Presentation on theme: "Learn more about becoming a homeowner Kimberly Guider Home Mortgage Consultant NMLSR ID 561110 Georgia Institute of Technology Tuesday, July 9."— Presentation transcript:
Learn more about becoming a homeowner Kimberly Guider Home Mortgage Consultant NMLSR ID 561110 Georgia Institute of Technology Tuesday, July 9
1 Welcome! By attending this workshop, you are taking an important step toward your homeownership goal. This workshop will help you gain a basic understanding of how the homebuying and home financing process works. So you’ll know what to expect and be better able to make informed decisions.
In today’s workshop, we’ll address: Benefits and costs of homeownership Credit basics Home financing basics Homebuying basics 2
What are the benefits of homeownership? Opportunity to build home equity The principal portion of every mortgage payment you make has the potential to grow your home like an asset. Predictable monthly payments Unlike rent, the principal and interest portions of your monthly payment cannot increase, if you have a fixed rate mortgage. Potential tax advantages Your mortgage interest and real estate property taxes are usually tax deductible when you file your income tax returns. Consult your tax advisor for details. More control over space You can decorate and renovate to reflect your personal style. 4
Is now a good time to buy a home? Owning a home is both an opportunity and a responsibility. Being ready to buy a home depends on many factors, including your own personal situation. 5 Overall, now may be a good time to buy for financially qualified customers with low mortgage interest rates and “buyers market” home sale prices.
What are the costs of homeownership? If you use a mortgage to help buy a home, you will repay more than the loan amount you borrow. How much you repay is determined by several factors, including: Loan amount Interest rate Loan term Discount points Origination charge 6
What are the costs of homeownership? Interest rate The interest rate is the percentage of your loan amount a lender charges you to borrow money to buy your home. Interest rates are based on current market conditions, your credit score, the down payment you make, and the type of mortgage you choose. Loan term Your loan term is the amount of time you have to pay off your mortgage balance. Shorter loan terms typically mean higher monthly mortgage payments, but often have lower interest rates. And because you pay off your mortgage within a shorter period, you may pay less in total interest than with a longer-term mortgage. 7
What are the costs of homeownership? Discount points One point equals 1% of your mortgage amount. If you qualify, you may be able to pay one or more points to lower your interest rate. A lower interest rate means lower monthly mortgage payments. Points are usually tax deductible. Consult a tax advisor on the deductibility of interest. Origination charge Includes fees charged by the lender (other than discount points) for items such as underwriting, loan processing and other expenses. In addition to the origination charge are fees charged by third parties such as a credit report fee, appraisal fee and county fees. 8
What makes up a mortgage payment? 9 After buying a home, you will be responsible for making a monthly mortgage payment. A mortgage payment is typically made up of four parts: principal, interest, taxes, and insurance. Principal is the amount of money you borrow to buy a home. Interest is the cost of borrowing money. The amount of interest you pay is determined by your interest rate, loan balance and loan term. Taxes are the property charges collected by your local government. Lenders or mortgage servicers typically collect a portion of these taxes in every mortgage payment and hold the funds in an account (called an escrow account) to make tax payments on your behalf as they become due. Insurance is referred to as homeowners or hazard insurance and provides protection against property damage due to certain risks such as wind or fire. Like property taxes, homeowners insurance payments are typically collected by the lender, held in an escrow account, and then paid on your behalf to the insurance company. Also plan to pay mortgage insurance with less than a 20% down payment. Mortgage insurance protects your lender in case you fail to repay your mortgage. Whether or not mortgage insurance is required usually depends on the lender’s specifications and the size of your down payment.
What are closing costs? Closing costs pay for the services of various real estate and lending related professionals who assist you with your home purchase — plus anticipated costs that will occur before you make your first mortgage payment. Closing costs vary based on lender, type of mortgage and location of the home, but may include: 10 Loan origination fees Home appraisal fees Escrow reserves Property taxes Title insurance
11 A Good Faith Estimate will be provided by your lender and will detail the approximate costs you will pay on or before your loan closing. You may be able to add your closing costs to your loan amount to limit how much out-of-pocket cash you’ll need to close. Your down payment, if applicable, will also be due at closing. What is a Good Faith Estimate?
What additional costs should I consider? The costs of homeownership go beyond the monthly mortgage payments. Added financial responsibilities to consider include: Utility bills Furnishings Landscaping Home maintenance/repairs Appliances Lawn mower/snow blower Homeowner Association Dues 12
Myth or truth? As a rule of thumb, it is recommended that you keep your housing expense level at or below 28% of your gross monthly income. 13
Truth But even if you fall within this rule of thumb, be sure you feel comfortable about making monthly mortgage payments and still keeping up with all your other monthly financial obligations. 14
What role does my credit play in financing a home? Lenders consider your credit history and credit score when making decisions about loan approval, interest rate, loan amount, and the type of loan you may qualify for. They also consider the cash you have available for a down payment and closing costs, your income, and your existing debt and financial obligations. 16 Requirements vary based on the type of mortgage, so work with your home mortgage consultant to determine options based on your specific situation.
What credit qualifying guidelines do lenders consider? The housing expense-to-income ratio (or front-end ratio) compares your anticipated monthly mortgage payment (principal, interest, taxes and insurance) to your total household gross monthly income (pre-taxed). 17 The debt-to-income ratio (or back-end ratio) compares your anticipated monthly mortgage payment (principal, interest, taxes and insurance), plus your other monthly debt obligations to your gross (pre-taxed) monthly earnings. Monthly debt includes: Credit cards Car loans Student loans Consumer loans Other financial obligations such as child support and alimony
Do you know where you stand? 18 Do I pay my bills, loans, credit cards and other debt on time? Do I have a lot of other outstanding debit? What’s my credit history and credit score? Help is available - The Wells Fargo My Home Roadmap SM service provides up to two free hours of personalized financial coaching to help customers prepare for homeownership — conveniently, right over the phone. 1 1. The My Home Roadmap SM service provides up to four sessions (an estimated 2 hours) of free financial coaching with a National Foundation for Credit Counseling (NFCC) certified counselor from a NFCC member organization that will be paid for by Wells Fargo Home Mortgage. At your option, you may purchase additional coaching sessions or services or decide to participate in another NFCC member agency program. Program may change or be discontinued at any time. It’s a good idea to review your credit reports and know your credit score — especially if you plan to apply for a home mortgage.
How can I find out what’s in my credit report? Your credit report captures key data about you and your finances: Personal information — Variations of your name (if any), addresses where you’ve lived, phone number(s) and employment history Potentially negative items — Public records of bankruptcy, liens and court judgments. Also credit accounts with defaults and late payments in the last seven years Accounts in good standing — All current revolving and installment accounts, with balances and payment histories Requests for your credit report — Including requests for credit you initiate and information about creditors who are monitoring your credit You can order a free credit report from each of the three main credit bureaus one time per year. Go to annualcreditreport.com, or call 877-322-8228. 19 It’s a good idea to review your credit reports regularly to keep track of your credit history, especially if you plan to apply for a home mortgage.
How do credit scores work? Lenders use your credit score to determine how much risk they may assume if you borrow money from them. The higher your credit score, the lower your credit risk Customers with low credit scores may face higher down payment requirements and higher interest rates The three main credit bureaus generally calculate your credit score based on: Payment history (about 35% of the score) Amounts owed (about 30%) Length of credit history (about 15%) Recently opened credit accounts (about 10%) Types of credit in use, such as credit cards and consumer loans (about 10%) For a small fee, you can learn your credit score when you order your free credit report. 20
Generally, about one third of your credit score depends on whether you consistently pay your bills on time month after month. 21 Myth or truth?
One of the most important things you can do to maintain good credit is to make timely bill payments. 22 Truth
What types of loans should I consider? Conventional loan A mortgage not obtained under a government program (such as FHA or VA). Either conforming or non-conforming. Government loan A mortgage obtained under a government program, such as FHA or VA (for qualified military personnel), often featuring low or no down payment options Fixed-rate mortgage The interest rate and principal and interest payments remain the same for the life of the loan Often chosen by buyers who plan to stay in their home for a long period of time Adjustable-rate mortgage (ARM) The interest rate may go up or down on pre-determined dates to reflect market conditions Often chosen by buyers who think they might sell, move or refinance within a few years 24
What about renovation financing? With renovation financing, you can a home in almost any condition, make improvements right away, and roll the cost of the improvements into your mortgage. Today’s real estate market features a variety of properties – including foreclosures and short sale properties – that may be attractively priced, but need minor or major improvements. Renovation financing lets you consider more homes for sale, knowing you’ll be able to bring out the best in a home by making improvements you want or need. A Purchase & Renovate loan allows you to get financing based on the appraised value of the home after improvements are made, so your improvement costs are included in your purchase loan amount. Improvements can range from basic repairs and upgrades like floor replacement or new appliances, to more extensive renovations like room additions or complete rebuilding on an existing foundation. A Purchase & Renovate loan fulfills two needs with just one application, one loan approval, one closing and one monthly mortgage payment. Plus, the improvements you make may also increase the value of your home. A certified renovation lending specialist can help you understand your renovation financing options and work with you every step of the way. 26
27 You must have a 20% down payment to buy a home. Myth or truth?
28 Myth Certain financing options, such as FHA loans, require as little as 3.5% down – and VA loans could require 0% down.
Speak with a home mortgage consultant 30 Your home mortgage consultant can: Help you review your income, assets and debts and help you explore loan options that may fit your financial situation Be your contact throughout the home financing process: Helping you understand the information and documentation you may need to provide for your loan application Letting you know what to expect and when Answering your questions and working with you every step of the way
Apply for a PriorityBuyer ® preapproval 2 Find out how much you may be able to borrow. Let REALTORS ® and home sellers know you're a serious homebuyer. Bid with confidence on the home you want. 2. A PriorityBuyer ® preapproval is based on our preliminary review of credit information only and is not a commitment to lend. We will be able to offer a loan commitment upon verification of application information, satisfying all underwriting requirements and conditions, and providing an acceptable property, appraisal, and title report. Preapprovals are subject to change or cancellation if a requested loan no longer meets applicable regulatory requirements. Preapprovals are not available on all products. See a home mortgage consultant for details. 31
Choose a REALTOR ® 32 A good REALTOR should have a working knowledge of the area where you’re thinking of buying and can help you: Decide what you want in a home Search the Multiple Listing Service (MLS) and other resources for homes in your price range that match your needs Show you potential homes, listed by any agency Provide valuable information on communities, comparable values of neighboring homes, tax rates and building code regulations. Help you make an appropriate bid on a home you want to buy and act as an intermediary between you and the seller, during the negotiating process. Tip: Note the names of REALTORS on “For Sale” signs as you drive through neighborhoods of interest. Ask friends and family members and your home mortgage consultant for referrals. Check the websites of local realty companies, too. When you’ve got a list of potential REALTORS, interview at least two or three of them.
What happens next? 33 Work with your REALTOR ® to find a neighborhood and home that’s right for you Once you’ve found the home, make an offer to the seller, who will accept, counter or reject it When the price is settled, you may want to consider ordering a home inspection Your lender will order an appraisal to assess the home's market value Get homeowner’s insurance Close your mortgage and purchase transactions and become a homeowner! Please note: This is a high level overview of what happens during the homebuying process. Your home mortgage consultant will work with you each step of the way and provide a step-by-step checklist when you begin the home financing process.
How can Wells Fargo help? As a fair and responsible lending leader, Wells Fargo is ready to help you find financing that serves your immediate and long-term home financing needs. We want to see you choose a mortgage that will help keep you comfortably in your home for years to come. Wells Fargo Home Mortgage consultants are trained to pay attention to your goals, help you understand your options, and clearly explain how different loan programs work. So you can make informed decisions. 34 Learn more about buying a home. Visit our My FirstHome SM learning experience today! wellsfargo.com/myfirsthome