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You Can BUY A HOME

a. Welcome to. You Can BUY A HOME. The Keys to Homeownership. © 2011. Money WI$E. A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP. You can Buy a Home!. MoneyWI$E A joint financial education project of Consumer Action and Capital One. Money WI$E.

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You Can BUY A HOME

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  1. a Welcome to You Can BUY A HOME The Keys to Homeownership © 2011 MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  2. You can Buy a Home! • MoneyWI$E • A jointfinancialeducationprojectof Consumer Action and Capital One. MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  3. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  4. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  5. Benefits of Homeownership? • Can you name some of the benefits of homeownership? MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  6. Benefits of Homeownership • Build wealth • Tax savings • Pride of ownership • Security • Build good credit MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  7. Responsibilities of Homeownership • Can you name some of the responsibilities of homeownership? MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  8. Responsibilities of Homeownership • On-time mortgage payments • Property taxes • Insurance • Repairs & maintenance • Purchase own appliances & equipment MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  9. Home Purchase Costs What are some of the costs of buying a home? MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  10. Home Purchase Costs • Loan fees • Credit report fee • Appraisal fee • Earnest money deposit • Downpayment • Closing costs MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  11. Home Purchase Costs • PITI (principal, interest, taxes & insurance) • Mortgage insurance (PMI) • Moving-in expenses • Emergency/reserve funds MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  12. Assessing Your Financial Resources • For your downpayment • For your monthly payments. MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  13. Downpayment Sources • Savings • Private gifts and loans • Retirement account loan • Second (piggyback) loan • VA loan • Private and government downpayment assistance programs MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  14. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  15. Activity: Downpayment & Budget Assessment • Are you financially prepared for homeownership? • Determine next steps to reach your goal! MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  16. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  17. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  18. Where can you get a loan? • Mortgage company • Commercial bank • Credit union • Mortgage broker • Other financial institution • Federal government loan programs • Housing finance agency MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  19. 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 • Fixed-rate mortgage • Interest rate stays the same for the life of the loan MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  20. 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 and APR • Lock-in options & fees • Approval process & schedule MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  21. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  22. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  23. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  24. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  25. Prequalification vs Pre-approval • As 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  26. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  27. Shopping for a Home • How will you find your home? • Shop Online listing sites • “For Sale” signs • “Open house” events • Word-of-mouth • Real estate agent MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  28. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  29. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  30. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  31. Negotiations • After considering your offer, the seller may: • Accept • Reject • Counteroffer MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  32. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  33. What to Expect from the Lender • Good Faith Estimate • Truth-in-Lending Statement • Commitment letter MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  34. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  35. Truth-in-Lending Statement • States your APR (annual percentage rate) • Lists finance charges, total payments, due dates and more • Pre-payment penalty or not • Is not a guarantee! MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  36. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  37. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  38. 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 A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  39. Questions? • Do you have any questions about this training? MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  40. Class Evaluation Please fill out the evaluation form and leave it on your way out. Thank you! MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

  41. Visit money-wise.orgfor additional information and to access free financial education materials MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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