First Time Home Buyers
As a first time buyer you should surround yourself with the best professionals to help you through the process. AMFREE representatives have access to the top professionals in each field. AMFREE representatives always hire union companies when ever possible. Your successful purchase of your new home will need the attention of one of our realtors, a lender, escrow officer, Title Insurance Officer, Buyer/Seller, Housing Inspector, Appraisers, and Insurance Agent.
We successfully assist new home buyers into their first homes because we listen and we care. Our companies relationship with the union to look after there members acts as an insurance to you the client. We have an obligation to you and one to the unions to strive to give 100% satisfaction or it cost you nothing. That’s right it cost you nothing. We are paid by the seller through the proceeds of the earning or profits. You qualified for these union member benefits by being a union member or by being referred through open registry.
We are going to cover lot information to familiarize you so when you see it again you won’t be shocked.
Things to ask your self when considering investing in a home:
- What can I afford to pay?
- How does my credit history look?
- How much can I borrow and what is the best loan program for me?
- How will I find the right home?
- What do I do if something happens to my house?
Are you ready to be a home owner?
Budget
Why do I need a budget?
How do I calculate my monthly income, bills and expenses?
How much can I afford?
Why are we talking about budget?
To help you:
Ø Identify your total income, total bills, and total expenses.
Ø Calculate what you can afford to spend for a mortgage.
Ø Establish a plan to track your money each month.
Total Household Income
Identify money earned over a period of time:
Ø Save pay stubs for a period of 3 weeks.
Ø Total the net amount of each check.
Ø Divide the total by three to estimate total monthly income.
Do you know what the difference between the gross and the net is? Gross is the total pay before taxes and other charges against your pay. Net is the amount left over or what you take home.
What is your net?
What is your gross?
What is the total house hold net and gross?
Monthly Bills
Identify money spent over a period of time:
Add up all bills and receipts for 3 months and dived them by 3.
Ø SDGE
Ø Credit cards
Ø Phone
Ø Cell phone
Ø Child support
Ø Insurance
Ø Rent
How many of you track other expenses and can predict how much they will spend each month?
Ø Groceries
Ø Gas
Ø Bus Fare
Ø Coffee
Ø Lunches
Ø Newspapers
Identify money typically over one week. Categorize into groups and multiply by 52 and divide by 12 this will give you a monthly estimate on your other expenses.
How many of you put money into a savings or retirement account regularly?
Income- bills –expenses = savings or money left over
Did you know? Home owners pay additional monthly bills and expenses that renters don’t pay like.
Ø Water
Ø Trash
Ø Property Taxes
Ø Home owners insurance& or HOA Fees
Ø Repairs and Maintenance
Ø Possibly Mella Roos
How much can I comfortably afford?
To figure out how much you can comfortably afford just add up the rent and the amount you put into saving each month.
Then Subtract the extra expenses that you will pay as a home owner this total is what your can reasonably afford to pay for a mortgage.
Down Load Worksheets in PDF
Credit
What is a credit score?
Ø Credit is the foundation for your financial future
Ø Dependability in paying bills reflects on dependability in other walks of life.
Ø Good Credit means that you manage your money well and make loan payments on time.
Ø Credit = money borrowed from someone else.
Ø Credit= an agreement that money will be paid or repaid at a future date.
Credit is like a finger print. Everyone is different.
What is a credit report?
Ø A credit report is your history or record of how you pay your bills written in the form of a report.
Ø There are 3 agencies that do the reporting and keep track of your data.
Why is your credit so important? Your credit is an indication of how you are likely to pay back other obligations. It provides feedback that credit companies, lenders, landlords, and employers provide. Employers sometime want to know if you are a credit risk and if you could encounter financial difficulties. Bad credit sometimes indicates that people are susceptible to a bribe of some kind or theft.
Think of a credit report as a report card that grades how well you pay your bills.
What affects credit?
Ø Taking more than 30days to pay bills.
Ø Missing or incomplete information on credit report/ false information – from stolen identity or simply a mistake.
Ø Agencies report your financial information to credit reporting agencies using your first three letters first name, middle initial, first three letters of last name, part of address, zip code, and SS#.
Ø If you have someone else’s information on your report it could be the way information is reported. If you have a common last name you should check your credit to make sure that all the information on your report really belongs to you.
Ø Too many re-quest to get credit.
Ø Legal action against you due to unpaid debt: Collections, Charge offs, judgments, foreclosures, bankruptcies, liens, Debt adjustments and repossessions.
What are credit reporting agencies?
Ø Credit reporting agencies compile credit information and provide them to businesses seeking information about you.
The 3 reporting agencies that lenders are concerned about are:
Ø Equifax
Ø Experian
Ø Transunion
Each of these reporting agencies have different ways to calculate or score your credit history and nobody really know exactly hoe it works. However we have very good idea how things will affect your scores from transactional history. Our trained professionals will assist in simple adjustments. Each agency will score you different and if you’re cleaning up your credit.
What are Fico Scores/ Credit Scores?
Ø A number calculated by reporting agencies to predict your likelihood that you will repay your loan and are based on:
1. Outstanding Debit
2. Credit History
3. Open Credit Accounts
4. Timeliness of loan payments
The higher the Credit Score the lower the risk. The lower the risk, the lower the cost of borrowing money that means your interest rate.
How do I get read a credit report?
Ø Our trained professionals will review your credit scores to with you and explain what they see when reviewing your information when prequalifying to purchase a home.
What should I do if I have bad credit?
Ø Contact us immediately
How to improve your score:
Ø Keep credit card balances below 50% (pay almost off if possible)
Ø Don’t close unused accounts 1-2 accounts with 0 balances will raise your score.
Ø Make all payments on time
Ø Make sure credit report is accurate
Ø Do not request new credit during the home buying process
Ø Do not pay any outstanding balances over 24 months talk with our executives for more information. Sometime paying off the balance actually can hurt your score. Seek advice.
Remember:
Ø Credit is tracked for 7 years
Ø The most recent year has the most impact on your score
Ø Dispute anything on your score that is not accurate
Ø Get credit report each year from
1. www.annualcreditreport.com provides one free report each year from each of the bureau with out credit scores.
2. Myfico.com score provides one free report each year from each bureau
Don’t do anything during the home shopping process. Talk with your AMFREE representative before you do anything.
How can you realize the American dream of home ownership? Loans
What is a loan? A loan is a secured lien against real property
Ask yourself these questions when you talk to us about a loan:
Ø How much mortgage can I afford to pay?
Ø How’s your credit?
Ø How’s your credit look?
Ø What type of loan will fit your needs so I can buy a house
Understand that the loan officer or mortgage broker is not the one who will decide if you get your loan. It’s the underwriter who makes the final decision. Think of it this way…. Your mortgage broker or loan officer is your coach and the underwriter is the referee.
What will we do for you?
Pre-qualification is where the mortgage broker or loan officer looks at supporting documents and estimates how much loan you qualify for. It does not guarantee you a loan before you shop for a home. It just tells you what you might qualify for. You really should get pre-approved before you shop for a home.
Pre-approval – underwriter looks at loan application and supporting documents. You will know how much a lender will loan you to you. Loan may come with conditions or requirements (example pay off past outstanding balance). Pre-approval means you apply for a loan before you find a home.
What will they need as part of the loan application process?
Ø Income records
Ø Credit report
Ø Last 3 months bank statements
Ø Last 2 paystubs
Ø Account balances on any 401k or Ira account statements
Ø Stock Statements
Ø Debt-to-income ratio
Ø Employer information
Ø Employment history
Ø 5 years residence history
Ø W-2
Ø Tax Returns
Ø Proof of undocumented income
Ø DD214 if VA Loan
Ø Certificate of eligibility if VA Loan
Ø HUD class CERT if FHA loan
Ø Credit report
Debt-to-income ratio (DTI)
Ø Total debt payments
Ø Total credit cards(minimum payments)
Ø Total other credit obligations that appear on your credit report.
Ø Add totals together.
Calculate DTI
Total Monthly debts
Total monthly income X 100 = DTI
What does DTI tell you?
Ø How much of your income is tied up in debt.
Ø How much income is left to pay the mortgage
Simple DTI is the relationship between what you owe and what you make.
Lenders calculate and analyze your debt-to-income ratio to determine how much mortgage you can afford.
Currently FHA and or other Government back loans will not loan over 45%
A lower DTI means easier to qualify for mortgage
Your AmFREE representative will be your counselor through the financial side of the home buying process.
With your AMFREE representative you should be able to determine the monthly mortgage payments.
Mortgage program that suits your needs
Loan process and closing cost.
What affects your monthly mortgage?
Ø How much cash you put down on the house
Ø Repayment terms of the loans(number of years to repay the loan)
Ø Interest rate of the loan
Depending on your family needs will help determine what type of loan you can use and qualify for.
How else can you decrease your monthly mortgage payment? Buy down points.
When you buy down “points” you pay interest in a lump sum upfront to get a lower your mortgage rate for a fixed period of time. Points are fees the borrower pays the lender at the time the loan is closed, expressed as a percent of the loan. (On a $100,000 loan, 2 points means a cash payment of $2,000). The more points you pay the lower the interest rate.
What is a mortgage payment?
Ø Principle
Ø Interest
Ø Taxes
Ø Insurance
Monthly mortgage payment = PITI
P- Principle (Payment toward the amount you borrowed)
I- Interest (the fee for your loan you pay your financier)
T- State and Local Taxes
I- Insurance
Example:
Loan $250,000 (30years at 6.5%)
Principle 226.00
Interest 1354.17
Taxes 260.42
Insurance 80.00
Total payment 1920.59
Notice that in the beginning most of the payment goes to interest. Over time more money goes to principle and less goes to interest.
Be sure to ask about HOA & Mello-Roos both are in addition to PITI
What is HOA? Home owners association is a group that governs a subdivision, condominium or planned community. The association collects monthly fees from all owners to pay for common area maintenance, handle legal and safety issues and enforce the covenants, conditions, and restrictions set by the developer.
What is Mello-Roos? A bond for district facilities like parks, libraries and schools , that is a annual fee in addidtion to state, state city and local property taxes for homes in certain areas.
One or both of these will increase your monthly payment on top of the PITI
However if you purchase a condo the HOA insurance will cover the required structural insurance required by the lender. Your personal belongings will not be covered. A Condo owner’s policy should be purchased.
Remember you will be the one making the monthly investment until you pay it off or sell the house. Make sure you keep your monthly mortgage in perspective.
Think about it this way… there is a limit to how much you can invest on a monthly based on your income. Many home owners get into trouble when their obligations get to be to much for them.
Ask yourself, how much can I afford realistically.
Try this quick calculation for a rough estimate:
Your gross monthly income $2,500
Before deductions
X 45% = 1125
- monthly debts & payments - 352
(excluding deductions)
= PITI 773
45% is a debt to income ratio the banks would like to see
Your AmFREE executive will help you determine:
Ø Monthly mortgage payments
Ø Mortgage program that suits your needs
Ø Loan process and closing cost
Loan categories include:
- conventional mortgage loans
- Government –insured loans
Conventional Mortgage Loans= Fannie Mae & Freddie Mac, Insurers of these loans, Offer what is referred to as “A” paper loans for borrowers with good to excellent credit, meaning no late payments within the past 24 months. These Loans offer the best market interest rates with minimum down payment requirements of 3% & 5%. Private mortgage insurance (PMI), a cost added to your monthly payment, is required on these loans when less than 20% down payment is made.
Government-insured loans= A Mortgage that is insured by the federal housing administration (FHA) or guaranteed by the department of veterans affair (VA) or the rural housing service (RHS). Mortgages that are not government loans are classified as conventional loans.
Common multiple loan structures include
Ø 80% First Loan
Ø 20% Second Loan
Multiple loans are often at different interest rates and may have different terms.
Many of these loans are not available in the market today unless you’re using a Down Payment Assistant Program. Or other creative program that will need to discussed with your AmFREE Executive.
Most loans being done today are FHA loans. With 3% down.
Mortgage Programs
Loans Pros Cons
Fixed Rate Payment does not Change May be higher payment or interest
Over time
Arm Initial payments may be more after fixed time payments will vary
Affordable with interest rates
Interest Only Initial payments may payments will change in the future,
Be more affordable there will be a balloon payment or
Negative amortization
Important factors to consider:
Ø How much of the monthly payment goes to principle
Ø How much of the monthly payment goes to interest
Ø Whether you payment will stay the same the life of the loan
Ø What are the benefits and draw back to the options.
Prepayment does my loan have one and what is it?
A prepayment penalty is a penalty for selling modifying or refinancing a loan with in a specified amount of time. Most or the time its equal to 6 months worth of interest.
If you don’t have a 20% down payment, you may qualify for a down payment assistant program.
You will most likely to have more than one loan to finance your home.
Down payment assistant programs-