Welcome to You Can BUY A HOME a

You can Buy a Home! Money. WI$E ü A joint financial education project of Consumer Action and Capital One. Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Welcome Why we are here: ü To learn how to navigate the home buying process ü To identify the steps necessary to achieve our goal of homeownership Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

In participants’ folders: ü You Can Buy a Home brochure ü Downpayment & Monthly Budget Worksheets (one completed case study and one blank) ü Home Shopping Checklist ü Loan Application Checklist ü Seminar Evaluation Form Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Benefits of Homeownership ü Build wealth ü Tax savings ü Pride of ownership ü Security ü Build good credit Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

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

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

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

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

Assessing Your Financial Resources ü For your downpayment ü For your monthly payments. Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Tax Benefits of Homeownership: Case study ü Eva buys a home with a $225, 000 mortgage ü Interest and taxes total $17, 050 per year ü Eva is in the 28% tax bracket ü 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 $398 per month! Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

FICO Score ü A numerical snapshot of the information in your credit report ü Used by most mortgage lenders to assess your creditworthiness ü Scale ranges from 300 to 850 ü Lenders want to see a score of at least 620 --the higher, the better! Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Improving Your FICO Score ü Maintain or improve payment habits ü Repay collection accounts and other outstanding debts ü Reduce total debt ü Avoid taking on new credit ü Keep revolving debt well under the credit limit ü Correct credit report errors Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Loan Types? Fixed-rate mortgage Adjustable-rate mortgage (ARM) Interest rate stays the same for the life of the loan Interest rate adjusts periodically, so monthly payment is subject to change; typically offers a low starting rate for a specific period Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Compare Loan Features & Terms ü Interest rate (fixed-rate loan) ü Initial interest rate (ARM) ü Rate adjustment periods and rate caps (ARM) ü Repayment period (loan term) ü Pre-payment penalty ü Fees and APR ü Lock-in options & fees ü Approval process & schedule Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

How much of a mortgage can you qualify for? Depends on: ü Downpayment amount ü Loan-to-value ratio ü Debt-to-income ratio ü Housing cost-to-income ratio Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Loan-to-Value Ratio Example: ü Lender is willing to lend up to 90% of the property value ü The property appraises for $200, 000 ü You receive approval for a loan of $180, 000 ($200, 000 x 0. 90 = $180, 000) Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Debt-to-Income Ratio ü Total monthly debt payments compared to gross monthly income ü The lower your non-mortgage debt, the bigger the mortgage you can get ü Total housing expense (mortgage/PITI, plus PMI and HOA dues) to equal no more than 28% of gross income ü Total debt (mortgage, credit cards, car loans, etc. ) to equal no more than 36% of gross income ü Some lenders allow a higher ratio Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Debt-to-Income Ratio: Case study ü Lee & Shawna earn $60, 000 per year, or $5, 000 per month ü They can carry a maximum debt load of $1, 800 ($5, 000 x. 36 = $1, 800) ü Their only debt is a monthly car payment of $275 ü Lee & Shawna can qualify for a $1, 525 mortgage payment ($1, 800 - $275 = $1, 525) Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Prequalification vs Pre-approval ü As Pre-qualification • An estimate of how much of a loan you might qualify for. It is not a firm commitment. ü 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. Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

First Session Wrap-Up ü At the next session, we’ll: • • Shop for a home Make an offer Get a mortgage Close the purchase! Please return in 20 minutes. Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Using a Real Estate Agent ü Access to the MLS (multiple listings service) ü Market knowledge ü Guidance through buying process ü Handles paperwork ü Incentive to succeed (agent only earns commission when you buy) Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Making an Offer ü ü ü ü ü 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 Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Contingencies ü Common contingencies include: • • • Financing: Loan funding Appraisal Insurance Title (clear & marketable) Inspections − − − Building/structural Pest/termite Well/water Environmental hazards/lead paint Soil Flood Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Loan Application Checklist ü Identification ü Address history ü Proof of income ü List of assets ü List of liabilities ü Information about purchase ü A check to cover fees Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Good Faith Estimate ü Within 3 days of application ü Discloses all loan costs ü States interest rate and points ü Lists closing & other fees ü Helps you compare loans ü Is only an estimate! Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

Activity: Making an Offer ü Break into smaller groups ü Choose the best property and loan product for the buyer, and write an offer ü Reconvene in 15 minutes ü Have a spokesperson for your group explain your choices Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Closing/Settlement ü One or two days before closing: • • Do a final “walk-through” Examine the HUD-1 Settlement Statement ü Day of closing: • • • Attend closing/settlement meeting Review & sign all documents Write a check for any outstanding costs Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

Successful Homeownership ü ü ü ü 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 ü Get help at the first sign of trouble Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP

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

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

Visit money-wise. org for additional information and to access free financial education materials Money. WI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP