Financial Planning for Women June 2013 Get Your Financial House in Order Before House Hunting Erica Abbott, Family Finance Student Dr. Jean Lown, FCHD Dept. 1

Welcome to FPW Personal Finance Action Plan –Make a commitment to yourself to take specific action by a specific date Please sign “attendance” sheet with name & address –(print clearly) First time attendee? PF magazine give-away 2

Overview Is now the time to buy? –Employment & family plans Rates are low but be realistic re: affordability Spending plan Emergency fund Pay down debts: don’t take on more debt Save for down payment & closing costs Check credit reports Improve credit score 3

How much can you afford? Set firm limits to house payment Don’t rely on real estate agent or mortgage broker to tell you what you can afford Payment no more than 25% of take home pay Down payment at least 10% of loan amount –Utah Housing FTHB: 3 ½% Don’t deplete emergency fund 4

Consider the cost Property taxes –*Cache County estimate $8.21 for $1000 borrowed. –$100,000 home = $821 annual property tax! Insurance –PMI insurance if you don’t have 20% down Estimate $40-$50 a month for $100,000 borrowed –Homeowners insurance Varies *LowTaxRate.com estimator 5

Consider the cost Moving expenses Closing costs: Ave. 3 – 6% home price Home inspection Title insurance Utilities –Bigger home = higher bill –Required deposits for utilities Yard care/snow removal equipment Remodeling or updating 6

7 Set Goals before you Buy 7

8 What Kind of Goals? Spending plan that works Emergency Savings Paying down debt Credit in order Saving for closing costs, misc. costs, and down payment Make your goal specific and manageable 8

9 Monthly Spending Plan Create a ZERO budget. Every dollar has a name! -Dave Ramsey Create a ZERO budget. Every dollar has a name! -Dave Ramsey Spreadsheet on computer Spreadsheet on computer Spreadsheet on paper Spreadsheet on paper Envelope Envelope Computer Programs Computer Programs Quicken, Quickbooks, Mint.com, etc. Quicken, Quickbooks, Mint.com, etc. Combination Combination 9

10 Spending Plan Methods Online: Online: Get personal help at USU Family Life Center Get personal help at USU Family Life Center (435) (435) $15 per 2 hour session $15 per 2 hour session 10

11 Emergency Savings 3-6 months of living expenses 3-6 months of living expenses Used for emergencies ONLY! Used for emergencies ONLY! NOT part of your down payment NOT part of your down payment 11

12 Saving for a Down Payment & Closing Costs It's great to have 10% down. It's great to have 10% down. 20% is better 20% is better Utah Housing first time home buyer: Utah Housing first time home buyer: Avoid cost of private mortgage insurance Avoid cost of private mortgage insurance Closings costs UT Housing: % Closings costs UT Housing: % More is better More is better 12

Paying Down Debt Set specific goals to pay off debt. –PowerPay.org program (Debt Snowball) –Pay off debt smallest to largest to build up momentum or –Pay off debt highest interest rate first to save $ 13

Are you ready to be a homeowner? In addition to building savings & boosting your credit score… –How long do you plan to stay in the community? Plan at least 5 years in house (otherwise rent) –Consider your job security (Spouse/partner?) –Planning on having (more) kids? –Planning to cut back from 2 incomes? 14

Rent Vs. Buy Pro Rent No big up-front costs –1-3 mo. Rent Cheaper than buying –Big transaction costs Flexible: Move easily for new job or if income drops Less risky LL does repairs More $ for other goals Pro-Buy Sense of pride, accomplishment, belonging POSSIBLE tax deduction –Not likely due to low rates & high standard deduction Make changes you want Potential to build equity American Dream 15

Questions? Ideas or experiences to share? 16

Mortgages

Types of Mortgages Fixed rate mortgage: the interest rate doesn’t change throughout the life of the loan Adjustable rate mortgage: Interest rate can go up or down depending on current interest rates 18

Types of Mortgages Balloon loan: A short-term mortgage in which small periodic payments are made until the completion of the term, at which time the balance is due as a single lump-sum payment –TheFreeDictionary.com 19

Types of Mortgages Veteran Administration Loans (VA Loan): –Requires nothing down –No PMI insurance –Sometimes higher interest rates than you can get with an FHA or conventional loan. –Max 41% of gross income * 20

Types of Mortgages Federal Housing Administrations (FHA) –Low down payment (1 to 3%) –Low closing fees –Works with people with lower credit scores –Conventional might be better if you have more than a 5% down payment –Max 31% of gross income * 21

Types of Mortgages Conventional mortgage –Most require between 5 and 20% down –620 credit score or better –Buyer will pay Origination fees Down payment Mortgage insurance etc. – Max 28% of gross income unless non- conforming loan *bankrate.com 22

Building a Positive Credit Report 23

Overview Credit Report –How & why to get your free reports Credit Reporting Agencies: The big 3 Credit Score(s) –What it is –How it is used –What’s a ‘good’ score? 24

What is a credit report? A continuing record of a borrower’s debt commitments and how well they have been honored. Married couples each have their own report Find yours by going to AnnualCreditReport.com 25

26 How to build a credit history? Time and good behavior Start with a low limit credit card –“You don’t have to carry over a balance, but you do need to use it.” –Rod Griffin, Experian Pay on time –Sign up for automatic payments Use less than 50% of your credit limit

27 What’s in a Credit Report? 1.Identifying information –Name, current & past addresses, SS# 2.Credit use information –Active and inactive accounts –Payment history 3.Public record information –Criminal convictions, foreclosures, lawsuits 4.Inquiries –by creditors & your applications for credit

28 What to look for Potentially negative items Open accounts Status of accounts –open/never late is good –closed, past due, maxed out limit, etc. –Duplicates (account appears twice but is only one loan) Clear this up

29 Find wrong information? Contact CRA (credit bureau) –Report explains how to correct mistakes Is it your mistake? –Spouse could have taken on debt –Unfamiliar company name Bought electronics, etc; store provides credit through finance company Lender changed names; was bought out, etc.

Negative Information? Write 100 word explanation that goes with credit report –Explain reason for problem Negative Information should be removed after 7 years –10 years for bankruptcy 30

Close accounts you aren’t using? Consider impact on credit score if your credit utilization ratio increases Wait to close unused accounts until you get your mortgage –Unused accounts: ID theft potential 31

CRAs do NOT decide if you get credit! Each lender makes own decision Lenders offer range of mortgage rates based on credit score 32

33 Free Annual Credit Report Get a free credit report once/year/ CRA: Experian, TransUnion, Equifax: – – Reports are likely to differ –Order all 3

Q on Credit Report? 34

Credit Score Number ( ) that reflects information in your credit report Determines how much you pay for credit –Higher score = lower cost credit – cores/Curious.aspxhttp:// cores/Curious.aspx –Table shows $ impact of credit score 35

Credit Score 36 Retrieved from MyFico.com May 17 th 2013

37 Who Determines your Score? FICO=Fair Isaac Company –The 1 st, most common, most important score –Average is 692; range: Average changes with time –Each CRA also calculates & sells own score

38 FICO Score Based on: –Payment history (35%) –Outstanding loan balances (30%) Credit utilization ratio –Length of credit history (15%) –Inquiries (10%) –Types of credit (10%) Variety is good: credit cards, vehicle loan, mortgage Avoid finance companies

Credit Score Costs FICO score: $19.95 Experian: $7.95 Equifax: $15.95 Transunion: $9.95 Costs as of June

Estimate your FICO Score Range: – score-fico-calculator.aspxhttp:// score-fico-calculator.aspx –Answer 10 Q to estimate your score About FICO Scores –Map shows average score by state –What is a FICO score? –Understanding credit 40

41 Beware of Scams Debt relief companies Credit repair scams –Claims to repair your credit are just not true. –Only time, effort and repayment will improve credit report & score Focus on paying current bills on time

Summary Order free credit report today Build a strong credit history Use credit cards prudently –2 cards are enough –Pay in full at end of month or be a debt slave for life 42

Resources Federal Trade Commission: credit & loans – Housing & Financial USU Family Life Center

First time homebuyer workshops USU Family Life Center Housing & Financial Counseling to register 8:30 am. to 4:30 pm first Saturday July 13 th August 3 rd September 7 th October 5 th November 2 nd December 7 th 44

45 Upcoming FPW July 10 th : Saving for college with 529 college savings plans August: No Meeting! Enjoy your Summer Break September 11 th : “Social Security and Retirement Timing,” with guest speaker and financial planner Suzanne Dalebout –Evening program will be at the Logan City library in the Bonneville Room. October 9 th and November 13 th : TBA

46 Where to Find FPW enhttp:// en