You Can Buy A Home - Powerpoint Training Slides
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Transcript You Can Buy A Home - Powerpoint Training Slides
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.
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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
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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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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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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!
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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.
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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
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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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
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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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Questions?
Do you have any questions about
this training?
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Class Evaluation
Please fill out the evaluation form
and leave it on your way out.
Thank you!
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Visit money-wise.org
for additional information and to access
free financial education materials
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