1. Family & Consumer Sciences Agent
Home Buyer Workshop
Jayne McBurney, M.S.
Family & Consumer Sciences Agent
Housing Counselor
Jayne Makes Cents
@JayneMakesCents

2. Rent vs. Buy Advantages to Rent Pay less Little financial risk
Cost of selling
Disadvantages to Rent
Finding suitable rentals
No tax advantage
No freedom for individualizing space
Anytime you have a big decision to make, you should weigh out the pros vs cons, the advantages and disadvantages.

3. Rent vs. Buy Advantages to Buy Investment of mortgage dollars
Interest is tax deductible
Home can increase in value
Disadvantage to Buy
Commitment of time, etc.
Ties up money
Maintenance

4. Can you afford a home?
Consider that most lenders suggest that 25-29% of your gross income will go to housing.
Lenders want to see less than 41% tied up in long term debt (car loans, alimony, child support, installment loans, credit cards)
Before considering the purchase of a home, how did you know if you could afford a home? Did you use a calculator from the Internet? What did you learn?

5. What do lenders look at?
Income
Debt
Assets
Credit Score

6. Understanding Income Gross income vs Net Income
Before taxes and deductions ‘bring home pay’
$40,872 (2000 Census $29,428 for Johnston County)
$3406/month $2452/month
$786/wk $566/wk
Insert your local data here. This figure is used as a basis for discussion purposes in the next three slides, as well.
We use this figure to apply “Rules of Thumb” as to how much of your monthly income should go where.

7. Monthly debts Should be less than 15-20% of net income $368-490/month
For some folks, this is far more.

8. Housing
25% - 33% of gross pay
$852-$1124/month

9. Vehicle
less than 15% of gross including insurance, gas and maintenance
$511/ month
When gas prices rise, many will augment this figure by extending credit. The may choose not to maintain a vehicle, which can cause even more problems, leading to deeper credit.
Increased gas prices in 2008 paired with a failing economy lead to increased debt.
So how do we get out of debt????
Debt it the next thing that lenders look at.

10. The Steps to paying down debt
TALK
FIX
FIND
SMART
TRACK
ASSESS
STOP
When you consider the

11. STOP new purchases Average Credit Card Debt: $8,000 $19,000 (January)
$15, 000 (October)
$15,480
Freeze credit by placing credit cards in a container with water and placing in a freezer....the only way to thaw is to WAIT and consider if you really NEED the item that you wish to buy. How do you stop an elephant form charging? Take away its credit card.

12. …in daily terms
In order to pay off these debts in three years, the daily cost is noted. So, a debt of $8,000 at 18% interest is about $300 a month for 360 months. Those with larger debt probably has a higher interest rate...imagine a $16,000 debt at 24% interest. Was it really worth $21 a day or $630/month for the next three years?

13. Assess the problem How did you get there?
Is it permanent or temporary?
Job loss or lay off
Health/Accident
Divorce or death
Living too big: needs vs. wants
Spending problem
Which do you think is worse? Job loss or layoff? Divorce or Death???
Most causes of debt are from living too big...keeping up with neighbors. Just plain greed. Wanting more than you need.

14. TRACK your spending Write down EVERYTHING you spend
Use a calendar with due dates
A wake-up call
Make a budget: ABC
Next step: Track expenses. Use a small notebook, a tracker (handout trackers)
Add up what you spend and put it on the “Wake Up Call” calendar (handouts)
When you see how much you spend in a week vs how much you bring home, you soon realize a budget may be in order.
ABC Budget added up everything that you bring home, comes into your account.....
Subtract the NEEDS do you have anything left? What haven’t you done yet?
Eaten!!!! Discuss how food, clothing and other “flexible expenses” are flexible. There is often a discussion of where to shop for groceries to get items cheaper, using coupons, Aldi, big box stores, Angel Food Ministries.
Clothing: discuss Mall vs discount retailers vs consignment/thrift/garage sales.
Other areas...car maintenance DIY, bartering with friends for skills, chores.

15. Fixed vs Flexible Fixed is NEEDS:
Rent, car, utilities, insurance, savings
Flexible is WANTS:
Food, clothing, recreation, car maintenance, phone

16. SMART Goals Specific: I need new brakes for my car in 6 months.
Measurable: They will cost $300.
Attainable: I will save $50/month for six months
Realistic: how will I get the $, look at spending
Time Bound: I will have the $ by x date
So when you need a large ticket item, you need to set a goal....a savings goal.
How do I accomplish this???? Is $50 hard to save each month????

17. Find $ Cable….movie packages Internet/Cell phone
Nails/ Haircut…can you wait a week?
Daily lunch, at a modest $5 = $100 a month
Vending machine: $1.50, $45/month
Places to look at expenses that are not so difficult.
A variety of source come up. Movies: Re box, Netflix, Hulu
Internet service: Magic Jack. Is Internet needed if you have a smart phone? Cutting hair at home (this could be a bartered skill).

18. Easy Fix: Bring snacks from home in a cooler, save $30/mo
Pack Lunch 3 days a week, save $60/mo
If you have a smart phone, you may not need Internet at home, save $45/mo
Rent movies, save $25-$50/mo
Have hair and nails done every ten days, save $50/mo
In this slide, easy fixes add up to about $200!!!!

19. Paying down Credit Card debt
What if you don’t need brakes. Where could $50 go? If you use it to pay down debt, it will take much less time. Look at the $8000 debt at 15%. Paying $200?month will take 56 months...nearly 5 years!!!! Add $50 a month and it is paid in less than four years!!!!

20. Talk
Communicate with anyone who depends on your paycheck about spending issues and financial goals
Talk to everyone who depends on your paycheck. For example, the guy that asks to borrow twenty bucks on payday. If they are not working as hard as you to keep the budget balanced, problems could arise.

21. Review the Steps
TALK
FIX
FIND
SMART
TRACK
ASSESS
STOP

22. Monitor and Modify Stuff happens….change in income, emergencies….
Goals change
But also….new income…SAVE IT!
Is it worth it? - opportunity costs

23. BREAK
Need one?

24. Assets/Collateral Things you own that have value… Car, vehicles
bank accounts, CDs , stocks
retirement plans, 401K, IRAs
Life Insurance cash values, Trust funds
The lender has looked at you income, you debt and now...assets. Assets can be converted into cash. Collateral is not as liquid (retirement accounts, life insurance policies)

25. What is my Credit Score? Score range: 300-850
Use the Credit Education tab
Then Credit Score. What is a good score? Use MyFICO.com for information, need not buy anything.
Also, the annualcreditreport.com site is the government affiliated site There is NO COST for a credit report. You can get one form each of the three reporting agencies each year. Spread them out over the year as you repair credit.

26. Credit Score
See What’s the Score? Handout for further explanations.

27. How much can I buy? Ratios help lender determine this:
Front end: 29% of gross income
Back end: 41% of gross income, less monthly debt
So now, the lender has the four things then need. Income, debt, assts and Credit score. How much can you afford???? Here are two ways to figure. Which one do you think is best???

28. Considering median income of $40,872
Front end: $988
Back end: $1396
-250 car payment
-400 other debt
$ 746
Using the median household income from the beginning......

29. P+I+T+I Monthly payment = Principal Interest Taxes Insurance
The monthly payment has four parts.
Principal: goes to the loan, this becomes your equity
Interest: very large portion in he beginning, is tax deductible
Taxes: Property tax, pays for county and city services, schools. You may have BOTH if you live within the city limits.
Insurance: Homeowner/Hazard Insurance. Covers the home and rebuild in the case of damage or loss
You may have Private Mortgage Insurance if you have less than a 20% down payment. This is currently tax deductible and covers the LENDER, but is paid by you. It covers what is lost in the case of a default or foreclosure.

30. Using the lower of the two ratios:
Total Payment $746
less
Real Estate Tax
Home Owner Insurance 40
Principal & Interest $621
use this amount to determine how much you can afford to finance
So, the amount you can afford to pay in Principal and Interest is ....
(recalculate to fit your county figures)

31. Amortization factors
Determine how big of a loan you can afford, depending on interest rate and monthly payment and term of loan
So…considering a 30 year loan and ability to pay principal and interest of $621

32. How much can you afford? 6.00% $103,500 5.00% $115,000 4.5% $122,000
6.00% $103,500
5.00% $115,000
4.5% $122,000
4.00% $130,000
3.50% $138,500
3.25% $142,500
3.00% $147,200
The lower the interest rate (which to some extent is based on your credit score) the more you can borrow.

33. Your Needs in housing: Space, how many rooms are needed?
Exterior space - garage, yard, entertaining
Appliances
Location
Now you can look!!! What do you need? How many bedrooms? Discuss lifestyle issues, preferences, big yard good for kids to play, but it needs mowed, who does that? Do you like to cook? Do you entertain? Inside or Outside?

34. Location Schools Work Groceries, shopping areas Environmental
Schools important for kids, if older, may not want kids around. There should be a shopping area between your home and worm. Do you want trees? What is the value of trees, shade?

35. Financial Aspects
One - Time Costs - closing costs moving expenses, set-up fees
Regular costs - payments, insurance, utilities
Future Costs - maintenance, repairs, furnishing

36. Don’t become “House Poor”
Space out things you will need
Be smart about furnishings, repairs, upgrades
Don’t fall into the idea that you have a new house and need to fill it will all new things! What is needed first? Usually beds and a place to eat.

37. Your Home Buying Professionals
Real Estate Agent
Mortgage banker
Home Inspector
Appraiser
Attorney

38. What to expect from a Home Inspector
Licensed by the North Carolina Home Inspection Board.
A home inspection is a written evaluation or report of the condition of the home on the day it is inspected.
Home inspectors generally evaluate: foundation, masonry, roof, windows and doors, plumbing, electrical, heating, ventilation and air conditioning system, floor, walls, interior and exterior components
Try to be present on the day your home is inspected, you will learn much about your home. A good inspection toake about half a day.

39. Closing Statement Taxes Stamps Recording Fees Commissions Inspections
See HUD-1 Settlement Statement which can be downloaded from Internet.

40. What Next? Set up utilities Clean the new place Paint/repair
Plan Moving Day
Keep kids busy!!!!

41. Questions????? Ask the Extension Agent…
Landscape, plants
Bugs!!!!
Nutrition and Cooking questions
Youth programs
Johnston County
Insert local applicable info.