Your Own Home 2

Purpose

Your Own Home:

• Gives you information on the home buying process.

• Describes several mortgage options that you can use to buy a home.

Your Own Home 3

Objectives

By the end of this course, you will be able to:

• Describe the benefits and pitfalls of renting versus owning a home.

• Identify the steps required to buy a home.

• Identify questions to ask to determine your readiness to buy a home.

Your Own Home 4

Objectives (Continued)

• Identify basic terms used in a mortgage transaction.

• Describe the advantages and disadvantages of different mortgage options.

Your Own Home 5

Benefits of Renting

• No property maintenance

• One year (or less) rental contract

• No property taxes or homeowner’s insurance

Your Own Home 6

Benefits of Owning a Home

• You can build equity in your home and borrow against it.

• A home generally increases in value.

• The home is yours.

• Your mortgage interest is tax deductible.

• You can pass your home on to family members.

Your Own Home 7

Steps Involved in Buying a Home

Step 1 Determine if you are ready to buy a house.

Step 2: Determine how much mortgage you can afford.

Step 3: Determine which mortgage option is best for you.

Your Own Home 8

Steps Involved in Buying a Home (Continued)

Step 4: Qualify for a loan.

Step 5: Go through settlement.

Your Own Home 9

Homebuyer Assistance Programs

• Individual Development Account (IDA)

• Programs offered by cities or local government offices.

• Financial institutions

Your Own Home 10

Characteristics of Government Programs

• Zero or low down payments

• Flexible underwriting standards

• Longer payment terms

• Requirement for homeowner education

• Some restrictions

Your Own Home 11

Components of a Mortgage Payment

• P = Principal

• I = Interest

• T = Taxes

• I = Insurance

Your Own Home 12

How Taxes and Insurance are Paid

• In an escrow account, along with the mortgage principal and interest.

• Separately -– Quarterly or semi-annual property tax– Annual insurance premium

Your Own Home 13

Four Cs of Loan Decision-Making

• Capacity• Capital• Character• Collateral

Your Own Home 14

Pre-qualification

The pre-qualification process:

• Lets you know how much mortgage you can afford.

• Is informal, involving no paperwork.

• Gives you a “ballpark” estimate.

Your Own Home 15

Pre-approval

The pre-approval process:

• Is a commitment from the lender to lend you money.

• Lets you know how much money you can obtain.

• Tells sellers you are prepared to buy a house.

Your Own Home 16

Mortgage Options

• Traditional mortgage

• Interest-only mortgage

• Biweekly payment mortgage

Your Own Home 17

Shop, Compare, Negotiate!

• Check newspapers and the Internet for terms and rates.

• Negotiate the best price you can get.

• Let lenders compete for your business.

• Get costs in writing.

Your Own Home 18

Good Faith Estimate

An estimate of the cost of settlement services that the lender should give you when you apply for the loan.

Your Own Home 19

When Debt-to-Income Exceeds Recommended Ratios

You must:

• Have a demonstrated ability to pay more toward housing expenses.

• Show evidence of acceptable credit history or limited credit use.

• Make a larger down payment.

• Have cash reserves.

Your Own Home 20

Settlement

Settlement occurs when the borrower meets with the seller and other representatives to sign the documents that will finalize the sale of the house and any mortgage financing.

• Also called “closing.”

• HUD-1 or HUD-1a Settlement Statement.

Your Own Home 21

Tapping Into Your Home’s Equity

• Home equity loans

• Home equity lines of credit

• Cash-out refinancing

• Reverse mortgage