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You Can Buy a Home!. MoneyWi$e A joint financial education project of Consumer Action and Capital One. 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. In participants’ folders:.

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you can buy a home
You Can Buy a Home!

MoneyWi$e

A joint financial education project of Consumer Action and Capital One

MoneyWi$e: You Can Buy a Home

welcome
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

MoneyWi$e: You Can Buy a Home

in participants folders
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

MoneyWi$e: You Can Buy a Home

benefits of homeownership
Benefits of Homeownership?

Can you name some of the benefits of homeownership?

MoneyWi$e: You Can Buy a Home

benefits of homeownership1
Benefits of Homeownership
  • Build wealth
  • Tax savings
  • Pride of ownership
  • Security
  • Build good credit

MoneyWi$e: You Can Buy a Home

responsibilities of homeownership
Responsibilities of Homeownership

Can you name some of the responsibilities of homeownership?

MoneyWi$e: You Can Buy a Home

responsibilities of homeownership1
Responsibilities of Homeownership
  • On-time mortgage payments
  • Property taxes
  • Insurance
  • Repairs & maintenance
  • Purchase own appliances & equipment

MoneyWi$e: You Can Buy a Home

home purchase costs
Home Purchase Costs

What are some of the costs of buying a home?

MoneyWi$e: You Can Buy a Home

home purchase costs1
Home Purchase Costs
  • Loan fees
  • Credit report fee
  • Appraisal fee
  • Earnest money deposit
  • Downpayment
  • Closing costs

MoneyWi$e: You Can Buy a Home

home purchase costs2
Home Purchase Costs
  • PITI (principal, interest, taxes & insurance)
  • Mortgage insurance (PMI)
  • Moving-in expenses
  • Emergency/reserve funds

MoneyWi$e: You Can Buy a Home

assessing your financial resources
Assessing Your Financial Resources
  • For your downpayment
  • For your monthly payments

MoneyWi$e: You Can Buy a Home

downpayment sources
Downpayment Sources
  • Savings
  • Private gifts and loans
  • Retirement account loan
  • Second (piggyback) loan
  • VA loan
  • Private and gov’t downpayment assistance programs

MoneyWi$e: You Can Buy a Home

tax benefits of homeownership case study
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. Eva’s increase in

net pay is approximately $398 per month!

MoneyWi$e: You Can Buy a Home

activity downpayment budget assessment
Activity: Downpayment & Budget Assessment
  • Are you financially prepared for homeownership?
  • Determine next steps to reach your goal!

MoneyWi$e: You Can Buy a Home

fico score
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!

MoneyWi$e: You Can Buy a Home

improving your fico score
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

MoneyWi$e: You Can Buy a Home

where can you get a loan
Where can you get a loan?
  • Mortgage company
  • Commercial bank
  • Credit union
  • Mortgage broker
  • Other financial institution
  • Federal gov’t loan programs
  • Housing finance agency

MoneyWi$e: You Can Buy a Home

loan types
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

Loan Types

Fixed-rate mortgage

Interest rate stays the same for the life of the loan

MoneyWi$e: You Can Buy a Home

compare loan features terms
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

MoneyWi$e: You Can Buy a Home

how much of a mortgage can you qualify for
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

MoneyWi$e: You Can Buy a Home

loan to value ratio
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)

MoneyWi$e: You Can Buy a Home

debt to income ratio
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

MoneyWi$e: You Can Buy a Home

debt to income ratio case study
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)

MoneyWi$e: You Can Buy a Home

prequalification vs pre approval
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.

MoneyWi$e: You Can Buy a Home

first session wrap up
First Session Wrap-Up
  • At the next session, we’ll:
    • Shop for a home
    • Make an offer
    • Get a mortgage
    • Close the purchase!

Please return in 20 minutes.

MoneyWi$e: You Can Buy a Home

shopping for a home
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

MoneyWi$e: You Can Buy a Home

using a real estate agent
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)

MoneyWi$e: You Can Buy a Home

making an offer
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

MoneyWi$e: You Can Buy a Home

contingencies
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

MoneyWi$e: You Can Buy a Home

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

MoneyWi$e: You Can Buy a Home

loan application checklist
Loan Application Checklist
  • Identification
  • Address history
  • Proof of income
  • List of assets
  • List of liabilities
  • Information about purchase
  • A check to cover fees

MoneyWi$e: You Can Buy a Home

what to expect from the lender
What to Expect from the Lender
  • Good Faith Estimate
  • Truth-in-Lending Statement
  • Commitment letter

MoneyWi$e: You Can Buy a Home

good faith estimate
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!

MoneyWi$e: You Can Buy a Home

truth in lending statement
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!

MoneyWi$e: You Can Buy a Home

activity making an offer
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

MoneyWi$e: You Can Buy a Home

closing settlement
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

MoneyWi$e: You Can Buy a Home

successful homeownership
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

MoneyWi$e: You Can Buy a Home

questions
Questions?
  • Do you have any questions about this training?

MoneyWi$e: You Can Buy a Home

class evaluation
Class Evaluation

Please fill out the evaluation form and leave it on your way out.

Thank you!

MoneyWi$e: You Can Buy a Home