1 Home Buying Educational Seminar The WU Employer Assisted Housing Program
2 Agenda WU Employer Assisted Housing Program Program highlights Neighborhoods Home Financing Benefits of homeownership Preparation Loan programs Credit Home Buying Process Inspections Closing
3 WU Employer Assisted Housing Program Highlights Forgivable loans for qualified WU employees and graduate students Up to $5,000 at closing or 5% if under $100,000 home sale price May be used for either down payment or closing costs Can only be used once, limited to a first-come, first-serve basis Home must be located in one of the redevelopment neighborhoods
4 OTHERS Skinker-Debaliviere West End
5 Home Financing
6 Benefits of Homeownership Tax breaks Property Appreciation/Gains Equity Savings Predictability Freedom Stability
7 Qualifying 4 C s of Lending Capital (savings) Do you have enough cash for the down payment? Do you have enough cash for emergencies? Capacity (income) Can you repay the debt? Character (credit history) Will you repay the debt? Collateral (house) Will the lender be fully protected if you fail to repay the loan?
8 Glossary of Terms What Lenders Look For Debt to Income Ratios Relationship between current consumer debts and current income Determines percentage of income available for mortgage payment Determines program qualification Down payment The higher the down payment, the lower the loan amount Reserves How much money do you have saved? How much will be left after closing?
9 Glossary of Terms What is MI and LTV? MI Mortgage Insurance protects the lender against borrower default PMI is mandatory on any conventional loan that exceeds 80% Loan to Value (LTV) The borrower may request the cancellation of PMI when the loan reaches 80% LTV (either through appreciation of the property or reduction of principal) LTV is a ratio calculated in the following way: Loan Amount Sale Price
10 How Much Can You Afford? Debt-to-Income Ratios 28/36 qualifying ratio for conventional loans 28% equals the maximum percentage of your monthly gross income for housing expenses (PITI) 36% equals the maximum percentage of your monthly gross income for housing expenses + recurring debt FHA loan ratios are 29/41
11 Principal & Interest Payments 1,681 1,611 1,538 1,466 1,399 1,332 1,267 1,199 1, ,000 1,597 1,530 1,461 1,393 1,329 1,265 1,203 1,139 1, ,000 1,513 1,449 1,384 1,320 1,259 1,198 1,139 1,079 1, ,000 1,429 1,368 1,307 1,247 1,189 1,131 1,075 1, ,000 1,345 1,287 1,230 1,174 1,119 1,064 1, ,000 1,261 1,207 1,153 1,101 1, ,000 1,177 1,126 1,076 1, ,000 1,093 1,046 1, ,000 1, , , , , , , , , % 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% Amount Interest Rates Loan
12 How Much Can You Afford? Calculate Other Components Mortgage Insurance (if applicable) 1% of the loan amount Property Taxes Between.75% - 1.5% of the value of the property Homeowner s Insurance (if house) $500 - $1000 annually Condo Fee (if condo) $75-$170
13 How Much Can You Afford? Add All The Payments Together Purchase $150,000 condo with 100% financing. Current Market Interest Rate for the loan is Principal and Interest Payment from the chart Condo Fee Property Taxes $75.00 per month ($ annual) Hazard Insurance $90.00 Total the payments $75.00 $ % $948
14 Monthly Homeownership Cost $150,000 loan amount at 6%, 30-year loan Mortgage Payment (PITI) OTHERS 75% Single-Family Home Condo Principal & Interest $900 $900 Real Estate Taxes (1-1.5%) $150 $150 Hazard Insurance $100 $0-50 Utilities Gas $45 $40 Electric $45 $40 Water $20 $0 Sewer $20 $0 Trash $0 $0 Maintenance Fund (1% per year) $150 $75 Condo Fees $150 Totals: $1430 $1405
15 Estimated Costs Down Payment OTHERS Pre-Closing -Earnest Money -Appraisal -Inspection -Loan Application -Hazard Insurance Closing Costs -Title Insurance -Loan Fees (1 ¼%) -Escrows -Survey 0 20% $ %
16 Types of Mortgage Products 30 Year Fixed Mortgages the rate is fixed for 30 years. Benefits include guaranteed protection from loan payment increase for the life of the loan Disadvantage is a higher interest rate This loan is perfect for somebody looking to stay in their home for more then seven years A.R.M. Adjustable Rate Mortgage The rate stays constant for a period of typically 3, 5 or 7 years and then adjusts according to an index Benefits include a lower monthly payment for the initial fixed period Disadvantage is that the interest rate will start fluctuating after the initial period
17 Loan Programs Credit Impaired (Fannie Mae s Expanded Approval Program) Offers competitive interest rate Expanded credit and financial qualifications Fixed or ARM 100% financing available Requires $500 3% of purchase price for closing costs Down-Payment Assistance Examples include Fannie Mae s Flex 97, Flex 100, and Community Solutions for Healthcare Professionals $500 funds Up to 40 year terms Disadvantage is that Mortgage Insurance (MI) will be added to your monthly payment and is expensive.
18 Loan Programs Pledges Securities (Merrill Lynch s Pledges Assets Mortgage) Pledge securities only from immediate family in lieu of down payment Higher LTV requirements, 39% Pledged assets still earn interest, dividends Fixed or ARM (max 30 year terms) 100% financing available Stocks, bonds, mutual funds, annuities, etc. Future Income Loans (Merrill Lynch s Emerging Professionals) Time in school considered for employment history 100% financing Up to 30 year terms, fixed rate or ARMs Disadvantage is that Mortgage Insurance (MI) is required Interest rate will be higher
19 Loan Programs Simultaneous Second Mortgages Objective is to avoid MI when you do not have 20% down payment First mortgage is for 80% of the sale price The second is amortized for 15 years
20 Credit Your Credit Score & How a Lender Uses It The credit bureau risk score is a summary of the information in your credit file Scores range from Score ranks consumers according to risk The higher the score, the lower the risk of default Scores assess past bill paying history to predict future behavior Scores are used to perform a risk analysis which helps predict the likelihood of loan repayment
21 Credit Common Credit Problems Multiple credit cards used to their limit Obtain new credit when existing debts remain unpaid Pattern of late payments on current debts Charge-offs Bankruptcies Judgments Foreclosures
22 Credit Solving Credit Problems Pay off or pay down debts Resolve unpaid debts Write letters to credit bureaus for corrections Settle with collection agencies Phone and utility companies make frequent mistakes and report them on your credit These mistakes cost borrowers a lot of money
23 Steps to Buy a Home Get Ready to Buy Get a REALTOR Find a Lender for Preapproval Search for a home Submit a contract to the Seller Prepare to Close Get a home inspection Meet Lender s conditions Close on the property
24 Buyer s Timeline Paperwork Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Preapproval (1-2 days) Home Shopping ( 2 4 months) Write contract ( 1 5 days) Inspection Period (10-20 days) Loan Processing (3 weeks) Closing!
25 Writing A Contract Consider what to include: Closing costs Refrigerator Home warranty Include earnest money: $500 minimum to 1% of asking price Shows earnest, commitment to close Goes towards Buyer s closing costs/down payment Determine closing date: Often a negotiable date
26 Home Inspection Overall home construction and condition, including major mechanical systems. Contract is contingent on satisfactory inspection. Inspection period lasts approximately 2 weeks after an accepted contract. Inspections cost approximately $300 - $400. Inspection Report Resolve inspection contingency Ask for repairs / compensation Terminate contract and get earnest money back
27 Contract to Close Process takes approximately 4 6 weeks REALTOR Order home inspection ($400) Notify title co & lender Buyer Satisfy lender conditions Order homeowner insurance Lender Order appraisal ($400) Meet loan commitment date Title Co. Closer Order title insurance Order survey Transfers deed
28 St. Louis Metro Area 33% increase over the next 10 years. Median Price of Existing Single-Family Home Source: Moody s Economy and Forbes
29 St. Louis City Neighborhoods OTHERS
30 St Louis County OTHERS
31 OTHERS Hwy 40 Construction
32 Needs Assessment What do you require in your next home? And what additional amenities would you like to have? Distinguishing between needs and wants will be important as we travel together toward your next home purchase. Let s be sure to OTHERS discuss the following items, and where you d rate their importance: Location Price range 75% Lifestyle Short term/long term goals Style/architecture Schools Neighborhoods Space and size
33 Free Pre-Approval / Credit Team of Lenders Mortgage Brokers Banks WU Employer Assistance Lenders Merrill Lynch