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

H O M E B U Y I N G2 Topics Include: Are you ready to buy? Are you ready to buy? What can you afford? What can you afford? Lenders and Loans Lenders and Loans Selecting a Real Estate Agent Selecting a Real Estate Agent Negotiating the Deal Negotiating the Deal Closing Costs and Closing Closing Costs and Closing Reducing Payback Time Reducing Payback Time Homeowner’s Insurance Homeowner’s Insurance Are you ready to buy? Are you ready to buy? What can you afford? What can you afford? Lenders and Loans Lenders and Loans Selecting a Real Estate Agent Selecting a Real Estate Agent Negotiating the Deal Negotiating the Deal Closing Costs and Closing Closing Costs and Closing Reducing Payback Time Reducing Payback Time Homeowner’s Insurance Homeowner’s Insurance

H O M E B U Y I N G3 Buy Are you ready to buy? Renting 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

H O M E B U Y I N G4 What type of house? Condo Condo Duplex Duplex Single family Single family New construction New construction One story or two One story or two Older home with character Older home with character Condo Condo Duplex Duplex Single family Single family New construction New construction One story or two One story or two Older home with character Older home with character

H O M E B U Y I N G5 Location, location, location! Distance to work Distance to work School system School system Low crime area Low crime area City, suburb, country City, suburb, country Near mass transit Near mass transit Near child care Near child care Distance to schools, libraries, parks, shopping, highways, etc. Distance to schools, libraries, parks, shopping, highways, etc. Distance to work Distance to work School system School system Low crime area Low crime area City, suburb, country City, suburb, country Near mass transit Near mass transit Near child care Near child care Distance to schools, libraries, parks, shopping, highways, etc. Distance to schools, libraries, parks, shopping, highways, etc.

H O M E B U Y I N G6 Needs versus Wants Needs First The minimum it takes to make the house acceptable. Wants Second Additional Items that make one house more desirable than another. The Perfect Home!

H O M E B U Y I N G7 What can you afford? Prepare, or update, your financial plan or budget Prepare, or update, your financial plan or budget Reduce debt Reduce debt Prepare, or update, your financial plan or budget Prepare, or update, your financial plan or budget Reduce debt Reduce debt Calculating your Debt-to-income Handout first page of the Financial planning worksheet first page of the Financial planning worksheet

H O M E B U Y I N G8 Credit Scores 35% - Your Payment History 35% - Your Payment History 30% - Amounts You Owe 30% - Amounts You Owe 15% - Length of Your Credit History 15% - Length of Your Credit History 10% - Types of Credit Used 10% - Types of Credit Used 10% - New Credit 10% - New Creditwww.annualcreditreport.com 35% - Your Payment History 35% - Your Payment History 30% - Amounts You Owe 30% - Amounts You Owe 15% - Length of Your Credit History 15% - Length of Your Credit History 10% - Types of Credit Used 10% - Types of Credit Used 10% - New Credit 10% - New Creditwww.annualcreditreport.com

H O M E B U Y I N G9 U.S. Credit Scores in 2006 Up to 499:1% :5% :7% :11% :16% :20% :29% Over 800:11%

H O M E B U Y I N G10 Down 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%

H O M E B U Y I N G11 Choose a Lender Get referrals and recommendations Get referrals and recommendations Compare lenders: Compare lenders: – APR – Discount points – Loan origination fees – Lock-in Options Get referrals and recommendations Get referrals and recommendations Compare lenders: Compare lenders: – APR – Discount points – Loan origination fees – Lock-in Options

H O M E B U Y I N G12 Choose a Mortgage Loan Fixed-rate loans Fixed-rate loans Adjustable-rate loans Adjustable-rate loans FHA Loans FHA Loans VA Loans VA Loans Assumptions Assumptions Fixed-rate loans Fixed-rate loans Adjustable-rate loans Adjustable-rate loans FHA Loans FHA Loans VA Loans VA Loans Assumptions Assumptions Buy Down Buy Down Step Loans Step Loans Balloon Loans Balloon Loans Seller Financing Seller Financing State Veteran’s Programs State Veteran’s Programs

H O M E B U Y I N G13 Borrower Beware! Interest-Only Mortgages Interest-Only Mortgages 80/20 Mortgages 80/20 Mortgages Subprime Lenders Subprime Lenders Excessive Fees Excessive Fees Abusive Pre-payment Penalties Abusive Pre-payment Penalties Kickbacks to Brokers Kickbacks to Brokers Loan Flipping Loan Flipping Unnecessary Products Unnecessary Products … and more … and more Interest-Only Mortgages Interest-Only Mortgages 80/20 Mortgages 80/20 Mortgages Subprime Lenders Subprime Lenders Excessive Fees Excessive Fees Abusive Pre-payment Penalties Abusive Pre-payment Penalties Kickbacks to Brokers Kickbacks to Brokers Loan Flipping Loan Flipping Unnecessary Products Unnecessary Products … and more … and more

H O M E B U Y I N G14 The Mortgage Application Process Pre-qualification Pre-qualification Pre-approval Pre-approval Formal application Formal application Processing time Processing time – Conventional loans - 4 to 6 weeks – VA loans - 6 weeks to 2 months Pre-qualification Pre-qualification Pre-approval Pre-approval Formal application Formal application Processing time Processing time – Conventional loans - 4 to 6 weeks – VA loans - 6 weeks to 2 months

H O M E B U Y I N G15 Select a Real Estate Agent Real estate professionals help you to: Target suitable neighborhoods Target suitable neighborhoods Identify available homes Identify available homes Identify prices and features Identify prices and features Compare cost per square foot of recent sales Compare cost per square foot of recent sales Assess your financial situation Assess your financial situation Manage the details Manage the details Real estate professionals help you to: Target suitable neighborhoods Target suitable neighborhoods Identify available homes Identify available homes Identify prices and features Identify prices and features Compare cost per square foot of recent sales Compare cost per square foot of recent sales Assess your financial situation Assess your financial situation Manage the details Manage the details

H O M E B U Y I N G16 Select a Real Estate Agent Principal broker Principal broker Realtor Realtor Listing agent Listing agent Selling agent Selling agent Buyer’s agent Buyer’s agent Principal broker Principal broker Realtor Realtor Listing agent Listing agent Selling agent Selling agent Buyer’s agent Buyer’s agent

H O M E B U Y I N G17 Interview Agents Arrange a meeting to discuss your “needs” and “wants” Arrange a meeting to discuss your “needs” and “wants” Review positive features of previous homes Review 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 qualifications or approval Have agent recheck your loan qualifications or approval Arrange appointments for you to see homes in your price range Arrange appointments for you to see homes in your price range Arrange a meeting to discuss your “needs” and “wants” Arrange a meeting to discuss your “needs” and “wants” Review positive features of previous homes Review 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 qualifications or approval Have agent recheck your loan qualifications or approval Arrange appointments for you to see homes in your price range Arrange appointments for you to see homes in your price range

H O M E B U Y I N G18 Do it yourself? FSBO: For Sale by Owner FSBO: For Sale by Owner Rent to Own Rent to Own Foreclosures Foreclosures MLS: Multiple Listing Service MLS: Multiple Listing Service FSBO: For Sale by Owner FSBO: For Sale by Owner Rent to Own Rent to Own Foreclosures Foreclosures MLS: Multiple Listing Service MLS: Multiple Listing Service

H O M E B U Y I N G19 Begin the Search Checklist for Your House Hunt Handout Checklist for Your House Hunt Handout

H O M E B U Y I N G20 Negotiate the Deal Property Values (Use “Comps”) Property Values (Use “Comps”) Offer to purchase Offer to purchase – Set the price – List personal property – List repairs to be included – Include contingencies – home inspection, selling your house, etc. Earnest Money Earnest Money Get a Home Inspection Get a Home Inspection Property Values (Use “Comps”) Property Values (Use “Comps”) Offer to purchase Offer to purchase – Set the price – List personal property – List repairs to be included – Include contingencies – home inspection, selling your house, etc. Earnest Money Earnest Money Get a Home Inspection Get a Home Inspection

H O M E B U Y I N G21 Closing Costs Between 2% and 4% of loan amount Between 2% and 4% of loan amount Can be paid by buyer or seller Can be paid by buyer or seller Negotiable Negotiable Between 2% and 4% of loan amount Between 2% and 4% of loan amount Can be paid by buyer or seller Can be paid by buyer or seller Negotiable Negotiable

H O M E B U Y I N G22 Examples of Closing Costs Appraisal ($350) Appraisal ($350) Attorney’s fees ($450) Attorney’s fees ($450) Credit report ($60) Credit report ($60) Escrow/title company costs ($300) Escrow/title company costs ($300) Home inspection ($100 - $300) Home inspection ($100 - $300) Home warranty programs (varies with realtor) Home warranty programs (varies with realtor) Appraisal ($350) Appraisal ($350) Attorney’s fees ($450) Attorney’s fees ($450) Credit report ($60) Credit report ($60) Escrow/title company costs ($300) Escrow/title company costs ($300) Home inspection ($100 - $300) Home inspection ($100 - $300) Home warranty programs (varies with realtor) Home warranty programs (varies with realtor) Loan origination fee (0-2%) Loan origination fee (0-2%) Pest inspection fee ($100 - $200) Pest inspection fee ($100 - $200) Recording fee ($50 - $100) Recording fee ($50 - $100) Survey ($150 - $200) Survey ($150 - $200) Title search and insurance (based on loan amount) Title search and insurance (based on loan amount)

H O M E B U Y I N G23 Pre-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 month Interest - Date of closing to end of month 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 month Interest - Date of closing to end of month

H O M E B U Y I N G24 ClosingClosing Take possession Take possession – Collect all keys/change locks – Request seller provide: Operating instructions for appliances, heating/cooling system Operating instructions for appliances, heating/cooling system Names of contractors Names of contractors Paint colors Paint colors Locations of utility turn-offs Locations of utility turn-offs Security system combinations, if applicable Security system combinations, if applicable Take possession Take possession – Collect all keys/change locks – Request seller provide: Operating instructions for appliances, heating/cooling system Operating instructions for appliances, heating/cooling system Names of contractors Names of contractors Paint colors Paint colors Locations of utility turn-offs Locations of utility turn-offs Security system combinations, if applicable Security system combinations, if applicable

H O M E B U Y I N G25 Reducing Payback Time: Shorter Loan Term Principal & Interest$817$600 Payment (per mo.) Total paid $147,075$178,967 over term in P & I Principal & Interest$817$600 Payment (per mo.) Total paid $147,075$178,967 over term in P & I 15 Year 30 Year Total Savings 15 year vs. 30 year = $31,892

H O M E B U Y I N G26 Reducing Payback Time: Prepaying Principal Prepay the principal - 30 to 20 yrs. 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. Prepay the principal - 30 to 15 yrs. – Pay the next month’s principal amount with each payment Prepay the principal - 30 to 20 yrs. 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. Prepay the principal - 30 to 15 yrs. – Pay the next month’s principal amount with each payment

H O M E B U Y I N G27 Early Mortgage Payment Advantages Advantages – Emotional Security – Future Investing – Retirement Needs – Reduces Stress Advantages Advantages – Emotional Security – Future Investing – Retirement Needs – Reduces Stress Disadvantages Disadvantages – Missing other investment opportunities – Lost tax savings – Larger monthly payments – More frequent payments

H O M E B U Y I N G28 Homeowner’s 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 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

H O M E B U Y I N G29 Additional Coverage Replacement Cost Replacement Cost Umbrella Umbrella Riders Riders Flood Insurance Flood Insurance Earthquake Insurance Earthquake Insurance Replacement Cost Replacement Cost Umbrella Umbrella Riders Riders Flood Insurance Flood Insurance Earthquake Insurance Earthquake Insurance

H O M E B U Y I N G30 Reduce Premium Costs Shop around Shop around Raise deductibles Raise deductibles Ask for non-smoker’s discount Ask for non-smoker’s discount Install fire alarm/extinguisher Install fire alarm/extinguisher Same company as life and auto insurance Same company as life and auto insurance Shop around Shop around Raise deductibles Raise deductibles Ask for non-smoker’s discount Ask for non-smoker’s discount Install fire alarm/extinguisher Install fire alarm/extinguisher Same company as life and auto insurance Same company as life and auto insurance

H O M E B U Y I N G31 SummarySummary Identify “wants” and “needs” Identify “wants” and “needs” Know what you can afford Know what you can afford Research homes, agents, lenders and loans Research homes, agents, lenders and loans Get a home inspection Get a home inspection Adequately insure the home Adequately insure the home Enjoy your new home! Enjoy your new home! Identify “wants” and “needs” Identify “wants” and “needs” Know what you can afford Know what you can afford Research homes, agents, lenders and loans Research homes, agents, lenders and loans Get a home inspection Get a home inspection Adequately insure the home Adequately insure the home Enjoy your new home! Enjoy your new home!

H O M E B U Y I N G32 Print your Certificate Click on the following link to add your name to the certificate and print it: Home Buying Click on the following link to add your name to the certificate and print it: Home Buying