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?
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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
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Homeownership brings…….
• Sense of community
• Stability
• Tax benefits (Consult your tax advisor)
• Stable housing costs
• Potential appreciation
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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
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Preparation
Preparation
Two things have to happen:
• Find a home• Qualify for a loan
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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?
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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
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Preparing to Buy a Home
• Daily Spending Diary
• Decrease Spending & credit card use– Entertainment (movies, dinners out)
– Clothes
– Dry cleaning
• Budgeting Tools
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Budgeting
• What is a budget?– A budget is a plan for managing your
income and expenses
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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
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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!
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SAVINGS
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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
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CREDIT
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The Importance of Credit
• What does it mean to a lender• Applying for credit• Managing credit
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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
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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
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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
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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
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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
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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
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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
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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
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QUALIFYING
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A House Payment Includes
• PITI
• Principal
• Interest
• Taxes
• Insurance
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Pre-Qualification
• Determines how much mortgage you qualify for
• Informal, no obligation• Figure is an estimation - not
exact
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Approval
• Commitment from lender: “conditional
approval” for a predetermined amount
• Based on verified information
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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?
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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
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Rent vs. Buy
• See handout for comparison
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LOAN PROGRAMS& LOAN TYPES
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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
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Loan Types
• Fixed-rate loans
• Adjustable rate loans
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Sample Programs• Standard Conforming 30 Yr. Fixed
• Conforming 20 Yr. & 15 Yr.
• FHA
• ARM’s/Hybrids
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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???!!!
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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
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Enjoy Your New Home!Thanks for attending!