing ratio/front ratio. 4,320 X 31% = 1,339 PITI (MI, HOA)

  Spend no more than 42% of your MGI on regular debt payments including PITI. Debt to income ratio/back ratio.

1,339 + 1320 = 2,659 / 4,320 = 61.55 %

Credit

 Credit Report: A document that

outlines your credit history containing personal information, recent request for credit (inquires), public records, and information about every account you have opened.

Credit   Creditors and lenders report consumer data

records to the three nationwide credit report agencies; Equifax, Trans Union and Experian.

  Credit Score: It is a numerical interpretation of

how a consumer’s credit ranks on a computed scale usually ranging from 300 – 850

  Fico scores rates a consumer on how much of a

credit risk they are; low score/high risk, high score/lower risk.

  Scores help lenders evaluate a customer’s ability to repay.

Credit   Fico score is based on several factors: FICO SCORE

COMPONENT SCORE WEIGHT

TIPS TO HELP IMPROVE CREDIT

PAYMENT HISTORY 35% PAY BILLS ON TIME

AMOUNT OWED 30% DECREASE BALANCES

LENGTH OF CREDIT HISTORY

15% KEEP OLD ACCTS. OPEN DO NOT SWAP ACCTS. CONSTANTLY

NEW CREDIT 10% APPLY FOR NEW CREDIT ONLY IF REALLY NEED IT

TYPE OF CREDIT 10% HAVE A SENSIBLE MIX OF CREDIT

TOTAL 100%

RESOURCES   Free copy of your complete credit report:

www.annualcreditreport.com and/or www.myfico.com  More information about credit practices

and consumer rights: www.ftc.gov   Free credit and housing counseling

services visiting the website www.hud.gov and look for HUD approved counseling agencies.