P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M Home Buying.

P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M

Home Home BuyingBuyingHome Home BuyingBuying

H O M E B U Y I N G 2

Topics Include:Topics Include:Topics Include:Topics Include:

• Are you ready to buy?Are you ready to buy?

• What can you afford?What can you afford?

• Lenders and LoansLenders and Loans

• Selecting a Real Estate AgentSelecting a Real Estate Agent

• Negotiating the DealNegotiating the Deal

• Closing Costs and ClosingClosing Costs and Closing

• Reducing Payback TimeReducing Payback Time

• Homeowner’s InsuranceHomeowner’s Insurance

• Are you ready to buy?Are you ready to buy?

• What can you afford?What can you afford?

• Lenders and LoansLenders and Loans

• Selecting a Real Estate AgentSelecting a Real Estate Agent

• Negotiating the DealNegotiating the Deal

• Closing Costs and ClosingClosing Costs and Closing

• Reducing Payback TimeReducing Payback Time

• Homeowner’s InsuranceHomeowner’s Insurance


Buy

Are you ready to buy?Are you ready to buy?Renting versus BuyingRenting versus BuyingAre you ready to buy?Are you ready to buy?Renting versus BuyingRenting versus Buying

• Move a lot• Unfamiliar with area• Low on cash• Can’t or won’t maintain• Prefer fixed expenses• Don’t want to risk losing

equity• Okay with not personalizing• Don’t need tax advantage of

home ownership• Don’t want to be a landlord

• Ready for stability and sense of community

• Have cash for a larger initial investment

• Provides a tax advantage

• Want your equity to grow

• Don’t mind being a landlord

• Don’t mind more variable expenses

• Like fix your own home

• Want to remodel and/or personalize

Rent


What type of house?What type of house?What type of house?What type of house?

•CondoCondo

•DuplexDuplex

•Single familySingle family

•New constructionNew construction

•One story or twoOne story or two

•Older home with characterOlder home with character

•CondoCondo

•DuplexDuplex

•Single familySingle family

•New constructionNew construction

•One story or twoOne story or two

•Older home with characterOlder home with character


Location, location, Location, location, location!location!Location, location, Location, location, location!location!

•Distance to workDistance to work

•School systemSchool system

•Low crime areaLow crime area

•City, suburb, countryCity, suburb, country

•Near mass transitNear mass transit

•Near child careNear child care

•Distance to schools, libraries, parks, Distance to schools, libraries, parks, shopping, highways, etc.shopping, highways, etc.

•Distance to workDistance to work

•School systemSchool system

•Low crime areaLow crime area

•City, suburb, countryCity, suburb, country

•Near mass transitNear mass transit

•Near child careNear child care

•Distance to schools, libraries, parks, Distance to schools, libraries, parks, shopping, highways, etc.shopping, highways, etc.


Needs versus WantsNeeds versus WantsNeeds versus WantsNeeds versus Wants


What can you afford?What can you afford?What can you afford?What can you afford?

• Prepare, or update, your financial plan or Prepare, or update, your financial plan or budgetbudget

• Reduce debtReduce debt

• Prepare, or update, your financial plan or Prepare, or update, your financial plan or budgetbudget

• Reduce debtReduce debt

Calculating your Debt-to-income Handout

Calculating your Debt-to-income Handout

first page of theFinancial planning worksheet

first page of theFinancial planning worksheet


Credit ScoresCredit ScoresCredit ScoresCredit Scores

•35% - Your Payment History35% - Your Payment History

•30% - Amounts You Owe30% - Amounts You Owe

•15% - Length of Your Credit History15% - Length of Your Credit History

•10% - Types of Credit Used10% - Types of Credit Used

•10% - New Credit 10% - New Credit

www.annualcreditreport.comwww.annualcreditreport.com

•35% - Your Payment History35% - Your Payment History

•30% - Amounts You Owe30% - Amounts You Owe

•15% - Length of Your Credit History15% - Length of Your Credit History

•10% - Types of Credit Used10% - Types of Credit Used

•10% - New Credit 10% - New Credit

www.annualcreditreport.comwww.annualcreditreport.com


U.S. Credit Scores in U.S. Credit Scores in 20062006U.S. Credit Scores in U.S. Credit Scores in 20062006

Up to 499:Up to 499: 1%1%500 - 549:500 - 549: 5%5%550 - 599:550 - 599: 7%7%600 - 649:600 - 649: 11%11%650 - 699:650 - 699: 16%16%700 - 749:700 - 749: 20%20%750 - 799:750 - 799: 29%29%Over 800:Over 800: 11% 11%

Up to 499:Up to 499: 1%1%500 - 549:500 - 549: 5%5%550 - 599:550 - 599: 7%7%600 - 649:600 - 649: 11%11%650 - 699:650 - 699: 16%16%700 - 749:700 - 749: 20%20%750 - 799:750 - 799: 29%29%Over 800:Over 800: 11% 11%


Down PaymentsDown PaymentsDown PaymentsDown Payments

•Conventional = up to 20%Conventional = up to 20%

•FHA = 3 – 5%FHA = 3 – 5%

•VA = 0%VA = 0%

•Conventional = up to 20%Conventional = up to 20%

•FHA = 3 – 5%FHA = 3 – 5%

•VA = 0%VA = 0%


Choose a LenderChoose a LenderChoose a LenderChoose a Lender

•Get referrals and recommendationsGet referrals and recommendations

•Compare lenders:Compare lenders:

– APRAPR

– Discount pointsDiscount points

– Loan origination feesLoan origination fees

– Lock-in OptionsLock-in Options

•Get referrals and recommendationsGet referrals and recommendations

•Compare lenders:Compare lenders:

– APRAPR

– Discount pointsDiscount points

– Loan origination feesLoan origination fees

– Lock-in OptionsLock-in Options


Choose a Mortgage LoanChoose a Mortgage LoanChoose a Mortgage LoanChoose a Mortgage Loan

• Fixed-rate loansFixed-rate loans

• Adjustable-rate Adjustable-rate loansloans

• FHA LoansFHA Loans

• VA LoansVA Loans

• AssumptionsAssumptions

• Fixed-rate loansFixed-rate loans

• Adjustable-rate Adjustable-rate loansloans

• FHA LoansFHA Loans

• VA LoansVA Loans

• AssumptionsAssumptions

• Buy DownBuy Down

• Step LoansStep Loans

• Balloon LoansBalloon Loans

• Seller FinancingSeller Financing

• State Veteran’s State Veteran’s ProgramsPrograms

• Buy DownBuy Down

• Step LoansStep Loans

• Balloon LoansBalloon Loans

• Seller FinancingSeller Financing

• State Veteran’s State Veteran’s ProgramsPrograms


Borrower Beware!Borrower Beware!Borrower Beware!Borrower Beware!• Interest-Only MortgagesInterest-Only Mortgages• 80/20 Mortgages80/20 Mortgages• Subprime LendersSubprime Lenders• Excessive FeesExcessive Fees• Abusive Pre-payment PenaltiesAbusive Pre-payment Penalties• Kickbacks to BrokersKickbacks to Brokers• Loan FlippingLoan Flipping• Unnecessary ProductsUnnecessary Products• … … and moreand more

• Interest-Only MortgagesInterest-Only Mortgages• 80/20 Mortgages80/20 Mortgages• Subprime LendersSubprime Lenders• Excessive FeesExcessive Fees• Abusive Pre-payment PenaltiesAbusive Pre-payment Penalties• Kickbacks to BrokersKickbacks to Brokers• Loan FlippingLoan Flipping• Unnecessary ProductsUnnecessary Products• … … and moreand more

www.responsiblelending.org/issues/mortgage/www.responsiblelending.org/issues/mortgage/sevensigns.htmlsevensigns.html


The Mortgage The Mortgage Application ProcessApplication ProcessThe Mortgage The Mortgage Application ProcessApplication Process

•Pre-qualificationPre-qualification

•Pre-approvalPre-approval

•Formal applicationFormal application

•Processing timeProcessing time

– Conventional loans - 4 to 6 weeksConventional loans - 4 to 6 weeks

– VA loans - 6 weeks to 2 monthsVA loans - 6 weeks to 2 months

•Pre-qualificationPre-qualification

•Pre-approvalPre-approval

•Formal applicationFormal application

•Processing timeProcessing time

– Conventional loans - 4 to 6 weeksConventional loans - 4 to 6 weeks

– VA loans - 6 weeks to 2 monthsVA loans - 6 weeks to 2 months


Select a Real Estate Select a Real Estate AgentAgentSelect a Real Estate Select a Real Estate AgentAgent

Real estate professionals help you to:Real estate professionals help you to:• Target suitable neighborhoodsTarget suitable neighborhoods

• Identify available homesIdentify available homes

• Identify prices and featuresIdentify prices and features

• Compare cost per square foot of recent salesCompare cost per square foot of recent sales

• Assess your financial situationAssess your financial situation

• Manage the detailsManage the details

Real estate professionals help you to:Real estate professionals help you to:• Target suitable neighborhoodsTarget suitable neighborhoods

• Identify available homesIdentify available homes

• Identify prices and featuresIdentify prices and features

• Compare cost per square foot of recent salesCompare cost per square foot of recent sales

• Assess your financial situationAssess your financial situation

• Manage the detailsManage the details


Select a Real Estate Select a Real Estate AgentAgentSelect a Real Estate Select a Real Estate AgentAgent

•Principal brokerPrincipal broker

•RealtorRealtor

•Listing agentListing agent

•Selling agentSelling agent

•Buyer’s agentBuyer’s agent

•Principal brokerPrincipal broker

•RealtorRealtor

•Listing agentListing agent

•Selling agentSelling agent

•Buyer’s agentBuyer’s agent


Interview AgentsInterview AgentsInterview AgentsInterview Agents

• Arrange a meeting to discuss your “needs” Arrange a meeting to discuss your “needs” and “wants” and “wants”

• Review positive features of previous homesReview positive features of previous homes

• Discuss areas you have visited Discuss areas you have visited

• Ask for other recommended neighborhoods Ask for other recommended neighborhoods

• Have agent recheck your loan Have agent recheck your loan qualifications or approvalqualifications or approval

• Arrange appointments for you to see homes Arrange appointments for you to see homes in your price rangein your price range

• Arrange a meeting to discuss your “needs” Arrange a meeting to discuss your “needs” and “wants” and “wants”

• Review positive features of previous homesReview positive features of previous homes

• Discuss areas you have visited Discuss areas you have visited

• Ask for other recommended neighborhoods Ask for other recommended neighborhoods

• Have agent recheck your loan Have agent recheck your loan qualifications or approvalqualifications or approval

• Arrange appointments for you to see homes Arrange appointments for you to see homes in your price rangein your price range


Do it yourself?Do it yourself?Do it yourself?Do it yourself?

•FSBO: For Sale by OwnerFSBO: For Sale by Owner

•Rent to OwnRent to Own

•ForeclosuresForeclosures

•MLS: Multiple Listing ServiceMLS: Multiple Listing Service

•FSBO: For Sale by OwnerFSBO: For Sale by Owner

•Rent to OwnRent to Own

•ForeclosuresForeclosures

•MLS: Multiple Listing ServiceMLS: Multiple Listing Service


Begin the SearchBegin the SearchBegin the SearchBegin the Search

Checklist for Your House

Hunt Handout

Checklist for Your House

Hunt Handout


Negotiate the DealNegotiate the DealNegotiate the DealNegotiate the Deal

• Property Values (Use “Comps”)Property Values (Use “Comps”)• Offer to purchaseOffer to purchase

– Set the priceSet the price

– List personal propertyList personal property

– List repairs to be includedList repairs to be included

– Include contingencies – home inspection, Include contingencies – home inspection, selling your house, etc.selling your house, etc.

• Earnest MoneyEarnest Money

• Get a Home InspectionGet a Home Inspection

• Property Values (Use “Comps”)Property Values (Use “Comps”)• Offer to purchaseOffer to purchase

– Set the priceSet the price

– List personal propertyList personal property

– List repairs to be includedList repairs to be included

– Include contingencies – home inspection, Include contingencies – home inspection, selling your house, etc.selling your house, etc.

• Earnest MoneyEarnest Money

• Get a Home InspectionGet a Home Inspection


Closing CostsClosing CostsClosing CostsClosing Costs

•Between 2% and 4% of loan Between 2% and 4% of loan

amountamount

•Can be paid by buyer or sellerCan be paid by buyer or seller

•NegotiableNegotiable

•Between 2% and 4% of loan Between 2% and 4% of loan

amountamount

•Can be paid by buyer or sellerCan be paid by buyer or seller

•NegotiableNegotiable


Examples of Closing Examples of Closing CostsCostsExamples of Closing Examples of Closing CostsCosts

• Appraisal ($350)Appraisal ($350)

• Attorney’s fees ($450)Attorney’s fees ($450)

• Credit report ($60)Credit report ($60)

• Escrow/title company Escrow/title company costs ($300)costs ($300)

• Home inspection Home inspection ($100 - $300)($100 - $300)

• Home warranty Home warranty programs programs (varies with realtor)(varies with realtor)

• Appraisal ($350)Appraisal ($350)

• Attorney’s fees ($450)Attorney’s fees ($450)

• Credit report ($60)Credit report ($60)

• Escrow/title company Escrow/title company costs ($300)costs ($300)

• Home inspection Home inspection ($100 - $300)($100 - $300)

• Home warranty Home warranty programs programs (varies with realtor)(varies with realtor)

• Loan origination fee Loan origination fee (0-2%)(0-2%)

• Pest inspection fee Pest inspection fee ($100 - $200)($100 - $200)

• Recording fee Recording fee ($50 - $100)($50 - $100)

• Survey ($150 - $200)Survey ($150 - $200)

• Title search and Title search and insurance insurance (based on loan (based on loan amount)amount)

• Loan origination fee Loan origination fee (0-2%)(0-2%)

• Pest inspection fee Pest inspection fee ($100 - $200)($100 - $200)

• Recording fee Recording fee ($50 - $100)($50 - $100)

• Survey ($150 - $200)Survey ($150 - $200)

• Title search and Title search and insurance insurance (based on loan (based on loan amount)amount)


Pre-Paid CostsPre-Paid CostsPre-Paid CostsPre-Paid Costs

•Private Mortgage Insurance (PMI)Private Mortgage Insurance (PMI)

•Mortgage Insurance Premium (MIP)Mortgage Insurance Premium (MIP)

•VA Funding Fee VA Funding Fee

•Homeowner’s insurance - 14 mos.Homeowner’s insurance - 14 mos.

•Property taxes - 3 mos.Property taxes - 3 mos.

•Interest - Date of closing to end of Interest - Date of closing to end of monthmonth

•Private Mortgage Insurance (PMI)Private Mortgage Insurance (PMI)

•Mortgage Insurance Premium (MIP)Mortgage Insurance Premium (MIP)

•VA Funding Fee VA Funding Fee

•Homeowner’s insurance - 14 mos.Homeowner’s insurance - 14 mos.

•Property taxes - 3 mos.Property taxes - 3 mos.

•Interest - Date of closing to end of Interest - Date of closing to end of monthmonth


ClosingClosingClosingClosing

•Take possessionTake possession– Collect all keys/change locksCollect all keys/change locks

– Request seller provide:Request seller provide:•Operating instructions for appliances, Operating instructions for appliances,

heating/cooling systemheating/cooling system

•Names of contractorsNames of contractors

•Paint colorsPaint colors

•Locations of utility turn-offsLocations of utility turn-offs

•Security system combinations, if applicableSecurity system combinations, if applicable

•Take possessionTake possession– Collect all keys/change locksCollect all keys/change locks

– Request seller provide:Request seller provide:•Operating instructions for appliances, Operating instructions for appliances,

heating/cooling systemheating/cooling system

•Names of contractorsNames of contractors

•Paint colorsPaint colors

•Locations of utility turn-offsLocations of utility turn-offs

•Security system combinations, if applicableSecurity system combinations, if applicable


Reducing Payback Time:Reducing Payback Time:Shorter Loan TermShorter Loan TermReducing Payback Time:Reducing Payback Time:Shorter Loan TermShorter Loan Term

Principal & InterestPrincipal & Interest $817$817 $600$600 Payment (per mo.) Payment (per mo.)

Total paid Total paid $147,075$147,075 $178,967$178,967 over term in P & I over term in P & I

Principal & InterestPrincipal & Interest $817$817 $600$600 Payment (per mo.) Payment (per mo.)

Total paid Total paid $147,075$147,075 $178,967$178,967 over term in P & I over term in P & I

15 Year15 Year 30 Year30 Year

Total Savings 15 year vs. 30 year = $31,892Total Savings 15 year vs. 30 year = $31,892


Reducing Payback Time:Reducing Payback Time:Prepaying PrincipalPrepaying PrincipalReducing Payback Time:Reducing Payback Time:Prepaying PrincipalPrepaying Principal

•Prepay the principal - 30 to 20 yrs.Prepay the principal - 30 to 20 yrs.

– Extra lump sum payment per yearExtra lump sum payment per year

– Increase monthly payment by 1/12thIncrease monthly payment by 1/12th

– Bi-weekly payments (pay one-half of mortgage Bi-weekly payments (pay one-half of mortgage payment every other week)payment every other week)


– Pay the next month’s principal amount with Pay the next month’s principal amount with each paymenteach payment


– Extra lump sum payment per yearExtra lump sum payment per year

– Increase monthly payment by 1/12thIncrease monthly payment by 1/12th

– Bi-weekly payments (pay one-half of mortgage Bi-weekly payments (pay one-half of mortgage payment every other week)payment every other week)


– Pay the next month’s principal amount with Pay the next month’s principal amount with each paymenteach payment


Early Mortgage PaymentEarly Mortgage PaymentEarly Mortgage PaymentEarly Mortgage Payment• AdvantagesAdvantages

– Emotional Emotional SecuritySecurity

– Future InvestingFuture Investing

– Retirement Retirement NeedsNeeds

– Reduces StressReduces Stress

• AdvantagesAdvantages– Emotional Emotional

SecuritySecurity

– Future InvestingFuture Investing

– Retirement Retirement NeedsNeeds

– Reduces StressReduces Stress

• DisadvantagesDisadvantages– Missing other Missing other

investment investment opportunitiesopportunities

– Lost tax savingsLost tax savings

– Larger monthly Larger monthly paymentspayments

– More frequent More frequent paymentspayments

• DisadvantagesDisadvantages– Missing other Missing other

investment investment opportunitiesopportunities

– Lost tax savingsLost tax savings

– Larger monthly Larger monthly paymentspayments

– More frequent More frequent paymentspayments


Homeowner’s InsuranceHomeowner’s InsuranceHomeowner’s InsuranceHomeowner’s Insurance

Minimal Coverage:Minimal Coverage:

– Dwelling, cost to rebuild not what you paidDwelling, cost to rebuild not what you paid

– Other structuresOther structures

– Personal propertyPersonal property

– Living expensesLiving expenses

– Personal liability, up to $100,000Personal liability, up to $100,000

– Medical payment, set at $1,000 per personMedical payment, set at $1,000 per person

Minimal Coverage:Minimal Coverage:

– Dwelling, cost to rebuild not what you paidDwelling, cost to rebuild not what you paid

– Other structuresOther structures

– Personal propertyPersonal property

– Living expensesLiving expenses

– Personal liability, up to $100,000Personal liability, up to $100,000

– Medical payment, set at $1,000 per personMedical payment, set at $1,000 per person


Additional CoverageAdditional CoverageAdditional CoverageAdditional Coverage

•Replacement CostReplacement Cost

•UmbrellaUmbrella

•RidersRiders

•Flood InsuranceFlood Insurance

•Earthquake InsuranceEarthquake Insurance

•Replacement CostReplacement Cost

•UmbrellaUmbrella

•RidersRiders

•Flood InsuranceFlood Insurance

•Earthquake InsuranceEarthquake Insurance


Reduce Premium CostsReduce Premium CostsReduce Premium CostsReduce Premium Costs

•Shop aroundShop around

•Raise deductiblesRaise deductibles

•Ask for non-smoker’s discountAsk for non-smoker’s discount

•Install fire alarm/extinguisherInstall fire alarm/extinguisher

•Same company as life and auto Same company as life and auto insuranceinsurance

•Shop aroundShop around

•Raise deductiblesRaise deductibles

•Ask for non-smoker’s discountAsk for non-smoker’s discount

•Install fire alarm/extinguisherInstall fire alarm/extinguisher

•Same company as life and auto Same company as life and auto insuranceinsurance


SummarySummarySummarySummary

•Identify “wants” and “needs”Identify “wants” and “needs”

•Know what you can affordKnow what you can afford

•Research homes, agents, lenders and loansResearch homes, agents, lenders and loans

•Get a home inspection Get a home inspection

•Adequately insure the homeAdequately insure the home

•Enjoy your new home!Enjoy your new home!

•Identify “wants” and “needs”Identify “wants” and “needs”

•Know what you can affordKnow what you can afford

•Research homes, agents, lenders and loansResearch homes, agents, lenders and loans

•Get a home inspection Get a home inspection

•Adequately insure the homeAdequately insure the home

•Enjoy your new home!Enjoy your new home!


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