Home Buying

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Home Buying
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Topics Include

• Are you ready to buy?
• What can you afford?
• Lenders and Loans
• Selecting a Real Estate Agent
• Negotiating the Deal
• Closing Costs and Closing
• Reducing Payback Time
• Homeowners Insurance

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Are you ready to buy?Renting versus Buying
Buy
Rent

• Ready for stability and sense of community
• Have cash for a larger initial investment
• Provides a tax advantage
• Want your equity to grow
• Dont mind being a landlord
• Dont mind more variable expenses
• Like fix your own home
• Want to remodel and/or personalize

• Move a lot
• Unfamiliar with area
• Low on cash
• Cant or wont maintain
• Prefer fixed expenses
• Dont want to risk losing equity
• Okay with not personalizing
• Dont need tax advantage of home ownership
• Dont want to be a landlord

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What type of house?

• Condo
• Duplex
• Single family
• New construction
• One story or two
• Older home with character

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Location, location, location!

• Distance to work
• School system
• Low crime area
• City, suburb, country
• Near mass transit
• Near child care
• Distance to schools, libraries, parks, shopping,
  highways, etc.

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Needs versus Wants
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What can you afford?

• Prepare, or update, your financial plan or budget
• Reduce debt

Calculating your Debt-to-income Handout
first page of the Financial planning worksheet
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Credit Scores

• 35 - Your Payment History
• 30 - Amounts You Owe
• 15 - Length of Your Credit History
• 10 - Types of Credit Used
• 10 - New Credit
• www.annualcreditreport.com

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U.S. Credit Scores in 2006

• Up to 499 1500 - 549 5550 - 599 7600 -
  649 11650 - 699 16700 - 749 20750 -
  799 29Over 800 11

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Down Payments

• Conventional up to 20
• FHA 3 5
• VA 0

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Choose a Lender

• Get referrals and recommendations
• Compare lenders
• APR
• Discount points
• Loan origination fees
• Lock-in Options

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Choose a Mortgage Loan

• Fixed-rate loans
• Adjustable-rate loans
• FHA Loans
• VA Loans
• Assumptions

• Buy Down
• Step Loans
• Balloon Loans
• Seller Financing
• State Veterans Programs

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Borrower Beware!

• Interest-Only Mortgages
• 80/20 Mortgages
• Subprime Lenders
• Excessive Fees
• Abusive Pre-payment Penalties
• Kickbacks to Brokers
• Loan Flipping
• Unnecessary Products
• and more

www.responsiblelending.org/issues/mortgage/sevensi
gns.html
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The Mortgage Application Process

• Pre-qualification
• Pre-approval
• Formal application
• Processing time
• Conventional loans - 4 to 6 weeks
• VA loans - 6 weeks to 2 months

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Select a Real Estate Agent

• Real estate professionals help you to
• Target suitable neighborhoods
• Identify available homes
• Identify prices and features
• Compare cost per square foot of recent sales
• Assess your financial situation
• Manage the details

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Select a Real Estate Agent

• Principal broker
• Realtor
• Listing agent
• Selling agent
• Buyers agent

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Interview Agents

• Arrange a meeting to discuss your needs and
  wants
• Review positive features of previous homes
• Discuss areas you have visited
• Ask for other recommended neighborhoods
• Have agent recheck your loan qualifications or
  approval
• Arrange appointments for you to see homes in your
  price range

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Do it yourself?

• FSBO For Sale by Owner
• Rent to Own
• Foreclosures
• MLS Multiple Listing Service

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Begin the Search

• Checklist for
• Your House
• Hunt Handout

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Negotiate the Deal

• Property Values (Use Comps)
• Offer to purchase
• Set the price
• List personal property
• List repairs to be included
• Include contingencies home inspection, selling
  your house, etc.
• Earnest Money
• Get a Home Inspection

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Closing Costs

• Between 2 and 4 of loan amount
• Can be paid by buyer or seller
• Negotiable

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Examples of Closing Costs

• Appraisal (350)
• Attorneys fees (450)
• Credit report (60)
• Escrow/title company costs (300)
• Home inspection (100 - 300)
• Home warranty programs (varies with realtor)

• Loan origination fee (0-2)
• Pest inspection fee (100 - 200)
• Recording fee (50 - 100)
• Survey (150 - 200)
• Title search and insurance (based on loan amount)

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Pre-Paid Costs

• Private Mortgage Insurance (PMI)
• Mortgage Insurance Premium (MIP)
• VA Funding Fee
• Homeowners insurance - 14 mos.
• Property taxes - 3 mos.
• Interest - Date of closing to end of month

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Closing

• Take possession
• Collect all keys/change locks
• Request seller provide
• Operating instructions for appliances,
  heating/cooling system
• Names of contractors
• Paint colors
• Locations of utility turn-offs
• Security system combinations, if applicable

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Reducing Payback TimeShorter Loan Term
15 Year
30 Year

• Principal Interest 817 600 Payment (per
  mo.)
• Total paid 147,075 178,967 over term in P
  I

Total Savings 15 year vs. 30 year 31,892
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Reducing Payback TimePrepaying Principal

• Prepay the principal - 30 to 20 yrs.
• Extra lump sum payment per year
• Increase monthly payment by 1/12th
• Bi-weekly payments (pay one-half of mortgage
  payment every other week)
• Prepay the principal - 30 to 15 yrs.
• Pay the next months principal amount with each
  payment

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Early Mortgage Payment

• Advantages
• Emotional Security
• Future Investing
• Retirement Needs
• Reduces Stress

• Disadvantages
• Missing other investment opportunities
• Lost tax savings
• Larger monthly payments
• More frequent payments

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Homeowners Insurance

• Minimal Coverage
• Dwelling, cost to rebuild not what you paid
• Other structures
• Personal property
• Living expenses
• Personal liability, up to 100,000
• Medical payment, set at 1,000 per person

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Additional Coverage

• Replacement Cost
• Umbrella
• Riders
• Flood Insurance
• Earthquake Insurance

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Reduce Premium Costs

• Shop around
• Raise deductibles
• Ask for non-smokers discount
• Install fire alarm/extinguisher
• Same company as life and auto insurance

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Summary

• Identify wants and needs
• Know what you can afford
• Research homes, agents, lenders and loans
• Get a home inspection
• Adequately insure the home
• Enjoy your new home!