You Can Buy a Home

1
You Can Buy a Home!

• MoneyWie
• A joint financial education project of Consumer
  Action and Capital One

2
Welcome

• Why we are here
• To learn how to navigate the home buying process
• To identify the steps necessary to achieve our
  goal of homeownership

3
In participants folders

• You Can Buy a Home brochure
• Downpayment Monthly Budget Worksheets (one
  completed case study and one blank)
• Home Shopping Checklist
• Loan Application Checklist
• Seminar Evaluation Form

4
Benefits of Homeownership?

• Can you name some of the benefits of
  homeownership?

5
Benefits of Homeownership

• Build wealth
• Tax savings
• Pride of ownership
• Security
• Build good credit

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Responsibilities of Homeownership

• Can you name some of the responsibilities of
  homeownership?

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Responsibilities of Homeownership

• On-time mortgage payments
• Property taxes
• Insurance
• Repairs maintenance
• Purchase own appliances equipment

8
Home Purchase Costs

• What are some of the costs of buying a home?

9
Home Purchase Costs

• Loan fees
• Credit report fee
• Appraisal fee
• Earnest money deposit
• Downpayment
• Closing costs

10
Home Purchase Costs

• PITI (principal, interest, taxes insurance)
• Mortgage insurance (PMI)
• Moving-in expenses
• Emergency/reserve funds

11
Assessing Your Financial Resources

• For your downpayment
• For your monthly payments

12
Downpayment Sources

• Savings
• Private gifts and loans
• Retirement account loan
• Second (piggyback) loan
• VA loan
• Private and govt downpayment assistance programs

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Tax Benefits of Homeownership Case study

• ??Eva buys a home with a 225,000 mortgage
• ??Interest and taxes total 17,050 per year
• ??Eva is in the 28 tax bracket
• ??Tax savings as a homeowner 4,774 per year
• Instead of waiting for a 4,774 tax refund, Eva
• changes her W-4 form at work to have fewer taxes
• taken out of her paycheck. Evas increase in
• net pay is approximately 398 per month!

14
Activity Downpayment Budget Assessment

• Are you financially prepared for homeownership?
• Determine next steps to reach your goal!

15
FICO Score

• A numerical snapshot of the information in your
  credit report
• Used by most mortgage lenders to assess your
  creditworthiness
• Scale ranges from 300 to 850
• Lenders want to see a score of at least 620--the
  higher, the better!

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Improving Your FICO Score

• Maintain or improve payment habits
• Repay collection accounts and other outstanding
  debts
• Reduce total debt
• Avoid taking on new credit
• Keep revolving debt well under the credit limit
• Correct credit report errors

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Where can you get a loan?

• Mortgage company
• Commercial bank
• Credit union
• Mortgage broker
• Other financial institution
• Federal govt loan programs
• Housing finance agency

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Loan Types

• Fixed-rate mortgage
• Interest rate stays the same for the life of the
  loan

• Adjustable-rate mortgage (ARM)
• Interest rate adjusts periodically, so monthly
  payment is subject to change typically offers a
  low starting rate for a specific period

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Compare Loan Features Terms

• Interest rate (fixed-rate loan)
• Initial interest rate (ARM)
• Rate adjustment periods and rate caps (ARM)
• Repayment period (loan term)
• Pre-payment penalty
• Fees APR
• Lock-in options fees
• Approval process schedule

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How much of a mortgage can you qualify for?

• Depends on
• Downpayment amount
• Loan-to-value ratio
• Debt-to-income ratio
• Housing cost-to-income ratio

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Loan-to-Value Ratio

• Example
• Lender is willing to lend up to 90 of the
  property value
• The property appraises for 200,000
• You receive approval for a loan of 180,000
• (200,000 x 0.90 180,000)

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Debt-to-Income Ratio

• Total monthly debt payments compared to gross
  monthly income
• The lower your non-mortgage debt, the bigger the
  mortgage you can get
• Total housing expense (mortgage/PITI, plus PMI
  and HOA dues) to equal no more than 28 of gross
  income
• Total debt (mortgage, credit cards, car loans,
  etc.) to equal no more than 36 of gross income
• Some lenders allow a higher ratio

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Debt-to-Income Ratio Case study

• Lee Shawna earn 60,000 per year, or 5,000 per
  month
• They can carry a maximum debt load of 1,800
• (5,000 x .36 1,800)
• Their only debt is a monthly car payment of 275
• Lee Shawna can qualify for a 1,525 mortgage
  payment
• (1,800 - 275 1,525)

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Prequalification vs Pre-approval

• Pre-qualification
• An estimate of how much of a loan you might
  qualify for. It is not a firm commitment.
• Pre-approval
• A firm commitment from a lender for a specific
  loan amount. The approval can be valid for as
  little as 30 days and as much as 120 days or
  more.

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First Session Wrap-Up

• At the next session, well
• Shop for a home
• Make an offer
• Get a mortgage
• Close the purchase!
• Please return in 20 minutes.

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Shopping for a Home

• How will you find your home?
• Online listing sites
• For Sale signs
• Open house events
• Word-of-mouth
• Real estate agent

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Using a Real Estate Agent

• Access to the MLS (multiple listings service)
• Market knowledge
• Guidance through buying process
• Handles paperwork
• Incentive to succeed (agent only earns commission
  when you buy)

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Making an Offer

• Property address
• Offer price
• Earnest money (good faith) deposit
• Downpayment
• Financing terms
• Closing costs
• Personal property to be conveyed
• Closing date possession date
• Expiration of offer
• Contingencies

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Contingencies

• Common contingencies include
• Financing Loan funding
• Appraisal
• Insurance
• Title (clear marketable)
• Inspections
• Building/structural
• Pest/termite
• Well/water
• Environmental hazards/lead paint
• Soil
• Flood

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Negotiations

• After considering your offer, the seller may
• Accept
• Reject
• Counteroffer

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Loan Application Checklist

• Identification
• Address history
• Proof of income
• List of assets
• List of liabilities
• Information about purchase
• A check to cover fees

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What to Expect from the Lender

• Good Faith Estimate
• Truth-in-Lending Statement
• Commitment letter

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Good Faith Estimate

• Within 3 days of application
• Discloses all loan costs
• States interest rate and points
• Lists closing other fees
• Helps you compare loans
• Is only an estimate!

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Truth-in-Lending Statement

• States your APR (annual percentage rate)
• Lists finance charges, total payments, due dates
  and more
• Pre-payment penalty or not
• May give ARM details
• Is not a guarantee!

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Activity Making an Offer

• Break into smaller groups
• Choose the best property and loan product for the
  buyer, and write an offer
• Reconvene in 15 minutes
• Have a spokesperson for your group explain your
  choices

36
Closing/Settlement

• One or two days before closing
• Do a final walk-through
• Examine the HUD-1 Settlement Statement
• Day of closing
• Attend closing/settlement meeting
• Review sign all documents
• Write a check for any outstanding costs

37
Successful Homeownership

• Avoid risky loans
• Make mortgage payments on time
• Stay current on property taxes
• Maintain adequate insurance
• Keep the home in good shape
• Keep an emergency fund ready
• Avoid borrowing against your equity for consumer
  purchases
• Get help at the first sign of trouble

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Questions?

• Do you have any questions about this training?

39
Class Evaluation

• Please fill out the evaluation form and leave it
  on your way out.
• Thank you!