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The Global Wealth Homeownership and Wealth Education Initiative

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Credit Building Steps

1 Order credit report

2 Correct errors3 Be on time!4 Use credit wisely5 Create

nontraditional credit

6 Manage money

MORTGAGE BASICS

BASIC MORTGAGE MATH

BASIC MORTGAGE MATH

PITIDEBT RATIO = __________________

TOTAL MONTHLY INCOME

BASIC MORTGAGE MATH

Cash Required

Funds required at closing.

Total Closing Costs

+ Down Payment

___________________

CASH REQUIRED

BASIC MORTGAGE MATH

Down Payment

Home Sales Price

- Loan Amount

__________________

Down Payment

BASIC MORTGAGE MATH

The maximum amount a lender will loan based on constraints including income, debt and available cash.

Home Sales Pricex Loan to Value

(LTV)%

______________________Maximum Loan Amount

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WHAT IS THE MORTGAGE LANGUAGE?

MORTGAGE DEFINITIONS YOU SHOULD KNOW….

PRINCIPAL-is the amount of money that you actually borrow or the amount of the loan that is still unpaid

INTEREST- is the charge for using the lenders money.

FIXED-RATE MORTGAGE LOAN- means you will always pay the same rate on interest

MORTGAGE TERMS YOU SHOULD KNOW

ADJUSTABLE RATE MORTGAGE - means your rate will increase or decrease once or twice a year.

TERM- is the amount of time you have to repay the loan.

POINTS - refer to the type of fee the lender may charge.

MORTGAGE TERMS YOU SHOULD KNOW

DOWNPAYMENT REQUIREMENT- is the lenders lowest allowable down payment and is part of the purchase price that the buyer pays in cash.CLOSING COST-are the expenses buyers and sellers pay to transfer ownership of a home.

Repayment Terms are:

30 year fixed-mortgage

20 year fixed mortgage

15 year fixed mortgage

How do you choose the right Mortgage?

How many years do you expect to live in your home?

How important it it to be free of mortgage debt before facing long term financial commitments?

How comfortable are you with the certainty of a fixed mortgage payment versus a payment that can change over time.?

How do you choose the right Mortgage?

How many years do you expect to live in your home?

How important it it to be free of mortgage debt before facing long term financial commitments?

How comfortable are you with the certainty of a fixed mortgage payment versus a payment that can change over time.?

FEATURES OF A FIXED-RATE MORTGAGE

Easiest Fixed-rate loan to qualify for

Most poplar

Best chance to keep monthly mortgage payments low

Advantages of Fixed-Rate Mortgages

Interest Rate will remain the same for the life of the loan.

Monthly mortgage payments will be stable

Predictable monthly mortgage payments

30 year-Fixed Rate Mortgage

Easiest fixed rate loan to qualify for

Most popular

Best chance to keep monthly mortgage payments down

20 year Fixed Rate Mortgage

Amortizes over a 20 year period

Offers the opportunity to own your home debt-free sooner

Monthly payments somewhat higher than a 30 year mortgage

15 year Fixed Rate Mortgage Offers lower interest rate than a 20

year fixed rate mortgage and a 30 year fixed rate mortgage

Initial monthly payments will be lower

Interest rate changes are subjected to two caps, one for each adjustment period and one for life of your loan

ADJUSTABLE RATE MORTGAGES

Interest Rate changes are always tied to a financial index. Three most popular are:

Treasury-Indexed ARMsCD-Indexed ARMsCost of Funds-Indexed ARMs

Treasury-Indexed ARMs

Indexed to a six-month, one year or three year Treasury bills or securities

Your interest rate will adjust to one of the terms you choose (6 month, 1 year, 3 year)

CD-Indexed ARMs

Adjust to a Certificate of Deposit (CD) index

Rate adjustments typically occur every six months, with a per cap adjustment of 1 percent

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Costs of Funds Indexed ARMs Indexed to actual costs a particular

group of lending institutions pays to a borrower

Lenders using this index can adjust mortgage rates monthly, every six months or annually

Most popular: Cost of Funds Index for the 11th Federal Home Loan Bank District of San Francisco

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Two-Step ARM

ARM that adjust one timeThe first adjustment would happen at five years and the maintains a fixed rate mortgage for the remaining 23 or 25 years of a 30 year mortgage term.

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BEWARE!Offers lower interest rates for shorter term - usually financing 5,7 or 10 years.

At the end of this loan term Balloon mortgages require refinancing or paying off the outstanding balance

THE LENDING PROCESS

Loan Terms You Should Know:

Annual Percentage Rate – shows costs of loan expressed as a yearly interest rate.

Commitment Letter – stating your loan has been approved.

Contingency – events that must happen prior to closing.

LOAN TERMS YOU SHOULD KNOW:

Conventional Mortgage – any mortgage that is not insured by the Federal Government

Debt-to-Income Ratio- Percentage of total debt payments to income.

Deed- legal document conveying property

Discount Point – equivalent to 1% of the purchase price.

LOAN TERMS YOU SHOULD KNOW:

Down payment – part of the purchase price that the borrower pays in cash.

Earnest Money – Money put down by a potential buyer to show that he or she is serious

Equity – owner’s financial interest in a property.

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Money

Management

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Writing down your goals

Easily visible

Keep it simple

30 Day Challenge

Review and adjust

Fail to plan – Plan to fail

Keys to Successful Money Keys to Successful Money ManagementManagement

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What Kind of Spender Are You?

The Miser - hoarding, stingy person

The Conservative - moderate, cautious

The Carefree - spends without care

The Big Spender – very generous

The Over spender - spending beyond limits

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30 Days to Success

Live Normal for 30 days

Track each expense – keep every receipt

Evaluate after 30 days

Create 30 day financial spending plan

Can’t Fail – simply adjust!

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Why Manage Your Money?

Prepares you for large expenses

Identifies wasteful spending

Keeps control of financial future

Encourages savings

Strengthens loan application

Helps to accomplish goals

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Three Steps to Planning a Budget

1. Write down your income

2. Write down your monthly expenses

3. Decide what to do with leftover

money

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What are Some Money Management Tips?

Plan according to current income Plan ahead for six months Include spending money for all Keep record-keeping simple Set money aside for emergencies Get consensus from entire family Pay yourself first at least 10% of

take-home pay

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Tips for Savers

Pay yourself first

Open a savings account

Save change at end of day

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Review the Plan

Is your budget working?

Are all family members able to follow it?

Which costs always seem to be over

budget?

Are we getting closer to reaching our

goals?

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What Are Ways to Make Money Management Easier?

Carry written reminders of goals with you

Carry as little cash as possible

Use direct deposit

Put items on layaway

Buy only what you need

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Spending Pie Chart (1)Desired

Living

Entertainment

Savings/InvestmentRetirement

60%

15%

10%

15%

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Spending Pie Chart Actual

Living

Installment

Entertainment

Savings/Investment

60%

18%

20%

-2%

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Credit

Management

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Why is Good Credit Important?

To rent, buy or purchase things you want or need

To save money by borrowing at a lower interest rate

To obtain a job

To lease rental property

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What is Credit?

What is it?

Why Should I Care?

Who Else Cares?

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Who Can Access Your Report? Creditors

Collection agencies

Insurance companies

Employers

Those you give permission

You

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Do You Know Your Score?

What is a ‘Credit Score’?

How do I get one?

How do I make it better?

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What Is Credit Scoring?

Payment history Outstanding debt Credit history Types of credit Credit inquiries

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Components of the ‘Score’

History

Debts

Age

Inquiries

Credit Mixture

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Credit Scoring (FICO)

700 Approved 650-699 DU Approval 620-649 Man Review 500-580 Sub Prime

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The 4 C’s of Credit

Credit

Capacity

Collateral

Capital

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What Are Common Credit Problems?

No credit

Negative credit history

High debt

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Credit Management

Credit Affects: Finance Employment Insurance

Know your score Monitor often Limit Access Seek Professional Help

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Protecting Yourself

Identity Theft

Maintaining Privacy

Opting Out

Keep Checking

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How Long Does Information Stay?

Bankruptcy 10 years Judgments 7 years Tax Lien 7 years Collection, Charge-Off 7 years Most Adverse Info 7 years Inquiries 2 years

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What Are the Main Credit Bureaus?

Experian www.experian.com(888) EXPERIAN (397-3742)

Trans Union www.tuc.com

(800) 916-8800

Equifaxwww.equifax.com(800) 685-1111

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Equal Credit Opportunity Act

Prevents lender’s

discrimination on the basis of age, sex, race, marital status, religion or national origin

Requires written disclosure of reason for denial within 30 days

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Fair Credit Billing Act

Provides right to question if you think your credit card bill is wrong within 60 days

Requires creditor to begin research within 30 days

Requires creditors to supply an answer within 90 days

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Fair Credit Reporting Act

Protects your rights to know what is in your credit report and to fix mistakes

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Credit Summary

Credit is a useful tool

Order your report

Correct mistakes and fix problems

Protect your credit rating

Manage your debts, so they don’t manage you

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Foreclosure

Process

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Foreclosure Process

California Process Judicial Non-judicial

Foreclosure Process Flowchart

Alternatives Loss Mitigation

Modification Deed in Lieu of Foreclosure Repayment Plan

Pre-foreclosure Sale

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BUYING FORECLOSURES

When to buy foreclosures

Before the auction (Pre-foreclosure)

At the auction

After the auction (REO)

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What Are My Alternatives?

Special forbearance

Mortgage modification

Partial claim

Pre-foreclosure sale

Deed-in-lieu of foreclosure

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Precautions

Don’t sign papers you don’t fully understand

Make sure you get all promises in writing

Beware of any loans you are not formally

released from liability of your mortgage debt and

contracts of sale

Check with an attorney or your mortgage company

before entering into any deals involving your home

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Main Points to Remember

Make your monthly payments on time.

Contact your mortgage lender immediately and be honest about your financial situation.

Have a plan to cure delinquency

Arrange an appointment with a HUD-approved housing counseling agency www.hud.gov

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Protecting Your

Investment

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Protecting Your Investment

Types of Insurance

Homeownership Tips

Your Community1. Police 2. Fire 3. Others in your community

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Types of Insurance

Hazard Insurance

Flood Insurance

Special Hazard Insurance

Mortgage Insurance

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Referred to as “Fire” Insurance

Required by the Lender

Protects against hazards such as fires or storms

HAZARD INSURANCE

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Liability Protection

Legal responsibility for any injuries or property damage the owner or a family member causes to other people

Protection of the other structures and the homes contents

Living expenses, if displaced

HOMEOWNER’S INSURANCE

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Homeowner’s Insurance Features

Dwelling coverage Other structures Personal property Loss of use Personal liability Medical payments coverage Deductible

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FLOOD INSURANCE

Required by lender if the property is

located in a flood zone

Generally not covered under hazard or

homeowners insurance policy

Protects during heavy rain, failed

dams and inadequate drainage

systems

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MORTGAGE INSURANCE

Protects the lender in case the borrower defaults and the lender must foreclose

Generally required if the downpayment is less than 20% of the purchase price.

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TITLE INSURANCE

Usually required by the lender protect

the lender against any problems

with legal ownership of the property

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MORTGAGE LIFE INSURANCE

Life insurance policy that pays off the

borrowers mortgage in the event of

death

Allows family to continue to live in the

property

Always optional

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HOME WARRANTY POLICY

Protects the homeowner in the event of

costly repairs

Covers items such as heating, plumbing,

air conditioning

Annual Premium (renewable)

Flat fee per service

Buyer may request seller provide policy

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Know Your Community

Meet your neighbors

Read weekly community newspapers

Accept the Welcome Wagon

Visit city, town hall and library

Volunteer for special events

Attend neighborhood association

meetings

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Know Your Community

Police Department

Where is the nearest station

Fire Station

Which station services your area

Hospital

Where is the nearest hospital

Elected Officials

Who are your representatives

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