2. Unit 3.0 - Home Ownership Learning Objectives: Understand the three requirements to buy a home How to calculate debt-to-income ratios Realize how home ownership creates wealth How to establish and maintain good credit and the effects of bad credit Understand that one must save significantly before buying a home Know when owning is better than renting

3. Home Ownership – Why Buy? Home ownership is a staple of the American dream – what are the advantages? ◦Home values typically increase over time. ◦Much of your monthly payment is tax deductible. ◦Over time, your loan is paid off, reducing your monthly living expense. ◦Equity gained may be leveraged for future large purchases (education, cars, etc.)

4. Home Ownership - Disadvantages Buying a home is not always the right decision. When is renting better? ◦When you only plan on living there for a short while. ◦In uncertain economic times of decreasing property values or high interest rates. ◦Renting is generally cheaper. ◦Upkeep and repairs are not your responsibility. ◦When your income is not stable and secure.

5. Three Pillars to Home Ownership In order to buy a home, citizens must qualify using three different measurements: 1.They must have good credit 2.They must have a secure income source that is capable of repaying the loan 3.They must have money saved for a down payment and closing costs CREDIT + INCOME + DOWN PAYMENT =

6. 1. Good Credit A credit report is kept on every U.S. consumer and details how well you have paid your bills. Like a report card in school, it gives a lender a good idea about how they can expect you to act if they lend you money. Banks and lenders use the credit report to determine whether to lend you money, and how much the interest rate will be.

7. 2. Income Most Americans cannot afford to purchase a house with cash savings; they need to borrow money from a bank. ◦A loan for a house is called a mortgage. ◦A bank will only lend as much money as they feel you can safely pay back. ◦General Rule = Your monthly housing payment can be no more than 30% of your gross monthly income (income before taxes).

8. 3. Closing Costs The final requirement is that a buyer has money saved to pay for closing costs and a down payment. ◦Banks do not like to lend the entire price of the house. Typically a minimum 5% down payment is required. ◦The paperwork and process to officially buy a home is very expensive. Easily in the $5,000- 10,000 range.

9. The Three Requirements Please view the individual slide shows and videos on each of the three requirements for buying a home: 1. Good credit 2. Secure source of income 3. Down payment and closing costs saved.