Welcome to
You Can
BUY A HOME
a
The Keys to Homeownership
© 2011
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
You can Buy a Home!
MoneyWI$E
 A joint financial education project of
Consumer Action and Capital One.
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Welcome
Why we are here:
 To learn how to navigate the home
buying process
 To identify the steps necessary to
achieve our goal of homeownership
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
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
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Benefits of Homeownership?
Can you name some of the benefits
of homeownership?
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Benefits of Homeownership
 Build wealth
 Tax savings
 Pride of ownership
 Security
 Build good credit
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Responsibilities of Homeownership
Can you name some of the
responsibilities of homeownership?
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Responsibilities of Homeownership
 On-time mortgage payments
 Property taxes
 Insurance
 Repairs & maintenance
 Purchase own appliances & equipment
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Home Purchase Costs
What are some of the costs of
buying a home?
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Home Purchase Costs
 Loan fees
 Credit report fee
 Appraisal fee
 Earnest money deposit
 Downpayment
 Closing costs
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Home Purchase Costs
 PITI (principal, interest, taxes &
insurance)
 Mortgage insurance (PMI)
 Moving-in expenses
 Emergency/reserve funds
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Assessing Your Financial
Resources
 For your downpayment
 For your monthly payments.
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Downpayment Sources
 Savings
 Private gifts and loans
 Retirement account loan
 Second (piggyback) loan
 VA loan
 Private and government
downpayment assistance programs
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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 $398 per month!
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Activity: Downpayment &
Budget Assessment
 Are you financially prepared for
homeownership?
 Determine next steps to reach your
goal!
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
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!
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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
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Where can you get a loan?
 Mortgage company
 Commercial bank
 Credit union
 Mortgage broker
 Other financial institution
 Federal government loan
programs
 Housing finance agency
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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
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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
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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
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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)
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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
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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 = $1,525)
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Prequalification vs Pre-approval
 As Pre-qualification
•
An estimate of how much of a loan you
might qualify for. It is not a firm
commitment.
 Pre-approval:
•
A firm commitment from a lender for a
specific loan amount. The approval can
be valid for as little as 30 days and as
much as 120 days or more.
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First Session Wrap-Up
 At the next session, we’ll:
•
•
•
•
Shop for a home
Make an offer
Get a mortgage
Close the purchase!
Please return in 20 minutes.
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
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
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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)
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Making an Offer
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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
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Contingencies
 Common contingencies include:
•
•
•
•
•
Financing: Loan funding
Appraisal
Insurance
Title (clear & marketable)
Inspections
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Building/structural
Pest/termite
Well/water
Environmental hazards/lead paint
Soil
Flood
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Negotiations
 After considering your offer, the
seller may:
• Accept
• Reject
• Counteroffer
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Loan Application Checklist
 Identification
 Address history
 Proof of income
 List of assets
 List of liabilities
 Information about purchase
 A check to cover fees
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What to Expect from the Lender
 Good Faith Estimate
 Truth-in-Lending Statement
 Commitment letter
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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!
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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!
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
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
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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$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Successful Homeownership
 Avoid risky loans
 Make mortgage payments on time
 Stay current on property taxes
 Maintain adequate insurance
 Keep the home in good shape
 Keep an emergency fund ready
 Avoid borrowing against your equity for
consumer purchases
 Get help at the first sign of trouble
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Questions?
Do you have any questions about
this training?
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Class Evaluation
Please fill out the evaluation form
and leave it on your way out.
Thank you!
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A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP
Visit money-wise.org
for additional information and to access
free financial education materials
MoneyWI$E
A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP