TheJoy of Buying Your First Home

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Agenda

Homeownership brings….. What is Homeownership? Preparation Budgeting, Savings, and Credit Qualifying Loan Programs Are you ready to buy a home?

What is Homeownership?

The American dream

An opportunity to provide for family

A tax deduction

Property appreciation

Having the nicest lawn on the block

Your own backyard

Your own garage

Homeownership brings…….

Sense of community

Stability

Tax benefits (Consult your tax advisor)

Stable housing costs

Potential appreciation

The Home Buying Process

The Homebuying Team: Who is Involved? Real Estate Agent Mortgage Broker Home Inspector Professional Appraiser Surveyor Insurance Agent Attorney Escrow/Title Officer

Rent vs. Buy

See handout for comparison

Preparation

Preparation

Two things have to happen:

Find a home Qualify for a loan

4 C’s of Lending Capital (savings)

Do you have enough cash for the down payment and closing costs?

Do you have enough cash for emergencies?

Capacity (income) Can you repay the debt?

Character (credit history) Will you repay the debt?

Collateral (house) Will the lender be fully protected if you fail to

repay the loan?

What Lenders Look For Debt to Income Ratios

Relationship between current consumer debts and current income

Is your income high enough? Are your debts low enough?

Down payment The higher the down payment, the lower the loan amount

Reserves How much money do you have saved? How much will be left after closing?

Do you pay your bills on time? Credit reports Non-traditional credit

Preparing to Buy a Home

Daily Spending Diary (examples)

Financial Worksheets (examples)

Decrease Spending & credit card use Entertainment (movies, dinners out)

Clothes

Dry cleaning

Budgeting Tools

Budgeting

What is a budget?A budget is a plan for managing your

income and expenses

Make Budgeting Easier

Decide who pays bills Know when bills are due Open a checking account & savings account Check interest rates on all of your loans Pay down high cost loans & credit cards Involve family in saving process

use coupons find bargains cut back on eating out

Budgeting Tips

Plan expenses according to current income

Establish budget for six months to one year

Keep record-keeping simple

Set money aside for maintenance &

emergencies

Get consensus from entire family – make it a

family project

Pay yourself first - SAVE!

SAVINGS

Importance of Saving

Pay yourself first

Consider savings via payroll deduction

Bank your change at the end of the day

Bank surprises

Bonuses and gifts

If you can save $2.00 a day @ 2% interest

you will have saved over $1,500 in 2 years

That is one less Starbucks coffee each day

CREDIT

The Importance of Credit

What does it mean to a lender Applying for credit Managing credit

How Lenders Use A Credit Score

Scores assess past bill paying history to predict future behavior

Scores are used to perform a risk analysis which helps predict the likelihood of loan repayment

Credit Scores

The credit bureau risk score is a summary of the information in your credit file

Scores range from 300-850 Score ranks consumers according to risk

The higher the score, the lower the risk of default

Common Credit Problems

Multiple credit cards used to their limit

Obtain new credit when existing debts

remain unpaid

Pattern of late payments on current debts

Bankruptcies

Judgments

Charge-offs

Foreclosures

Solving Credit Problems

Cancel unnecessary credit

Pay off or pay down debts

Resolve unpaid debts

Write letters to credit bureaus for corrections

Settle with collection agencies

Easy Steps to Build Credit

Open a checking and savings account to pay bills easily

Establish credit by Applying for a small loan using savings as collateral Applying for a credit card and using it minimally Applying for a loan with a co-signer

Establish non-traditional credit

Easy Steps to Build Credit

Rent payments

Electric and other utility payments, car

insurance

Child care or child support payments

Any other recurring expense

Non-traditional credit sources must be in

your name

Know Your Credit

Request a copy of your credit report

Review for accuracy

Dispute inaccurate information

Send a letter to the 3 credit bureaus if you have a

dispute

Pay all past due accounts as soon as you can

Negotiate with creditors if you can’t pay in full

If blemishes are severe - consider credit counseling

Credit Reporting Agencies

Experian (formerly TRW)

P.O. Box 9600Allen, TX 75013www.experian.com(888) 397-3742

TransunionP.O. Box 1000Springfield, PA 19022www.transunion.com(800) 888-4213

EquifaxP.O. Box 740241

Atlanta, GA 30374-0241

www.equifax.com

(800) 685-1111

QUALIFYING

A House Payment Includes

PITI

Principal

Interest

Taxes

Insurance

Pre-Qualification

Determines how much mortgage you qualify for

Informal, no obligation Figure is an estimation - not exact

Approval

Commitment from

lender: “conditional

approval” for a

predetermined amount

Based on verified

information

Are You Ready to Buy a Home?

First Steps:

Review your employment Have I been employed on a regular basis for 2 years

Evaluate your sources of income Is my income steady? Do I have money saved for a down payment & closing costs?

Analyze your current expenses Do I have a budget? Can I handle a monthly mortgage payment, taxes, insurance, repairs Can I handle unexpected events?

Determine the status of your credit history Do I have established credit? Have I paid my bills on time?

Yes - I want to own a home Am I familiar with what is required to qualify for a home loan? Am I willing to work towards preparing myself to become a homeowner?

Paperwork

Good Faith Estimate What is it? What fees are included?

Truth in Lending What is it?

LOAN PROGRAMS& LOAN TYPES

Loan Programs

Government insured loans FHA Loans VA Loans

Conventional mortgage loans Affordable loan programs – 0-5% down payment

Special loan programs Bond programs Down payment assistance programs

Loan Types

Fixed-rate loans

Adjustable rate loans

Sample Programs

Standard Conforming 30 Yr. Fixed

My Community 97 (Conforming)

My Community 100 (Conforming)

Flex 97 (Conforming)

Flex 100 (Conforming)

FHA

ARM’s/Hybrids

Sample Product Comparison FHA vs. MC100

Sales Price $110,000.00 $110,000.00

Down Payment $3300.00 $500.00

Req. Borr. Funds 3% Minimum Inv. $500 or 1%=lesser of

Disc./Prem $0.00 $0.00

Loan Amount $105,788.00 $110,000.00

30 Yr. Rate 6.125% 6.125%

1st Mtg. P& I $642.78 $668.37

MI Pymt Factor 0.000416667 0.000866667

MI Monthly Pymt $44.08 $95.33

Total Payment $686.86 $763.70

Sample Product Comparison30 Year vs. MC100

Sales Price $110,000.00 $110,000.00

Down Payment $5500.00 $500.00

Req. Borr. Funds 5% Minimum Inv. $500 or 1%=lesser of

Disc./Prem $0.00 $0.00

Loan Amount $104,500.00 $110,000.00

30 Yr. Rate 6.250% 6.125%

1st Mtg. P& I $643.42 $668.37

MI Pymt Factor 0.00065 0.000866667

MI Monthly Pymt $67.93 $95.33

Total Payment $711.35 $763.70

R E A D Y ?

The Closing Process

Sign mortgage or deed of trust

Sign your mortgage note & other loan documents

Bring funds to close on your home

Verify insurance policies

GET THE KEYS TO YOUR HOME!

Is this something you want to do???!!!

Life As A Homeowner

Stay within your budget

Make your mortgage payment top priority

Any mortgage payment difficulties -

CONTACT THE LENDER IMMEDIATELY

Use cost-effective energy savings measures

Hire a reputable contractor for major repairs

Have an emergency maintenance fund

EnjoyYour New Home!

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