The Joy of Buying Your First Home

GN-50-91810

Agenda

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

2

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

3

Homeownership brings…….

• Sense of community

• Stability

• Tax benefits (Consult your tax advisor)

• Stable housing costs

• Potential appreciation

4

The Home Buying Process

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

5

Preparation

Preparation

Two things have to happen:

• Find a home• Qualify for a loan

7

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?

8

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

9

Preparing to Buy a Home

• Daily Spending Diary

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

– Clothes

– Dry cleaning

• Budgeting Tools

10

Budgeting

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

income and expenses

11

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

12

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!

13

SAVINGS

14

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

15

CREDIT

16

The Importance of Credit

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

17

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

18

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

19

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

20

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

21

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

22

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

23

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

24

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 740241Atlanta, GA 30374-0241www.equifax.com(800) 685-1111

25

QUALIFYING

26

A House Payment Includes

• PITI

• Principal

• Interest

• Taxes

• Insurance

27

Pre-Qualification

• Determines how much mortgage you qualify for

• Informal, no obligation• Figure is an estimation - not

exact

28

Approval

• Commitment from lender: “conditional

approval” for a predetermined amount

• Based on verified information

29

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?

30

Now’s The Time To Buy

• First Time Home Buyer Tax Credit $8,000

• Interest Rates all time lows• Home prices bottomed out• Get more home for your money

31

Rent vs. Buy

• See handout for comparison

32

LOAN PROGRAMS& LOAN TYPES

33

Loan Programs

• Government insured loans– FHA Loans– VA Loans

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

• Special loan programs - IHFA (Tax Credit 2nd)– Down payment assistance programs

34

Loan Types

• Fixed-rate loans

• Adjustable rate loans

35

Sample Programs• Standard Conforming 30 Yr. Fixed

• Conforming 20 Yr. & 15 Yr.

• FHA

• ARM’s/Hybrids

36

READY?

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???!!!

38

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

39

Enjoy Your New Home!Thanks for attending!